Broker Liability and the Commission Advance Process

By
Services for Real Estate Pros with eCommission

Here’s a scenario: you are the broker of a local real estate office and one of your agents comes to you wanting to know about getting a commission advance. You have some options: either a) say no, but that could negatively effect your relationship with the agent, so you think b) offer the service yourself, but that would involve dipping into your own credit lines and in this market, money is tight so you decide to go with option c) refer your agent to one of the many commission advance companies out there…but which one? They are all the same, right? Wrong!

It appears the only similarity between commission advance companies in the United States is that we are all based on the practice of receivables factoring. Beyond that, no two advance companies are the same. As Broker, your biggest concerns over choosing the right company to work with are ones of liability and reputation. Generally speaking, you’re fine signing off on the advance, just as long as neither you nor your Company is ever held liable to repay it if the sale falls through. Secondly, you want to know the Company you’re working with sees you, the Broker, as the rightful owner of the commission and therefore requires your approval prior to funding. Right now in the marketplace, eCommission is the only commission advance company that works this way.

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Comments (6)

Ursula Lowther
Keller Williams Realty First Atlanta - Covington, GA
We have had a couple companies come into our office providing this service. I have never personally used it, but know of a couple agents that have. One swears by it and does it on every single closing. I have tried to tell her that she is paying a heavy fee for getting an advancement but she doesnt see it this way. Oh well..... to me it is something like counting on the chicken before the egg is hatched. To each his own.
Apr 15, 2008 05:33 AM
David Farrell
David V. Farrell Co. - Garden City, NY
Licensed NY State Real Estate Broker

Whoops, one thing I left out.  While I am not a fan of commission advances, at all, I have had agents in my office use e-commission.  I have had several dealings with Sean Whaling and found him to be honest and decent in every one of them.  I didn't realize that he was the Blogger in this case.  However, if you are going to allow your agents to do it, Sean's a fair guy with whom to deal.

 

Apr 15, 2008 05:53 AM
Sean Whaling
eCommission - Austin, TX
Founder, CEO

I appreciate and respect your comments, Ron. Thank you. The only part of your opinion I will agree with relates to the spiral effect if agents start advancing all their commissions. But as an advance company, we discourage this behavior by requiring every customer to have at least one other pending sale or other form of back up before approving an advance.

In the 15 years that I have been in this business, we have helped tens of thousands of agents get over short term gaps in their cash flow, and that is really the essence of how the service can be beneficial. A typical customer uses eCommission just 2 to 3 times per year, normally in those situations where they have multiple sales pending, but they are bunched together and typically 45 days into the future - and just like regular salaried people, agents have bills each month that have to be paid...so they advance their commission. I'm sure there are many agents out there who will agree that when taken responsibly, a commission advance is a very beneficial, short term financing solution.

One other comment, real estate commission advances have NOTHING to do in my opinion with payday loans. A payday loan is for somebody earning a regular paycheck who can't make it a few extra weeks until payday. Real estate agents (as you know) earn commissions and cash flow issues arise due to the timing of their closings. Like any business, agents need cash flow to keep their business productive.  I argue the same could not be said of those receiving payday loans. It's apples to oranges.

Thanks,
Sean

Apr 15, 2008 06:08 AM
Sean Whaling
eCommission - Austin, TX
Founder, CEO

David - thank you for your comments. I appreciate them very much. I recall the agent from your office we had the issue with. Fortunately for us he is (and remains) in the minority of clients we deal with on a regular basis. And this is my point...

The part that nobody sees but me are all the success stories. We advance thousands of commissions every year. Some agents do one deal and we never hear from them again. Other do two or three or more. But to suggest agents who advance commissions have either gambling or substance abuse problems is casting an unfair net over the thousands of honest, hard working ones out there who use us every day. I do not mean to discount your observations. There will always be folks who are intent on doing questionable things. But reality is over 90% of advances we provide repay as agreed and without issue. And for that, I'm thankful!

Sean

 

Apr 15, 2008 07:26 AM
Nick Lateur
Austin, TX

I remember an earlier conversation about this topic.  Here is a link to it

It seems like there is some trepidation toward agents getting an advance.  I personally know agents who have used eCommission and have had great experiences.

Apr 15, 2008 08:14 AM
Anonymous
egwb

Thank you for the above postings. I am currently looking in to a realtor that we would like to invest in - and the question of offering 'commission advances' is problematic for a potential investor, because of their liabilities.

Could you just answer for me: Which is more common: when an agent or independent contractor requests a an advance, then does the brokerage firm fund this advance request from its own cash, or use a separate commission advance firm?

Thank you for the clarification on this.

William

Apr 13, 2012 12:11 PM
#9