With home prices dipping in many areas, some people are finding it difficult to accept that promotion and move across the country, since the home they bought last year can’t be sold or if it can, sells at a big discount.
But the big CEO isn’t worried. As Slate reported earlier this year in “The CEO Real Estate Scam – The newest infuriating perk for corporate executives“, corporate executives are being offered “protection against loss” when they sell their house. These companies, including Ebay and Nike, have disclosed in their routine Securities and Exchange Commission filings that they’re now protecting their executives from real estate market forces. They are essentially guaranteeing that executives’ homes will sell for a good price. But the author takes issue with this new practice as “companies that depend on free markets are making sure their own executives are safeguarded from them.”
Many folks who are relocated are offered a package, and part of that package are referred to a local real estate agent, both to list their home and in their new home city. The employer may have signed a contract with a large relocation company, such as Cendant, who owns Realogy which owns Century 21, Coldwell Banker, Sotheby’s and ERA Real Estate.
The agents may be assigned the relocating Buyer or Seller and may be asked to pay a “referral fee” of anywhere from 30% to 45% back to the referrer, with a portion sometimes being rebated back to the Buyer or Seller, or passed on to the relocating company in order to reduce their total relocation costs.
The most interesting aspect of these agreements may be between the relocation companies and the brokerages. Some real estate firms, so hungry for these executive leads, sign agreements that pay the relocation firms a percentage of every sale from a referral, whether or not the referral originates from that relocation company.
For instance, a brokerage might sign an agreement where 12.5% of a referral fee must be paid to Cendant, whether or not the referral came from them. So, an agent in Seattle might make a referral to an agent in San Francisco and want a 20% referral fee. However, 12% must be paid to Cendant, even though they were not involved in the referral. So, for the referring agent to get 20%, they’d have to ask for a 32% referral fee. If the Seattle agent only asks for 20%, then they’d actually only receive 8%.
Another interesting outcome of this arrangement is an agent can end up paying a referral fee to someone who was not referred to them, someone who just calls or emails them from their website, or who they meet at an Open House.
For instance, Agent Cindy who works at Century 21, can meet a buyer at an Open House in Seattle and develop an agency relationship with that Buyer. Unbenownst to Agent Cindy, Agent Sally at Century 21 in San Francisco has referred that buyer to the relocation firm just a few weeks before. For whatever reason, the buyer declined to work with the referred agent and wants to work with Agent Cindy instead. She can, of course. However, Agent Cindy must pay the relocation company up to a 45% referral fee, even though that Buyer was never referred to her and she just met her at an Open House. Those are the terms of the referral contract signed between the brokerage and the relocation company.
Right after meeting a relocating buyer or seller, experienced agents immediately call their companies relocation office and “register” the client. This way, that buyer or seller can’t be “referred” to them and they won’t be obligated to pay a referral fee for their own clients that they’ve met on their own.