By Ronn James
In a time where consideration for the financial picture of a couple is contractually arranged before the wedding nuptials, is it time for similar agreements in the real estate industry? Let’s consider a couple of options. The first scenario is the ad-hoc partnership arrangement between two like-minded individuals who happen to work in the same real estate office. As a sales manager, I can assure you the moment that two agents approach me with this plan, I shudder. I instinctively begin to prepare two exit letters as the chances of disillusionment are high.
Let’s look at the partnership itself. There is often difficulty deciding how to share the workload, the expenses and the profits equally. It is not just as simple as splitting everything 50/50. Emotions tend to snowball, and ultimately someone can (and likely will) feel that they are being treated unfairly, resulting in a partnership that begins to fail. While there are exceptions to every rule, and role models who manage to make this type of arrangement work, many broker/managers have been left to deal with the carnage of nasty break ups.
There are other issues to consider as well. If you are truly a partnership, have you disclosed this to Canada Revenue Agency (CRA) for the appropriate tax filing purposes? In the event of an audit of either or both of the partners, how do the documentation, expenses and reports called in as evidence get handled? How can CRA review the paperwork and tax filings based solely on the knowledge that you have a handshake agreement on your business partnership?
Let’s assume the partnership is actually successful. What happens if there are lots of listings and buyer clients under contract, and perhaps an assistant or two, and one partner is seriously injured or suffers an illness or worse, dies? What happens to the partnership agreement? What happens to the monies owing? What happens to a (potential) claim from a surviving spouse? What liability does the real estate brokerage have?
Even the best of friendships and/or partnership can turn sour. And when things go bad they can go really bad, especially if the partners are spouses or worse, partners who became spouses as a result of their partnership, both of which are now ending. Who gets to play the mediator in that split? Further still, who would want to?
There are so many elements that need to be dealt with: the current and active clients, the business itself, the assistants and the outstanding deals and future closings. Who is entitled to the client database? This issue becomes especially difficult if one of the partners was routinely the face of the business.
So far we have talked only about partnerships that encompass two partners’ overall business. We should also consider two random colleagues planning to share or split a single deal. This can create a wealth of problems when a sale is generated and commission sharing needs to occur. Were both agents’ names on the sign and marketing materials? If not, whose phone rang to generate the offer? How do you fairly split that commission? Is the named agent entitled to half of listing and the full buying side commission? Would there be a difference if the named agent wasn’t the agent who originated the listing?
Beyond the commission issues, there is potential referral business to consider. Upon the successful sale and equitable commission split of the home, the named agent gets a call to list a neighbour’s house. If a referral is generated as a result of one of the Realtors being recommended (even though both worked on the file mutually) this creates further complication to this “single deal” arrangement.
If you were involved as the partners, how would you handle the dispute that can and will arise when a situation like this occurs? How do you suppose the sales manager/ broker would deal with this? Regrettably it often ends with one or both agents leaving the company, citing favouritism as the main detractor. Trust me when I say no sales manager/ broker envies this break down. It is not fun for anyone.
Most small business lawyers and accountants would suggest the only way to prevent or minimize risk to a transaction in partnership is to generate a solid signed agreement BEFORE the piece of business starts, while both parties are still friendly and keen for mutual success. What should these agreements say? Who should create them? Should both parties have separate council review these agreements to ensure their interests are protected? Who will be assigned as the mediator on handling disputes? How are assets and liabilities dissolved if the partnership ends? If you consider how you would advise your client on the legalities side of their sale or purchase, you’re likely to find the right answers to the above questions.
For an industry that is skilled at generating, negotiating and facilitating well-written and signed contracts for big ticket items, shouldn’t real estate partnerships (and itinerant agreements) be treated with the same prudence and diligence?
With a track record that spans 27 years, Realtor Ronn James says his ambition is to educate the public and Realtors alike. He has landed appearances on Breakfast Television, CityLine, Real Life and a host of radio shows. James has also been a regular contributor to New Homes and Condos For Sale Magazine, Toronto Sun and Canadian Homeplanner. Website: www.RealEstateCommissionMatters.ca, phone 289-242-9050.
We are a Designated Brokerage firm and under our Boards rules we must get our clients to sign a Committment form first before showing them homes or writing an offer. I am being fines $500. because I failed to have my client sign this form before they signed the Agreement of Purchase and Sale. I just wonder how many agents write up an Offer and then get the client to sign the Committment form?
Ideally getting a Committment signed first indicates to both Buyer and Agent each others responsibilities and conditions under which the new relationship will work. Many Agents say they get their Committment form signed without and concern from their client, but many more do not get it signed for fear of loosing the prospect to another Agent who does not ask for this form to be signed up front. This fact is not new. I understand the intent of this form, but when a lawyer says to someone who signed one, and who wants out of the Committment "Just rip it up and move on", I wonder in this fast paced world why we get this form signed at all.
I've attended large seminars where the moderator asks the big question, "How many of you get your prospect to sign a Committment form prior to working with them as their Agent?" A few raise their hands. Then we are told how to get the form signed by some sharpie who has a great speal that takes about 10 minutes to say.
Really, if a prospect says to you on first face to face meeting and this has happened to me several times, "why should I sign this form when no other agent I've called has asked me to sign such a Form." What is you're response and does it work or do they just look for another Agent. Do we really need this Form to be signed at a specific point, like when you first meet? Maybe all forms should be time stamped! God forbid.
The public has access to a lot more information through the Internet than ever before and many more choices to make before selecting a real estate agent, if they need one at all. Baring information on the Internet my objective is to find non Internet services that the public sees as undisputed VALUE, not found elsewhere in real estate agents.
I'm sure this email will get some attention. That's why I've written it. It's healthy to hear responses good and contrary.
Good day Robert. Assuming your talking about "Buyer agreement" forms; I agree that unless we are all having these forms signed it is a problem. And even a greater problem if we do; at least at first. Imagine all the commission issues arising from this at the start. Just a thought. What I have done and continue to do if possible is to have buyers sign a buyers agreement for only the properties I have shown them. It protects me somewhat and I don't find to many buyers that have a problem with it once I explain that it is only fair that I get paid for my time. Certainly they are free to move on if for some reason if we haven't hit it off but I have protection for what I have done. Only once has this method back-fired and I simply discussed the situation with the "agent – who has related to the buyer" who ended up bring an offer in on a property inwhich I had shown. The client probably never had any intention of working with me and to put the deal together rather than losing it all together I took a referral. It was one of my listing as well, so it wasn't so bad. To make a long storey short; I do find that customers/clients aren't so nervous about signing a committment form for properties you are showing. Hope this helps. Rick out
I have managed many successful teams for many years and it goes without saying that any contractual arrangements should be reduced to writing. Like marriages the sun is very shinny on the way in and like the vast majority of marriages there won't be a pre-nup. But there should be.
Teams afford new agents an opportunity to work and be mentored in a productive environment and a means for experienced agents to be rejuvenated. No one joins or forms a team unless they feel the arrangement is to their business advantage.
Marketing costs and technologies are very expensive and prohibitive to most newly licensed and many seasoned agents. Working for a team usually provides the lead generation machine and opportunities that would otherwise not be made available.
Teams are good for brokerages, franchisers, real estate boards and associations. Whether they are good for team members and team leaders depends on the team.
Teams aren't for everyone but to suggest they don't have a place in our industry because of breakups or disputes would be akin to abolishing marriage because of divorce. Weak teams are usually products of weak brokerages and agents which are created as a last gasp instead of an exciting opportunity.
These are great comments. The purpose of the articles was not to be anti partnership or anti team, I believe in the combining of efforts for a myriad of reasons. What I was hoping to convey was the need for stakeholder agreements (signed, sealed and delivered) just like our conduct in the field as professionals.
Touch someone's money and there's gonna be trouble.
I have witness the downfall of so many great folks that did not protect their interests, intellectual property and most of all their money.
Build good neighbour fences (by way of a simple agreement) and many of these situations can be handled in a more civil manner.
That's why we are paid to write purchase and sale agreements (contracts) between buyers and sellers.
Ronn and Bob,
Your emails illustrate accurately many of the concerns our team has experienced over the years. Like a P & S Agreement, all plans should be put in writing. Reviews of these agreements is ongoing and healthy. Trying to treat members equally is not an easy task as you indicate. I know that first hand. As the so called senior partner or founding member I have always strived to help others achieve the same success I enjoyed over many years of 24/7 work. By doing so I can look to the future and with confidence know that my financial concerns will be of no concern. Like a tree, if you put down good roots, the tree flourishes.
Mt task now in view of the recent rulings by the Competition Bureau is to find ways in which we can supply our clients with non Internet data and meaningful information that will set a undisputed VALUE to the services we provide. It is my belief that cutting and discounting commissions is only done by those who have little in the way of value to offer to their prospect. Most consumers think they pay too much for the work we do, but honestly, they do not know how much time we spend putting the transactions together AND keeping them together. Try this. Next time you get a call from a stranger wanting to see a home, start tracking on a time sheet the number of tel calls, emails, faxes, contacts out of your office like service people, home inspectors, lawyers, painters, movers, your brokerage office for reporting purposes, relocation specialists, and many many more people behind the scenes, that we visit with or talk with. Add up these hours and the staff it takes to keep these deals in place, and I honestly know that there is little profit to be made in the transaction, unless it is a high end deal. I feel the public does not know the value of the behind the scenes work we realtors do. How do you feel?
Our Board allows members to share their sales results in a team setting for the awarding of points toward sales achievements. Points are accumulated on an individual basis but team member points are dumped into a "team bucket" for the final tally. Members cannot qualify for both a team or individual award. The rules are quite explicit and we don't monitor the actions of the teams in any detail of their business and transactions. The team leader and each individual have to sign all documents appointing or deleting them from a particular team. Despite this simple situation and clear rules, we have lots of confusion and we have to mediate several issues each year. I can only imagine how difficult this is when real money is involved and the rules are not clear.
Carolyne L,
I have read your lengthy reply and agree and share many of your points, but Mt Everest would never have been conquered if we all sat on our a… Some of us learn from our trials, others will not. It's a challenge every day, team wise or being an individual agent. I love reading all the remarks and am richer for them. Thanks.
I've never understood the "team" concept. On any team, there is a head coach, a captain, etc., just like any succesful business has a CEO. I do consider myself a "team minded" person. But that doesn't mean that everything needs to be 50/50. People need to remind themselves that every team that won the Stanley Cup had a head coach and a captain. I do like the "team" concept, but I honestly think it's ego's that get in the way more than anything. Remember, there is no "I" in team.
But there is a 'me'. =)
Many good points in your article Ronn. I would argue with Karen that the pitfalls of partnerships come from teams in large brokerages. I left a small regional brokerage two years ago,where the top agent in the office was splitting his business and referrals with a newer agent, ( primarily as a bur's agent) with NO agreement in place. You can guess the rest. New guy became successful, established relationships with clients, etc. Suddenly they were doing the same volume. Big split, threats, Broker in the middle. My current brokerage has many teams, and while not all of them work, they're not done with a handshake. Hope for the best, plan for the worst, I suppose.
[Comment removed at the request of its author.]
And what happens to the website and its presence (& SEO)? corp & personal? Who owns the site copyright? Who owns the graphics? Who owns any and all photos involved in the whole apparatus?
What, if any, portion of the web site actually is owned by the brokerage? (careful – answer might be "MORE THAN YOU THINK" or bargained/contracted for). For that matter, unless it is addressed in your (employee) contract, who owns that database you loosely call "yours?"
Who owns the office "furniture, computers, and such." hard items and soft? And when it comes right down to it: who owns those giant framed "awards" on the office walls? (even the beautiful frames are expensive to replace). Often only the team leader is acknowledged, tho'.
Did anyone reserve the "right to advertise" after the fact/break-up? (and pertaining to what exactly? for example: how many "solds" in the annual review)…
Does the leader write-off ALL the expenses, or just a portion? He/she usually gets all the credits and kudo's, so CRA may take that factor into distribution consideration, and almost certainly will.
Is your specific identity as regards the position you hold "on the team" reflected on your business cards and other advertising. Careful. It might come back to bite you, either way.
Is it mandatory that the broker/owner or office manager review your "team-contract," (is it a form of advertising which of course he/she MUST approve) and does he or she reserve the rights to disband the team? or disown it when the waters get rough?
What happens to the "team" contracts if the franchise or sole ownership gets sold to some other entity/corporation buy-out?
Does the team carry specific life-insurance policies on each other? and perhaps disability insurance also. Is the vehicle specified as a team-owned vehicle (for purposes of insurance?)
Who owns the unfulfilled buyer contracts? Unless otherwise i.d.'d in your (employee) contract – your brokerage owns them (but may not even have a copy in the office files).
Just some additional questions and topics to purview.
Can't find anything good to say about teams, personally. Like each transaction, each participant stands on his/her own legs and not all things are created equal, in life or in business – no matter how careful you think you are.
It is a rare occasion that an exit strategy leaves everyone involved, smiling when they say good-bye.
Carolyne L http://www.carolyne.com