Commission sharing among estate agents

In selling, buying or leasing a property, you usually require the services of an agent or broker and a lawyer. Although some people conduct real estate transactions without the services of these people because of the fees usually attached, industry experts believe it is better to engage them rather than not since they make the job easier, know the going rate of properties within the area and can offer professional advice that can save you money and untold trouble later.

When dealing with untrained agents or quacks in Nigeria you are usually asked to register for a certain fee and told to pay what is referred to as mobilization fee. This fee is not inclusive in the commission the agent gets when a transaction is finalized and money is paid. The mobilization fee is to help them move around in search of the property you need. It also serves as compensation for the time imputed into serving the client should in case the person no longer goes with the agent. The fact that most vendors/principals in Nigeria prefer to give multiple agency briefs, i.e instructing numerous agents to sell of let your property for you at the same time and reducing their reward to whoever closes the deal first, is what is usually used as justification for the demand of such payment. However, the rank of such agents has also abused it and now sees those payments as income for which they only just do some activities to justify the collection. Most clients are wising up to it and becoming more and more resentful of such practices. Professional Agents will rather not accept a brief or prioritise how they distribute their resources towards the execution of their briefs depending on the type (sole, joint, multiple, etc) instead of asking for such payments to be made.

When a transaction is sealed, the fees charged by agents can sometimes be a turn off for people, especially those looking to buy a property since they bear the cost of commission for these agents and also have to pay the lawyer’s fees. Although some people don’t mind paying the commission, they believe the fees are overpriced and they are being swindled.

To avoid disparities, there are standard charges for real estate transactions by agents. By law and ethics of the practice, agency fees is 10%. In practice however, they rate is very negotiable and depends on the volume of the lump sum involved. When dealing with transactions in tens of billions of naira for example, Principals get to pay as low as 1% or even lower. There is also the issue of an agent asking for agency payment on 2years of rent where the prospective tenant is actually paying a year’s rent. This unethical practice is also common with untrained agents and quacks. It started after the reviewed Tenancy Law in Lagos, where it became illegal for landlords to collect 2years rent in some areas in Lagos for residential properties. Untrained Agents and Quacks also ask for higher agency rates or absolute sums higher than the stipulated 10% as agency in some cases especially tenement properties. This is prevalent because most professionals do not deal in such briefs largely because the cost benefit analysis is not worth their while if they have to stick to the ethics of the profession regarding agency rates. By this act therefore, they have tactically abandoned that category of properties for the Quacks.

There are however cases where more than one agent is involved in a transaction. For example, someone who is looking to buy or rent a flat talks to an agent who currently doesn’t have any opening or doesn’t operate in the area of interest of his client. The agent contacts another agent in the area who also doesn’t have the specification of the client and contacts another agent who does. The client is taken to see the place, is interested and decides to pay.
In this case, three agents are involved in satisfying the client’s need: the client’s agent, the intermediary agent and the seller’s agent. These three agents may all claim entitlement to the commission paid by the client. Although it is very arguable that the seller’s agent shouldn’t have any entitlement since the seller of the property will pay him or her commission, but the seller’s agent would disagree since he is the one providing exactly what the client needs. He could even claim as it is in operation that the Seller is not paying commission or not paying anything significant beyond what is sufficient for recovery of out of pocket expense.

In cases like this, commission sharing amongst agents comes into play. This doesn’t mean that the fee paid by the client to the agent changes, it doesn’t. What happens is that the standard commission paid by the client is shared amongst these the agents that facilitated the transaction. What happens is majorly circumstantial but it is usually a problem of greed, trying to outsmart one another, etc. The antics include bringing in people (practicing agents or not) into the chain of agents(who worked on the brief) who knew nothing about the transaction really and played no role as agents that played a role in the transaction.

Although it varies in different localities, what is obtainable is that the buyer’s agent takes 50% of the commission payable and the other agents share the remaining half as may be agreed by them. Sometimes however, the commission is shared equally amongst the agents or the buyer’s agent takes a higher commission as may be agreed by the parties involved.

The truth is there is no hard and fast rule in Nigeria for how commissions should be shared amongst agents, although the professional bodies do help to point agents in the right direction regarding issues likes this. Always keep in mind that in any business transaction, anything is negotiable and what you earn as an agent is dependent on your negotiating power.