Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
I was curious as to how licensed brokers (in California, or anywhere similar) handle fee splitting when buying properties for themselves. Presumably as a broker/agent, if you present the selling agent with a buyer, you are entitled to your portion of the fee. What if you are a licensed broker representing yourself? Do you still get to split the fee? How is this usually handled/negotiated?
On the other end, what if you're a broker but are selling your own house? How are fees negotiated here? Do you get to save out on all fees?
Thank you in advance for your patience and for answering my question thoughtfully and respectfully.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Jack Fernandes
I suppose you need to realize that all brokered transactions are “broker to broker” and licensed agents work for licensed brokers. Real estate has a two tiered licensing system.
So, for the sake of argument let’s say an agents split with the broker is 50/50. So, when the agent closes a transaction, his broker receives the commission due for their end of the transactions, then the agent gets half, in this example, of the commission.
To your question, if it’s a licensed broker who directly completes the transaction, then there is nobody with which to split the commission.
Take it one step further. Let’s say this broker is listing his own property (personal residence or otherwise). There does not need to be a commission paid to the listing agent since the broker would be paying himself a commission which he would only have to pay income tax on.
Thanks Kantina but read my post- I asked about California- I don’t care about other states.
___;)_______
Yeah yeah, "they" all say that until they wanna get licensed in another state 🤷♀️
FYI u may wanna pay better attention if u decide to go into real estate (hence I know you can see my name is spelled "Kanita" ). Good luck with your endeavors
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Kanita Jefferson
It’s autocorrect’s fault- we should complain to Apple! Kanita is a great name but it is marked as a spelling error by my phone. I will change that now since I can tell you are a VIP! 😇
I am very similar to yourself, getting my Broker's License and bypassing the Salesperson Requirements as I qualified via other means. Iin my case, 2 decades of building up a NYC Real Estate Portfolio was good enough for NYS, after I demonstrated I had enough points to meet their qualifications.
I also opened up my own Brokerage Firm, Work Hard Realty, for the purpose of buying to add to my Portfolio of Properties AND saving the Buyer's Commission.
It turns out that for my situation in particular, there was a lot of things I did NOT know which became a hinderance, until I got around them.
The most important was that if I was NOT part of the local NYC MLS, I was not able to get the Buyer's Side Commission info. In other words, for a particular Listing, what was the Buyer's Side Commission? That kind of info was only available on the NYC MLS's (there are actually multiple MLS's for NYC) privately and shared amoung members. It was NOT publically available.
Joining a NYC MLS is costly, as I found out, as a Brokerage AND a Broker. It was upwards of several Thousand dollars with many different fees.
Since I'm buying at a similar price range as yourself, around $1.5 Million to $2 Million, I wasn't sure if I should just suck up the fees or try to buy it without joining the MLS as there are other options like a Website that already aggregrates the Listings of all the MLS's called StreetEasy.
What StreetEasy could not do was get the Private Commission Splits for the Buyer Side Co-Broker.
HOWEVER, I decided to see if not being a Member of the MLS was going to be a problem.
I started calling Listing Brokers to introduce myself as a Broker from my own Firm looking to buy their Listed property and also save the Buyer Side Commission. As soon as I asked them what is the Buyer Side Commission, they knew I wasn't a MLS Member. Because I wasn't a Member, the Listing Broker could negotiate a different Buyer Side Commission than what was privately put into their MLS of choice. In some cases, I was offered only a 1% commission on a $2 Million Listing.... and I'm buying ALL CASH!
This is apparently legal because the 50% Split of Commission is really an Agreement that cooperating Brokerages agreed to via contracts as members of the MLS. If they are cooperating with a non-MLS member, they can negotiate the Buyer Side Commission legally.
It was apparent to me that for highly desirable properties in NYC, I needed to force the Listing Broker to split their commission evenly.
That's when I joined the MLS (REBNY in NYC).
REBNY has a Universal Co-Broke Agreement that All Members must sign and Abide by. Without this Agreement, it's the wild, wild west here in NYC. That agreement specifies that Listing Bokers and Cooperating Brokers split the commission 50% even.
I spent the several thousand dollars to become a member and from that point on, there was nothing a Listing Broker could do but to split the Commission evenly with me. If they refused to give me a 50% Split of the total commission, I could take them to Aribitration through the MLS.
Again, I don't know how different it is elsewhere, but I will tell you that in NYC, if you didn't know the rules of the game, you would get a lot less than the 50% Buyer Side Commission.
There are other issues that I won't get into right now. I'm just pointing out that in NYC, it wasn't as straight forward as would seem to be when starting out.
Now that I'm ready and knowledgeable, I found a property for $1.7 Million, negotiated it down to $1.5 Million.
The Listing Broker and I worked out the Paperwork (What we call a Deal Sheet) that specifies the details of the transaction including the Commission splits. The Deal Sheet would be giving to both Seller's and Buyer's (my) Attorney so they can then draft the Contract of Sale.
As Jay Hindrich mentioned, there might be advantages to having the Commission credited towards the Purchase Price rather than receiving it as a Commission to your Firm or yourself. You basically are deferring the Tax Obligation of the Commission to the date where you will sell the property.
As a result of doing all the above, I reduced the purchase price of the $1.5 Million Purchase by 3% or $45,000.
So, not only did I beat down the price by $200k ($1.7 Million originally), but I received a Credit of $45k for a total savings of $245k off the original listing price.
I'm not sure if any of the above will be anything but Entertainment, but I thought I would mention it since I went your route and acquired my Broker's License without being a Salesperson.
I found myself swimming with the Sharks! What the Sharks found out was that I was a bigger Predator than them!
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
6y
@Jack Fernandes there is a broker in San Diego that I hang my salesperson license with. 100% split, $600 per transaction fee. No monthly fees but no hand holding either. You can be either an agent/salesperson or a broker with them.
To answer a question in one of your previous posts, if you as a broker or even just an agent, buy a property, you are entitled to half of the commission. Usually that’s 2.5% here in CA, sometimes 3%. (The listing agent negotiated a 5-6% total commission with the seller, to be split 50/50 with the buyer’s agent/broker). I get a check at closing. I’d rather get a check and off-set my down payment rather than get a lower purchase price. More cash in hand, but that’s just personal preference.
Real Estate Broker · Pineville, LA · Member since 2009 · 70 posts · 18 votes
6y
@Jack Fernandes I’m a broker in Louisiana. When I make an offer on an investment property, in the ‘other terns’ section of the Buy Sell Agreement, I disclose that I’m a licensed broker and directly under that, state “0% selling broker commission.” I of course reduce my offer by what my commission would’ve been.
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Sandra K Shirah
Thank you for this detail, Sandra. I think that this is how it is done in California, too. I know that one must always disclose that they are a broker. Thank you for the response!
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Saj S.
I think I would rather get the cash too! That way my basis in the property will technically be higher which should help with capital gains if I ever sell.
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Llewelyn A.
Haha thanks for sharing Llewelyn. I am happy to hear you ended up on your feet and figured out the mean streets of New York! I have every reason to believe that California would be similar in many respects. Thank you for sharing your experience!
Specialist · Lancaster, PA · Member since 2018 · 152 posts · 66 votes
6y
@Jack Fernandes, Good topic Jack. As for the seller who is a broker, he would not receive a commission. His compensation is, if you would consider it that is actually a savings if that makes sense. He or she may still have to pay into the brokerage depending on how that situation is structured. For example, if I sell one of my personal properties I have to pay a $500 flat fee to my company. The other situation is quite different. If the broker is selling a personal residence he can not and should not represent the buyer purchasing it since it is a conflict if interest. If the buyer wants representation then it is up to to both parties to negotiate who will compensate the buyers agent. I have been in similar situations and common practice is for the buyer to pay his or her agents fees.
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Brett Peters
Thanks, Brett, and thank you for sharing your insight. It is interesting to me that a topic that so many claimed was obvious and straightforward
has proven to have many different approaches and variables. I am getting used to the idea that there is really no such a thing as a “one size fits all” approach to real estate action items.
Specialist · Lancaster, PA · Member since 2018 · 152 posts · 66 votes
6y
@Jack Fernandes, Very true. Originally, this was part of the reason I got my license ie. to skip transactional costs. So I can relate to your mindset. It is definitely not a straightforward topic! My advice is to sit down with a broker in your area and explain your approach. It can work if you are very active in investing. But their are alot of fees, annual dues, and liability that comes with the license. It can get up to a few thousand per year in my area, so if your active you can possibly out pace the cost.
Investor · Shelton, CT · Member since 2015 · 23 posts · 9 votes
6y
@Jack Fernandes
Hey Jack, Great question. I’m in the middle of this exact transaction. The commission can be negotiated by both brokers. And either be credited off the sale price, Or you would get a regular commission check for the agreed upon split. The advantage of being a broker on the seller side is your only paying a buyers agent commission. Long story short. Becoming a broker can potentially save you 2.5%-6%. Per transaction. Hope this helps
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
6y
@Jean Torchon
Thanks for the info, Jean. You may win for “most straightforward response.” That helps a lot, actually, and that seems like it could easily be worth the time it takes me to study for the exam and fill out the paperwork. Thanks for contributing!
@Jack Fernandes I do what you’re referring to. I am a broker and sell to/for others. This is the majority of my activity as a broker. When I buy something for myself, I expect to receive the advertised commission from the seller and have never (except one bank owned) had someone take issue with it. When I sell something I own, I typically “pay” my broker self for representing my investor self. There is another layer to this. My firm gets a split of my commissions and every firm differs on how personal transactions are split. I keep 100% sometimes and pay some to my firm sometimes. It’s my opinion that unless you intend to take up brokerage as an additional source of income, it’s not a good idea. Doing it to save/make the commissions isn’t a good plan in my opinion.