How Does the Horse Sale Commission System Work?

Learn what is standard in horse sales commissions and how to protect yourself during the transaction.
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Q: How does the commission system really work when you are selling or buying a horse? What is the industry standard to be charged, and who pays what? If a trainer is given a commission by the seller (or the seller's trainer) and is also charging the horse-shopping customer, is that considered "double dipping"? Also, does the commission get written right into the form of payment for the horse, for the seller and agent to split as they will, or is it handled separately?

A: The purpose of commissions is to reimburse agents (trainers/dealers serving as intermediaries for buyers and sellers) for their time and expertise in helping you select a horse who will suit your goals. Many trainers have devoted years to developing their skills in assessing horses and riders, and they strive to work in good faith for their clients. On a practical note, because trainers generally experience high overhead in the form of staff and facility costs and a low return on the time they spend on lessons and at shows, sales commissions ensure their ability to earn a living.

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That said, current buying and selling conventions and commission structures are casual and often confusing for the clients. Many sales are sealed with verbal agreements and handshakes, which can leave all parties vulnerable to misunderstandings and potentially illegal or unethical practices. As a result of this casual business atmosphere, less-reputable agents do sometimes draw secret commissions, misrepresent the true selling price or act as "dual agents" for both buyer and seller of a particular horse.

In some cases, the above practices can be egregious enough to justify legal action. Under common law, agents of this kind have an obligation to disclose any conflicts of interest to their principals (buyers and sellers). In a further attempt to protect their constituents from fraud, Florida, California and Kentucky have adopted state laws that specifically regulate horse sales. These state laws forbid dual agency without prior knowledge and written consent of both principals; limit all tips, fees or other compensation to agents to $500, unless consented to in writing by the agent's principal; and require written bills of sale signed by both the seller and buyer. (Note: Kentucky's law only applies to purchases of horses costing more than $10,000.)

Regardless of whether specific laws apply in your state, you should ?approach horse purchases just as you would any other major transaction. Below are some guidelines that are outlined in the U.S. Hunter Jumper Association "Owner's Resource Guide":

1. Select your agent carefully. Most trainers and dealers have their clients' best interest at heart, but choose wisely and with due diligence. Although there are no guarantees that the horse your agent picks for you will work out in the long run, good agents make every effort to achieve a successful match, even if that means, in rare cases, returning or exchanging the horse. Be sure that the agent you select has a sterling reputation. Ask former clients about their experiences, including the manner in which they paid commissions.

2. Get it in writing! Would you buy a car or house without proper documentation? Of course not! There are two documents that will help protect all parties in the sale process:

(a) an agency agreement spelling out the duties you expect the agent to carry out on your behalf and the percentage of sale price that you agree to pay as a commission. Discuss terms of the agreement with your agent and get them on paper before you begin looking at horses. Standard commissions range between 10 percent and 15 percent and may apply to both the buyer's and seller's agents. Agree ahead of time what your budget will be and if the commission must be included in your budget.

(b) a bill of sale that includes a complete description of the horse, the final purchase price, all commissions and signatures of the buyer, seller and all agents involved in the sale.
To make the transaction absolutely transparent, it is best to write one check directly to the seller for the purchase price and a separate check to your agent for his or her commission. (The seller is responsible for paying his or her agent's commission.)

Debbie Bass was a founding director of USHJA. She currently chairs the owners' task force of the Amateur Committee and acts as treasurer and vice chair of the Zone 5 Hunter Committee. She is also on the board of directors of the U.S. Equestrian Federation. Debbie owns Maypine Farm in Willoughby Hills, Ohio, which has been home to an A-level show and school stable for 29 years. As a rider and an owner, she has earned numerous championships at ?major shows around the country.

For more information on buying and selling horses or to find your perfect equine partner, go to Equine.com.

This article originally appeared in the May 2012 issue of Practical Horseman magazine

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