It’s important that buying brokers are aware of non-standard commission rates at the earliest point in a sale…
Do brokers earn enough commission to market yachts effectively, or do they earn too much commission? This question inherently divides opinion; owners bemoan exorbitant rates, while brokerage firms will attest that every last penny is spent thriftily on a yacht’s promotion.
“The brokerage market does not have a good avenue for brokers who are signing CAs to advise the industry as to whether the boat is being listed for sale with a standard, or non-standard [lower], commission rate,” explained Northrop & Johnson sales broker, Cromwell Littlejohn, speaking to SuperyachtNews at the Palm Beach International Boat Show.
The standard commission rates are MYBA’s ‘sliding scale’ – 10 per cent on the first $10 million of value, 5 per cent on the second $10 million, and 2.5 per cent on anything above – and the US structure, which is 10 per cent of the gross sales price.
“It causes problems because a broker may show his client a boat, and the client might love it and start making offers, but the broker may not be aware that there is a reduced commission until later in the negotiation.” A non-standard commission rate, if disclosed, will make a listing less attractive for buying brokers and reduce the number of viewings – as such, selling brokers may choose to conceal such information.
“There are many brokers who, in today’s market, can play in segments of the industry they have no experience in,” Littlejohn continues. “A broker might be representing a buyer for the only boat he’s ever going to sell in that size range, so if he finds out the commission rate for a boat is reduced, he’ll just take his client to a different boat. And how would he do that? He would just poison the boat his client was interested in, with misinformation or misleading information.”
Littlejohn’s caveat to this, however, is, “Will a $150 million boat be at a 10 per cent commission rate? No. Or on the sliding scale? No. But, when you take the $250,000 listing, it’s very tough to do your job without the standard structure."
Many will believe that brokers should represent their clients no matter what the commission – and while Littlejohn agrees with this, he adds: “If someone says, ‘here’s the perfect boat for your client, but you’ll make nothing if you sell it’, is that the perfect boat? I’d love to do this for fun and not need a commission, but there has to be a happy medium there.”
Are sellers almost inadvertently setting their brokers up for failure by negotiating a non-standard commission rate prior to a deal being on the table? Industry standards are there because they reinforce best practice – this must be conveyed to sellers.