You (Only) Get What You Ask For

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ContractAt the recent GAR Brokers / Managers Conference, one of the most hotly debated issues concerned whether or not real estate sales commissions should be put (back) into the standard Purchase and Sale Agreement.

Years ago, there was a paragraph in the Agreement laying out exactly how much commission each broker would receive at closing. During negotiations, though, buyers and sellers sometimes scratched out the commission and inserted (you guessed it) a lower amount “in order to make the deal work for them.” (GAR removed the commission from the Purchase and Sale Agreement almost a decade ago, so don’t feel bad if you can’t remember this.)

A lawsuit is working its way through the appeals system which may affect whether brokers can successfully sue for commissions when a buyer or seller defaults on a closing in spite of the current language in the GAR contract, the Listing Agreement and the Buyer Brokerage Agreement.

So here’s my question for you: Would you be in favor of putting the commission directly in the Purchase and Sale Agreement? Why or why not? I want to hear from you!

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17 Responses to “You (Only) Get What You Ask For”

  1. Michael A. McFadden Says:

    WOW!!! One of those questions that make you go hmmmm!!! I would have to say “NO” to putting it on the Purchase Agreement… because the 1st thing buyers and sellers would be looking to negotiate 1st is “YOUR” commission.

  2. Cathy Witherspoon Says:

    I definitely agree with Michael. No to putting the commission in the agreement. That would absolutely be the first thing the clients would want to negotiate.

  3. Charity Cason Says:

    I too remember the time when it was in the Purchase and Sale Agreement. Yuck!

    I would also say NO on this one because the commission has ALREADY been negotiated in the listing agreement between the listing broker and the seller.

  4. Anna Ighani Says:

    I’ve never been an agent so what I am going to ask may be an obvious answer to all, but I am very curious to know. In other industries people get paid upfront for the work they do. Why can’t real estate agents request a retainer for their services at the beginning of working with a client and have contracts of payment drawn up in advance to the closing? My thinking is.. noone would need to sue for commissions. The commissions would already be “set in stone” if the deal didn’t close. I believe real estate agents provide a great service and should be paid for their work and time. There could be an additional “bonus” when the deal closes.

  5. latisha williams Says:

    I say no also. You don’t negoitate with your physician after surgery. You just pay the bill.

  6. Sara Hibbard Says:

    This was well before my time, however, I totally agree with the concensus here. Seems to be a “no-brainer” to me. The answer is NO!

  7. ann bone Says:

    For Anna – There are already provisions for retainer fees in both the Listing Agreement and Buyer Brokerage Agreements but most agents are reluctant to ask for them. They feel that the buyer or seller who is not 100% certain they will buy or sell will resist paying sizable upfront fees and opt to work with a “free” agent.

    It’s interesting, though, that discount brokers do charge all or most of their fee up front, but full-service brokers do not.

  8. Anna Ighani Says:

    Thanks for the info. Ann. I am learning and loving it.

  9. Deborah Gaither Says:

    Most of the buyer and seller clients that are serious and contract with a realtor value the service that the agent provides.
    Most competent and caring realtors can wait for the deal to close and receive compensation for their service, and genuine efforts to make it work and yield a positive outcome at the close of the transaction; although sometimes it doesn’t work out.
    Negotiating compensation upfront can make leads suspicious of you and question your ability to take care of their needs.

  10. Deanna Carter Says:

    Bad time to ask me this question and get an unbiased answer. I’m working on two short sale contracts and all parties want me to cut my commission on both of them. I agree with all of the above. It’s already hard enough to get a decent salary for hours and hours of work and this would give more leverage to buyers and sellers to cut our commission because it would be the one thing they both agree on for sure. I say keep the Purchase and Sale as it is.

  11. Bill Menichillo Says:

    This seems as if it would significantly reduce the way our commissions are protected with the current contracts. It puts them “on the table” right up-front and OF COURSE Clients will want to chisel at them along with every other thing.

    It also seems like it would introduce conflicts with the LISTING AGREEMENT by opening up the door to an interference with THAT contract (unless a complementary change is also coming in THAT agreement).

    On the rare occasions where our commissions HAVE come up during a Purchase and Sale transaction, I have been able to CONVENIENTLY say to whomever is inquiring:

    “Mr/Mrs Buyer/Seller: The Purchase and Sale Agreement which we are currently under makes no provisions for Broker commissions other than stating that they are ‘pursuant to separate agreements’ (i.e. Listing Agreeement and/or and /or Commission Confirmation and/or Buyer Brokerage Agreement). Your request to REDUCE or (rebate) a portion of OUR COMMISSIONS EARNED FOR OUR PROFESSIONAL SERVICES would create a 3rd party interference with THOSE contracts. As your Agent and in compliance with the Real Estate Laws of Georgia, we cannot pursue your request regarding commission as it would place us in violation of the law by interfering with contracts that you are not a party to.”

    THAT usually stops THAT before it gets anywhere. (INCLUDING – recently – with a Short Sale Lender.)

    Putting our commissions BACK in the GAR Purchaxse and Sale Agreement would throw portions of the handling I mentioned above OUT THE WINDOW and would have to re-strategize on how to handle.

    BAD IDEA to put the commissions BACK INTO the Purchase and Sale Agreement.

    Best Regards – Bill

  12. Pat Viohl Says:

    After careful thought and having read all the other opinions expressed here, I have just three words regarding putting commission back in the Purchase and Sale Agreement: “No”, “No”, and finally “No”…..

  13. Bert McPeeks Says:

    Certainly NO for all the reasons stated in the other responses. Anyone who remembers when the commission was in the contract remembers the problems commonly encountered with it during contract negotiations.

  14. Paula Byrd Says:

    I am not in favor of inserting the commission in the Purchase and Sales Agreement. In the Commercial Sales , for the most part, the commission is referred to as being in a separate agreement. Hopefully, all agents have gotten an agreement from the agent representing the property or from the Landlord. So many people feel that we get paid too much. They don’t know how many hours we have put into getting a purchaser to a contract. So my point is, they don’t have all the facts to determine if the pay is fair. Therefore, there is no upside for the amount to be in the contract.

  15. sandy minnick Says:

    My vote is a most resounding \”NO\”
    sandy minnick

  16. K Bernard Strong Says:

    NO and again NO. I would love to hear the other side of the debate in more detail. It seems that the better long term strategy is to fortify the Brokerage Agreements. Its time to lawyer up instead of taking the easy way out.

  17. ann bone Says:

    Bernard, the “argument” on the side of placing commissions back into the Purchase and Sale Agreement is that, in the case of a Buyer default, the Buyer will have signed the P&S acknowledging the responsibility to pay the full commission to the brokers. As it stands now, the Buyer signs the P&S which says that the commission is payable by virtue of a “separate agreement”. That “separate agreement” is the Buyer Brokerage Agreement, since the courts have maintained that a WRITTEN agreement must exist to establish any agency relationship. What if the buyer didn’t sign that separate agreement? Or what if the agent, naively, put a commission of “Zero” or “N/A” in that Buyer Brokerage Agreement? That’s all a broker can fall back on. The thought had been that the Seller’s promise to pay in the Exclusive Listing Agreement was a sort of umbrella protecting the co-op broker, whom the Seller allowed the Listing Broker to share commission with. However, since the Buyer has never seen or signed the Exclusive Listing Agreement, the BUYER cannot be held responsible to pay any commissions outlined on that document.

    The solution to this problem is easy: Always obtain a written Buyer Brokerage Agreement and always make sure it reflects the commission you expect to earn. Unrepresented buyer = risk of being stiffed for a commission if the Buyer defaults on the contract.

    Realistically, most contracts close smoothly and commissions are paid as agreed. Issues come up ONLY for defaulting Buyers – a amall percentage of cases.

    In my opinion, this is a case of the cure being worse than the illness – placing commissions in the P&S and making them a tempting target for Buyers and Sellers to (re)negotiate will cost brokers much more than lost commissions due to the occasional unrepresented Buyer default.

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