Saturday, 19 May 2012

How to Avoid the Double Commission Trap for Properties in Berlin

During periods of high demand in a property market, for example, as has been experienced in Berlin since mid-2011, the need for quick responses and decisions can easily lead to expensive oversights.
This article will describe a quite common succession of events which can lead right into the Double Commission Trap. It will also provide strategies to avoid this trap while still acquiring the desired property. In the process it will point out some common errors in the context of agent’s commissions in Germany. The article will focus on the buyer’s viewpoint even though there are also risks for the vendor when he involves more than one agent at a time.

The search for the right property takes weeks sometimes months and the internet provides access to many agents. In particular an international investor can easily end up on 15 – 20 mailing lists with an increasing likelihood of receiving the same property from different agents. If the investor knows a property from a different source he has to react immediately and let the agent know that he already has received information about the property and if he does a thorough job he says when and how before the second agent requests that information. Implicitly an investor enters into a contractual relationship with an agent when he requests information from him. This contractual relationship will inevitably entail a commission agreement in the case of the purchase of one of the properties where the agent provided the initial information.

Here lies the first trap even a diligent investor can fall into: He receives a property offer and arranges a viewing through the agent. He decides the property is too expensive for the state of disrepair. After a few weeks he gets an exposé for the same property from a second agent with a price reduction. It is now of interest and he pursues it as there are already other investors competing for it. If he just goes ahead he walked right into the trap and if the first agent finds out, which is very likely, the investor owes two commissions, the first one for the initial introduction and the second one for actually making the deal possible. Contrary to popular belief neither of the agents needs to have had a contract with the vendor.

How to avoid such pitfalls?

First of all, the investor needs to communicate to the second agent that he knows the property. The reply will most likely be that the second agent states that the first one cannot deliver since now he is instructed by the owner. If the investor still lets the second agent work for him he is earning his commission in the case of a purchase. So before that happens the investor has to approach the first agent and inform him that he still wants to buy but at a lower price. If the first agent can deliver the property at that price the investor can go ahead with the first agent if he told the second agent about the previous knowledge and not let him work on the sale. If the first agent cannot deliver it, it is highly advisable to have an expert lawyer look at the circumstances to determine whether there is a risk of double commission. In the end the investor might have to abandon the potentially lucrative property as the only way to avoid the Double Commission Trap.
To make things more complicated there are actually agents specializing on setting up these traps. They have a high visibility on the internet and are building their mailing lists. They employ a small army of people doing nothing but trawling the market for exposés which then are re-written and sent to the mailing list. Chances are that they will get to quite a few investors first and the fact that they cannot deliver the property is never tested because they are “forgotten”. But they do not forget: A few times a year their lawyers compare the changes in the property register with the mailing list. The rest of the story is straight forward and sadly, some investors will experience this deliberate version of the Double Commission Trap.

The strategic approach requires two kinds of actions:

  • ·         Meticulous record of property offers received and prompt action on doubles
  • ·         Limited number of trustworthy agents or alternatively a service provider doing the search work according to an agreed search profile
This article has provided a standard scenario for a property search by an international investor which is happening every day obviously with some variations but with similar consequences:
If an investor receives the same property offer from two or more agents he has to ensure that he can later prove that he only accepted the service from one of them. The way to ensure this might vary from case to case. In particular when entering a new market it is important for the investor to have a local property consultant supporting the search and purchase phase to avoid costly pitfalls such as the Double Commission Trap.

The Pre-Acquisition Service of Falkenberg Solutions - Real Estate Consultants is providing a shield for the investor by managing the search process and using their local knowledge for staying clear of  "Trappers".


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