The Keller Williams DTLA and The Dave Knight Real Estate Team, selected last week by the South Pasadena City Council to resell the 19 residential properties that the city is negotiating to purchase from Caltrans, will ensure buyers know they can negotiate the commissions paid to buyers’ brokers.
The assurance from a co-owner of the agency comes after a Missouri jury found Keller Williams and two other national brokerages guilty of conspiring to inflate commission fees and ordered them to pay a total of $1.8 billion in damages.
Jeff Curtis, operating principal at Los Angeles-based Keller Williams DTLA, also told the South Pasadenan News that his firm has not received any direction from the city on whether to prioritize buyers who live South Pasadena.
Curtis sought first to clarify that all Keller Williams offices are independently owned and operated, and that it was the parent organization against which the judgment was entered. “We don’t take direction on how to handle commissions from the parent company.”
He noted his agency, like most state realtors, uses standardized contract forms produced by the California Association of Realtors which he said “has been cognizant of the issues around the commissions. We are completely dedicated to ensuring both buyers and sellers know all commissions are negotiable.”
Text of the draft residential listing agreement the city will sign clearly states real estate commissions are not fixed but rather “are set by each broker individually and may be negotiable between seller and broker.”
When a property is sold, the selling agent normally collects the commission and turns a portion of it over to the buyer’s broker. The Missouri case was brought by home sellers who placed their properties on multiple listing services that included a provision requiring they pay a buyer broker commission that was “effectively non-negotiable,” according to the lawsuit. Absent such provisions, home buyers would be able to directly pay buyer brokers, who would then have to compete for business by offering lower commission rates. This is the customary practice in countries such as the United Kingdom, Belgium and Australia, where real estate commissions range between 1 and 3 percent–far less than the United States, where they range between 5 and 6 percent.
Curtis said his agents will ensure buyers know “there is no such thing as a standard commission,” that buyers know commissions are negotiable and that sellers know they have the option to pay only the seller-side commission.
According to the draft listing agreement approved by the City Council, Keller William would collect a 5 percent commission for each Caltrans property it resells on behalf of the city, and authorizes it to pay the listing broker 2.5 percent. Even so, Curtis said “every offer is its own entity. If an offer comes in suggesting a potential change in the commission structure, we’ll work with the city to consider that.”
The matter came up during the City Council’s Nov. 1 discussion of the item. Council Member Evelyn Zneimer wanted to know if the 5 percent commission was negotiable. She noted one of the bidders the city rejected proposed a 4 percent commission. City Manager Arminé Chaparyan said staff “selected a firm based on the totality of what they brought to the table.” Cost was not the only factor; staff felt the Keller Williams/Dave Knight Team offered “a deep bench,” knowledge and experience that other finalists couldn’t match.
Community Development Deputy Director Alison Becker made the same points, indicating she understood the sensitivity of the issue. “We suspect these transactions will be watched closely.”
Still, Zneimer wanted to know if it was too late to negotiate a lower commission.
“We can ask,” City Attorney Roxanne Diaz replied, “but I don’t want there to be an expectation that it will be any less than five percent.” The properties will difficult to sell, she argued.
The Council also directed that the City Manager not sign any listing agreement with Keller Williams prior to considering amendments addressing issues raised by the South Pasadena Preservation Foundation, which wants the broker to ensure the inclusion and enforceability of historic covenants; require buyers to record a deed of trust ensuring the properties are maintained, occupied and brought up to code in a reasonable time frame; and to take other steps in the marketing and sales approach, such as allowing the city’s Cultural Heritage Commission to vet prospective buyers.
In his comments to the South Pasadenan News, Keller Williams DTLA’s Curtis responded to other concerns, such as whether any types of buyers would be prioritized. He said there are many state laws prohibiting discrimination against buyers of various protected classes, but said “we have no direction from the City Manager to give priority to any buyers above and beyond” those prohibitions, for example to buyers from South Pasadena.
As for how difficult it will be to sell the homes, he said several factors obtain. Due to the state housing shortage, any new inventory coming in is a plus. But because Caltrans has not kept the properties in top condition, it will be necessary to find buyers prepared to make investments “to do the maintenance work and updates required,” especially for the six properties with recognized historic features.
“It might be more difficult than usual to find buyers,” but this will be offset by the desirability of South Pasadena and the attractive character of both its homes and neighborhoods. “We’ll encourage buyers to make sure they bring in contractors and experts prior to making an offer so they understand what they are getting into. It will be important that they make an informed decision,” as some properties have “significant maintenance issues.”
According to the request for proposals the city sent out seeking brokerage services, bidders had access to reports the city had done late last year estimating the cost to bring the respective properties up to relevant standards.