Partnering with a friend on a deal - should he put his commission toward closing cost

[Brett Bowers]

Hello! A friend/former coworker of mine is partnering on buying a duplex with me. We are under contract right now. He is acting as the buyer's agent in the deal since he has his license. I have about 3 years of experience flipping and building houses, as well as an associates degree in a trade, about 2 years of drywall/paint experience, around 1 year of commercial/residential electric experience, and about 3 years of landscaping experience. I will be leading the charge on building a scope of work, (if needed) reaching out to my extensive database of subcontractors for quotes/work, making selections/choosing materials, and the main one performing most of the hands-on labor, while teaching him (who has no experience) how to do these tasks. So, basically being the project manager/GC on this deal. We will both live in one side of the duplex and rent out the other when renovated. We are having the conversation right now around what to do with his commission he will receive when we close. It is my understanding that it would be mutually beneficial for him to put all or much of his earnings towards closing costs to lower our cash out of pocket for closing. He does not understand my POV. What would you do in this situation? How would you present this to him in an understanding/resolving way? I feel like it is helpful to add that I am not looking or asking for any compensation for performing the tasks I mentioned above, as well as bringing in my knowledge/experience to benefit both of us to maximize the returns we will get in the future. This deal would not be happening if either one of us were not apart of it in the first place, so in theory, half of that commission is mine anyway, right? We are buying this as 50/50 partners. I would understand that if he was just representing me as the buyer's agent and not owning it 50/50 with me, he would be able to take 100% of that commission for himself, for providing that service. But that is not the case here. Looking for practical steps to take to maximize our partnership for the better. We both want to do this deal. Thank you! 

[Account Closed]

Quote from @Brett Bowers:

Hello! A friend/former coworker of mine is partnering on buying a duplex with me. We are under contract right now. He is acting as the buyer's agent in the deal since he has his license. I have about 3 years of experience flipping and building houses, as well as an associates degree in a trade, about 2 years of drywall/paint experience, around 1 year of commercial/residential electric experience, and about 3 years of landscaping experience. I will be leading the charge on building a scope of work, (if needed) reaching out to my extensive database of subcontractors for quotes/work, making selections/choosing materials, and the main one performing most of the hands-on labor, while teaching him (who has no experience) how to do these tasks. So, basically being the project manager/GC on this deal. We will both live in one side of the duplex and rent out the other when renovated. We are having the conversation right now around what to do with his commission he will receive when we close. It is my understanding that it would be mutually beneficial for him to put all or much of his earnings towards closing costs to lower our cash out of pocket for closing. He does not understand my POV. What would you do in this situation? How would you present this to him in an understanding/resolving way? I feel like it is helpful to add that I am not looking or asking for any compensation for performing the tasks I mentioned above, as well as bringing in my knowledge/experience to benefit both of us to maximize the returns we will get in the future. This deal would not be happening if either one of us were not apart of it in the first place, so in theory, half of that commission is mine anyway, right? We are buying this as 50/50 partners. I would understand that if he was just representing me as the buyer's agent and not owning it 50/50 with me, he would be able to take 100% of that commission for himself, for providing that service. But that is not the case here. Looking for practical steps to take to maximize our partnership for the better. We both want to do this deal. Thank you! 

Tough call to make. That should have been worked out and put into the Joint Venture agreement you both signed. What, no Joint Venture Agreement? Well, that's a fine kettle of fish. This is headed the wrong direction already. We will be hearing from you again on issue after issue.

Seriously now, go to a search engine, find a Joint Venture agreement, work out the details now before everything happens and save your selves a lot of hassle later. Better yet, have an attorney draw it up since he will know what questions to ask you two.

[Alecia Loveless]

@Brett Bowers Always, always, always have a partnership agreement. I went to court and to bat with a bank over three deals that had no partnership agreement. I’ve learned my lesson.

Take a step back and look at the goals the two of you have. To preserve this friendship and deal you may need to let go of the commission on this deal.

Personally I feel he earned it that’s his money.

Negotiate the NEXT deal better if you want the commission included.

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Brett Bowers:

Hello! A friend/former coworker of mine is partnering on buying a duplex with me. We are under contract right now. He is acting as the buyer's agent in the deal since he has his license. I have about 3 years of experience flipping and building houses, as well as an associates degree in a trade, about 2 years of drywall/paint experience, around 1 year of commercial/residential electric experience, and about 3 years of landscaping experience. I will be leading the charge on building a scope of work, (if needed) reaching out to my extensive database of subcontractors for quotes/work, making selections/choosing materials, and the main one performing most of the hands-on labor, while teaching him (who has no experience) how to do these tasks. So, basically being the project manager/GC on this deal. We will both live in one side of the duplex and rent out the other when renovated. We are having the conversation right now around what to do with his commission he will receive when we close. It is my understanding that it would be mutually beneficial for him to put all or much of his earnings towards closing costs to lower our cash out of pocket for closing. He does not understand my POV. What would you do in this situation? How would you present this to him in an understanding/resolving way? I feel like it is helpful to add that I am not looking or asking for any compensation for performing the tasks I mentioned above, as well as bringing in my knowledge/experience to benefit both of us to maximize the returns we will get in the future. This deal would not be happening if either one of us were not apart of it in the first place, so in theory, half of that commission is mine anyway, right? We are buying this as 50/50 partners. I would understand that if he was just representing me as the buyer's agent and not owning it 50/50 with me, he would be able to take 100% of that commission for himself, for providing that service. But that is not the case here. Looking for practical steps to take to maximize our partnership for the better. We both want to do this deal. Thank you! 

Tough call to make. That should have been worked out and put into the Joint Venture agreement you both signed. What, no Joint Venture Agreement? Well, that's a fine kettle of fish. This is headed the wrong direction already. We will be hearing from you again on issue after issue.

Seriously now, go to a search engine, find a Joint Venture agreement, work out the details now before everything happens and save your selves a lot of hassle later. Better yet, have an attorney draw it up since he will know what questions to ask you two.

commissions are earned and should never be put back into the project your partner will owe personal income tax on it.. if you want to get a credit for it.. you have the seller lower the price by the commission that is how you handle that.. if its to late then its his money and he should pay tax on it and keep the rest.

[Teri Feeney Styers]

You are looking at this the wrong way. You have a job that brings in an income. Your partner has a job that brings in income. His income happens to come from selling real estate. That commission is HIS money. Your paycheck is YOUR money. You are agreeing to make a joint purchase together that requires some cash from each of you. Where that cash comes from is irrelevant. Money becomes very relevant at the time of purchase; especially if there is not an equal contribution. This is where the operating agreement component comes into play. You need to spell out all the details - including an exit strategy. How long will you hold the property? Will there be a buyout agreement? Can one partner loan money to the partnership in the case of an unexpected repair? Talk out all the things that can go wrong and make a plan today! Another note: an agent should never work for free. He/she can negotiate a minimal commission if they wish; but if no compensation is received then the agent's E&O insurance won't cover a problem down the road. Too dangerous... @Brett Bowers