Kickbacks!

Do you think kickbacks are a part of the real estate business?

Not from where I stand!

Wow, who knew wedding planning could be so tiring!

It’s not even the constant interviewing, searching, researching, and decision-making; it’s putting up with all the opinions that you never asked for!

A friend of ours was telling us the other day, “Your wedding planner is getting kickbacks on everything!  You have to be careful!  Make sure you don’t use her recommendations!”

Really?

Isn’t that why we hired her?  To get her recommendations?  Aren’t we using her because our lives are insanely busy and we want her to do the legwork for us – not to mention she plans 100 weddings a year and we have never planned one?

For example, our wedding planner suggested a stationary-person (what’s the name for that?), and I figured “Great, let’s go with that person.  I don’t care who we use, and I don’t want to shop around and interview ten places.”

But our friend said, “Your wedding planner is getting a kickback!”

Let’s assume that the stationery for invitations costs $400.  Even if this stationery store has a 100% profit margin, that means they’re still only making $200.

Are we really going to assume that on a $200 profit, the stationary store is going to pay a kickback to our wedding planner?  What – $20?  Really?

I don’t know, and frankly – I don’t care.

I’m often asked if I get kickbacks in my business, and if the question was never asked of me, I would have never even considered the idea in the first place.

For the record – no, I don’t get kickbacks in my business, nor would I ever solicit them.

Sure, there are some minor perks sometimes (like what cynics would call kickbacks), like being invited to a large golf tournament, but have I ever received an envelope full of cash or even a lucrative gift?  Not on your life!

The thing people have to realize is – I don’t need a kickback.  What I need is the service and professionalism from those around me.

These people represent me, and I’m judged by my recommendations.

Take my mortgage broker, for example.

I’ve been working with Joe Sammut for nine years now, and he has represented hundreds of my clients.

I consider Joe to be an asset to “my team,” since he is partly responsible for each deal I do with a buyer-client.  I know that Joe is one of the top mortgage brokers in Canada, and that his knowledge is simply unsurpassed.  I feel privileged to have him work with my clients, and our satisfaction rate is about 99%.

So do I need a kickback from Joe?

No.  I need Joe to help my clients obtain mortgages so that I can sell them properties.  I need one of the top brokers in Canada looking after my clients’ needs, because part of my service is setting my clients up with the best professionals related to our industry.

Over the years, I have streamlined my buying and selling process to make it as easy, comfortable, and lucrative for my clients as possible.  Part of this is knowing the right people, and involving them in our transactions.

I recommend Larry Lychowyd as a real estate lawyer, and he has likely represented fifty of my clients over the past two years.  I consider Larry an asset to my business.  He’s knowledgeable, experienced, professional, and he’s fast!  Sometimes we only have 48 hours to review a condominium’s Status Certificate, and Larry is always finished early.  He’s thorough, diligent, and exceptionally detail-oriented, which as an extremely obsessive-compulsive individual, is something I value highly!

I’ve bounced around between a few different lawyers, but I’ve settled on Larry.  I used to refer two different gentlemen, but times and situations change, and once you find a person who you would value highly and would recommend to your own mother – you stick with him or her.

Larry appreciates my referrals, but he doesn’t give me kickbacks, nor do I ask for them.

I’ve used Ken Haller Home Inspection Services a few dozen times, as have I recommended Joe Roberto from Lighthouse.  I’ve never asked these gentlemen for an envelope full of cash, although, that doesn’t mean it’s never happened to other people…

Earlier this year, a long-time blog-reader emailed me and said that one of his colleagues was relocating to Toronto, and had a massive falling out with the Realtor that was referred to him by his company.  He wanted to switch Realtors, and my blog-reader recommended me.

What was the falling-out over?  You guessed it: kickbacks.

My client (now he’s my client…) asked his then-Realtor how much a home inspection would cost, and she said $2,000.  She also said that she would facilitate the inspection, and she could act as the go-between and collect the payment.  My client gave her cash, and she took care of the inspection.

A week or so later, my client asked around and was told that a home inspection should not cost anything close to that, and he figured perhaps he had been taken advantage of.  This is one of the nicest guys I’ve ever met – a VP with a huge financial institution who is smart beyond belief, but in this case was too trusting, and the results were disappointing.

He asked his then-Realtor for a receipt for the home inspection, and of course she game him excuses.

He then called the home inspector to ask what he would charge to inspect another house, and he said, “Ask your Realtor – she’s got it under control.”

Do we have any actual proof that there was a kickback?  No, we don’t.  But in subsequent conversations with his then-Realtor, she alluded to the fact that people have been known to scratch each other’s backs.

Imagine that – $2,000 for a home inspection!  I wonder how much of a kickback she got.  Well, in the end she lost a client who might have done $10,000,000 worth of business with her over the years, all for maybe $1,000.

So yeah – kickbacks happen.  I won’t pretend like they don’t.

But that story represents maybe one in a thousand Realtors, and if you think I’m being naive, then say so.

I’ve recommended my painter, Barry Miller, about thirty times in the last two years, and I don’t expect, nor would I ever accept, anything from Barry.  In fact, when Barry painted my own condo, he charged me exactly what he had charged another client of mine to paint a similar condo of the same size, and I wouldn’t have it any other way.

The same goes for my “flooring guy,” Djuro Babic from D.B. Flooring.  He’s done work for me at several condos, and charges me market value – and does NOT give me kickbacks on the business I sent him.

I think that’s the best way to to business.

It’s just the best way to act in general.

A client of mine who just moved to Toronto asked me for help buying a car over the weekend!  He said he wanted a Mercedes and asked if I knew anybody, and I immediately told him how much he would enjoy driving a Lexus, and that he should call my good friend Alistair Baxter at Lexus on The Park.  Why?  Why not!

Why not refer people?  Alistair took excellent care of me when I was buying a car, and the service, personality and price made me wonder why I ever walked into BMW and Mercedes in the first place!  They’re great cars, and they have the best customer service of any of the mid-luxury brands.  I feel comfortable knowing that if I send people into Lexus, they won’t be disappointed.

Isn’t that the most important part of a referral – the result?  Do we really need a kickback to do what’s right?

A friend of mine from high school is a personal trainer and I’ve referred him to friends, colleagues, and clients.  Why wouldn’t I help him out, when I know how great he is at what he does?  Do I expect anything for it?

Again, maybe my “Be a nice person and refer business to others” mentality is naive, but it’s just a part of my business.

I’ve surrounded myself with top-notch professionals: mortgage broker, lawyer, home inspector, painter, movers – you name it.

Actually, I should disclose that S & Sons Movers sent me a flower basket earlier this year – but it was completely unsolicited!!!  It was sweet, and a nice way of saying “Thank You.”

But as for actual kickbacks like envelopes full of cash?  I hope to God I’m not the only one who thinks that’s a big no-no…

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  1. Toronto Luxury Rentals says:

    Interestingly, the Property Management industry seems to be relying on kickbacks as a way of improving the bottom line. This concept is completely foreign to those agents who come from British Columbia where the Council chops off a manager’s hand if a secret profit is realized without a full disclosure to the principal. And I don’t see any other way.

    When we opened a branch in Toronto, everyone we interviewed offered to bring in lots of revenue from kickbacks as a way to make themselves stand out. They sure did…

    Our company not only outlaws kickbacks, we actually offer preferred and negotiated rates for all our trades and pass savings onto our owners. We think this is the only way to go.

    Martin, TLR

  2. Thank you very much for your post. I am really confused in selecting a mortgage agent. What all should I consider for it?

  3. Jackson says:

    David,

    Great post. I’m on the fence on this one. Some background: I’m a 10-year mortgage agent which means I somehow have made it this far (yay).

    When a realtor asks if I pay them I usually say yes – then I say that if I will send a deal, will THEY pay ME? ANd the looks on their faces is priceless.

    That being said, 99% of realtors (you excluded) do want kickbacks because they are bloodsucking bastards who do not CARE about client service, don’t care about financing, just care about running their business like a turnstyle – one deal after another, repeat client be damned.

    On the OTHER hand, if I was a Realtor, sure as hell I’d ask for kickbacks – why not? If I know that the person on the other hand was competent and good, why not pad my pocket a little bit?

    So it’s a double-edge sword. I get paid maybe .8% on a deal, Realtors make 1%-4% depending. I hate when food is taken off my table for their greed. However I understand when they do it BUT it’s a slippery slope.

    2013 is the year I’m eliminating referral fees altogether, and standing by my reputation and knowledge. They will come back (not all, some), when they realize the idiot on the corner who sells mortgages AND gold bars is not competent or as good as me.

    At the end of the day – this business is full of sh!t like this, but this was a great post outlining WHY you don’t take anything from anyone – and I wish there were more people / agents like you.

  4. Devore says:

    Speaking of referrals, I tend to be generally suspicious of them. I know what _I_ do. I will never refer a person to someone I know just because they do something. You know your friend is a good personal trainer, but would you refer people looking for one to him if all you knew is that he’s a trainer? This happens pretty often. You have a friend who’s trying to make a living doing X, you refer people looking for X to him, not even knowing whether he’s any good. You’re just being a good friend, right? So I avoid “friend referrals”, to the extent I can tell I’m being given such a lead.

    1. Joe Q. says:

      My thoughts exactly. I’m not worried about kickbacks, but rather about careless referrals that are given out of a desire to help out a friend or acquaintance.

  5. Hisham says:

    With so many unethical and unproffesional realtors looking to make a quick sale, kick backs are way more common than most people think.

    Some mortgage brokers give their realtors $500-$1000 per deal!

    RECO states that any kick back or ‘finders fee’ has to be disclosed in writing and acknowledged by the client but that’s unheard of since the client would instantly smell a conflict of interest.

    I’m of the same schools of thought, refer to those who will do the best job and give your clients the best service.

    But what are your thoughts on this; If you refer a client to your mortgage broker and a few months down the road he refers a potential pre-approved buyer to you, is that considered a kick back?

  6. Ralph Cramdown says:

    If you’re working for a buyer who ends up buying an MLS listing offering more than the traditional 2.5%, do you rebate the excess to your buyer, or specify in the Agreeement of Cooperation that you only want 2.5%?

  7. PT says:

    A Lexus is mid-luxury to you? Lawls.

    1. @ PT

      Hahaha well I was damned either way – I knew if I called Lexus a “luxury” brand, the car buffs would say that luxury refers to Rolls Royce, Bentley, et al.

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