Real Estate Agents Goals At Odds With Yours?
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When you are purchasing a new home with your real estate agent in this slow market, you probably should be more aware of the market forces that are leading you to find your new home. This is according to a new article from the folks at the Wall Street Journal discussing the incentives that sellers and builders are giving to buyers agents.
Extra commissions for bringing full price buyers to building sites or homes that are on the market are more and more common according to this article, and the scary part is that these extra commissions do not need to be disclosed to you until the HUD statement at closing.
I am sure that the ethical agents out there disclose these deals up front to protect their professionalism, but agents that are struggling to make ends meet in a slow market very well may drive you right by your dream house and put pressure on you to buy the one with the extra 5 grand in commission.
Although there are no national data on the practice, real-estate agents and builders agree that incentives have become much more widespread in recent months, especially in areas such as Florida, Nevada, Arizona and Washington, D.C., where inventories of unsold homes have soared. Builders and sellers also are offering lots of incentives to buyers, including free kitchen upgrades, help with closing costs and even new cars.
The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can’t make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents’ influence can be particularly strong with newcomers to an area who don’t know which builders are considered most reliable and which neighborhoods most appealing.
GoldStar Homes of Texas, based in the Dallas-Fort Worth area, recently has been offering a $2,000 bonus atop the usual commission on some of its new houses. The company resorts to these extra payments “if we need to move some homes,” says Paul Garrett, project manager for GoldStar. via the Houston Chronicle and the Wall Street Journal
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Comment by Stan on 10 November 2006:
As a buyer in this market I’ve run into exactly what you bring to light with this post. There’s so many “games” being played by sellers and agents it’s a minefield and not for the uneducated buyer. I’ve posed the question about full disclosure of all bonuses and “back door” incentives to realtors and the reaction has been unanimous…..”it’s none of your business”.
Sorry, but since the buyer is the sole participant bringing CASH to the closing table, it *IS* my business.
The only way a buyer can protect himself in today’s market is to first negotiate a buyer’s agent agreement capping an agent’s compensation at a fixed dollar amount. It’s a buyer’s market, regardless of the spin, so if you are in the market and have cash, make sure you use your position to YOUR advantage.
It’s a lot easier for me to find another house and agent than it is for a seller and agent to find another buyer….BWG
Comment by Athol Kay on 10 November 2006:
That kind of thing only works in some parts of the country though. In Connecticut it is illegal to recieve payment of any kind for real estate services without a license. I can’t rebate anything to a buyer client without possibly losing my license.
The buyer is not paying the commission. The buyer is buying the house, and the seller is paying the commission. People do not go the FSBO route in order to save the buyer from paying the commission.
The co-broke is a marketing expense decided on by the seller, and held out as a bounty to reward bringing in a buyer. The bounty system DOES have some built in potential conflict of interest between buyer and buyer agent. However this conflict of interest is universally found in many other transactions. Do you trust your mechanic to actually fix your car with a $10 piece of hose and 30 minutes labor for a minor problem, or have him tell you it’s a major issue that needs a $240 part and 4 hours labor to fix it.
The current system isn’t perfect, but it’s not like Satan inspired it. The solution is to find a realtor you trust.
Pingback by Links for a very busy Saturday . . . | BloodhoundBlog | The weblog of BloodhoundRealty.com in Phoenix, Arizona on 11 November 2006:
[...] Both The Real Estate Bloggers and Real Central VA draw attention to The Real Estate Journal’s expose on agent bonuses: The best defense for buyers may be to insist that agents disclose the compensation being offered on any property under serious consideration. That way, consumers could negotiate ways to share anything that goes beyond a normal pay day for the agent — or at least take the incentives into account in assessing the agent’s advice. But few consumers raise such questions. Daniel Ruben Odio-Paez, a broker in the Washington, D.C., area who operates a real-estate search site, http://www.tbhse.com, says he believes “most buyers have no clue how their agent is being compensated.” [...]
Pingback by Builders Hurting, But Bankruptcy Not on Horizon For Most » The Real Estate Bloggers on 13 November 2006:
[...] The national builders use mostly subcontracted labor. This means they can tighten up operations quickly when the markets turn. They also have the luxury of selling homes that were built on a speculative basis for below market rates. We have seen builders offer amazing incentives to real estate agents over the past few months to help them move their properties and get their cash out. [...]
Comment by Danilo Bogdanovic on 16 November 2006:
I agree that it entices agents to be more excited about showing certain homes and communities. But I also believe that full disclosure should be given to the agents’ clients regarding any bonuses that the agent/broker may receive from certain builders. A good reputation and referrals is worth much more than one bonus on one sale and a bad rep.
And to clarify one thing, it is not the seller who pays the selling (buyers’) agent, it is the buyer. The commission is built into the sales price, which the buyer pays. It clearly states and is defined by law in the Buyer’s Agency Agreement, county laws and states laws. NAR as well as government watch dogs have been cracking down on this exact issue.