James Thorner, St. Petersburg Times Staff Writer, penned an article last week titled, “Paying a 6.5% commission made sense“.
Looks like Mr. Thorner instructed his real estate agent to offer a “higher” commission to the buyer’s agent in order to motivate buyer’s agents to show his home.
I’ve discussed buyer’s agent incentives here before, and my opinion on this is clear — any agent that specifically sets out to show their clients homes with higher buyer agent commissions/bonuses is doing their client a disservice. Your job as a buyer agent is to find your client the right home, at the best price for THEM, not for YOU. Period, end of story.
Mr. Thorner makes some interesting points in his article. Yes, he is a journalist and part of his job is to sell newspapers. But what I find disturbing here is Mr. Thorner is writing from the perspective of a home seller. That he feels the way he does should be a wakeup call to every agent out there. I have no doubt that Mr. Thorner is not alone in these thoughts:
A commission is prize money.
Interesting. I wonder how many people out there think of their own paycheck as “prize money”? I work my ass off for the commissions I earn. This so-called “prize money” pays my mortgage, clothes my children and allows my family to live.
All things being equal, a buyer’s agent will show a home paying a 6.5 percent commission to one paying 4 percent.
Undoubtedly this is true in some cases, but certainly not in all cases. I know countless agents that don’t consider the buyer side commission and/or have their buyer clients sign buyer broker agreements (BBA) up front that outline all commissions paid. In most BBAs, the buyer’s commission is offset by the commission the seller pays. For example, if I have a signed BBA at 3%, and the seller is paying 3%, then the buyer owes no additional commission. If the seller is paying less, the buyer makes up the difference. If the seller is paying more, then that additional amount is rebated to the buyer at close of escrow. This is all clearly discussed and disclosed up front. The buyer knows exactly what the numbers are before they even see the home.
Less than two weeks after my Realtor and I signed the contract for 6.5 percent, we had a deal on my house. An acquaintance living nearby who offered 4 percent hasn’t sold his house in a year.
Congratulations. I’m not completely familiar with the real estate market in St. Pete, but I suspect two weeks on the market is well below average. However, it would be interesting to know how your acquaintance’s home was comparatively priced, its condition, and the seller’s motivation. Commission is just one of many factors involved in the sale of any home.
Call it luck if you must. I priced my house toward the lower end and left it spic and span.
Hmm. Isn’t plausible that the condition of your home and the aggressive pricing were just as responsible for the quick sale (if not more so) than the extra half a percent of commission? Pricing your home at the low end and keeping it spotless isn’t luck. It’s smart.
But you can’t go wrong playing to an agent’s self-interest.
As hard as it is for many to believe, real estate agents are human beings (well, at least most of them are). And yes, some will put their own, short-sighted interests first. The savvy agent however will realize that taking care of the client, assisting them in every step of the process, and getting them the best deal possible will over time serve their own self-interests far more than pocketing an extra half a percent in commission. It’s called building a loyal client base, gathering repeat business and getting client referrals. I’ll take that any day over some “extra” commission or bonus.
To the agents reading this, think about Mr. Thorner’s perspective the next time you talk to a potential client. There is a very good chance they feel the same things he does.
To the folks out there that may be considering buying or selling a home, think about Mr. Thorner’s perspective when you interview agents. Do you want an agent to help you that is motivated by the highest commission they can get? Find an agent interested in you as a person, interested in helping you get the best deal you can. Of course your agent is going to be concerned about the commission, it is their paycheck after all. But you can find an agent with enough business acumen to realize that putting your interests first and foremost will also help their own business in the long run (not to mention it’s just the right thing to do. Something about that Golden Rule… it has worked for a really long time…).
[tags]real estate commissions, buyer broker agreements, public perception of realtors[/tags]
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I totally agree with your take on this. So much so, I’m copying my post on Inman News for you here (I’m an agent in Maryland, BTW):
This issue came up with some agents in my office and we all agreed that we rarely (if ever) look at the commission cut offered to the buyer’s agent (although many listing agents try to market that along with bonuses — thinking it will bring in more traffic). In my local market I have seen many homes sit unsold with these “teasers” in place. The seller is better served by improving the condition of their home and/or not over-pricing it in the first place. Any agent who is ethical will represent their client by showing them all homes that meet or could meet their needs. Way I figure, if my customer likes a home that happens to offer a higher than average commission — that’s just the luck of the draw (as it is when they opt for a FSBO or a property listed with a discount broker–both of which mean double the work for the buyers agent). In my experience, it’s a lot more common for an agent to shave a little off their commission to make a deal work than it is for them to only show homes with greater than 3% commissions.
I have a condo for sale that my realtor suggested putting a bonus on for the buyer’s realtor. I’d be interested to hear if this would back-fire or not. Originally I thought it would be a good idea since the condo is in an area that caters to realtors who would promote it because of the bonus. But, I’ve also wondered whether some wouldnt want to be accused of promoting the unit just because of the bonus, so they didn’t suggest it to their buyers.
Maybe I’m overanalyzing it and it wouldn’t make a difference. I do know that if I was a buyer and I saw a realtor bonus, I would make my realtor credit that to me.
Excellent post. Realtor incentives in my area (SoCal) just don’t work.
We are working for the client…not our own pocketbook.
A few thoughts…
With so many buyers searching online via IDX prior to even contacting an agent, I do not believe that commissions play much of a part in determining which listings they want to see.
Agents who screen listings based on commission are not fulfilling the fiduciary duty they owe their clients.
In San Diego County we have already started to see lawsuits filed against agents and brokers by buyers who would have purchased a different property if their agent had shown it to them but didn’t based on commission.
If you are a buyer working with an agent, you need to ask the agent if there are any reasons or conditions that would impact their decision to not show you a particular listing that seems to match the buyer’s criteria.
Jay,
Let me start off by saying that the “extra bonus” should not drive the home choices a Realtor shows his/her client…BUT…they do work. I’m assuming that many Realtors (like many mortgage originators) are self-serving.
Should a listing agent then use the greed factor when pricing a home? If we know the’re bums, should we play to their weakness and offer that bonus? More importantly, is it the listing agent’s responsibility to point out the “greed factor”, as flawed as it is, to every seller?
Thank you Jay! I’ve often found it very frustrating to come up with a concept that would explain commissions to the buyers while noting that some varying rates may not pay for the services rendered.
“For example, if I have a signed BBA at 3%, and the seller is paying 3%, then the buyer owes no additional commission. If the seller is paying less, the buyer makes up the difference. If the seller is paying more, then that additional amount is rebated to the buyer at close of escrow. This is all clearly discussed and disclosed up front. The buyer knows exactly what the numbers are before they even see the home.”
That’s the black pearl of the post. Thank you!
Jay, I have a home listed now at 5%, from a relo company. When the sellers hired me, it was at 6%, I have had 2 showings since then, in 3 months. Before the sellers took their buy-out, I had at least 2 a week before that. In a buyers market, I believe Realtors do look at the compensation offered. I kept the listing when relo offered it to me, because most of my marketing and expenses were upfront.
I have had it painted, and staged since the original sellers moved out and it shows much better, ( too much country style) by the previous owners. I have discussed this with relo and they won’t budge, company policy.
I have helped several families move here,(with this company) but this is my first listing with them. I’m thinking about offering 3% and me taking less, just to get this sold.
One of my buyers who transferred here, their house has not sold in OH, offering the 5%. She told me the same thing. Why would a big company want to pay all the expense of inventory and not offer 1/2% more? I just don’t get it.
I have been offering higher commissions and bonuses to buyer’s agents. It works a little. Lately, I have been having seller clients make offers to buyers. My latest is a seller client that is offering a New convertible BMW to the home buyer. http://BMW.DowellTaggart.com
wow what a nice post about coupons and retail information.
Its a very needed information because i need some coupons to buy somethings.
Good to see your post on the topic.
As the broker of an Exclusive Buyer Agent office I’ve never discussed the “bonus” idea with a seller, because Exclusive Buyer Agents never list property. But I have many times discussed it with buyers and reporters.
I know it doesn’t carry any weight with our agents, but in our market many real estate companies give their “designated buyer agents” a higher commission split if the “sell” an in-house listing.
Does this work? Probably so, or they wouldn’t continue to offer it.
Is it unethical for “designated buyer agents” to steer buyers to a listing based on the compensation? Absolutely.
But since these same agents aren’t ethical enough to even tell the truth about being designated buyers agents and not buyer agents, it shouldn’t be a surprise.
These bonuses are usually called “buyer agent bribes” on the buying side of the business.