I have a funny feeling this is going to be a BIG problem over the next year or so. I had a broker friend of mine tell me about how she was recently approached by a local area developer. The developer wanted to know how he could get her to pay her associates pre-construction commissions at the time she’s paid from the developer. He was concerned that her associates were reluctant to sell pre-construction because they have to wait so long for the property to close – in many cases 2-3 years. Her reply was simple, make your commission payments to me as the broker non-returnable in the event the buyer doesn’t close. Of course that went over like a lead balloon. No chance. Well, then no chance for advance disbursement to the associates.
Upon further discussion we’re now discovering that several offices that did advance these commissions to their associates are now experiencing major financial issues. These commissions were paid sometimes as far back as 3 years ago. These associates have left the broker, left the business or plain and simple spent the money. The buyer doesn’t close now the developer wants their commission back. Ouch, those brokers that had a policy to distribute in advance to their associates must be feeling it seriously in the wallet now whereas so many properties are starting to fail to close. Many of the commissions are in the ten’s of thousands of dollars per transaction. I cannot imagine what the fallout maybe.
The developers want to incentives the sales associate on the broker’s dime. Not here……
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