How about something different on this board?

Does anybody have a legal definition for commission?

I'll start..

I keep hearing about companies giving agents 100% commission less the transaction fee, desk fee, franchise fee, under writing fee, etc..etc..

So what is the meaning of commission here?

Then I hear agents pitch they charge x% commission but at closing add another $X in administration fees.

What's the commission here?

What about companies that charge a flat fee to list a house? Is that a setup fee or commission?

How about fsbo companies that charge for signs, and advertising goods? How is this different from a flat fee to list a house? If fsbo companies are charging to advertise shouldn't they be licensed too? Most states have laws requiring any person or entity to be licensed when providing a service for a fee for another. If so where do newspapers stand since they too charnge a fee for advertising and marketing.

How about lawyers that charge a fee to handle the closing? Is that a commission or some other no name fee?

The investors I know charge all kinds of fees: assignment fees, cancellation fees, administration fees, consulting fees. Nearly every one of them have been threatened by an agent to be reported for buying and selling without a license. However since there is nothing illegal about buying or selling without a license I don't know any investor who has been charged, fined or repremanded.

In light of this and the examples you gave of newspapers, FSBO sites, attornies and the like. My conclusion is that commission is also a nothing word, a no name fee. It's just the word used to identify an agent's compensation.

By extension, the definition of an "agent" is someone who pays a fee for a license in order to:
1) Call themselves an Agent
2) Call their fee a Commission

It's got nothing to do with the ability to buy and sell property as illustrated above, which is a commonly held misconception.

Does it really matter what it's called? I don't use the word commission when dealing with a client. I either call it a "fee for service" or "the service fee" when I'm going down a net sheet with a seller.

-J

Realdealer, state laws typically include the words "providing service for fee, for another" as requirement to charge a fee.

By this definition investors are exempt up to the limit as set by law. I'm just curious if there has ever been a lawsuit on this matter because "providing service for fee, for another" doesn't explain fsbo cos, newspapers, websites, sign companies, these people are all providing services for the sale of real estate and charging for their service.


Josh, No name fee is good enough for me. I don't like to use commission either but when people ask what is your commission, anything other than I dont charge a commission is a commission.

I thik it does matter because the industry needs to address these types of issues so we distinguish investors from agents from newspaper fees. It really makes agents look bad when they're out there accusing others like Realdealer for illegal activities without also mentioning that principles are license exempt up to the limit set by each state.

It is also important that we define this since by the current definition, anybody can start charging a fee for services. Asissit2sell charges $3500 to sell a house. Is this a commission requiring a license or a fee like newspaper advertising?

What about all the real estate consultants that charge a fee for their service? Do they need licensing?

Im seeing some new internet models that charge fees for services and products and if there's no definition for "commission" there's going to be a whole lotovem' soon.

Federal courts have already made clear and legal that by owner websites can charge for their listing services on the web so if there's no licensing needed for this and no licensed needed to consult persons selling houses where is licensing needed?

Realtor.com has millions of houses listed and realtor.com is not licensed. MLS networks are not licensed to list houses. Newspapers are not licensed to list houses.

What's next? ABCXYZ realty, no license is needed?

"Commission" traditionally is a percentage of the purchase price, as opposed to a "spiff" which is something like $X per unit sold.

Ever shop at Best Buy? The floorpeople go to great pains to say "we don't work on commission" but you can bet your boots they get paid spiffs and the more they sell, the more they make.

Right. Spiffs are standard practice for extended warranties and other promotions. So are you hinting that it's not a commission if not expressed as a %?

By that definition, Assist2sell and helpusell models are license exempt? Flat fees and fee for service are not require to get a license?

I don't think this arguement holds water because stock brokers charge a fee too ( $10-70 a trade ) and they are licensed. It's not often expressed as a percentage.

This is a serious topic because if realdealer is right then the web is going to be full of fee for service providers soon.

just an example..

http://www.5-daysale.com/

This site sells millions of books for $19.95 on how to sell houses in 5 days.

The web has been kind to them because now they also sell marketing materials and consultation on home selling. They do this nationwide.

Here's the definition of "broker" in the Real Estate and Business Brokers Act of Ontario:

“'broker' means a person who, for another or others, for compensation, gain or reward or hope or promise thereof, either alone or through one or more officials or salespersons, trades in real estate, or a person who holds himself, herself or itself out as such."

And to be a broker requires a license.

One of the exemptions (and there are a lot of them) specifically mentions people who are compensated by something other than "commission".

But there's no definition of what "commission" is.

I got this from one of the most reliable source in the business. You might already know this but "trades in real estate" and "for another or others, for compensation" seems to be what constitutes a commission.

By that definition charge a flat fee for advertising in mls should not requite a license. It's advertising.

Also it would include providing consultation for a fee. Consultation is not real estate.

Not sure I understand the point Jaber

Are you arguing that anyone should be able to list on the MLS ?

May the 4th (be with you) …………. Dave

Dave, the point here is what is a commission? The mls doesn't have to be factored into the discussion.

The point I"m getting at is what's to stop some online companies from charging fees for services? If commission is earned after a sale is made then they simply have to charge a flat fee upfront. AS it is now fsbo cos can charge a fee to advertise as with newspapers. There are also consultants thta charge fees for their services. I know you don't like these lead aggregators so what's to stop them from providing consultations on marketing without getting licensed?

The 4th is with me but you can take the fifth if you'd like.

This is my understanding of what paying a commission means:
"The fee or payment made to a real estate agent/broker for selling your home."
Obviously, a license is required.

Also, let me present the situation that even if we call it a flat fee, isn't it still a commmission because it's a percentage of the sales price, they just happen to charge a larger percentage for lower priced homes and a smaller percentage for higher priced homes? Just some thoughts to chew on...

-J

What if this fee or payment is made to an internet company or advertising company for the sale of a home? Would that considered a commission too?

Perhaps it's only a commission if paid to a real estate agent so if a fee is paid to a non agent then it's not a commission?

Josh, good point but what happens if the same fee is paid to an internet company or consultant? According to federal court rulings websites are exempt from licensing when they advertise properties.

Hmm, good point... to add to that, does that mean for a fee I could offer to lets say, charge FSBO's to advertise their website on my business site, maybe lets say in Yahoo! and in the Real Estate book's website all for a set fee and not take a split with my broker because I am offering that service as a person who doesn't need to be licensed to do so? Interesting... would be nice to know if we legally can, sounds like we can.

-J

I think if you are using the brokers name, stationery and website then you have to pay the split. But if you are using your own resources and non real estate cards then there's no reason why you'd have to pay.

Real estate agents are allowed to own more than one busness and advertising on websites and business cards can be your second business.

Three cases against fsbo sites came up last year..one in New Hamshire and two in california. All three ruled in favor of the fsbo site as advertising.

I think if a fee is earned contingent on a real estate sale then a license is needed regardless if it's called fee, commission, note, no name fee or any form of legal consideration.

I dont think retainer fees, flat fees, advertising fee or consulting fee require licensing because the same could be charged/offered by any newspaper, fsbo company, internet site...

You’re right I don’t like the lead aggregators, however, through the discussions here and in other places the last several months I have come to see the light and understand their genius.

I recognize they are here to stay and right now I’m trying to figure out what to do to survive and prosper.

(I’ll take any thoughts anybody has about that)

Jaber – I agree totally, I believe “commission” is only due and payable if one acts as a 3rd party to a transaction. Is actually involved in the showings, negotiations, preparation and execution of documents etc.– but is not a principal in the transaction.

Everything else can be considered a fee for service just like a newspaper etc…

As these services are available at other sources, I can see the Realtors involvement diminishing and our value with it.

What do you do ?

as Josh pointed out this is an opportunity for the smart agents to offer/start an advertising/marketing service outside of the existing real estate business.

No broker split there. You can charge a consultation or fee for service.

This is the part that I am not clear on. Newspapers and webpreneurs are "third parties" too. Where is the line drawn between third party fees that require licensing?

I say up the fees for services that they can't do themselves or somehow learn from the Gillete company. Give away the shaver but charge for the blade. This should increase the value of the profession and profit for those involved and reduce the number of agents in the business especially those that are marginally informed of the industry.

I take my car in for a new thermomstat. The product costs $25 but the labor was $120. The service center encouraged me to do it myself and save but I said NO YOU DO IT.

Dave, take a look at this site..

http://www.5-daysale.com/products.php

The book costs $10 but add up the costs of the promotional materials, home showing and thta's not including the consultation.

These fellas are about to do all this without any licensing whatsoever. There's no commission involved because everything is fee for service or prepaid.

I would love to see this industry maintain the commission rates of the 1980s but it's time to get realistic about what's going to take place in this industry in the next few years.

The book how to sell your house in 5 days has been out on market for years now but the product lines and consultation have just been introduced in the past year or two.

I think the publishing business, website, info resources will be more of a challenge to realtors than the forsalebyowner type sites.

I have some "beta" notes on a section of my site or a completely new branch site offering a signs package and such just haven't sat down and really thought out the entire process.... funny we're talking about this now. I too can see people having these options... the thing is, I can also see some big corporate conglomerate being able to offer these types of services MUCH cheaper than the average real estate agent so who knows where it will go.

-J

I disagree. I don't believe the due date of the fee has anything to do with whether a license is required or not.

There already exist services which handle each aspect of what agent's do from advertising to showing to paperwork. The only difference I see is that none of these services claim to be representing the seller as their agent.

Josh, that's where the personal and local aspect of being a licensed agent can help. "btw, did I tell you that I'm also a real estate agent in my other life?"


Now that I think about it I suppose one could bill the customer due in 30-60 days.

I think that's where they cross the line. I recall a year ago a notice went out to all the local agents detailing activties that require licensing.

Showing a home requires licensing. An individual also cannot give out property information without being licensed unless the information is written down by a broker.

AGREED. The advertising can be done without a license. The paperwork can be done by an atty but I would argue that filling out paperwork related to RE needs licensing too, unless do it yourself fill in the blank forms.

You don't have to claim to be someones agent. There is implied agency that can go into effect.

There's a clear and distinct difference between being a third party service provider ( middleman ) and a service provider to a customer ( newspaper, web, ).

When you start perform activities for another it gets tricky. You can charge a fee for "your" service no problem there. But I think you'll run into problems when you charge a fee for service to a second service provider.

You don't need a license to be a superintendent and you can show properties and give out information about them on behalf of the owner.

Laws probably vary from place to place, but at least some states do not require a license to be a closing agent.

Alternatively you could be appointed by the seller or buyer to negotiate and/or sign in trust for them, and be paid for your time without a license of any kind.

You can also be paid for your duties as an attorney-in-fact, without a license.

No you can't be a superintendant for an open house and provide information. Some states may allow this but most won't.

Agree. We discussed this via private email. A power of att can bypass a lot of the problems but most wont be as open to granting a POA to someone they don't know.

Jaber, if we're talking about ways to bypass the need for a license, rather than what constitutes agency and commission. Then the simple answer is: Become a principal.

If you can get a seller to sign a Right to Sell (listing) then you should be able to get them to sign a Right to Purchase. Now you're a principal and you can do anything you want, including the things we've talked about that only a principal can do.

Right. but most people don't care whether you are a principle or an agent. They want a price that they want. So the issue of principle or not is irrelevent to consumers.

Back to licensing. The seller is either a customer for your service ( no license needed. ) or a client ( licensed needed ).

Newspapers, websites and the hundrds of new models coming online will be treating people as customers. These guys are principles. The main difference between these guys and a principle investor is that these people are selling their products/services to the consumer.

A dealer is a principle in a transaction because she or he is trying to buy/sell a house to or from someone.

Agents will have to decide if they should stay as licensed agents or become a merchant. So the more I think about it it's really a simple issue with all this consultation fee and listing fee and advertising. If it's your product or service you offering then there's no reason for licensing.

With all respect to Dealer, there is a bigger picture.

The “principal - instead of agent scenario - while valid is marginal.

Jaber I think you’re clouding some lines by mixing terms – principal, client, customer, 3rd party, commission, fee – they can have different meanings in the same conversation.

The requirements for licensing when providing a service to the public are very clear in Ontario, I expect they’re just as clear everywhere else.

Because of our position , the real estate industry has traditionally provided services that while not requiring a licence, added value and gave people a reason to call.

Now many of those services can be sourced competitively somewhere else. Reducing our value.

I don’t think the issue is about licensing – it’s too easy to satisfy.

It’s about finding a way to retain a level of compensation that reflects the liabilities we take on.

Well put.

Dave, by "marginal" are you referring to the percentages you talked about a few weeks ago? If I remember correctly you claimed that a dealer operates in a margin of something like 1 in 1,000 sellers.

If that is what you're talking about here, I'd love to see the evidence you have to back it up. The reason is that your claim is completely at odds with the practical experience of myself and the real estate dealers I know.

If you have solid stats to back it up, I would be very interested to know that my associates and I are statistical anomalies.

Dealer – It isn’t my intention to argue or change the topic.

And once again – I assume you work in a major metro area.

My position is…..

If you were to express the total number of homes sold by Investors as a percentage of the total number of homes sold in the same market overall for a fixed time period, you would determine just how marginal the practice is.

I understand there are opportunities for what you do, in fact I’m glad you’re there.

But statistically I wouldn't know what to call you.

............. Dave

I see what you're your saying. The same thing could be said about any given agent, even top producers sell only a small number of the total.

Now let me give you my statistics using Stratford as an example because it's mentioned in your signature and some of my associates own properties there.

mls.ca currently shows 144 homes for sale. If I dealt directly with those sellers, 30-40 would be interested in what I have to offer, after discussing terms 15 would be worth flipping, and about 5 of those I would be willing to hold myself.

The above is using Lease Purchasing. I don't yet have reliable numbers for the free listing service I mentioned a few weeks ago, but since more sellers want less cash now over more cash later, I expect the interest to be much higher.

I don't think conducting business with 10% of the market is marginal, but maybe that's just my opinion?

That’s exactly my point.

And neither could be considered a “trend”.

If you believe the industry is in transition, and your goal is to understand and reposition yourself you have to take as broad a view as possible. See what the big players are doing, where they are going and what changes they are making.


For the record hypothetical conjecture should not be presented as statistical data

LOL you win Dave. Whether you think you can or think you can't you're right either way.

Okay Realdealer here's a court ruling on fees and commissions for dealers or brokers.

http://www.6thcoa.courts.state.tx.us/opinions/HTMLopinion.asp?OpinionID=7418.

Fee is by any other name is a commission. But needs to be in writing and real estate must be part of the transaction. A real estate license is needed unless it can be proven that no real estate was part of the transaction.

What do you think? I think it's clear that anybody can charge a fee if no real estate is in the picture.

I think by that definition the only thing that a non-licensed, non-principal cannot do is be paid to show the property. They can be paid for advertising, qualifying prospective buyers, paperwork and closing. So it would be a simple matter to offer "FREE Open House!" while being paid for everything else.

Keep in mind there are other regulations that can come in play. loan broker licensing. escrow/closing licensing. A clear in real estate doesn't exempt in other areas. But yes free open house is one way to beat the re requirement.

As Dave had mentioned re agents group different
activties to add value to the transaction but now the industry is changing that these "value added" services can be done by the owner.

As agents we will have to find ways to increase the value for our time. But as innovators we also have to recognize that many of the value added services are no longer needed.

Ebay was able to beat the auction licensing laws in every state by calling themselves a platform for owners/principles to transact.

Get ready for this to happen in real estate.

I don’t see the general public doing these things that we are licensed to do: Prepare receipts & options, Deeds, Promissory notes, Deeds of Trust, Mortgages, Releases of encumbrances, Leases, Notice Terminating Tenancies, Demand to Pay Rent or Vacate and Giving explanations or advice as to the legal effects.
Granted, not all states allow this, because it might constitute practicing law there, but here (CO.)we can.

How often do you do ALL these things in the same transaction? You make it sound like EVERY sale involves all those forms. and yep in many state's it's also illegal for agents to do them. There are people that can do these things too, both legally and efficiently.

Just as REALTORS can fill in the blanks I would imagine an online form can get a lot done increasing the number of fsbos on the market.

Think online tax filing and thats what we can look forward to. Turbotax has done a fine job at turning pages and pages of paperwork and instructions manual into a step by step tax filing in 30 minutes or less.

The market is no longer just fsbos or agents now it's a mix of the two. This is good for realtors and good for consumers.

Agents shouldn't be allowed to do any of that either unless they're also a lawyer, or at least a paralegal specializing in real estate. I've known far too many lawyers (even real estate lawyers) who were totally incompetant to advise clients on many of the items you mentioned, the last thing we need is agents with virtually no training in those areas doing so as well. I'm shocked CO allows it!

That reminds me. I once dated a real estate attorney. She had her assistant do all the work applying her signatures when needed. We used to discuss real estate at length and it frightens me that she's out doing what she's doing.

REALTORS And legal forms that frightens me even more. I wonder if E&O cover errors on legal forms drafted by agents?