We’ve yet to see this problem in Boston, that’s for sure. *
Basically, the issue comes down to this. In some of the hottest cities in the country, developers would pay part (or all?) of a broker’s commission, up-front, when a reservation form was signed. The project may not have been completed; hey, it might not have even broken ground. Still, the broker got paid.
All well and good.
Until, of course, things slowed down.
Now? Well, some of those projects were started but never completed.
Some were never even started.
And now, the developers (or their lenders?) want “their” money back.
From the wire:
A builder of luxury condominiums in Florida has sued real estate practitioners, seeking to force them to return the 3 percent commissions paid to them for selling 24 condos on which the deals never closed. In most cases, buyers walked away from their purchase contracts after the value of the condos fell.
Observers predict that this could be a trend …
… Ed Roberts, the owner of Beachfront Realty Inc., says the contracts don’t specify what would happen if the purchase fell apart … What’s more, Roberts says, much of the money went to individual broker-agents who left their companies long ago.
Source: Builder Sues for Return of Commissions – By Stephanie Chen, Wall Street Journal, by way of Realtor.org
* One of Boston’s high-profile developments is rumored to be paying brokers half their commissions, up-front, with the remainder paid at closing. That building, however, is already under construction, at least it’s first 4-5 stories, so it’s unlikely it will encounter this problem. However, what happens if a buyer is unable to close? Refund?