A few months ago, Florence Sommer, a broker at Coldwell Banker Hunt Kennedy on the Upper East Side, sought out her paycheck before her commission was due to arrive.
Sommer, who had recently sold a client’s one-bedroom apartment at 301 East 79th Street, turned to Commission Express of New York, a Queens-based company, which purchased the 5 percent commission she earned on the $693,000 deal.
“I needed the money,” said Sommer. “My closing wasn’t going to happen for a month or two.”
While Sommer’s commission advance was done for personal reasons
that were unrelated to the economic crisis, the New York City real
estate slump that has deepened since her transaction has created more
demand in the commission advance business among brokers in the
Nationwide, several companies offer commission advances to brokers, but Commission Express, which owns 54 franchises nationwide, is the only one with offices in New York City. In addition to two outposts in Rochester, N.Y., it has one in Queens at 102-43 Jamaica Avenue in the Richmond Hill neighborhood. The Queens location is the only one in New York City, and it caters to brokers in the five boroughs, Long Island and Westchester County.
“We’re getting some agents who normally wouldn’t be looking for a commission advance who are calling us,” said Dino Liso, president of Commission Express of New York. “Because of the financing crunch, a lot of transactions are being delayed.”
Working exclusively with real estate brokers and agents, the company purchases a commission at a “discount,” or for a fee. Fees vary, but a standard discount is 10 percent of the commission on a 60-day contract.
After filling out an application — with questions pertaining to the broker’s business and the transaction — the broker or agent receives the commission, minus the discount amount. When the deal closes, the broker’s real commission goes directly into Commission Express’ bank account.
Liso said he offers agents liquidity in an industry where pay can be sporadic. “The cash flow is not consistent,” he said. “If you’re using [the commission advance] properly, it enables you to go out and find new business. If you’re using it to go to Atlantic City, we’re not the company for you.”
Over the past decade, Liso has purchased $30 million in commissions from brokers in the five boroughs and suburbs of New York City. He declined to provide more specific data, but he said his company has done business with agents at major brokerages, including RE/MAX, Prudential Douglas Elliman, Century 21, Coldwell Banker, ERA, Exit Realty and Weichert Realtors. Firms contacted by The Real Deal said they have no connection to the commission advance business, but that individual brokers and agents may have used them.
Industry veterans said the commission advance business is not especially popular in New York City, and the current market is not likely to boost business. “I think the real problem in this market is not what happens after you get to the contract, but getting to the contract point,” said Sandy Krueger, the CEO of the Staten Island Board of Realtors.
Liso said he gets calls from brokers throughout the boroughs, but mostly from agents in the suburbs of New York. He said business is particularly active among brokers on Long Island, but that business is holding steady in New York City.
“Our business should be down, but I think as a result of the need for the product, we’re getting calls from agents,” Liso said.
Commission Express works only with residential brokers, and refuses deals involving new construction. It charges more if a co-op is involved because obtaining board approval for a sale can hinder the deal.
But while Liso has enjoyed relative success, commission advance companies in other parts of the country have been hit harder by the downturn. In recent months, the industry overall shed several companies that failed to survive the subprime crisis.
“For about a two-month period, the market seized up. There were no commissions to buy,” said John Stedman, president of Commission Express, the parent company. Within the past 18 months, revenues in many franchises in other parts of the country slipped about 15 percent because of falling home values, he said.
In New York, the average commission purchased is worth $15,000, compared to around $5,500 nationwide.
In the past, Liso has advanced commissions to brokers working on deals worth $500,000, and he has written a few six-figure checks for higher-dollar sales.
Agents who sell expensive homes are not immune. “The real estate business is feast or famine,” said Shawn Elliott, president of Shawn Elliott Luxury Homes and Estates on Long Island, who has referred about a dozen agents to Liso in the past few years. “Agents’ pipelines aren’t always filled, so this is kind of the answer to that.”
Not that an advance is always a cure-all — it does, of course, take a bite out of a broker’s commission.
“It’s a pricey proposition,” conceded Coldwell Banker Hunt Kennedy’s Sommer, who sold a third commission in mid-February to take another advance. But, she said, “If you need to do it, you need to do it.”