Regarding my comments about receiving a commission from both sides:
I think this is addressed in the New Jersey license law but I can't find it. It may be only applicable in the case of dual agency but I'd like to be able to provide a citation. Does anyone know know where it can be found?

Paul Howard

Wed Jun 4 2008, 08:54

Brian,

While I'm not going to change my answer to your question, and the plethora of responses, one iota...I will say this: I don't think the buyer agent handled things INTELLIGENTLY. The buyer's agent did nothing wrong by having the buyer ask for the compensation necessary to cover the cost of the buyer agent's services.

My original answer was tailored to all aspects of your original question, and was also aimed at all of the agents who were questioning the ethics and legality of that buyer agent's actions.

That said, the buyer's agent does need to recognize how area customs may impact on acceptability of the offer, and there was likely a better way of accomplishing the desired result.

While I am only offering this up as an example, and not as legal advice, a better way of handling it would likely have been to use something like the following:

"Seller agrees to give Buyer a closing cost/prepaid credit of one percent of the final sales price, upon successful closing of this transaction."

The buyer should then be free to use the funds however the buyer wishes, subject to lending guidelines. If disclosure of the fee payment is required to both buyer and seller, some additional verbiage might need to be added.

Paul indicates it only requires disclosure...but I would wonder about the timing of the disclosure. I also wonder about what led to the creation of this disclosure requirement, as it smacks of another stupid law that was put into place at the behest of a listing centric culture.

What I mean by that, is the ONLY person who needs to know the source and amount of the agent's payment is the agent's principal/client. It should be none of the seller's, or your, concern as to what the buyer's agent is being paid. The client needs to know, to know that the agent is not receiving funds that could compromise the best interests of the client.

The seller, however, is not the client of the buyer's agent, and therefore has no legitimate need to know what the buyer agent's total compensation may be.

Either the offer that is on the table gives the seller a sufficient net to accept, or the seller counters.

In my opinion, a lot of the brouhaha brought about here is about listing agent jealousy over a buyer's agent negotiating to get paid more than what the listing agent is going to retain. "Why should you get FOUR percent, when all I'm getting is THREE percent?"

It's...none...of...your...business. That payment was negotiated between the buyer and the buyer's agent. It is not your prerogative to (price) fix the buyer agent's fee. Yes...you can offer a contribution to whatever that fee is going to be--the cobroke--but you cannot say what the total amount of acceptable compensation for the buyer agent's services is going to be.

There is one last thing you need to understand, though. I wholeheartedly believe that you were in the wrong, from the very start. You should have concentrated on getting the seller the net that the seller wanted, and what you did concentrate on, was that the Buyer Broker would be making more money than what you had offered, even though you would still have been paid the same listing side fee you had contracted to receive.

I only suggested the workaround, above, because your attitude is the default attitude of most listing agents, which really does come down to: I told you, BUYER'S AGENT, what you're going to be paid and you are not going to be paid anything more than what I offered--and certainly not more than me--IF I CAN HELP IT.

That attitude needs to change. And, if those of you who also work as buyer agents were to think about it, you surely should want to see that attitude change, too.

It's all about net dollars to seller, and--from the buyer's side--net cost to buyer. But the net cost to buyer issue is a discussion for another day, and involves the necessity that the buyer's agent gives the buyer an opinion of value for the property being purchased, BEFORE negotiations are to begin. Yep...a market value analysis for the buyer. How many of you buyer agents do that?

Without such an analysis, how can your buyer client make an intelligent decision about where--at least in your opinion, with their concurrence--to start offering...and where to end negotiations?

Wed Jun 4 2008, 06:42

Brian, you might want to check on that statement regarding not receiving a commission from both sides. You can do it. You just have to disclose it to both sides.
Paul Howard

Wed Jun 4 2008, 04:53

Victor, I don't believe there is a difference between a bonus and an additional percentage of commission tacked on. I guess this is where it gets tricky. You're right. In NJ you're not allowed to receive a commission from two separate parties in the same transaction. That's why in this dual agency role my seller had already agreed via a listing contract to pay 3% to a cooperating broker who was also of the same firm. At that time the offer was 'countered' with an appropriate price NOT to exceed an expected appraised value of the home. But she felt it necessary to inform the agent and their Buyers about what she felt was 'commission gouging' on an already declining market.

I am NOT saying I ever bypassed the Buyers Agent to communicate directly with the Buyer. That would be a problem. My Sellers goal was to respond to the offer in writing, point by point and to make her feelings known regarding the 'bonus' commission. Her goal was to ensure that the Buyers knew that there was a potential (in her mind) that the bonus may be standing in the way of a possible agreement. There were no 'secret messages'. All was documented in writing and forwarded between Sellers Agent and Buyers Agent.

At a $160K price range my Seller was concerned not only for her bottom line, but whether or not these 'First Time Home Buyers' understood why a deal may NOT be agreed upon. The counter offer was given to decline the bonus and to speak directly to the terms of the 'proposal'.

In agency law we are deemed to have 'fair dealing' with the opposite side of the transaction. At all times we acted in a 'fair' way. Again, we had concerns for the Buyer/Customer having a real opportunity to purchase the property without an additional bonus being pa hinderance. Isn't it 'fair' to make a written 'counter offer' explaining why the offer isn't going to be accepted? Isn't that 'Full disclosure'?

Wed Jun 4 2008, 04:35

It is interesting how these questions sometimes take on a life of their own isn't it.

Victor said: "
If during the attorney review the seller wants to make a change to the contract, they will need to get the buyer’s agent’s approval to change the commission or risk killing the deal over that amount. That portion of the contract is not up to the buyer, seller or listing agent to change at that point."

The buyer agent and the buyer have a contracted agreement regarding the buyer agent commission. The buyer, via the purchase offer, requested the seller to pay that commission. That is the reason it is in the contract. That provision of the contract does not belong to the buyer's agent and the buyer's agent cannot agree to change it without consulting the buyer. It affects their buyer agreement too. The purchase contract is between the buyer and seller and ANY change to it has to be signed off on by both of them.
Paul Howard

Wed Jun 4 2008, 04:18

Legal mumbo jumbo, isn’t it grand?

Who ever said that a buyer agent could not negotiate their commission?

I've dealt with the companies offering low co-op fees before and regardless of what they offered in the MLS would post MY fee in the purchase contract. If the seller agrees to it, then what's the problem?

If they do not agree, the buyer’s agent risks not getting the buyers contract accepted. Sound bad?
Not if they established a buyers agency representation agreement before working together which established the fees. The buyer can ask the seller to pick up the full amount in the purchase contract however if seller refuses, it's the buyer’s option to continue with the contract and pay the balance not covered in the co-op fee collected.

Remember in New Jersey Commissions Are Negotiable! Who said they were only negotiable down? And who said the listing agent is the only one that can negotiate commissions?

Here is a little advice; if you're a buyer’s agent you should establish your agency representation with a buyer agency agreement establishing how you will represent the buyer and for what fee.

If the buyer then chooses to purchase a home from a fsbo or listing agency offering a low co-op your commission will be protected by your agreement.

Now let’s give an example of how it would be used.
Let's say you sign a buyer’s agreement that states you work for 3%
You show houses, the buyer likes one but the seller is only offering 1% co-op if you write an offer to purchase and in it state your co-op fee is 3%

If the seller accepts the offer and agrees to pay the 3% by fully executing the contract then so be it. It's the seller’s agent & attorney’s job to bring it to the attention of the seller BEFORE signing the contract offer to purchase, the seller can accept the terms counter the offer or reject it all together.
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If during the attorney review the seller wants to make a change to the contract, they will need to get the buyer’s agent’s approval to change the commission or risk killing the deal over that amount. That portion of the contract is not up to the buyer, seller or listing agent to change at that point.

Brian I disagree with your following comment
"I agree that if the Buyers Agent has an agency agreement with their client for a commission of x%, then that should remain between the Buyer and their agent as part of the financed sum. I personally think it would have had a better opportunity of being successfully negotiated if the Seller was presented with an offer that had an additional commission bonus already factored in to the price as opposed to an additional fee. Don't you?"

The buyer’s agent cannot accept two commission checks from both the buyer and seller therefore they MUST disclose the commission amount in the contract in order to get paid.

If the buyer’s agent factored into the offer a higher commission at what point should they disclose to you that fact? Full Disclosure! Without it how would the amount originally quoted on the seller net sheet for this offer be affected?

What's the difference between the buyers agent asking for a bonus vs. a higher commission? Both are fees that need to be factored and not hidden.

Also noted:
"One has to wonder if the Buyer is really versed in the number crunching of how and who it actually affects. The Buyer! I represent the Seller and her wishes. She wished to write a letter and bring to the attention of the Buyers (if they weren't already aware) of the possible fallout of such an offer by way of it's wording."

Are you saying you bypassed the buyers agent to directly communicate with the buyer?
-- AND the seller thought she was the only one bright enough to be “well versed in the number crunching” to the point of being compelled to ask you as her agent to send a secret message directly to the buyer without letting their agent know?
-- AND that message was to inform the seller that you thought the buyers agent was ripping off the buyer so she demanded that you bypass the buyers agent to communicate this message directly to the buyer?

Is that what you are saying? I'm not sure if I'm hearing you right?
IF I am… As the buyer’s agent I'd have a BIG problem with that wouldn't you?

Tue Jun 3 2008, 21:17

Jay, The seller did counter back taking into consideration the projected additional fee. I agree it's up the Buyer and Buyer's agent to enter into an equitable agreement that suits them. One has to wonder if the Buyer is really versed in the number crunching of how and who it actually affects. The Buyer! I represent the Seller and her wishes. She wished to write a letter and bring to the attention of the Buyers (if they weren't already aware) of the possible fallout of such an offer by way of it's wording. In south Jersey there is no contract until the 'proposal to purchase' has been hashed out verbally first. Once there's a 'meeting of the minds' a contract is drawn to reflect that verbal negotiation.

I agree that if the Buyers Agent has an agency agreement with their client for a commission of x%, then that should remain between the Buyer and their agent as part of the financed sum. I personally think it would have had a better opportunity of being successfully negotiated if the Seller was presented with an offer that had an additional commission bonus already factored in to the price as opposed to an additional fee. Don't you?

I think the Buyers Agent just went about it all wrong and I have a genuine concern for the Buyer who may have really wanted the property. I believe they had someone negotiate poorly on their behalf.

Tue Jun 3 2008, 17:47

It is none of your business what the buyer and buyer's agent have negotiated for the buyer's agent to be paid, Brian...even if it truly were not in the buyer's best interests, something you have no way of knowing. What your seller should be concerned about, is what she is netting. If the offer was not sufficient, counter back higher.

Paul is running down the correct track, with his comments about tortious interference. Another possible tack, if your MLS's are truly trying to dictate what buyer agent fees are, would be ANTITRUST.

Buyers and sellers can negotiate whatever they want, in the offers between them...including the payment of fees which are owed. NAR's Code of Ethics makes it clear that such a thing IS ethical.

As to any state which has a LAW--and I would need to see the statute before I would even concede that such a law exists--you can rest assured that the law came--just like Designated Agency--at the urging of realtors...and not because consumers wanted that particular law.

Moreover, that law--the one stating that payment of commissions can't be negotiated BY THE BUYER AND SELLER, IN THE BUYER AND SELLER'S OFFER, will eventually be struck down, if someone but challenges it. It's an absurd law, if it exists. (There are a great many absurd laws which have been borne out of protectionism...so it may well be that such a nonsensical law does exist, somewhere. I mean...after all, Designated Agency is a nonsensical construct...and it exists in a great many states.)

If the buyer owes the buyer agent more than is being offered, and can only ensure payment by having it financed into the offer--which means asking the seller to pay it--then the only one messing up, is the agent who does not work to accommodate that need.

Again...counter back higher. Don't mess with someone else's fee. It is fine for you listing agents to tell the buyer's agent what you, or the seller is willing to contribute to the buyer agent's fee...but it is NOT fine for you to presume you can SET the buyer agent's fee.

Tue Jun 3 2008, 16:40

I guess you should hope that the agent does not learn of your role in the seller's decision. You might want to look up the term: "tortious interference with a contract". If the agent and the buyer HAD a contract that is the risk you take in interfering with it.

The seller is certainly free to respond to the offer but the buyer (if under contract) would not even have the flexibility of reducing the commission unless they were able - and willing, from their own funds, to pay the difference. I don't know the price range or the reason an agent would ask for 4% but the reason is not relevant. The contract is. There used to be a company in this area that routinely offered 1% or 2% via the MLS. Many agents I've been told would not show their listings. I would because my buyers had a contract requiring that they pay me3% or get the seller to pay it for them.
How did YOU handle those listings?
Are you aware that an offer of cooperation in the MLS does not have to have an offer of compensation at all associated with it. How would you deal with that? It would be best for all buyers and sellers if we didn't charge a commission at all. Or would it? In that case there might not be an industry.

Paul Howard

Tue Jun 3 2008, 12:58

Thank you all for your advice and prompt answers. At the time of this particular 'proposal' presentation I did in fact present the actual 'proposal to purchase' before getting into the additional 1% buyers Agent bonus. My Seller and I agreed that it seemed as though the Buyers Agent was negotiating on behalf of his best interest and not his Buyers' best interest. Had the offer been full price with reasonable terms it would have been a bit more paletable. But in this market, a 'low-ball' offer with FHA financing and a settlement date within 15 days of the offer seemed quite ridiculous on top of the nerve of asking for more $$. I don't necessarily begrudge the agent for asking for more money as long as his Buyer fully understands the agency agreement they sign. But I'm not sure that really happened. I question his ethics and explanation to his Buyers of what the real possible ramification of his offer really means to the entire process.

In the end my Seller crafted a 'counter-proposal' which spoke directly to each one of the terms that were offered in the proposal and my Seller either agreed, disagreed, made a counter proposal or denied the proposal on each individual portion of the 'Proposal' in WRITING. When we got to the 1% Agent bonus my seller wrote about how she felt it compromised the Buyers real opportunity to get the property based on the Buyers' agent's request. We also required that the Buyers acknowledged the 'counter-proposal' so that we were reasonable sure it was presented. We were hopeful that the Buyer would question his Realtor about why this may happen with hope of preventing such a thing in the future.

We never heard from them again. But I did get the signed 'counter proposal'. I did my job.

We're now under contract for much more money, better terms, CONV financing of only 50% LTV and everyone's happy...........except the first Buyer who I believe lost out due to his agents greed.

Tue Jun 3 2008, 12:23

That is his or her own interest unless the buyer is in alignment with this. I think you need to alert your seller of this and let them make the decision. There are all kinds out there.

Tue Jun 3 2008, 11:50

I agree with the majority here. If Paul is correct then it would concern me. The contract between the listing brokerage and the seller should specify the total and coop commission. The contract that is entered into between the cooperting brokerages of the MLS should gover the how and when the split can be reduced or negotiated in any way.
If the selling agent has made the offer contingent on an increase in commission he is definately not acting in the best inerest of the client. If the buyer wants the agent to be compensated at the higher rate the buyer can pay it themselves.
I would counter the offer with the 1% added onto the price to be paid directly to the buyers agent. If the seller wants them compensated at that rate then let them see where it will come from.

Tue Jun 3 2008, 11:42

There were a few wrong answers there (regarding violations). If the buyer entered into an agreement with their agent's company which contained a provision for a 4% commission and the buyer within that agreement agreed to condition their offers on the sellers agreement to pay that commission on behalf of the buyer the agent has committed no violation. It does not matter that the seller's agent may have "offered" a particular amount via the MLS. For the seller's agent to interfere with the contract between the buyer and their agent is the same as the buyer's agent trying to interfere with a contract between the seller and their agent. The agent also cannot interfere with the offer made by the buyer to the seller. The agent's job is to fairly present the offer.
Paul Howard

Tue Jun 3 2008, 07:04

As Mike stated... if the agent hasn't already shown the property, he is allowed to attempt to negotiate better co-op compensation, if he so chooses, but should do so separate from the offer.

If he's already shown the property, and it's in the MLS, as a member of that MLS he has already tacitly approved of the co-op proferred and is in violation of the MLS rules, and perhaps board rules as well.

Wed Apr 16 2008, 14:10

Hey Brian,

This is definitively a violation on the part of the Buyer's agent. The agent is coming between your agency agreement that was already negoiated by you and your seller. If the agent wanted an increase of 1% in his compensation that agent should of presented that request prior to submitted any offer. At that time your agency may have chosen to give a portion of your commission thus reducing yours but not affected what the seller agreed to pay in total. But by including this request with the offer for purchase the buyer's agent is interfering with your agency agreement with the seller and violating the local and state and national codes of ethics.. We've recently discussed this situtation at one of our meetings. If you chose to this issue could be reported to the board and they would be fined.

Wed Apr 16 2008, 13:59