Jon, I think you've adroitly presented both side of the bonus, but more importantly the dynamics of the split. In New Jersey the broker technically has a claim on all renumeration so personal services bonuses create a quandary. How do the licensee and broker split that form of 'commission'?

Andrew,

You are absolutely correct. However, standard practice here (at least that's what I see and hear) is that unless this is a game, where you offer lower commission, and then offer a bnus to the Selling agent, the broker would not put his hands on the bonus.

That's why I am saying that we arrange for a standard commission, offer half to the selling broker, and then take either a percent or a fied amount from our cut and offer it as bonus. Can the broker use the same split on the bonus as on the commission part? Legally yes. Then the agent just needs to think twice about staying in this office.

It is like taking tips from waiters.

But you are correct, I should have mentioned that.

Hi Jon, Nice layout of the issues of bonus vs non bonus listings.  I have heard the same arguments over this topic.  The truth is you are creating more traffic and the buyer still has to decide to buy not the agent representing them.  The number of showings increase so the potential for a faster sale and at a higher price also improve.  The broker side is the brokers decision on if they let the bonus go directly to the agent.  In Michigan they do not have to.  I just relocated from Melbourne, FL just down the road from you and the brokers were using a hands off policy on the bonus too for the most part.  Nice post Jon.

On the other side of the coin, I often see listings where the sales commission side has been greatly reduced, and it's easy to figure that the listing agent is making a larger percentage than the selling agent or worse, the seller can't afford to pay more. In up markets or on highly desirable properties, this makes sense, but not in a buyer's market. As Gary said, higher compensation offerings increase traffic. It doesn't necessarily generate an offer. But it makes an offer more likely to happen.

Gary - I agree with you. This is a marketing issue, not the ethical one. I do not see that as unethical when I am trying to increase the traffic. We all know, that if the house is overpriced, no candies would solve it, no commission, no bonus, no staging.

And if this is unethical, staging should be declared unethical too, as it does not increase the value, it pulls the strings, attached to the heart, as someone said, which are attached to the purse (can't remember who said it).

By the same token having the smell of fresh bread and/or coffee should be unethical.

But we also know that a messy house turns people off. Should make no sense, as you are not buying their mess, but this is how it works in real life. I had a lady storming out of a very good deal just because she was disgusted by the mess in the condo unit.

Thanks for the comment.

Gary - This one above was my comment, I just did not sign up, and just noticed it.

Elizabeth - I hear you. We once got so mad with that, that on our next listing we made a note that we offer whatever commission except for that company, as their arrangement would be different, as we would reciprocate.

They went nuts, called us, threatened with everything, I even called the legal hot-line asking whether that was legal that they have not disclosed it to us, but yes, that was absolutely legal, and we took the note of the listing.

I did not have another time that I had to work with the property where they were listing agents, so there was not problem yet, but I started putting in the contract that provision that the commission is split 50/50. Legally they are not obligated to pay anything different from what they have in the MLS, but at least they would have to tell me that the arrangement is different.

And your comment about the bonus is absolutely correct.

Thank you for visiting. 

Jon - I don't have exact statistics, but imperially the effect of the incentives can be seen. Like Andrew said in NJ all compensation goes thorough the broker. That still means that if the seller offers higher split for the buyers' agent, it's an incentive. Good arguments. BTW - I read your comment on Katrina's post about NY -didn't live there but can definitely relate. Spacibo.

Faina - Thank you for the comment. Small world, and I am meeting another Russian on ActiveRain. Wow.

As for bonuses, though we eplain to the Seller how we would structure the commission, it is not them, who offers the bonus, it is us, the Listing agent. That's the reason I was saying in one of the comments that the reason between the Seller offering the Buyer money instead of the bonus to the agent, is that we are offering our money (the commission from the Seller), while the proponents of nice Sellers giving back the money to Buyers (which sounds really crazy in the market where the buyers force Sellers to sell and walk away naked) want to use the Seller's money.

Faina, let's do business together. It is a phenomenal market in Florida, and it is going to shoot over a million for anything on the ocean pretty soon because of the cost of the land. However you can buy now ofr pennies on the dollar. Tons of money to be made. Drop me a line, we split well.

I don't believe in BONUSES.  I don't think they have any effect on the sale.  I put my self in the shoes of a buyer's agent and I would not show one property (with a bonus) over another one that was better for my client.  If the client chooses the property that does not have a bonus, so be it. 

When working as a Buyer's agent, I DO appreciate seeing a decent coop commision on the selling side though.  It makes me suspicious when it's discounted and I think these houses with discounted selling side commisions DO sit longer on the market.

On the Listing side I've never done a bonus - but ALWAYS an attractive coop Commision.

If the bonus is used as a marketing tool to otherwise differentiate a very well priced, beautifully staged home, with a generous selling agent coop then you might have advised your client well.  I take exception to a bonus placed on a home that is clearly overpriced with no chance of selling at the current offering.  Then a bonus looks desperate and inappropriate and to me casts an even more negative view on our industry.   

If I were a buyer on a home that looked high to me but my buyer agent was telling me it's fine, that bonus would cause me to doubt their credibility and advice immediately, which is why they tend to get negotiated away a lot of the time.

Debbie - How more contradictory this could be?

You acknowledge that you appreciate decent commission , so you are noticing them, aren't you? This was the point, that agents do notice a better commission.

I never said that bonus would help you sell an inferior home. This is not the reality of life. The reality of life is that there are 300 or more similar properties, and you would never show all of them, it is not realistic. So, statistically you wold most probably show 22-23 before you get the offer. Now, if you notice decent commission, the bonus is nothing more than decent commission.

I did not say you sell, I only say the Buyer buys, all you do is taking them to see the properties. WITH ALL OTHER FACTORS EQUAL THE PROPERTY WITH A BONUS (DECENT COMMISSION) HAS A BETTER CHANCE TO BE SEEN.

I really don't think that you are arguaing with me on that. Are you?

Josette - you are the boss, you are advising your client. If it overpriced, you pass, so be it. I did not say otherwise. I never suggested that you use it to deceive the buyer.

What bothers me is that we refuse to look beyond cliches. Here's the example: "beautifully staged home". Sounds nice, but look into the reality. The bonus clearly states that if your buyer buys this property you  get extra cash. There is no deceipt.

As for staging, it is not so innocent. Staging does not create value. The home does not become better because of staging. All you do is that you pull the strings to the heart, which, as someone wisely said, are attached to the wallet. Same with the smell of fresh bread, and smell of ground coffee. Homes are staged to psychologically affect the buyers. Besides showing them what they can do with the house (this is exactly what staging gives you), it does not tell them that this home is any better that the one next door. And buyers can easily fall into the trap. But I guess this does not "cast an even more negative view on our industry".

So, it is not what you do, it is what your intent is, and how you do it. You can use a hammer to build a house, or to kill your mother-in-law. But the hammer, pardon, the bonus itself is not a culprit. Nor is the staging, however, there is a difference. The bonus is talking to you, a professional, and staging stabs your principal. They may not be prepared to fight the temptation of the looks.

Very well presented, Jon. 

As was said above, a bonus can drive more traffic to your listings and for the seller, that's a good thing.  Whether that traffic results in an offer will depend on price, condition, etc.  I don't personally a selling bonus on a regular basis, but I have.  I tend to spend more time front removing the barriers to a timely sale... then again we don't typically have 200+ competing homes in any price range. 

Jessee & Kathy - Thanks for stopping by. It was my reaction to a one sided approach to marketing tools. None of the tools is ethical or unethical in itself, it is how it is being employed. Bringing traffic to the property is not an unethical idea, but the execution could be unethical, and that's why I wrote it. Not that I do it too often, or ever had my clients buy a property with a bonus, as when I work for my client, I am like a hinter, and try to get the best property, and, yes, bonus could be an attempt to sell an overpriced property.

How are you doing there in the far North? I lived 13-14 years a hundred miles above the Arctic Circle back in Russia. Now, after 10 year in Florida this does not even sound real.

Keep warm

I'm a little confused, Jon, by your response to me, but that may be because Florida works in strange and mysterious ways. :)

In California, we wouldn't get away with that. First, it's the seller who decides how much to pay to the other broker through MLS. If we were to offer one company less than another, it could be argued that we are not representing the seller's best interests.

Also, if the commission is variable, meaning I will charge a different rate if I produce a buyer, in the Sacramento MLS, it must be noted. Some agents overlook this notation, but I don't, especially if it's a multiple offer situation. I want to know if I'm representing the buyer and the listing agent has an offer as well, exactly what I am competing against. However, because we are not parties to the contract (real estate agents and brokers), we are prohibited from discussing commission in the contract or addendum thereto.

I know it was confusing, because it was a response to your comment on Natalie Langford's post http://activerain.com/blogsview/300961/Thank-you-for-the.

Anyway, who's ways are more mysterious is a good question. I think the misunderstanding stems from the fact, that agents do not see that we are using part of our cut of the commission to offer as bonus.

In Florida, the listing agreement specifies the total commission, and does not specify how we split it with selling broker. We can negotiate a commission, but not obligated to offer a split 50/50. The fact that we always do offer 50/50 split is a different story.

Now, imagine that we negotiated a commission, offer the selling broker 50% of it, and then take 1/3 of our cut and offer it as a bonus to the selling agent.

We do tell the Seller about the arrangement, it is even a tool to get the listing sometimes, as they love the idea.

This is not a variable commission, as any company would be treated the same. Sometimes we would specify the time. Let's say we offer the bonus if the contract is signed and accepted by certain date. As any marketing tool, bonus gets stale. If it did not generate showings, you need to think of other ways of marketing the property.

Ah, I see. As a general way of doing business, most listings agents in California do not pay the bonus from their commission. It is paid by the seller. Our CAR listing agreements specifies how much is to be paid to the selling broker (either a percentage or flat fee). Some agents were slipping things into MLS like $500. Sellers don't necessarily read the entire listing agreement, so they tend to pay attention to the rate they are paying, not how it's divided. And they should. Because you can bet selling agents are looking at the commission they will get. If it's much less than everybody else, that listing might not get shown -- even though they are obligated to show it. 

I make separate decisions on each listing. I ask myself, do we need to split the commission to get this sold -- offer more than half to the selling agent -- or will it sell with less than half, and I advise my sellers accordingly. Also depends on how much marketing I have to do to move it.

Absolutely correct. We do not do bonuses indiscriminately, and we do have the understanding from the Seller.

What I love most is that you acknowledge plain and simple that if the commission to the Selling broker is lower than average or very low, this affects the chances of the property to be sold. In the real world commissions are noticed.