To broker or not to broker

I am sure there are some instances where the seller's broker reduced the commission in order to make
a deal, but most firms frown on it. With respect to using a buyer's broker, my position is that it is better to use a broker if you have a good broker. If your broker is mediocre or worse, you are better off on your own. I am a broker!

I just talked with a brokerage that is routinely cutting agent commissions to get deals done (this is a relatively big firm but not one of the biggest).

My experience suggests you are always better off without a buyer's broker if you're a financially desirable buyer, a good and happy negotiator, and willing to do the background research that supports effective negotiation. To me buyer's brokers are for nervous and/or laid back types. It helps, too, that inventory is so high because if you lose out, so what? There are tons of apartments, just go fetch another one.

{Manhattan real estate agent}

Not for nothing, but would anyone like to opine as to the legality of a licensed NY broker "nixing" a deal that quite possibly injured its customer (the seller's bottom line) in order to maximize its (the broker's) fee income?

Just curious....Robert Morgenthau? Are you listening?

So, wait, in the one instance you know of, the unrepresented buyer was NOT able to get a commission savings to flow to him/her, but you still want a community board with a bunch of real estate agents on it to tell you that it's possible?

Sure, it's theoretically possible.

A lot depends on whether the listing agent is honest, and what the listing agreement looked like beforehand. Why? If I'm the listing agent, and I'm not a douche, I'm not going to start moving my fee around for only one party in a competitive situation because I don't want to risk getting sued for discrimination just to make, what, ten thousand extra dollars? Not worth it.

So if my pre-existing listing agreement was at a 6 percent commission no matter what, I'm not going cut to *suddenly* cut the unrepresented buyer down to 4 percent because I don't want to hear about it from the agent at the other end.

If, on the other hand, my pre-existing listing agreement was at a 6 percent co-broke/4 percent if buyer unrepresented, I would as listing agent disclose to both parties that they're on different commission playing fields, and they'd be able to take that into account when making their bids.

ali r.
Ask the Agent on CBS Moneywatch: bit.ly/12afCB

Any good broker would love to co-broke a deal.

Get the deal done, make a future connection, get on to your other listings.

In my experience, the only brokers who do not want to co-broke are one listing brokers who will not be brokers in a few years.

front_porch: I'm posting my question on "a community board full of real estate agents" so I can get an answer to my question from people who actually know something. Am I supposed to take the "one instance [I] know of" as the end-all and be-all? Are you suggesting I should have relied on a single anecdote and avoided posting?

I'm not sure how taking a non-co-broke offer that yielded more money for the seller by decreasing transaction costs (in addition to yielding an extra percentage point for the listing broker) would be illegal discrimination. It's certainly not discrimination along the lines of any protected category. Seems to me that a broker would just be performing her fiduciary duty toward the seller. I'm kind of surprised that you seem so hostile to the fact that I'm raising the question.

Just to be perfectly clear in what I'm describing: Let's say there are two bids, one at $1,000,000, one at $1,015,000. The first bidders don't have a broker; the second bidders do. If the broker offered to decrease her commission from 6% to 4% on the first offer, both the broker and the seller would make more money: The listing broker would make $40,000, the seller would make $960,000, whereas with the "higher" co-broke deal, the listing broker would make $30,450 (3% of $1,015,000), the seller $954,100 ($1,015,000 minus 6%). (Of course here I'm not taking into account other transaction fees.) Why don't we see this happen more often, if indeed it doesn't happen often? Certainly not out of any solicitude for the seller/client.

Buyer's brokers were important prior to internet age. In 1993 when we bought we used a broker so we could have access to more listings. In 2007 we sold without a broker and the "buyer's broker" agreed to reduce the fee to complete a deal. In 2009 we bought without a buyer's broker and the selling broker was destructive stating that the owner "would walk away" pushing us to raise or keep offers at a set price. once we by-passed her, the owner reduced the price in order to have a sale. My conclusion- brokers look after their own interests and thus can lead to a failed negotiation for either sellers or buyers. Dealing with two of them (seller and buyer) will complicate the deal and reduce the incentive for a reduction in brokerage fee. Avoid them as much as you can!

007 - just curious. how did you "bypass" the seller's broker? Also I would think it would be in the best interest of the broker to present your offer and then have the owner decide vs playing games like this and potentially losing a sale (especially in this market!)

Apologies, Miette, I probably sounded flipper than I meant -- we got in a signed contract today but I'm sure the heat is still getting to me. You do need to be aware that in a case of different commission splits, each bidder in a best-and-final auction needs to be told what the splits are -- I'm not sure if that's just ethics or NY State law, 30-Years would know, but it is definitely an agent responsibility to indicate to each party what the playing field looks like.

But you're also forgetting the role of the house. (Let's assume a 50/50 split, just to make this example easy). In the first case, the house expects to make $30K. If the agent cuts the commission, it's up to the firm whether they'll share the pain with her, and she gets $20K, or they take their "contractual" $30K, leaving her $10K, or whether they work out something in between. Every firm is different and this is one reason why I work for a small firm, is that I don't have to justify my negotiations to a bunch of managers.

In the second (co-broke) case, though, the agent gets $15K.

The best agents are more motivated by speed than by $$, so a good agent would pick whichever deal was fastest and cleanest, to move on to the next thing. But you're assuming that an agent would want to increase her pay 33% (understandable) -- just realize that that's only one factor out of several, and in the real world that factor might not be the major motivator.

The listing agent might, for example, be eyeing taking another listing in the building, and might want to use "I sold the last apartment for over one million" as a selling point.

ali r.
Ask the Agent on CBS Moneywatch: bit.ly/12afCB

Why not use a buyers broker who will sign a "buyers agency agreement" with you and rebate you 33% to 67% of his/her commission. This is a sure way to add value to your deal and you can still negotiate hard for the best sales price. No smoke and mirrors or assumptions...just a check made out to the buyer at closing from your broker.

http://www.usdoj.gov/atr/public/real_estate/feeforservice.htm

For clarification- we "by-passed" the seller's broker by dealing with her supervisor in the same office. It was just not a good match and she was playing games with us. You can always call the "managing director" of a large brokarage firm and have a better match. The switch resulted in a sucessful sale and a significant additional price reduction. The firm got its fee from the seller.The simple advice is not to fall into the brokers' trap and be assertive if you feel the broker is unhelpful to the deal by replacing her/him so you can complete the deal.

I'm not generally a fan of discounters, but I believe Michael/west81st has hung his shingle with theburkhardtgroup, and I would trust him to negotiate your deal.

ali r.
Ask the Agent on CBS Moneywatch: bit.ly/12afCB

Thanks for the tip, 007!

Now Ali of course you would not be a fan of discounters...:-). There are many non-discounters I would not trust to negotiate a deal and this is my 20th year in Manhattan real estate.

Thanks, all. I'll consider the discounter idea. One question: Is the fact of the commission rebate disclosed to the seller's broker before closing?

Why would it?
http://theburkhardtgroup.com/services-and-fees-c14358.html

Brokers charge a 6% commissions because they have to give their respective firms 1/2. What does the "house" do to earn 50%? Imagine for a minute if Ali were given say 80% of the commission, it opens up a world of possibilities. Why not let your customers benefit from a rebate or some other type of added value. I can tell you first hand this does not hurt your business, on the contrary I am having one of my best years ever. A "firm" is essentially a hub where brokers congregate, nothing else.

I cc my customers/clients on all communications between me and the other broker during negotiations. No more secrets. Negotiating a deal on either a co-op or condo is not rocket science, first and foremost you need honesty and transparency. The majority of my customers have graduate degrees and are perfectly capable of handling a "negotiation". They hire me to assist them in completing a seamless transaction while they do what they do to earn a living. Most importantly they want help finding a "home", not a macro discussion on the economics of owning real estate.

Even "Dwayne.Pipe" would gladly accept a rebate check from me at closing, he may curb me after receiving it though...

Take a look at Doug Heddings "true gotham", he set up his own shop at Rutenberg, I wonder why?

It doesn't have to be one size fits all, we are just suggesting an alternative model. There are good brokers and bad brokers everywhere.

What does the "house" do to earn 50%? I can't speak for any other brokerage, but in the case of my firm, offers a wide network of transaction experience, which has a depth of about twenty-five years (which means we remember the last down cycle)and has a breadth all over the city, focusing mainly on downtown.

I don't like giving away a big chunk of my revenue, but I do it because my sponsoring brokers have created the environment that makes me able to succeed in the first place.

It's sort of like asking what a law partner does to earn their money -- on the one hand, yes, the minions do all the work, but on the other hand, having that repository of knowledge of what has worked in the past and what hasn't is like having the chess grandmaster there when you need him.

Lots of my clients have graduate degrees too, and they're willing to pay for top brokerage work just as they'd pay for a top attorney or a top CPA.

ali r.
{dg neary realty}

Your a good soldier Ali, still I don't agree with your argument, but without "you" our model could not exist. I guess you could call this a good example "interbeingness".

How can the house earn their money?: let's say Ali is involved in a transaction. It's in a new construction condo and there's HUGE bump in the road. the Buyer is a reasonably sophisticated attorney. The Buyer is represented by a Real Estate Attorney. The Seller is not only a Sponsor (so a "player"), but is represented by a "seasoned" broker and a BIG Real Estate Law Firm. But because of this bump in the road, the deal is going to fall apart. The experienced Buyer doesn't know what to do with it. The Sponsor doesn't know what to do with it. The Buyer's and Seller's sophisticated Attorneys don't know what to do with it. But Ali comes up with a solution which saves the deal and it closes. Now, this proves that having Ali as a Buyer's Broker actually IS WORTH something. The fact that the concept that Ali used to pull the rabbit out of the hat came from "the house" proves that the house deserves their end as well.

I am fascinated by the description of the broker's services and abilities to handles "bump' in the road. Anyone who visited a sale office in any of the new development can quickly assess the brokers assigned by the large brokerage houses to a project. their education and understanding of financial transaction is laughable. In reality, it is a lawyer to lawyer negotiation. Personally, I negotiated directly with the developer and used the broker as a secretary...Even in that simple role she failed..

See, you missed the point: the case that not the "cannon fodder" on site agents were not the sharpest knives in the drawer, but that having someone who's been a deal doctor in a brokerage house can save deals that even the seasoned developers and all the attorneys couldn't come up with the solution. But I think a lot of that is because an awful lot of people here just refuse to believe that there exists any broker or person at a brokerage firm who has the ability to add ANYTHING to a transaction.

It's actually getting way too tiring to continue to see this sight become filled with personal arguments and nay saying of anything which would indicate that brokers could POSSIBLY add anything. I think it's just easier to let people remain blissful.

Or let's take an example where perhaps buyer's attorney is a moron. Wait, that might not narrow it down enough (I'm a judge's kid, so I'm allowed to make fun of lawyers).

Let's take an example where buyer's attorney's paralegal switches riders in the middle of contract negotiations, sending over not the negotiated rider but some weird piece of boilerplate from the system, and then seller's attorney blows his top and advises the seller to send out a contract to another bidder so that the deal will actually get done.

Buyer's attorney might have the sense to listen to the seller's attorney and realize that there is anger and frustration, but how's he going to save the deal? He hired the incompetent paralegal in the first place, probably in an attempt to stitch together a decent living out of bits of transactional work that pay $1,500 each.

Buyer's broker is going to charge you more than that, but he/she is going to identify the emotional flashpoint and manuever everyone around it until his/her client -- YOU -- is protected.

ali r.
Ask the Agent on CBS Moneywatch: bit.ly/12afCB

my point is that out of 1000 brokers maybe 2 will be able to post at SE in an intelligent, funny, sophisticated way like you. what are my chance that they (the 2) will work in a new development which I might be interested in? When I hire a lawyer I have a better chance of screening the person and monitoring as well as directing his work. I can also fire or replace the lawyer but not the broker at the sale office.

30 Years just to clarify: The "house" is the firm you work for in my scenario, not the agent, hence I would agree with you, a competent agent does the majority of the heavy lifting: not their "firm".

I am currently working on a deal that involves leasing the property for 8 months so the buyer can get there ducks in a row. At the same time entering into a contract to purchase the property with a number of stipulations designed to protect the seller (my client) and the buyer. This also will require two board packages, one for the sublet and one for the sale. So yes I understand a good broker can add value.

Ali feels that she needs the support offered by her broker to get deals done and that it has contributed to her success, hence worth "50%" of what she earns. My experience has been different; the "firms" I have worked for played a much smaller roll in assisting me in closing and in my opinion not worth the "50%"( I have had cuts as high as 65%) they kept.

So I started a company that is very agent centric with positive strategic support and financial rewards. If you hang your shingle at The Burkhardt Group you keep 95% of your commission, no monthly fees, no desk charges, no transactions fees. Only stipulation: Minimum to "house" is $250 per deal. Pretty simple and a work in progress with much more to come. Sure it's not for everyone and when I do start hiring I won't just hire anyone, this is more suited for someone with experience. That said I have a young woman new to the biz working part-time who is doing great, better than she did at a traditional firm, go figure? Her last fee check arrived with a very nice note from her client, go Rebecca!

This model gives the agent the flexibility to offer their clients incentives. Even on most of my rental deals my clients receive gift cards of $500 up to $2000.

30 yrs. I also worked at Sopher, started in 1991 on Broadway in the Village. Don't know if you were there then? I think you may have been there earlier judging by some of your comments.

In the 20 years that I have been doing this I have certainly "saved" my share of deals, but you know what? It's really not that difficult and I would not compare it to what a partner in large law firm does. But that's just my 2 cents.

Either way best of luck to all of you in all your real estate(and life) pursuits!

"their" ducks in a row.

You were there 2 years after I left. The idea of a high split/low "house" service is nothing new. Re/MAX has been doing it forever and Bob Eichner tried it in the Village around the time you started in the business, but couldn't make it work.

As to "not being that difficult" saving deals, it's like a lot of other things in life: those who do it well make some of the most difficult things look easy. And since the majority of Sales Managers in residential firms aren't the greatest at doing deals (if they were, they probably wouldn't be sales managers since pretty much none of the firms are willing to pay their sales managers what a good one deserves). When I took over the Downtown Office at Sopher, they offered me a decent percentage deal based on the sales they had been doing. But after about 2 years, Hank - being the cheap bastard he is - couldn't deal with writing the checks I was entitled to under the deal we originally cut.(I tripled sales and it was a sliding scale so I was getting about 5 times as much at the end as at the beginning). They looked at me funny when I took the job because I refused to take a draw and every other Sales manager/Rental Manager in the company was taking one. I knew if I needed a draw, I needed to quit. Over the past few decades, I've gotten plenty of calls to manage some of the larger company's offices and the same thing happens every time: I start by telling them they can't afford me; they want to talk anyway; they meet me and want to hire me; they ask me how much I want rather than making an offer; I tell them that I told them they couldn't afford me from the beginning and nothing has changed - the number I want is the number I told you I would need; I never hear from them again.

PS unless you're making money on the side from things like profiting on desk fees, etc. it is impossible to have a payout structure of 95% and be successful. But you'll see what happens on your own, maybe you'll be the one to succeed where no one has gone before: But I think you need to be a little more honest about how you are setting your structure up than pretending that it's the same as every where else, but you're just offering 95% splits, because we both know that's not the case.

PPS If your sales manager isn't saving your deals for you like a "partner in a law firm does", it means you are paying too much at a 50% split, but it doesn't mean there aren't sales managers who do that. one of the areas is in training: almost all the big firms have training from smiley faced pep-rally types who teach seminars in sales which might as well be toasters as RE. 20 years later, I still get calls from some of my agents back at Sopher when they run into problems asking advice. Of course, at the beginning when I made my Tuesday Sales Meeting mandatory and started each one with a quiz, they weren't too happy about that. But they learned a lot of stuff that they never would have learned anywhere else.

Of course, most agents think when they first come into the business that they are going to "do things differently" and as a result end up heading down a lot of paths with various schemes. So are good in terms of being scammy and successful (I wish I could name 2 or 3 dozen examples, but I'd get too much flack; but I'm sure plenty of SE'ers know many on the list). Others flounder around until the end up figuring out that there is a reason things are done a certain way, some thinking they have re-invented the wheel, others realizing that they haven't. But not getting you money's worth from the split you are giving the comp[any you work for is often an indication that the agent has made a decision not to avail themselves of what's available as much as the firm's not being able to provide it. If your firm hires sales trainers and you don't go to the seminars, and other similar things, and then you say the company doesn't do anything for their 50%, I'm not sure it's their fault or the agent's.

ali, the minions do NOT do all the work for a good partner in a law firm. clients have very involved relationships with the partners, and expect the partner's expertise. there are some very notable exceptions, where i think the clients are literally being robbed, but clients have little end-game regard for most of the minions.

30 yrs.It's a "virtual office". I work as I always have, of course I could not make money running an "office" offering 95% splits. I make a comfortable living with my personal brokerage biz and still love it!...(even after the Sopher experience :). But 10 agents doing two deals a month=$5000; $250 min. to house on each deal. simple really. The two people working with me now are thrilled, I have paid out just shy of $10k to Peter(new agent) in the last week for 3 rental deals. This equals a very happy agent.

Not trying to re-invent the wheel, but for the right agent who more or less generates his/her own deals, this model works well. I am almost 2 years on my own and it has been both personally liberating and financially rewarding. The income earned from agents is just icing on the cake, so to speak. I have very humble goals and this helps with the 6 weeks we spend in Costa Rica each year. I may not be a "power broker" but I really enjoy my life. :)

I have been slammed so far this summer with business(mostly rentals), but when things cool off in the fall, I will actively look to hire more "partners".

Any golf fans out there? Poor Tom Watson! Well off for a cycle up to the tappan zee. Enjoy the week, some beautiful weather ahead!

So you're not carrying Errors and Omissions insurance? That could be a costly mistake. Especially if you've got unsupervised agents running around. I know you've done your due diligence in terms of your business model and rebates, but you might want to check with the AG's office in terms of your responsibilities re: supervising your agents and Associate Brokers.

And you are doing no paid advertising for your listings? Could be another mistake. or are you? And brochures, virtual tours, photography, etc,etc,etc? And you are webmastering the site yourself? Are you properly valuing your own time?

PS In this market counting on agents doing 2 deals a month is in what? the 95th percentile? ;).

REO, I love your comments, both funny and smart but you are showing your age a bit ;)

I'll let the big boys handle the brochure and virtual tours. We do HD video tours with a Flip. I have a NIKON d70 for photos.

Check out the design people in LA for your web services, they manage our site for $40 dollars a month and have outstanding tech service and a full Internet marketing division. But who needs to pay someone to do SEO stuff? Which is way overrated anyway....

ppc advertising on google and facebook,twitter, all docs on a server and my own blog...inexpensive and effective.

Start giving your clients $500 dollar gift cards on rental deals and see how fast they start referring other people to you. I am overwhelmed with clients, currently I focus on rentals as I advised all my clients to put off a purchase almost two years ago, not smart...just lucky. 2 deals a month? 7 closed for me this month already. One of my agents did three last week, all West Village.

Paid advertising? You jest I'm sure? But I won't give away all our secrets...

After I close 49 West 12ths street, (offer accepted) I REFUSE to list. I am strictly a buyers broker.

Hey REO maybe you should think about hanging your shingle with us, 95% no desk/transaction fee's...not bad. ;)

"Hey REO maybe you should think about hanging your shingle with us, 95% no desk/transaction fee's...not bad. ;) "

Sorry, I have a better deal.

"I'll let the big boys handle the brochure and virtual tours. We do HD video tours with a Flip. I have a NIKON d70 for photos.

Check out the design people in LA for your web services, they manage our site for $40 dollars a month and have outstanding tech service and a full Internet marketing division. But who needs to pay someone to do SEO stuff? Which is way overrated anyway....

ppc advertising on google and facebook,twitter, all docs on a server and my own blog...inexpensive and effective. "

See, these are all things which i think you are undervaluing your own time and efforts and could make more focusing on your own deals than 5% others.

I have a ton of internet business experience (non-RE) and will sit and wait till you see what a "good deal" those cheap internet service providers end up being in the long run.

And if you are relying on PPC advertising, you're spending money - by definition, so I'm not sure how to interpret what you are saying - it's sort of all over the place. I also think it's odd that on the one hand you think PPC advertising is a good idea, but SEO a bad one: they are pretty much the same thing in different clothes 9unless you've gotten bad SEO service - which is usually what you get with cheap SEO service because anyone who knows what they are doing costs a fortune because the value of their time is so high.

Don't get me wrong - I'm not knocking your model in terms of buyer service. I've just been around more than you and seen each and every one of these concepts get gummed up in the works with one Company or the other. Like being a buyer's only brokerage. Remember who did that back in the 80's and early 90's? And what they ended up doing?

Also, If I were an agent and by firm told me they didn't have brochures to pitch exclusives with, I'd wonder why i was giving away 50% 9or 40% or 30% or....). The point I' AM making, is that it's not like you are offering agents "the same thing" as "Full service" shops and just giving them a 95% split. But you sort of sound like that's what you're trying to present your new business as. perhaps I'm reading wrong, but that's the way it has looked from where I sit.

Direct this question only at brokers.

Tally their responses.

See what the vast majority of real estate brokers advise you to do.

Do the opposite.

Pipe- three elderly brokers intelligently fighting over who can make more transactions and/or money. Sounds bubbly to me.

30yrs: One point to consider is that Keith's business is currently tilted toward rentals. The expected service level in that sector is very low, the deal life cycle is short, and the support provided to agents by large firms is generally quite limited. So Keith's bare-bones, low-overhead approach works quite well. He really IS providing full service - by the low standards of the sector - with lower commissions and more generous splits.

As the licensee affiliated with The Burkhardt Group who is most focused on coops and condos, I can confirm that a lot of the questions you raise are valid for apartment sales. We understand the challenges, and I'm working on strategies to deal with them. Obviously, if we're doing a job that has traditionally earned 2.5 to 3%, and only keeping 1 to 2%, the required level of innovation goes beyond handing out rebate checks and gift cards.

West81st: I 100% agree with what you are saying. BUT it's also a recipe for disaster. To some extent what you are proposing is to loose the agents most in "need" of supervision on a public that will end up feeling the pain of those type of agent's shenanigans. That's why I brought up the Errors & Omissions policy. The business model has worked in the past with the MOST experienced agents who least needed supervision and therefore didn't want to pay for it. What I am afraid of is a highly volatile mixture of clients and agents who are almost entirely motivated by squeezing the most $ out of a deal for themsleves blowing up in a way which will have an effect on lots of others in the business. We already have too many ultra greedy, under supervised agents at the big firms (again, I wish I could rattle off a list who an awful lot would be familiar with here, but you know why I can not do that).

And as most of us "know" as bad as sales agents have been, generally speaking rental agents have an even worse reputation in general. There's a reason why the State requires Agents to only be able to work under a Broker. My fear is that a system being set up to largely circumvent that may lead to some very bad things.

Bond: LOL. Yes, positively bubbly. I feel sorry for their ex-husbands, estranged children, their therapists, and most of all their cats!

dwayne, you do realize that all three are men?

AR: I think Ali was among the original three, and she's unmistakably female. I was the fourth licensee to chime in. The others have about sixty years' experience among them. With three months under my belt, I should probably just listen and learn.

30yrs: Every innovation is, in some sense, a "recipe for disaster". Should sensible precautions be taken to mitigate risk? Of course. Will the model need tweaking before it becomes scalable and sustainable? Naturally. Might it fail altogether? Sure. But when an industry is as reviled as this one, there's a lot to be said for throwing a bunch of new stuff at the wall and seeing what sticks.

West81st, you're right but i think bond and dwayne were referring to the more recent discussion of the potential alternative model. accuracy being important, Dwayne, you do realize that three out of four are men?

And you're selling yourself short. Not to diminish the careers of the others, of course.

"dwayne, you do realize that all three are men?"

What a sexist comment! Which of the following can men not have:

1) ex-husbands? Check. In a lot of states, anyway!
2) estranged children? Check.
3) therapists? Check.
4) Cats? Check.

Case closed!

good pick up.

Thank you.

theburkhardtgroup can and is making it work. If you hire the right people I don't think you'll experience the "disaster" predicted by 30Yrs. And no question, the technology is making the business easier every day. But if you hire knuckleheads you have less infrastructure in place than other agencies to prevent, or get yourself out of, the mess, and that adds risk to your business model. This profession gets a bad rap, in part, because it's super easy to get into and that alone attracts a certain number of idiots and ethically challenged people.

{Manhattan real estate agent}

fluter: thank you for expressing more eloquently what I was trying to get across.

"This profession gets a bad rap...because it's super easy to get into and that alone attracts a certain number of idiots and ethically challenged people. "

Fluter, you shouldn't be so hard on yourself. Have more self-esteem.