real estate commission

So you want to buy a house in Minnesota? You don’t want to do a rent to own deal or use some method of
“non-traditional financing.” In that case, it should be as easy as the steps below, right?

1. Go to the bank
2. Talk to a respectful and trusting loan officer
3. Fill out some documents
4. Prove income
5. Walk out with an approval for a $500,000 mortgage with low rates like the ones shown in this chart:

Unfortunately, however, that privilege is many times reserved for those with stellar credit, while others with the following issues may have to look elsewhere:

• Low credit score
• Judgments
• Garnishments
• Divorce
• Self-employment
• Tax liens
• Low debt/income ratio
• Job loss
• Unverified income
• High student loan balances
• Delinquent credit cards

Luckily, there are alternative financing methods (since renting might not be your best option as Minneapolis rent prices are skyrocketing) like rent to own and contract for deed. With new residential sales still on the upswing as shown in the chart below, non-traditional mortgage products are very popular.

How Rent to Own Works

In a rent to own scenario, you first find your house, and if the owner agrees to enter into this type of non-traditional financing, you agree to a monthly rental amount, and pay a small up-front option fee that gives you the right to buy the home within a certain time period—usually no longer than three years. It is important to have a least a portion of your rent credited to the purchase price. So, if your rent is $1000 per month, for example, try to have at least $800 of your monthly payment applied to the purchase price of the house. Of course, the purchase price should be agreed upon ahead of time, and all of these components should be outlined in your Minnesota rent to own agreement.

The Advantages

• Your rent money is going toward equity.
• You have a fixed price for the eventual purchase.
• You aren’t responsible for property taxes, and possibly not for maintenance.
• You are locked in to more than a one-year lease.
• You don’t need to learn the items on a mortgage loan estimate (LE)

The Disadvantages

• You will have to find financing at the end of the lease term.
• You could lose your option money if you can’t obtain a loan.
• If you and the seller have over-estimated the home’s value, you could be underwater at the end of the rental term.
• The property could be encumbered by liens you aren’t aware of.
• If you don’t finish the deal your option money will be lost.
• If you miss a payment, the entire deal can be voided.

Contract for Deed

Many who seek alternative financing turn to MN contract for deed instead. With this process, you have an actual contract to purchase the property at a fixed price. As the Minnesota Federal Reserve has said,

“In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled.”

Minnesota is and has been a leader in the utilization of contract for deed instruments for those that need bad credit financing. The process is well-regulated and recognized by many as an efficient and reasonable home financing method for those with special credit situations. In contract for deed:

• Your payment is not rent–it goes toward the home purchase.
• You have no option money on the table to lose.
• Your contract term can be longer than a rent to own agreement.
• You have home financing at a fixed interest rate.

But Wait — Minnesota Is The Leader

If an unscrupulous owner sells a property that is already encumbered with liens, that can be a problem. In addition, if an owner files for bankruptcy during the contract for deed term, this can cause serious difficulties.

The Solution

A great way to avoid the pitfalls of both rent to own and Minnesota contract for deed is to deal with a reputable seller. While there are well-intentioned sellers in the contract for deed arena, companies like C4D take the process a step further as they are in the business of ensuring that the financing process is equitable, legal and fair. And, of course, never enter into any financing transaction without consulting with your attorney.

You have a quality lead on a new listing, but you get some news  — it’s going to be seller-financed. Now what? Can you still get real estate commission? Is it going to be 6 percent? Should you even bother with clients like this?

Well, if you’re a Minnesota Realtor then you know all there is to possibly know about Minnesota real estate commission, right? And you know all there is to know about seller-financed commission, right? Well, if not, here’s what you absolutely need to know.

First off, let’s face it, good Minnesota real estate professionals just do not give up on deals because of bank denials. Rejections occur for many reasons (just take a peek at the chart below):

• High student loan balances.
• Low credit score.
• Divorce
• Job change.
• MN bad credit.
• Recent foreclosure.
• Bad debt/income ratio.
• Tax liens and judgments.
• Arbitrary loan officers.
• Inability to prove income.
• Small business ownership.

If your client was denied by Bank of America, for example, hopefully you keep working the deal even though a credit union or a community bank also gives the thumbs down. In situations like these, trying to find homes for sale by owner and working a MN contract for deed sale might be the answer. While you may be hesitant to enter the subprime financing arena, there are many well-intentioned potential homeowners with bad credit that just need a way to buy a home.

Homegates states that a contract for deed lets buyers purchase a home without a mortgage. When a buyer and seller sign a contract for deed or contract for sale, the buyer agrees to pay for the property in installments. The seller retains the deed–the document that transfers title–until the buyer has fulfilled the contract by making the final payment.

Serious Commission Issues

OK, you found a seller that will agree to a contract for deed transaction. Of course, you now need to make sure that the property is not encumbered by liens or other mortgages, and a title search will accomplish this. After all due diligence has been completed, an attorney should draft the Minnesota contract for deed documents.

You’re Not Done Yet

In a traditionally financed real estate transaction, the Realtor’s commission is protected, and will be paid from the sale proceeds. In a contract for deed transaction, however, disputes can arise as to who is responsible for paying broker commissions. The seller may say, “I’m not paying real estate commissions to anyone. I never signed any agreements that obligated me to do so.” The buyer may state, “Commissions have to come from the seller. I have enough problems already; I’m probably paying a subprime interest rate to get this deal done, and I can’t afford any more expenses.”

What Is The Buzz?

A recent Trulia FAQ page offered this advice:

“Here’s a solution: Don’t act in the capacity of an agent (meaning you are not representing buyer or seller… just yourself). Calculate the equity in the home. Negotiate a price that leaves you (buyer #1) some equity. Draft up an assignable purchase agreement for the negotiated price. Assign the agreement to buyer #2 for a certain percentage of the purchase price. There’s your payment… now walk away.”

If that seems complicated, you’re right. A better way to protect your real estate commission is to be transparent when submitting a contract for deed transaction to the seller. Let the seller know that the deal should work like any traditional financing scenario where broker commissions are protected. Reasonable sellers should realize that real estate commissions are paid in most transactions.

Ensure That You Receive Your Commission

In some cases, reasonableness just does not apply, but luckily there are some reputable Minnesota contract for deed companies that will engineer these transactions. Our company, The C4D Crew, makes the point that they always protect broker commissions.

These intermediary financing specialists are a great place to turn if you need to do a seller financed deal because they will actually purchase the property from the buyer and then sell it to your client with a MN contract for deed. Using an experienced and respected company will greatly increase chances that your deal will close while, at the same time, ensuring that you do receive your commission.

The Real Estate Commission Basics 

For more information on the basics of real estate commission, check out this video from Redfin.