Cutting brokers out

Edward Longley of City Connections Realty at 88 Greenwich StreetReal estate brokers are often stereotyped as shysters and double-dealers. But in today’s rocky market, buyers are sometimes the ones being deceptive.

Edward Longley, an associate broker at City Connections Realty, was shocked to discover recently that his clients were planning to buy the 88 Greenwich Street condo he had shown them — but without paying Longley a commission. And real estate agent Carleen McManus arranged for her client to see a unit at Jersey City’s 77 Hudson before she went on vacation, only to return and find the client negotiating to buy a unit there.

More and more agents say buyers they have worked with — often for months at a time — are cutting them out of the deal when it’s time to pay the commission.

In a declining market, they say, buyers are fixated on paying the lowest price possible, and many think the seller will give them a better deal if they aren’t represented by a broker. Moreover, in a market where buyers expect rock-bottom prices, they’re more likely to be disappointed with a broker’s performance in still-expensive New York City.

“People think right now in Manhattan they’re going to get this incredible deal on apartments,” said Longley. “When they don’t get it, they’re looking for any angle to get money back.”

In other parts of the country, it’s common for buyers to sign exclusive agreements with brokers. But such agreements are rare in New York, where the seller pays the entire commission, explained Steven Spinola, the president of the Real Estate Board of New York. REBNY co-broking rules state that an agent who brings a suitable buyer to the table is entitled to share the commission with the listing agent, he said.

At any point, a buyer may decide he no longer wants to be represented by his broker, leaving agents here vulnerable to buyers’ whims, explained Antonio del Rosario, president of the sales division at brokerage A.C. Lawrence. That’s especially true if a long period of time elapses or the buyer tries to go behind the broker’s back, because the listing agent may not know there was ever a buyers’ broker involved.

“Here, it is about loyalty,” said del Rosario, who said he once lost $30,000 in commission fees when a buyer became displeased with him at the last minute.

That loyalty has become more elusive in an environment where purchasers are anxious about falling prices.

“Buyers are wary of the market,” del Rosario said. “They’re less trusting, and brokers must do more work to earn that loyalty.”

Longley learned that the hard way. He showed a family some 40 apartments this spring, including several at the Greenwich Club Residences, a new condo in the Financial District. In late August, he called to check in, only to discover that they’d returned to the building without him and arranged to buy one of the apartments that he had shown them, but directly from the listing broker, thinking they’d get a better deal that way.

At most new developments, a broker is entitled to a commission if they showed the buyer the apartment, but at 88 Greenwich, that only applies for 90 days after the buyer has seen the apartment, Longley said.

Once Longley found out what transpired, he appealed to the developers, Buttonwood Real Estate and Thor Equities, and they agreed to pay him a commission. But the experience was frustrating, Longley said.

“I wouldn’t have cared if I had met them once,” he said. “But it’s disheartening when you’ve put in hundreds of hours of work for someone. I did everything for this client, and they tried to cut me out.”

Longley said he had a similar experience at 99 John Street, where he found out from the listing broker that his client had submitted an offer without him.

Buyers sometimes ditch their brokers because they have an unrealistic idea of how low a price they’ll get, and blame the broker when it doesn’t work out, Longley said.

“They think if you can’t get the price low enough, you’re a bad broker,” he said.

Some buyers also believe that the seller will give them a discount if they don’t use a buyers’ broker, since that means paying one commission, not two.

“People think they’re going to get a better deal if they don’t use a buyers’ broker,” said Kate Meckler, a senior vice president at Sotheby’s International Realty, noting that buyers seem more concerned with that than usual in a climate where they are “thinking out every dollar and where it’s going in the deal.”

Meckler was recently told by a prospective client: “We want to work with you, you’re sending us great things, but we won’t get as good a deal if we work with you,” Meckler said.

In reality, however, the commission is determined in advance, Spinola said, and the seller generally pays the same percentage regardless of whether it is split between two brokers.

Although there are some cases where the listing agent agrees to take a slightly smaller commission to help a deal go through, buyers’ brokers are often more effective at negotiating the best possible price for a client, Meckler said. And new developments are especially keen to work with buyers’ brokers in the current climate, where they get less walk-in traffic, since buyers’ brokers bring in potential purchasers.

That turned out to be the case for A. C. Lawrence’s McManus, who had been working with a buyer for a month and a half before leaving for a weeklong vacation this summer. McManus had arranged an appointment for the client to visit 77 Hudson, a new waterfront condo in Jersey City, while she was away. When she returned, she found him negotiating directly with the developer to buy the apartment he’d seen. McManus called her manager, del Rosario, in tears.

“It was nerve-racking,” she said. “I was thinking [he was] going to complete this without me after I had put all the work and time into finding him a home.”

Del Rosario contacted the listing broker, who said he wasn’t aware that McManus was representing the buyer, but then quickly agreed to pay McManus the 5 percent commission the developer was offering buyers’ brokers. The listing broker then also reached out to A.C. Lawrence with more promotional materials.

Del Rosario has asked REBNY to introduce a policy of buyers’ brokers agreements. In the meantime, the best way to ensure a buyer’s loyalty is to show them that the broker is working tirelessly on his behalf.

“Brokers now have to make deals happen by doing legwork, by proving that we add value to this transaction,” he said.