The comp problem is breaking the fee split in our five-county referral group

Five of us across four rural counties have been sending each other deals informally for about eight months. Volume is low and the price points are low, which is the whole reason we're doing it. Nobody out here does enough on their own to keep a buyer list warm.

What we've actually done so far: 11 referred deals, 6 closed, average assignment fee $4,300. Split has been 50/50 between the person who sourced the seller and the person who brought the buyer, decided on a handshake each time.

Why that's now a problem. My state doesn't publish sale prices. Neither does one of the others. So when someone in County A sends me a contract at $72,000 on a 1,400 square foot farmhouse on 3 acres, I have no way to check what he based that on and neither does he, really. He's working off two listings from last spring and a conversation with an agent. The buyer side of the network is the one carrying all the pricing risk, because we're the ones who have to make the number stand up to a buyer who will walk.

So two of us want to move to a 60/40 split favoring the buyer side on any deal from a non-disclosure county. The three on the sourcing side think that's the sourcing person getting punished for where they live.

The other thing nobody wants to open. One member sources almost entirely from probate-adjacent situations and I don't know what his contact process looks like. If the group is going to have shared paper we're all in it.

What I'd like to know is whether people have made a split rule work that adjusts for something other than who did which half.

Answer

2Rena Expert

Your 11 deals, 6 closed gives you a 55% close rate and $4,300 average fee, so a referred deal is worth about $2,365 in expected fee to the network before the split. At 50/50 each side's expected value per referral is roughly $1,180. Moving to 60/40 shifts about $236 per deal at those numbers. That is a small amount of money to have a structural argument over, which suggests the argument is about something else, and parcel named it. The buyer side is absorbing pricing uncertainty that originates upstream.

A split percentage is a blunt instrument for that. The alternative used in a lot of these arrangements is a deal standard rather than a fee adjustment. The sourcing member owes a defined set of inputs before the deal enters the group, and a deal that arrives without them either doesn't circulate or circulates at a reduced sourcing share. That puts the cost on the specific deals that are underdocumented instead of on everyone in a non-disclosure county.

The assumption to test is your close rate. Six of eleven is a small sample and if the failures cluster on one member or one county, the fix is targeted, not a rule change for the whole group.

On your last paragraph, shared paper means shared exposure. Contact practices around probate and other distressed situations are governed by state rules on solicitation, and several states have added specific requirements for wholesalers in the last few years, so what one member can do in his county may not be what another can do in hers. A real estate attorney licensed where you operate should review the group's standard contract and marketing practices before you formalize anything. That is a conversation to have before the split conversation, because a compliance problem at one member becomes a problem for whoever's name is on the assignment.

3 replies

2nicole_adeyemiPassivePRO5

The split argument is a proxy for a data argument and you'll keep having it until you fix the data.

In non-disclosure states the workable substitutes are appraisals if anyone will share one, MLS sold data if any of you has access through an agent relationship, and in some counties the transfer tax stamp on the recorded deed, which lets you back into a price if your state levies one at a per-thousand rate. That last one varies quite a bit, some states have no transfer tax at all and some record a flat fee that tells you nothing. Check what your recorder actually shows on the deed page.

On 3 acres with a farmhouse you also have a land component that's doing more work than anyone in the group is probably crediting. Around here a tillable or fenced 3 acres carries real value independent of the structure, and a $72,000 contract could be a good buy on the dirt and a terrible buy on the house. If your sourcing member isn't separating those two numbers, the pricing risk the buyer side is complaining about is partly just missing arithmetic.

I'd rather see the group agree on a required pricing packet than on a percentage. Three supporting data points and a photo of the roof and mechanicals, or the deal doesn't go into the group. Then 50/50 stops feeling unfair because the sourcing side is doing the work that makes the number defensible.

1diane_kowalskiPassivePRO9

The three acres is the part I'd sit with. I look at rural land most days and the difference between 3 acres that perc and 3 acres that don't is bigger than your entire average fee. If your sourcing member isn't noting soil, access, and whether the well and septic are shared with a neighbor's parcel, the buyer side is pricing blind and no split fixes that.

We had a group locally try the tiered split thing and it died in four months because nobody could agree on which tier a given deal was in. The packet requirement parcel described is easier to enforce, because a document either got attached or it didn't.

The comp problem is breaking the fee split in our five-county referral group

3 replies