My phone hasn’t rung yet, but my ears are already burning. My column in today’s Arizona Republic: Buyer should negotiate compensation for agent. (A more-permanent link.) This is Ardell’s turf, of course, although my take on The Big Picture is somewhat different. In any case, I expect to have my ears — and, heaven help me, not my hide — well warmed today.
Buyer should negotiate compensation for agent
Last week we established that the buyer pays for everything in the purchase of a home. Why, then, does the seller negotiate the sales commissions?
The short answer is, because that’s the way it’s always been done. The longer answer is not as pretty: Historically, only sellers were represented in a real estate transaction, and, despite efforts at reform, the buyer is still often treated as a second-class citizen.
Consider the buyer’s agent’s bonus, for example. It will be there as plain as day in the listing: “Seller to pay buyer’s agent a bonus of $5,000 for successful close of escrow by Aug. 31.”
What does that say? It says in the plainest possible language that both the seller and the listing agent believe that the buyer’s agent really works for the seller, not for the buyer. The objective of the bonus is to induce the buyer’s agent to push the buyer into buying the home that is offering the bonus, rather than another.
The goal, motive and purpose of a buyer’s agent’s bonus are to give the buyer’s agent an incentive to betray his agency. His fiduciary duty is to the buyer. The seller and the listing agent are using the bonus to “buy” his fidelity.
So what should a buyer’s agent do, when showing a home for which a bonus is offered? Disclose the bonus to the buyer and commit to either waiving the bonus or passing it through to the buyer. There should be no doubts in the buyer’s mind about the agent’s loyalties.
But there’s more to this issue: If the seller can negotiate compensation with the listing agent, why can’t the buyer negotiate compensation with the buyer’s agent?
The short answer is, because it’s never been done that way. The longer answer is not as pretty: Often, buyer’s agents infantilize buyers. “Our services cost you nothing,” Realtors say. “The seller pays for everything.”
In fact, the buyer pays for everything. The seller negotiates what the listing agent will be paid. But the buyer can – and should – negotiate the buyer’s agent’s compensation.
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Ardell DellaLoggia says:
Hi Greg,
I’m up to my ears in multiple offers on my new listing today, but I wanted to toss in a couple of thoughts…then “I be back…as Arnold would say”.
1) An agent who will pay a 25% referral fee to another agent for referring a buyer, without a peep of griping, will freak out when the buyer wants to negotiate the fee direct. So it’s not about the money. Why wouldn’t they negotiate the same 25% they are willing to give to another agent, or pay for some repairs with that same money. It’s the principal to them, not the money itself.
2) An agent who will pay X$ to some lead generation site and think that is “good business” will not take that same money and negotiate with buyers direct…bottom feeder sites are “worth it”, but your buyer client is not???
I have been experimenting with the concept since I started blogging. Taking clients who came from the blog and treating them as if they have been “referred”.
This reality is all in my mind…Ardell in Ardell’s world as they say. I have had some very exciting results and have been gaining more and more experience and successfully negotiating fees with buyers.
Sometimes negotiating means that the buyer and I agree that my full top rate is fair. So negotiating is not “discounting”, it’s a discussion as to price for my services, same as we have with sellers every day.
Sometimes it’s more and sometimes it’s less…negotiating does not mean “giving away the store”. It means treating the buyer with the dignity and respect they deserve, and not being silent with them as to commissions, as if what you are paying to represent them is “none of their BI Business”.
July 28, 2006 — 8:28 am
Ardell DellaLoggia says:
Typo there…no edit priveleges here, correction:
Negotiating means treating the buyer with the dignity and respect they deserve (the buyer) and not being silent with them as to commissions, as if what THEY are paying you to represent them is “none of their BI business”. Telling them it’s “free” is insulting, and yet for years agents have been telling buyers that the cost is “free to them”. Horsepucky!
July 28, 2006 — 8:33 am
Greg Swann says:
Your conclusions are pellucid and indisputable. That’s why you meet so much resistance. ;->
July 28, 2006 — 8:34 am
Todd Tarson says:
You mean to tell me that there are agents working for buyers that don’t them how they get paid??
I’m flabbergasted.
I agree with your take that the buyer indeed does pay for everything in the transaction. I hear many listing agents saying that their seller is offering a bonus and I cringe a little. Just give the price break to the buyer and be done with it.
However, I am sort of guilty of doing the same sort of thing. I explain to my sellers where our negotiated rate of commission is spent. And I offer them an opportunity to offer more than the normal going rate as a percentage in the MLS (say 3.5% instead of 3%). I do this because I don’t split the negotiated commission with the seller 50-50 like most agents do. It’s totally an option for the seller and if they think there is value in luring buyers agents with their clients for an extra .5% then I let them do it.
I still haven’t perfected a menu item list of services in my practice, but it is still a goal. I’ve found my selling clients don’t want to waste time with the particulars and just settle on a percentage of negotiated commission. I’m hoping that day changes though because I think it can increase my volume of business.
July 28, 2006 — 9:09 am
Ardell DellaLoggia says:
I never have “a list of services” or explain “where the money is going to be spent”. Doing Whatever It Takes means doing what needs to be done and that changes every second and isn’t a “checklist” of “stuff”.
The money isn’t “spent”, it’s “earned”…or not. I have very few “expenses”.
July 28, 2006 — 12:15 pm
Todd Tarson says:
We see things a bit different Ardell, no biggie. But I am spending the seller proceeds on ads, and the sellers haven’t had a problem with me explaining it to them. In fact it’s helped some clients get over the fact that they are paying ME 6% (often the perception THEY have).
We deal with alot of perception, often it is not a correct perception so when I have a chance I like to clarify things with my clients. I find it’s the best way to communicate my business practice with them.
Sellers are also spending their proceeds on my time and expertise in the negotiation and escrow proceedings (I’m not going to get into the intracacies, I use the terms in a general manner here). Also proceeds from the sale are going to the buyers broker (I rarely work both sides of a deal). Explaining all of this, and perhaps checking this off a list with my clients, works for me and more importantly my clients.
But like I said before on RCG, I’d have no problem hiring you as my representative for a real estate transaction. I think you are exeptional and I would love to see more agents like you in the marketplace.
July 28, 2006 — 3:43 pm