The comp problem is breaking the fee split in a five county rural referral group

Here is a situation worth working through, because it turns up in every rural referral network once the volume gets real. Take five wholesalers across four rural counties who 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 for the arrangement. Nobody out there does enough on their own to keep a buyer list warm. Say the track record so far is 11 referred deals, 6 closed, average assignment fee $4,300. The 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 becomes a problem. Two of the states involved do not publish sale prices. So when someone in County A sends over a contract at $72,000 on a 1,400 square foot farmhouse on 3 acres, the receiving side has no way to check what he based that on, and neither does he, really. He is working off two listings from last spring and a conversation with an agent. The buyer side of the network is carrying all the pricing risk, because they are the ones who have to make the number stand up to a buyer who will walk. So two members 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 see that as the sourcing person getting punished for where they live. Then the thing nobody wants to open. One member sources almost entirely from probate adjacent situations and nobody else knows what his contact process looks like. If the group is going to have shared paper, everyone is in it. Has anyone made a split rule work that adjusts for something other than who did which half?

Answer

Rena 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.

Rena Expert

3 replies

nicole_adeyemi SS3APRO 13

The split argument is a proxy for a data argument and it keeps repeating until the data gets fixed. In non-disclosure states the workable substitutes are appraisals if anyone will share one, MLS sold data through an agent relationship, and in some counties the transfer tax stamp on the recorded deed, which lets you back into a price if the 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 the recorder actually shows on the deed page. On 3 acres with a farmhouse there's also a land component that's usually doing more work than a group gives it credit for. A tillable or fenced 3 acres carries real value independent of the structure, so a $72,000 contract could be a good buy on the dirt and a poor buy on the house. When the sourcing side isn't separating those two numbers, the pricing risk the buyer side is complaining about is often just missing arithmetic. A required pricing packet beats agreeing 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.

nicole_adeyemi SS3APRO 13

diane_kowalskiServicePRO

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.

diane_kowalskiServicePRO

The comp problem is breaking the fee split in a five county rural referral group

3 replies