Blog Archive

Wednesday, November 2, 2016

SHOULD I BE CONCERNED WITH COMMISSION ADVANCES?


Paul F. Alphen, Esquire
Our office does not perform a ton of residential loan closings these days, but we recently received an email related to an upcoming closing that was disconcerting; but perhaps I am too conservative. It was an email from a company that provides brokers with an advance on the commission the brokers may earn as a result of a real estate closing. The email asked us to confirm the following (the names have been changed to protect the innocent):
1) Has earnest money been deposited for 123 Main Street? Yes or No
2) Is this sale a short sale? Yes or No. If Yes, does it have lender approval? Yes or No
3) Do you show the property with a tentatively scheduled closing date of November 21, 2016?
4) Is John Smith shown on the file as earning a commission?
Once this commission advance has been funded, you will receive a CDA signed by Jack Doe, Broker of Real Estate Broker Co, with instructions for disbursement of funds to Advance Commission Company upon the successful closing of this sale.
I love brokers and I don’t want to become a hindrance to their livelihoods. Perhaps the commission advance business has all the checks and balances in the world. But I have some questions:
1. I cannot always answer the above questions with accuracy. The name of the broker’s agency is often stated in the P&S, not the specific broker. I don’t know the relationship that the broker has with his/her agency and if the broker owes the agency for past due agency expenses. If I am not the escrow agent I cannot accurately represent that the deposit money has been “deposited”; I’ve been to more than one closing when I learned that the full deposit had not been paid.
2. We are already up to our necks in performing uncompensated services (everything from ordering insurance binders to contacting moving companies). We don’t need to add another.
3. A commission is not earned until and unless the closing occurs. I do not want to be part of a process that could result in a commission being advanced in a transaction that ultimately falls through. I expect that much finger pointing will follow; perhaps litigation. Perhaps there could be problems having the deposit released to the proper party if one of the brokers already spent the commission.
4. If a dispute arises, I do not want to become a witness, or an alleged co-conspirator to claims that (a) I should have advised the commission advance company that there were outstanding contingencies or other concerns with the pending transaction or (b) I breached a duty to a buyer or seller by participating in the commission advance because the advance interfered or delayed the release of the deposit when the transaction fell through.
Perhaps these concerns are just a reflection of my age. I also don’t like ride sharing apps, vacation rental apps, internet fantasy sports gaming, and electronic signatures on P&S agreements.
Paul Alphen is an Emeritus member of the REBA Board of Directors and a member of the Association’s Strategic Planning Committee.  Paul can be contacted by email at palphen@alphensantos.com.