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Oregon Real Estate Commissions

A couple of years ago, I looked down at the caller ID on my phone and saw a California area code. “This is Charles.” “I am moving to Oregon and looking for an agent. I will expect a 2% rebate of your commission.” “Commission rebates are legal in California but not in Oregon. I can’t do that.” “I’ll find a Realtor that will.” Click (he hung up on me). Unfortunately, he probably did find an unethical Oregon Realtor willing to do it.

Oregon Statute 696.290 (in part): Sharing compensation with or paying finder’s fee to unlicensed person prohibited; exceptions. (1) A real estate licensee shall not offer, promise, allow, give, pay or rebate, directly or indirectly, any part or share of the licensee’s compensation arising or accruing from any real estate transaction or pay a finder’s fee to any person who is not a real estate licensee licensed under ORS 696.022.

Thirteen states use some variation of this law. The Department of Justice sued Kentucky and I don’t know where it stands in the judicial system.

I don’t know if the model is flawed or not. I think it can be argued either way. It is clear that it isn’t perfect and I think the model will change to where the listing agent is paid by the seller and the buyer’s agent is paid by the buyer. Everyone can negotiate their rates and everyone will be under contract and you’ll see less dual agency. It doesn’t make sense that somebody I don’t know, have never talked to and may never meet can determine what my services are worth. Without a buyer/broker (buyer service) agreement that is exactly how the current model works. The current model though has such an aversion to buyer broker agreements that it prevents a new model from gaining traction.

23 Comments on “Oregon Real Estate Commissions

  1. Can a buyer’s agent decline part of the normal compensation as part of an offer? Note that this is different than a rebate, as the contract is written in such a manner as to reduce the price and the buyer’s agent commission.

    Acceptable?

  2. No. The commission is already agreed upon in the listing contract. It can’t be changed in the purchase contract and is either a percentage of the sales price or a fixed amount. Lowering the sales price does lower the commission paid.

  3. “The commission is already agreed upon in the listing contract.”

    How is it agreed upon when I have not even made an offer yet? That is, when I make my offer, it will include an adjustment to the commission. I don’t see where this law prohibits that.

    I’d bet dimes to donuts that I could quickly find an attorney that would agree with my reasoning.

  4. The listing agent signed a contract with the seller to pay the listing agent a commission to sell the property. Neither the buyer or the buyer’s agent is party to that contract. The co-op agreement as a member of RMLS is how the buyer’s agent gets paid. At least that is my understanding (at this point I need to advise everyone to seek legal advice from an attorney on this subject).

  5. Oh, and let me add that I do not recommend cheating any professional from any earned fees. PERIOD. I consider the situation presented by Charles regarding the fee reduction to be an attempt to cheat an agent from earned fees.

    This discussion is based more on whether or not it is permissible under Oregon law to negotiate fees strictly between the buyer, seller, and properly licensed agents. It is clear that the law prohibits third parties from being paid, with some minor exceptions.

    If you employ a professional, then that professional should be paid. As Charles points out, the seller is the one who set up the original agreement with the listing agent, so just reduce your offer.

    Finally, let me be clear: I’d rather pay more for a true professional than try to save a couple of percent by jamming my buyer’s agent–what kind of relationship is that?

  6. I can see negotiating a lower percentage or flat fee with your agent if he/she is acting as the selling agent, particularly a property with a high price tag – but it doesn’t make good business sense to put a lower buying agent’s fee on the contract. Unless it’s a great seller’s market where you’re bound to sell regardless, your lower percentage isn’t going to make your listing very attractive to agents.

  7. ne_renter-

    I think we are talking about the buyer negotiating with a his “buyer’s agent” without respect to the arrangement between the seller and the “seller’s agent.”

    It’s clear that third party payments are illegal under Oregon law, with some listed exceptions.

    It’s very common in the real estate business to have “concessions” to make a sale, yet Charles is citing this law suggesting that he cannot give any concession with respect to agent commissions. Really I am having a tough time separating “concession” from negotiated buyer’s agent fee.

    Personally I see nothing wrong with going to an agent and negotiating a flat-rate fee, and, of course, the seller’s agent is a separate issue, but I am not an attorney. The flat-rate fee might be more or less than the percentage commission, depending on final sales price and seller advertised commission percentage. I also see nothing wrong with paying an agent something when you don’t buy. Also if the agent of the buyer was only to earn two percent, then I am not sure where that would leave a selling agent who “discounts the commission by two percent.” (Another metric issue here.)

    I think it’s time for an attorney to step in and straighten us all out. 🙂

  8. Here is DOJ information about the case you cited:

    http://www.usdoj.gov/atr/cases/krec.htm

    In particular, “As alleged in the Complaint, the Commission’s promulgation and enforcement of the Rebate Ban is the product of an agreement, combination, or conspiracy among Broker-Commissioners and others that has restricted the ability of brokers to compete on the basis of price. “In construing and applying the Sherman Act’s ban against contracts, conspiracies, and combinations in restraint of trade, the [Supreme Court] has held that certain agreements or practices are so ‘plainly anticompetitive’ and so often ‘lack . . . any redeeming virtue,’ that they are conclusively presumed illegal without further examination under the rule of reason.” Catalano v. Target Sales, Inc., 446 U.S. 643, 646 (1980) (conspiracy to eliminate short-term credit to retailers per se illegal) (citations omitted); see also United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221 (1940) (any combination which tampers with price structures is unlawful); TFWS, Inc. v. Schaefer, 242 F.3d 198, 210 (4th Cir. 2001) (volume discount ban per se illegal). The agreement among the Broker-Commissioners and others to ban rebates and inducements through the promulgation and enforcement of the Rebate Ban is a per se violation of Section One of the Sherman Act. Given its pernicious effect on competition and lack of any redeeming virtue, the agreement is conclusively presumed to be unreasonable without the need for an elaborate inquiry into the precise harm that it caused or the potential business justification for its use. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5 (1958).”

    http://www.usdoj.gov/atr/cases/f210200/210274.htm

  9. Thanks for the post Charles. Appreciate it. I’m in total agreement that each side should negotiate the commission they pay their agent.

    I don’t believe you, or any other agent should not be paid for your services. I do have issue with it already being decided what I should be paying. There are differences in agents and their real estate skills, yet for some crazy reason all buyers will get paid the same, unless you’ve got some mad skills to renegoiate your split of the total commission.

    As for finding an agent that will refund some commission to a buyer, those agents have helped us get into the current real estate situation.

  10. The commission structure is far from perfect but it is what we are bound with by law until it is changed. How many of you want to put in 40 hours and then not get paid for something out of your control? It happens too often in real estate with the current model. It irks me that I am perceived as being worth the same as a part time Realtor who can call and order the same $33 sign post. It should irk you too.

  11. “It doesn’t make sense that somebody I don’t know, have never talked to and may never meet can determine what my services are worth.”

    What are you talking about, Charles, this makes perfect sense, and happens in all fields.

  12. “Good morning Tiffany, we are going to pay you $7.75 an hour for your efforts today. You see, Fred got here first this morning and he thought you wouldn’t mind. I know it is lower than you normal rate but maybe Mary will negotiate a better rate for you tomorrow. Oh, and keep in mind, that even if you put on another outstanding shift, you might not get paid at all. We’ll let you know about that later”

    Makes perfect sense 🙂

  13. I welcome a change in the law — that would allow redfin to operate in Oregon!

    Sad watching the mortgage reform attempt get shot down so easily in the state legislature.

    Those damn Republicans — only interested in preserving big business…

  14. ChrisM, Not just republicans. Real estate development is the economic gravy train of the peoples republic of PDX.

  15. Charles, you paid $650K for your current home plus you likely dropped a 100K+ restoring the puppy, you have two new Lexi hybrids, and you own a few rentals at what, age 32?!?! Plus, are you also paying off student loans, possibly? And you are a realtor, you help sell/buy homes. I know life aint fair but do you really think realtors are worth that much in society. You are sitting better than most doctors that I know. But then, I don’t know how much debt you are carrying.

  16. Charles, sorry that it irks you if you are perceived the same as a part-time agent. Look no further than the NAR and your local associations for that. The low barrier to entry, coupled with the NAR only advertising to use a REALTOR, and not even suggesting there are any differences in agents.

    In just reading your blog, I know that you have much to offer clients. But as long as the commission structure is set up the way it is, you will continue to get paid the same per deal, as some 20 year old that barely graduated from high school.

  17. What irks me about the commission based pay is that houses have more than double in value in the past 10 years which means that realtor commission fees have more than doubled. Have any of you readers out there doubled your income in the past ten years w/out a promotion, further education or training? For example, entry level BSNs started at about $17/hour 10 years ago, now they start at about $23. Even with ten years experience my income has not doubled. Sure, I’m in the wrong field;O) Maybe I am simplifying things too much. I assume that a seasoned realtor will have more clients thus more opportunities for income but like previously stated someone who barely made it through HS was making the same % on a transaction than the seasoned folks and it didn’t take much to sell a home 3+ years ago. Now is when the professionals will shine and earn every penny.

  18. Both Kevbo and bearlee are right, the commission model is flawed and NAR and state licencing requirements make the barriers to entry into real estate way too low and are therefore largely to blame. Regular readers have heard me say this before numerous times before.

    bearlee, even if I wanted to discuss my financial situation I probably couldn’t do it justice in writing. I still maintain that bringing it up isn’t polite conversation as you are essential preaching to the choir. Yesterday I went to a broker open for a house on SW Boones Ferry listed at just under $800,000. I bought my first house (with some parental help and an small inheritance when I was in college) six doors down in 1994 for $147,000 (sold in 2003). Have I benefited from real estate? Absolutely.

    The vast majority could be a licensed Realtor in under two months and it is a tragedy created by our industry.

  19. bearlee-

    Macy’s has a history of reporting sales monthly. For some reason they join Sears and Home Depot to switch to quarterly.

    It seems when times were good, the sales were reported right away, but when slow sales hit, it’s time to rethink quick reporting.

  20. I think we may see either annual reporting (July ’07-July ’08) or more lengthy time intervals from our realtor folks. Like I said before, I hope to god that they are prepared for this slow down cuz it’s getting ugly. I’m almost afraid to look at the few economy blogs and periodicals that I visit each day. It seems to get worse by the hour on some days:O( But wait, Portland is special, ahhh, now I can smile;O)

  21. bearlee-

    Watch for changes in the way that data is reported. Edward Tufte developed a “Lie Factor.” The Lie Factor is used to determine just how bad the presentation of data is. I really recommend Tufte’s four books.

    GOOD NEWS! “Everyone taking the course receives copies of all four books.” He tours from time-to-time, and he will be in Portland July 16, 2008. You get $200 worth of books plus the one day lecture for only $380. It’s been many years since I’ve seen Tufte, and I am looking forward to it.

    http://www.edwardtufte.com/tufte/courses

    What I like about Tufte’s work is that he concentrates on the presentation and how poor presentations can lead to disasters. He uses the Space Shuttle Challenger disaster as an example. The engineers failed to convey that Challenger would not survive.

    GAAP requires some consistency in the reporting. While the four basic accounting statements are basically the same for all operations, the classification of the underlying data is still and issue. There is great latitude in costing, for example.

    In the case of Macy’s, the basic claim is made that the cost of preparing monthly reports is not worth the benefit. In addition the context of the larger industry can also be used to help support a change. I’m not a Macy’s insider, so your guess is as good as mine, but I think they seek to delay the release of negative information.

    It’s important to analyze the presentation of data as well as the underlying data itself. Yes, there are time where poor presentation is just a result of those who do not understand what is really going on, so you might want to ask yourself about whether it’s just an accident.

    I’ve been wondering what happened to the zealous austin_relo.

  22. $800,000 on Boones Ferry Road? Must be tearing down the old homes and building McMansions. Wonder if it hurts sales if your neighbor is living in a ‘old’ house?

  23. You need to be aware about rules and regulation of a real estate.Since real estate business is not a bad investment.

    -Ella

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