Eagle-eyed Kevin Boer of Three Oceans Real Estate was the first to catch it: BusinessWeek.com quoted me in an article on “supersized commissions”:
There’s nothing wrong with incentives, even sizable ones, if they’re disclosed and buyers fully understand what’s motivating the agents who are showing them around. But in many states disclosure is poor or inconsistent. In Arizona, for example, brokers who show houses are encouraged to sign agreements specifying how they’re compensated. But the agreements aren’t required.
THE SKY’S THE LIMIT
Also, they can be signed after someone has already fallen in love with a home and isn’t looking at the fine print. And the compensation can be explained as generally as, “3% and up,” meaning the sky’s the limit. Add it all up, and, “I don’t have to disclose to you how much I’m getting paid,” says Realtor Greg Swann, the designated broker of BloodhoundRealty.com in Phoenix, who says he voluntarily imposes stricter rules on his own agents. By offering extra-high commissions without informing customers, he says, “the builders are trying to bribe me to sell their houses.”
That whole section of the articles relies on BloodhoundBlog contributions: Contributor Doug Quance and frequent commenter Dave Barnes both kicked in examples that were used in the article, but, alas, they were not mentioned by name.
BusinessWeek Economics Editor Peter Coy first called me about last week’s Zillow.com news, and we talked in very broad terms about Realty.bots, disintermediation, the valued-added services a good Realtor brings to the table and commission structures in general. We’ve covered a lot of that here, so I sent him quite a few posts from our archives.
The implication of the article is that buyer’s agent’s incentives are the rule rather than the exception, but, even so, I don’t think it is a bad idea to caution buyers about the risks:
Advice to consumers: Start with the assumption that the nice person showing you around is not your ally. Ask up front how much the person would be compensated if you bought a place. If possible, sign a buyer-broker agreement before you start looking at houses. This guarantees that the agent is working solely for you. Specify in the agreement how much he or she will be paid, either as a percentage of the sales price or, best of all, in a flat fee, such as $5,000 or $10,000. Then, if you like a house that happens to have a bonus involved, your agent can ask to have the value of the bonus knocked off the price of the house.
My argument has always been that any commission, not just a bonus commission, creates an agency coupled with an interest. This is not true de jure, but it is true de facto, and it is why there are classes on how to close on one’s own clients: We have a stake in the game, too. Honorable agents keep that fact in mind so they can be sure that it is not influencing their behavior. But our clients can only see our scruples as they are made manifest in secondary consequences, in scrupulous actions. We have to earn their trust, and disclosing our own advantages and disadvantages is a good way to begin…
Technorati Tags: arizona, arizona real estate, blogging, compensation for buyer representation, disintermediation, phoenix, phoenix real estate, real estate marketing
Jim says:
Problem is, MLS was never meant as a general purpose advertising tool, and when the current commission split structure was invented, there were no buyers agents.
Back then MLS was solely used to offer some other broker to cooperate on the sale of the house by bringing the buyer, but both brokers were still working for the *seller*. The subagent who brought the buyer owed that buyer no fiduciary duties, only to the seller. In those times, a higher commission was a perfectly ethical way to lure in more subagents with their buyers.
Nowadays, there’s a conflict of interest. As a buyers agent, I don’t even control my own paycheck. It’s nice if someone offers extra, but what about those cheap bastarts that offer 1% or less? How can I do my fiduciary duty and show the client all homes, when some of them refuse to pay?
It’s a problem, but that’s why I sign a buyer’s rep agreement, and show them *everything*. That way if I get more than 3% it’s great, if not, I’ll just offer them less and use the difference to pay myself.
December 15, 2006 — 8:15 am
Kris Berg says:
I had a related encounter with a builder recently. My client liked the product and wanted to move forward. The builder was offering a $10,000 coop on a $1.1+ mil home, and I offered a concession to the buyer based on this. When we showed up for signing, the builder rep pulled me aside to intimate that the coop was now 3%, and whispered that he wanted to give me this information privately as he didn’t know how (or if) I would want to handle this with my clients.
Now, I know his intentions were honorable. He didn’t want to compromise my “position” with the buyer, but he was working under the assumption that my “new position” would be one I would not want made public. Of course, I told them the good news. “My fee just went up, so your credit just got bigger. Yea!”
December 15, 2006 — 8:28 am
Jay Thompson says:
Congrats on the BW.com mention! If that makes you “almost famous”, then wouldn’t a Bloodhound commenter be “nearly almost famous by association”?
December 15, 2006 — 10:13 am
j says:
And a contrarian commentator infamous? 🙂
December 15, 2006 — 10:43 am
Robert Cot says:
Since everyone here as brokers and/or agents are beyond reproach, forthright, honest and transparent these comments don’t apply directly. Oh, wait, I take that back. BECAUSE everyone here is so above board why don’t you advocate for rules that prohibit conflicts? They wouldn’t apply to present company and would potentially save your clients from these practices on the other side and would undoubtably improve the public perception of the craft.
December 15, 2006 — 11:09 am
Dewey, Cheatham & Howe says:
“BECAUSE everyone here is so above board why don’t you advocate for rules that prohibit conflicts? They wouldn’t apply to present company and would potentially save your clients from these practices on the other side and would undoubtably improve the public perception of the craft. ”
:::Gasp!::: You mean more regulation? Like every other public investment industry? What a revelation!!!
This industry is absolutely rediculous. It’s effectively run by divorced housewives and corporate failures who couldn’t make it in the real world. Yet, we suffer through their ponderings of how a millennia plus old industry will evolve into efficiency. I only wish realtors and lenders were liable for their actions like everyone else in the modern world. It’s amazing that such a large and important sector of the economy is allowed to operate in such an anarchistic and irresponsible manner by a bunch af idiots.
December 16, 2006 — 12:46 am
Dewey2 says:
Haha, houswives and corporate failures? Are you kidding me. Housewives rarely get anywhere…and mostly sell withing their social circle.
Instead of corporate failures, it’s more like corporate misfits. People who were smart enough to see that working for the man won’t get them anywhere. Now that they succeed in real estate, their spineless former coworkers are jealous of their success, but instead of blaming themselves for being corporate slaves, they blame the newly successful realtor.
December 16, 2006 — 10:49 am
Larry Walker says:
The fact that the buyer’s agent compensation is omitted from the customer printout makes the MLS somewhat complicit in hiding relevant information from the buyer. I would like to see all MLS systems begin displaying total amount of commission and bonus on the customer displays rather than hiding it in the agent displays. When I search for properties for my buyers, I usually have to filter the list down to a reasonable number of properties I think are best suited for my clients. I sort the list based on my buyers’ criteria. A less honorable buyer’s agent might be tempted to sort based on compensation. If the buyer had that information, the temptation would be neutralized.
December 17, 2006 — 7:54 am
Danilo Bogdanovic - real/diaBlog says:
Congratulations on the quote!
After reading the article, I understood the point that Mr. Coy was trying to make. But, rather than saying “not all buyer’s agents are created equally”, he painted a bad picture of buyer’s agents in general.
If you disclose to your clients what you are getting paid, you will never have an issue. Honesty and integrity go a long way. In a profession where referrals are key to longevity and prosperity, I would never gamble away future business on one deal that I got an extra $10K on.
December 17, 2006 — 11:20 am
Athol Kay says:
Grats Greg on the mention. Don’t forget to email a copy to Keith at Housing Panic 😉
December 18, 2006 — 3:41 pm