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The Agent Bonus Lure

In the current buyer's market I more frequently come upon listings that offer a selling bonus for the agent who brings an acceptable offer. Now what does that imply about real estate agents???

It implies that, motivated by extra money, agents will bring buyers to a listing they might otherwise not have shown. Additionally, since the bonus only applies to an accepted offer, agents might actually put influence on their buyers.

Here is where it could get really ugly: Tasked by relocating buyers to put together a tour of homes, an agent might purposely arrange the tour to include homes that are all lacking compared to the "bonus" property, which he/she will show as the last home on tour.

Has this ever happened? I'm a positively optimistic person and will say "NO WAY!"

But the mere fact that this scenario could be thus interpreted, muddies the waters of Realtor ethics.

Why would sellers not offer a Buyer Bonus instead, or lower the price of the home?

Some Realtors see nothing wrong with accepting a bonus, as long as they feel they really didn't steer.

Some Realtors might disclose the bonus just to be up front.

Some might even split it with the buyers.

I'm uncomfortable with the idea of an agent bonus and would pass the entire thing on to my buyers to avoid any negative implications. To me it's like a hot issue I wouldn't touch with a ten foot pole. I really wish the Association of Realtors would take a stance on the subject and provide some uniform guidelines.

Sandy Nelson
Realtor for Olympia area real estate
www.sandynelsonrealestate.com

Posted by Sandy Nelson Realtor® Olympia Real Estate on 11/27/2007 12:21 AM

Comments (63)

realtors, sandy nelson, riley jackson

This post has been included in Washington Information

63 Comments on The Agent Bonus Lure

NOV

2007

Good post. I agree with you.

Good post, Sandy. I hate the idea of agent bonuses, and especially when they're advertised as such. In fact, there are occasions when I don't even want to show a listing that has one, simply because I don't want my client to even for one second think that I included it on the list for that reason. So in my case, the agent bonus backfires on them!

Regardless of how much we want to abide by the COE and do the best for our clients, it's hard to resist human nature. And all things being equal as long as the home meets my clients needs, I don't see why the seller wouldn't be allowed to pay me a bonus. Apparently the Realtor's Assoc and the MLS don't think it's unethical since they alow it.

I always share it or give it entirely to my client

There are many realtors that will only show a property if there is a bonus and it's such a shame. Afterall we are supposed to be working in the best interest of our clients and not ourselves.

I think if you lower the price it will draw the buyers in! I have a seller who thinks it will work to get an agent in. I think lowering the price would be better.

I'm not a real fan of bonuses. I disclose them to my clients, tongue in cheek, when suggesting they should buy the house so I can get more money. We always have a good laugh and they never buy that particular house.

I've heard a couple of reasons for why bonuses are offered: a) for Realtors that work with a split, the Broker may allow the agent to keep the entire bonus (this really may cause...er....steering), b) the amount of the bonus may appeal to a Realtor ($1,000?, $5,000?) but not really cause potential buyers to take notice. The amount of the bonus is usually much less than the necessary price adjustment would be so it's cheaper to the Seller to offer a bonus and c) the consumer buys into the whole notion that Realtors are just in it for the money. Many times Sellers will really want to offer a bonus because they have it firmly in their mind that Realtors have only one goal -- more money.

I've also heard from a Realtor who has been in the business many, many years that if you had a client looking for a particular type of house, in a particular neighborhood/area, in a particular price range...why wouldn't you show them the one with the bonus? And try to sell it over comparable homes that meet the buyers' criteria?

It's a real murky area. I would much rather the Seller use the money to lower the price.

I agree with Sandy and Katie...what this sets up for those agents whose ethics are questionable is the push to get their buyers to go for a specific home that would not be in the buyers best interest.

When I see it I think sleazeball.......

I believe we deserve our commission. However I do know of agents who will not show other homes in order to get this bonus. I guess to each their own.

I think the bonus would be better served to get the sellers house sold by buying down buyers points, closing costs or adjusting the price.

I have shown homes with bonuses. I have also told my clients up front "Hey , if you like this home and purchase it I will get an extra $5000 bucks" in a fun way...They look at the home if they like it great, if not we move on.

I would rather see an adjustment in the price. I can see bonuses in new home situations - I sat open houses for one group for the sole reason they were offering bonuses - up to $25,000. It didn't make the buyers come - although I did some online advertising myself. I figured if someone did buy, I'd share.

I would never let a bonus influence a buyers decision in what to see or put an offer on.

That bonus is intended to get the house sold, correct? So I also agree, why not lower the price of the home instead to appeal to more buyers. But human nature is human nature and if 2 homes are essentially equal, ethically we should show the clients both homes and let THEM choose. So by NOT showing the home we are not acting in the best interests of the client.

Is it really sleazeball for the agent to do that if he/she was instructed by the vendors to entice potential buyers agents to show their property as they are desperate to sell it? Maybe the listing agent took a commission cut to get it sold. In my opinion you can't judge on facts that you don't know (in Canada we cannot see how much the listing agent is taking from the deal)

I think it shows a huge motivation for the sellers to get rid of the property, and it obviously draws attention by the ethical and the greasy alike.

Sandy,

An issue like this usually comes up in a soft market and it just sounds a bit alarming. The way to get a home shown and eventually sold is to price it right. Then you don't have to worry about ethics or such. Good point.

Sandy-

It's not much different then when you review MLS and see the % of commission is it?

Just a thought.

There have always been ranges of commissions, right?

Either you have ethics and want to help your clients secure the best property at the best price....or you don't.

If you do that "cherry" picking eventually like everything else in life....what comes around goes around.

Thanks for the great post...sometimes it's good to have someone call the truth out!

All, Thanks for all the great input on this issue. I'm so glad to hear that so many of you feel equally uncomfortable with the bonus issue. I just wonder if the sellers insist on the idea, or if it is suggested by the listing agents? From the feedback so far it seems that most people would rather see a price reduction or a buyer bonus. Paige brought up a good point about the commission's. Steering based on commission offered is just as wrong as steering based on a bonus. I have no issue at all with receiving a high commission, but I try really hard not to look at the commission amount and stay away from doing the math until closing.

Sandy

Sandy...we refer to commissions as monopoly money around my office. Until it closes...and you did your job...it's not real anyway. I like the feeling of earning my money....I don't "practice" at real estate~I think it's my job.

This may horrify you, but I have to ask...how do you feel about retainers? Yep...just like your "professional" attorney charges for example?

Paige,

It's an interesting thought, Paige.

I personally don't like having to pay a retainer for my attorney's services. I feel like he's holding my money hostage and fear that he will put forth every effort to exhaust it to the last dime. I also feel that a retainer charge implies that I'm not trusted to pay as I'm billed.

I do wish for an alternative way for buyer's agents to earn their pay. Receiving a commission based on sales price makes it hard for buyers to believe their agent is interested in working to get them the lowest price for a home. I explain to my clients that I aim my business at working by referral and that this motivates me to get work hard to their advantage at every level.

Sandy

NOV

2007

Hi Sandy: Here is my take on this. Let's talk about Susie Realtor. She has had a slow year. She has not had many buyers. She finally gets one, and starts looking thru the MLS to line up her showings. Perhaps she sees a home with a bonus. These days... perhaps she sees several homes with Selling Agent bonuses. Why shouldn't Susie Realtor show the homes with the bonuses... along with the other homes in that same price range ? As long as she is ethical, and does not exert any undue pressure on the buyers for that home... if they happen to pick it... great. Susie pays her mortgage, her buyers get a home they love, and the Sellers are happy. Homes with bonuses can be either good or bad. It depends on how the Realtor handles it. Thanks for sharing...

I agree, I have seen a few listings that were particularly disturbing. In one case they offered an SUV for a full price cash offer on a $Million+ property. While the requirement for a cash offer? It was obvious that the property was overpriced and would never appraise. I hope that if any agent earns that bonus, both agents are brought up on an ethics violation at a minimum. They also should be sued by the buyer.

Hey--Karen, I am Suzi REALTOR(R):-) . Personally, I don't like people messing with my objectivity. That includes Mortgage lenders that offer leads if you "steer" clients their way.

Karen and Sandy--In my opinion Disclousure is the key. However, I am not influenced by the offering of a bonus. The offering of a bonus does indicate to me however that there is negotiating room because if the sellers are offering a selling agent bonus they are obviously motivated.

Sandy,

If you are uncomfortable, why would then you need the decision fo NAR or anyone else. Would it make you more comfortable? I do not get it.

As for you being uncomfortable, would you start bypassing these properties simply because you do not feel comfortable with this arrangement? Then isn't this the same sin, that you show some and do not show the others?

Get realistic. Sellers do not offer bonuses. They donot know what that is. Smart realtors talk Sellers to do that. And I insist on smart Realtors. BEcause this is the best they can do for their Principals. WIth all BS aside, in a market where there are 600 homes in the same price range, are you going to show 600 homes? 300 Homes? I hope not. Is it a surprise fo you that out of all similar properties those listed at 5% to the agent (or bonus, or whatever) would be sold on average faster (which in this market also means for more money)?

I know an agent who is in 25 best in his Franchise (a major one) in Florida, he called me once and asked about the property, and told me he was coming with his Prospect. He did not come, so later I called him, and he laughed. He said he did not know that the developer was paying $1,500 flat fee. He found the way not to take his customers to show this property. Was he unethical? I do not think so, he showed them other properties which were absolutely not better not worse than this one, and they bought it, and he got them a better price, as my developer would not negotiate.

The guy told me that he could only show certain number of homes, and that number was much smaller than the total number on the market. So, parallel with his smart tactics in narrowing up the field, he would also watch for what was offered to the agent.

It is tempting to call him greedy and unethical, but that would not be true. He would also sometimes give his full commission to his client and not take a penny, because this was his 3 or 4th deal, or do something else, but he had always been business oriented, smart and extremely efficient.

Sandy, I would just like to see a buyer bonus or a lower price - maybe some closing cost help - kwim? I have always handed over any bonus that was offered to my buyer's. Oh and I love the "lure" concept and the graphics as a fly fisher :)

When I list a property which is not very often, my presentation or sales pitch emphasizes the fact that since I am primarly a buyers broker, I can do a better job with their listing than most listing brokers. While that may seem counter intuitive, its true. After all what is it that a seller wants? Its buyers , and that's what I can deliver. I go on to say that to sell their property we need showings and to get showings we need to appeal to two groups of people, potential buyers and their agents. The way get to buyers is to have the lowest price or best value and the way to their agents is to have the highest commission. It just make sense that, all things being equal, a buyers agent will show the higher commission properties first.

As a buyers broker I generate a list of properties that will meet my clients needs. In my market that list can exceed 100 homes. When choosing which ones I will present to my customers from such a large list, I confess I am drawn to the higher commissions and away from the lower ones. There are selfish reasons for this, but it can also help my buyer when I have some "extra money" to throw into the deal if needed.

Sandy,

If the Realtor is a professional business person, and understands that there is extra motivation to show, or not to show certain properties, because of added value to their pocket, then they are simply not looking out for the well being of the client buyer. I agree with you on that. However, if the house meets the requirements of the buyer, then what is wrong with listing the "bonus" home in the tour of homes to the buying client? As long as the motivation of the "Professional Realtor" is not that of the bonus, I see nothing wrong.

Steve Snyder

Walnut Creek, Ca

Sandy, You're right. It's like a bribe to sell the house. Wish they would quit doing that.

I totally agree and have posted on the same subject. We had a listing agent offer a 10K bonus on a home at 1.5 mil... see : LISTING AGENT - What are you thinking??? Now that is crazy!

i agree with some of your post but isn't offering a bonus the same a convincing a seller to list at a higher commission? if all the listings in an agents area are at 5% and i list one at 7% or 8% (which i often do) isn't that almost the same thing. the hungry agents will see the commission is higher than others and go to that listing first. i know this works. if our job as listing agents is to get the clients property sold i am going to do everything in my power to make it happen for them. trevor

I find it difficult to send an MLS listing to a client when it mentions a bonus or higher percentage in public comments. The perception is reality.

Sandy, I think the agent bonus might steer "some" agents to put that one on the buyers tour. That's what an incentive is supposed to do. But in the end, the buyers will buy what they like and if you are "lucky" to have the bonus one then good for you.

I don't select homes based on the bonuses or commission structure. To me that's a real conflict of interest.

I don't like it either. I'm sure it is done with good intentions of getting the house sold, but I just don't like it.

For several years I have posted, talked and debated the potential legal ramifications of agent bonuses. This is a lawsuit waiting to happen. Seller buys a home and was seriously inflyenced by the agent because of the bonus or (higher commission I have seen 4% being offer in some California high-rent areas to spur more showings), home has flaws that an inspector finds and informs the agent and buyer ... agent (looking after their own commission) glazes over the issue as "Oh the inspector is over reacting ... it is their job." Months down the line a serious problem occurs because of the flaw and the homeowner is out money, time etc.

As an industry we nee to change our policies and practices to be more professional ... yes that means leaving the commission behond and charging fees ... like accountants, doctors consultants and other professionals. By charging commissions SOME have become ambulance chasers and the rest of us suffer through guilt be association.

Commissions can be whatever the seller wants them to be. A bonus is suppose to highlite the property and get it attention. I never go out of my way to sell one but it gets on my radar screen. The buyers will buy what they want in the end. Most agents will work for their buyers and sellers. The marketing of a home is to get as many people to look. If a bonus can help this in your market I see no reason to handicap the seller into what he can or cannot do.

Sandy...Integrity. That is the main thing that prevents an agent from steering clients. It is not only about bonuses. What about higher commission percentages? How about higher splits when an agent sells an "in house" listing?

If an agent has INTEGRITY these EXTRA INCENTIVES will not make a difference. If they lack it, anything goes.

I wrote a post recently that suggested a LISTING AGENT BONUS. Sometimes the lister goes through hoops with a property, especially if the sellers insisted upon pricing it way too high in the beginning and because you have a history with them you take it having first advised them appropriately. Finally, after what seems forever, it sells. If anyone should get a little more than a pat on the back it should be the listing agent.

On the other hand, I really don't want to give back part of my commission just because it was a quick sale.

Great topic...thanks for raising it.

Kathleen

Sandy...I took plenty of time to comment above but not enough time to login.

Sorry, Kathleen

Hi Sandy,

I agree with you. Agent bonuses are bad. If there is one and your buyer gets the house, they may think you pushed them into the house to get paid more.

I think it's better to forget doing agent bonuses and then lower the asking price or offer a buyer incentive instead.

Thought-provoking post. That being said, are you suggesting that all listings should pay the same commission percentage?

As an agent that works with buyers a large percentage of the time, I don't like agent bonuses. I prefer buyer bonuses. I tell buyers when there is a bonus on a property.

I also think there are better ways for the seller to spend the money. Usually it involves staging or fixing the place up.

When an extra bonus is in the confidential remarks, it does not sway me one way or another. I will make sure my client will reap those rewards if that is the house they choose. It makes me uncomfortable to see them and when my listings suggest it, I recommend a lower price. Just my opinion as everyone is motivated in different ways.

Sandy, your post caught my eye because I just staged a new construction where the seller is offering a bonus. "Lure" is a good description. . . . I'm glad I only stage the homes. Furniture is much easier to move than all that paper! ;-)

I hate to say it Sandy, but I think we all would agree that we do this job to make money.....yes sure we want to help people, but if that is all we wanted to do we could have joined the peace corps.

Bonuses are a part of our business, we shouldn't have to apologize for them nor should we feel uncomfortable. Perhaps you should also disclose a showing that is 2.5% versus 3% under that scenario as well. If you carry this a step further you would end up showing FSBO's where you wouldn't get paid.

Honesty and Integrity are definitely hand in hand with this post, but we do this as a profession and professionals get paid for those standards.

I like the post that suggested that a bonus would likely indicate a very motivated seller willing to negotiate. Use the bonus as a negotiation tool for your buyer, i.e. get a big price drop on the house and make sure you and your buyer come out winners. If everything is disclosed, most buyers would appreciate this type of arrangement.

I don't like agent bonuses (except from Builders). I think it is better for the seller to appeal to the Buyer's financial side than the agents. I agree with many here that it could put you in murky water. If a seller feels the need to offer something, then it should be concessions to the buyer not their agent.

I agree with you completely and I have tried to warn other agents about this. The consumer perception is that we make too much money as it is and agent bonuses are not looked on favorably by our clients. Take a poll ask them and see what they think of it.

How can you uphold your client's fiduciary duty and at the same time put an agent bonus in your pocket? It just isn't ethical, and I dislike the idea of offering them. You're rowing the same boat in my opinion if you're offering an agent bonus.

Turn a blind eye to those Agent Remarks, show the properties that fit your buyer's criteria or the one's that they want to see, and if the LO is offering an agent bonus, give it to your buyer, or get it off the table.

To date (unless they kept it confidential) I have not heard of an agent in my market giving their agent bonus to the buyer ( I LOVE THE IDEA)...I can't wait to poll them and see their reaction. I guess this would be a reflection on the Realtors here. I do love the idea of a buyers bonus though...incentives are incentives...and when a seller will not see their way to lowering the price - you do what must be done to stir up at least an offer that can be negotiated.

I too far prefer to see that the home is being marketed to the buyer's not to the agents.

All,

Thanks for the great response. It's really interesting to hear the different opinions on the subject. I didn't mean to put anyone on the defensive. Offering or taking agent bonuses is not against the rules (as of yet). I know first hand how hard we work for our compensation, and we all deserve more. I just wanted to point out the aspect of how agent bonuses may be perceived and how offering and accepting them might taint our industry's reputation. Allen brought up, what I think is a good point, that agent bonuses are a lawsuit waiting to happen. I like Kathleen's opinion on how it's all about integrity, however perceptions are powerful and if you want to see just how, Kristina's suggestion to poll your buyers is a good one. I agree with Allen, that it would be a good idea to get away from commissions and move to a fee structure. Let's be honest, how much more does an agent spend on marketing a million dollar home, versus a $200,000 home? But I guess that's another post waiting to be written. I just want to say that I love the candid exchange of ideas, suggestions and opinion here on AR.

Sandy

I believe in lowering the price instead. I am seeing alot of bonus's in my market and giving the selling agent 4.5% commission.

If you are working for the best interest of your buyer the bonus should not matter. I show what my buyer wants to see and can afford. It makes no sense to show a property with a bonus knowing fully well your client cant afford it. That's part of our problem now with this mortgage crisis. There are alot of shifty agents out there forcing(yes i mean forcing) people into these homes and we see the result of that.

Robert: I really don't know where you get your information. If these types of Realtors you speak of are people you are working with... perhaps one of you needs to make a change. Why would anyone show a client something they cannot afford. Your hinting that they would do it just for a bonus is silly. If they cannot afford it, they cannot afford it.

Hmmm... shifty agents, forcing people into homes... if you know this is happening... report them to the local board. You seem to have a pretty low opinion of your fellow Realtors. If a seller wants to offer a Realtor bonus to stimulate activity, and everything else is as it should be... it is the seller's choice.

If one does the right thing then money will follow. Doing the right thing should be what people are caring about.

NOV

2007

Kim, lowering the price is much better, or for developers of new construction homes, who don't want to bring down the price so not to lower appraisal comps, a buyer bonus would be better.

Robert, I can't even imagine a scenario in which an agent can force a buyer into purchasing a home they can't afford.

Karen, I'm with you, complaining to each other about "bad" agents does nothing to clean our industry. That's what the ethics boar is for.

Bob & Carolin, I'd like to believe that doing the right thing will be rewarded.

Sandy

Given that commissions are not set or fixed, I cannot imagine a rule that imposes a limit of any kind in how much we make on a deal will be put in place either.

This is fascinating to read the comments where the agents are trying to do away with the free market idea because of their being comfortable or uncomfortable. I negotiate with the Seller my commission, and then I take part of this commission and structure it as a bonus.

Unfortunately real estate is not immune to marketing and sales tactics. We are very accustomed to going to department stores and buying something on sale... there is the thought that we bought something valuable at a lower price. It's human nature- and it works. I don't mind a seller giving a portion back to to the buyer- especially if it is to help with the costs associated with getting into a new home.

Chuck,

If you are representing the Seller and you did everything right, and then you do not mind your client to give some money back to the Buyer? Why did this Seller hired you?

And you consider this more ethical when I take part of my commission and give it as a bonus to the Selling agent? The difference is that I give away my money and you give away the Seller's money. Of course it is easier.

And also that I am trying to get the best price for my Seller's home, and not give away his money. That's what I would promise to the Seller when I am asking for the listing. I should not have an agenda here, so, unless my client's goals are to give away his money, I do mind it.

I always advise my sellers to offer to pay buyer closing costs before offering a BTSA.

Jon said it quite well here. I've been battling with how to explain my theory on the BBB and Jon just nailed it for me. There's nothing wrong with it as long as everyone's aware. The commission is between the seller and the listing agent, and the listing agent can disperse it or share it however he/she sees fit. It's not that any agent will be able to make their buyer buy that home over another one, but the BBB definitely creates more showings, and we all know the more buyers that see a home, the quicker it will sell, and likely often for a higher purchase price. Great reply Jon.

NOV

2007

Thanks Ryan,

It is simple. It becomes difficult when we for whatever reason start talking about us and not our clients' interests. Our feelings are irrelevant here, but skills are. And I consider the willingness to give away part of your commission, structured this way, a good way to show that you really would like to move the property for the highest possible price.

What you are actually are saying is that you would feel uncomfortable to fight for the Client's money. If you represent the Seller, did you tell him that you would not feel comfortable to fight for his interest? I am just curious.

As for offering the Seller to pay Buyer's closing costs BEFORE offering the bonus, first you may have a problem as lenders may not allow that or limit that to certain amount. However, why not do it together. That is the Sellers part in negotiations, and this MY part in making sure that the negotiations have a chance even to start.

The bonus is your first impression. If the property does not move, you better remove the bonus.

Jon, I'd like to answer your question, but I'm not sure I understand what you're asking. Please clarify. Thanks.

DEC

2007

I have always thought, if you can afford a buyer bonus or agent bonus, just drop the price instead.

If there is an agent bonus on a house I sell I will just pass it on to my buyer either to go towards clsoing cost or price reduction. I do not want any to feel I sold them that house just because there was a bonus.

Jim Tutton
Windermere
www.mytacomahome.com

Hi Sandy: I still maintain that if you drop the price $5,000... the buyers payment drops $31 a month. But the home may not get shown, because there are so many other homes on the market. If the price stays where it is, and the Realtor is offered a bonus of $5,000... the house is more likely to get shown.

It is not an either/or situation. My suggeston... offer the bonus. That way, you have something to offer both categories of agents. The ones who dislike the bonus... they can play hero and give the bonus back to the buyers after closing and funding.

For the agents who like and/or need the bonus... perhaps just to stay in business during this "crunch time..." then the agent show that seller's home rather than one of the other 23,406 homes on the market in that area. Give people a choice. If you don't, you are lessening the chances of your seller being able to sell their home.

And... for all the agents who are against giving a bonus... that is your decision. But you have no right whatsoever to take away the other showing agent's ability and right to make that choice themselves.

Jim, thanks for your input on the topic.

Karen, My question is: If a house is priced right and is in good showing condition, why wouldn't it be shown?....Unless there are agents who skip over that listing in order to direct their buyers to a listing that comes with a bonus for the agent. That $31 a month in their clients' pockets should matter to a buyer's agent. I understand why sellers offer the agent bonus, but it implies that buyer's agents will steer. It sounds too much like a bribe to me and I believe this kind of practice stains our profession. I'd like to see it go away, but I also understand that, just like campaign financing, it will most likely hang around. Politicians are also ones to swear that they would have voted a certain direction anyway, so they see no harm in taking the money.

DEC

2007

Sandy,

In a market where there are hundreds of similar homes, you will steer one way or another. You can't show all homes, and you do not usually know all homes, and even if you do, you are not the buyer, so you are gambling on that you know what they might like and minimize the choices.

They however, are based not on the homes, as unless you do not show the home, there is no value for the buyer.

It is a bit frustrating, why is that this got an ethical connotation, which it hasn't? You go and place an ad in the newspaper to attract people to your listing, not to let them choose between 300 similar homes. This is your job to steer people to your listing, this is your obligation to the Seller, who hired you.

As Buyer's agent, you do your job, we might be just shouting louder, so that you might notice us better. And whether you steer or not, is YOUR choice.

"And whether you steer or not, is YOUR choice." ???

I just hope agent who choose to steer, disclose it to their buyers. If there's no ethical issue with steering then full disclosure shouldn't be a problem.

I found this interesting article on the subject:

http://www.businessweek.com/bwdaily/dnflash/content/dec2006/db20061214_841972.htm?chan=top+news_top+news+index_businessweek+exclusives

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