Incentives to buyer’s agents raise steering concerns

Offer of Mercedes is an anomaly, but agent incentives are nothing new

Editor’s note: This story has been updated to clarify that Frances Flynn Thorsen is a former Realtor who now works as a real estate marketing consultant, educator and author.

By JANIS MARA

As you walk through the garage of a home you’re sizing up as a possible purchase, a shiny, silver 2012 Mercedes-Benz catches your eye. "Hey, they should throw that in as part of the deal," you jokingly tell your spouse.

Your agent looks uncomfortable. "Well, actually, if you decide to buy the house, I’ll get the Mercedes as a bonus."

While the above scenario may sound unlikely, it is in fact playing out in real life. A Virginia man is offering his C-Class Mercedes plus a commission to any agent who can sell his $1.9 million home.

The offer is just one example of the beefed-up incentives being offered to agents in today’s slow market. Though the Mercedes offer is an anomaly, incentives like trips, gifts and higher commissions are nothing new — and they’re not good news for homebuyers.

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"Bonuses and high commissions could motivate an agent to encourage a client to buy the house that offers the best reward to the agent, rather than the home that’s best for the client," said Bobbie Noreen, managing broker with Village Real Estate Services in Nashville.

"That’s the problem with any incentive, whether it’s a fur coat, a trip or a $2,000 bonus. Our code of ethics says we are not allowed to participate in self-dealing," Noreen said. "To steer them (the client) is against the code of ethics. It’s borderline illegal."

Despite this, the practice is widespread, according to Noreen and others.

"The notion of offering buyer’s agents increased commissions is not new. Listing agents have been doing that for years," said Frances Flynn Thorsen, a Tucson, Ariz.-based Realtor-turned-consultant, educator and author. "Many real estate licensees have been reprimanded over many years for accepting paid vacations, mink coats, and all kinds of special incentives that are not part of a legal real estate transaction record."

In the case of the Mercedes incentive, the car being offered is worth $37,900, according to the listing agent representing the seller, Susan Stynes, a sales associate with Long & Foster Real Estate Inc. in Midlothian, Va. If the buyer’s agent isn’t interested in the car, the seller will instead pay a bonus of $30,000.

"Let’s say the (buyer’s) agent is getting 3 percent on a million-dollar sale, which is roughly $30,000," said Thorsen, who teaches continuing education classes to Arizona real estate licensees. That means the buyer’s agent will be doubling his or her commission, she said.

"I have a feeling the buyer would not be terribly happy about the agent collecting another $30,000," Thorsen said. "If I were a buyer, I would prefer the $30,000 to go to me," Thorsen said. "I’m sure good agents will see that and negotiate something in which the benefits will be inured to the buyer."

Stynes said influencing agents "is absolutely not our goal."

"Buyer’s agents have a code of ethics and are supposed to show it (the property) to someone who is interested," Stynes said. "We want agents to follow their code of ethics and keep their clients’ needs uppermost. If they have a client who is moving to the area and the property fits their needs and the client is interested, we hope agents will respond, keeping their clients’ needs in mind."

Instead of the agent accepting a $30,000 Mercedes, the agent could negotiate for the seller to lower the sale price by $30,000, Thorsen said. Otherwise, the agent’s monetary gain could be seen as the buyer’s loss.

"Logically, most people would say, ‘Why not just reduce the price by $30,000?’" said Doreen Roberts, president of the Bay East Association of Realtors in Northern California and an agent with Master Key Real Estate Mission in Fremont, Calif.

"If a property is priced right, it’s going to sell. I know sometimes sellers do offer higher bonuses to entice agents to show the property. But my personal experience is if the price on the property is right, you will get multiple buyers and that will generate competition and that will make the property sell for the correct price," Roberts said.

Stynes said the decision was made to offer a Mercedes instead of just lowering the price $30,000 because "it wouldn’t have generated any interest in a house of this price. This is a special house and we wanted to do some special marketing to draw attention to it. Just lowering the price wouldn’t have done that."

The unusual offer did generate publicity for the seller. Local television stations and and print media, picked up the story, and so did national media sites like The Huffington Post and USNews.com.

Consumers looking to avoid problems when selecting a buyer’s agent can ask them if they accept such incentives. Also, in today’s world, it’s easy enough to monitor what’s happening with any properties you’re interested in online — though Thorsen and others emphasized that the agent has an obligation to disclose if incentives are involved.

"It’s important for any agent offered an incentive to disclose it to the client," said Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School in Philadelphia.

Good agents will negotiate incentives for their buyers, said Ron Armstrong, a North Carolina Realtor with KW Luxury Homes International.

"You and your buyer’s agent can ask the seller to pay closing costs," said Armstrong. "Or let’s say the roof is at the end of its life and there’s nothing in the contract that says the seller must replace it. You can ask your agent to replace the roof. The price of the house does not change, but the amount of concession in the contract changes."

Armstrong said he has never been offered a bonus, but if he were, "I would say to the buyer, ‘Let’s figure out a way we can share in that somehow.’"

Janis Mara is a freelance writer living in California. She can be reached at janismara@hotmail.com.


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