Agent wants 2% for not selling a house

78 Replies

I have a rehab property that was close to completion when a cash buyer walked up to the property with offer and a bank statement in hand showing he had the funds to purchase. My business partner and I decided to accept his offer. I informed the agent that helped me purchase the property and he was understandably upset and wants 2% which roughly equals $3600. I have worked with this agent in the past on several other deals and there was a general understanding that we would use him to list all properties that he helped us buy. My business partner and I prepared all the paperwork and went through the negotiations ourselves. There is no written agreement between us and the agent for this property. If I do not hand over the 2%, the agent inferred that I would be off of his "list", at the moment he calls me at least twice week to look at houses. My partner and I would like to live up to our word and pay the agent something. The buyer brought in an agent to help him with the paperwork and the buyer paid the agent $1,200. I thought paying $1,200 to my agent would be more than fair. He did get paid on the acquisition and told me he maybe spent 4 hours on this property. My agent does do some research and previews properties for me without me telling him to do so, he feels that I am devaluing him by cutting him out of the deal. I feel that it is a little ridiculous for him to feel that he deserves 2% for selling a property that he did not sell. I have a sneaking suspicion that even if we do pay him the $1,200, the effect would be the same as if we did not pay him at all, that effect being he won't be calling and looking for properties on my behalf. I hate to lose his local knowledge and maybe I am being too loyal, as this agent has been with me since the beginning (approx. 13 months) when most agents would not even give me the time of day. I recently earned my license so I have access to the same inventory he does. I have reached out to other brokers I have dealt with before and explained the situation and the general consensus seems to be that I am crazy for even considering giving him anything. Any and all input welcome! Thanks.

@Marc Pfleger  

I think 1200.00 (0.66%) is a kind gesture on your part given the agent wasn't involved at all.  I'm quite certain I would not got there.

Continue to operate with full disclosure and if the Agent is willing to through away the relationship and the revenue it has brought him over this one walk-up, then perhaps it's time to start seeing other agents ;-)

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There are plenty of other agents who would love to have your business.  If you decide to pay your agent the $1,200 make sure they will still provide you with the service you have been getting.  

Remember, you are the reason this agent makes money when you purchase.  Though you stated he would be your selling agent, the home never made it to that stage for him to list. 

You are not screwing any agent.  He made his money when you purchased.  

Good luck

Your agent is being greedy.  He did nothing and there is no contractual agreement for compensation to be justified.  I would not offer him a dime.

And yes I am a licensed Realtor.

Tough call.  I do see the conundrum.  Cost benefit analysis to me looks something like this:

Don't pay rewards and costs:

  1. Reward: Reinvest the $3,600 into your firms best available project ROI
  2. Cost: Bad blood with the agent and bad reputation with anyone who he has influence with???
  3. Cost: Lost future opportunities with the agent???

Pay rewards/costs:

  1. Reward future opportunities presented by the agent
  2. Cost lost opportunity of the $3600

What ways out more? This is not directly quantifiable it seems, therefore, we have to make some educated guesses about the outcomes. To me I would try to avoid the bad blood and just pay the $3,600 with an understanding that all future agreements will be in writing and will only compensate for deals that HE CLOSES not all deals.  

For sure, if it was $36,000 my answer probably goes the other way.  My handshake is my bond but others need writing.

I'm not familiar with the market where you live. Is it a large market or a smaller market? I guess my answer would depend on that. I used to live in a town of 40,000 in the middle of nowhere, and I would just pay the money and find a new agent in a town that size. That way he can't disparage you since he got his money.

 Now I live in a major metropolitan area, and I would tell him to bug off.

What he is asking for is essentially coercion and I wouldn't personally appreciate nor want to do business with anyone that has that approach to business. Had you listed it with another agent and sold it i think I could feel the agents complaint since they are doing a lot of work with you, but you sold it on a lucky walk through!

The downside is obviously that he could possibly cause some rift in the flow of your business.

Personally, I wouldn't pay somebody that didn't deserve it out of fear of recourse. I would distance myself from those types of people because in the long run when something really matters i would hate to find out their course of action then. 

Originally posted by @Joe Gore:

@Douglas Dowell

I agree with you but some investor like to be greedy but only time will tell if he refuses to pay the agent, and one day he will need help, and the agents will turn their backs on him.

Joe:

I'm not sure why not paying someone who provided no service makes the investor greedy.   On the other hand, demanding payment when you did nothing to earn it while threatening withdrawal of future services is ethically hollow.

I agree a good working relationship with an agent is very beneficial ... to both parties.  Communication is key and respect has to flow in both directions,

Because you never officially had a listing agreement with him he can't demand anything. I'm an agent and if I was in that situation I can see why the agent is concerned but he has to keep in mind that at the end of the day it's business. Interested in knowing that if he didn't react in a negative way would you still work with the agent since you're now licensed or do you feel like you no longer need the agent at all anyway ?

I completely disagree. Any agent that would "turn their back" on a client because some other agent is trying to scam the investor doesn't deserve to be in the business any way.

A good agent is going to know nonsense when they see it. Bottom line is this agent doesn't deserve the commission.  They didn't list it. They didn't do any effort, based on what I'm reading obviously, to try to sell the property yet.

They don't deserve the commission.  The understanding might be that the investors will use the agent to sell any property they buy. But this is clearly an unusual case. The agent made money on the purchase. Thats all they should get.

I would personally give them $1k though because it does seem like the agent is working real hard finding them deals. But unless this agent has some pipeline to pocket listings or something, I don't see them providing any value out of the ordinary.

And the fact that they're asking for a commission for a house they didn't sell is very close to being illegal anyway isn't it? How do they justify asking for a commission on a house they weren't licensed to represent?????

If you're closing on deals, this agent isn't going to walk from you. Give them 1k. Point out the situation and that it wasn't something that typically happens but now that it has, you see no reason at all to pay them a full commission for doing NO WORK.

I'd ask them if they have a problem with it and if they do, to let you know and you'll go elsewhere.

But here's the thing. If this agent has some sort of secret sauce that is giving them access to the best deals in town and you don't want to risk losing it, then pay them the 3,600 and call it a day.

Out of shear principle, there's no way I'd give my agent a commission for work she didn't do.  Its ridiculous that the moron would ask for a single penny. If he was really a member of your "team", he'd be happy for you.  It sounds like he's making money off you so why in the world would he want to risk losing that?

I just wouldn't put up with that. But don't worry one bit about other agents taking you on if you don't pay this joker. He's clearly a dirtbag agent anyway just for asking for a penny - let alone asking for a full commission!

If it were me, I wouldn't give my agent a single penny. And if she asked for one, I'd tell her to go pound sand. But my agent doesn't bring me deals either so I know I could still buy houses on my own. But I'd also add that if this agent gets away with this and you give in, what other nonsense are they going to do? Maybe they'll start charging you 1k a month to be "on their list".

Put your foot down, tell em you'll give em 1k in appreciation for the work you've done for them but they're not getting a penny more. 

Remember - they're making their living off you. Its not the other way around. These agents don't buy a thing. YOU DO!  

The red flag is that he "demanded" 2%.  Knowing he had nothing to do with the sale, and asking if you could throw him a bone, I wouldn't hold against him. The fact he asked in a way that implies he is absolutely entitled to it would concern me. 

I would have been tempted to give him something (perhaps the $1200 you suggested) even if he didn't ask. Now I would be tempted to say, "I was going to give this to you any way but since you don't appreciate it I am taking my business elsewhere."  That is known as the Takeaway in negotiating. If he apologizes you can continue and grow you relationship. If he acts like a jerk then you know you made the right decision. 

As far as him telling other agents I would not be the least concerned as long as you have been fair to him. If he is a true jerk no one will listen to him anyway.  If you do things right and honorably then others will see that over time.

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It is a shame he is being greedy. I had a similar situation on my last flip where a buyer appeared before completion and listing. My agent totally understood and didn't think a thing of it. She knows I will buy more and list with her in the future.

@Marc Pfleger   I have been a licensed realtor for 10+ years, and now find myself on the investing side. I think it is crazy that he would expect a commission for not doing anything... however, you have to ask yourself how much value does he bring to you. It sounds like you can do everything that he can do. Me personally, I continue to use agents to handle the negotiating and paperwork. I also have a full time job outside of real estate, so we are apples and oranges.

If you don't feel that he is a valuable asset to your team, you can give him the $1,200 and then explain why this would be his last commission. "Demanding" 2% just blows my mind. If you feel that he does in fact bring a considerable amount of value to your system, then he would be worth the 2%.

But that is a question only you can answer.

yes he deserves something because he help you purchase property in the first place. Maybe not the full 2%.  I know that if I located a property and helped you swing the deal I would expect some monetary compensation after you closed a deal with it. 

but he does sound greedy and a bit on the bullying you side. I would start working with other realtors so you can build a good working relationship with others in the business. That way the word of one person will not negatively effect you because you've treated others right. And built a reputation with them. 

What you decide to do in the way of money is based on what this is worth to you. I would calmly confront the agent and explain that commission he is asking for is on the current sale, he earned commission on the purchase when you bought the house. Make sure to acknowledge that you appreciate what he does for you in identifying properties and would like to continue to work with him. I would then ask him if there was any activity that you were not aware of that he did to sell this house that needs to be reimbursed? did he advertise, list it on MLS. ( and he is probably going to say no) . So he did not sell the house and if you were to pay him it would be for a cancellation of your verbal agreement. To me that wouldn't warrant the money he is asking for however you both should probably then discuss and agree exactly what your agreement will be in situations like this and how much he earns in commission (if anything) where a house might sell during rehab. It could happen you buy a house through him and know somebody who wants it so this may not be a one time deal. I would offer that amount then on this sale. If it is nothing it is nothing. The nature of a commission business is that you don't get paid on sales not made and he has to understand that. Again say you would like to keep working with him. There is probably water under the bridge now but if you sandwich the message in a positive way with appreciation for what he has done (on which he also doesn't earn commission until the sale goes through) and point out the benefits of working with you then I think it is better even then arguing or handing over the money (in which case he has received a reward for bad behavior ). anyway I guess you asked how much and i don't think it is worth the full commission but that is up to you.

Originally posted by @Teal Lambert:

yes he deserves something because he help you purchase property in the first place. Maybe not the full 2%.  I know that if I located a property and helped you swing the deal I would expect some monetary compensation after you closed a deal with it. 

He already made a commission when the investor bought the house. 

This agent deserves nothing - I would move on and let him come crawling back. It would not be in the best interest to lose you as a client over this deal.

If this is an ongoing business for you, and you have a good relationship with the agent and he has produced for you, you should pay the agent the 2%.  

If this is a smart aggressive agent, I suspect he/she will be able to find the deal worth the "extra" $2,400 to you down the road.  Do you care about being this person's first call on a good deal?  If so, then think long term.  

If this person is just filling out paperwork and showing you MLS listings, he is not adding a lot of value.

If you are going to start doing all of your own deals as a realtor, then who cares?  

I'd pay him 3% if you value the leads he produces.    If you don't, cut him loose and take your wife on a vacation instead.   

It's that simple.  



As an agent I'm overpaid at times by my investors, I have a long list of them in my wake that I felt didn't value me like i wanted.    For me, i haven't seen any of my previous investors find anything close to what i produce for my current pool.  

It all depends, and we don't know, how much effort he put into finding the property(s) in the first place.  I know it's not worth a lot of extra work scouring around for $100k houses or less, unless there's also a commission on the back end.  That's the bait all the flippers use to get an agent to do a lot of extra work, for the small commission on the front end of the flip.

@Marc Pfleger  As an agent, I would never expect something from the seller. I would rather they keep coming back for more. Perhaps a nice "business" dinner would suffice.

Now if he got you in the door where no one else could have, or found you a great deal, then perhaps it's worth it to compensate him. If this was just an MLS listing that you paid 90%+ of list price for, doesn't seem like it's anything spectacular to me.

IF you make payment to him, ask your accountant how you should do it. My assumption would be a 1099 consulting fee. Again, ask your accountant but I believe that would be a valid business expense.