Commission Advance or Not?

I have always had problems with advanced commission.  Kinda like the old line:  don't count your chickens.  I have found that if I need the commission it will have problems and seem to never close. If the commission will just be money in the bank...it flows in.  Attitude is what I think it is, and I feel this is what happens with advanced commission, when you have the money the care factor is lost.

That sounds very dangerous to get commissions prior to closing.   Then you spend it, and cannot pay it back???

I always thought of it as smoke and mirrors, but if it's available and you are in a bind then I would say it's great.  Here at Centerline homes we offer upfront commission at loan approval -$1000 which is paid at closing.  Our sales associates as well as myself are involved 100% of the way from purchase to close so it reduces the work load for Realtors.  What you waiting for? Sell a Centerline Home Today!

Permit me to offer some information from a different perspective.  I am an owner of a commission advance company, Commission Express of Western Washington.  The type of client who can successfully use our service is somebody who is a full-time agent, doing more than the occasional transaction.  They are pursuing the commission advance for one of three reasons:

1)  as a bridge in their cash flow to even out their peaks and valleys in their business cycle

2)  to provide greater capital to finance growth in their business (for marketing, or a surge in listings, etc)

3)  to pay for a time sensitive large expense they might have

They often have more than one deal in escrow and choose the deal with the most solid circumstances (committed buyer with great credit/substantial down payment, short sales with all liens approving the transaction, etc).  They are responsible agents who follow-through on their transactions and are just as committed to follow-up on the advanced transaction as any other.  They have been in the business for 5+ years (typically) or they are newer to the business but have a track record.

Speaking to my business, we won't purchase the receivable (that's how our business works - we purchase commission receivables, it is not a loan) unless the transaction has cleared its contingencies (inspection principally, but also cannot be contingent on the sale of another property) with the exception of the financing contingency (which almost always clears at the last minute).  We  advance up to 82% of the commission - and pay the client a "second installment" on the purchase of the receivable after we are paid at settlement.  This keeps the agent engaged.  And if the deal falls through, which I'd say has happened less than 5% of the time on our deals, the agent commits their future commissions to pay for the deal that failed.  

Like any small business person, you need to have access to capital to make the business viable - either through a line of credit or savings.  Unfortunately, commission salespeople don't have that line of credit access.  What our industry calls commission advances is the same thing as factoring a receivable in the manufacturing business - and while more costly than a credit card, it is a reliable and often used source of small business financing.  Broker Bryant said it best in his blog on the subject in 2006 - commission advances are a "viable short term solution to cash flow management".  As a broker you certainly should advise your agents on how to effectively manage their cash flow and transactions to maximize their revenue - for some of these agents, commission advances may be a suitable credit source from time to time.