Under current conditions in many markets in the U.S., listing brokers are dusting off the practice of offering bonuses to buyer brokers in an effort to speed the sale of their listings. I'd like to make the argument that bonus offers of this kind are bad for the industry, but first I need to give a little background.
What bonus offers look like
Here are examples very similar to bonus offers my MLS clients have asked me to evaluate in the last few months.
- "$5000 bonus to selling agent on sale closing before July 31"
- Listing broker puts 1% in the MLS compensation then in agent remarks says, "1.5% of sale price bonus if you negotiate for your buyer and arrange inspection and appraisal"
Example 1 is typical of the kind of bonus offers that have been around since before my time. Example 2 is of a type that is showing up more frequently now, as listing brokers want to try to specify exactly what buyers brokers must do to earn their commissions. (I've also seen some very poorly worded bonus offers, ones so confusing that I can't imagine anyone being able to figure out whether they had satisfied the conditions or not. But we'll leave that discussion for another day.)
Bonus offers send the wrong message to consumers
Why do listing brokers make bonus offers like example 1 above? How do they justify them to sellers? The only justification I can think of is that it will encourage a sale because cooperating brokers will be motivated by the opportunity for personal gain to show buyers the listings with bonuses, or to show such listings more favorably.
I've spoken to many brokers who say (1) that they would never put their own interests ahead of their buyers' to obtain a bonus and (2) that they do not believe other professional brokers would do so. I hope they are being honest about (1), but if they are putting bonus offers on their own listings, I think they are being less than honest about (2). Why would they put bonus offers on their listings unless they believed they have an impact?
Brokers point out that it is nearly impossible for a buyer's broker to conceal listings from her buyer that pay less and show only ones that pay more, because consumers have access via IDX and sites like REALTOR.com to nearly complete listing compilations. They can thus "check up" on their brokers. This may be true, but the broker holds more subtle influences than just choosing which listings to show; she can also influence the buyer by the order in which she shows listings, how she shows the listings, what features of each listing she identifies as being important, etc. Remember, that's why consumers hire brokers - for their expertise.
Consumers know about the bonus offers: A listing broker generally needs consent from the seller to offer a bonus (under the Code of Ethics and other regulations.) I'm assuming every broker is aware that she must disclose bonus offers to her buyer in a transaction (at least under the laws of any state that I have considered and under the common law of agency, where that still prevails).
So what messages do these disclosures send to sellers and buyers? Simple: "Listing brokers believe they can buy influence with buyer brokers by offering them extra compensation - despite the buyer brokers' duties to their clients." Does anyone think that's a good message for the industry?
(There are other problems with bonus offers in MLS - I'll try to tackle them later this week.)
;)
;)
