Do Buyers Give Sellers Brokers an Incentive
I’ve heard of buyers offering the Sellers broker, for example, a 1% incentive fee. (If this is crazy, then I very likely misunderstood what they said. )
Is this common in institutional transactions? Is it disclosed to the seller that their broker is getting paid by the buyer of the deal? Is it illegal not to disclose?
Curious to hear how wide spread this is and if there are any other forms that the incentive may be offered.
Definitely never done anything that overt, but pretty standard to promise them the return listing when you sell (assuming a short hold) or give the leasing listing to their office
I've seen it where an active buyer/seller in the market gets "preferred access" either on the eventual sale or another listing. I've also seen a broker tell one group that they need best and final by Friday at 3:00pm, so he could tell the other group in the running the amount so they could adjust by end of day. Eventually, it gets around.
I doubt you'll find anything in writing, but brokers operate in the scummiest, least-value-added part of the business, so none of this would surprise me if it were endemic.
Yah I've seen some questionable things. A lot of times the mortgage broker team will get kicked business from the investment sales side for showing buyers "off market deals" then the buyer is stuck with a subpar capital markets execution at an aggregious fee for the minimal added value.
Best to keep them separated IMO and just hire a true Cap Markets guy if you want a clean financing.
I would say, given the market conditions from 2022 to today, the answer to your question is largely going to be no. Specifically in the institutional space. My team has institutional and Class C/B- brokers, so I've been exposed to both over the last 5ish years. The private capital space certainly is the wild west, and I love how Ozy has his typical disdain for brokers being the scumbags that lack any value-add. The illegal practices I've seen from operators of private capital deals are far beyond what this post described.
That aside, I'll address your specific question as it relates to the institutional space. The situation you described is very unlikely at these deal sizes due to the bid-ask spread that has been prevalent for the last few years. Finding a buyer for an asset, at least in my space of multifamily, that is at the seller's desired pricing (which is often unrealistic), is not easy. Further, coming across a buyer that is also offering some sort of incentive to the broker is very unlikely. Like someone else said, the standard understanding is that the broker will be used when the property is sold again. That doesn't really need to be said, though, given that it's a generally accepted practice. What could be said, though, is that the buyer could promise the broker an upcoming listing of a different deal. This shouldn't be viewed as scummy, as it's also a pretty standard practice, and at the end of the day it's the seller's decision to transact and the group that is selected.
In a hotter market, like 2021, I could see something like this occurring. However, the broker is still largely incentivized to pursue the highest price for their client. Incentive clauses were also pretty common in seller listing agreements then too, so the highest price could result in a payout exceeding a hypothetical (lower-priced) buyer incentive + seller commission %.
If this did occur, then I am not sure the legality of it one way or another or any disclosure requirements. I'd imagine that if the broker is confident that this buyer provides the best pricing outcome and surety of close, then they may want to disclose the buyer fee to the seller for the sake of transparency. If the buyer, however, is not representative of the best pricing and potential to close, then that, of course, would be scummy. And while there are certainly scumbags out there, I'd imagine a true institutional broker is not going to put their credibility or position in the company at risk simply for another $100k/$200k.
There is no explicit quid pro quo in my experience, but (as others have said), using the debt broker on a deal (and not pushing them on their fee) is a huge advantage over a buyer who does not. In fact, the debt broker (unbeknownst to sales broker) may reveal dynamics (like where other bids are coming in) to advantage you over other buyers. Savvy sellers will be attuned to this dynamic and want to know which bidder is using the firm's debt broker's services and scrutinize accordingly.
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