Special offer

Selling Agent/Broker Bonuses Versus Being Priced Correctly-Which Works Better?

By
Real Estate Agent with Market Advantage Real Estate

With the market having shifted from a seller's market to a buyer's market, I have been running across listings that offer selling agent/broker bonuses in greater and greater numbers. The bonuses range from an additional $1500 to an additional 3 percent. Upon seeing this bonus advertised on a listing, you would assume that the seller is very motivated and trying everything and anything to entice someone to buy their property.

So why are most of the properties I run across that are offering bonuses priced higher than their fair market value? If they were motivated to sell, then they would price their property very competitively, not higher than market value, right? And which approach works better?

I know of several listings that are between 15 and 20 percent overpriced and offering 1 to 3 percent selling broker bonuses. The bonus on one I just ran across potentially adds up to an additional $46K+. But the property has been on the market well above the average days on market for a property in that price category and location despite the huge bonus, a sure sign that the property is overpriced.

It seems as though the seller and listing agent think that Buyer's Agents have that much control over their buyers and that buyers aren't informed. Buyers in today's market have access to way too much information to not know that a home is overpriced and what the comps are. And the bonuses bring up a whole different discussion that has been a hot topic for consumers and industry professionals as of late and buyer's agents are treading lightly (sure you can guess what that is, but that's for a different post).

You may think I'm crazy for saying that selling broker bonuses are not a good idea because I'm a buyer's agent and would profit from them. But with 95% of the properties in my area that have bonuses being overpriced and 75% of the properties in general being overpriced, I know, and my clients know, that there are plenty of other properties of better value available to them.

Maybe some sellers and listing agents don't think that buyers are smart enough to figure out that the property is overpriced. But I truly believe that buyers will know (and smell) when their agent is pitching them an overpriced home because of a bonus. Not only will the buyer not purchase the property at that price, but they will fire their agent and find another one (if they trust agents at all after that).

Based on the local real estate market in Northern Virginia, if a property is not priced correctly, a selling agent bonus won't help. So stick with pricing it correctly and rather than offering a $5K bonus to the selling agent, just adjust the price $5K down - it will get you better results.

 

Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I think part of the reasoning behind the high co-op isn't to sell an overpriced house (at least that is what I have used this year) but to drive traffic to a well staged, priced right home that happens to be in the range where the majority of inventory is. 

I have done this many times this year and highly encourage it in the 300-400K range here.  I have had one appraisal come out $14K higher than purchase price. 

Jan 18, 2007 02:14 AM
Danilo Bogdanovic
Market Advantage Real Estate - Ashburn, VA
Real Estate Consultant - Loudoun and Fairfax County

Renee,

Thank you for the comment and yes, you're approach works well because it incorporates a fair market value asking price along with a bonus.

But the problem in my area (Northern Virginia) is that most of the ones offering bonuses do not follow that model. They are priced moderately to greatly over market value. Despite the bonus, they are all still on the market.

Jan 18, 2007 02:41 AM
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents
I have several thoughts about Agent Bonuses (good and bad). Based on my market conditions, they are not the ones with overpriced properties though. Even with a bonus, it needs to meet market appraisal. And yes, I agree with you, price it correctly. With the bonus, it might just push it for a quicker sale.
Jan 18, 2007 05:20 AM
Anonymous
Gloria Ruesch.

What a lot of listing agents don't see is that an Exclusive Buyer's Agent has already made a commitment to their buyer client that any bonuses offered will be given to the buyer in the form of a price reduction and the buyer knows that up front.  We don't decide to show houses based on commission splits or bonuses offered, but on what is best for our clients.  Our clients know what they will pay for our services before we start looking.  If there happens to be a house that is perfect for our client that is priced right that offers a bonus, we show it and our clients know before showing about the bonus and that it will go to the client, not the agent, if the house is purchased. 

 Listing agents make a big mistake in forgetting that they are professionals.  Professionals don't need to dangle carrots.  They just need to do their job correctly.  Price the house properly and you'll get more showings.  Frankly, bonuses are an insult to the profession

Feb 04, 2007 02:12 AM
#4
Danilo Bogdanovic
Market Advantage Real Estate - Ashburn, VA
Real Estate Consultant - Loudoun and Fairfax County

Gloria,

In a perfect world, that would be correct. But I know that many agents write "As listed in MLS or as per builder" on the compensation line of the Buyer's Agency Agreement so the bonuses go to the broker/agent. The listing agents and builders know this and that is why they offer bonuses. If all the agreements had caps, the practice of bonuses by agents and builders would not exist.

But it's not a perfect world.

Feb 07, 2007 02:13 PM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
I think that the offer of a bonus directly to the buyer's agent is a direct conflict of interest.  There are those buyer's agents that will pass along the bonus to the client, but not all do.  I think it is better for the seller to offer a direct incentive to the buyer -- such as something back for closing costs, discounting the price or perhaps paying points.  I think the offering of a bonus directly to the buyer's agent does not help improve the public's perception of real estate agents. 
Feb 10, 2007 10:34 AM
Dana Hollish Hill
Hollish Hill Group, JPAR Stellar Living - Bethesda, MD
REALTOR * Broker * Coach

The DC condo market has had a similar propblem. Many developers and listing agents were focusing on adding flat screen TVs and 2-year BMW leases as selling agent bonuses.  I work for an exclusive buyer's brokerage which gives all these bonuses over to our buyers and they simply did not want to amortize these bonuses over 30-years of a mortgage. What they really wanted was a decent sales price.

Apr 01, 2007 04:10 PM