General Services Administration: Real Estate Brokers' Commissions

B-291947 Aug 15, 2003 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights GSA explains that this method of paying brokers directly and not allowing brokers to receive commissions from landlords or owners is not common practice in the real estate industry. GSA advises that real estate brokers are customarily considered the agents of sellers and landlords. The payment is usually in the form of a commission for finding a suitable and willing buyer or tenant for the property in question. The commission is typically a percentage of the value of the lease. Is typically regulated by State regulatory bodies and governed by various state laws that may require disclaimers to the purchaser. DISCUSSION The main issue presented is whether GSA will improperly augment its appropriation if it receives the benefit of the brokers' services without paying for that benefit. View Decision General Services Administration: Real Estate Brokers' Commissions, B-291947, August 15, 2003 DIGEST DECISION The Associate General Counsel, Office of General Counsel, Real Property Division of the General Services Administration (GSA) requests a decision from this Office regarding GSA's proposal to enter into a contract with real estate brokers to represent GSA's interests in lease acquisition and related services for which GSA would not pay the brokers. Instead, GSA proposes to offer the brokers the right to represent GSA in their respective real estate markets and brokers would receive commissions from owners and landlords of real estate in accordance with industry practice. As we understand GSA's proposal, we conclude that it may contract with brokers for lease acquisition and related services at no cost to the government without augmenting its appropriations. Also, the services contemplated to be rendered under the brokers' contract at no cost to the government would not constitute an acceptance of voluntary services under 31 U.S.C. Sec. 1342. This decision does not address the soundness of the terms of the contract or advisability of entering into such contracts. BACKGROUND The General Services Administration awarded the National Real Estate Services (NRES) contract in 1997. Under that contract, GSA paid real estate brokers a fee from appropriated funds in exchange for their performance of a variety of lease acquisition and other services. The NRES contract prohibited brokers from receiving any compensation for these services from sources other than GSA. However, GSA explains that this method of paying brokers directly and not allowing brokers to receive commissions from landlords or owners is not common practice in the real estate industry. GSA advises that real estate brokers are customarily considered the agents of sellers and landlords, and while buyers and tenants certainly benefit from brokers' services, sellers and landlords, not buyers and tenants, pay the brokers. The payment is usually in the form of a commission for finding a suitable and willing buyer or tenant for the property in question. The commission is typically a percentage of the value of the lease. The landlords factor the commissions into the rent charged to the tenants. The tenants indirectly pay the commission through their rent payments. Payment of commissions, according to GSA, is typically regulated by State regulatory bodies and governed by various state laws that may require disclaimers to the purchaser. GSA now proposes to enter into a new contract with brokers to reflect traditional industry practices. Under the proposed terms of this contract, instead of paying brokers directly GSA would grant contract awardees the right to represent GSA in their respective geographic markets in exchange for the brokers' lease acquisition services in these markets. The services the brokers would perform would be at "no cost to the government." The property owners and landlords would pay broker commissions in accordance with common industry practice. DISCUSSION The main issue presented is whether GSA will improperly augment its appropriation if it receives the benefit of the brokers' services without paying for that benefit, thus making the appropriated funds that would have been used under the previous arrangement to pay brokers available for other purposes. We conclude that GSA's receipt of services under the proposed contract without financial cost to the government ("no cost contract") would not constitute an improper augmentation of its appropriation. /1/ It is unconstitutional for money to be drawn from the Treasury without an appropriation, U.S. Const. Art. I, Sec. 9, cl. 7. By virtue of the "miscellaneous receipts" statute, 31 U.S.C. Sec. 3302(b), an official or agent of the government receiving money for the government from any source, absent statutory authority to the contrary, must deposit the money into the general fund of the Treasury.