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If I had a million dollars......

Why can't I re-negotiate my commission in the offer??

I have to put this down as one of my BIGGEST pet peeves as a listing agent, and also one of the most frequently committed Code of Ethics Violation.

"Hi, my name is Mary and I have an offer for your listing and I don't like what the seller and/or you are paying me so I put into the offer that it is subject to me getting $1,000,000.00 or this is not a deal!"

Okay, now that may be just a wee-bit more drastic than I ever see it but nevertheless it means the same thing.

I am offering 2.5%, or whatever it is that I negotiated with my seller at the signing of the contract to sell, to pay you for bringing a ready, willing and able buyer. You know that due to the statement in MLS and still you show the home, my assumption would be that you are carrying out your professional and ethical obligation to service your buyer to the best of your ability and that included showing this home which either you or your buyer feel may be a good fit.

Than you and your buyer write up an Offer to Purchase and under Additional Provisions you add a statement indicating that the offer is - Subject to: the seller paying you $1,000,000.00 for your fee as a Buyer's Agent.

WHAT?!?!?!!?

Let me give you a portion of the Code of Ethics

Standard of Practice 16-16

REALTORS®, acting as subagents or buyer/tenant representatives or

brokers, shall not use the terms of an offer to purchase/lease to

attempt to modify the listing broker’s offer of compensation to

subagents or buyer/tenant representatives or brokers nor make the

submission of an executed offer to purchase/lease contingent on the

listing broker’s agreement to modify the offer of compensation.

Now I could give it to you it a more layman's terminology:

Extortion: Prounced: \ik-ˈstȯr-shən\ -
the act or practice of extorting especially money or other property

If you are working with a Buyer as a Buyer's Agent and you have a C-O-N-T-R-A-C-T that the Buyer's have agreed to that says they will pay you a fee of $1,000,000.00 for assisting them in the finding and negotiating the purchase of a home that is YOUR contract with YOUR Buyer.

That is now not all of a sudden POOF the contract between the Seller and/or the Seller's Agent. This is still YOUR Agreement and it is your duty and burden to find means to collect.

Now I understand the typical justification for this "Well, the buyer is paying for the home so therefore they are paying for the commission"

Well my rebuttal is "The seller is receiving money for the purchase of the home but is not receiveing that money so therefore they are paying".

We can go round and round on that, and both sides are correct. But that is not the argument. The Code of Ethics is quite clear on this. Don't place your compensation request, agreement or demand on the Offer to Purchase. Or even better yet don't add an additional agreement rejecting the commission being offered and substituting it for what you want.

If the buyer did agree to pay you $1,000,000.00 to assist them, than it needs to appear as a closing cost on the buyer side. YES, dear agents, there is a buyer's side on the HUD-1 and it has a space on the commission line as well.

The same way as commission is a closing cost for the seller as with any other fee they need to pay, a Brokerage Fee can appear on the Buyer side as a fee they need to pay - like Attorney's Fees. Or you can have a contract that they pay you a deposit to secure your services with the balance to be paid from cooperating compensation and a closing cost for the Buyer.

But for heaven's sake STOP placing it on the Offer to Purchase!

Bobbie Files
Your Bristol and Plymouth County Realtor

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Posted by Bobbie Files Realtor® Berkley, Greater Taunton Homes for Sale on 12/08/2008 02:56 PM

Comments (14)

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14 Comments on If I had a million dollars......

DEC

2008

Good information, thank you. I am in financing but I will be looking at the purchase contracts more closely.

One of the first things my broker said to me was, "a sales contract is between a buyer and a seller, other than writing it you have no place in it."

And therein lies the problem with clients and/or customers. They have been serviced by agents like the one you are blogging about. A year or so later, then the we get these customers who then expect this to happen, because it was done once before. And you wonder why the consumer wants to cut our commissions? If our own profession is trying to cut our wrists, what kind of message do you think they are sending to customers? Thank you for a great article.

I have never written a contract asking that the buyer's side commission be increased and never will. I have also never denied a client the opportunity to view a property that I know to be superior because of a lower commission and never will. But, in a buyers market with inventory running out our ears, I find that after applying all of the buyer's requested criteria and eliminating the obviously inferior properties, I normally come up with three time the number of properties I can reasonably show. I hope that you will forgive me if your 2 1/2% listing ends up in the trash can when there are 20 others at 3% and a few at 4%. I don't know you. I don't know your market. I have had sellers that absolutely insisted that they will not pay more than a certain amount. I have also walked away from listings because the seller was not willing to pay an amount that would make the property marketable and the transaction profitable. I have also cut my sellers side commission to the bare bones to insure that the property will sell and the buyer's agent can make a living. If an agent uses a cut rate commission to pick up listings rather than selling their service, they are doing a disservice to both the seller and the real estate industry.

Hi Bobbie

You have it right, the listing agreement is a contract between the seller and the listing broker, and set a subagents agreement for compensation.

Good luck and success

Lou Ludwig

Stephen - In my area 5% is still a very common commission amount with 6-7% being certainly more desirable but not the most common. With the market taking most seller's equity 5% may be all that is available. Unfortunately with the glut of shorsales and even foreclosures only paying 4% it makes a buyer's agent doing commission protection in the form of a contract more necessary.

That is a very interesting post, Bobbie. I have not run into this situation yet, and thanks to your post will not be shocked when it happens, as I'm sure it will. I have had the situation where agents ask if we can reduce our commissions in order to facilitate a meeting of the minds on price for a home sale.

Bobbie, Great post! I haven't had this happen to me, but I have heard of it. Thank you for pointing out the Code of Ethics violations involved.

I haven't had an agent ask that yet. I just wrote a contract were the commission was a flat $500, but I knew that when we looked at the property.

Kathy

WAY TOO MUCH TALK ABOUT SPECIFIC COMMISSIONS IN THE COMMENTS TO THIS POST.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

There is nothing in the COE or license law about a buyer requesting that the seller pay $XXX to the buyer's agent at closing.

There is nothing in the code to prevent a buyer's broker from contacting a listing broker and requesting a selling commission of $XXX at closing. Then show the house.

There is nothing in the code preventing a buyers broker/agent from an agreement with their buyer/client for XXX% and the BUYER requesting that the seller compensate the buyers agent XX% at closing.

There are ways. All within the code. If they are countered or rejected, the next move is up to the buyer.

Buyer's agents do not have to work for hand-outs.

If you want to ask for a change in the commission, that must be done prior to the contract and signed by the Seller and agent. I don't really do this but I know other agents who try it. I show Buyers the property that is best for them and silently grimace if the commission is low. 99% of the time they don't like the property anyway.

Now that is new. All my time and I have never had anyone get that cocky with me. You never know though.

Lenn - with all do respect you are wrong. I kow that you are an experienced agent that I typically bow to for advise (and I actually mean that) but on this call you are wrong. If all conversations that you are talking about are verbal than you are correct. But put them on the offer and you are going against the Code of Ethics. The only Code of Ethics correct way of covering your compensation is adding it as closing costs of you expect it to be seller funded. Noone expects any Buyer's Agent to work for free, but you are working for the Buyer and should be paid for by the buyer.

Lenn - I am also ammeding my prior comment to also say, that I notice and acknowledge that you specifically capitalized and said BUYER;S and not Buyer's Agent. If you look at the bulk majority of the addendums it is from the Buyer's Agent not the Buyer.

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