Commission battles in Real Estate sales mirror structures.

We take a break in what has by default become almost wall to wall coverage of Vioxx and Mass Torts to bring you back into the financial realm, an area which I am actually better suited to comment on.

I got a kick out of yesterdays' Wall Street Journal article on the disputes that go on in the real estate industry over commissions.

The image of a real estate broker carrying a client on his back through a tangle of poison ivy, just so the client could get a better view of the ocean front property on Nantucket they were considering, is comical to say the least. However, it's indicative of the lengths agents and brokers will go to in trying to please clients and prospects now that residential real estate transactions have become huge money, with commission rates of between 4% and 6%, on properties well into the the millions.

It mirrors the single ugliest issue in the structured settlement and trust fund world that I work in, where you have brokers from both sides of a transaction fighting over the 4% commission paid on structured annuities, or wrangling for better terms on trust fund accounts upon which they are paid a finders or management fee. In my informal survey of attorneys, both defense and plaintiff, I asked one key question: "What is the single biggest negative you personally perceive in dealing with structured annuity brokers?"

The answer comes back loud and clear each and every time. The commission disputes and turf battles that are fought over cases are ugly, unprofessional and force attorney's into an ethically uncomfortable position when it comes to "protecting" their broker and seeing to it that whoever places the annuity, in fact gets paid and that agreements are honored. The settlement industry has made some strides in working out commission splits, production agreements and in general keeping the issue out of the limelight in the last few years, but as more and more big cases and mass torts loom on the horizon, the scramble for the money and maneuvering for commission income is going to be ugly unless the industry trade association begins to address the issue in advance.

The image of an agent hiking a client on his back and wading through poison ivy to get a $400,000 commission on a property sale will pale in comparison to the things settlement brokers will do to get large chunks of the asbestos fund, Vioxx settlement, etc.

Posted on December 21, 2005 .