Real Estate

Real estate company no longer taking commission from both sides of a transaction

DeLeon Realty first on Peninsula to eliminate possible conflict of interest

Recently, DeLeon Realty announced a new policy that sent shock waves through the traditional real estate world.

This week, our company announced that we will no longer accept commission from both sides of a residential real-estate transaction. In other words, if any DeLeon buyer agent represents a buyer on any DeLeon Realty listing for sale, then our company will waive 100 percent of the buyer agent's commission (i.e., 2.5 percent). This policy does not merely apply to agents representing buyers on their own listings, which DeLeon Realty still prohibits. Rather, it is a company-wide policy that applies to buyers represented by any DeLeon agent, as well as any buyers who find the home on their own.

Clients have already responded very favorably to this policy, which could save the sellers $100,000 on a $4-million sale. Similarly, buyers have indicated strong support, hoping that the sellers' savings will make their offer more compelling.

We have received word that at least one office of a large regional brokerage held an emergency meeting on May 2 to determine how their agents should respond to the new DeLeon initiative. In the end, the manager suggested that his agents agree to include a provision in their listing agreements in which they waive the buyer's commission if they represent a buyer in situations in which the seller indicates that it is "important to them." We have not received any indications that other brokerages are willing to consider waiving the buyer's-side commission company-wide.

While agents who refuse to represent buyers on their own listings, or waive the commission from the buyer if they do, should be commended, there are a few hidden issues about which sellers should be aware. The first concern is that most brokerages do not prohibit the listing agents from having another agent in their office write up the offer in the other agent's name and paying the listing agents a very hefty (and generally non-disclosed) referral fee. In many ways, these non-disclosed referral fees are even worse than the listing agents writing the offer in their own names because the listing agents are still getting paid more if one particular offer is accepted, yet the seller does not recognize the need for extra vigilance.

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The second concern is that most real estate agents are independent contractors who are paid exclusively on commission. Therefore, they will be less motivated to promote their own listings to their buyers when they know they will not get a commission. It should be noted that all DeLeon Realty agents are paid on salary, not commission, so this concern should not apply to DeLeon Realty.

In order to respect relationships that potential buyers have with their agents, DeLeon Realty sent out a letter to the top 200 agents in the area, as well as all of the managers of the largest real estate offices. In this letter, agents were encouraged to show DeLeon listings early and register the buyers with DeLeon Realty. Once DeLeon Realty is notified of the showing, it will refrain from representing any buyers who have been registered.

While there are many honest agents, DeLeon Realty believes the entire industry has to take steps to eliminate conflicts of interest and reduce temptation. It is certainly reasonable for sellers to wonder if all of these good agents can resist the temptation to put their thumbs on the scale when advising clients in situations where they are getting paid more — generally double — if one offer wins over another. DeLeon Realty believes that this new policy is a major step in the right direction.

Michael Repka is the CEO of DeLeon Realty.

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Real estate company no longer taking commission from both sides of a transaction

DeLeon Realty first on Peninsula to eliminate possible conflict of interest

by Michael Repka / Palo Alto Weekly

Uploaded: Thu, May 4, 2017, 2:37 pm

Recently, DeLeon Realty announced a new policy that sent shock waves through the traditional real estate world.

This week, our company announced that we will no longer accept commission from both sides of a residential real-estate transaction. In other words, if any DeLeon buyer agent represents a buyer on any DeLeon Realty listing for sale, then our company will waive 100 percent of the buyer agent's commission (i.e., 2.5 percent). This policy does not merely apply to agents representing buyers on their own listings, which DeLeon Realty still prohibits. Rather, it is a company-wide policy that applies to buyers represented by any DeLeon agent, as well as any buyers who find the home on their own.

Clients have already responded very favorably to this policy, which could save the sellers $100,000 on a $4-million sale. Similarly, buyers have indicated strong support, hoping that the sellers' savings will make their offer more compelling.

We have received word that at least one office of a large regional brokerage held an emergency meeting on May 2 to determine how their agents should respond to the new DeLeon initiative. In the end, the manager suggested that his agents agree to include a provision in their listing agreements in which they waive the buyer's commission if they represent a buyer in situations in which the seller indicates that it is "important to them." We have not received any indications that other brokerages are willing to consider waiving the buyer's-side commission company-wide.

While agents who refuse to represent buyers on their own listings, or waive the commission from the buyer if they do, should be commended, there are a few hidden issues about which sellers should be aware. The first concern is that most brokerages do not prohibit the listing agents from having another agent in their office write up the offer in the other agent's name and paying the listing agents a very hefty (and generally non-disclosed) referral fee. In many ways, these non-disclosed referral fees are even worse than the listing agents writing the offer in their own names because the listing agents are still getting paid more if one particular offer is accepted, yet the seller does not recognize the need for extra vigilance.

The second concern is that most real estate agents are independent contractors who are paid exclusively on commission. Therefore, they will be less motivated to promote their own listings to their buyers when they know they will not get a commission. It should be noted that all DeLeon Realty agents are paid on salary, not commission, so this concern should not apply to DeLeon Realty.

In order to respect relationships that potential buyers have with their agents, DeLeon Realty sent out a letter to the top 200 agents in the area, as well as all of the managers of the largest real estate offices. In this letter, agents were encouraged to show DeLeon listings early and register the buyers with DeLeon Realty. Once DeLeon Realty is notified of the showing, it will refrain from representing any buyers who have been registered.

While there are many honest agents, DeLeon Realty believes the entire industry has to take steps to eliminate conflicts of interest and reduce temptation. It is certainly reasonable for sellers to wonder if all of these good agents can resist the temptation to put their thumbs on the scale when advising clients in situations where they are getting paid more — generally double — if one offer wins over another. DeLeon Realty believes that this new policy is a major step in the right direction.

Michael Repka is the CEO of DeLeon Realty.

Comments

Logique Curieuse
Crescent Park
on May 10, 2017 at 12:23 am
Logique Curieuse, Crescent Park
on May 10, 2017 at 12:23 am

It's interesting that this same author wrote the following about representing both the buyer and seller in a previous opinion piece:

"Although the practice is completely legal and widely accepted in California, it seems impossible for one real estate agent to zealously represent both the buyer and the seller in the same transaction, even when the situation is properly disclosed."

His assertion could also apply to the managing broker of a real estate company with only one office.

Again, from his earlier opinion piece ... "A good attorney would cringe at the notion of representing both the plaintiff and the defendant on the same case, yet many real estate agents represent both sides without even blinking an eye."

The author is also an attorney. Apparently, his previous logic no longer applies.

I wonder if the author can truly have it both ways: saying something is bad, and then turn around and say the same thing is good. It's interesting the he didn't reference his previously articulated rationale in his current opinion piece. C'est la vie.


resident
Charleston Meadows
on May 10, 2017 at 12:00 pm
resident, Charleston Meadows
on May 10, 2017 at 12:00 pm

I am starting to count up the type of adjectives used in these articles.
Shock Waves - seems like a business decision - save shock waves for earth quakes.
Zealously - Cringe.
Is this what they are teaching in journalism school? Every piece in the news has adjectives which are extreme - there must be some reason that a news piece cannot we written in plane language.
Then we have residents who follow up with the world is falling apart comments.
My comment about this particular agency is that the person on TV is like a funeral director who is assisting the family in an end to life transaction.


Weekly reader
Charleston Gardens
on May 10, 2017 at 12:26 pm
Weekly reader, Charleston Gardens
on May 10, 2017 at 12:26 pm
Oldster
Old Palo Alto
on May 10, 2017 at 1:58 pm
Oldster, Old Palo Alto
on May 10, 2017 at 1:58 pm

Any difference in fiduciary service quality from the "1%" minimal service listing agencies? Dual agency with DeLeon now effectively means they'll be paying 1.5% to each side's agent. With those commission rates they'll need more volume to cover their advertising and malpractice insurance costs around here plus the DeLeon free inspections, staging, and lattes. But then, it won't really be paying commissions in it's dual agency deals since it's agents work on salary so maybe this new strategy will work well for them.

But, would anyone want brain surgery or tax accounting advice from the lowest bidder service provider? With housing prices so high here why would any buyers or sellers not want their own agent to put themselves first instead of having dual agency fiduciary duties to both sides of a transaction? (Coldwell Banker got stung in a recent court case for a dual agency fiduciary duty goof.) You get what you pay for especially when there are unexpected complications.

Show of hands: anyone out there list with one of those 1% listing services and have a happy experience with no regrets?


Sure it's biased
Community Center
on May 22, 2017 at 3:06 pm
Sure it's biased, Community Center
on May 22, 2017 at 3:06 pm

Is this an ad?
It is written by the company's lawyer, to look like news.
Doesn't get more biased than that.

I observe that this company specializes in recruiting and serving Asian cash buyers [portion removed.]


resident
Downtown North
on May 22, 2017 at 3:16 pm
resident, Downtown North
on May 22, 2017 at 3:16 pm

@Sure it's biased - Of course this is an ad. The fine print at the bottom says it was written by the "CEO of DeLeon", presumably with zero editorial oversight from the newspaper. If you read the print version of the newspaper, you will see that most of the ads in the newspaper are from real estate companies.

Is it really true that most of their business comes from "Asian cash buyers"? [Portion removed.]


Saves the sellers $$
Duveneck/St. Francis
on May 23, 2017 at 11:07 am
Saves the sellers $$, Duveneck/St. Francis
on May 23, 2017 at 11:07 am

Sure this is an "ad" for Deleon Realty, but it saves sellers $$. If you sell a house thru them and the buyer is also represented by them, you pay half the commission that you would pay through most other companies (2.5% vs. 5%). We recently sold our home. The buyer did not have an agent representing them, so another agent from the listing agent's company represented the buyer. So we paid 5% to the two agents (2.5 each, not sure how much of that goes to their corporate umbrella.) Under DeLeon rules, we would have made $60K more on the sale. Of course this gives sellers an incentive to sell to a DeLeon client. In addition, I think that if you buy a house from DeLeon and later sell it through them, they only charge you commission on the amount your house has appreciated (in that scenario, we would have made $100K more). DeLeon also takes care of the upfront costs associated with getting your house ready to sell (staging, etc.)


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