Palo Alto Weekly: Real estate company no longer taking commission from both sides of a transaction

DeLeon Realty first on Peninsula to eliminate possible conflict of interest

by Michael Repka / Palo Alto Weekly

Michael Repka, Managing Broker and General Counsel for DeLeon Realty, Inc. Photo by Veronica Weber.

Recently, DeLeon Realty announced a new policy that sent shock waves through the traditional real estate world.

This week, our company announced that we will no longer accept commission from both sides of a residential real-estate transaction. In other words, if any DeLeon buyer agent represents a buyer on any DeLeon Realty listing for sale, then our company will waive 100 percent of the buyer agent’s commission (i.e., 2.5 percent). This policy does not merely apply to agents representing buyers on their own listings, which DeLeon Realty still prohibits. Rather, it is a company-wide policy that applies to buyers represented by any DeLeon agent, as well as any buyers who find the home on their own.

Clients have already responded very favorably to this policy, which could save the sellers $100,000 on a $4-million sale. Similarly, buyers have indicated strong support, hoping that the sellers’ savings will make their offer more compelling.

We have received word that at least one office of a large regional brokerage held an emergency meeting on May 2 to determine how their agents should respond to the new DeLeon initiative. In the end, the manager suggested that his agents agree to include a provision in their listing agreements in which they waive the buyer’s commission if they represent a buyer in situations in which the seller indicates that it is “important to them.” We have not received any indications that other brokerages are willing to consider waiving the buyer’s-side commission company-wide.

While agents who refuse to represent buyers on their own listings, or waive the commission from the buyer if they do, should be commended, there are a few hidden issues about which sellers should be aware. The first concern is that most brokerages do not prohibit the listing agents from having another agent in their office write up the offer in the other agent’s name and paying the listing agents a very hefty (and generally non-disclosed) referral fee. In many ways, these non-disclosed referral fees are even worse than the listing agents writing the offer in their own names because the listing agents are still getting paid more if one particular offer is accepted, yet the seller does not recognize the need for extra vigilance.

The second concern is that most real estate agents are independent contractors who are paid exclusively on commission. Therefore, they will be less motivated to promote their own listings to their buyers when they know they will not get a commission. It should be noted that all DeLeon Realty agents are paid on salary, not commission, so this concern should not apply to DeLeon Realty.

In order to respect relationships that potential buyers have with their agents, DeLeon Realty sent out a letter to the top 200 agents in the area, as well as all of the managers of the largest real estate offices. In this letter, agents were encouraged to show DeLeon listings early and register the buyers with DeLeon Realty. Once DeLeon Realty is notified of the showing, it will refrain from representing any buyers who have been registered.

While there are many honest agents, DeLeon Realty believes the entire industry has to take steps to eliminate conflicts of interest and reduce temptation. It is certainly reasonable for sellers to wonder if all of these good agents can resist the temptation to put their thumbs on the scale when advising clients in situations where they are getting paid more — generally double — if one offer wins over another. DeLeon Realty believes that this new policy is a major step in the right direction.

Michael Repka is the CEO of DeLeon Realty.