"Excerpt from the Akron Beacon Journal"


Commission split on home sale can expand buyer pool, 
but rules seem to be changing

Beacon Journal business writer

You need to sell your house.

So far, you've interviewed three real estate agents, grilling them on their sales record, their advertising plan and whether you should repaint the orange walls in your kitchen.

But, wait. Did you remember to ask them about commission splits?

That's right. Commission splits -- the way two real estate companies split the commission from a single transaction -- are a factor to consider.

It could affect how many people see your house, and thus how many offers you receive, many agents say.

The industry is famous for tough competition, but for years played by certain rules. However, in recent years, some of those rules have shifted, including how some real estate companies split commissions with competitors. That has created bad blood among certain companies and led to huge, expensive lawsuits.

Some consumer advocates say it has the effect of causing some agents to drive a mile out of their way rather than show their client a house listed by certain competitors.

All for something that buyers and sellers hardly even think about.

``I rarely get asked about it,'' said Helen McDevitt, an agent with Cutler/Marting REALTORS® in Fairlawn. ``Most people just want to know how you're going to advertise their house and how long it will take to sell.''

But it makes a lot of difference to agents -- and might influence how fast you sell your house, or which properties you get to see if you're buying a house. So here are a few things to remember.

When two different real estate companies are involved in a transaction, most will agree to split the commission 50-50.

In concrete terms, that works like this. In this area, many brokers charge a commission of 7 percent of the first $100,000 of the sale price, and 4 percent for anything above that. So if your house sells for $120,000, you would pay a commission of $7,800.

What happens to that money? In most cases, the two sides split the commission evenly, meaning each real estate company would get $3,900. Part of that would go to pay the agents -- usually half, or $1,950 to each agent. The rest goes to the company, to pay for training, office expenses and advertising.

So far, so good -- and no one is complaining.

However, some companies have a practice of splitting commissions unevenly with certain competitors, a practice known as ``adverse splits.''

That means if they are listing the property, they will split the commission unevenly -- often 75-25 -- with certain competitors who are acting as buyers' brokers.

They do it for a variety of reasons: sometimes to protect market share, other times to single out a competitor who they see as a particular threat to their business.

But whatever the reason, it means that agents on the short end of the adverse split will get a smaller share of the commission. And all other things being equal, they will wind up with less in their pocket for helping their customer buy a house listed by Company A, which splits unevenly, than they would have if it were listed by Company B, which splits evenly.

And if you, the home seller, have your house listed by Company A, you might wonder why some agents, with buyers in tow, are avoiding your house.

``It's important for consumers to be aware of adverse splits,'' said Stephen Brobeck, executive director of the Consumer Federation of America, based in Washington, D.C. ``The seller would be disadvantaged if it reduced the pool of potential buyers because brokers were less likely to show the house.''

Does that ever happen? Local brokers and agents say it probably does, though they are quick to say it would never influence them.

``Agents might suggest other properties first,'' said Shirley Dillon, owner of Landes and Landes Real Estate in Wooster. ``Why wouldn't they? They want whatever will give them the biggest cut of the commission.''

``I would be misleading you if I said brokers don't pay attention to the split,'' said Dick Weber, a broker-manager with Coldwell Banker Dick Weber/Hunter Realty in Stow.

``But if you hired me to help you buy a home, and I'm only showing you homes where I would make the maximum commission, then I run the risk of not getting you what you want and losing your business,'' he said.

The subject of commission splits took center stage in U.S. District Court in Akron this year when RE/MAX Inc., a national real estate company based in Denver, sued two competitors in this area -- Smythe, Cramer and Realty One.

RE/MAX claimed the two companies secretly agreed to split commissions unevenly with RE/MAX brokers, usually 75-25. That hurt RE/MAX's business in this area, and amounted to restraint of trade, RE/MAX attorneys said.

Attorneys for Smythe, Cramer and Realty One denied they made a secret agreement. But they defended the practice of adverse commission splits, saying RE/MAX was unfairly wooing away their top performers by paying them much higher commissions.

The case began in April and continued for 2 1/2 months. But it ended in a mistrial when the judge admitted he misinstructed the jury. A new trial is scheduled to begin Aug. 7.

RE/MAX isn't the only company to grumble about Smythe, Cramer's commission splits. Bruce Simmons, an agent for Dick Thomas Real Estate in Wadsworth, said he ``took it on the chin'' when he helped a client buy several acres of farmland last year. For his efforts, he got $1,500. In a normal split, he would have gotten $3,000.

He said that he didn't take the adverse split into consideration, because his client wanted the land in question. But in other deals, some agents might allow an adverse split to color their recommendations, he said.

``What is human behavior?'' said Simmons, who is also a professor of management at the University of Akron. ``If there are two houses that are for sale, and I know that one of them will give me half as much as the other one, which house do I really want to show to my client as a buyer's broker?''

But, he added: ``Most agents are going to do what they can to take care of their customer.''

At the same time, no one is saying that Smythe, Cramer doesn't have happy customers. Jay and Sally Gartner sold their West Akron house in two weeks last winter using an agent from Smythe, Cramer's Fairlawn office. The agent, Susan Waggoner, also helped the Gartners buy a bigger house nearby.

``Our house sold pretty darn quickly,'' Sally Gartner said.

Some RE/MAX brokers, for their part, dismiss the notion that they might steer clients away from houses listed by Smythe, Cramer or Realty One.

``I show my clients everything,'' said Celeste Frank, a broker-owner with RE/MAX Keystone Realty in Fairlawn. ``I'm not going to avoid listings that give me an adverse commission. . . . But there are agents out there that don't feel that way. It's not much fun to get a fourth of a commission when you should be getting half.''

Her partner, Shirley Coons, said she doesn't raise the issue with her clients. ``I do not drag my buyers or sellers into this controversy. They don't care.''

RE/MAX Inc., for its part, has no corporate policy on how much its franchisees should charge as commission, or how they should split their commissions when the accept a listing.

Adverse commissions aren't the only thing that can affect a sale. Brokers say that home sellers who try to negotiate a lower commission -- for example, 5 percent or 6 percent, rather than the industry average in this area of 7 percent for the first $100,000 -- run the same risk that their house will be slow to sell.

Many local agents say they tell home sellers that listing a house with a smaller commission might result in less traffic.

``If someone lists a house at 6 percent (for the first $100,000) and 3 percent (above that), they'll probably have a hard time getting a lot of people in the door,'' said McDevitt at Cutler/Marting. ``Most agents won't show it until they've shown all the 7 and 4 percent listings because it affects their commission.''