Hi folks. Have you ever worked with builders that offered to pay your commission, or a portion of it, at time of contract? I have. In fact quite a few builders were offering that during the boom and still are. My policy was always NOT to accept it until the deal closed.
My main reason for doing this was, that if I was working with the buyer, I didn't feel it was fair to get paid until I had completed my job, which was to get them to closing on their new home.
My second reason was because in the fine print, the commission agreement, most likely states that the commission is not due until closing and if the transaction didn't close you would actually have to give the commission back. Well I don't know about you but my commissions don't normally just sit around in my bank account. I spend those suckas!!!
If a deal didn't close I would have hated to have to cut the builder a check for money that I had already spent. As a Broker, I would also make it a policy, not to pay my agent even if the commission was paid in advance by the builder. Could you imagine how difficult it would be to take a commission back from one of your agents?
Well, I guess this is now happening in South Florida. According to this article Related Group sues realty firms, developers are suing Brokers to recoup commissions on deals where the Buyers didn't close. Can't say I blame them. Many Buyers in South Florida and other areas are walking away from deals.
According to the article the Brokers are fighting this on the grounds that the builder kept the deposits so they shouldn't have to return the commissions.
Now folks, I'm not an Attorney but I don't see how in the heck they think this argument will hold up in a court of law. The real estate commission has nothing to do with the deposit. The Builder may very well be entitled to the deposit if the Buyer decided not to close. But whether they are entitled or not it certainly doesn't change the fact that the commissions were paid, albeit in advance, based on the transaction closing.
Anyway, it should be interesting to see how this plays out. Think about this the next time a Builder offers to pay you in advance. It might make sense to make sure the commission does not have to be refunded. Make sure the builder agrees you are getting paid for providing a Buyer NOT for getting it closed. If they don't agree, well.......best wait to get that check after the deal closes. I know I will. Will you?
Copyright © 2008 Broker Bryant's Real Estate Ramblings | All Rights Reserved
By the way, click on that link up there and check out the new and improved format for www.brokerbryant.com. Let me know what you think.
 |
|
|
Give me a try for professional and attentive service. My 14 years experience and good "Old fashioned" hard work will fulfill your Real Estate needs. My wife is expensive and I can't afford to lose!:
Hey Mozilo....Your cash ain't nothin' but trash!!
"We don't have any money or credit. Can we steal your house?"
"Broker Bryant, how much is my home worth?"
Helpful listing tip from Broker Bryant. Mister Lister....can you spare a dime?
Pricing and negotiating "short sales" in Poinciana FL.
Fishing for foreclosures in Poinciana FL.
Buying foreclosures in Poinciana Fl.
Conflict of interest OR business as usual?
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2008 ActiveRain Corp. All Rights Reserved
Reserved Parking For "The Lovely Wife"...TLW...ROAR!
Blog Boy...
It really is a better idea to decline taking the commission before closing.
Can you see me trying to return all the "used" things I bought with that money? :)
Okay. You saw that one coming :)
TLW...ROAR!
Bryant- I like your buttons at the bottom of your post! I would never take advance commissions because you do have to pay it back. I have an agreement with our sellers that if a buyer defaults and the seller retains the earnest money deposit that we split that 50/50 with the seller. We do a lot of work and our work is not always predicated upon a successful closing. Now if the builder wants to put it in writing that the commission is given whether the closing takes place or not, then keep the money. But I learned the hard way years ago with those commission advance companies, that are like loan sharks to agents! I was in the middle of my divorce and needed the money badly for legal stuff, and then the deal did not close and I had to pay it back!WITH INTEREST! High loan shark style interest. Never again! Katerina
Closings never happen till they happen...nope, no advance commission here! I would not want to be in he position of refunding money.
BB,
one of my fellow loan officers was working with a listing agent. Twice she was put in an uncomfortable situation with the client when the agent had submitted a request with her broker to get her commisions prior to closing. The problem was that the client had never submitted a fully qualified purchase agreement nor submitted a mortgage application. The clients became involved too. Her response was to have the client call the broker and then never to do another txn with that realtor. I wonder if that realtor is still working as a realtor. I hope not. Anyway, it is a bad idea to count your chickens before they hatch. AJ
One of my mentors wisely told me not to calculate my commission until I saw the check at the settlement table. I've lived by that rule, well the meaning behind it anyways, I verify the numbers before hand.
BB - I clicked the link and the site looks great. I like it.
You made me think. I collect a pretty large commission check a couple of years ago and the developer did't finish the project on time. Most buyers backed out and wanted their deposits back. My buyer got half his deposit back. I'd hate to think the builder might ask for commission back. In this case, I think the builder is acutally in default.
Broker Bryant...tried to comment on your blog earlier, but there was something weird going on with the network connection. Wonder if its affecting anyone else. Anyway, I agree with your thoughts on this one...It's not the wisest to collect commission for a job that is not completed. It would be nice...but it's not wise. :)
BB,
We have never been offered advance commissions here. That sounds like it could turn into a LOT of trouble. We wouldn't accept the commission until closing, just to avoid the trouble. Keep us posted on how this plays out.
I've never heard of anyone offering a commission prior to closing!
The new site is FABULOUS and sooooooo good looking :)
BB - why in the world would someone expect to get paid a commission before the deal is done? If they worked in an office they wouldn't get paid before they did the work. Same holds true.
Besides - money burns a hole in my pocket. I'd be afraid that there wouldn't be anything left if I did have to write a check!
I'd take it, but put it somewhere collecting interest until the closing takes place. Don't give in to spending the money.
BB, we may disagree on a lot of things but we definitely agree on this one. I wouldn't want to pay them back either. Once they're gone they're gone. Better never to have seen it.
Bill Roberts
Mmmmm. I received a $5,000 advance payment on a new home a few months ago. I kept it because there was a complete release of any repayment if the buyer didn't close. The builder and buyer agreed that, even though the buyer didn't want to settle until end of summer 2008, neither the builder nor the buyer wanted to make me wait for my commission, about $33K for 13 months.
I ran it by my attorney and he said it was clearly not recoverable. I have another home under contract in that community too.
Since that time, we have renogotiated the price for that contract and the builder reduced the contract price by $50,000.
Everyone is happy.
I suppose under the right circumstances being paid pre-closing could work; Len seems to have traveled that road with no problems. I would think without the release agreement in place, those hard earned commissions would need to go back to the builder. Not sure the agents can win that one.
Bryant- I totally agree don't take it in advance. DON'T DO IT I wanted to add about the agents in south Florida. In some pre written agreements have language to suggest that the agent has earned some part of a deposit if it is retained. That's might be part of the reason the broker feels s/he should be able to keep the deposit. I'm not taking sides or making a claim just giving my opinion based on what I know.
BB, I'm actually astounded with this post. The builder with whom I worked in NY is based in Florida and they paid 1/2 up front to real estate agents here. I read the registration, with a huge contract on the back side, initials of participant required, and not once did I observe a real estate agent reading the contents. I always wondered, "why would you want a potential payback- better to let it close". I can imagine the brouhaha in Florida- but the builder will demonstrate a loss of the deposit by showing the reduced price, negating a "profit" shown. Think about it: 10% in NY was 50k. People canceled; the builder then offered a 60k incentive, losing a mere 10k. It is a deal for buyers- and for builders. Nah. I don't think that the real estate agents will win, but they should have read the registration. They agreed to pay it back.
**Can you imagine, this builder paid 6% at one point; owing (500k average) fifteen thousand dollars, just like that, if someone canceled? Yikes.
Not working with builders yet, but I have to say with my conservative nature (at least when it comes to getting money I may not be entitled to), I'm scared. My Prudential office used to allow us to get up to 2% of our commish on U/C properties, with a very nominal fee. I did that once back in August. Was kinda sweet. Got a nice paycheck; two weeks later another one. Then seemed to hit a roll with a closing every 3 weeks. Da*N, that would be a beautiful timetable. Anyway, now PNJP has switched to another payout co....$375 fee for advance commish. I'm too cheap to pay that much....rather just wait.
Great points, Broker Bryant. I'd never want to get myself (and my family) in an ugly position to owe money I've already spent and haven't earned!
There are a few builders here that offer it,but I have never taken it. I would want a clause in it like Lenn has. No way would have that money it would be gone. And if I held onto it in my savings, what good is that?
I like your new site. I thought you had a rss pieces site. Looks good, new and improved. Thanks for talking to Christa today. Opps is that a hijack comment?
Poor business sense in my mind, BB. None of that going on around here as far as I know. There are too many new home deals falling out during the escrow period, so I can't imagine anyone in their right mind agreeing to this if it were even offered.
Jeff
And THIS is why I never accept an advance commission!
We just had one of those where an agent received 25% up front. Trying not to give it is worse than trying to get it back. What rationale would you have to not give it to the agent? "We have it buy you can't have it" would clearly not have worked. We might have lost the agent if we tried that. I see no logical reason not to give the agent their share. What if the agent is on 100% commission? I pretty much assumed it was non-refundable though. I guess I better go back and check that. I'm sure the Broker didn't sign anything agreeing to any refunds.
Sounds like the Payday Loan deal. In the old days you could get your knee caps broke for something like that and possibly a pair of cement galosh's.
I would think that the whole process and mentality of taking the money before the job is complete would be in violation with Oregon Law that tends to look at Agents fiduciary obligations. Specifically the part that states not putting your own financial gain in front of your clients needs.
Don't get me wrong, Money is important but I tend to follow the advice given to me by Mike Ferry years ago. Focus on the number of transactions and the Money will take care of itself. Not making enough? Do more transactions.
That way the money only becomes part of a mathematical equation rather that a significant part of the deal you are working on.
I might be getting a little off track here.
Oh my - that would be scary for me - especially if there was a shoe sale going on....
Bryant - I have only accepted an advance once - and that was with a letter saying that close or no close, I got to keep the money. All the rest of the times my polciy was the same as yours - thanks for the link - I might use that on the radio show this Sunday!
Broker Bryant- Remember Popeye's pal Wimpy? I willgladly pay you Tuesday for a Hamburger today? No thanks. We get paid at closing for a job well done. There are simply to many things that can go wrong to add worrying about having to pay back funds received in advance. Nothing is for sure until the ink is dry.
I was involved in a deal where the other agent took a commission advance for $15,000 and the deal did not close. I know she spent all the money paying back bills and was then really screwed. Bad, bad, bad.
Good morning everyone. Great comments as always. Lenn definitely has the right idea, make the builder sign off on it. That way you are covered and can spend away!!!
Ok I'll be back. I have an early appointment so gotta go get purdied up:)
Purdied up? Is Bertha going on the appointment or are you going, BB? LOL!
Bryant--I have never heard of such a thing...Sounds pretty risky way to do business. My old broker would allow agents to run a tab so to speak with their monthly expenses until closings. New agents would work hard and on payday get zero as the broker's tab was so large...Then whine about it. Pay as you go and don't spend money that doesn't belong to you yet!
You have to be very careful with these advanced commissions. I know a few people that have had to pay them back and that is very painful to the wallet. Some agents even go so far as to sell their commission to advance commission companies and then pay the company back a few weeks later when the deal closes. These advanced commissions are kind of like a payday advance loan. It can put you in a downward spiral financially.
I saw this after reading 2 other of your posts...the other one about Lance, who isn't in real estate at all. Anyway this is the one I want to comment on and you are so right. Some builders were trying to get agents to bring clients but I don't deal with new construction much so it hasn't come up. Thanks for your message, I agree the deposit has nothing to do with the commission check.
Bryant, I've never sold new construction where the builder offered an advance commission, but I do make sure that my client's earnest money check goes into my favorite title company's escrow account. In reading the comments, it must get dicey when the agent tries to keep the advance commission payment while the client is unable to get back all or part of the earnest money. Yikes!
Bryant, I've never sold new construction where the builder offered an advance commission, but I do make sure that my client's earnest money check goes into my favorite title company's escrow account. In reading the comments, it must get dicey when the agent tries to keep the advance commission payment while the client is unable to get back all or part of the earnest money. Yikes!
Hey BB I must say I was involved in a deal where I did bring the buyer who put down 20k....I got about 1200 for my share of the deposit..the buyer did not complete the deal....Just left the deposti..I was allowed to keep my up front commission....But there never was any thought of me bringing any money back..
I think the difference is in whether its a deposit, which the builder can use for costs immediately, including commissions, and escrow funds, which have to be held separately until closing...