There’s always something to howl about.

Ask the Broker: What compensation does a buyer’s agent have to disclose . . . ?

This is an excellent question:

Do buyer’s agents have to disclose ALL compensation he receives from all sources to his client? It would be important to know who’s filling his lunch sack. Example: Builder pays a bonus above the commission listed in the MLS to the buyer’s agent if his client purchases.

What does a buyer’s agent have to disclose about his compensation? In Arizona, the answer is crystal clear:

It depends.

A buyer’s agent is not required by law to disclose the amount of the co-broke commission or finder’s fee offered by the real estate broker of the seller. On the other hand, both RESPA and state law require the disclosure of bonuses, rebates, referral fees or any other sort of non-commission compensation.

This is ARS R4-28-1101-G:

A salesperson or broker shall not accept any compensation, including rebate or other consideration, directly or indirectly, for any goods or services provided to a person if the goods or services are related to or result from a real estate transaction, without that person’s prior written acknowledgment of the compensation. This prohibition does not apply to compensation paid to a broker by a broker who represents a party in the transaction.

There are a lot of things that reek about this, in my professional opinion. First, a bonus is just an attempt to induce a buyer’s agent to betray his fiduciary duty to the buyer. But second, a lot of bonuses are being paid right now in the form of commission. If I take you out to buy a new home tomorrow, the builder will pay me at least 6% of the purchase price, all of it of your money — and I do not have to disclose this to you.

In fact, all commissions and fees paid will be disclosed on the HUD-1 form — which you will see for the very first time at Close of Escrow. Wonderful…

My take on the subject: Buyers need to learn the five little words that sellers mastered long ago: “How much do you charge?” The agent may not be required by law to disclose commissions, but you can condition your working with that agent on his willingness to negotiate his compensation with you.

If you’re buying a new home and you intend to shop, offer 2%, with the rest of any builder’s commission coming to you. If you’re going to one subdivision only and you intend to write a deposit check that same day, 1% or 1.5% is more than adequate. You don’t need vigorous representation, at least in Arizona. The builder won’t let your agent do anything anyway. So why should you take an agent at all? In order to get the rest of the sales commission — really a finder’s fee — applied to your down payment and closing costs.

If you’re buying resale, or buying from out-of-state or something like that, you will need to negotiate to a higher fee. But in all cases, you should negotiate a fee that compensates your agent for the value you receive — not an arbitrary traditional sum and certainly not to have your agent actively betraying your interests.

But those five words — “How much do you charge?” — will be your key to a whole new world of buyer representation. You will learn within seconds who can work for you — and who thinks you exist to be milked. By negotiating compensation, you establish who is the boss in your relationship. Won’t that be a pleasant change…?

Technorati Tags: , , , , , ,