There are some companies that charge the seller an upfront fee to cover all the expenses of marketing their home. In order to overcome resistance of the seller taking on that financial risk, these companies usually offer "money back guarantees."
At first glance, this sounds really good. But there are some very important strings attached to this "money back guarantee."
Let's say that a seller paid the company $650 upfront for marketing. They guaranteed that at anytime if the seller was unhappy, the seller could cancel and the company would give them back all of the upfront money they had paid. I think a normal expectation would be that the company would write them a check at cancellation time and let the seller move on.
But some companies have come up with a weasel's money back guarantee. They require the unhappy client to wait until after closing to receive their money back. Why the wait? Because the company doesn't want to actually pay back the money they originally collected from the seller. The unhappy client needs to allow the company to set up a referral fee arrangement with the new agent that the unhappy client wants to use. So the next agent gets stuck paying the "money back guarantee". Pretty slick, isn't it? Maybe if you're a weasel.
So it ends up that the company that was only charging $650 to do the listing, can actually end up with more by having the listing expire or be withdrawn. For example, a 25% referral fee on a $300,000 home could be $2,250. The company collects a $2,250 referral fee after closing, gives the original unhappy client their $650 back and walks away with $1600 pure profit. It would actually be more profitable to have a listing expire. Something to think about if you are a seller.
One company that does this had 474 sales in the past year and had 1720 expired or withdrawn listings during that same period. Do the math. It adds up to a huge amount of money made off of expired listings.
How does a seller fall for this sleazy trick? No wonder our profession gets a bad rap. This should be illegal
You have to be kidding. Please.
Never heard of that routine before.
Never really understood the idea of transaction fees either...it's either straight commission or fee based compensation but a hybrid is a little silly!
Thanks for the heads up!
The seller's only recourse is to hope the next agent he gets will fall for this. . . I would rather walk away from the listing than knowingly assist a company with this behavior.
Soooo...you are saying that discounters,...who in this market, take any listing at any price...actually depend on the listings not to sell...wow...what a great reputation to have earned,....just like turning a deaf ear to "I am working with an agent..." and continuing your sales pitch so you can claim procuring cause....how slick...what's that about ethics and honesty again ?
Lori, The seller doesn't really know or really care where the money is coming from. All they know is that they are getting their money.
Options Realty, I wish I were kidding.
that is fascinating..I have never heard of that..although I'd love to the up front marketing expenses..I can't see being a weisel. :)
Ron- It's all about marketing a great sounding offer.
Sheila- I wouldn't take on a referral like this either but I'm sure many agents would.
Sally- I'm sure they try to get the listings sold but they cover themselves no matter what happens.
Tim nothing surprises me these days. I have seen too much in the past years.
I am not surprised by this at all. There is a flat fee mls in my area that tries to spam my other blog every time I write anything about FSBOs
Tim holy cow what a racket. They are in a win-win situation. They get paid if the listing originally sells and they paid if the listing doesn't sell. I would imagine that the referral fee only goes one agent deep. Suppose the next agent that took the listing with the agreement(which as some of the agents here said I wouldn't take under those conditions) (I even wonder if that is contractually legal) lets say that it doesn;t sell with the second agent and the seller went with a third agent would that agent have to pay a referral fee?
Sincerely,
Bill
This is really sleazy! It's little wonder our profession gets a bad name by the few bad apples.
Tim, great job exposing this type of stuff. Those that use gimmicks are real estate actors that can't perform without them. Shame on them!
Tim, this is one that hasn't caught on around here yet. Sometimes on high end listings, where the seller is demanding a lot of extra stuff, tsome companies will have them upfront the money and refund it if and when the property settles (with that brokerage). I think as long as it is clearly explained it's not a terrible thing, although I don't do it myself. Sounds like where you are they're not eplaining it real well.
Interesting post Tim...thanks for spreading the word...
Georgia Real Estate Directory
Interesting post Tim...thanks for spreading the word...
Georgia Real Estate Directory