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Ignorance + Lack of Management = $300K Mistake


At one point or another, all of us have thought, “Man! That agent has no clue what they’re doing!” or “I can’t believe that agent did that – that could cost their client or them (insert here)!” Personally, that thought is often followed by, “Where the heck is their managing broker and how have they not caught this and corrected it?”

I do not believe that ignorance is an excuse so I blame the agent. But I equally blame their broker. Their broker is supposed to be overseeing and managing them (hence the name “Managing” Broker).

Are brokers really “managing” their agents?

Some brokers are not – they’re failing to oversee or manage many, if not all of their agents. Heck, some brokers don’t even look at their agent’s paperwork nor the listing in the MLS before or after it’s been submitted. This is sad and inexcusable. It’s also a HUGE liability for the agent, the broker and the livelihood of the entire office – owner, staff, brokers and agents – and all of the clients the office represents.

The $300,000 mistake…

In my local MLS, the Metropolitan Regional Information Systems (MRIS), the policy for broker co-operation and compensation is as follows,

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Compensation specified on listings filed in the service (the MRIS) shall appear in one of three forms:

a) by showing a percentage of gross sales price

b) by showing a definite dollar amount

c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system

Keeping the rules/regulations you just read in mind, let me share with you what I often see written in the “Broker co-op” (aka compensation) field of short-sale listings: “50%”

Now imagine that a property/listing that had “50%” in the “Broker co-op” field sold for $600K (I ran across such a listing several days ago). What impact does having “50%” in the “Broker co-op” field have on the commission?

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Think about that for a few seconds…

Tick….tick….tick…

It means that the Listing Broker owes the Selling (Buyer’s) Broker $300,000 in compensation/commission.

The Selling Broker should (and from what I hear, always does) win their case in arbitration – the MRIS rules and regulations are clear, concise and the listing broker (and the agent) signed a legally binding form that says (in more words), “I have read and understand all of the MRIS rules and regulations in their entirety and I agree to follow them as part of being a member of the MRIS”.

Now imagine if a Listing Broker had to pay out $300,000 to a Selling Broker – in this market. If it’s a small or medium sized office, that one huge payout could potentially put the office out of business. Even a large office of 100+ agents would have a tough time swallowing a sudden $300,000 hit like that.

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And think about what would happen to everyone that worked in that office if the office closed – their licenses would be sent back to state, they’d have to rush to switch offices (and all the headaches and money that goes along with that) and their clients would technically be without a broker or agent (that’s a whole ‘nother set of troubles in itself).

One “little” mistake and look what can happen.

Agents

Know what you’re doing. Not knowing is not an excuse – learn, learn and learn some more. Don’t just do something because others are doing it – that doesn’t necessarily make it “acceptable practice” or right. And if you haven’t done it or experienced it before, ask your broker. If they “don’t have time”, tell them they’d better make time.

Brokers

You’d better start truly managing, overseeing and leading your agents. This recent market has brought significant changes to the rules of old and a complete new set of rules have been created – you better know them and more importantly, your agents better know them and follow them.

By not managing or overseeing your agents properly, you’re putting yourself, the owner, every agent in your office and every client your office represents at risk. There is no excuse for not managing and overseeing your agents – none whatsoever. It is your job and you get paid to do so. So do your job.

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Or…if you really, really like me and want to pay my broker $300K in commission for selling your $600K listing…don’t do your job 🙂

Written By

Danilo Bogdanovic is a Real Estate Consultant/REALTOR(R) in Northern Virginia and author/owner of LoudounScene.com and LoudounForeclosures.com. Danilo serves on various committees with the Dulles Area Association of REALTORS(R) and the Virginia Association of REALTORS(R).

12 Comments

12 Comments

  1. Missy Caulk

    March 16, 2009 at 7:14 am

    We have two lines in our listing contract.

    ______% of commission at_____%.

    I have seen them filled out wrong too. 50% is suppose to go in line one and the amount in the second one.

  2. Kim Hannemann

    March 16, 2009 at 7:50 am

    Danilo – how often do you see the single digit “3?” 3 what? Dollars? Percent? I bet it’s far more often than you see “50%.”

    I agree that the lack of broker oversight is a time bomb. So is the lack of attention that MRIS is paying to this issue.

  3. Rob Aubrey

    March 16, 2009 at 7:57 am

    you could make a full price no contingency offer, just to see the look on thier faces.

  4. Heather Elias

    March 16, 2009 at 7:58 am

    There are sooo many of those incorrect listings that it’s amazing. And in my experience, even larger, recognizable firms have managing brokers that are more concerned with recruiting new bodies for the office than they are managing the activities of the agents they already have…hence the glaring mistakes (like these) that you see in their listings and contracts.

  5. Danilo Bogdanovic

    March 16, 2009 at 8:01 am

    My understanding is that “3” means “3 percent”.

    That’s because, the rules say, “by showing a percentage of gross sales price or by showing a definite dollar amount” – the key word is “definite” – without a “$” in front, it defaults to “percent”. That’s why just putting “50” means “50 percent”.

    (I’m not a lawyer nor work for MRIS-this is what has been told to me by them when I asked for further clarification)

    MRIS is not responsible for the amount of compensation nor should they be. Offering “50%” falls within the MRIS rules and regulations so there’s nothing for the MRIS to say/do. This is an agent/broker issue.

  6. Ken Montville - The MD Suburbs of DC

    March 16, 2009 at 8:26 am

    I’ve also seen “neg” meaning “negotiable” in the co-op line which really means the listing agent/broker doesn’t want to compensate a co-operating agent/broker. I’ve seen “Remarks” about co-op commissions in short sales which, as we know, shouldn’t trump the MRIS rules but often do (thank God for the new Fannie ruling on bank manipulation of short sale commissions)

    If your point is that it’s the Wild West out there and Brokers should work to maintain law and order, it’s a good point.

    If your thinking that some Broker is going to sit still and pay out 50% of any sales price because of an agent error, you’re mistaken. The arbitration costs alone would be worth it to “settle” for something less and, meanwhile, the co-operating agent/broker is put through the ringer as well.

    Still it’s worthwhile to point out.

  7. Rob Aubrey

    March 16, 2009 at 8:30 am

    It’s like raising kids, if there is no consequences for wrong behavior it continues.

  8. Kim Hannemann

    March 16, 2009 at 1:47 pm

    “MRIS is not responsible for the amount of compensation nor should they be. Offering “50%” falls within the MRIS rules and regulations so there’s nothing for the MRIS to say/do. This is an agent/broker issue.”

    MRIS is responsible for a system that allows ANYTHING to be entered in the Compensation field. They have edits built in requiring all sorts of other stuff, but can’t have a better data entry area for compensation? The rules are clear. Even I could write code to handle it.

  9. Danilo Bogdanovic

    March 16, 2009 at 2:24 pm

    I’m not disagreeing with you that the MRIS could make some improvements that would help the cause.

    Until they do (and even when they do), it’s ultimately the broker’s responsibility to manage their agents and check what they’re putting into the system/how much compensation is being offered.

    For a broker to rely on the MRIS (or any MLS) to safeguard them against their agents doing something wrong is foolish, playing with fire and a bit lazy if you ask me.

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