In this market of excess inventory and slow moving listings, it is not uncommon for brokers to offer a higher than usual cooperating commission to entice other agents to come and show their listings. While I certain appreciate the lure of the higher commissions, I can't help but think... who does this really benefit?
Here in Miami, as I believe the entire world must know by now, we are staring down on the delivery of about 20,000 new condos coming into an already saturated real estate market. Back a few years ago, in the height of the pre-construction speculation fever, many of these same condo buildings enticed brokers with high commissions. Unlike today, the inventory was short and many of the resale listings came at a discounted commission so broker's flocked to new construction and the big payout.
Not only would some brokers boycott projects which offered a typical commission, but they had websites showcasing only those buildings that offered the higher commissions. Now, I am all about making a living in this business, but it seems to me that maybe some of the better broker instincts, like which was actually the best building, got thrown by the wayside in a rush for the bigger bucks.
Now let me clarify, many of the agents that made money in pre-construction sales are no longer in the business. Many of them had a license and saw an opportunity - it was never really a career with many having full time jobs outside of real estate. Seeing that you could make a commission just by sending a buyer over to the sales center, there was no need to quit the day job.
With so many options, how much did the commission come into play in the buying decision? Did real estate agents actually steer buyers into an inferior purchase decision just to make an extra commission point or two?
Last week I attended the first big real estate auction of 20 developer held units of one of the first condo buildings to deliver in Miami. Eight of the units were sold in an absolute auction at prices considerably less than the units originally sold for 3 years ago. This was one of those buildings where the prices were always too high for the location and building amenities, selling at the same price as better buildings in better locations. One of the differences was the higher than usual cooperating commissions.
This may be mere coincidence, but it is certainly a correlation I will be watching as the rest of the buildings come on line.