Do You Love Real Estate But Hate The Tools?

By
Real Estate Broker/Owner with Daytona Condo Realty, 386-405-4408

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….

Tool - jon zolsky blogIt 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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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Melina - interesting. I did not even think about the issue of the Buyer knowing the compensation or not.

I think that in a strict term where the Buyer has a signed agreement with the agent, where they hire the agent, it sure has to be disclosed.

In situations like we normally are, where we work with the Buyer, but we do not have any written agreement, and we are compensated by the Seller, I am not sure. They buyer is not paying a penny, so are they entitled to know that? At least so far every time when the Buyer tells me that they want me to give them some of my commission just because they think that I am getting too much, I always say no and never negotiate that. If they do not pay me, they have no right to tell me that I owe them.

I can and I have helped buyers financially so that they could close, but I do not condone when they are trying to squeeze a penny from me just because they think that I would not risk the deal.

I did not start a series of long comments to Paul, because i am looking at it froma bit different angle.

Together they better represent the overall picture. It is simply bigger that just struggling buyers.

Aug 11, 2010 02:56 PM #8
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Mike - uneven splits caused (I read it on AR) some brokers demand that the HUD is printed separately for the Buyer and for the Seller. This way the selling agent does not see what the listing agent's compensation was.

I think that this bonus thing on highest end properties could be the way of real estate of the future, where agents fro different brokerages get together to tackle the deal. Take the property and run a campaign and get the buyer. 

Aug 11, 2010 03:01 PM #9
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
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Bill - you are right about the contracted Buyer's agent (broker). My example is sale old way, when I bring the buyer, but do not have any contract with the buyer. Not because I want to leave myself open to bonuses, but because I would have difficult time here in our market to have buyers to sign anything

Aug 11, 2010 03:04 PM #10
Rainmaker
248,297
Matt Grohe
RE/MAX Concepts - Des Moines, IA
Serving the metro since 2003

Jon: I haven't read Paul's post. Don't know how things work in AZ or Florida but we have to disclose a bonus in writing to the buyer. I always braoch the subject of a bonus with a buyer by saying jokingly "Yeah and if you by this then I get XXX!" If they buy it great, but they do so only because they want it.

Aug 11, 2010 04:44 PM #11
Rainmaker
260,149
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

But Jon the buyer does pay it.  The seller figures out comepnsation as part of their net costs.  As such their wilingness to negotiate down is dependent on what commission they pay.  The buyer does not get services for free. They just amortize their portion over 30 years as the seller requires an increased price for the home to meet their net. If I am going to stand there and tell someone that I am representing them...that I have a fiduciary duty to them and call them a client, then absolutely yes, they are entitled to know how I am paid and what I am paid.  Just like they would with any other service provider.

I know in Fl you guys have transaction brokerage so that is a different ballgame. There are no fiduciary duties in that case...from what I understand.  West coast states don't have that, with the exception of Colorado, so all our clients are fiduciaries.  I'm strictly talking about when we are acting in a legal agency relationship as a buyer agent.

Aug 11, 2010 04:57 PM #12
Rainer
147,952
Don Spera
CR Property Group, LLC - East York, PA
Serving York and Adams County, PA

The Seller pays the commission.  There is no rule that we have to tell a Buyer how we get paid.  The bottom line is the bottom line, whether the Seller pays some of the Buyers closing costs, Bonus's or repairs, it is still out of the Seller's pocket.  Unless the Buyer pays you a Buyer Agency fee over and above what we get paid through the Seller indirectly, then it has to be disclosed.  Other than that, it is none of their business.  So Melina, I beg to differ.

Aug 12, 2010 01:06 AM #13
Rainmaker
565,760
Mike Saunders
Lanier Partners - Athens, GA

Don - at closing, on the HUD the commission paid is required under RESPA. I do believe that bonuses are treated as commission on the HUD. So it appears that it is the buyers business. Or at least the law has degtermined that it is. And what do you mean that the seller pays indirectly?

Aug 12, 2010 01:59 AM #14
Rainmaker
260,149
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

Don,

Laws are meant to be minimum requirements.  Laws never create the highest standard.  As such the fact that there is no rule that we tell a buyer what we get paid is irrelevant to me.  I don't need the government to spell out each and every behavior for me in order to act with a good moral and ethical compass.  Really, you want a rule to disclose a bonus to your client?  Do we really want to government to tell us how to act in each and every situation?  It's okay that you disagree with me, but I ask that you survey your buyer clients and ASK them if they feel whether or not they have a right to know if you are making any type of bonus for a specific property.  I think most will say they would like to know.

Seller's get to know exactly what they are paying the agent, why not buyers?  The fact that we don't share this information about the source and amount of our compensation is old school thinking and is a relic of subagency.  In cases where agents are acting strictly as a buyer agent with fiduciary duties to a buyer, you and I will have to disagree that it is none of their business.

Aug 12, 2010 05:34 AM #15
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Paul - with the comments on your blog, I went through, I would say, 1/3, and I could have missed some comments.

For quite some time I am thinking about those very expensive exclusive propeties that sit on the market for, usually, 2 years.

I thought that could be the new way of doing business, where the listing agents takes what he negotiated for himslef, and then the bonus part is for him to assemble the team of great people to bring the right buyer.

This team can be form different offices and different states. I thought tis format could be perfect for that.

Aug 12, 2010 12:37 PM #16
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Jane - It happend to me more  than once, so I know the feeling. It is OK. And good luck with the  first $11 Mil deal. And when you have one, write about it before retiring   ; -)

Aug 12, 2010 12:40 PM #17
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Matt - absolutely clear position. They buy it if they want it. But in what capacity are you working with the Buyer?

As Melina noted, we are acting as transaction brokers

Aug 12, 2010 12:42 PM #18
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
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Hugh - isn't it funny? Everybody is money-blind, but properties with higher split are shown on average more often.

I would not be surprised to know that properties with bonuses also get shown more often

Aug 12, 2010 12:44 PM #19
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Melina - this is what happens when you assume that everyone is operating the same way. You are absolutely correct in that if you are hired by the buyer, then yes, it has to be disclosed in advance.

The Buyer even here with the transaction model will see it on the HUD, but technically, as long as it comes from the Seller, it is simply a matter of curiosity.

I understand that Buyer pays for everything, but in my situation the buyer agrees to the price. Even if for some reason my arrangement with the Seller is that he pays me, let's say 25 apples in stead of 3, it is not a reason for them to come back and say they want to renegotiate the price.

The price does not depend on the arrangement between the Seller and others. At least I think it shouldn't

Aug 12, 2010 12:51 PM #20
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Jon Zolsky, Daytona Beach, FL
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Don - as often the case, I started it with more confidence than I have now. Not that I am changing my mind, it is simply only one scenarion of many.

Pure Buyer Brolers, that have an agreement, have spell out their compensation. If the bonus comes to play, and they did not discuss it prior and it is not part of the BBA, then they, I guess, have to address it later, but in that case the buyer is the payee, and they have to know what other compensation you are getting and agree to the arrangement.

I am just a transaction broker, and I do not have any BBA, and I am, as long before, being compensated by the Seller's broker, not even the Seller. The Seller has an agreement with the Borker, and the seller compensates the Listing Broker, and s/he in turn compensates cooperating broker.

And yes, bonus is shown on the HUD.

Total Commission
Listing Broker Commission
Cooperating Broker Commission
Bonus to Cooperating Broker

Aug 12, 2010 01:01 PM #21
Rainmaker
298,447
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

Hello there, sorry for all delay that I took to get into your blogs, but I was kind of busy with many things around, I really apologize, I usually write back when someone reads and gets into my blogs that's reciprocal.

On regards your blog, I believe that is a great tool the bonus that can be used on many good ways always respecting buyer and seller side depending wich one you are repesenting and if everything is on the HUD no problems at all for any party.

Take care :)

 

Aug 12, 2010 04:29 PM #22
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Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

I just barely read Paul's post although I LOVE Paul's writing... I did NOT get sucked into reading the comments.  I am aware Paul's spawned at least one other post...  I went back and glanced at that featured post and it's comments when I saw a discussion of that post on Facebook.  Karen F in California?

I am NOT that aware of bonuses in my market right now... I am not sure if agent bonuses are a good thing or a bad thing, in my market or any other market.   I guess I got an email about a $5000 bonus this morning, new builds.  

I think a bonus that benefits the buyer is better in most cases. A more direct tool IMHO than luring in agents.  I think ESPECIALLY now you have to use the tool on the consumer, not the agent in my market.

In Ohio bonuses have to to be disclosed... I think?  There may be some fine line on new construction... I avoid Paul's post and Karen's post because I think the conversations are good but flawed in that we do not all have the same agency laws. 

A couple of years ago, locally  the bonus currency was OSU tickets, (OSU MI game tickets)  but I think the tickets were offered to the buyer.  I don't know if we saw that the last couple of years.

Aug 13, 2010 04:09 AM #23
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Thank you, Ray. Being busy is good and i wish you stay that way.

Aug 13, 2010 03:32 PM #24
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Mike - maybe Don means that Seller pays the Listing broker?

Aug 13, 2010 03:33 PM #25
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Maureen - you are right in that we are hard hitting the bells on our moral Bell towers, but our parishes are too different.

I simply think that as a tool it can generate the activity that in normal market is not existent. And in that sense it would be different from just extra pay for standard performance.

I touched it in comment 16

Aug 13, 2010 03:39 PM #26
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Hi Jon..thanks for the note on my blog. Seems this topic is hot. I'm so surprised at the hostility to making our commission. I work hard and appreciate the extra "thanks" in terms of bonuses. And it does not affect how I represent my buyers....I am an ethical person. I've even had one buyer joke that they were glad I got a "bonus" from the bank because it had been such a mess and I had worked so hard. :) cute.

Aug 14, 2010 04:09 AM #27
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