Agent wants 2% for not selling a house

78 Replies

You are right on @George Wendt this is a relationship business and is a chance to build an even closer relationship with a trusted professional associate. i am stunned so many people consider the relationship as so valueless. There must be some cities in America where there are lots of good agents. i have never found one yet, most cities have a handful of great people and thousands of terrible ones!

The issue here is who is the procuring cause of the deal. While it may have appeared to you that the buyer just randomly walked up with a contract and POF in hand, they very well may have seen some marketing from the agent. When you pay a commission you are paying for a lot of things including the marketing so it's not all about who negotiated or filled out the paperwork. In addition if your deal with the agent was that he got to list properties he found you then you should by all means live up to that. Many investors use that strategy because it's successful in landing them deals. Not paying the $3600 could cost you tens of thousands in lost profits in the future with this agent and possibly others.

Originally posted by @Kathryn Campbell:

The issue here is who is the procuring cause of the deal. While it may have appeared to you that the buyer just randomly walked up with a contract and POF in hand, they very well may have seen some marketing from the agent. When you pay a commission you are paying for a lot of things including the marketing so it's not all about who negotiated or filled out the paperwork. In addition if your deal with the agent was that he got to list properties he found you then you should by all means live up to that. Many investors use that strategy because it's successful in landing them deals. Not paying the $3600 could cost you tens of thousands in lost profits in the future with this agent and possibly others.

I've already said that I would typically pay the agent a full commission, because that's the way I personally do things.  But, I can certainly see the other side, and here are some thoughts on the response above:

-  I agree that if the agent was marketing the property, the agent is entitled to a commission regardless of whether it was the marketing that brought the buyer.  That said, I'd be pissed if one of my agents was marketing a property before it was complete and before we had discussed that s/he should start marketing it.  So, if the agent was marketing the property without the OP's permission, that's even worse.

-  If the agent is greedy (as the original post would insinuate), it begs the question of whether the agent would really respect his/her fiduciary responsibility to the OP in the future.  What if the agent saw an opportunity in the future to make some extra money at the expense of the OP (for example, soft negotiation to generate a higher sale price) -- would s/he do it?  Based on the little that we know of this agent, it sounds like a reasonable possibility.  That's not the type of agent I want representing me.

-  Based on the attitude the OP described of the agent, my guess is that the relationship is already strained -- possibly irreparably.  So, even if the OP pays the extortion money...I mean "commission"...I'm not sure I'd recommend trying to work with this agent in the future.  The OP may find that the agent is already doing things to negatively impact the his business.

All signs point to the fact the relationship between the OP and the agent is effectively over; at that point, it becomes (to me, at least) a question of whether there is a moral obligation to pay the agent -- it's no longer a question of whether it's the strategic thing to do (it's not).  If the agent didn't do anything to procure the buyer, I say don't pay.  That simple.

And again, if it were my agent and he didn't act as if he were entitled to the commission, I would have happily paid it anyway...strategically, that would have been the better decision BEFORE the agent started making demands.

I agree with @J Scott  The relationship is over at this point- If you pay $1200 in his mind he is being screwed because its not 2%. If the relationship is over no need to try to smooth it over- Let it go- Maybe his time to work with you and help you has reached its end. Respect that not everyone in this business will move forward as the business does- You will lose some realtors, some contractors etc.

 You already said you have a license and have the access to the same deals he does as well as the fact that your goal is to expand into an area that he does not work. I wouldn't pay him but that's just me - P.S. I do have a license as well as being an investor.

I think someone else said it earlier- I don't remember who at the moment but he isn't supposed to be collecting anything without going thru his broker. How does he justify getting paid on a deal that he has no type of signed agreement to sell?

I agree with most of what you said @J Scott but was just looking at it from a different perspective. I took it as the property was at the stage it was ready to be marketed. I will say it seems a bit odd that an investor would just randomly show up to a house with an offer and POF in hand. In addition we are only getting one side of the story here and in my experience there's usually more to it. Maybe the agent took a cut in commission on the sale side to make the deal up with the promise to list on the back end to make it up... It's really all just speculation here and I'm just giving a few possibilities.

To say whether or not the relationship is over at this point I could not say.  Sometimes miscommunications can be worked through just by talking it out. I will say again though as an investor it is in the best interest of the OP to try to repair the relationship. If you have someone bringing you deals consistently one good deal missed could mean more more times the disputed amount in lost profits. 

Personally I wouldn't want to use this agent anymore just because he is an extortionist.  He has no legal right to the money, but wants to use is influence to strong arm you into paying.  Don't give in to it, he will be the real loser in the end.

I see this as a classic example of an agent trying to win the battle while ultimately losing the war. Fighting for a commission not earned ends up costing you more in the long run . 

The OP also didn't indicate is he is making a profit or loss but we are all assuming he is making a profit.  What if he is taking a loss due to unforeseen circumstances ?  Would those of you who think he is due a commission feel good about the OP asking the agent help make up the loss ?

As a broker myself, I would have congratulated him of the sale and hit the pavement looking for the OP next deal.....and maybe ask if he is looking for 2 deals this time !

I didn't read this whole string, but thought Id chip in...

My deal with any agent is that they get to list anything they bring me when I finish the rehab. BUT, if I sell it first, then Ill give them $500 for whatever time they put in. I also run Craigslist ads and put out my own flyers while it's listed- same deal. Most agents just stick it in the MLS and hope for the best. I'm pretty aggressive (when I have the time, anyway)

My main agent kicks some ***, but I do do a lot of her work. I find my own deals (I have MLS access) and call her up to make the offers and will deal direct with other agents and sellers pretty regularly.

Anyway, bottom line is this guy is like any other tradesman that's used to being overpaid. I have plumbers ask for $650 for 2 hours worth of work. I go "huh?" And tell them what I'm willing to pay. Sometimes we do biz, sometimes we don't. You gotta decide if the value of his service is worth what he wants to get paid.

Big thing is to line out something fair for moving forward. Disappointment is the difference between expectation and realization as they say. Clearly he thought his deal was that he got the selling commission on anything he brings you to buy. It's your job to set the expectations right on the buy.

Saying all that, I can't imagine a scenario where I'd pay an agent in this situation. The agent is rarely more important than the investor if you're buying listed properties. If he's got an in to an REO rep that feeds him, pay his $3600 (and buy him and his wife a steak dinner). If he's pulling these things out of MLS then there's plenty of people to replace him with.

I spoke with the agent and all is well. The deal has not closed yet, his "commission" will be reflected on the HUD. The buyer is an end user, and the only remaining work needed was to install the appliances and punch out list. This will be my most profitable deal to date. I feel the relationship is not damaged as we are going to look at a property that is owned by a friend of his grandmother's whose spouse is ill and needs out ASAP. Going forward I will have to have everything spelled out in writing so everyone knows what to expect if this situation arises again. The responses have been very educational and I truly appreciate everyone's perspective.

Marc,

I'm happy for you guys always remember the agent is on your side. We do a lot on behalf of our clients. May you guys do many more deals 

@Michael 

My position on any business dealings is that business is not about money but more about a relationship and with any relationship is it worth ripping up for $3600? Yes not agreement was signed that told me he/she trusted the relationship. 

@Greg 

That's another way to look at it but what we don't know like in any store what happen. One side of the story is told and obviously the agent thought something. We're not sure if he spent any money to market the property. You know what it's like to spend and then the person changes their mind. Your out money, time, and effort. 

Been there as an agent many times over the years. As a commission only agent with no other source of income for 10 years it would have never even occurred to me that I would get a bonus like that.

In this situation I always offered to do the paperwork and set-up escrow for $500. That was a long-time ago so with inflation probably a $1,000 equivalent.

This is a case of the tail trying to wag the dog. Cut him loose if he won't work for his money.

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. 

Yes, the agent found him the property. And he got PAID for finding it. He earned AND received the commission when the investor closes on the purchase of the property.

Tough situation. If the agent is in fact being greedy, I would explain why you were going to throw him a bone, and now you are not. If he is in fact that type of person, I would not worry about your reputation, as others may have experienced the same with that person. 

However, do what makes you feel like you are doing the right and honorable thing. Follow your gut on this one. 

Only you truly understands your situation.

Although not exactly the same, my bank tried to add some BS fees for preapproval letters I needed for HUD offers. We had already used them for three loans with more coming down the road. When I met with them, I said that I was hoping to build a long-term business relationship with them, and it wasn't going to work, no matter the benefit, if they pulled this type of stuff. We ended out working out a process that worked for both if us.

It sounds like you came to the same type of agreement.

That is a tough one. On one hand, I do agree that the agent is being greedy and his behavior is obviously damaging your perception of him. On the other hand, your behavior is damaging his perception of you. A good agent would say "good for you! Let's go find two more," and continue earning  your trust and business. However, if this agent is well connected in your area, he could hurt your reputation. I don't really have any advice, but I do not think this agent is respecting your relationship or the sway that your business holds. 

Maybe turn the tables a bit- surely he doesn't want to lose all future commissions with you, either- let him know that his actions are damaging your relationship and that you'd like to be able to work together in the future too- maybe you can shake hands, agree to disagree and move on to the next deal together. 

I'm writing this as an agent and  investor/wholesaler. It's worth paying if you're utilizing him/her, getting calls 2 x week. Because at the end of the day you will be loosing out, not the agent. Listings are very important for agents. It's a chance for a decent commission (vs. the commission made on 20k houses) and listings help further our careers. Yes it is a career lol. There's a BP article on working with agents which says "you want to keep your agent happy". This is very true. I worked with a particular investor. I did tons of work, found all kinds of homes, did non stop repair estimates in not such great areas and wrote tons of offers (not complaining because I understand that's what it takes to work with real estate investors). We closed on several properties. Then we had a little "squabble" over a few hundred dollars. Also, this individual didn't want me to list a house I helped to find and closed on. Guess what? When I find good deal this individual is not at the top of my list, a list that keeps growing weekly it seems.  Believe me it's not worth it. Maybe try to negotiate the fee with the agent? I don't know. Also, the heading of "agent wants 2% for not selling a house" to get paid for not selling a house" is, frankly speaking, offensive. That's not what's going on here. It's about building trusting, ongoing relationships, not someone just being "greedy". 

If he is actively bringing you deals you must be crazy not to pay him, especially if you have a previous agreement that he will be listing the properties he brings. In California, that in fact is creating an "agency relationship" which if he could prove it, should hold up in court. Besides the legalities of it, do you want to sacrifice your deal flow and reputation? 

If we say an agent will re-list, they will get the opportunity. If we find the buyer, they still get paid. The only way they don't get paid is if they do not sell it within a certain amount of time, then we make a switch to another agent. 

Step back and look at who is really being greedy. You should be making more than him on every deal. What if he began to start flipping houses, you will never see another deal from him again. Keep him on your team, everything always runs smoother when everyone get a share of the pie. Maybe negotiate the 2% down, but make sure you do not kill a relationship. 

Originally posted by @Nick Wing:

If he is actively bringing you deals you must be crazy not to pay him, especially if you have a previous agreement that he will be listing the properties he brings. In California, that in fact is creating an "agency relationship" which if he could prove it, should hold up in court. Besides the legalities of it, do you want to sacrifice your deal flow and reputation? 

That didn't sound right to me, so I did some research (I'm not an attorney, and this isn't comprehensive research, btw)...

Based on reading the link below (and doing a bunch of follow-up research), this appears to very much NOT be the case in California (and likely every other state based on the Statute of Frauds).  In almost all circumstances, an agency relationship must be "actual" (in writing) as opposed to implied (oral or otherwise) in order for an agent to recover commission.  It's been challenged all the way up to the Supreme Court, which has previously ruled that there is no breach of contract for agency without a written agency agreement.

The text references a Supreme Court case where an agent was awarded commission based on the buyer/seller conspiring against the agent, but given that the OP didn't appear to have any agreement (written, oral or otherwise) on this particular property, I don't see how that could be argued.  And the SC specifically stated in that case that there was no breach of contract on the seller's part, even with an oral agency agreement.

As to your other points, I mostly agree -- you don't kill the goose that lays the golden eggs.  But, this agent has already indicated that money is more important than the relationship (yes, you can argue that the OP indicated the same thing), which leads me to believe there wasn't a good long-term relationship here anyway.

This is from the CA Dept of Real Estate:

http://www.bre.ca.gov/files/pdf/refbook/ref10.pdf

Wow! That is so kind that you would give him something. Old saying is never burn bridges.  The agent is making a bad decision,  Reading some of these answers Im surprised. Doesnt the agent work for the customer. He didnt list the house. He didnt sell the house by bringing the buyer. So if I find out one of my clients sold a home I sold them without me Im suppose to ask them for a commission because they told me when their ready to sell they would go through me.  Uh how bout no. Really! I can't believe this agent. Service has gone out the window, The agent has certain duties he is to abide by to be honest, fair etc.

I'll chime in as an agent and say that in no way does he deserve a commission.  You would be kind to give him something, but I wouldn't do it at this point unless I felt like he was the gatekeeper to some secret information that was not readily available to all other agents.  He seems greedy to me, and that's a huge turn off in any relationship. 

Doesn't seem right for the realtor to expect a commission on a sale he wasn't involved in, just because he thought he would be. I thought I was going to get paid for doing work in the future at my old job. But then the company went bankrupt, and I didn't. So goes life. Is it worth paying to save the relationship? Maybe, but I'd have a hard time convincing myself it is if it was me.

I'd make sure to be clear in the future that IF you list the house with a realtor you plan to use him, but it isn't a guarantee that you will.

I have learned that a lot of problems stem from poor communication, and this problem might mend itself if both of you understood each other. We get some good incite as to what you are thinking but lack incite as to what the agent was thinking. 

Is the agent being greedy by asking for the 2% commission? Maybe he is plan greedy but maybe he is not. Maybe your agents thoughts go something like this, "I've been bending over backward for this guy (you) helping him out going the extra mile for him..... I thought we were unofficial business partners and even though I didn't help with this deal I've help him with everything else and I thought.... 

Bottom line, I think this might be best if you take the guy out for lunch and let him know exactly what you think and where your thoughts are coming from. You will then get an opportunity to hear what his thoughts where and where they were coming from. From this point you can probably make an informed decision as to whether you will pay him.

Last note, I say make sure the talk is productive and you get the answers you are looking for before you leave so you know whether you two will remain partners from this point forward. Nonetheless, I truly hope you are able to resolve this matter and feel good about whatever decision you make. 

Originally posted by @J Scott:
Originally posted by @Nick Wing:

If he is actively bringing you deals you must be crazy not to pay him, especially if you have a previous agreement that he will be listing the properties he brings. In California, that in fact is creating an "agency relationship" which if he could prove it, should hold up in court. Besides the legalities of it, do you want to sacrifice your deal flow and reputation? 

That didn't sound right to me, so I did some research (I'm not an attorney, and this isn't comprehensive research, btw)...

Based on reading the link below (and doing a bunch of follow-up research), this appears to very much NOT be the case in California (and likely every other state based on the Statute of Frauds).  In almost all circumstances, an agency relationship must be "actual" (in writing) as opposed to implied (oral or otherwise) in order for an agent to recover commission.  It's been challenged all the way up to the Supreme Court, which has previously ruled that there is no breach of contract for agency without a written agency agreement.

The text references a Supreme Court case where an agent was awarded commission based on the buyer/seller conspiring against the agent, but given that the OP didn't appear to have any agreement (written, oral or otherwise) on this particular property, I don't see how that could be argued.  And the SC specifically stated in that case that there was no breach of contract on the seller's part, even with an oral agency agreement.

As to your other points, I mostly agree -- you don't kill the goose that lays the golden eggs.  But, this agent has already indicated that money is more important than the relationship (yes, you can argue that the OP indicated the same thing), which leads me to believe there wasn't a good long-term relationship here anyway.

This is from the CA Dept of Real Estate:

http://www.bre.ca.gov/files/pdf/refbook/ref10.pdf

Well they did create an IMPLIED agency relationship. However let me rephrase the "if he could prove it" sentence. Since they do have an IMPLIED relationship, if the agent could prove a discussion about COMMISSION in writing, then seller/investor would be responsible to pay the commission. So yes as you said, in order to legally be able to recover the commission, it would have to be in writing. An email, text message, or something that simple may be sufficient. 

But again, as you agree, it all boils down to how the relationship was structured, and if it is worth the money. 

Option 1) ethical

Pay the agent his commission if you promised him the listing. regardless of how much he worked for the buyer. A deal is a deal verbal or written. He doesn't get paid more when he makes you more profit on yours sales. Keep your partnership  a partnership. And more importantly keep your agent (employee ) happy. 

Option 2) screw him out of his commission because you are greedy over a minimal amount compared to what your profit is.... and have the agent hate you. He will probably eventually still send you deals, but now know what kind of investor you truly are. 

I have investors that fall into each category. I have been screwed out of lots of commissions verbally promised. I lose all trust in them afterwards and they do hit a "black list" of mine. Life is short, most agents are smart enough to do business with those investors that are loyal, honest, and fair. 

After an investor pulls this type of move on me ( promising a listing then pulling it back and trying to close it himself ) he goes to the bottom of my list.  As an investor you calculated your profit based on giving him the listing... don't take it away simply because you think you can put the deal together without him. 

lastly and more importantly, never take the negotiation away from the agent. that is a sure way to kill your negotiation power and the deal....Ive had several sellers try and take over negotiations and cut my commission or take it away completely and end up killing the deal. 

Let your agent sell your home, and investors stick to being a investor. This is how we can all live in harmony together :)