|
"Excerpt from the Akron Beacon Journal" "SELLER BEWARE"
Commission split on home sale can expand buyer pool,
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.
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.''
|