Is one man’s introductory commission another’s back hander?
I need the help of the thousands of highly moral and big-hearted EAT readers to give me a steer on the sensitive subject of ‘introductory commissions’.
I hope that it won’t be too difficult to get a response from the shy and retiring readers who log on to Estate Agent Today in the small hours of the morning and persuade them to let me take a peek at their famous moral compass.
My problem is with the tricky subject of introductory commissions. A bottle of plonk from a law firm at Christmas, a cheque for 10% of the commission earned, a skiing holiday for the most business introduced in a month … all these and many more seem to be becoming more and more controversial.
For the last six years, I have offered 35% of my net fee earned as a buying agent to anyone kind enough to introduce business to me. For a £1m client this could be £8,750 which I deliberately ensure to be amongst the highest in the business in the hope that I will be the first person they think of.
So far it has worked well but the other day my offer was rather forcefully put down. It made me think, have I missed the moment when someone like the OFT, the FSA or one of the professional bodies decided that any recognition of business introduced should be disclosed to all parties or even banned?
I haven’t checked, but is there something in an RICS pink book that tells me what I should and should not do when offered lunch at Greens in St James’s?
Heading our way is the shiny new 2011 Bribery Act which hopes to ensure that the UK is at the forefront of the battle against bribery and pave the way for fairer practice by encouraging businesses to adopt anti-bribery safeguards.
The Act will:
Introduce a corporate offence of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery.
Make it a criminal offence to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad. The measures cover bribery of a foreign public official.
Increase the maximum penalty for bribery from seven to ten years’ imprisonment, with an unlimited fine.
A good lunch or a case of fizz have always been gratefully received when they have arrived at my door and seem to be all part of what makes business life go round, but this is now frowned upon. It gets worse: if business is introduced by an individual working for a larger firm, does the plonk go to him or to the company he works for?
The big agencies like Savills and Knight Frank will always try and pass their buying business to their own buying agency brands like Prime Purchase and The Buying Solution. I don’t believe that you can be both poacher and gamekeeper, nor that you can run more than one client for one particular property, but that’s for another day. What I am finding is that firms don’t want me to thank their staff for any business they may have introduced to me – they want me to pay the introduction to the employer.
In September the Government will launch a short consultation exercise on the guidance about procedures which commercial organisations can put in place to prevent bribery on their behalf.
Will this include some kind of accommodation for the customary ‘thank-yous’ that we might understand when they happen here, but that the law is looking to stop when it happens in North Africa, the Middle East or in other shadier parts of the world?
Comments
If anything, we have a better relationship with the handful of solicitors we use, as we don't charge them a commission.
As we aren't charging them a commission, they actually work harder for us and their isn't that slight bit of resentment in the back of their minds.
For example, one of the solicitors I use who I have known for years, who gets a lot of referal business from another local agent, has recently been told by the agent, If you dont up your commission to us that we won't be able to refer as much to you.
In my view, just not right.
Also with our letting arm of the business, we do not bolt on any extras to contractors bills, as I know a lot of agents do to supplement income.
Again this is detremental to the Landlord, either the contractor has to put his price up (ripping off landlord) or the contractor works for less and could potentially cut corners.
He will be more willing if he earns a decent fee out of it.
Make no mistake, lawyers resent the commission we get, often several times more than they get - take a cut of their fee as well..... ?
But many times a solicitor will pushg harder and be more willing to take calls etc from a 'client' agent as they don't want to risk offending us by messing us (and therefore the clients) around.
As with everything to do with Agents, there are bad apples, but I see it as another way of earning a bit of extra money and getting the security of knowing we have a decent solicitor on board who won't ignore all my calls and messages and then round on me when he eventually realises the problems I have spent a week trying to warn him about!
Chris "I think it is now customary that every solicitor pays estate agents a standard commission amount per case, without exception, so an estate agent would be foolish to turn it down if it is offered."
You think wrong. Its an abhorrent practice. You get a fee of £1000's from a vendor then get him to pay what is an inflated price for a lawyer who bungs you back a couple of hundred quid and you think that to decline is foolish?
I am with HD and Bushells - get a discount for you your client - get the lawyer to give a good service and pay you quickly.
No wonder agents get the reputation they do
We do not accept introductory commissions either, from Solicitors, Financial, removals.
I have seen locally what some solicitors are having to pay agents to retain their business and it is definately not in the best interest in of the client/vendors.
We are confident in charging what we charge, and vendors are happy to pay it, so what I see as ripping the vendor off for an extra couple of hundred quid isn't worth it.
Yes we may also get a meal or bottle of wine at the end of the year as a thank you, but their is def a clear line between thank you and bribery.
We do not accept introductory commissions from Lawyers.
We have been offered it, but we dont accept such an arrangement. It has to be declared under the 1979 EA Act.
Lawyers too have to disclose such commission to the client. In the case of a vendor who is facing a hefty commission bill, its not good, particularly if they haven't been that impressed with the solicitor.
We ask the lawyer to pass on any 'commission' to the client recommended as a bonus for using us.
It goes down very well and we don't feel in anyway tied to any particular firm. Service from a good lawyer is better than a couple of hundred pounds from their clients bill.
As always, we are happy with an occasional lunch as a thank you (ok - this is a commission of sorts if you want to be picky) and the assurance our calls will be returned and full updates given and fees paid promptly.
I think it is now customary that every solicitor pays estate agents a standard commission amount per case, without exception, so an estate agent would be foolish to turn it down if it is offered. These rewards can pay towards advertising costs and part of it goes to the negotiator to motivate them to refer more business. If we don't recommend the work, someone else will and they will earn commission out of our client and what's to say the people they have recommended are any good. They might just be cheap!
As estate agents drive the property industry, they are at the centre of the wheel and can pick up commission from most directions, I.e. Mortgages, solicitors, surveyors, home removals to name but a few.
Don't think for a moment that it is all roses for the estate agents. Thousands have gone out of business over the last 5-years and this is mainly because the public want a no-sale, no-fee service, so the agent has to invest their money with no guarantee of any reward.
All that advertising is not cheap and need to be paid every month without fail. Staff still need paying, offices still need to be paid for, heated, rates etc.
If commission is offered for recommending a particular solicitor or mortgage broker, then why not accept it, but remember that only a foolish estate agent will recommend someone who is likely to put that hard fought sale at risk. £100 of solicitor commission is tiny compared to a £3000 fee and possibly 6-months of hard work to make the sale happen at all.
This is different from a bribe. Last year I was offered a £1000 bribe from a buyer to get his £300k offer accepted before another buyer who was also about to offer. Of course I declined the offer from this gentleman and replied that I was happy to put his £301k offer to the vendor, which was of course rejected. The other buyer bought the house a few days later for £305k and I still have my self respect. :)
I see all of that as rewards, not bribery. There is one solicitor round my area I wouldn't refer to if he paid my mortgage for a year per lead! He delivers a cr@p service, so no-one passes anything to him. The sols/fa's that offer a great service get the leads, and in return, the company gets a nice little cheque, and we get a bottle of wine at Xmas!
Where's the harm?
Isn't this disclosure already covered in the Estate Agency Act? It certainly is. So I see no problem as long as you disclose at the point of submitting an offer and make sure you confirm it in writing.
Trouble is the odd bottle of cheap plonk or box of chocolates was not considered sufficent bribe but as gratitude for a helpful service and not to fix the deal in anyones favour. We have moved into the USA doctrin of litigation where commonsense no longer prevails. So the Xmas bottle of bubbly which isn't related to a specific deal will now be seen as an annual bribe for favours!
If it worries you that much don't accept anything, Merry Christmas!