“Madder than a wet hen”

Reader Question: A husband came into my Realtor’s office and asked to see my condo. He signed a contract for my condo in Florida, without his wife seeing the property. Although the wife had nothing to do with finding the listing or seeing the property, on the contract, he added that he wants his wife to receive 2% of the commission because she is a licensed real estate agent in Florida. My broker is willing to go along with the arrangement in order to close the sale. My original commission agreement was 5% if they sell the property directly. Now, they will charge me 6% because of the involvement of this other broker. I am mad about it. Is this legal? Martha D.

Monty’s Answer: Hello Martha, and thanks for your question. It is legal for your broker to share commissions with any Florida real estate licensee, or for that matter, licensees from other states.

The co-brokerage real estate transaction

There are two types of fee sharing arrangements in most brokerage practices. The most common practice is “co-brokerage”. This arrangement is one where the listing company offers a portion of their commission to a cooperating company and their agent. The co-broke agent introduces the buyer to the property of the listing broker’s clients. Most consumers are not aware of real estate’s day-to-day functions and that co-broke transactions make up a significant percentage of the sales in the MLS.

When the husband walked into your broker’s office and asked specifically to see your condo, it is likely he found your property through his agent wife trolling the MLS listings, not through any effort of the listing agent. The listing agent has considerable effort invested already; the needs analysis, the market analysis, measuring, photographs, writing ads, installing signs, talking it up with other agents and placing the listing in the MLS.

While there was initial agreement to the additional fee on a co-broke, it is hard to imagine you would know the chances a co-broke could occur or how real estate companies work with other licensees. Many home sellers assume the listing agent will be the one to find the buyer, but with the MLS’s speed and reach, a high percentage of sales are co-broke transactions in most markets.

The MLS is the main driver generating sales today. The national aggregators “scrape” the MLS data onto their own websites, which creates even more potential for exposure. A home seller has the entire real estate community with connections to hundreds of home buying prospects, which in theory will produce a faster sale and a higher price than just the buyers of the listing broker. Is it possible this was the best offer to be received in the market?

The referral fee transaction

The second fee-splitting arrangement is a “referral fee”. Like co-brokerage, this arrangement is very common throughout the industry. In this transaction, the listing brokerage pays a fee to a referring licensee that is typically lower than the co-brokerage fee described above because the listing company does the work a co-broke agent normally would do, in exchange for the introduction to the customer.

Real estate companies and agents invest heavily in a variety of costly promotional activities to identify new customers, but few are as efficient and cost effective as a referral from another licensee. I am aware of no state that allows real estate brokers to pay a part of the brokerage fee to unlicensed individuals.

The internal competition

A potential solution to bargain for more money is to reject the offer. The state of the real estate market and other sales driven statistics should be considered along with your agent’s advice before acting on this suggestion. It may be a good move, but it may be a bad move.

Finally, real estate brokerage is an extremely competitive business. A tactic some companies and agents will offer is for a reduced commission such as the one described in your question to the home seller. Not all real estate companies allow this practice among their agents. While the agent understands the chances of a co-broke are high, it can make a difference in gaining a listing if competing agents cannot or do not offer the same “incentive”. Because many home sellers assume that the listing agent will be the agent to find the buyer, they see the perceived value in this “offer” appealing.

I hope this information is helpful, Martha. Ask me if there are other questions.

Respectfully,

Richard Montgomery