Does the Horse Industry’s Commission Culture Needs a Reboot?

As someone who has been involved in the horse industry as both an amateur and a professional for over 40 years, I have seen it all when it comes to horse sales.  One may question the lack of transparency when it comes to commissions and things that go on unbeknownst to certain parties when horses are bought and sold.  As an equine business management professor, I spent a great deal of time teaching students about horse sales including commissions, sales contracts and all the pertinent things to consider from both a buyer and seller standpoint.  I had students who aspired to be professionals in the industry and they needed to understand how horse sales work. I also had students who wished to remain amateurs, yet they still needed to be educated about horse sales so that they did not get taken advantage of when buying or selling their personal horses… aka Buyer Beware.  This piece focuses specifically on the commission debacle, not all of the other questionable tactics and concerns that go along with trying, buying & selling horses.  We will save that for another day.

Commissions

Horse sales are similar to real estate sales.  There may be an agent on one or both sides representing the buyer and the seller.  In the horse world, agents are often the trainers. There are sales contracts and contingencies, just like in real estate. The PPE (Pre-Purchase Exam) is similar to the home inspection and results can lead to further negotiation. There may (should) be attorneys on both sides and it’s important to remember that state laws vary, so your 2nd cousin twice removed who is an attorney in North Dakota may not be the best person to advise you if you are buying a horse in Tennessee, for example.  

Commissions are how agents make their money, again, similar to real estate.  Agents earn their commissions on the seller’s end by prepping, marketing and showing sale horses to customers, as well as by being the contact and negotiator that deals with the buyers or buyers’ agents.  On the buyer’s end, agents search for horses and travel to try them with their clients. They then negotiate and facilitate all aspects of the sale in the best interest of the buyer.

Commissions are based on the purchase price (which remember is NOT always the same as the advertised price). A “standard” or “ethical” commission in the horse industry is typically around 10-15%.  If this was always the case and agents/trainers were all consistent and transparent with their commission policies, things would be easy…. but they are not. Commissions are often grossly inflated in the horse industry.  This is where the horse industry is trickier than real estate!  Unsuspecting amateurs and well meaning professionals get taken advantage of in the horse industry and may never even know it. Additionally, in some cases, agents spend months or even years working with clients before a sale actually happens, if it happens…. hours upon hours of work.   In other cases, an agent may make one phone call or look at one horse and then the deal is done.  Is that fair? Just how it works in sales?  Or does it push the ethical boundaries?

In An Ideal World….

The buyer and seller agree on a price.  Agents AND buyer/seller are all in the know about the actual agreed upon price.  Commission policies are transparent and all parties acknowledge them.  Contingencies are agreed upon and a contract is signed.  Money is exchanged for the horse, checks are made out to the actual seller(s), and agents then receive their agreed upon commissions.  

The Horse World is Not Always Ideal, However…..

• Sometimes the advertised price is the “money that will go to the seller/owner” and any/all commissions are paid ON TOP of that on both sides.
• Sometimes the advertised price INCLUDES a commission for ONE side, the seller’s agent.  Then, the buyer’s agent may charge a “finder’s fee” independently to their client, the buyer.
• Sometimes the seller tells their agent that they want $X- for their horse and they DON’T CARE what commissions anyone makes on top of that - as long as they get what they want.  Agents may make 30-50% commissions in this case or even more, and the seller does not care.
• Sometimes checks are made out to agents and agents pay the seller, so the actual numbers remain a MYSTERY!
• Sometimes the advertised price INCLUDES a commission for both sides. This is great IF it’s transparent and the buyer and seller are in the loop.  Wait, why wouldn’t they be in the loop? Well, maybe their agents are (gasp…)  unethical and withhold this information from them.
  • This opens the door for Double Dipping.

Real Life Examples of Horse Sale Scenarios - Can You Spot the Ethical 

Dilemmas?

• The Trainers are the Agents

• Situation 1
• Trainer A’s client (buyer) is set to purchase a horse from Trainer B’s client (seller).  Trainer B is also a co-owner of the horse with his client. Trainer B tells Trainer A that there is “enough to take care of both of them in the purchase price”.  Presumably this means there is 20-30% included on top of the “purchase price” and that will be split between the 2 Trainers.
  • In an ethical scenario, the money changes hands, Trainer B then gives Trainer A a check for the 10-15% commission and all is done.  Hard to say who the check should be made out to in this case since the seller’s agent is a co-owner with the seller. In this case, the check was made out to him alone… he then gave the co-ownwer/seller a check and Trainer A a check.
  • What if Trainer A never told her client (buyer) that the “commission was included in the purchase price”? Trainer A could take her commission check from Trainer B and then ALSO charge her client an additional 10-15% (finder’s fee) - hence the term Double Dipping. - Who would ever know?
  • In this case, since Trainer B is a co-owner of the horse with the seller AND the agent for the seller…. It’s hard to actually know what their agreement might be (and that’s not the buyer’s problem!)
  • What do you think?

• Situation 2
• The TRAINER ABC Example - Everybody Wants a Piece of the Action
  • Trainer A represents the seller of the horse.
  • They are at a horse show and Trainer A tells her friend Trainer B about the horse.  Trainer B does not have any clients interested, but Trainer B tells her friend Trainer C about the horse.  Trainer C also doesn’t have an appropriate client, but he tells Trainer D about the horse. 
  • Trainer D has the perfect buyer who is interested and at the show (and in this case DOES buy the horse).
  • Trainer A does not know Trainer C OR Trainer D. Trainer A only knew Trainer B.
  • This connection and subsequent deal ONLY happened because ALL 4 Trainers were involved.
  • WHO GETS THE COMMISSIONS? What do you think?
    • Trainers A and D on the buying/selling ends?
    • What about Trainers B & C - the middle people?
    • Do they all deserve 10-15%? Do Trainers A and D tell their clients that have to pay double the commissions or the deal will not happen?
    • Do Trainers A and D TELL Trainers B and C they will “take care of them” and “throw a little” their way?
    • What is a fair % for Trainers B & C?  Trainers A & D have possibly put in a bunch of time and effort with their clients horse hunting or trying to sell the horse. Trainers B & C maybe spent 30 seconds sending a text, BUT the deal would NOT have happened without the texts!  If only all trainers felt the same about what they deserve in this situation!

• Situation 3
• Trainer A is representing the buyer and has spent a great deal of time looking for horses for her.
  • The buyer goes out and buys a horse on her own.
  • NOW WHAT?
  • Trainer A may charge the commission anyway EVEN IF she had no hand in finding the horse that her buyer bought in the end.
    • This is similar to real estate & often if a seller has a house listed with an agent, but the seller finds their own buyer independently, they will still have to pay the real estate commission, per the contract.
    • IS THIS FAIR?
  • Take it one step further - I have seen this before - Let’s now assume Trainer A is Susie’s trainer and they are NOT EVEN HORSE SHOPPING.  Susie goes out of town for the weekend to visit a friend and ON A WHIM buys a horse from her friend’s barn that she happened to see.  
    • Trainer A tells Susie that she CANNOT BOARD the horse at her farm UNLESS SHE PAYS THE COMMISSION!
      • WHATTTTT? Trainer A was not involved in any way in this purchase!
      • Trainer A states that she could instead fill that stall with a boarder who IS going to buy a horse “with her” and pay a commission, so if Susie wants the stall, Trainer A must make commission money on it too.
      • This is actually VERY common practice in the horse industry!
    • What do you think?
• Situation 4
• Trainer Bob is driving around his hometown and sees a really cute horse grazing in a field full of cows on a country road at a run down farm.  He stops, gets out of his truck, clucks and throws rocks at the horse’s butt to make him trot.  The horse trots across the field and is the HACK WINNER.
• Trainer Bob knocks on the farmer’s door and offers him $1000 for the horse and the farmer accepts it.
• Trainer Bob brings the horse home and immediately (like the next day) sells him to one of his clients for $5000 and tells her it’s an investment.  Client pays training board on the horse and in one month the horse is WTC and jumping little courses.  Trainer Bob convinces his client to sell the horse to a different client in the barn for $30k after just 5 weeks.  (Trainer Bob makes a commission on both ends).
• Horse goes to FL with Trainer Bob for the winter and shows in the Pre-Green Hunters, wins all the things, and gets sold to another party at the end of the FL season for $80k.  Trainer Bob makes another commission.
  • Is Trainer Bob just lucky and a good businessman?
  • Did Trainer Bob earn one too many commissions on this $1k horse?
  • What do you think?

These are just a VERY small handful of examples that I have seen first hand in the industry with respect to horse sales.  Do you think the industry practices are fair and ethical? Do you think the responsibility falls on the buyers and sellers to do their due diligence so they don’t get taken advantage of? Should trainers/agents be required to be more transparent, and if so, how?

Join the conversation on TurnoutHQ and share your thoughts!  

Sources

Prof. Amy E. Sherrick, MBA