Should I be paid a realtor commission if purchasing in partnership?
Michael BaradellBusiness Member
Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votesShould I be paid a realtor commission if purchasing in partnership?
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Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
12yIt doesn't sound like this partnership is starting off very well. Hopefully not a peak into what the rest of it will be like. As they say, the only ship that won't sail is a partnership. I think Ed had good advice. It depends on how much work you did. What is the purpose of the property? And who will be handling the day to day managing depending on if a rental or flip? If it's a flip, will you or one of other partners be managing the subs or doing the work on it. If so, somebody will want paid for that. If a rental, will you or other partner be the PM, if so, somebody will want paid for that. All this should have be lined out on paper and signed before anything bought to clarify everybody's roles and compensation for said roles.
34 Replies
- Real Estate Broker · Orange, CA · Member since 2008 · 380 posts · 87 votes12y
hmmm I guess it depends on how much work your doing, if you're hunting down the deals, writing a ton of offers per acceptance, negotiating and all the other partners are sitting back then I would think you deserve the commissions. If all of you are hunting down the deals putting the same effort forth except for doing the paperwork then maybe not much commission? Get a transaction coordeinator so you're not doing the extra work?
- Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes12y
It doesn't sound like this partnership is starting off very well. Hopefully not a peak into what the rest of it will be like. As they say, the only ship that won't sail is a partnership. I think Ed had good advice. It depends on how much work you did. What is the purpose of the property? And who will be handling the day to day managing depending on if a rental or flip? If it's a flip, will you or one of other partners be managing the subs or doing the work on it. If so, somebody will want paid for that. If a rental, will you or other partner be the PM, if so, somebody will want paid for that. All this should have be lined out on paper and signed before anything bought to clarify everybody's roles and compensation for said roles.
- Real Estate Broker · Woodbridge, VA · Member since 2013 · 179 posts · 33 votes12yAsk them if you can use their services for free. The only time I didn't take commission is so that it wouldn't be split with the broker and if I would be using my IRA as a means to flip and prefer not to pay taxes on that.
- House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes12y
The issue of real estate commissions paid should have been discussed prior to the deal being consumated, not after. If everyone in the transaction is going to contribute their time, plus funds then the commission should be shared with the other participants. If the other players are only contributing money then your service is outside of the operation of the property and should be considered a fee for professional services.
- Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes12y
@Brian Mathews thanks for the response. The situation actually sounds worse in writing than it actually is. We meet frequently to discuss all issues/ questions we may have and that was one thing brought up. As for the specifics, the transaction was similar to any other sales transaction I've had in regards to work and time spent with paperwork etc.. The purpose of the property is a flip and I would say I am without question the lead guy on the project. The question that I have is, if you do not take into account any "work" regarding the project and renovation, but simply look at it as only Transactional, buying/selling, should I keep all commissions? Time spent on the project itself should be put in a different category I feel.
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes12y
I hope this:
Also looks worse in writing than the actual situation. You should have discussed as many questions and issues as you could up front and written them all down. That's your partnership's operating agreement. In a situation like this, I would expect pages and pages of documentation in the operating agreement outlining how the partnership works. If you don't have that, get it. Talk about issues (what happens if someone dies? What if you go over budget and need more cash? What happens if the deal turns into a loss? What if someone gets married/divorced? What if someone loses a lawsuit and their assets, including their share of the partnership get attached? Write it down now! If you can't agree now, when you're on somewhat friendly terms, you certainly won't be able to agree with the tension builds.
A partnership works best, IMHO, if its simple. For example, each of you contributes one third of the cash. You hire a general contractor, independent of the three of you. None of you does any significant amount of work for the partnership and there is no capital contribution as a result of anyones labor. You split the profit equally.
Things get complex if labor is considered a contribution. That is, say the three of you put in equal cash. But since you're "the lead guy on the project" you get 40% of the profits and the other two get 30% each. That split means your labor is being considered a contribution. Now things get sticky. Are you doing enough to earn your extra share? Is someone else doing work that would earn them an extra share?
IMHO you get the commission. The partnership bought a property using a buyer's agent. The buyer's agent gets a share of the commission on the purchase. That's you, the individual. Had the partnership used a different agent as the buyers agent, then that agent would have received the commission. IMHO, that's what your partnership should have done. By you being both a partnership (purchaser) and agent, you've created a conflict of interest because you're acting in two different capacities w.r.t. the partnership. Had it been just you as the buyer, no problem. You only have to resolve that conflict to your own satisfaction. And any money you receive as buyer's agent goes to the same pocket it comes out of as purchaser. But with the partnership I can see how the other partners would think "money is coming out of my pocket and going into Michael's".
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes12y
I agree you should be compensated. Heck, wouldn't we all like to find a realtor partner that we could take advantage of by bringing then in. You will be paying taxes on those earnings. It may or may not be optimal for you to act as the listing agent on the sell side. Are you exceptional in this particular capacity, or are there other agents who specialize in this in your area and would be a better fit. (Obviously I don't know you so this is just a general question.)
- Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes12y
Is this a buy a hold, or a fix and flip? If the latter, then I assume you will cut your commission for the listing and that is to the benefit of the partnership.
E&O insurance, MLS dues, TAXES, splits with broker, marketing, etc are all costs you pay. Maybe figure those costs first, and contribute the left overs or whatever you are comfortable with. Remember your license puts food on your table.
- Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes12y
Thanks for all of the input guys!! That's why I love BP!! As for the logistics/ legalization of the partnership, we are working on that aspect now. This deal initially started as a project that I would do alone, which is why nothing was drawn up from the beginning. I ended up partnering up with these two guys( who are very good, long time friends) because they both bring value to this project and future projects. With the value coming in many ways; financial being the biggest. I Absolutely know that setting ground rules and coming up with a rock solid business plan that we all agree upon is crucial for our success.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
Jon hit on it up there, address the issue in your partnership agreement.
You were acting independently under your license selling to the partnership and you're entitled to the commission, you could do it for no commission but your broker may have an issue with that.
Next, you can't contribute to any partner's capital based on your commission unless they hold a license. You can't split commissions with anyone, any person or other entity unless they and the entity is licensed.
What you can do is make the agreement that all partners will profit equally or as to a % including any and all matters of profit. This would mean that if you earned income acting in any thing related to a property the other partners would then be entitled to earn that same rate prior to all being even to divide other income. :)
- Denver, CO · Member since 2013 · 409 posts · 105 votes12y
You may be entitled to something for your time if you are doing something above and beyond what you agreed to do at the start of the partnership. Perhaps $500 for handling the paperwork, hard to say since I don't know exactly what you did but IMO expecting a full commission is silly. I would not partner with you. And to all those reading this, be warned, don't ever partner with an attorney, you can only imagine what they think their time is worth.
eta: As an agent it was your job to negotiate and contract for a commission before you did the work. Evidently you failed to do that job.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
John, I've partnered with attorneys, their time in making cotton candy at a state fair booth is no more valuable than the other guy doing the same thing. Their time was no more valuable than mine in conducting real estate matters.
You'll find that an attorney in RE partnerships may not act in a legal capacity, they may rather have another attorney represent the partners or perform legal reviews or work.
Maybe what you were suggesting was to assess each partners value in a partnership and compensate them as agreed. :)
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes12y
You are the one who spent the time getting your license, paying fees for MLS and insurance and talking on the liability as an agent. You get the commissions unless it was otherwise agreed upon in the partnership in my mind.
- Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes12y
@John Rooster I think you misunderstood the situation. Neither one of my partners were the purchaser. I am acting as the purchaser and Realtor. As I said before, I let them into the deal after the fact. The purchase agreement was accepted and terms were agreed upon without them having any part of the deal. I basically let them in because of what they will offer on future deals and since this was a solid deal, it would allow us to learn along the way. My original question is not in reference to this deal necessarily, but for future deals after a business plan is in place. I simply wanted to know that if I am acting in the capacity of the realtor and part of the partnership, is it reasonable to expect the commissions as well? And as for your comment about not partnering with me or a lawyer, I think one of the best attributes one can have when entering a partnership is to have an open mind. With the attitude you have, you may miss out on great deals.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
I think what your friends might be getting at is feeling there is a lot to lose for all parties if something goes bad (skin in the game).
If you are not putting much money in and just making the commission upfront they might feel you have nothing monetary to lose like they do.
You just have to talk through these issues until everyone is comfortable or not proceed in the future on other properties.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes12y
I'm not going to address the issue of you being the purchaser and letting them in on the deal after it was already purchased. In my opinion, that muddies things up a good bit and there is no one-size-fits-all answer when the partnership forms in the middle of the project.
But, in the case where the partnership is formed upfront and all parties are equal partners (in terms of time/money/effort), then I believe the commission should be forfeited to the partnership, not kept by you.
While you did spend the time and effort acting as buyers agent, presumably that time/effort will go towards your 1/3 investment, and your other two partners will do more later in the deal to compensate for the time you've already spent. If that's not the case -- if you guys agreed to do equal work after the house was purchased and your acting as agent was over and above that -- then yes, you deserve the commission. But, in my opinion, this isn't an equal partnership situation.
To Mark's point above about you deserving the commission because you spent the time/money to get licensed, the obvious question there would be whether you'd pay one of your other partner's extra just because they might have a degree in interior design (that helps the partnership in a design sense) or if they had a contractors' license or if they had spent money on a guru seminar and had more knowledge about flipping than the rest of the group? Personally, I don't think qualifications entitle anyone to more money -- in theory, you're all working together because you have a complimentary set of skills -- if you bring skills as an agent to the table, I assume they bring some unique skills as well. If that's not the case, why are you partnering with them?
Btw, I'm licensed and I've done partnerships like this -- the commission always gets contributed to the deal to be split among the partners. If any of my partners have skills in other areas, I expect them to put those skills to work without asking for extra money from the deal just because they have those skills.
- Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes12y
@Joel Owens you are right Joel. And I can understand the fact that they see us as equals in the partnership, as do I, but I don't think that I should discount what I bring to the table as a realtor as well. In my eyes, those duties should be viewed as "outside" of the partnership. Being able to view properties immediately when they come on the market or making countless offers hoping to land one deal is a huge benefit to a real estate investment company. I do not think I should get full commission on both ends of the deal, but I do feel I should be compensated for the additional value I bring to the team.
- Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes12y
Like others said it all really comes down to what you guys all agree on.
In this particular case based on your last post I would not kick back any of the buy side commission. On the sell that can still be part of the negotiation of how things get divvied up. Same thing for future buy sides for the partnership.
If everyone puts in the same cash then you should get the commission each and every time. I can see them saying you should maybe list on the low end of normal (Say do a 5% and give 3% of it as co-broke vs. doing a full 6% or something), but not do it for free.
If they are putting up a lot more cash and not contributing much intangible stuff and your biggest value is in "labor" then Realtor stuff will probably be part of that.
- Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes12y
@J Scott so you forfeit the commission and basically take that amount off the sales price? I am not opposed to that idea, but in the situation where the commission was paid out, I don't feel that should be an equal split. Because when its all said and done, because of the fact that there are taxes on the commission and expenses that I have to carry my license, its not be an equal split in the end.
- Denver, CO · Member since 2013 · 409 posts · 105 votes12y
Originally posted by Bill Gulley:
John, I've partnered with attorneys, their time in making cotton candy at a state fair booth is no more valuable than the other guy doing the same thing. Their time was no more valuable than mine in conducting real estate matters.
Making cotton candy is clear cut non legal work. But a partnership can get into situations where legal skills are not of any great importance, but being a licensed attorney is of a benefit. One example, evictions. I am very capable of doing an eviction on my own, but it is time consuming for me to drive to the court, find a parking spot, go through the metal detector, wait in line, just to file the eviction. It is a lot easier just to electronically file the eviction, but my LLC can't do that in Colorado, I have do it in person (that may being changing, not sure). So it would seem to me that using my partner's electronic filing access, because he is an attorney, is not some extraordinary burden upon him. I would of course be willing to do something of equal time to offset his time and cost of doing that, but in such a situation he thinks his 'attorney time' is worth say 5x what my time is worth. Just one of many examples
- Involved In Real Estate · Palm Springs, CA · Member since 2011 · 144 posts · 78 votes12y
I've partnered in flips before. I've always kept my commissions on both buying and selling sides.
We all brought something to the table when we went in on the properties, some had more money than time, others had more time than money. We all worked on it, and in the end if I hadn't listed the properties they would have been listed with another agent.
- Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes12y
I see your point about others stepping up and arbitrary training or degrees. But I think in the case of a Realtor being involved in buying houses he brings much more value tot he table then what his commission is. Maybe if one of the other members was a licensed contractor and doing all the work, it would make sense to forfeit his commission if the contractor forfeited his labor and profit
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes12y
That'sOriginally posted by Michael Baradell:
@J Scott so you forfeit the commission and basically take that amount off the sales price? I am not opposed to that idea, but in the situation where the commission was paid out, I don't feel that should be an equal split. Because when its all said and done, because of the fact that there are taxes on the commission and expenses that I have to carry my license, its not be an equal split in the end.Yes, that's basically what I do...though on the sell side, we just don't pay out a commission to the listing agent (me). In terms of cost to hold your license, certainly any cost associated specifically with this deal should be covered by the partnership (MLS fees, broker split, etc), but given that I assume you'd keep your license and incur costs even if you didn't do this deal, compensating you for your general business overhead doesn't really factor in for me.
What if one of your partners was an interior designer...should he get paid more for that expertise or to cover any costs associated with any interior design credentials he has? if one of your partners has a GC license, should he get an extra 10% of the rehab costs just because that's his customary fee in his business? I'd say no to both...and likewise no to you getting extra fees just because you happen to have a skill and a license they don't have.
That's just my opinion, of course, and think this should be a joint discussion/decision among all you guys.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes12y
Originally posted by Mark Ferguson:
I see your point about others stepping up and arbitrary training or degrees. But I think in the case of a Realtor being involved in buying houses he brings much more value tot he table then what his commission is. Maybe if one of the other members was a licensed contractor and doing all the work, it would make sense to forfeit his commission if the contractor forfeited his labor and profit
The partnership has been described as an "equal partnership." This indicates to me that each party has some unique skills that are valuable to the team, and that no one person brings more to the table than the others.
If that's the case, why is one person's unique skill (being a real estate agent) more valuable than another person's unique skill (whatever it may be)? The point of the partnership is that each member can be used to their "highest and best" use/skill. If one of the partners is a licensed agent, the team benefits from that. If one of the partners is an electrician, his contribution should be to do some/all of the electrical work, as that would be contributing the most value to the partnership. If one partner is an interior designer, he should be picking out materials and doing design work, as that's his highest and best use.
But, nobody should get paid more because they have a unique skill -- if it's an equal partnership, everyone has a unique skill and the "payment" for that skill is an equal portion of the profits.
Now, if one person contributes more value to the partnership -- either they have more skills, more money, more time, etc. -- then that to me isn't an equal partnership and the profits should be divided as appropriate.
So, perhaps we should let the OP address the comment about the partnership being "equal"...is it truly equal? Is everyone bringing equal, time, money and value? If so (like he originally stated), then I stand by my assertion that the profits should be split equally and nobody should get more than the others. If the OP is bringing more to the table, then it shouldn't be characterized as an equal partnership.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
Seems there is still some hint of "paying" commissions to the partnership, you can't do that as the commission, unless your partnership is licensend as a real estate sale entity having a license.
If you want future deals to be equal, go back to by earlier comment, adjust your earnings for commissions received.
If you want the be paid for agent services in addition, then keep them and then work out a split arrangement. Either way, you need to negotiate it and agree.
If I were to partner, I'd begin at 50/50, but it would likely end up 53/47, my favor if you were charging commissions, might be 56/44 if you were listing too. I doubt an agent would be that beneficial to me other than listing on the MLS.....and that could be done 50/50 with another agent.
Just saying, in a partnership you're worth what you bring to the table, just have to figure out what that is worth to you as well as to others.
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