Estate agents - shared commission

Estate agents - shared commission

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Looking at the bookkeeping records of our new client we can see that they enter into many 'shared commission' arrangements with competitors.

When the property is sold our client bills their client's solicitor and receives the full fee. The other estate agent(s) in the arrangement bills our client for their share of the fee. This is the bit that concerns me. Our client allocates the other agent's invoice to commissions received, thereby reducing their turnover. Instinctively I think it should be allocated to cost of sales, but the client (and the former accountant) think differently.

Does anyone know if this is an industry norm or has the previous accountant got it wrong? The sum is material.

Thanks in advance.

Replies (5)

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By MBK
31st Jul 2014 12:59

We act for three estate agents ...

..... and shared commissions are always shown as C.O.S. in the circumstances you describe.

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By vmamtora
31st Jul 2014 13:37

Your clients are correct

There is no benefit in stating the full commission as turnover as it will artificially inflate it.  As the commission was agreed upon BEFORE sale, technically it does not form part of your client's turnover so it is somewhat pointless to show a higher "false" turnover only to reduce it under Cost of Sales as Commissions Paid.

If your client's had discretion in how much they paid the other agents AFTER the sale, then your method would be more appropriate.

The treatment you suggest may be useful if your client is trying to sell his business or attempting to get a loan.

 

 

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By FCExtraordinaire
01st Aug 2014 13:30

COS

I would say its COS

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By Keith Barnard
01st Aug 2014 13:32

Acting as Principal

In this position I would look at the contractual position between all parties and identify if your client estate agent was acting as principal in the transaction or as agent for the other estate agents. The accounting treatment should then follow the contractual basis.

For example if the ultimate client does not pay, who suffers the bad debt? Would the other estate agents still get paid?

Hope this helps

 

 

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