Wednesday, November 13, 2013

Why I’m Not Keen on Commission Bonuses

[Published Nov. 14, 2013, in the Jeffco editions of the Denver Post's YourHub section]

As you probably know, the buyer’s agent is usually compensated by the listing agent. It’s called a “co-op” commission paid to the “cooperating agent.”

Regardless of the commission which the listing agent charges the seller, he or she typically offers 2.8% from that commission to the agent who produces the buyer.  Back before the Justice Department said it constituted price fixing, there was a “standard” commission of 7%, and the “standard” co-op was 40% of that, which came to 2.8%.  Although listing commissions are now competitive and therefore completely negotiable, the 2.8% co-op remained because brokers found that if they reduced that incentive, other agents wouldn’t show their listigns. I experimented one year with offering 2.5% and learned that very lesson myself. Now I offer 2.8% again — or more.

Sometimes under “broker remarks” (not visible to the general public), I’ll see that a “bonus” of, say, $2,000 is being offered “for a full-price offer” or for a contract by a specified date, but that practice has always made me uneasy for ethical reasons. Agents are required to act in their clients’ best interest, and offering a bonus for producing a full-price offer constitutes an incentive to the buyer’s agent for him or her to do the opposite — to act in his or her own best interest. And since the incentive is hidden from the buyer, there’s the possibility that the agent won’t disclose the incentive to the buyer.
 
What's your opinion?  Use the comment feature of this blog!

 

1 comment:

  1. Bob Hunt, a writer for Realty Times, tells me he wrote on this subject in August 2011. Here's an excerpt from that article:

    "To quote from the California Association of Realtors® (CAR) Model MLS Rules, "The amount of compensation offered through the MLS may not contain any provision that varies the amount of compensation offered based on conditions precedent or subsequent or on any performance, activity, or event." ... Offering a bonus for fulfilling a certain condition (e.g. "$1,000 bonus if accepted offer before Thanksgiving") is also prohibited by the MLS rules."

    As a member of Metrolist's Rules & Regulations Committee, I have sent this information to my fellow committee members, asking whether we might follow California's example and disallow conditional offers of compensation.

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