"60 Minutes" recently ran a segment discussing a common practice in the auto industry that occurs without car buyers even knowing about it. Oftentimes, when a customer is quoted an interest rate for financing a vehicle, the interest rate has been increased by the dealership to obtain even more money from the customer in addition to the purchase price. The dealership is then paid money directly from the finance company for obtaining the higher interest rate from the customer.

One industry expert, when interviewed during the segment, said that in all his years in the industry he was unaware of any auto dealership that was not utilizing this approach in their own business.

This had me think about the level of full disclosure that we as agents provide for our clients at all times. I can't even imagine agents pocketing profits by having lenders charge higher interest rates than what's necessary for their clients. In situations like these, once the transactions close, the lenders would then secretly cut agents big checks to deposit into their own bank accounts. And the lenders would then enjoy the higher interest rates that the agents had obtained from their clients, too.

This definitely wouldn't feel right in real estate, and it wouldn't feel right in other industries also.

This episode of 60 Minutes reminded me of something I learned that is happening in our industry. I was having a conversation with a principal of a real estate coaching company, and they told me of an agreement they have in place with one of the largest, most recognizable real estate brokerage companies in America. Even if you weren't in real estate, I guarantee you'd recognize the name of this company.

The agreement calls for rather hefty percentages of the coaching fees paid by agents to the coaching company to then be paid to the real estate brokerage company itself. This is done without any knowledge of this by the agents themselves. So the agents hire their coaches from the coaching company directly, pay the coaching company by check or credit card, and then the coaching company pays their agreed upon percentage of these fees directly to the real estate brokerage company.

I was rather stunned when I learned about this. To me it's simply unconscionable to work in an industry where full disclosure is essential, to work for a company that insists on this from their agents, and then for the company itself to make an agreement calling for secret referral fees to be paid out of money that the company's agents pay for services. It's one situation when this is being done with the agents' advance knowledge of it, and quite another when the agents have no knowledge of this being done whatsoever.

If companies rely on their agents to provide full disclosure of all important facts to their clients at all times, I think it's reasonable to say that these same companies should treat their agents in this manner also.

Published: January 14, 2005

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Jim Gillespie, Ph.D., is America's Premier Real Estate Coach℠. He has over 20 years of experience in real estate sales and is a past president of three different real estate companies. His FREE real estate E-newsletter with tips and creative ideas to help agents make more money is now read by over 35,000 agents nationwide. You can subscribe to his FREE E-newsletter by visiting RealEstateSalesCoach.com or contact him at Jim@RealEstateSalesCoach.com.