8/27/2005 -  New York Post

Climbing Commissions

Lisa Keys

Back in May, David Shebiro was looking to sell a one-bedroom Upper East Side apartment, fast. Did he drop the $649,000 asking price, in hopes of attracting a buyer looking to nab a deal?

Not at all. Instead, Shebiro agreed to pay his agent, Mickey Roth of Prudential Douglas Elliman, an 8 percent commission - substantially higher than the typical Manhattan commission of 6 percent. The apartment sold in two days - and closed within 30 - for $660,000.

In this market, with sellers poised to earn dream-making windfalls with each sale, why would anyone agree to fork over extra cash to their broker?

"It actually makes sense," says Shebiro, who owns numerous businesses, including a locksmith company. "If you give more commission on an apartment, brokers are more motivated to sell it." The theory goes like this: Brokers, in addition to advertising their listings to consumers, market their listings to one another - after all, most transactions are co-broke, meaning brokers rely upon other brokers to bring buyers to the table, and they split the commission from the sale. A property that offers a distinct edge - say, an additional $10,000 in brokers' pockets - stands out among the crowd, creating clamor over an otherwise unremarkable listing. The result? A faster, higher-priced sale that puts more money in everyone's pockets. "Selling brokers use incentives of various kinds to draw in their counterparts, who, in turn, draw in the buyers," says Prudential Douglas Elliman broker Harry DiOrio. And lately, he notes, he's seen an increasing number of incentives offered. Today, some brokers are fetching higher commissions, plasma TVs, airline tickets, hotel rooms, and, in the case of a multimillion-dollar mansion, a brand-new luxury car. The tactic of higher commissions, says Diane Ramirez, president of Halstead Property, "is definitely starting to get out there." In the world of real estate, commissions are a verboten topic. While they are noted on properties' listing sheet - and anything less than a 6 percent commission is flagged in many firms' systems - most brokers are loathe to discuss with one another how much they've made on a sale. And yet, with the whispers of brokers' incentives growing louder each day, some are wondering: Does it work? And can I charge more, too? And sellers are asking, is it worth it? "It's risky," says Armanda Squadrilli of Coldwell Banker Hunt Kennedy, who has recently sold apartments with 7 percent and 8 percent commissions, and currently has a listing at 9 percent. "People look at you like you're nuts, or like you're trying to pull something. But really it's to the seller's benefit." "The theory is that it will sell for more money," she adds. "On a hypothetical $100,000 apartment, a 6 percent commission would be $6,000, and an 8 percent would be $8,000. But the apartment will sell for more than that $2,000 difference in commission. There is more demand and less supply of 8 percent apartments, so brokers are going to be more excited to sell it." This is not a new phenomenon. Back in the soft market of the early- to mid-1990s, "it was absolutely not unusual for a seller to be more than happy to pay 8 percent," says Ramirez, who adds that commissions as high as 10 percent were not uncommon then. But most observers say that the rise in incentives for brokers says nothing about a softening of the market. Instead, it's seen as a creative way to drum up business in a traditionally slow season. Adds Ramirez: "We're still in a very low-inventory marketplace." Larry Carty, an agent at William B. May, started experimenting with 7 percent commissions this summer, a time, he notes, when the market ebbs. "It tells the client you're doing everything possible to get as many people into their apartment as possible," he says. "Generally, they go for it." "What happened is I started attracting seasoned brokers who close deals," Carty says. "Maybe they say, 'That guy's getting 7 percent commission, he must be a closer, too.'" Dawanna Williams, owner of Dabar Development Partners, is currently listing her four-story Clinton Hill brownstone with Carty, who will receive a 7 percent commission when (if?) the deal closes. The $1.765 million price tag, slightly higher than market, reflects the increased commission, she notes. Though Carty was the one who requested the increase, Williams says she didn't bristle at it. "I practice law, and I know that large law firms charge a premium for their services; something that costs $150 at a small firm will cost $400 at a large one," Williams says. "If you're the type of person who wants quality done quickly, you'll call a large firm. I think of the commission as something like that." And for some sellers, time is crucial. "Another percentage here or there is not going to make a lot of difference if the deal goes through fast," says Shebiro, an investor who has done 10 deals with Prudential Douglas Elliman's Roth. The quicker the deal closes, the quicker he can reinvest the money, he says. Most recently, the pair sold a $1.75 million converted three-bedroom in two weeks. Shebiro gave the buyer's broker a $1,500 plasma TV to sweeten the deal. "It's a numbers game," Roth says. "It depends on how fast the seller wants to sell it, and how much the seller needs for the property. I tell them that sometimes we need an incentive to get the deals done quickly." Should such incentives wave a red flag for buyers, who remain in the dark as to how much their broker stands to make, yet may find themselves backed into a corner by a commission-hungry broker? Nonsense, says Carty. "Brokers are not going to sell out their clients for an extra 1 percent of commission," he says. "We all work on referrals." Still, some insiders remain skeptical. "I don't really know if it sells apartments," says Prudential Douglas Elliman's DiOrio. "What it does, if you're a broker and you have all these things coming across your plate, it gets your eye and causes you to look at the listing longer. Perhaps then you'll decide to show it." That's the entire point, according to Coldwell Banker Hunt Kennedy's Squadrilli. "Brokers, when they're working with buyers, say, 'Let me do a search and see what two, three, five apartments I can show this buyer,'" she says. "But when they see an apartment with a higher commission, they think, 'Who can I sell this apartment to?'"