Agent bonus - real estate transparency
I saw a listing today offering a selling agent bonus of $5000 for a full price offer in addition to the commission. In the interest of real estate transparency and understanding how real estate agents are paid, I wouldn't mind receiving a nice bonus for representing the buyer in the sale of a property but if I am truly representing a buyer as a buyer agent, I don't believe that I am deserving of even the commission if I was required to "influence" my buyer to putting in a full price offer just so that I could earn the bonus. It not only seems wrong, it is wrong and here's why.
Today's market is a buyer's market and homes are generally selling for less than listing price by about 2% to 4%. As a percentage of the list price, the bonus is only 1%. So let's say the house is well priced (who knows, it actually might be); should I put my interests ahead of the client who I represent and influence them to overpay by a minimum of 3% or $15,000 or possibly 5% or $25,000 just so that I can "earn" a bonus.
Simple answer. NO. If my client liked this particular house, I would ignore the bonus, do the comps (and figure out whether the house is actually well priced) and help them prepare an offer. If it was well priced, my client would likely be able to purchase the home somewhere between $475,000 and $490,000 and given the market conditions today, I'd bet on $475,000. I'd be happy with the co-broke commission offered and my client would likely be happy to purchase for somewhat less than the offering price. Negotiating the best price for the client is just one of the duties that a buyer's agent does to earn a commission. Of course, if the comps only supported an offer of $450,000, I would expect that the seller and the seller's agent would likely either be totally offended and reject the offer or simply counter our offer and the negotiating would begin.
As a listing agent, I have recommended and my sellers have paid a bonus. It does get the attention of the selling agents, might increase showing traffic and could help the property sell quicker. But the bonus has never been contingent upon accompanying a full priced offer, rather it was tied to getting a ratified contract by a certain date and the buyer was never penalized by "overpaying" for the property.
As a buyer's agent, I have received a bonus on several occasions and once again, not to the detriment of my buyer. On one occasion, I advised the selling agent that instead of paying the bonus, they could apply it to my buyer's offer to make it slightly stronger. (At the closing, the agent and seller told me that because I did that, it made the difference in their decision to sell the house to my buyer.)
Finally, while we're on the subject of bonuses, builders of new homes are still building faster than the market can absorb the inventory and I've noticed some of the builders are getting a bit carried away with their bonus offers, in one case, the commission offered is twice as much as they previously paid. I don't want to tell some big corporation how to run their business (but I will) so why don't they just offer the house at a more affordable price to the buyer and just pay the agent a fair rather than outrageous compensation.
After all, the agent attends the closing with the buyer and disclosure of all compensation is clearly indicated on the hud statement (a bonus should be disclosed prior to the closing). How would you feel as the buyer if you saw your agent getting paid so much more than you might have expected them to earn for helping you with the transaction. It might make you think you paid too much for your home. After all, while many real estate agents will tell you there is no cost to use a buyer's agent because the seller is paying the commission, in reality, the seller is paying the real estate agent from the proceeds of the funds received from the buyer who purchased the property.
Real estate transparency requires full disclosure.