How Can Brokers Resolve Frustrations Over Uneven Commission Splits?
In this monthly column, Anthony Askowitz explores a hypothetical real estate situation from both sides of the broker/agent dynamic.
A buyer’s agent is fuming about the new practice of some listing agents demanding a larger piece of the sales commission, which is more typically split 50-50 between the listing and selling sides. Should her broker go to war with her or help her accept some real estate reality?
I’m trying to keep my cool about this issue, but it’s pretty outrageous. As a buyer’s agent, the vast majority of the responsibility for getting a deal done falls on me — and even more so in a seller’s market.
I have to vet and bring in the qualified buyer, drive them to multiple listings, convince them to pay more money than they planned, and then to come up with additional cash to make up for the deficiency when the house doesn’t appraise. What does the listing agent have to do besides get the listing, pretty it up a little, put it on the MLS, and then sit back and watch the offers roll in?
In today’s market, where listings are scarce, I can make offers on 10 properties over the course of six months before we can go to contract. The listing agents are putting properties on the market with instructions that the property will not even be shown without a fully executed contract.
They hold one open house and are under contract with little to no marketing expense! Nevertheless, I happily accept the standard industry practice that calls for the equal split of the commission between me and my counterpart on the listing side.
But in this crazy seller’s market, listing agents are pushing the envelope on greed. Not only do they want us to do the work, many of them are now insisting on a 58 percent-42 percent (or even as much as 67 percent-33 percent) split of the total commission, with them getting significantly more than the selling agent. Insane!
And all the more frustrating because our code of ethics states that we must put the best interests of the customers before our own financial interests. The MLS rules state it is the listing broker’s right to determine how much compensation it offers. Then the contract itself says we cannot negotiate our commission as part of the contract.
Buyer’s agents like me are forced to accede to these terms just to make the sale. How is this acceptable to the National Association of Realtors (NAR)? It seems like we are headed back to the days when agents only showed their own listings, and buyers had no access to representation.
It is what it is. Working in a free market means accepting the variances that come with supply and demand cycles, and the reality is that we are in a historically hot seller’s market at the moment.
As a result, listing agents are in a huge position of strength and able to dictate terms accordingly. Buyer’s agents may not like it, but as long as the listing agent is transparent and consistent throughout the process, they are well within their rights to determine the commission split.
Brokers like me must consider their agents on both sides of a deal and consider how this trend may be legal, but might not be effective in the long run.
Depending on which side they most frequently represent, agents either adamantly support the trend or just as adamantly oppose it. How can a broker make a policy that pits one half of the office against the other?
By the way — listing agents are not the only ones taking advantage of this market. Builders and developers of new homes, communities and condominiums are finding it easy to draw buyers and investors on their own, and they’re also pulling way back on their broker commission rates, which are customarily much more generous. Again, this practice is perfectly legal according to every real estate standard and governing body.
How to resolve
Time is a great equalizer. History repeats itself. What goes around comes around. Choose whatever cliche makes sense in this case. Listing agents who are taking advantage of the low inventory to keep more of the commission for themselves should take a long view here, and understand that every seller’s market eventually becomes a buyer’s market — and they will need to attract those very same buyer’s agents they are stiffing now.
This current market will eventually correct itself, free market forces will work their magic, and soon enough, buyer’s agents will find themselves in the power position and able to dictate terms.
In fact, they won’t even need to do much — when the correction comes, listing agents, builders and developers will fall over themselves to negotiate commission splits and offer value-added incentives such as bonuses, gift cards, sporting event tickets and fancy vacations just to get buyers in the door.
It would behoove them now to consider the relationships they will have in the future. In the short term, the buyer’s agent should know she is free to try negotiating the commission split with her counterpart on any sale, as long as the agreement is made in writing prior to showing the property and presenting an offer.
There are two other options available to the buyer’s agent. First, have all buyers sign a buyer-brokerage agreement, as recommended by NAR. This contract with the buyer ensures that the selling agent will be compensated a preset percentage if the buyer closes on a purchase during the specified time of the contract.
If the seller does not pay the full amount, the buyer agrees to make up the difference. (One note here: This could cut into the buyer’s negotiating funds, so this option may not work in every case.)
The other option is to tell the listing agent they are referring the buyer for this one transaction and to ask for a referral fee equal to the amount the listing agent is offering. This ensures that the buying agent will be paid the same amount and lays the burden of getting the deal closed at the feet of the listing agent.
Beyond these measures, the buyer’s agent may also consider becoming a full-service agent by expanding her skills and knowledge to take on the task of listing homes, which will develop balance and comfort in any kind of market.
Anthony is the broker-owner of RE/MAX Advance Realty, with offices in Hollywood Beach, North Miami, South Miami, Kendall, and the Florida Keys, and where he leads the activities of more than 170 agents.
Writer’s note: Anthony is not an attorney and does not give legal advice. Please consult a licensed attorney regarding matters discussed in this column.