The Problem with the Buyer/Broker Commission Structure
The commission structure for a yacht buyer’s broker doesn’t prioritize the buyer’s best interests. Frankly, its ass backwards.
I’ve been in the yachting business long enough to know this won’t be a popular topic. But as a loyalist to my people, I’m trying to change the game from the inside. To further distance myself from the populous, I actually like what the real estate market did with buyer representation, and I hope it following to yachting. It would be a win/win for buyers and their representation, as long as Buyers are willing.
Let’s start with the problem: Buyers and their representation are not mutually incentivized.
A buyer’s representation is paid a percentage of the contract price (usually 5%), only if the deal closes. Red flag. Buyer brokers – via this structure – are incentivized to push their clients to close a deal, even if due diligence says otherwise. And the more the client spends, the more the broker is paid. That’s what we call “ass backwards”. PAUSE. Please, don’t get me wrong here, I think the majority of brokers are good people. I think they look out for their client’s best interest. But as a Buyer, I know you lack comfort in this structure. The funny thing is, your broker hates it too.
As a yacht broker, I wrestle with this Ass Backwards dilemma all the time. I have built my name on keeping my client’s interests well above my own. I go out of my way to prove this, but even so, I sympathize with new clients who struggle with trust in the early stages of the buyer/broker relationship. The structure doesn’t help us get off on the right foot. Due to the commission structures, Buyers can feel they are negotiating against their own broker, knowing that person is only in it to close deals. That’s wrong. As someone who tries to learn everything about my clients to guide them to the best outcome, this dynamic kills me. I sympathize with the Buyer’s mental trust struggle. Unfortunately it can sometimes feel like we’re swimming upstream.
The worst part of this ass backwards structure is the “Bad Deal Dilemma”. The subterranean warfare between a trusting buyer, an experienced broker and a paycheck.
It’s happened before and it will happen again. Follow the Bad Deal Dilemma example:
Through the advisory of a great broker through a timely search process, a buyer locates and contracts their dream boat. The broker arranges an expert survey team, who uncover some questionable findings.
We’ve now entered a no-win-scenario. Either the broker takes the ethical way out, advises the buyer to walk and subsequently loses out on being paid, or the uglier side, the broker finds a way to advise the buyer towards a closing in order to be compensated. We’re going to look deeper into the ethical storyline.
The broker analyzes the costs and liabilities, and via a wealth of knowledge and expertise advises the buyer to walk from the deal. This is the only scenario I can cook up where a professional utilizes their skills and expertise to their client’s benefit while indirectly agreeing to not being paid.
I acknowledge this might sound like a sour rambling, but it’s a long-form way to say the structure needs an amendment. I want to create a world where buyer and broker can jointly attack the dream boat, hunt for the best deal, and close with a great product and the right paperwork. Is that so hard?
The good news? I have a solution, and I’ve put it into practice successfully. Buyer and broker agree to an up-front consulting fee, which is then recouped by the buyer when the broker’s commission is passed to the buyer at the conclusion of the purchase.
For clients with longer deal runways (6+ months) and especially for new builds, I offer a fixed “consulting fee” for my services. This is pre-agreed between myself and my client and fixed regardless of the purchase price or outcome. My clients can call me anytime, to discuss everything from broad ideas to the most detailed of technicalities. No matter the discussion, they know I am fighting for their best interests. The best part? Whatever I make as the broker on the deal is passed back to my client as their own little closing bonus. In the long run, this format is cheaper for the client and our incentives are aligned. I can confidently commit valuable time to their project without worrying whether a deal will get done, which helps me commit my best time and energy to their needs.
The major difference is that payments are made up front by the Buyer as we work on creating the best deal. This money is paid whether a deal happens or not. The format works best – and is most financially effective – for those who know they are buying but are not quite sure where they will land.
In an unexpected twist, this format has made me aware that some Buyers hated the original structure too. Without knowing what they wanted or when they wanted it, they were hesitant to reach out to the best-of-the-best brokers to not waste their time. Knowing the broker would effectively be working for free, their conscious did not feel right having high-level, exploratory conversations. This new format allowed me to engage new clients in a different way, have more effective conversations, and ultimately, find the perfect option at the right time, for the best price.
About the Author
Reed Nicol is a licensed yacht broker with experience in all corners of the marine industry. He’s worked as an executive and sales director in yacht manufacturing and distribution, has started and managed commercial charter operations, founded PilePad, and managed notable refits. Read more about Reed’s marine journey, his love of helping 1st time boaters and his entrepreneurial spirit here.
Reed Nicol [Licensed FL Yacht Broker #11926]
Schedule a Call with Reed | Reed@RNMarine.com
