Commission rebates come to New Jersey

Good point May Jean.  Maybe they should add those professions to this legislation.

Regulators got the housing market in a stranglehold and now a rebate?

Ty

I'm not sure why so many agents don't understand the concept or value of a rebate.  Take your agent hat off for a second and think about you going out and buying a car.  You have the exact same car for sale at 2 different dealerships for the same price.  One dealership is offering a $1000 rebate off the price if you buy the car the first time you walk onto the dealership's lot and the second dealership offers no rebate.  You know the car is the exact same car and you know that this is the car that you want.  (There is no price negotiation for these cars so your end price will be $1000 less at the dealership that offers the rebate.)  Which dealership would you go to?

Now put the real estate agent hat back on.  You have a buyer contact you who spends all their waking moments looking at homes on the Internet and they know exactly the neighborhood they want to be in and they have narrowed it down to 3 homes priced at around $700,000.  They are highly qualified, have their home under contract and want to do a back-to-back closing within 30 days to avoid moving twice.  They are deciding between you and another agent and say they'll go with you if you rebate $1,000 of your commission to them so they can have a little more money for the special drapes they want to put in the home; otherwise they'll go with the other agent.  If you could put a clause in the buyer agency agreement that provides for the rebate if they do in fact buy one of the three homes they identify and close within 30 days, would you do it?

The problem is that we, as buyer agents, have little control over how much we are paid based on the way real estate compensation is currently structured.  You get paid the same if you have 2 buyers wanting to buy a specific $300,000 home no matter whether one buyer takes you 15 minutes of time and the other buyer takes you 15 years of time.  Rebates are a consumer-friendly way to fix this problem and introduces the element of competing on price into the real estate industry.  I know some people don't want to have to compete on price, but if you put your consumer hat back on, I bet you'd be pretty upset if the government didn't allow that 1st car dealership to give you that $1000 back.  You might even think it would be "Un-American" if the government didn't allow it.  The same should be true for our industry.

I'm not sure car dealers are a fair comparison since the cars are well overpriced to begin with and rebates are nothing more than a gimmick to bring you in.  Rebate or not, you will buy the car from the dealer willing to give you the best out the door price.

I cannot believe there are people actually for the idea of giving away part of their paycheck, one that is earned by working very, very hard.  And maybe that works where the average price is $500,000 but what about where the median price is more like $150,000?

I don't know but it just does not make sense.  I guess we can start asking for rebates from everyone we do business with and see what happens.

Well I suppose this is ok, if you are willing to give up your hard earned commission.  however, I do not care to give up any of my hard earned commission. I agree with the realtor that said, the buyer may get a gift letter from their parents. That is acceptable to me. thanks for sharing!

I agree with Russell 100%.

I would also go further and suggest the hypothetical example posed by Don is so unrealistic that it can't even be treated as a good hypothetical example.  I've never had such an "apple fall from the tree and into my hand".  This examples implies all Realtors have to do is write up an offer and go to closing.  No negotiating, no inspection, no appraisals, no financing issues, no difficult buyer or seller demands ... nope ... just write up the offer and go collect your big, fat paycheck.

Real life is far more complicated.  A buyer who has their house on deposit already has a Realtor they must be happy with for selling their house that is helping them purchase a new one (unless they are moving to a distant location).  Most buyers are NOT motivated, focused, educated on the process pre-approved and rarely buy after only looking at a couple of properties.  The odds of a buyer purchasing a house they think they like from the internet is truly an unrealistic example.  Buying a house is NOT like buying a car where the only difference is color and options like electric windows or automatic transmissions.

And yes, if we're going to ask Realtors to rebate their paychecks, let's not stop there.  Let's ask the Doctors, Dentists, Attorneys, Plumbers, Electricians, Grocery Stores, Gas Station Mechanics, etc. etc. to start rebating some of their paychecks too.

I find that by using extremes, it helps to clarify the situation.  My example of the buyer at $700,000 may not be very realistic, but it is not at all out of the realm of possibility.  To take it even further, let's say you stand to make a $50,000 commission if you simply rebate to the buyer $0.01 (1 penny).  Would you do it if it were legal?  If your answer is "no", then I wish you good luck with life, and I hope I am competing for that buyer against you.  What if you were asked to rebate $3,000 and the commission due to you was $3,000.01?  I would suspect that everyone who is working in real estate as a profession to put food on the table would probably agree that this would be a bad decision.  My point in these extreme cases is that it is only you who can determine where that "line" is where you will and will not concede a rebate to a client.  Nobody is forcing you to give a rebate.  The problem is that in some states it is actually ILLEGAL to give a rebate and an agent doesn't even have the ability to give one if they wanted to.  In my opinion, this is an outdated, anti-competitive practice.  If all commissions are negotiable between you and your client, how do you negotiate a buyer's agent commission that is determined by a 3rd party (the Seller or Listing Agent) if you can't give a rebate?

Rebates give us another tool to compete with one another.  In my opinion, competition is a good thing and protects the consumer.  In Diane's example of asking to get a rebate from a grocery store, that is already happening now when you choose one grocery store, doctor, lawyer, etc based partly on the price that they charge.  You are more than able to ask each of them for a rebate now and they can legally give you one (though is not customary in the US to do so).  Why shouldn't that also be allowed in real estate (where it is more customary to negotiate)?  If you have 2 competing grocery stores offering the same product at the same price and one puts a coupon in the Sunday newspaper, wouldn't you go to that grocery store where you got the coupon (all other things being equal)?  Should the practice of grocery store coupons be illegal?  What if grocery stores didn't have the ability to set the price of an item and it was set by the manufacturer to be the same at all stores?  That wouldn't seem like the USA, would it?  As a buyer's agent, that's the way that it is with our commission for the same property (i.e. 2 competing agents who have clients who pay the same price for the same house will get paid the same commission that is being offered by the listing firm unless 1) rebates are legal or 2) your commission agreed to with the buyer is higher than the advertised commission and your buyer client makes up the difference).

Let's say there was an elderly woman (could be a man too) who has worked hard all of her life and finally saved up enough money over her lifetime to put a small downpayment on a home in order for her to realize the American Dream.  She's barely over the poverty level and wants to buy a very, very small home.  The commission on this home will be small as well.  Two agents are interested in working with this person... 1 agent also works hard for the money, is very skilled at being an agent, and would do a great job for this woman.  Agent 2 also works hard for the money, is very skilled at being an agent, and would do a great job for this woman.  In other words, the two agents are identical in every way... except that one agent feels like this woman would be a good opportunity for the agent to do something charitable is willing to help the woman for free and the other agent is not.  The agent might be able to negotiate a price for the buyer, then after the price is negotiated, see if the seller would be willing to lower the price by the commission amount, or the agent could just offer the buyer a "rebate" of the entire commission to accomplish the same thing.  In the world of illegal rebates, this charitable agent would be required by law to accept the commission being paid to him or her.  Does that seem right?

The change in NJ allowing rebates was not necessary.  A NJ agent was always able to charge what they decided between the client and themselves.  Commissions were always negotiable.  Our Agency Agreement has always set a minimum.  It could have set a maximum.  An agent can agree to charge a flat fee and can set their commission in their Buyer Agency Agreement.  The Buyer Agent Commission might end up being higher or lower than what is offered by the listing agent.  When it is lower the buyer makes up the difference to meet the Agency Agreement minimum.  I am willing to discuss working for a flat fee.  It may not be less than the offered commission. 

The only result of encouraging "rebates" was to make us look like Walmart.  One rationale when the change in rebates was being promoted was so a "buyer could get help with their down payment". Buyers are not the agent's children.  They can purchase the way we buy anything.  You put it on credit or wait until you save more money.  Buyers shouldn't sit in our office with a cup and expect the Realtor to drop in their commission.   

Agents have always been able to use the "negotiable commission" to compete if they choose.  That is why some listing agents charge one listing commission and others a lower one. It is very unfortunate that some agents believe the only advantage to the buyer working with them is because they will offer a rebate.  Try competing on the basis of doing a more thorough, more efficient job and because you do it better rather than because you are "cheap".  If business is slow improve your marketing or presentation to improve it but don't give away your commission.  Go to a convention, get a new certification or team up with another agent to improve your methods.  Any of these is better than getting the T-shirt that says Work with Me I'm Cheap. 

As I am not licensed in NJ, I have a question for Pamela or Michael...

Pamela mentioned that "The change in NJ allowing rebates was not necessary.  A NJ agent was always able to charge what they decided between the client and themselves.  Commissions were always negotiable."  Prior to this rebate decision, if you, as a buyer's agent, agree to a commission of "X%" and the listing firm or Seller is offering a higher commission, say X+Y%; how do you get paid only X% so you are getting paid only what you agreed?  What happens to the extra Y%?

To try to understand Don's position, which as a full time, full service Realtor didn't make sense to me based on the "examples" posted, I went to his Active Rain website page.  Here's some of what's on it.  Pay especially close attention to the last line:

Directly from Don's AR Page:  Our inventive and highly successful home-selling program is creating raging advocates that are feeding our business with referrals.  Our goal is to change the way people buy and sell property, and our $499 flat fee, full-service listing program is doing just that!

Specializing throughout the entire Charlotte Region, Don Anthony Realty is pioneering the volume based real estate model.  Times are changing and the Internet is feeding information at an increasingly rapid pace.  Buyers and sellers are no longer in the dark, yet the real estate industry is slow to change.  Offering services that cater to savvy consumers, Don Anthony Realty has innovated a program that affords sellers a full service agent while giving them the ability to pay no buyer's agent commission at closing.  Many sellers are selling their properties for just about ½%. Work that out with today's pricing, and the savings could mean a family vacation!  Instead of sending your agent to Hawaii, why not take your family.

Well now, I'm not sure why Don is so concerned about Buyer's Agents being able to rebate their clients when he is promoting a service that encourages sellers to sell without paying a buyer's agent. Further, his own advertising is equating the work a buyer's agent does to paying for an agent's vacation.  

I found it interesting and thought everyone else commenting on this blog might also.

Just to be clear ... I am not saying anything negative about limited service or discount brokers ... I personally believe the buying and selling public should have the ability to choose between the different business models that full service vs. limited service brokers offer.  I just found Don's examples were not credible arguments to back his position and his website explained to me why that was.

Thanks for the plug Diane! Not really sure what my business model has to do with rebates in NJ though.  (By the way, I do encourage my listing clients to offer a very competitive - oftentimes even more than others - buyer agent commission, yet if there is an unrepresented buyer they don't have to pay that commission to me.  I, too, am very full time and also full service, but that also doesn't have anything to do with rebates, so I'll stick to the topic of the post.)

Again Diane, I'm not advocating offering rebates.  How you choose to run your business is completely your decision.  I'm just saying that I don't think they should be ILLEGAL.  As I have given a few examples of why I think rebates should be legal (which nobody has yet addressed), maybe you (or anyone else) could give reasons why they should be ILLEGAL.  

Lastly, in addition to being an advocate for competition as I think competition is good for any industry, I also enjoy healthy debate based on merits, not personal attacks or diversions away from the issue.  I think it makes us all better agents, and I'm open to hearing all sides of an issue. 

Michael,

It sounded like crickets chirping for awhile, and I was wondering if anyone was going to respond!  I completely understand what you are saying... basically "whatever the listing agent agrees to pay is what I get paid".  That is generally the way I think most agents work on the buyer side unless their "minimum" commission is not met, in which case they may have the buyer make up the difference if the offered commission is less than the minimum agreed. 

My question is more around the opposite scenario where you and the buyer have negotiated a "maximum" commission you would be paid and the listing firm's offered commission to the buyer agent exceeds that maximum.  (i.e. you've negotiated that you will receive a maximum commission of "X" and the listing firm has offered a commission of "X + Y").  According to your agreement (i.e. the buyer chose you in part because you agreed to a maximum commission of "X"), you should not receive more than "X", so how would you handle the "Y" portion that exceeds your maximum if no rebate was allowed by law?

In this case, some agents may see if they can get the seller to reduce the price of the home by "Y" commission amount, but what if they don't?  Sometimes new construction builders will want to keep the prices of the homes relatively high so as not to affect the comps in the neighborhood, while they may also offer attractive bonuses (i.e. "Y" commission) to a selling agent.  Without a rebate, it could be a sticky legal problem as to what happens to that "Y" amount.

You might want to make this Members Only or are you attempting to explain to buyers how they should ask you for a rebate?

Don Anthony Gomez, I beg to differ to a point. It allows competition but in the wrong way. We have enough coming at us in different ways to prove why we are  worth our pay, now it becomes who will give back the most. So it's another way of buying the business, not earning the business. It doesn't mean the client gets better representation.

Good luck Michael and Don.

Things just got more complicated for you. I hope this never reaches Oregon.

I do not see what the big deal is.  Some people shop at Walmart, some shop at Lord & Taylor.  Rebates work for grocery stores, they can work for REALTORS too.  As someone once said, "Change is the only constant!"  By the way, I have done both ways, but now work for a 100% commission company and I keep it all!

Also a sidenote, I believe that Redfin, has become a profitable model recently, so look out all you ancient brokerages! 

It is funny, who would have thunk, Charlotte NC is more progressive than New Jersey!

They've allowed rebates here in Florida for a long time as well, and nobody in our area does it.  It's almost unheard of.  We had someone do an ad campaign a while back on bus benches about giving buyers X amount of dollars, but it didn't last long.