Partner Gets 3% Commission, Negotiate?

Question

I am seriously considering partnering with a seasoned real estate agent and broker who already owns multiple SF homes and a 4 plex.  The goal is to build a large portfolio of multi family units with equal investment.

Should I negotiate the 3% commission my partner receives when purchasing properties for our portfolio? For context, we are looking at Duplexes and 4 plexes with the immediate short term goal of a million dollar portfolio.

One part of me says I would need to use an agent anyway so it's great my partner makes money and has more reserves instead of non-partner agent. Another part says, why don't we get the seller to knock off 3% and not charge a buyers commission which would reduce the sellers cap gains and cost our partnership less. Even still, another part says, partner has to put x% of buyers commission into LLC emergency fund which is returnable upon sale of property or when emergency fund is funded to y% with net profits.

I’ll take any thoughts on the 3% commission. Thanks BP.

Matthew Swope · Answer

Thanks All! This feedback helped me decide to  discuss this with my partner to ensure transparency around my personal conflict with this topic and share how I now understand he is the one finding deals, analyzing, and negotiating.  I’m double checking numbers but not grinding like he is.  He deserves the full 3% commission and anything different could damage our partnership.

Thanks everyone for helping me avoid a rookie mistake.

Eric M. · Answer

It all depends on how much work he is doing to vet and find the properties and exactly what your arrangement is.

If you are both finding and vetting properties and when you find one, he just puts his license number on it, then no he shouldn't get paid personally.

Are you sharing all costs and work 50/50? Then he should not get paid personally.

But if it is the kind of partnership where he finds the property and you do the rehab...in other words, split up jobs, then maybe he should get paid for doing his part.

In the end, a compromise is probably best. A split.

Cole Simpson · Answer

Sounds like he has experience that you need and a service that you need, I would just pay the 3%

Russell Brazil · Answer

Is your partner a salesperson or a broker? If the former, the commission belongs to the broker/brokerage, and their policy dictates what he can or cant do with it.  Very few salespersons are actually empowered to negotiate their commissions on buy sides.

Joe Scaparra · Answer

Absolutely not pay him 3% but to the partnership. Here is why: As an experienced investor you DON"T NEED REPRESENTATION. As such you don't need to pay additional 3%. When I submit a offer on property I try not to be represented and as such I either take off 3% from the price of the property if it is going to go full price. I use this tactic to get the listing under contract and it give me a great advantage.

But you should definitely get an understanding with your partner going into this. If he is not agreeable then negotiate it down to 1% for you can certainly find a realtor who will do that. But in reality you don't need representation. Cheers.

But you should definitely get an understanding with your partner going into this.   If he is not agreeable then negotiate it down to 1% for you can certainly find a realtor who will do that.  But in reality you don't need representation.   Cheers.

Don Pearson · Answer

@Matthew Swope I agree that your "partner" should not be the sole beneficiary to commissions. I am also a Broker and a Partner. Everyone has their own approach, here's mine:

- If I'm purchasing a property that's being represented by a Listing Agent: (a) I get that LA to represent me so they earn the buyside commission as well and are incentivized to fight harder for my offer, or (b) if the LA does not want to dual represent (a rarity) we waive the buyside commission and give it back to the seller, which closes the ask/offer gap.

- When we sell a property I represent the Partnership as the LA, but only charge a 1.00% fee - the vast majority of which is marketing (spent on mailers, website collateral, etc), and admin costs. Any additional fee (1.5% or so) that would normally be earned as a LA flows straight to the bottom line.

My bottom line - if a Partner earns a fee, that fee should benefit the entire PartnerSHIP.

Good luck!

Brent Coombs · Answer

@Matthew Swope, I added a caveat to my earlier post above, in effect reminding you, and giving you the chance to remind your "partner" of the expression: "There's no free lunch".

ie. Why should he expect to double-dip, first by getting a discount from the Seller because he is buying the property on his own behalf, but then, because he found the property, sell half to you but still demand commission on its full value?

ie.  You'd be paying him SIX percent of the value of your portion of ownership!  Fair?...

[Unless of course he means 3% of your portion's value, in which case I can concur with your last post (until you accept you're good at finding properties too)].  Cheers...

Brent Coombs · Answer

@Matthew Swope, I agree with Joe: don't pay.  (ie.  There are good reasons why he averages nearly two votes for every post he makes, so far).  My guess is that your "seasoned real estate agent and broker" already does what Joe does in the form of getting a Self-buy discount every time, so the question for you becomes: do you want to be the investor/lender that helps him achieve his goal (quickly)?

ie. Doesn't he need you as much as the other way around?

ie.  You suggested he has deeper reserves than you, but, are they endless?  Cheers...

Pete Winslow · Answer

If you are still making money on doing deals and getting more deals done with a partner than you would by yourself then I wouldn't worry about the commission.  A piece of something is better than all of nothing.

For me it comes back to your why - if your goal is to build wealth and relationships through a partnership where you work well together then find a way to come to a fair understanding.  It is good to iron out how you will deal with conflicts and tough conversations early in the partnership.

Matthew Swope · Answer

Thanks Russell.  He is the sole owner and broker of a company with ~5 agents.

In the vein of preparation, let’s keep the thought experiment going and assume there is flexibility since he is sole owner and broker.  Being an agent yourself, what seems reasonable if you were in a partnership with Commission flexibility?

Partner Gets 3% Commission, Negotiate?

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