Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Monday, March 27, 2006

Base the Commission on the Net, not the Agreed Price

I had a ridiculous argument with a buyer's agent today. The accepted offer on the home was over the asking price, but the buyer needs help with closing costs, and so he had partially stacked. The buyer's agent felt that she was entitled to a commission on the accepted amount even though the seller isn't going to get all of it. This was the first time that I had a buyer's agent tell me this, but then there's a first time for everything.

What this means is that while the list price is, let's say, $600,000, and the buyer offers $605,000, he needs $10,000 to help pay for the cost of the loan. So the seller is actually going to net $595,000. When I presented the offer to my seller, I pointed out where they asked for the help with closing costs halfway down p. 6 and so was able to explain that it was really an offer for 595k from the start even though it showed 605k on 2 lines on p. 1.

Now, if you ask me, 3% of 0 is ... 0. How can you give a percentage of something you don't even receive? At any rate, 3% of 605k is $18,150 while 3% of 595k is $17,850. That's a whopping $300, and depending on the agent's split with her company and particular office, she might get anywhere from $150 to $270. She told me that it was a lot of money to her and not very much to the seller, and I responded that there was a principle involved, and it wasn't worth it. After all, if your clients can't trust you over such a small amount, how can they trust you with their life savings? And it shouldn't be a question of deciding which clients need a little extra money and which ones don't. I can't be Robin Hood and keep my license.

Ultimately, the sellers sign the commission instructions during escrow and can quickly figure out if they're paying a percentage of what they're not getting. In that case, they should speak up. Best of all, they should ask ahead of time if the buyer needs any help and tell their agent that they won't pay more than commission on the net. Of course, if the sellers have tax issues and need higher broker fees for the write-off, they might choose to spend more, but they should be able to make that decision.

I finally told the agent that it wasn't worth arguing over because we saw things differently, and she could choose either to sign or not to sign the Cooperating Broker Compensation form showing that she agreed to take 3% of 595k. I had to go to a meeting and turned off my cell phone for the next hour, during which she left a series of phone calls ranging from threats to cancel escrow to urgent requests for me to call her back and not take offense. Finally, she left a message saying that she was signing the form. I think that this was a good idea because it would have been hard for her to explain to the buyer that he couldn't have the house because she wanted to get paid on the money that's going to his lender.

And yes, I learned a lesson, too. I'm going to send a fax to the buyer's agent when I first receive the offer and put in writing that if it's accepted, the commission will be based on the net. No more arguing math.

2 Comments:

  • At 3/29/2006 3:41 AM, Blogger Russell Smith said…

    There are always some issues whenever deal goona happen. The agents of opposite always create problems. I also had some bad experiences with the agents.


    Thanks,
    Rajinder Dogra
    rajinder.dogra@a1internetdesign.com
    http://www.indiarealestateblog.com

     
  • At 4/05/2006 10:18 AM, Anonymous Becky said…

    I have had this happen to me before. I have also had an agent insist of wanting to be paid a referral fee off of the listing price and not the sale price! Give me a break. Ok...so some insane sellers wants to list a $250,000 property for $300,000 and it sells for $225,000.....guess what amount you're getting a referral fee paid on? The sales amount....not the listing price! Sometimes I just shake my head at these agents!

     

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