What Would You Do!?!?

Question

Okay, here's an interesting situation that my best friend (let's call him "Bob") found himself in this evening, and I'm curious what you would do if this happened to you... I'll try to keep it brief, but regardless, I think it's a VERY interesting situation...

Bob has a high-end condo that he bought in 2002 as an investment. He owes about $850K on it. He would need to sell it at $925K to pay off his loan (after all closing costs and commissions). He'd sell for this price, but for anything less, he'd rather hold and continue to rent it out.

Bob is not a big investor (it's his only property) and he doesn't have much experience with real estate agents (Bob can also be a pushover).

Bob listed his condo for sale in 2010 and didn't get any offers near his $925K price. I thought his agent (let's call him "Tim") was pretty lame -- he didn't do much of anything except put it on the MLS and hold one or two open houses.

Bob rented it out for another year and then listed it again in early 2011. Despite my suggesting otherwise, he used Tim again to list the property. Tim still didn't do much work, but this time he got Bob an offer for $910K. Bob suggested to Tim that he (and the buyer's agent) reduce their commission by about 1% total (from 2.5% each to 2% each) to get the deal done, as the buyer was adamant about not increasing his offer price and Bob really wanted to get this deal done.

Long story short, the agents pushed back against the idea of lowering their commission, went back with a $925K counter-offer and the buyer got cold feet. He walked. This was May 2011. In June 2011 (last month), Bob rented the place again and decided to wait it out another year.

Fast forward to this week. Bob gets a call from an agent who just sold the condo next door for $925K. He had a backup buyer who offered $915K and was heart-broken that he didn't get the place. The agent noticed that Bob just took his place off the market and asked Bob if he would still consider selling it to the back-up buyer. The buyer was even willing to take over the newly signed lease until it expired.

Bob said he'd consider it...bring him an offer. For some reason, instead of offering to represent Bob himself, this agent contacted Tim (they work in the same office and may be friends) and gave Tim the lead.

Tim contacted Bob today and said, "I have an offer in hand for $915K...are you interested?"

Bob said, "Nothing has changed...I still need $925K to sell, unless you guys are willing to work for 4% instead of 5% commission."

Tim said, "Instead of reducing commission at this point, let's counter the buyer at $925 and see what he says."

I told Bob, "Ask Tim to send you the written offer and tell him you'll review it."

This is where it gets good!

Tim sent Bob the written offer. But...

TIM DOESN'T HAVE A LISTING AGREEMENT WITH BOB! THERE IS ABSOLUTELY NO CONTRACT IN PLACE BETWEEN BOB AND TIM AT THIS POINT.

So, Bob has an offer in hand, but no agreement with Tim to pay any commission.

In theory, Bob could sign the offer and walk it down to the closing attorney and never call Tim back again. This would screw over both Tim and the buyer's agent, but Bob *could* do it.

What would you do?

Would you sign the offer and walk the contract to an attorney and close it without the agents?

Would you tell Tim you're accepting the offer as-is and also agree to pay smaller commission than what Tim is asking for (since this was Bob's preferred arrangement from the beginning)? If so, do you offer 4% (the amount needed just to break even) or do you offer even less commission in order to make a profit?

Would you give Tim what he's asking for (a listing agreement at 5%) and then allow Tim to counter the offer at $925K and hope the buyer agrees?

Or something else?

Craig E. · Answer

I would have the buyer's agent handle the entire transaction (by exclusive agreement) for 2.5% and let him and Tim work out their own co agent split.

Dick Green · Answer

In my opinion, Tim doesn't have a leg to stand on should Bob decide not to pay. Things to consider: Is there a protection period in the last listing agreement? If so, how long? My other concern would be Tim's honesty. With him presenting the offer, will he try to claim procuring cause to the transaction. The best way to negotiate on this transaction would be to get with the buyer's agent directly and tell him that he won't sell unless the price is increased to (x) or the agent's commission is reduced. I would tell this new buyers agent that I don't have a listing agreement with Tim and don't want him participant to the transaction. I'd also tell him that if he wants the transaction to close there will only be one commission and that he will need to work as intermediary.

Aaron McGinnis · Answer

So unless I'm missing something - Bob's listing contract with Tim is long expired. The listing agent next door had a buyer and he sent said buyer to Tim. Bob's house isn't on the market right now at all. This buyer just happens to have fallen in his lap... If Bob can get in contact with the buyer directly, and really feels like being nice... Bob should tell Tim that he will pay Tim a transaction fee, but not more than 3%. How much past that is up to Bob. Personally, I'd go with something like 2.5 or 3%... Generously. Depending on how annoyed I was with Tim, I'd maybe pay more like 1%. Tim's job was to find a buyer. Tim failed miserably at his job. Many moons after Tim has ceased his advertising, a buyer has fallen into Tim's lap through a process which my dear ol' dad might describe as "Idiot's luck"... Tim hasn't really done a damn thing to procure this buyer. Tim should accept his $10,000 commission with grace and see it for what it is - a gift horse. Bob should pay Tim because in this hypothetical case, I'm Bob and I'm sort of a soft-hearted chump who tends to pay people even when they're not 100% deserving. If Bob wants to be a shark like a professional colleague of mine, he should tell Tim to get stuffed and go close the deal.

J Scott · Answer

This whole thing was actually very eye-opening for me as well... Talking to your agents last week on your behalf, and having them literally cuss me out, threaten me with lawsuits and hang up on me when I refused to agree to their terms, made me realize that some agents really will use intimidation and scare tactics to bully their clients into doing what the agent wants. I'm used to dealing with agents who work on lower-price point houses, and my biggest complaint is that they don't really care about anything. They're lazy, inexperienced, uneducated in real estate, and unmotivated...and those are the good ones! For two years, I've been telling you to take control of your agents and your listings, and haven't been able to figure out why it's been so difficult for you to stand up to them; I guess I assumed they were as incompetent as the agents I'm used to. Instead, they took the other tact -- they used scare tactics to get you to go along with whatever they wanted. Had I not had any real estate experience, had I not known that their threats were empty, and had I not known I could scare them by invoking my own threats about calling the Real Estate Commission, I probably would have been pretty intimidated as well. Good lesson all around...and thrilled it's working out for you Ez!

Ezra Udoff · Answer

Hi Everyone, It's Bob here! I just want to say thank you to all who weighed in on this topic. I was really being bullied by my agent,and I can't tell you how hard it was for me to remove myself from that "relationship". Honestly, it's only in hindsight that I am now able to see what an abusive situation I was caught up in. Through the help of all your comments, I was able to see the light and sign a contract paying a total of 2.5% commission - just to the buyer's agent. The money I will save will literally be life changing! Special thanks to J Scott. I am forever indebted!!! That's not legally binding is it? :)

J Scott · Answer

I certainly agree with both of those... My personal opinion on this question is that both agents deserve a "fair" commission. That said, I'm not a big believer that a fair commission is always 3% (or 2.5% or whatever is standard). A fair commission -- in my opinion -- is determined by the time, effort, money and risk involved in the transaction. In this particular case, the buyer's agent deserves close to a standard commission, as he took on the time, effort and risk of trying to find his client a property. He doesn't deserve his full commission, as he ultimately didn't find his buyer the property (the other listing agent did). In that area, in this market and for properties priced in that range, 2.5% is standard. I think he deserves about 2% for mostly doing what he was paid to do. And I might accept the argument that he deserves the full 2.5%. The listing agent (Tim) also deserves a fair commission. In this case, Tim had a deal handed to him, he spent no time working the deal, spent no money marketing the property and incurred essentially no risk in the transaction. For the most part, his efforts involved paperwork. For this, I believe 1% is a fair commission. So, if I were my friend, I'd be willing to offer between 3% and 3.5% commission on the deal, and I'd ensure that the listing agreement specified that the split was 2-2.5% for the selling agent and 1% for the listing agent. In my book, that would be a fair deal for all involved... But, that's just my opinion, and I may not be in the majority...which is why I posed the question! :D

Joe Delia · Answer

Karma, for one. For two, he's always been in a position of power.

Joe Delia · Answer

1% to tim split by 50/50 most likely with his broker he might not even break even on the whole deal. I guess thats the cost of doing business. I can't say your wrong J. The buyers agent is an idiot. Unless instructed by his principal, why did he not try to work both sides of the deal? This sounds like the blind leading the blind in all aspects of the transaction.

James Vermillion · Answer

Personally I do not see how cutting Tim out of the deal would be screwing him at all. Tim knows there is no contract in place, and he did nothing to get this contract done (the Buyers Agent found the deal). Being a licensed agent I certainly agree in fair commissions, but in this case I don't think Tim did anything to deserve a commission. He listed the property multiple times and was unable to sell the property and it sounds like he didn't even try that hard, so if his contract is expired he is no longer getting paid...By the way, I try not to get walked on, but I also try to be fair :)

Joe Delia · Answer

Reducing commissions is typically not the answer. However I truly believe that bad people need to be moved out of the market. Your seller should of taught the agent how treat him, apparently he allowed himself to be walked over. So for that very reason, I pay out the commissions. Bottom line is your seller is at fault for it all. In my opinion. AT WORST, I'd give him a smaller commission, don't cut him out completely.