When is the broker economically intertwined with one of the parties involved in the real estate business? What does this phrase mean and what does it imply in the context of the process of selling a property? Are the seller and the buyer of a house or an apartment equally affected by a possible interlocking? At the latest when it comes to brokerage fees – also known as commissions – the seller and/or buyer should have checked to what extent the broker has a closer relationship with the respective “other side” – i.e. is economically intertwined.
Broker: neutral intermediary between buyer and seller
Appointing a real estate agent to sell your home, or to buy one – no problem! In every region there are many real estate agents who specialize in brokering residential and/or commercial properties. If you don’t feel like looking for a buyer for your property yourself, hire an agent. Even those who are interested in a property themselves can commission an estate agent to search for a suitable property. Between both parties – buyer and seller – the broker is interposed as a neutral mediator in the sales process.
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For his often very extensive work, the broker receives a commission. With serious brokers, by the way, only when the purchase contract for the property has been concluded! But there are also cases where the broker has no claim to commission. Especially if the broker is economically intertwined with one of the two parties (seller or buyer).
Objectivity: the primary duty of the broker
In the real estate sector, brokers thus represent independent intermediaries between buyers and sellers. Within the consulting and sales process, the independence or objectivity of the broker becomes noticeable quite quickly. For example, he lists the advantages and disadvantages of a property neutrally in terms of location, equipment, condition, etc. Sellers and buyers of a property are equally supported and strengthened in their position by the broker. This does not mean, of course, that the estate agent constantly “does right” or should do right by each party. In the best case scenario, he or she will create a compromise out of the positions of both sides. Usually it is about the purchase price and payment modalities.
However, if a broker is in any way intertwined with one of the two parties, objectivity is no longer given and conflicts of interest arise. Problematic for the broker: In such a situation, the broker is no longer entitled to his commission. The objectivity of the broker, both the seller and the buyer, is therefore the highest priority in the serious brokerage business. Already in the own interest of the broker himself.
Economic interdependence at a glance: Rejection of the commission claim
The entitlement to commission requires that the main contract is concluded with a third party, i.e. that there is a “triangular relationship” broker-client-contractor in which the broker stands between the parties to the main contract as a proving or mediating third party. If the broker is so connected with one of the parties that the latter cannot make its decision independently of the broker’s will, there is in fact no “triangular relationship”. The main contract is then basically a transaction of the broker’s own, in which the broker, in the guise of a commission, demands additional remuneration from the opponent of the main contract over and above the actual consideration.
An interlocking relationship exists if the broker has a significant legal or economic interest in the principal contracting party or is economically identical to the principal contracting party.
- Brokers must be independent intermediaries between the parties
- If this is not the case, the objectivity of the broker is no longer given and there is a conflict of interest between the parties.
- Economic links include, inter alia, the broker’s equity interest in a company of the contracting party
- As a result, the broker is no longer entitled to commission
Interlocking of the broker: Examples
A commission claim is therefore excluded in the case of the broker’s own business, in which the broker brings himself to the client as a contracting party. Furthermore, the following types of interrelationships under company law are detrimental to commission:
- The broker and the counterparty are corporations that are economically controlled by the same person.
- The broker is a co-owner of the property to be sold as a co-partner of a BGB company.
- The managing partner of the real estate agent was the owner of the proven apartment at the time of the proof of ownership.
- If the broker is the managing director of the selling GmbH, he cannot demand a commission from the buyer.
- Close personal relationships can be detrimental to commission, although friendly relationships between the broker and the opposing party do not generally affect the entitlement to commission.
Real or fake entanglement?
In the case of “non-genuine” interlocking, there is admittedly no controlling relationship according to which the broker controls a contracting party according to his will. On the other hand, the broker’s connection with the other party may be such that he finds himself in a conflict of interests in which he can no longer properly safeguard the interests of his client. This is the case if the broker is authorised to sell a property and is to decide for himself whether and on what terms the purchase agreement is to be concluded with the purchaser.
The interweaving of a broker – mostly with the side of the seller and thus to the disadvantage of the buyer – is difficult to recognize in practice. Apart from the entanglements listed above, more complicated constructions, which do occur in the real estate market, are difficult for the layperson to recognize.
In the brokerage business, the keyword “trust” therefore has top priority. Sellers and buyers should therefore always inform themselves about the seriousness of the broker before concluding a brokerage contract.
Check the quality of the broker
In the digital age, there are of course also reviews of brokers. Those who only look at the number of “stars” or the tone of the evaluation texts can fall in badly. Therefore here
Three criteria for evaluating broker ratings
- Number: For broker reviews to be truly meaningful, there should be at least ten, preferably 20 or 30 different reviews.
- Date: Were the real estate agent reviews all written within one or two business days? Then this is at least an indication of manipulation.
- Wording: To the extent that you can write reviews as a renter or buyer, look at existing wording. Is the wording similar everywhere here? Or is there only a text for enormously few reviews?
The following also applies in the brokerage business: recommendation is the best way! Buyers or sellers are therefore well advised to ask around the broker. Preferably with former or current contract partners.
Finally, you will learn what an agent in the real estate business does for his clients.
What does a broker do – simply explained
As everywhere in business life, buyers and sellers in the real estate sector must be able to check and classify the quality of their business partners. Contrary to the general reputation, however, the absolute vast majority of estate agents work seriously. It is not always easy to prove that there are links between the estate agent and one of the parties involved in the transaction. But there are many clues as to whether the broker operates his business seriously and without economic entanglements. Since the broker loses his right to commission if he is economically intertwined with one of the parties, it is in his own interest to avoid such mistakes. By the way: Even in the real estate business it may be necessary to follow one’s “gut feeling”.