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Commissions: Steering our way into trouble

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Okay, here we go again. A few years ago we had the Competition Bureau down our throats telling us about our anti-competitive behaviour. Their point back then was about allowing outsiders into our MLS system, and a whole host of other things, including commissions. I encountered it when instructing what was back then a BCREA applied practice course for new licensees in B.C. At the end of a full day there was a 10-minute bit on anti-competitive behaviour and one video pointed out that the government would use undercover investigators to check up on us.

Fast forward to last week, October 2021, when I see the media has done the work for the bureau in an undercover story by CBC’s Marketplace. It’s a steering/commission piece, mostly about an unfair playing field for commission-challenged FSBOs based on licensees “steering” clients away from those FSBOs. (Don’t get me started on out-of-area mere postings.)

The news isn’t all bad as there are solutions that are quite simple. At least the one I present here is better than more scrutiny from the bureau. This may not be for everyone, but it helps me avoid the anti-competitive behaviour the bureau is against. After this news story it’s likely it will be at us again.

Let’s go back to our early career when we sought out formal sales training outside of our board or association mandatory courses. I’m talking about Floyd Wickman, Marc and Chris Leader, Dwayne Groome and others. They all taught us to have a “buyer counselling session” BEFORE we showed any properties to our suspects/prospects. That way we can “bona-fy” the (hopefully) soon-to-be client and set a level playing field, with everyone knowing all the rules.

Here in B.C. like many other jurisdictions we have Buyer Agency Exclusive Agreements. These contracts create loyalty, define our expected commission set out in dollar value (not a percentage) and the timeline we will be engaged with our client. There are two negative options to this for the consumer: they must not use the services of another licensee in the geographic area of the clients’ desired purchase,  and the buyer must pay us a commission.

In our B.C. contract, Clause 6A says: “The Buyer(s) will pay the Buyers Brokerage a fee of ________.”  This is where we, knowing what our remuneration requirements are, because we all did a business plan, fill in the dollar amount.

The trouble is many licensees that I see day to day in my instructor’s role do not use a business plan. Some see the industry a place to print money and many more cannot justify their commission or show their value and why they deserve any commission.

Under 6A, I add into the blank space these words: “$12,000 (or whatever amount fits the property and my needs) paid by the Sellers and the Listing Brokerage.”

I then move on to clause 6B, which describes how I will get paid, which is generally through the sellers and the listing brokerage as I have added in 6A.

I then discuss Clause 6C and it states this: “Monies, if any, under clause 6B (6B is about what is being offered as remuneration by the listing brokerage) shall be deducted from the amount due and payable by the Buyer under clause 6A and the Buyer shall pay any shortfall owing to the Buyer’s Brokerage.” Pretty clear here. That is, if it is explained properly or at all.

I state that any shortfall is covered by the buyers. I state where my paycheque goes –  X per cent to the brokerage, 25 per cent raw income tax costs, GST costs, money re-invested back into the business and the amount my spouse and I use to run the household expenses (car, house, insurance, vacation).

I also state what my business expenses are in a general way, making sure they understand this business is stark on health and welfare benefits. I get no EI or pension plan and my E&O deductible is $2,000 per incident, plus my brokers’ portion, another $2,000. Read your contractor agreement and see. I get no argument and people are happy to pay me.

Let’s be real here, what other industry waits 30 to 120 days or longer to get paid after the deal firms? Not many. We need to be in control of our business and contracts help us do that.

Now I have the discussion about the discount commissions that may be encountered. I tell the buyers that they are expected to make up the shortfall. I will inform them what dwellings offer in commission and let the buyer decide which ones they want to see. I also say it is rare for me to see many discount commission structures and they needn’t worry about it and we will cross that bridge if and when we come to it. This avoids me having to steer them away from what could be a perfectly good purchase for the buyers. Isn’t that what we are here to do, work for the client?

Here is the point: Let the buyer decide, not you, if they want to see properties listed with discount commissions, or if they will make up any shortfall. Be prepared to justify your income. Let them avoid those properties, not you. The consumer has every right to not see them based on their needs and ability to deal with your service contract. Know it before going into the relationship.

Yes, you may end up losing or referring the client out based on the agreement you enter into. That is the risk and your business model to defend, or not. In 25 years, I have taken one discount commission. Not a bad stat. It’s not all that common because discount brokerages where I work are a small percentage of the market. For you, it may be different and you must be creative and show better value.

There are, in some jurisdictions, the ability to negotiate a better commission with the listing brokerage and the seller in other ways, like fee agreements. I will leave it to your board or association to determine that method as they are sometimes not easy and can be controversial.

This idea is not a panacea and I am sure there are better ideas out there as to how to handle steering, but this is easy and is staring us in the face.

No wonder the Insights West poll from 2017 says only about 50 per cent of Canadians have a positive view of Realtors for being ethical, trustworthy or transparent. I have been in Professional Conduct and Ethics for over 15 years and I see it. We have a lot of work to do and with every negative media story we look worse all the time. Not one client has ever asked me if I was a Medallion Club member – they mostly do not care. That is a space occupied in between our ears, not the public’s. The client simply wants their needs met.

Takeaways: We are in a media world, cameras are everywhere. Know your role, learn agency and be a good communicator and always work within your area of expertise. Know, inside and out, all the documents your clients will be using/signing or agreeing to. Be able to summarize in an accurate fashion what these contracts mean to the client – the good, the bad and the ugly. Figure out what you need to live on for income, show your value/expenses (in a general way) and work for it. There are few if no easy shortcuts in real estate that are ethical.

We also need to be the good educators of the public, one client at a time, with every new rule or change in professional practice. It’s up to us or we get to spend a ton of cash on defending ourselves against a very unsympathetic government. Good luck and keep your stick on the ice.

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