Commission Clauses Cloud Sales Packages

September 1, 2001

Receiving a property sales package in the mail from a listing agent can be a good opportunity for practitioners who are working with investment clients, but these days that package often comes with a price tag—no commission share.

Pushed by property sellers who claim they can get much of the information they need online, some commercial practitioners are discounting their fees to win listing contracts.

The upshot: Listing agents are inserting compensation clauses in the confidentiality agreements they send to other practitioners. The clauses prohibit practitioners from disclosing the content of the sales package to their clients unless they first agree to waive their claim to a share of the seller-paid commission should their clients buy the property.

That means procuring agents must turn to their buyer clients for compensation—a practice that some practitioners believe puts them at a competitive disadvantage in light of the entrenched expectation among buyers that it’s sellers, not buyers, who pay brokerage fees.

It’s a subject Frank Pipgras, ccim, sior, would like to see discussed more among commercial practitioners.

Given the extent to which compensation is under pressure in commercial sales, it’s not hard to understand why some listing agents don’t want to share their discounted commissions with the procuring agent, says Pipgras, a broker with Aguer Pipgras Associates, Sacramento, Calif.

“There’s not a lot of fee in some of these deals today,” he says. “Sellers know that there are lists of all the buyers out there and that they don’t need a real estate professional to access that information. That increases the pressure on practitioners to discount their fees.”

Pipgras says he’s neither for nor against the practice of waiving your claim to a share in the commission as the price to review a sales package. “It’s just the reality of investment brokerage today,” he says.

But he thinks the issue would benefit from more attention among practitioners so that its pros and cons can be weighed.

Confidentiality agreements are a standard part of the sales packages agents use to promote a client’s property. They hold other practitioners and their clients to a widely accepted standard for keeping distribution of property data in the hands of the listing agent.

There’s no doubt that confidentiality agreements and other practices governing the distribution of property data have helped increase the professionalism of the industry by enabling listing agents to maintain control over the merchandising of a property, says Pipgras.

But the commission clause raises complicated issues, because buyers don’t expect their agent to raise the matter of compensation.

“That poses a psychological problem for buyers,” he says. “Buyer clients typically want their agent to look to the seller to get paid. They know there’s already commission in the deal (on the seller side), so they may feel they’re at a disadvantage with other prospective buyers, because they’d have to pay more.”

Pipgras, a 27-year commercial real estate veteran, says many buyers are willing to pay the fee because they recognize the high-value services their agent provides. In fact, those high-value services are increasing in number and depth as practitioners reposition themselves from information gatekeepers to knowledge providers. “We now do a complete market survey as a check against the preprinted survey from the seller side, including sale and lease comps, and vacancy factor and trend analyses,” Pipgras says.

But all that must play against what buyers are used to, he says. “Tradition is so strong in this industry.”

But as conventional practices give way, compensation issues that are creating tension between buyer’s agents and their clients are due for an airing.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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