Paul Slaybaugh posted The Buyer's Agent Bonus: Thanks, But No Thanks.
Not a new topic of discussion and surely one that is presented the best. Buyer’s Agent – Buyer relationship as it pertains to a particular situation where there is a bonus involved.
I am not seeing bonuses now, and I am not offering it on any of our listings today, which does not mean that I did not do it before, or will do it tomorrow. Market changes, tactics change with it. So, this discussion is for argument’s sake.
What Paul stated is a position of an agent. And all the explanation is about the dangers to the agent's relationship with the buyer. And while ethical positions can be universal (avoiding bonuses no matter what) business may be not.
There are a few things that surprised me in the blog and in the comments. Agents being content with “fair” compensation and willingly agreeing to receive compensation MINUS bonus. Giving it to the buyer. So, bonus is perceived as unfair compensation.
Surprising notion that buyers always need or deserve the bonus, which the agent better give them. Markets are different and properties are different. Sometimes I feel like a pauper standing next to my Buyers. And my usual clients do not need help with financing; they buy for cash.
Another notion is that we do not sell ourselves. Really? I do….
It has been called a job even before the sliced bread. You do something and you get paid for that. We are selling our knowledge, expertise, time, effort… and, believe it or not… our ethics. We are selling the way we work, with all our ethics. All that stuff about integrity on agents websites, what is it then if not selling yourself in a package?
But let’s step from the Agent and his Buyer. There is another side to the transaction, the Seller. So many agents expressed the wish for the Seller to apply the amount of the bonus to reduce the price or pay Buyer’s closing costs instead of offering a bonus.
What is missing here is the business part. To say that the Seller should rather reduce the price for the amount offered in the bonus, we are assuming that the same dollar would work the same way.
And this is not true.
The bonus could be significantly less than the amount of reduction in price to achieve the same goal, i.e. sell the home/condo faster. I read an article a few years ago about Miami multi-million condos, where developers were offering private jet round trips to anywhere in the US to selling agents as a bonus. They noted that $25,000 bonus had the same effect as $100,000 - $150,000 reduction in price.
Now, this is business. With 1/4th or 1/6th of the money you can reach the same result. Would you still demand the personal soul comfort knowing this statistics?
There is somehow an assumption that a bonus is something that does not affect agents, or the way they operate. And it is considered ethical, and everyone is happy with it.
“I am not looking at bonuses”
And on the beach you do not look at a gorgeous girl unclad in a bikini? (If not, check whether you still have heartbeat - LOL)
Real Estate is business. Imagine that there is an 11 Mil oceanfront luxury villa in Naples. 3 apples offered to the selling agent. Plus a bonus – a brand new $300,000 silver Rolls-Royce. Those who were at the NAR Convention in Orlando 4-6 years ago could remember seeing that Rolls Royce on the Expo floor. Or was it Bentley?
Two scenarios here. An agent, who was contacted by a buyer, and who takes the buyer to the villa, and sells it, and then s/he can give away the Rolls Royce to the Buyer (got the name for that agent, but it may not be in the dictionary).
The other scenario is when the agent knows about this property and about the bonus, and s/he wants both the cool commission, and a similarly cool bonus. His/her choice is not to wait for someone to walk in, but try to involve other agents out of the area, and find the buyer, and bring the buyer from New York, London, or Singapore.
The bonus can create activity, provided the property is worth what it is selling for, and the bonus is worth extra activity. A bonus can create activity beyond “normal” or “usual”. Isn’t that the goal?
I know that there are not that many $11 Mil deals and I never closed one myself. But is helps to clarify the basics here.
Bonus is just a tool. It is not ethical, it is not unethical. It is a tool that can be used ethically, or unethically.
The nuclear power and nuclear bomb are based on the same fuel. One used to provide power, and the other to wipe out cities. It is the way they are used that determines their morality.
Do we love real estate but hate the tools?
* image courtesy of geishaboy500 via Flickr.com
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I think the point of Paul's post was this...
Let's say an agent is offering a $2,000 bonus +3% on a $200,000 home purchase. So the buyer agent will make $8,000. The seller runs their NET sheet and says "I want to net this amount." The seller negotiates from a position of net, unless they have a doofus agent who doesn't know what a net sheet is. The seller should only care about their bottom line.
So the seller doesn't really care where that $2,000 goes, as long as it gets the property sold. On that I totally agree with you...bonus, commission, closing costs...whatever...to the seller it is a tool.
Now, enter the buyer. The seller won't budge off their $200k price because they want to net a certain amount and the buyer loves the house so they agree. NOW, if there was no bonus involved, the seller would have come down to $198,000 or given the buyer $2k in closing costs because it worked with their net numbers.
In order for agents to TRULY be representing their clients, I think buyers have a right to know how the agent will be paid and WHAT they will be paid. I mean I pay my company attorney and I know EXACTLY what he charges me and for what. I know EXACTLY what my doctor charges me, and for what.
So here is the deal...if real estate agents really, truly want to raise the bar, then buyers have to know what is happening with compensation. If we as a group feel they aren't entitled to know how we get paid or how much, then we can never raise the bar. No service provider hides their costs from their clients. These are our clients, not consumers. Some buyer agents seem to be the only ones that are struggling with sharing their compensation with their clients because "it is none of their business." I think the point of Paul's ramblings was that it is their business.