UPDATE Monday, January 6, 2019, 11:22 a.m.: In less than three minutes, Ryan Serhant inadvertently acknowledged residential real estate’s elephant in the room: agent incentives.
“I went to the bank and I took out a lot of money and I’m going to offer $50,000 in cash to the first broker who brings me a deal at 196 Orchard in 2020,” the celebrity broker announced in a video he posted on Instagram on New Year’s Day. (He posted a second, longer video on YouTube.)
The building in question is Magnum Real Estate Group’s Lower East Side condo, which launched sales in 2016.
In one video, Serhant, clad in a pinstripe suit and seated at a table piled with bundles of $100 bills, explained his rationale: In a “tricky” market rife with “annoying” emails offering agents incentives and higher commissions, he’s dangling the king of all carrots.
“Game on,” he said.
Notably, the $50,000 — on top of a broker’s standard commission — is not actually coming out of Serhant’s pocket. Despite Serhant filming himself withdrawing cash, a spokesperson for Magnum confirmed the developer was footing the bill.
But the bold, dramatic move has reached thousands and has shined a light on the lack of transparency around the long-standing practice of developers dangling sweeteners in front of buyer’s brokers.
Compass’ Leonard Steinberg, who initially handled sales at 196 Orchard, didn’t mince words when told about the Serhant’s offer. He took a lengthy pause before saying “that’s my comment. Like, speechless.”
Nikki Field of Sotheby’s International Realty called Serhant’s offer “an alarming conflict of interest” and said any kind of cash-based incentive casts doubt on an agent’s credibility.
“It’s highly unethical in my book,” she said. “I’m so against it. I will not be taking my clients to this property and I do not take them to properties that have this kind of incentive.”
Magnum, which said it hired Serhant in December to sell off the remaining 30 percent of the 96-unit building, stands by the cash offer.
“This incentive demonstrates that we are proud of our product,” Jordan Brill, a partner at Magnum, said in a statement. “This is not a stunt, but a real cash offer that shows we are ready to close.”
Some critics say that these incentivizes raises ethical questions because agents can legally pocket these perks without their clients ever knowing.
Real estate agents have a fiduciary duty to represent their clients’ interests, but it’s a seller or developer that pays agents. And, in new development, payment terms are governed by a co-broke agreement that buyers aren’t party to, said Shaun Pappas, an attorney at Starr Associates, which represents both Magnum and 196 Orchard.
Field admitted the high-ball offer shows Magnum’s commitment to sell and said that, if she had a client who wanted to see a property at 196 Orchard, she would disclose the cash bonus upfront and pass the money to her client.
In one of Serhant’s videos, he said as much: “If you don’t care about fifty grand, tell your clients I’ll give them $50,000 off.”
In a later interview, he expressed surprise at the criticism.
“Ethics isn’t a part of it. All we’re doing is paying more commission,” he said. “[I’m] just the first one who put a dollar figure on it and blasted it on social media.”
Compass broker Michael Graves jumped to Magnum and Serhant’s defense, calling their $50,000 offer something that should be “applauded.”
“I’m a huge advocate for incentivizing and rewarding the agent community,” he said. “They’re working much harder for less… They need to be and should be rewarded for their work”
He said he doesn’t see additional compensation, regardless of form, as a conflict of interest.
“I believe the culture of brokerage hasn’t rewarded agents enough,” he said. “Agents often get overlooked and I don’t believe that agents are paid as well as they should be… This is a great step in that direction.”
Graves is putting his money where his mouth is at one of his new development projects in Williamsburg. At 138 North 10 Street, he’s personally paying to give buyers’ agents an additional 0.5 percent in commission, a Vespa and a yearlong membership at the Bathhouse valued at about $3,000 for any contract signed before Feb. 15.
“It’s us giving up a portion of our commission to reward the agent community,” he said. “Brokers can do what they wish with this.” Graves said he began offering the incentive in December.
In addition, incentives aimed at buyers’ brokers have been circulating behind closed doors, mostly by way of verbal agreement and email blasts.
An internal document produced by the Corcoran Group and shared with The Real Deal by an industry source shows an aggregated list of 46 new development projects offering a range of agent incentives as of October 2019. The document bears Corcoran’s logo and copyright notice, but the brokerage did not comment on its authenticity.
The most common sweetener was “above standard commissions” ranging from 3.5 to 4.5 percent, particularly for agents that did multiple deals within a building. Eight of the developers were offering to pay advanced commission upon contract signing for up to half of what they owed agents. (One email sent from Douglas Elliman in mid-December promised buyers’ agents up to 5 percent commission on sponsor units in five Tudor City buildings.)
More creative offers included a $5,000 Saks Fifth Avenue gift card and VIP personal shopper Magnum was giving out for every contract signed at 389 E 89 before Dec. 31. (Another late December email, this time from MNS, offered buyers’ agents a $5,000 American Express card for any deal signed by the end of 2019 at 1325 Fifth Avenue.) Meanwhile, at 34 Maspeth Avenue, a five-unit project in Williamsburg, boutique developer Black Diamond Design and Development offered agents a $15,000 closing bonus.
Finally, at 190 South 1st Street, a condo developed by Adam America Real Estate and partners, there was a $50,000 closing credit for the penthouse unit. The developers did not respond to requests for comment.
It’s all in the name of getting the job done, according to appraiser Jonathan Miller, whose firm Miller Samuel authors Douglas Elliman’s market reports and has been tracking industry data for years.
“This phenomenon is natural,” said Miller. “It’s something that we see in every down cycle.”
In the late 1980s and early 1990s, veteran broker Donna Olshan recalled developers offering up to 10 percent commissions, jewelry, vacations and, once, even a Rolls Royce to agents.
Tracking those incentives, outside of email lists and brokerage agreements, however, is challenging. Corcoran’s method of tracking incentives is unparalleled, according to multiple industry sources, though Compass is attempting to produce a comparable document to its agents. And Elliman has prepared similar reports for developer clients, one insider said.
What Magnum and Serhant did, postering their cash incentive publicly all over social media where homebuyers could easily find it, is unusual. But that’s why Magnum hired Serhant. “Ryan’s reach helps us connect with a wide range of buyers,” Brill noted.
Serhant ultimately shrugged off his haters.
“The fact that people are talking about it is exactly the point,” he said, “so, I guess, job well done.”
Clarification: The timing of when broker Michael Graves began offering incentives at 138 North 10 Street was added.