Minimum Commissions and Buyer's Broker Agreements

[Charlie MacPherson]

I'd like to tap the collective wisdom of the forum.

I've made two business decisions that don't sit well with two friends who want to refer business to me.  They won't refer unless I change these two practices.  Here they are:

1. I refuse to work with a buyer unless I have an executed Buyer's Broker Agreement.  

This agreement states that if the client buys a property during the term of the agreement, they will buy it through me.  The term is 12 months and auto-renews unless cancelled 60 days in advance of renewal.  It's an "exclusive right to represent" contract.

Why? I have had too many "buyers" that have burned days of my time and tanks of my gas, only to be told at the last moment that some friend or distant relative popped up out of nowhere with a real estate license or FSBO. This agreement prevents us from losing that sale to "Aunt Millie, the Realtor out of the blue".

It seems to me that this is not only smart business, but a "best practice".

2. The agreement also says that we have a minimum commission.  To avoid charges of price-fixing, I won't discuss the specifics here, but suffice it to say that it would only apply to properties that are at or below about 1/3 of the average price in my market.  

The principle is that we work just as hard (and often harder) for a low cost sale as for a high cost sale.  I believe that we should be fairly compensated for that work and this minimum fee accomplishes that.  (I also question the conventional wisdom that says the buyer's side must allow the seller's side to determine our income).

When the seller's side offers less than our minimum commission, we put the shortage in the offer:  "This offer is contingent on the seller paying $XXXX toward closing costs (it may or may not include closing costs as well as additional commission) and fees associated with this transaction.  Our fee is covered by the "other fees" clause.

I realize that the minimum commission is unusual, but it is fully disclosed to the buyer.

My two friends insist that I drop the minimum commission in order for them to refer clients to me.  One wants me to drop the term of the buyer's broker agreement to 6 months.

At this point, it's a numbers decision.  If my friends refer enough business, it's worth it, though I have to admit that I resent the pressure.

I'd like to hear from others.  Do you require a buyer's broker agreement?  

Do you have (or considered) a minimum fee or do you know others that do?

Thanks for your input.

[Russell Brazil]

I do not use these. But I also dont take every potential client that comes to me. I dont want to bind someone to me with one of these contracts, because I too want the choice to fire the client. Sure Ive had some people waste my time....but I am pretty good at recognizing early in the process, and get rid of them.