Kickbacks, anyone..............?(Starch)

John Starcher_4

One of my larger customers is a local realty. Not only do we get referrals from them for properties they sell, but they also act as the rental agent for a large number of properties in this very seasonal area - which generates alot of service work for us. In return, we give them priority service as much as it's needed, and throw several "freebies" their way whenever the opportunity allows.

The company just merged with a much larger company with ties to a national realty franchise. The other day I get a letter from their new "rental manager." It states, along with the usual "we are stronger than ever" rhetoric, that they "recognize our continued success is dependant upon the talens and skilled professionalism of our qualified vendor partners. We have both benefited tremndously from the many years of service and support we have shared."

Enclosed with the letter is a "Alliance and Cooperation Agreement" that I am supposed to sign. It is mostly things like - we will agree to provide prompt and reliable service, conduct ourselves professionally, maintain insurance, yada-yada-yada.

The kicker is the last item in the laundry list of things that I am supposed to agree to. It states, "The usual and customary charges shall be billed for any service performed hereunder. Vedor agrees to compensate the broker twelve and one half percent (12.5%) of the usual and customary charges paid for any service(s). In no case shall the broker be responsible for unpaid services and in no case shall the vendo be responsible for the broker's compensation for unpaid services."

Huh??

First of all, this sounds like a blatant kickback. Not sure if its even legal - have a call into my attorney. I really don't understand the final sentence, either.

I am not a fan of paying kickbacks to people. No other realtors in the area do this, to my knowlege. I'm torn, though, because this particular realty has sent a ton of good work my way in the past.

The other thing is this: the realty charges a fee to homeowners for acting as the rental agent, so now it looks like double dipping to me!

I'm thinking one of two things - 1)Tell them to get bent, or 2)Sign the agreement, then raise my rate 12.5% just for work done through this realty, and send a letter to my customers who deal with this company advsing them of such.

Has anyone encountered a situation like this???????

Starch

Dan Peel

Cute

Definitely good for a laugh! Exclude that and any other item that makes you uncomfortable - bounce it back to them.
Enjoy......Dan

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Plumbob

perfectly legal

I'm not a contractor, only a homeowner. While I don't like this either, the fact is, it's perfectly legal. Just think "referral fee" or "commission" rather than "kickback". It happens everywhere. Home Depot makes lots of money via referrals; their services are all provided by local contractors (and are overpriced and lower-quality because they have to pay the middleman).

Now of course it is the homeowner who pays the additional charge, and if you raise your prices, some homeowners will go elsewhere, just as I would never get services from Home Depot. (If you tell us about the added fee, you'll lose even more business, so you'd just be shooting yourself in the foot.) The question is, is the loss of business due to higher prices balanced by the increased business due to them referring customers to you? It's your call. Of course what hurts is the fact that the terms have been changed, but you were enjoying an advantage over other contactors before, now there's more of a level playing field. If the arrangement is not good value, then no contractor will agree to pay. If someone else finds it good value, it is good value (for them).

Or look at it this way. You were giving them kickbacks anyway (as you described in your post); so we are not talking about whether to pay kickbacks, just about how much.

John Starcher_4

Chuckles,

"Of course what hurts is the fact that the terms have been changed, but you were enjoying an advantage over other contactors before, now there's more of a level playing field."
"Or look at it this way. You were giving them kickbacks anyway (as you described in your post); so we are not talking about whether to pay kickbacks, just about how much."

I was enjoying NO advantage. They previously could call any contractor they wanted to. They simply kept calling us because they knew we would take care of their problems. I don't see how their "commission" request levels any playing field.

As for quote #2, call it what you want, but the freebies I gave them in the past were done at MY discretion, not forced upon me.

Starch

Plumbob

The American Way

> I was enjoying NO advantage.

> They previously could call any contractor they

> wanted to. They simply kept calling us because

> they knew we would take care of their problems.


Well, now they want to call the person who pays them a commission. You can't tell them what they should do, and they can't tell you whether to play nice with them.

> I don't see how their "commission" request levels

> any playing field.


It gives others a chance to compete by being willing to pay the commission if you aren't. If no one is willing to pay, well, they'll have to reduce their demand. Capitalism...it's pretty ugly but it's the American Way.

> As for quote #2, call it

> what you want, but the freebies I gave them in

> the past were done at MY discretion, not forced

> upon me.


True.

jim lockard

HA HA

First thing we must remember John is that the real estate industry works on commission so asking for a back door commission is very normal for them. You and I we get offended by requests for fees to provide work. I recently had a customer hand me a subcontract agreement with what I felt were some back door "we own you now clauses" in it.
Well I never signed it, I still do their work and not a word has been said.
Maybe you should consider just losing this agreement in your desk drawer for a while and see what happens, after all you are the guy that can fix the heat and winter is coming. Best Wishes J.Lockard

Robert O'Connor_7

jim.

Well said....Robert O'Connor/NJ

Mike Kraft_2

TRUTH,JUSTICE and THE AMERICAN WAY!

Down home realty no more.The writing is on the wall .....eh Starch.Like Kathy just remarked.........it's the consumer who gets screwed.(my bride)

Guess you are the one who needs to decide.I dont know if you hold a clientle base strong enough to thumb your nose at the broker........or maybe you want more!!!!If thats the case then as it's said now-a-day................you be the brokers B-E-A-T-C-H!!!!

cheese

John Starcher_4

Jim,

That thought crossed my mind.

The very last line in his cover letter says that if he doesn't hear from me by 12/15, he'll contact me to make "final confirmation."

Might be interesting to see if the phone call ever comes!

Starch

John Starcher_4

Cheese....

My client base is large enough that I'm not afraid of this hurting me (if they don't call anymore).

You always hate to turn a customer away, though.

I personally know many of this realtor's clients. I'm curious how they will react once they learn of his commission request. I don't think I'll go out of my way to point it out to them (yet), but I'm sure the opportunity to share the information will arise.

Starch

Murph'_5

Line Item the invoice

Right at tha bottom BIGG LETTERS !!!
Let the people Know what the charges are for, call it a "real estate broker mark-up fee" no sense hiding it in the price. Than go one step further and add in a "Murph's invoicing consulting fee" about 10% be good (I am not greedy) I will tell you where to forward it!!



Murph'

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Mike Kraft_2

DONT DO IT STARCH!!!!!!!!!!!!!!!!!!!!!!!!!

Then you'll be Murph's B-E-A-T-CH too!:)

cheese

lchmb

Just my thought

I have never dealt with a situation like this. My thought would be if you have the customer list for their realties why not simply send them a letter stating that due to the realtor's request you will be unable to provide them service in the future. I would lay out in detail the contract and let them decide. They may just decide to call you themself and skip the middle man. As to future loss's, when he call's just tell him no (about the contract), when it get's cold and they get stuck, watch how fast they call back....JMHO..

Bill_14

Do what's right

Forget that crap of ethical games. Call the guy up to make sure you understand his intent. If it is so-called "kickbacks" forget it and let him know. Your standards have to be higher than this and if you build your business with these types of clients, you will soon find yourself in a bind later.

Just ask yourself, "When will this stop"? You won't realize how important it is for you to walk now until you realize that you are hooked and you don't know how to get away from this type of business. If this is what it sounds like, their hand will always be out for more than the admitted 12.5%. These types don't stop, especially with Christmas coming soon!!

Let 'em get someone else to play their dishonest game.

Bill

hr

It costs a lot more

to get new customers than retain old ones.

I'd find the common ground, you keep the customers, and the customers get to keep the company "YOU' that they have been happy with all these years.

Pass the fee along to the customer, and if ask explain why the price increase.

hot rod

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Mad Dog

Ignore it

If it becomes an issue, tell them that you will now have to raise your fee - 12 1/2% percent and when people ask why, he'll!!!!!! give them a call to explain. I've learned a few things being in business, and one big one is NEVER NEVER become too dependent on any one source for your work for just these reasons...change of regime, personality clashes. Just keep doing what your doing...they'll still call, you believe me. They are trying you on for size...remember...YOU are THE MAN - stand your ground. Mad Dog

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Mad Dog

Listen Chuckles the Clown

It is very easy for you to sit back in your "armchair" and dissect industry business practices and conventions. I don't care for your cookie-cutter quips and analysis. We slug it out in the arena everyday -obviously you don't - Got your back John. Mad Dog

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Mad Dog

Oh yeah that'll go over big Hot Rod

c'MON DUDE. Broker will hang him out to dry. Of course you want to retain hard-fought clientele, but at what cost? Mad Dog

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Bill_14

Wrong !!

They won't call back. They will find someone else to paly their stupid game. They don't give a flip for loyalty. These types are a dime a dozen. Hope some of you guys don't build your business around this type of client...very slippery ground.

Mad Dog

John, stay away from this slimebag

He will drag you down and leave you holding the bag. You don't need him that bad. I've got theories -lots of them, and one of them is that real estate people - generally - fall in the same category as lawyers, used car salesman, entertainment industry people - they all have a good line of bull, will tell you anything you want to hear and will flee like cockroaches at the first the first sign of trouble. Yeah, he wants to be partners now........ask him if you get a call back on that job, that is not your fault, will he "eat" the cost with you? atleast his 12 1/2%? Let someone else lose money with this jerk and his company. Mad Dog

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Steve Paul

Kick-Back???

John,
What if your supply house, acountant or township permit department raised their prices 12.5%? Would you eat it, ignore it, pass it along to the customer at cost or treat it as an overhead item? This is the cost of doing business, it is part of your over head. Mark it up as you would any other legitimate expence.While it is noble to be offended by someone asking for a so-called kick-back, this is the real world and you have to exist in it. I would pay the "FINDERS FEE" and treat it as such.

Bill Nye_2

For a Realtor?

They are about as loyal as ......... As, I don't know.

I worked for a bunch of them. The only time they need you is the day before a closing! But, you have to fix ----- fill in the blank.

Then when they get something good like a boiler replacement they always find some one else like a relative.

Tell 'em to take their 12.5% and go pound sand, you don't need them.

gerry gill

You'll have to raise your prices

more than 12.5 if they want 12.5, cause its 12.5 of a higher figure...with me there? One thing not mentioned is, is this a contract per se, or can you dump them anytime after signing? If I could dump them i would raise the price accordingly but only for his jobs..then if the h.o. complains i would inform them they just paid for a middleman and tell them they can save 12.5% next time by calling you direct..

jim lockard

So John

So John does that mean if on the 16th day of December there is a foot of snow on the ground, the tempture is below freezing and the (plural) tenants have NO! Heat, you get to sleep in when he calls? Or do you raise your price 25%(12.5% X 2) and fix the heat. I know you do not need him you know you do not need him, should be interesting when he realizes you do not need him. Best Wishes J.Lockard

jim lockard

So John

So John does that mean if on the 16th day of December there is a foot of snow on the ground, the tempture is below freezing and the (plural) tenants have NO! Heat, you get to sleep in when he calls? Or do you raise your price 25%(12.5% X 2) and fix the heat. I know you do not need him you know you do not need him, should be interesting when he realizes you do not need him. Best Wishes J.Lockard

jim lockard

True

And somedays it cost more to retain old customers then to find new ones.

jim lockard

Gerry

By your own math they can save 15%

Mijola

Kick Back

Of course it is a kick back. What else can you call it?

The first question I have is if you give up 12.5% of the gross cost of the jobs at your present rate as it appears that they are asking for, how much will you actually have left for your net?

The second question is do you really want to send them (and all the friends that they talk to,,,, and they will talk) the message that you had a SPARE 12.5% of your gross that you could readily give up when simply asked. If so, they will obviously think that you were screwing them out of 12.5% more than the calls were actually worth in the past.

I would think long and hard before agreeing to that deal. DO NOT do it unless you are prepared to give the same discount to everyone that they talk to. They will tell (brag) to everyone how they got that money from you, and anyone else that you do business with that finds out, will want the same deal. If you give it to one customer, (even a good one) you must be prepared for the fall out from other customers who find out.

JMHO

Ed Carey

jerry scharf_2

I'm with mad dog

Don't try to cross out what you don't like, just lose the contract. When they call, explain that you lost the contract (and will probably lose future contracts as well.) If they send people to you, you will always answer the phone and give them the responsiveness and reliability that they and their customers have come to expect and depend on. Then the broker gets to decide what he wants to do and how he cares to keep his records with the parent company.

I am completely against talking to customers about this. It's not the broker's fault and he/she would be the only one who gets embarrassed. The parent company won't give a damn about him/her or you.

You may lose some work, but I'll bet when they really need something fixed they will still remember your number. It might even turn into a better relationship than before.

best of luck,
jerry

Uni R

They're just too kind...

They are actually willing to pass up their commission on any job you get stiffed on. True team work to the end.

Salespeople are salespeople! It's a trial close. They love the people that sign but I doubt that filing it in the circular is going to the relationship.

It'll be interesting to hear what you do.

Wayco Wayne_2

Starch!

I have seen this before in many different forms. I would politely decline to work for these folks anymore. It's not worth the ethical and practical headache. These are the types of people that will tie you up and then hang you out to dry when they have you over a barrel. It's like the story of the monkey who couldn't get his hand out of a jar because he couldn't let go of the apple inside. Let go of these leverage brokers and free yourself. There is plenty of other work that will very naturally take it's place. WW

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Bruce M.

Look In the Mirror and Ask Yourself.

Do you like what you see? There is your answer.

Bob Bona_4

I detest

having anyone making money on the fact that I am in business, and having to "factor" in costs like this commission into my prices..

Devil's advocate: Can you look at it as a marketing cost? You are getting pretty much a solid referral from the broker, thus locking in the work w/o a lot of time or money invested in selling. W/o the referral, these people may have passed you by, and no $ for you!

I do a lot of work for a GC that in turn marks up my prices enormously. Sometimes I have to adjust my price (as other trades, and even the GC's) slightly to ensure the job gets signed. When this happens, I hate it, but then I look at what I didn't have to do..spend time selling the job or collecting $ from the client. This GC also pays every week-another huge plus, and his checks are always good..

Like HR said, negotiate?

tim smith

kickback

I think murph's idea of the line item on your invoice is great. Shows the actual property owner what he is paying for. I probably do 300K a year for prop. mgrs and never have had them ask for a single dime. Just good service. I have had contracts similar to that sent by other types of commercial customers, wanted reduced rates, review of books when they want, stipulated minimal markups. Guess where those contracts are filed. Tell them to go pound sand.

Constantin

Sounds to me like...

...you are in a position of strength, Starch. Luckily, you still have a big customer base outside that which the realty company provides...

I'd stick to my guns and avoid signing that contract with the 12.5% clause attached. Instead, I would send it back to the company with the paragraph crossed out and a note that your company policy is not to do commission sales. Instead, your company has a long history of offering excellent service at competitive rates.

If you lose the account, consider going the atomic-bomb route and post the contract (w/o identifying features, of course) to the local newspaper with a note along the lines of... "new and exciting ways in which renters and tradesmen get gouged by large companies". Should raise a stink!

Lastly, the only condition under which I would accept the contract is if any bill that is made out to customers has the commission fee as an explicit line item and an explanation for said commission fee. Furthermore, the commission only gets paid once the job has been paid in full. These guys are funny.

Dave Ewald

Is it Legal? - Ask the Authorities

Your state regulates what real estate professionals can do. When I bought a house in PA, one of the papers the brokerage had me sign said that they had a business relationship with the title insurance company they were recommending and may be benefitting financially if I chose to use that company. I called one other title insurance company, which quoted me a higher price, and went with the broker's recommendation. I suspect that the brokerage is legally required to disclose to its clients that it is getting kickbacks (but may make the disclosure very fuzzy and easy to overlook). Since the contract says you'll charge "usual and customary" rates, I think they're forbidding you to pass along the charge. From your description of your circumstances, I wouldn't sign. You may (or may not) lose the business where they are the property manager - but, if you sign, it would be less profitable than any of your other work. Where you have previously done work on a property by referral, you can send out some "season's greetings" cards. I would be tempted to send a copy of their letter to their clients: they may want to negotiate a lower property management fee, since the broker will be making kickbacks off their property. Check with your state's real estate board if you want to know whether or not their request is legal.

Mad Dog

I'm with you Billy Boy

Mad Dog

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Mad Dog

Right on Jerry

Mad Dog

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Mad Dog

Excellent points Ed

and so much for a profit margin huh. Mad Dog

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Thad English

bidness

It hurts nothing to call up the new rental manager and politely tell him that you will not be agreeing to the commission in any form. While you value the relationship between your company and theirs, they are already getting a great deal out of it: whenever there is a problem that needs to be dealt with on time, on budget, and done right the first time, they can count on you and your team. They do not have to deal with tenants with no heat and building owners threatening to cancel management contracts because of perceived incompetence. It makes their lives easier to have you on board. I would inform him that starting a 'commission-based' agreement is not in the best interest of your company. If they agree to cancel that commission language then you can still have a relationship. If not, as several others as said, tell'em pound sand.

[Deleted User]

Your answer has to be

Yes or No. While they may agree to keep you without an agreement, they are the ones who process & mail the checks. How does 90-120 days sound? Can you raise your rates enough to play Banker?