Jan 27, 2016

A Look Inside Commissions

by Kim Ablon Whitney

The Winter Circuits have begun and that means riders are trying horses nearly every day.  Vets are doing pre-purchase exams and money is changing hands.  

Ever wonder how commissions on sales in the horse show world work?  So do a lot of people.  

Selling show horses isn’t like selling houses--even though many show horses cost the same, or even more than many houses.  

In real estate, there is a basic commission that all real estate agents get, with rare exceptions.  Six-percent of the cost of the house is split evenly between the seller’s agent and the buyer’s agent.  

If a house has been on the market a long time, agents are sometimes willing to reduce their share to make a sale happen.  If more than one agent worked to sell the house (helping to stage the house, or holding an open house when the other agent is out of town), that second agent will get a piece of the first agent’s commission.  But that 6% always comes out of the cost of the house--it’s never added onto the cost.

In real estate, the price of the house after the sale goes through is easily available to anyone who wants to know--either through city records or a quick search on Zillow.

In the show world, it’s more like the wild west.

While it used to be common practice for the trainer of a horse to take 10% of the purchase price as a commission, now the general commission for sales is 15%, and 20% for leases.  BUT, there’s a lot of variance around those numbers.

Part of what alters that number is whether another trainer is involved in the sale.  This trainer is often referred to as an “agent.”  Because much of the money trainers make on the show circuit is through sales, many have carved out a solid niche as an agent.  

An agent is someone a trainer can call when that trainer can’t find the right horse for their client.  

“Agents have the connections to all the trainers and sales barns and they know everything that’s for sale in a certain area,” explained an industry insider who was willing to divulge the secrets of the sales world but for obvious reasons will remain anonymous.  “Agents are necessary because they make the love connection.  Like a trainer will call an agent and say, ‘I need a low amatuer jumper for a lady,’ and then the agent will call his contacts and find that low amatuer jumper.”

When agents get involved, the commissions can get murky.  “The problem is sometimes you have even more than one agent getting involved in the deal and everyone wants to get a hand in the pot,” said my source.

Often a seller will tell an agent up front what needs to happen for a deal to go through.  In this scenario, a person selling a horse might call an agent and say, “The owner wants 50K, so let’s price the horse at 75K and we can split the 25K.”  This is where sometimes sellers and agents bulk up the price in order to get more for themselves.  As long as the owner gets the amount she said she needed, all is good.  Or is it?

As with the house that doesn’t sell right away, sometimes agents are willing to reduce their part of the commission to make a sale happen.  “Let’s say I was going to make 10K off the sale but the deal wasn't going to get done.  I’d rather take 5K and make the deal than kill the deal and get nothing,” said my source.

As with real estate, some deals happen in a matter of minutes--others take months.  “You might make a good chunk of change from a thirty-second phone call, or you might work on a deal for weeks and then have it fall apart and have nothing to show for it,” my source explained.

My source also explained a big problem arises when the buyer in the previous scenario that paid the 75K for a horse that includes the 25K in commissions goes to sell said horse.  Understandably, the seller wants to get at least 75K for the horse since that’s what she paid (depending on the horse’s show record and current condition).  

Only the horse was really only worth 50K.  “That’s when I think the agents are doing a disservice to the industry because people end up paying more than a horse is worth and then they can’t sell the horse for what they bought it for and reasonably they aren’t happy about that,” said my source.

In order to protect house buyers, real estate agents must be licensed and agree to adhere to a strict code of ethics or risk losing their license.  

Should agents of horses be licensed and held to a similar code of ethics?

And, of course, there is no public record of sales prices for horses.  Should there be one?  Should the USEF or USHJA take on the responsibility of monitoring and regulating sales?  

In 2013, Debbie Bass tried to get a rule passed making sales include an official bill of sale with all the parties involved, but no prices.  It was met with a lot of negativity, if not outright hostility, perhaps because it felt like it would be the start of a slippery slope into total transparency around transactions--something certain trainers and agents don’t want.

Another argument against transparency is that people don’t want the price they spent on that new equitation horse available to the masses.  

But since that price is whispered and gossipped about back at the barn (and probably inflated along the way), could a Zillow-like transparency for horse sales really be such a bad thing?

It should be noted that there are many trainers who do things the right way.  

One particular trainer is known for having a 10% commission split by both sides of the transaction with no add-ons, no matter what.  

One thing is for certain, it’s imperative that owners and buyers become educated, speak up, ask for details, and generally advocate for their interests.

Kim Ablon Whitney is an 'R' judge and the founder of www.belowthecutoff.com. She also writes novels set on the show circuit.