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22-09-2017, 22:11
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#1
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Registered User
Join Date: Apr 2016
Posts: 129
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Broker ethics question
Is this situation reasonable: I'm buying a boat. I have a broker representing me. I find a boat for sale by owner (no selling broker), call the seller and confirm it's exactly what I want, arrange the date to view it, and then put him in touch with my broker. Knowing the highest I will pay for the boat I want, my broker makes an offer, with negotiations ending coincidentally exactly at the max I told him I'm willing to pay. I accept terms. Very shortly thereafter (deal not closed yet) I find out that my broker had the seller (owner) sign a listing agreement for 7% fees. My question is this; assuming his customary commission is 5%, isn't charging the seller 7% violating his fiduciary duty to me because the selling price is simply inflated to cover his extra 2% in commission? Remember, I found the boat. I have no problem with my broker getting paid, but this just feels like a massive conflict of interest since I'm now paying more and I found the boat (and I knew full well that I could have cut the broker out completely in the beginning since I make first contact with the seller). I included my broker after the first call just because I thought it was the fair thing to do. I haven't said anything yet, because this is my first boat purchase and I want educated second opinions. This is a 6 figure boat purchase. Thank you everyone.
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22-09-2017, 22:26
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#2
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Registered User
Join Date: Feb 2013
Location: Live-aboard Cruiser
Boat: Lagoon 450
Posts: 628
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Re: Broker ethics question
Ive just shut down a similar practice with the sell of my boat. I lost trust and respect for the broker for this unethical practice. Ive since discovered that this happens all the time. As a minimum, he/she should should have disclosed this to you. He's just pocketed the easiest 7%. Is he a member of a reputable broker association. If so, take this issue up with them.
__________________
Steve
SV Emerald Sea
L450
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22-09-2017, 22:35
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#3
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Registered User
Join Date: Apr 2016
Posts: 129
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Re: Broker ethics question
Quote:
Originally Posted by Emerald Sea
Ive just shut down a similar practice with the sell of my boat. I lost trust and respect for the broker for this unethical practice. Ive since discovered that this happens all the time. As a minimum, he/she should should have disclosed this to you. He's just pocketed the easiest 7%. Is he a member of a reputable broker association. If so, take this issue up with them.
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He is licensed as this is in California.
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22-09-2017, 22:46
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#4
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Registered User
Join Date: Feb 2013
Location: Live-aboard Cruiser
Boat: Lagoon 450
Posts: 628
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Broker ethics question
Quote:
Originally Posted by SDChristian
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He was from Maryland and not licensed, at least he never produced any documentation when probed. Im on the west coast of Canada. There are a lot of unlicensed 'brokers', working from their own PC and home. Its necessary to do your own due diligence.
__________________
Steve
SV Emerald Sea
L450
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23-09-2017, 05:40
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#5
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Registered User
Join Date: Aug 2009
Location: between the devil and the deep blue sea
Boat: a sailing boat
Posts: 20,981
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Re: Broker ethics question
Assuming their customary commission at 5%. Them getting the tip from you and knowing all your trade profile details and THEN moving the commission to 7% is, imho, unethical.
I do not know US boat brokerage ethical code practices. I was only a stock broker, at a stock exchange, in another country. Our codes were very clearly set and set very high, but we were working for an institution bound by nationally wide, government driven, standards.
I think what is found ethical or not may vary somewhat between markets and also depend on whether you are an individual trader or work for a bigger network (an individual trader may effectively be a standard setter, not taker, in absence of market-wide standards).
My musings aside, your case only, my answer: unethical. Because of the shift, which does not sound (by your post) justified in extra time, skill or effort of the broker.
Cheers,
b.
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23-09-2017, 05:57
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#6
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Registered User
Join Date: Feb 2008
Location: North Charleston, SC
Boat: Camano Troll
Posts: 5,176
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Re: Broker ethics question
Did you get the boat you wanted? Was the price what you willing to pay? Did the broker handle the paperwork and money?
If so, what is the problem?
BTW: Broker commissions around here are 10%.
__________________
Ron
HIGH COTTON
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23-09-2017, 08:12
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#7
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Registered User
Join Date: Apr 2016
Posts: 129
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Re: Broker ethics question
Quote:
Originally Posted by rwidman
Did you get the boat you wanted? Was the price what you willing to pay? Did the broker handle the paperwork and money?
If so, what is the problem?
BTW: Broker commissions around here are 10%.
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Yes 10% is customary here too, but split evenly between two brokers. My concern is that anything above his customary 5% is simply inflating his commission at the expense of my purchase price which is quite contrary to his fiduacary duty to the principal (me) as my agent. And then there is the fact that I found the boat, opened dialogue with the seller, and kept him in the deal as a courtesy...
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23-09-2017, 08:28
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#8
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Registered User
Join Date: Apr 2016
Location: Back on dirt in Florida
Boat: Currently in between
Posts: 1,338
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Re: Broker ethics question
I'm not in the business but it is my understanding a full commission is split evenly between 2. However, if only one is involved the commission doesn't drop to 1/2 but something more along the lines of 65 or 66%. If that is true then the broker is in the ball park.
I do admit to thinking that he may have been a little to "secret squirrel" for my likes. He should have been more transparent with you.
__________________
SV Bacchus - Living the good life!
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23-09-2017, 08:39
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#9
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Registered User
Join Date: Feb 2008
Location: North Charleston, SC
Boat: Camano Troll
Posts: 5,176
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Re: Broker ethics question
Quote:
Originally Posted by SDChristian
Yes 10% is customary here too, but split evenly between two brokers. My concern is that anything above his customary 5% is simply inflating his commission at the expense of my purchase price which is quite contrary to his fiduacary duty to the principal (me) as my agent. And then there is the fact that I found the boat, opened dialogue with the seller, and kept him in the deal as a courtesy...
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Not being able to read the contract you and he signed, I can't really say too much.
We wanted to sell our house several years ago and hired an agent that we knew through a friend. She had the house appraised, etc. but before she put it on the marked, we found a buyer. She did all the paperwork, etc. and reduced her commission to 1% or so. She probably could have held out for the full amount but she didn't.
__________________
Ron
HIGH COTTON
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23-09-2017, 08:43
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#10
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Moderator
Join Date: Mar 2009
Location: Denmark (Winter), Cruising North Sea and Baltic (Summer)
Boat: Cutter-Rigged Moody 54
Posts: 35,035
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Re: Broker ethics question
Quote:
Originally Posted by SDChristian
Yes 10% is customary here too, but split evenly between two brokers. My concern is that anything above his customary 5% is simply inflating his commission at the expense of my purchase price which is quite contrary to his fiduacary duty to the principal (me) as my agent. And then there is the fact that I found the boat, opened dialogue with the seller, and kept him in the deal as a courtesy...
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I understand how you feel.
Brokerage is an activity which is fraught with different conflicts of interest. You should think them through and clearly agree before you enter into a relationship with any broker, of any thing.
Using a broker as a buyer of a boat is particularly bad -- because they are typically paid by the seller. "Paid by the seller" is of course nonsense -- they are paid by YOU, with YOUR money, just you are not writing the check. Worst of all possible worlds.
Some suggestions for things to discuss with brokers and agree on:
1. What happens if there are two brokers involved?
2. What happens if only one broker is involved?
3. Whose interests do you represent?
4. What happens if I find the boat myself?
5. Do you represent my interests, and mine alone, or someone else's as well?
I know it doesn't help you very much at this stage, but if I were using a broker (or consultant) to help me buy a boat, I would just not allow him to take money from the other side. He would be paid by me depending on what he did, and I would reserve part of the payment as a bonus in case in my sole discretion I feel like he did a good job.
And a percentage of the deal is an incentive for a higher price, so I might make it a flat lump sum -- $x for advising me and negotiating the deal and then helping organize the survey and closing (and the more detailed description of the services, the better); $y for finding the boat; $z as a bonus in case of a really good deal or really good services. Maybe some elements of the fees will be reduced in case another broker is involved.
And make sure that he includes in the price negotiation, the fact that he is paid by you, and not by the seller.
In your case, I would just have a frank discussion with the broker and tell him you're not comfortable with what he did. Suggest that the price should be reduced by the 2% you think he is overcharging you. Explain all the reasons you've explained to us. If he refuses, then you have to decide whether you care enough about the principle of the thing vs. this particular deal, to walk from the deal or not. Next time, define more carefully what the broker does for what compensation, paid by whom.
__________________
"You sea! I resign myself to you also . . . . I guess what you mean,
I behold from the beach your crooked inviting fingers,
I believe you refuse to go back without feeling of me;
We must have a turn together . . . . I undress . . . . hurry me out of sight of the land,
Cushion me soft . . . . rock me in billowy drowse,
Dash me with amorous wet . . . . I can repay you."
Walt Whitman
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23-09-2017, 08:49
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#11
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Registered User
Join Date: Apr 2016
Posts: 129
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Re: Broker ethics question
Quote:
Originally Posted by Dockhead
I understand how you feel.
Brokerage is an activity which is fraught with different conflicts of interest. You should think them through and clearly agree before you enter into a relationship with any broker, of any thing.
Using a broker as a buyer of a boat is particularly bad -- because they are typically paid by the seller. "Paid by the seller" is of course nonsense -- they are paid by YOU, with YOUR money, just you are not writing the check. Worst of all possible worlds.
Some suggestions for things to discuss with brokers and agree on:
1. What happens if there are two brokers involved?
2. What happens if only one broker is involved?
3. Whose interests do you represent?
4. What happens if I find the boat myself?
5. Do you represent my interests, and mine alone, or someone else's as well?
I know it doesn't help you very much at this stage, but if I were using a broker (or consultant) to help me buy a boat, I would just not allow him to take money from the other side. He would be paid by me depending on what he did, and I would reserve part of the payment as a bonus in case in my sole discretion I feel like he did a good job.
And a percentage of the deal is an incentive for a higher price, so I might make it a flat lump sum -- $x for advising me and negotiating the deal and then helping organize the survey and closing (and the more detailed description of the services, the better); $y for finding the boat; $z as a bonus in case of a really good deal or really good services. Maybe some elements of the fees will be reduced in case another broker is involved.
And make sure that he includes in the price negotiation, the fact that he is paid by you, and not by the seller.
In your case, I would just have a frank discussion with the broker and tell him you're not comfortable with what he did. Suggest that the price should be reduced by the 2% you think he is overcharging you. Explain all the reasons you've explained to us. If he refuses, then you have to decide whether you care enough about the principle of the thing vs. this particular deal, to walk from the deal or not. Next time, define more carefully what the broker does for what compensation, paid by whom.
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I am inclined to do this. Regarding contract... I signed nothing! So I truly was being courteous by including him in the transaction considering I found the boat.
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23-09-2017, 08:49
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#12
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Registered User
Join Date: Feb 2013
Location: Bumping around the Caribbean
Boat: Valiant 40
Posts: 4,625
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Re: Broker ethics question
There is really only one important question; are you paying a fair price for the boat?
The commission is essentially being split between both of you. If a selling broker finds a buyer they can take the full 10% but sometimes knock it down a few percent. 7% strikes me as fair. If brokers started adjusting percentages based on what the buyer does like finding the boat it would be chaos. When you buy a car the salesman makes the same whether you test drive one car or twenty.
__________________
"Having a yacht is reason for being more cheerful than most." -Kurt Vonnegut
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23-09-2017, 08:51
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#13
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Registered User
Join Date: Apr 2005
Location: Southern California
Boat: Catalina 320
Posts: 1,380
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Re: Broker ethics question
If the broker had not made an agreement with the seller there would have been no obligation or mechanism for him to be paid would there ?
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23-09-2017, 08:52
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#14
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Registered User
Join Date: Apr 2016
Posts: 129
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Re: Broker ethics question
Quote:
Originally Posted by Suijin
There is really only one important question; are you paying a fair price for the boat?
The commission is essentially being split between both of you. If a selling broker finds a buyer they can take the full 10% but sometimes knock it down a few percent. 7% strikes me as fair. If brokers started adjusting percentages based on what the buyer does like finding the boat it would be chaos. When you buy a car the salesman makes the same whether you test drive one car or twenty.
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You missed the point that there is no selling broker. For sale by owner. I found the boat and set the viewing date and then looped my broker back in the deal (as the only broker) as a courtesy.
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23-09-2017, 08:55
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#15
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Registered User
Join Date: Apr 2016
Posts: 129
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Re: Broker ethics question
Quote:
Originally Posted by Calif.Ted
If the broker had not made an agreement with the seller there would have been no obligation or mechanism for him to be paid would there ?
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Correct. He had the seller sign a listing agreement before he submitted the offer. Which I have no problem with. He did not tell me what he was going to charge the seller. It's him pocketing the extra two points, which inflated my purchase price by 2 points that I think might breach his fiduciary duty to me.
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