Connecting Buyers and Sellers of Philippine Real Estate
Is it justified to share broker's commission with the buyer?
I was just told by a new broker friend that she is proud of her success in business of over 40 years even though she had to share her commission to buyers especially in big ticket deals. She justifies this practice by the result: success in closing most of her deals and her ability to share her commission to her less fortunate agents. "Everybody happy" she says.
In another case, I was encouraged by a developer to share my commission to a buyer because the only remaining issue in closing the sale is the price.
Is this practice justified?
In another case, I was encouraged by a developer to share my commission to a buyer because the only remaining issue in closing the sale is the price.
Is this practice justified?
Replies to This Discussion
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Permalink Reply by Mike on -
I don't see anything wrong about sharing your commission directly with principals (the Buyer or Seller) if it's allowed by law. I will still disclose it properly.
You also need to check if this is allowed by the lender financing the deal. In addition, the principal should be informed that getting part of the commission may be a taxable income and will be reported to the government.
It will be a good idea to consult a qualified tax and legal professional before doing it.
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Permalink Reply by josefino flores on -
well for me, it's not exactly sharing but giving discount to clients.but really it happens sometime inorder to close the deal wherein the broker is always at the losing end and not the seller/developer.furthermore the client knows your commision so you can"t avoid to give discount.unfortunately, It becomes a bad and unethical practice of some brokers to pirate/grab the clients of another brokers. so i therefore say that it should be stop to avoid this unethical practice
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Permalink Reply by Realtor® Anna Nisperos on -
I have had this happen to me only a few times as it is an old practice and is slowly going away here in the Philippines. I have also used it as a discount incentive on a couple of sales. This type of transaction is neither illegal nor unethical, but as Mike pointed out, it needs to be reported to the Bureau of Internal Revenue (BIR) for tax purposes. I always tell the client immediately when they ask for part of the commission, that as a Registered Business and being a Licensed Broker, I have to submit the transaction to BIR for Tax purposes. Most of the time the client usually backs down very quickly, because they don't want to be reported to the government for any reason.
Real Estate Laws, Practices and Ethics are slowly changing here for the better. It is the responsibility of every Licensed Broker in the Philippines to promote sound business practices and irreproachable ethics as we have sworn to uphold during our oath taking ceremony when we became Licensed Brokers.
Happy New Year to all my fellow Realtors and friends on Balikbayan Homes.
Realtor® Anna Nisperos
PAREB and PMRB
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Permalink Reply by Mike on
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Balikbayan Homes intends to promote awareness by discussing real estate and other related issues in the open.
I know it is tough to change things in the Philippines but I strongly believe that knowledge will encourage and empower us and our clients to demand and do what's right.
Let's all make it a healthy and productive 2010.
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Permalink Reply by Realtor® Anna Nisperos on
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The PAREB and PMRB Board of Directors and all their constituent members are constantly striving to do just that Mike.
We all encourage you to continue to promote awareness of the Philippine Real Estate issues and practices in this open forum and I will also continue to answer and provide any information I may have on these or any relevant topics.
Realtor® Anna Nisperos
PAREB and PMRB
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Permalink Reply by Engr. Enrico B. Canasa on -
in my own opinion the comission sharing with the buyer or seller must be on a case to case basis. sometimes we cannot avoid greedy buyer or seller some woud like to take all. Most seller especially in the provinces they don't recognised the licensed brokers who can help them in selling or buying a property commision sharing maybe will work to close a deal. Real Estate Brokers must set an example by being professional to all their business deal. Money is nothing if our reputation is tainted.
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Permalink Reply by Realtor® Anna Nisperos on
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Hear, hear. I couldn't agree more sir. We all need to do our part as Professionals.
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Permalink Reply by Mike on
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I don't think sharing your commission to the buyer or seller is a moral issue especially if it's allowed by law and properly disclosed. Some real estate companies even offer "cash rebates" to attract business but again, only to buyers and sellers.
What's immoral is paying bribes and kickbacks to 3rd parties. How many times do I hear grease money is needed to process documents, permits, etc? This accepted practice hurts us all and must be stopped.
For starters, we should publish the names of corrupt public officials and employees in the open who refuse and delay services unless bribed.
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Permalink Reply by Mike on
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The US Department of Justice has tackled this issue regarding real estate rebates.
You can read it here:
http://www.justice.gov/atr/public/real_estate/rebates.htm
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Permalink Reply by Odilon (Ody) dela Merced on -
Thank you Mike,
I now appreciate that the underlying principle used by the article for rebates is free market competition which views the consuming public as the ultimate beneficiary and which will, in the end, be good for the economy.
To accept such principle however, one also has to consider that aside from the broker, there is also another party that also holds considerable power over the selling price and that is the seller. Thus to argue that preventing rebates will curtail free competition is not entirely true because the owners themselves are also in the position to scale down the selling price. If sellers feel that the broker’s commission is unreasonable, then they can negotiate for a lower rate before services are rendered or they can sell the property themselves without a broker.
But once seller contracts a broker for a certain amount of commission then for the seller to pressure the broker to lower the commission just to close the deal to me would be unethical.
At linkedin, an Australian real estate lawyer by the name of Peter Mericka says “If an agreement has been made for the provision of a service, and then pressure is applied after the agreed service has been delivered for no reason other than greed (i.e where there has been no wrongdoing on the part of the broker, and there is no gain or benefit in return for the reduction), then I agree that this would be unfair and unjust. It's a moral breach of the agreement.” As can be gleaned from his statement he is nonetheless in favor of rebates but with an exception – if the action is motivated by greed.
The practice here in the Philippines is that buyer’s brokers do not charge their client for their services but rather get a share of the commission of seller’s broker. Should there be a case where the buyer is willing to compensate the broker with a commission or a flat fee then buyer can negotiate at the outset for a fair professional fee. Brokers should not then be pressured to cut down agreed fees after services have been rendered.
True to life examples of unfair or unethical practices I feel are as follows:
1. After having fully presented the property of a developer, the buyer negotiated with the in-house agent for a price reduction. The agent, who was struggling to meet her quota, agreed to give the obviously rich, overzealous and habitual investor a rebate and ended up receiving less than 1% commission. The buyer boasts that again he just had a good deal. Good for his ego. To my mind, it was arm twisting pure and simple. At the outset the buyer knows that the selling price is non-negotiable being a developer's property.
2. Broker A presented a developer's property to a buyer. The buyer was convinced by broker A to buy the property but instead went to ask broker B to close the sale in exchange for a rebate. One can say that this is the risk of the trade. But this is why Ayala Land is one of my favorite developers. They have a buyer registration mechanism where buyers are asked to sign a registration form acknowledging the name of their broker to protect precisely the original broker. If broker A did a bad job, then he/she should not have been accredited by the developer in the first place or he should thereafter be stripped off his accreditation. The buyer also has the option of waiting for the buyer registration to expire before buying the property through another broker or directly from the developer.
3. A corporation buys a property. The brokers share the commission with the buyer’s decision maker. Nothing wrong if the buyer was a sole proprietorship but if it were a partnership or a corporation, it would be a bribe.
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Permalink Reply by Mike on
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There are ways to protect your commission.
1. Insist for an Exclusive Right to Sell listing agreement
2. Document everthing properly
3. Have a buyer-broker agreement in writing
4. Document procuring cause (i.e. a list of buyers you brought in to the property)
5. Educate your clients
6. When in doubt, disclose.
7. Report and penalize erring licensees
A licensee shall not solicit other licensee's clients when a valid contract is in effect. This practice is one of the reasons why brokers who take "pocket" or "open" listings do not publish the listing address. They are worried that other licensees will solicit the owner once they found out the address. Witholding the property address hurts the consumers the most and must be stopped. If you're an owner selling your property, do you think it's helpful to hide the address?
One solution is to have an Exclusive Right to Sell listing agreement with the property owner, make other licensees aware that a contract is in effect, then penalize licensees who still solicit the owner.
A good MLS system should clearly state what type of listing agreement is in place. This should deter other licensees from soliciting the listing. You can also add disclaimers or disclosure clauses on your marketing materials.
I am not a qualified legal professional and it's always best to consult one.
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