Confessions from a Real Estate Agent in Panama:The Commission Stack.
Real estate companies are commonly stacking commission in Panama.It is a bastardly practice that costs both motivated sellers and buyers too much.Here’s how the scam works.
First, let me take a step back and explain contract reassignments.Contract reassignments are the best bargains in Panama – by far. It’s when a person(s) bought a discounted pre-construction unit from a developer.Developers routinely offered steeply discounted prices during the pre-construction phase to entice individuals/investors to purchase unit(s).
During these times, you could buy units at very affordable prices.Typically, you could pick up a condo in Panama City for $900-$1400 a square meter depending on location, building amenities, floor, etc, or $1650-$2600 square meter in Panama’s surrounding beach communities.
However due to economic hardship cause by the recent global recession, a portion of buyers no longer have sufficient capital to close on their units or have lost their desire. As a result, there a small section of sellers seeking to be released from contract obligations who want to sell their pre-construction condo/property.These motivated sellers listing steep discounts compared to the developers current price list – typically around 10-20%.Some are even offering them at original contract price – up to a 40% discount.
Contract takeovers are the equivalent to short-sales in the US.Short sales have dramatically changed the real estate market in the US because they are priced far below equivalent housing inventory.Real estate shoppers in the US are gobbling up short sales because they are the best bargains (as a matter of fact, two friends in the States recently bought short sale homes).Why pay retail when you can buy wholesale?
Panama is no different.Contract takeovers have are gaining popularity because they offer steep discounts to consumers.The fastest and largest portion of my business comes from negotiating contract reassignments and the trend is growing.
Trying to capitalize on this opportunity, real estate agents in Panama have begun expanding their services into selling contract reassignments which is a new phenomenon in Panama.Real estate agents have never executed this type of deal before, nor are they qualified to do so.Thus, they are clueless on how the process works, and they are passing on misleading information to their clients (more in a future article.)
Even worse than the ignorant agents, are the sleezy ones.These agents and agencies fully understand how to reassign contracts, so much so, that they have begun manipulating deals to earn extra money.This is referred to in the industry as “stacking commissions”.
Sleezy agents and agencies maliciously deceive both the buyer and the seller during negotiations to increase their commission check.They “grind” down the seller and “bring” up to buyer, thus enlarging their section of the commission pie. This can mean upwards of 10-25% of commission cost as oppose to a standard commission of 5-7%.
Sleezy agents have always been operating Panama.Over the previous 5 years, Panama was booming.This attracted a lot of opportunistic people trying to make a quick buck, and a quick buck they made.It was not uncommon for a good agent to be pocketing 6 figures.This might sound meager, especially compared to the salaries of Goldman Sachs employees.However, you have to consider that the average monthly paycheck in Panama City is $500-$1500.So when you are pocketing $10,000 a month, you are living lavishly.
With the global economic recession, the real estate market in Panama is frozen.My colleague and friend Jesse Choquette does a great job explaining the level of market inactivity in his article “Open Letter to Sellers”.Successful boom time agents went from making 6 figures to hardly making 4.A 4 figure salary isn’t sufficient to pay the bills accumulated by those that are accustom to a 6 figure lifestyle.
What do you do?
Stack commissions.Stacking commission allows agents/agencies to compensate for their lack of sales volume by increasing their net from lesser volume.They’re not doing as many deals, but are making the few deals pay off.
It is hard not to be tempted to stack commissions because it allows you to cash out big time.However I do not believe in stacking commissions or working with those that do for two reasons:
First, once you stack one commission you’ll want to stack them all.Greed is hard to reform.
Second, like I previously mentioned, if my client finds out that I mislead him/her during the deal, I will lose trust.And if I lose their trust, then I lose that client and potentially all their return/referral business will be eliminated.My best business comes from repeat clients and referrals.Sleezy agents do not comprehend the concept – do good business and you’ll receive more business.
How to prevent commission stacks and/or identify sleezy agents:
1. Original contract.On a contract takeover you are assuming the contract from the previous buyer.All the obligations of that contract are transferred to you including additional square meter fees and materials escalation clauses.On the contract you will see the original purchase price.So, it is vital that you READ THE CONTRACT prior to buying it because you will discover all the fees and they original price of the property.
2.Listing agreement.It’s smart to see the listing agreement.This will tell you the amount of commission that the owner and agent have agreed upon.If the owner wants to pay a 15% commission, then it his/her right to do so.However, it is not up to the discretion of the agent to arbitrarily determine their own commission.
3.Stall feast.When an agent is stalling on the first two items, it’s usually because he is a clueless or sleezy. Stalling might buy more time for an excuse and maybe you’ll forget about the question entirely.Simple, stop working with the agent and find another one.
Real estate shoppers should seriously consider looking at near completed, pre-construction contract reassignments.The savings are too much not to.However, be sure to follow my 3 aforementioned steps to have confidence you are not being taken advantaged one of Panama’s sleezy real estate agents.
Here is link to some of my contract reassignment properties. *****Not all of these properties are contract reassignments, and that this list updates frequently.
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