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Texas Builder, Home Seller in 77005

i'm a builder in texas that offered 1% referral. agent claims she did not read her email containing offer details and now wants 3%. What is?

Asked by Texas Builder, 77005 Wed Jun 15, 2011

fair? This was on a 800k custom home contract. The program offer was emailed to the agent well before the client was introduced. the agent claims to have ner read the emailed offer and expects a "industry standard 3%" for referring this client. She never voiced or documented her expections, where i did email her my expections. However, work with alot of realtors and appreciate them. I just want to be fair. Is there a industry standard for custom home referrals? since the contract is signed and budget is set allowing only for 1% fee should i meet her half way and loose 1% (8k) and pay her 16k comm? or loose 2% (16K) and pay her 24k? or just pay her the emailed offer of 1% and pay her (8k)? i want to do the right thing. please help...

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Sorry Cathy, but you're quite misinformed on anti-trust laws. May I recommend you review the major anti-trust acts prior spouting off conjecture as if it were fact. That kind of nonsense only hardens the case for consumers who believe most agents/brokers don’t deserve the right to be called a professional and worthy of our pay. Regardless of the many titles you hold, they alone will not provide cover for your misstatements.

It is NOT illegal for anyone to state, as so many below have, that there is no standard rate of commission and I would challenge you to find any statement to that effect in any of the three (major) anti-trust acts or case law. “The Sherman Act outlaws all contracts, combinations and conspiracies that unreasonably restrain interstate and foreign trade. This includes agreements among competitors to fix prices, rig bids and allocate customers.” (U.S. Dept. of Justice)

If someone asks, what do you charge for commission and I tell them what I charge, that is not a violation…period. If I tell them what others charge (as if there were any way for me to know), I could be skirting the line. If I collude with other agents/brokers to agree to fix commissions or to split up a geographical territory for our respective customer base, I would then have stepped over the line. Remember… price fixing, bid rigging and allocation of customers are keys to the Sherman Anti-trust Act.

Now, as far as the costs of running a real estate business, perhaps you can explain why that is the consumer’s problem. If my barber can’t run an efficient business, he will soon go the way of other inefficient businesses. It works no different in real estate. That my friend is how capitalism works. Capitalism does not mean the consumer should pay more because we’re in some tough economic times and we expected more than we got. It is the agent’s job to have realistic expectations and to have the knowledge and forethought to reach those expectations. If it doesn’t happen, please don’t blame the consumer as he clearly stated what HIS expectations were when he mailed out the referral fee letter.

Your traditional real estate side was clearly displayed when you insinuated the builder should pay up because the agent involved had higher expectations and it “sucks” when we don’t get what we want. I say, GET OVER IT! Stop taking the traditional agent’s view by saying the consumer should put themselves in our shoes but instead put yourself in theirs. Then and only then might you actually understand why those in our industry seldom reach the standard of being called a professional.

Guy E. Gimenez ABR, CRS, GRI
Broker / Owner / Investor
The PowerHouse Group
Web Reference: http://www.phgbrokers.com
4 votes Thank Flag Link Thu Jun 16, 2011
Im a builder and Realtor. This is never a win/win. Realtors expect 3% or you'll be black balled. You have to decide if you want recurring realtor business or not. In Dallas, anything less than 3% is scoffed at. Most builders start at 3% go up from there for recurrent business. Basically, play the game or go at it alone without Realtor business. Business model decision you have to make.
1 vote Thank Flag Link Wed Jan 1, 2014
I too agree with Guy. I'm an architect, general contractor, and now in my last year of law school. I've done speculative construction as well as custom homes and have received many referrals from realtors/brokers who never requested any type of referral fee.

However, here, the builder made an offer of 1% for a referral that resulted in a contract. The fact that the agent did not see the disclosure is her mistake and the builder would not be required to pay any additional fee(s) even if she sued. Here's something to consider, does the realtor expect the "homeowner" pay the referral fee she desires, in this case $24k? Just for a referral? Obviously the builder is not going to reduce or forgo his profit, which is probably at 3% so that the realtor can continue to refer business to him.

For those realtors who chimed and and said that the builder should pay additional fees here is what you must consider before you refer business and demand ridiculous fees, otherwise you are at risk of losing your license:

Part 23. Texas Real Estate Commission:

Section 535.20(a): Referring a prospective buyer, seller, landlord, or tenant to another person in connection with a proposed real estate transaction is an act requiring the person making the referral to be licensed if the referral is made with the expectation of receiving valuable consideration. For the purposes of this section, the term “valuable consideration” includes but is not limited to money, gifts of merchandise having a retail value greater than $50, rent bonuses and discounts.

Section 535.148(a): A licensee may not receive a commission, rebate, or fee in a transaction from a person other than the person the licensee represents without first disclosing to the licensee's client that the licensee intends to receive the commission, rebate or fee, and obtaining the consent of the licensee's client. This subsection does not apply to referral fees paid by one licensed real estate broker or salesperson to another licensed broker or salesperson.

Section 535.148(b): If a party the licensee does not represent agrees to pay a service provider in the transaction, the licensee must also obtain the consent of that party to accept a fee, commission or rebate from the service provider. As used in this section, the term “service provider” does not include a person acting in the capacity of a real estate broker or salesperson.

Subtitle A. Professions Related to Real Estate (Tx. Statute):

Section 1101.652(b): The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or salesperson: (13) accepts, receives, or charges an undisclosed commission, rebate, or direct profit on an expenditure made for a principal;

Basically, if you are referring business and are getting paid for it, you must inform your client. See what they think?
1 vote Thank Flag Link Tue Jun 21, 2011
I like Bruce's take. The level of work and effort the agent has put into the sale should help you make a decision on how she is compensated. The idea of working with her on a future transaction to make everyone happy is a good idea, but would you want a relationship with an agent who misses such important details? There have been several agents tell you that she deserves 3%, but I strongly disagree. You can pay 1% as promissed and be done with it, but she will most definitely not have anything good to say about you in the future, even though it's her fault she missed such an important detail. I think 2% is a happy medium where she will be pleased at your effort to compensate her well, despite her error. You have to decide for yourself if the investment of the extra 1% will benefit your business or if it will have any impact on your business at all. If you think she will probably never bring you another Buyer, then why pay her more than what she was promissed?
1 vote Thank Flag Link Thu Jun 16, 2011
The break down In MLS of all ACTIVE homes for sale at $800 K and above for Buyers Agent commission is :

1% - 15 homes,
2% - 50 homes
3% - 1384 homes.

The homes 800 K and above that have sold since 1/1/2011
1% - 0
2% - 14
3% 550

This should give you an idea of what is on the market and what is happening with commissions.
1 vote Thank Flag Link Wed Jun 15, 2011
We as agents are responsible to and for ourselves. We are responsible for reading contracts that affect our clients and affect us. As previously mentioned, if you put 1% on MLS, then it is what it is and there is no reason to feel bad for the agent's failure to read. They are lucky that there isn't anything else in the contract thus far that will adversely affect the client.

If you are a custom home builder I can't imagine you build more than 10-12 homes a year, but homes in that price range are going to sell themselves. Yes, we agents have a bad habit of conveniently missing out on the properties that are advertising only 1% or anything less than 3% commission. However, a good agent is going to make sure they have a buyer's rep agreement addressing the commission they expect to collect from the transaction. 9 times out of 10 the agent will fill in 3% and never explain what that means to the buyer as we are so accustomed to receiving 3% and it never becomes an issue. This part of the business is the toughest because when you have to explain to a client that we are usually paid 3% by the seller, however in the event we're not they are responsible for the difference they tend to not want to sign the agreement; leaving us unprotected if we choose to still help them find their next home.

Not sure how long this property was on the market, IF it was on MLS or not, but if it was on the market for a while you have to understand that agents don't want to show your property that is advertising anything less than 3% when there are so many other listings that are offering 3%. From a business strategy standpoint you may want to consider offering 3% to get your properties moving quicker which leads to moving onto the next project quicker.

If you did everything correct on this transaction, then what's fair is that you comply with what you have in writing. I've had to pay for a refrigerator once and an owner's title policy for something I missed on a contract, and I can promise you I learned my lesson. There is NO STANDARD ANYTHING except a STANDARD OF ETHICS that we are all expected to read contracts and/or emails that contain pertinant information, and do everything to protect our buyer's interest first and make sure we comply with contract law.
1 vote Thank Flag Link Wed Jun 15, 2011
Since you disclosed in writing before the offer was presented a 1% referral fee you are more than being fair. The fact that the buyer's agent didn't read her email is not your fault. There is no such thing as "an Industry Standard" and any Realtor to indicate otherwise doesn't know any better.

The next question you have to ask yourself is how many transactions will you be doing with this agent in the future and will your decision impact the goodwill you have established. It wouild appear from reading your email that you are not working with a real estate agent with much experience. I say this because most active and experienced Realtors make sure they know up front what their compensation is going to be before they write the contract or bring a buyer to a builder.

You are more than generous offering 1% on an $800,000 contract considering the limited amount of work that a buyers agent has to do on this type of a transaction.
Web Reference: http://barbhassanrealty.com
1 vote Thank Flag Link Wed Jun 15, 2011
She didn't read her email? Sorry, she lost out but she does not represent all the agents. Also, the industry standard line is hysterical.

1% on a $800k deal for basically an introduction is a sweet deal.

If you have a good product that people want, they will find you. Clients search the net BEFORE they even call and agent so don't worry.
Web Reference: http://fredglick.com
1 vote Thank Flag Link Wed Jun 15, 2011
In Texas we have a buyer's representation agreement that also will protect the agent. If she has a buyer's rep signed it states the percent she will work for. It also states if the seller does not meet that percent then the buyer will make up the difference.

If you offered to pay 1%.......why should she expect 3%. I would be curious as to what you are offering in the MLS? Do you have your homes listed? If so, what is offered there.....whatever is offered there is what the buyer's agent gets paid.

You are in a tough spot, but the agent should have let you know what her expectations were if it is not listed in the MLS.....that is just my opinion and thought...................I am sure the agent is frustrated, but she should have paid attention to the details..............
1 vote Thank Flag Link Wed Jun 15, 2011
Guy, We need more people in California like you, you state the facts, give the reasons, end of story. There are some "professionals" here that only have thier "eye on the prize" mentality.
0 votes Thank Flag Link Thu Jun 16, 2011
whats in the sales contract SHE and YOU signed. New homes sales contracts require a broker/agent signature. unless you're using your own contract. there is NO industry standard regarding commissions. it would be illegal to price fix commissions within an industry (per anti-trust laws).
0 votes Thank Flag Link Thu Jun 16, 2011
Obviously lots of different ideas and thoughts and we probably don't have all the information to make a decision.
Some questions I would think about are:
1. How involved was the agent....was it just a phone call...I'm sending Mr/Mrs over and you've never seen her again?.....or did the agent bring them in, talk you up, do all the walk thrus, red lines, help with financing, help pick upgrades and design and help you sell the house and then help you get it closed. If it was a quick phone call, then maybe the lower amount is more appropriate. If she has been intimately involved in the whole process the larger amount might be more appropriate.
2. Does she have a buyer's rep with the buyer? What is in it? and if you don't pay will she have the buyer pick up the difference? That could leave a bad taste in the buyer's mouth that will affect you and their satisfaction. Do you want to sell one house or a dozen in this case?
3. How likely is this agent and her sphere of influence likely to buy from you?
4. What does the competition offer?
5. There are some builders in our market offering more than 3%....sometimes much more.
6. Could you let her list some of your unsold homes, or somewhat partner with her for future business
to make you both happy and more successful. Maybe you have to stick to 1% on this one, but give her 5% on the next one.
7. Any chance you will come in or could work to come in under budget, so that you can share some of the savings with her?
Good luck.
0 votes Thank Flag Link Thu Jun 16, 2011
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
Contact
Actually, the new information changes very little. The Texas Buyer Representation Agreement covers just such a circumstance, and based on the agent's alleged attention to detail, it wouldn't surprise me one bit if she didn't even fill in the numbers on the buyer representation agreement to be entitled to anything; either way, it's irrelevant - the agreement is between the agent and her client and whatever is said there should govern what she receives in total (first from you, and then if whatever you pay her isn't enough, then from the buyer). Your obligation remains at the promised 1%, assuming that details that you have laid out are accurate. If the agent didn't specify a commission for the referral, and you detailed that the referral was 1%, then she should take the agreed-upon figure and chalk it up to a lesson learned.
0 votes Thank Flag Link Wed Jun 15, 2011
John's correct...the picture here has changed.

In my opinion the agent is being greedy. 1% is far more than fair for a referral where the agent apparently performed no material functions resulting in the sale of the home.

Being bullied by an agent is very distasteful regardless of the future consequences. And remember, if you cave in on this deal and give her 3%, you can bet she will be back to do it again and will surely tell all her greedy cohorts how she bullied you. Think long and hard before you set a precedent that may not be as beneficial as it would appear on its surface.
Web Reference: http://www.phgbrokers.com
0 votes Thank Flag Link Wed Jun 15, 2011
The additional information changes everything. We all assumed that you had built the house on spec and offered it for sale. In realty, you contracted to build a house for the owner of a lot. You had to compete with other builders for the job of building the house.

The agent simply referred the lot owner to you. She did not perform an agent function…or did she? In any event, absent an agreement to pay her more that the 1% that you promised her in your email you have fulfilled your obligation to her. Now…if you expect her to refer owners to you in the future for opportunities to bid for work maybe you need to be more generous. It is a business decision for you and not an obligation.
0 votes Thank Flag Link Wed Jun 15, 2011
Thanks for all responses..

Just to clarify a bit. This agent originally worked with the buyer to find a lot. Then received 3% buyers rep comm on the lot. That's when she referred us as a builder. We then began to bid directly with the buyer against other builders to win the contract.
0 votes Thank Flag Link Wed Jun 15, 2011
In our area it is typical pay a buyer's agent a 3% commission on a build job. I expect the buyer's agent to accompany the client to all jobsite inspections. Fill out all the proper paperwork in regard to change orders. Represent his or her client to the entire transaction in a professional manner by attending all meetings at the clients convenience. Failure for an agent to show up at a meeting effectively cancels the meeting, a homeowner cannot negotiate without their representative. During a typical build job I usually see the agent and the agent's clients 10 to 20 times. The agent is working very hard therefore I feel they are entitled to a 3% commission. This particular situation sounds like a referral and walk away by the agent, in this instance we usually pay 25% of our typical commission rate .075% for the introduction. As an agent when we refer work to other agents out of the state we typically receive a 25% of the total commission on one side of the transaction. Commission rates are never written in stone and are always negotiable but you asked her what was fair and I've responded with what our typical policies are good luck hope you work it out Scott
0 votes Thank Flag Link Wed Jun 15, 2011
1% of anything is better than 100% of nothing. Hardly anyone gets 3% of a sale where I live. Oh yes, and by the way, Real Estate, "pros" read you emails, they can, and will be used during mediation and arbitration.

Pay this person 1% as was indicated in the email.

(This is not legal advice) Just common sense.
0 votes Thank Flag Link Wed Jun 15, 2011
As others have stated, there is no such thing as an industry standard. The commission offered to Buyer's Agents the majority of the time is 3%, but I've represented a Buyer at auction for 1%. If your email clearly stated there was a 1% referral fee, then that is all you have to pay. Is 1% a fair commission to a Buyer's agent? I don't think so, and she probably would've guided the Buyers toward other builders or new construction had she realized that is all you were offering. I'd say at this point it is obviously her mistake, and you are not obligated to pay her anything more than 1%. Paying her 2% would be very gracious of you, and that should please her. I would suggest that in the future, you factor in a 3% commission to Buyer's agents or agent referrals, because most agents would avoid sending you referrals for a 1% commission when they can send their Buyers elsewhere for 3 x's the amount you are offering.
0 votes Thank Flag Link Wed Jun 15, 2011
Texas Builder,
First, we are prohibited from stating any commission amount is set or standard (Sherman Anti Trust Act). All commissions are to be considered negotiable. That said, you may want to do your own research with agents you work with as to what competitors are paying to insure you are not at a competitive disadvantage.
As far as this property is concerned, if you disclosed in emails what you were offering and the agent failed to read what you sent her, I can't see how this dilemma is your fault. You know what they say about "ass-u-me" which is what this agent apparently did.
If you decide to adjust your posted rate with this agent, you are going over and above what is required of you, however you may find it worthwhile in terms of goodwill and future business. In my opinion, based on your description you are in good standing to stand pat.
0 votes Thank Flag Link Wed Jun 15, 2011
There is no "industry standard" commission. Broker fees for service are detailed in the buyer representation agreement that the broker has signed independently with the buyer. If the 1% that you have offered is not sufficient to cover the agreement, then the agent should go back to the buyer to make up the difference. The promulgated Texas representation agreement by the Texas Association of Realtors details that the agent will first seek compensation to be paid by the seller or their agent, and then the client. An agent who was on top of things would have normally had this conversation with their client before the contract was signed so that the buyer would have a good understanding of the costs involved. At the end of the day, it is a matter between the agent and her client. I'm not an attorney and this does not constitute legal advice, but the facts you have presented here indicate that you are responsible for only paying 1%, especially if you have provided this expectation up front. Depending on how much you value the Realtor, you MIGHT make some sort of compromise offer - I doubt that the Realtor in question will have a favorable impression of your company if you don't pay her to her full expectations, regardless of who's fault it is for the misunderstanding. People in every industry talk, and Realtors are no exception - there could be some short-term negative word-of-mouth publicity that comes out of this transaction.

All of that having been said, it is very typical for sellers and builders to offer a 3% commission, and sometimes will offer bonuses to agents that bring buyers depending on market conditions. If you have had difficulty in moving homes, that might be part of the reason why. If you are not competitive with the marketplace, you might find it more difficult to sell your product - at least when working with Realtors is concerned.

Should you decide that you would like to have a Realtor assist you in handling issues like this for you in the future, I would be more than happy to visit with you about the services that I can provide and the costs associated with service. I have represented builders in the past and carry a Residential Construction Certification, and am presently working on the New Home Sales Certification. You may find that the costs in hiring a professional sales expert will be more cost effective, allowing you to focus on the aspects of the business that are more enjoyable to you - namely, managing the construction process.
0 votes Thank Flag Link Wed Jun 15, 2011
Texas Builder, I am a broker and practicing transactional attorney. If you had a written agreement or expression of your intent, that is what governs. 3% may be construed to be
Web Reference: http://www.stlawpllc.com
0 votes Thank Flag Link Wed Jun 15, 2011
Let me be the first to tell you that there is no “industry standard” for referring a buyer to a builder.
Wouldn’t you know it…I was not even first…but I will not be last!
Web Reference: http://www.MedfordTeam.com
0 votes Thank Flag Link Wed Jun 15, 2011
Meeting her half way is more than fair. Why should the fact that she doesn't read her emails cost only you. There is no industry standard for commissions...they're always negotiable until there is an agreement in writing. If she's smart, she'll take the 2% and run.

Guy E. Gimenez ABR, CRS, GRI
Broker / Owner / Investor
The PowerHouse Group
512-731-5613
guy@phgbrokers.com
Web Reference: http://www.phgbrokers.com
0 votes Thank Flag Link Wed Jun 15, 2011
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