The buyer agent's 'incentive'
Realtor Notebook
By Teresa Boardman, Thursday, September 10, 2009.
For Realtors, broker reciprocity just has to be the best thing since sliced bread. As a listing agent I know that other agents are looking at my listings and they will be paid if they find buyers for them.
When I am acting as a buyer's agent I know I have access to an inventory of homes that I can show my buyers and I will get paid for my work if they decide to purchase and if the sale closes.
As for other agents finding buyers for my listing, will they seek out buyers for it? Should they? That really is kind of impractical, yet we talk about it all the time. I used to get those notes from other agents advising me that they have a new listing and I should "show and sell."
When I read our state agency disclosure it looks like I am supposed to be representing buyers and/or sellers, and the buyer's contract reads the same way. I am supposed to be acting on my client's or clients' behalf and with their best interest foremost on my mind.
My job is one huge conflict of interest. The more they spend the more I make, yet most buyers would like to spend as little as possible. Also, I am a salesperson and I am compensated only if I sell something.
In our multiple listing service there is a kind of standard payout on the listings for buyer agents. I have no idea who thought up that number or why it stuck, but it is consistent. I know it is not the same in every market, but that isn't the point: It is consistent in my market.
Some listings have a payout that is higher than average, and the lowest-priced foreclosures have a lower-than-average payout. I have asked listing agents why they have a higher payout and they tell me that it is an added incentive to the buyer's agent.
If I have a buyer who is looking for a home in an average to above-average price range and they choose one where the payout is higher -- I have to admit I like the extra money, but I am focused on finding the right home for the buyer instead of the payout.
Where I have a problem is with the idea that I would show them one home before another or in some way encourage them to buy one home instead of another because I could make more money. ...CONTINUED
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Submitted by Steve Tutt on September 10, 2009 - 11:14am.
I don't disagree with the etics question but in my opinion it is next to impossible to "sell" a house to a buyer. Either they love it enough to buy it or they don't. A smart agent will show them the house(s) that best suits the buyer's likes and needs. Selective showing based on commission by a buyers agent spells a slow painful death for the agent, and in my opinion not slow or painful enough.
Submitted by Danilo Bogdanovic on September 10, 2009 - 12:28pm.
There is one very simple solution:
Every Buyer Broker Agency Agreement should say,
"Buyer to compensate Broker $_____ or _____ percent of gross sales price. Any compensation offered that is above and beyond this amount is to be credited to buyer."
Done.
Danilo Bogdanovic
Real Estate Consultant, Realtor
http://www.LoudounScene.com
http://www.LoudounForeclosures.com
Submitted by William Metzker on September 10, 2009 - 12:29pm.
I remember showing clients a house they'd asked to see. The listing agent had left a stack of flyers on the kitchen table offering buyers' agents an extra 1% commission if they sold the listing. The clients looked at the flyer, then at me, then at each other, the wife kind of rolling her eyes.
Submitted by Robert A. Hulme on September 10, 2009 - 12:34pm.
Higher BAC is a tricky way for the Seller's agent to try and entice the Buyer agent to be unethical. It is not any different than showing a normal priced BAC over one that is just a little lower.
Buyer agents have to understand what their duty is to their buyer, as Steve mentioned trying to lead the buyer to higher BAC homes will eventually catch up and bite that buyer agent.
www.UtahCountyHomes.ws
www.UtahCountyRealEstate.us
Submitted by Scott Nelson on September 10, 2009 - 12:34pm.
I have to agree with the first comment, you always have the option of turning over any incentive to your client & being the hero for them. As for lower compensation amounts, oh well, you wouldn't have gotten anything if you didn't sell. Whatever is in the best interest of your client.
Submitted by Mark Brian on September 10, 2009 - 12:49pm.
This is why many do not think highly of agents. And one of the reasons I enjoy working with sellers more than buyers.
Mark Brian
VIEW SOUTH CAROLINA REAL ESTATE
Submitted by Paul Howard on September 10, 2009 - 1:03pm.
Every time this issue comes up I get another chance to ask why the DOJ and FTC don't get on the MLS for continuing the practice of the MLS "offer" of compensation from a seller's agent to a buyer's agent.
The existence of that practice is a core cause of the failure of the majority of buyers and their agents entering into a contract and negotiating a fee for the services to be performed by the buyer's agent. If that were standard practice (rather than a relatively rare one) what the MLS 'offer' was would not be related to the agents actual compensation as that would be determined by the buyer agent contract.
The 'standard' practice keeps fees higher than they would be if buyers and their agents routinely negotiated the agent's fee. Any 'incentive' from the seller would not exist.
It would be good for buyer's agents too as they would spend less time with buyers that jump from agent to agent.
Changing the current 'standard' practice would also go a long way toward eliminating the practice of dual agency.
Paul Howard, Broker
www.NJHomeBuyer.com Realty
Cherry Hill NJ 08002
Submitted by Jim Duncan on September 10, 2009 - 1:11pm.
As a follow-up to Danilo's point, the buyer would need to accept responsibility, too. If the amount offered is less than the buyer and agent have negotiated, the buyer pays the difference.
The seller paying their opponent's compensation is a bit backward, no?
Jim Duncan
434-242-7140
http://www.realcentralva.com
Realtor/Blogger
Submitted by Rob Aubrey on September 10, 2009 - 1:23pm.
I agree with Danilo and Jim.
I have a minimum that I work for. My contracts state that I get paid at least X, above it goes to the buyer, below and the buyer pays.
I explain that clearly to the buyer and they are OK, until they fall in love with a house that offers less than our agreed amount.
Jim the listing broker is paying the buyer's broker not the seller, I know it is very easily argued that the seller pays it. But it is the broker offering other brokers or opponent if you will.
I always work to protect my client, but I do not consider the buyer or seller on the other side as an opponent. If a buyer wants to buy it and a seller wants to sell it, then it is our job to make it happen and keep egos and other emotions out of it.
Submitted by Bruno Skopinich on September 10, 2009 - 1:48pm.
I am a buyers agent... solely, no listings what so ever.
I show my buyers all homes within their reach, including FSBO's. Only rule is I contact the FSBO first, or I am out of the picture!
I Do Not feel Guilty If I make bonus commissions, or what some consider "high commission."
Why should the buyers care how much commission I make, as long as I exposed all the available properties, and served them well.
Submitted by Ronald Ogden on September 10, 2009 - 2:40pm.
On the other hand, is it wrong to not show a property that offers compensation below the agent's minimum acceptable commission?
I'm responsible for selecting which properties I show my clients from the hundreds that may be available and I use several factors to decide which properties are not shown (excluding items deemed illegal by Fair Housing).
Commission is sometimes one of those factors I use to exclude properties.
Ron Ogden, Associate Broker
RE/MAX Metro - Salt Lake City, Utah
Salt Lake City Utah Real Estate
Dwell Utah Real Estate Blog
Submitted by Ruthmarie Hicks on September 10, 2009 - 4:45pm.
In our area the coops for buyer's agents have fallen off a cliff. Literally. I hear what agents in other parts of the country are still getting and I start to drool. True, we are in a high-priced area...but since we live in a high-priced area - our overhead is much greater. Also, our entry level market is filled with low-cost cooperatives. I can see the reductions for high-end homes, but at that level the compensation anything under about $400k is literally not worth the effort.
My solution: I work for "X" at the entry level and not one penny less. If the seller won't pay, the buyer does. Unfortunately, more than 50% of the inventory offers less than my minimum. Realistically, I can have a client in the car for several months before an offer is even made. And you are far from done when contracts are signed. Getting them through a closing in NY is slow torture. 60 day escrows are gone with the dodo bird. For cooperatives, you also have the extra mine fields of their financial status and the board meeting to get through. Yet, in the case of coops and lower end condos, I was seeing paychecks of about $1500 GROSS. When you add it all up - nearly minimum wage. Not acceptable...as in not doable.
Bottom line: This isn't a charity. I give my "all" for my clients, but at the end of the day, the cost of doing business can not exceed the rewards.
Submitted by Steven Zimmerman on September 10, 2009 - 9:03pm.
Teresa,
This 'Offer of compensation'; Is this the one the Seller signed a Listing Agreement to and then the Listing Broker presented according to their local MLS rules ? and is this before or after the Sellers and/ or Buyers ask you to 'reduce your fee' ? or when after you have worked on that Short Sale for 7+ months, the Bank TELLS you it will ONLY pay X dollars as a Commission ?
I love to work with Buyers [mostly word-of-mouth referral] and have been able to look them in the eyes when I see them at the Deli counter or anywhere else for the past decade ! I also "OFFER" a minimum Co-Broke of 3.5% [up to 5% and 'less NO MLS Fees'~ Hello People, this is OUR Cost of doing Biz], because My SELLERS know its just simple math- or perhaps you were thinking what ?
Always working,
Steven Zimmerman Realtor ABR GRI
GULF HARBORS Resident, Waterfront Specialist & Developers Representative
http://GulfHarbors34652.net
Prudential Best Realty
GULF HARBORS New Port Richey Florida 34652
http://retaggr.com/page/StevenZimmerman
Pt 727-534-3226
Submitted by Ted Mackel on September 10, 2009 - 9:06pm.
Reading through the comments I had to chuckle. Commission incentives are usually offered by sellers looking to get a price for their house that is not inline with buyer expectations and a price that will probably not concur with an appraisal.
To blame the Realtor for all this is a myopic view. I don't get a base, I don't get any salary, I am paid when I perform. Simple math - Huge risk to not have the security of a paycheck creates the commission system.
Sellers have a hard time paying $100.00 (out here) for a termite inspection before we go on the market. They have a hard time paying for staging. The costs for those two items are a fraction of 1% of the sale price. The same sellers that balk at those important issues in selling a home will be the first to spend 2% of the sale price of their used car to get it detailed before selling it. A house is usually the 3rd biggest decision a person makes in their life yet the car gets better treatment when going to sale over the house. If sellers are this reluctant to spend money to sell their house then it looks like the commission system will have a long life ahead.
The only time I look at the commission rate I am making on Buyer representation, is after escrow is opened and I have to fill out my green sheet for Keller Williams.
Ted Mackel
Simi Valley, California
Submitted by Todd Armstrong on September 10, 2009 - 11:01pm.
I do not even look at commission. Who cares what it is? You have a fudiciary duty to show your buyers ALL homes that fall within their purchase criteria. If you are excluding properties, then you better be disclosing why you are excluding a property If there is a larger commission offered, then great, I just got a bonus. Based on the frequency that it occurs, it all evens out in the end. Sometimes you get the normal 3%, sometimes lower or higher. I agree with Ted, I seldom look at commission until escrow is asking me for commission instructions. Represent your clients as you were hired to do.
Todd Armstrong
Armstrong & Associates
http://www.DwellSanDiego.com
http://www.FreeHomeSearches.com
858.229.8752
Submitted by Ken Lampton on September 11, 2009 - 5:42am.
When I represent a buyer we sign an agreement that I am going to receive "x percent of sales price" when they buy a home. If the buyer bids on a home where the listing agent is offering less than "x percent" I almost never demand that the buyer should pay me the difference. This is in spite of the fact that my representation agreement gives me the right to demand "x percent."
If a listing agent is offering more than "x percent" I make sure my buyer is comfortable with the fact that I am going to make a little extra money. If they feel this isn't fair, I rebate the extra commission to them.
I am not a saint. I like money as much as the next guy. But I feel it is more important to maintain good relations with my buyers than it is to pocket a couple of extra dollars. That's the way to get referrals from them in the future.
Submitted by Matthew Rathbun on September 11, 2009 - 8:19am.
Oh here's a surprise... I was going to say what Danilo and Jim already have. Let the agreed price in the Buyer Rep Agreement and credit overages.
Awhile back I did a comparison of Days on the Market for those that offered incentives for Buyer agents above what has become a "average" commission point. There was no data over a two year period that showed homes with incentives sold faster.
I've had a few sellers ask me if we should increase BAC to help entice buyers. My answer has always remained the same - No. Take the incentive you would offer and reduce the asking price. Price sales - no greed.
I would never be able to convince a buyer to buy a home because I had was going to get more money.
Virginia law and the Realtor Code of Ethics compel an agent to disclose their income (for this service) to the Buyer. I think most Buyer Agents make this disclosure and then just give the overage to the Buyer - should the Lender allow those types of concessions.
Having said all that... I don't think evil of Listing Agents or Builders who offer these incentives. They are trying to do EVERYTHING they can to get a buyer in the house, if that means giving up an extra $2,000 to play on the greed of an agent, than unfortunately that's what they may have to do. The Listing Agents job is to get the home sold.
Submitted by jim canion on September 11, 2009 - 1:24pm.
It seems to me everyone is focused on the wrong
issue. There is no disagreement that no matter
what the commission is we owe a legal and moral
duty to represent our client and only our client.
The offer by a seller to pay an extra amount to
the buyers agent shows a clear sign of weakness
no matter what the cause. It is a great opportunity to show your client a level of loyalty and respect that will pay dividends
far into the future. By having an automatic
policy of passing the higher fee to the client as
a savings you will make the transaction more
appealing to the client. That may be the tipping point on the decision to buy. Also you will
more than likely have a loyal client for many more transactions in the future. Lets focus
on the big picture and be true professionals
if we expect to be treated that way.
Jim Canion
ConnectRealty.com
Submitted by Dennis Wooff on September 12, 2009 - 1:21pm.
An agent, one who acts for and in the place of one who provides authority to act...how do real estate salepeople act for a buyer or a seller? Is it selecting or showing homes and what decisions do salespeople make for "clients"? This is the area of conflict...in real estate, who acts for any buyer or seller except when receiving an accepted contract. Real estate agents act in behalf of their broker to provide services to the public. Some think that providing services creates agency. A buyer or seller agreement is for services tied to a sale/purchase with fees earned after services rendered, not for representation. Here lay the problems facing real estate. We must first determine what we do before we discuss fees, and as of today, few have determined that it is providing services rather than becoming an 'impotent' agent.
Submitted by Susie Blackmon on September 17, 2009 - 2:30am.
Offering a bonus to agents will definitely give an immediate picture of the ethics of many realtors. Suddenly a home that hasn't gotten much attention looks more appealing to the REALTOR, not the CLIENT.
I also 'love' being told that your listing won't be shown if you don't go to other agents' open houses (which here in NC are food fests for realtors, not clients). The best interest of the client is not a prevailing concept or ethic, unfortunately.
Susie Blackmon
http://www.google.com/profiles/Susie28751#about
Submitted by Horace Bryan on December 27, 2009 - 12:41am.
Ok guys, here is my solution. Actually this approach solves two problems. 1. let your commission be based on the asking price rather than the selling price. This literally turns your fee into a flat fee, hence it won't matter how low you manage to bring down the final price; the commission to you will be the same. This allows you to demonstrate that you have removed even the sembleance of an agender from the picture.
2. Whatever is the commission that you charge the buyer as abuyer's agent, will be ofset by any commission that may be provided by the listing broker. In addition, any amount above the commission that you offset will be split evenly.
In other words, if your comm. is 3% of asking price and you got 4% from the listing side, you ofset 3% and split the remaining 1%. Of course you will need to adjust for the fact that your fee is based on asking, while the listing side will be based on selling price. In this discussion your client, the buyer, will pay nothing and instead share the extra one percent with you...