Please give your opinion about partnership where agent is 1 of the partners.

General Real Estate Investing
1

Here is the scoop. The deal is good, but I would like many opinions on what I think is a matter of principle.

I found the deal with my business partner. We put the property under contract and brought in 2 additional partners. One of the partners is a real estate agent. The agent negotiated a great deal on the buy side and deserves his commission on the buy side, keep in mind though that he did not know what the true value of the property was, and that is why I had him put it under contract immediately. The agent then listed the property on the sell side for about $100K below market. I told him to do this to move the property fast.

His part of the sales commission on the back-end will amount to about $20K, this is not including the $100K plus that he will make in profit for his share of the deal. The $20K is taking into consideration that his broker will make about $5K of the $25K sellers commission.

My thinking is that he is one of the partners, “We brought him in”, and think he should put his sales commission on the backend toward the profits for all of the 4 partners to split. I think that me finding the property, doing the research on the zoning, highest and best use, etc. at least equals what he is done. I also think that the sale on the back end was a slam dunk because I told him exactly what to put in the listing to sell it fast and to price it well below market. We received 2 contracts at full price in less than 10 days on the market.

Who is being the most greedy? Me or the agent? I tried to explain that he does not see the value in what I am doing in terms of the financial analysis, etc.?

You will not hurt my feelings by being honest, and I truly respect everyone’s opinion here on this board.

Thanks,
Mr. Greedy.

2

I agree with you. And I am a real estate broker. If he doesn’t want to split it with the group, then you should have at least found a more knowledgeable agent.

3

Thank you for your input Steve.

4

I disagree with you. In principal. A real estate agent has the license, knows the profession, prepares the contracts, meets or make arrangements to meet and should be performing a slew of other services for the buyer or seller. He deserves his commission.

HOWEVER, if it was negotiated UP FRONT that he would FORGO a portion of his commisison that would be a very different story.

Legally ( in my state). an agent can’t (hee hee shouldn’t) give any part of his commision to a non licnesed person. It’s illegal and it dilutes the integrity of the profession.

He can FORGO the commission (if agreed with the selling agent) so you all get a better bottom line.

So, if you brought this to his attention UP FRONT that this is how you felt, he should have agreed as a partner. I certainly would have agreed. Doing it after the fact is just bad business.

Technically you should have had a buyer broker contract up front and agreed to his commission, right?

Why can’t the seller come back after the fact and say I want more for the property.

Get my point?

Jeff

5

JeffinCT, thank you for your reply.
The big mistake is that the back-end commission was not discussed and ironed out. The whole thing happened in about 10 days. Shame on me for assuming that someone would in the agent’s position would look at it like a “true partnership”. I do think that I did the most work. The MLS sold the property. The agent should get something for doing the paperwork and negotiating down the front-end price, and he did; about $10K for his portion of the buy side commission. When I bring this issue up, he does not even see my point. I think I handed him a $100K check on a silver platter, and the thanks I get is that he makes an extra 20K on the back end for processing the paperwork. Personally, I think he just poured his future pot of gold into the ocean from my business. I can submit offers through other people, or get my license myself. We disagree, but I am gald that you replied because it does point out that the big mistake was not resolving the back-end commission up front. If he would have been steadfast on that position if discussed up front, I would have said no problem, but you will not be one of the partners. He would have had to live with making $30K on the transactions instead of $100K. I know what I would do. I will keep you guys posted on what happens with the next deal.

Thanks again.

6

JeffinCT,
I have a question for you. If the agent would forgo his commission, what does that mean exactly? Would the 2.5% for the sales-side go to the broker?, or would my agents portion just not be included in the costs?

Thanks,
Chip

7

bluechip,

From what you’ve posted, I’ve got to disagree with you too. And I’ve got more reasons besides the fact that it was not discussed and put in writing before the deal (which is a big reason).

You don’t give all the details here, so I’m going to have to make a few assumptions here.

First, forget that buy side of the deal. The agent did his job there. he presented the offer, made sure everything was right and followed it through, all of which he is legally responsible for (not you). He did his job.

Second, if we’re only talking about a 2.5% commission on the sell side, then I’d have to say that you’re being a little greedy (but again, I don’t know the whole story, yet). To get $25K in commission on 2.5%, the property would have to sell for $1 million dollars. If that’s the case, then I’d wager that $25K is just a drop of the profit anyway.

Third, unless your agent friend is an extremely good agent (which it doesn’t sound like from your post), the best that I can figure that he’d get off of a $25k commission is about $17K. Sounds like that it would be closer to about $12.5K though. If he works for a national brand (like Century 21, for example), then there are franchise fees that must be paid before the split, thus making his cut even less.

Fourth, you’re assuming that if your friend agreed to reduce/eliminate his side of the commission, that his broker would accept that as well. Sorry to say, but I doubt it. I own a real estate company and I know that I would laugh you out of my office (and probably send your agent friend after you for asking me). What you might get accepted is for the agent to forgo his part of the commission which is now between 1.25-1.5% of the sale price.

Fifth, your agent friend is on the line of a whole lot more legal responsibility than you are at this point. Besides all of the legal crap that he has to deal with just for being the agent, if he is a principle in the transaction (a partner), he’s just added a ton more legal problems for himself. And I don’t know your state, but add to that that your state’s RE Commission can decide that he has made “excessive profits” on the deal (because he is a partner) and fine him for that, too and I hope that you can understand, that his $10-17K isn’t much.

Sixth, on any deal, much less one of this size, if 1 to 1.5% of the total will make or break the deal, then it’s not a deal in my opinion.

No offense meant or anything. Just calling it as I see it.

hope it helps,

Raj

8

An agent can’t be a partner…the person that is the agent can be a partner, but all partners derive the gain from the success of the deal, not from commissions of the deal. If he is deriving a commission, then he is something else, not a partner. That is like a lawyer representing himself and charging himself legal fees. If he gets commission, then he must split it with all the partners.

The main problem with Enron was that officers of the company derived profit from entities that did business with the company. The only duty that any partner (or corporate officer) has is to maximize the benefit to that organization. If that means that he earns less for his pocket then he must still do that which is best for the partnership or corporation.

9

Raj

Part of your post.

Second, if we’re only talking about a 2.5% commission on the sell side, then I’d have to say that you’re being a little greedy (but again, I don’t know the whole story, yet). To get $25K in commission on 2.5%, the property would have to sell for $1 million dollars. If that’s the case, then I’d wager that $25K is just a drop of the profit anyway.

The property did sell for a $1M. It was a 5% commission and he is a good agent, so I am assuming he is on an 80% contract, thus him getting about $20K out of the 25K$.

The $25K does not break the deal at all. We did ok. I just think it is the principle. Is my work in finding the property, lining up all the partners and money and putting together all of the necessary information that goes into the listing worth anything? I think it is worth more than the agent entering the info into the computer. Maybe I would have been better off listing it with a $299. fee.

So I have to agree with Bluemoon06 on this, but Raj, I do like your view.

I am not an agent hater at all, so please do not get me wrong. What I do is worth something as well. I do understand that the broker/company must get their share.

Interesting stuff.

I think it is a touchy situation and I should not be worried that he made an extra 20K. I guess this is the stuff we may run into with partnerships.

Thanks,

10

Is my work in finding the property, lining up all the partners and money and putting together all of the necessary information that goes into the listing worth anything? I think it is worth more than the agent entering the info into the computer.

Yes, your work is worth something, too. However, like his commission, it wasn’t worked out BEFORE the deal. And, believe it or not, but the agent actually does more work than just “entering the info into the computer.” Besides, there are all those legal responsibilities, too.

Oh, there’s good agents, then there are GOOD agents. Since you had to do all of the real legwork in finding, and working the deal, I’d have to guess that your agent partner isn’t all that great. Even if he were, he’d have to be pretty darn great to get an 80% cut, unless he is working for some some mom-and-pops agency. 50-70
% is about as high as it gets unless they are really pulling in the $$$ for the company. Just some stocking stuffer information for ya!

Raj

11

Thanks Raj,

With your input and input for the others, I am getting smarter and better everyday.

Thanks for your help!!