Real Estate Commissions Agent Bonus and Unethical Realtors

by Bill Gassett on April 12, 2010 · 19 comments

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Real Estate Commissions Agent Bonus and Unethical Realtors

Massachusetts Real Estate Commissions

Many many years ago when I got into the Real Estate business every Realtor represented the seller. Consumers did not have the luxury of having a Real Estate agent in their corner to represent their best interests.

Consumer law in Massachusetts however, changed in the 1990′s. Buyers are now afforded the opportunity to have a buyers agent represent them in the purchase of a home or other property.

Frankly, the opportunity for both a buyer and seller to have representationĀ  makes far more sense. It is a level playing field where both parties should be getting good solid advice. Does this always happen? You would love to think so but in the real world this is not always the case.

Like many industries there is a word that gets in the way of people doing the right thing. It is called GREED!

Real Estate is a commission based business and when a Realtor makes a sale this is how they get compensated. Talking about Real Estate commissions is always a highly debated topic. It brings a lot of passion from both those inside as well as outside the industry.

Back when every Realtor represented the seller there were far fewer consequences regarding commissions and agency relationships.

How you wonder? In Massachusetts and I assume most other states an offer of compensation is made from one Real Estate brokerage to another when a home is added to the Multiple Listing Service (MLS). The offer of compensation is some percentage of the total commission offered by the seller to get their property sold. The MLS lets every Real Estate agent know when a property has been put up for sale. The MLS system that is the back bone of how Real Estate sales work across the country.

The problem that arises with Real Estate commissions and buyers agency is the amount of compensation that is offered. Real Estate commission are negotiable and as such the compensation offered a buyers agent is not always the same.

In any city or town it is quite possible that the majority of homes could have a compensation offered at X and a far smaller percentage of homes that are offering Y. To be clear on this Y is a smaller amount than X.

Here is where the problem comes in. If you are an advocate for a buyer, the commission that is offered should have no bearing what so ever in regards to whether the agent shows you a home or the advice they give you surrounding that particular property!

Unethical Massachusetts buyers agents

A buyers agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability.

The agent must put the buyers interests before their own and negotiate the best price and terms for their client.

Have you ever wondered why the agent you were working with did not mention taking a look at a specific home even though it matched the description perfectly of what you were looking for? Have you ever felt like you were being talked out of a property without good cause and were not sure why?

More than likely you have met one of the bad eggs in our industry. This type of agent probably does not do much business and every last dollar is important to them. Obviously thisĀ  type of Realtor is not ethical and certainly not someone you want in your corner.

A good buyers agent will not give advice based on how much money they are going to make!

The other sales tool that tends to rear it’s ugly head when the market is weak and it just as bad is an agent bonus. Agent bonuses can be given for a number of things but the ones you see most often in the MLS read like this:

  • $1000 agent bonus is under agreement by “X” date.
  • $1000 agent bonus if full price offer.

Sometimes the bonus is just there if you sell the home with no other stipulations. Any Realtor that is influenced by this is just selling their sole to the devil.

Hmmm if I get the seller (who I do not represent) the terms they want from my buyers (who I do represent) I get a nice bonus. This works well if you have no integrity!!

 

Going back to the days before buyers agency existed there was no issue with getting a bonus to sell a particular home because every Realtor represented the seller. As a seller giving those extra dollars made sense. Today it does not unless you are specifically targeting the crud of the industry.

The sad thing isĀ  buyers will never know if there is an agent bonus unless your Realtor tells you. Almost always the agent bonus is put in a field within the MLS that consumers do not see. In my opinion it should be mandatory for a buyer to know if there is a bonus. No such rule exists however.

Let me make one thing clear about commissions and what is offered as compensation when selling a home. There are times when the commission being offered could be far lower than what would be considered reasonable. Every buyers agent who establishes a buyers agency relationship with a client should have a conversation right up front about their commission policy.

If an agent has certain compensation parameters that they feel need to met they should be explained to you when you hire them. This discussion avoids the problems outlined above and allows the Realtor to be paid fairly. If a client knows going in that the Realtor is going to make X percentage of the sale price and they would have to make up the difference if the seller is only offering Y, everyone is on a level playing field right from the get go. This should also head off any potential for shenanigans going on behind your back.

It always makes sense to check on a Realtors credentials and track record before committing to use their services.

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About the author: The above Real Estate information on Real Estate commissions, agent bonuses and unethical Realtors was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Upton, Mendon, Hopedale, Medway, Franklin, Framingham, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.

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{ 19 comments… read them below or add one }

Margaret Woda April 12, 2010 at 12:36 pm

Bill – You’ve really nailed it with this post. Excellent explanation and analysis of REALTOR Commissions. I would recommend that a seller offer a bonus to buyers in the form of closing help, pre-paid condo fees, or even a local gym or pool membership . This is a better way to entice buyers since they could assume (incorrectly) that any agent bonus is a factor in selecting which homes to show them.

Richard Vetstein April 12, 2010 at 1:08 pm

Excellent article Bill. Most consumers don’t know about those hidden commission bonuses.

Richard D. Vetstein, Esq.
The Massachusetts Real Estate Law Blog

Bill Gassett April 12, 2010 at 7:17 pm

Margaret – Thanks for the compliments on the article. I agree with you completely. If the seller wants to provide a perk it should be going to the buyer and not the Realtor!

Richard – You are right most buyers have no idea about a Real Estate selling bonus. It sure makes sense that they should be informed.

Ray Roman June 13, 2010 at 7:00 pm

Bill,

Have been reading your blog for the last month or so and found this particular article interesting. It’s really sad that a buyer’s agent will compromise fiduciary responsibility and integrity to steer a buyer into a home based solely on the commission or bonus they will make.

It’s good to see an article such as this so that the consumer is a bit more aware of what goes on.

Regards

John Crowe June 13, 2010 at 7:31 pm

Good article. I am continually troubled with on the buyer side – negotiating price. Ethical agents do their best to get the buyer in for the lowest price possible. Yet, agents make more money the higher the price. Wish an easy solution for this existed.

One point related to your article – a buyer will find out about a bonus as it appears on the HUD. Always nice to surprise a client at the closing table, eh?

Bill Gassett June 13, 2010 at 7:46 pm

John – you are right about the buyer finding out about the bonus once they see the HUD if they happen to notice it. Some buyers only pay attention to their side of the ledger and may not look at the sellers costs. It should be mandatory that the buyer knows a bonus was paid.

Ray – I agree with you 100%. This kind of behavior will catch up to you real fast though. Most people start to catch on and when they do the agent can be dragged under the bus where they belong. I think consumer awareness is very important in the Real Estate industry. If something smells fishy it usually is!

Paul Slaybaugh August 8, 2010 at 9:11 pm

What can I say, Bill? Suffice it to say that you and I are in lockstep on this one. I suppose I should simply thank the listing agent for the offer of a bonus on a property that suits my buyer as it ultimately represents a lower price or closing cost concession that I will negotiate on their behalf. How can you fight for the best terms if a little chunk of change that could come out of the bottom line are directed to the agent’s pocket instead? I’ve taken a fair amount of heat on my post over this (one clown just mockingly referred to me as Ghandi for the audacity of verbalizing an ethical objection to a business practice), but it just doesn’t wash with me.

Bill Gassett August 8, 2010 at 9:25 pm

Paul we are definitely on the same page regarding agent bonuses and all the problems they create. I think it should be mandatory that a bonus is disclosed to any buyer looking at a property. That would certainly weed out the gamers and those that base decisions in a Real Estate transaction for their own merits and not their clients.

Russell Lewis January 9, 2011 at 10:00 pm

Hi Bill,

Just saw this on Twitter. Well written narrative on agent bonuses and those who are not transparent. BTW I like your wordpress site and am about to launch one of my own as my new outside blog separate from AR. Nice job!

Bill Gassett January 10, 2011 at 12:52 am

Thanks Russell. Agent bonuses are a waste of money for sellers unless you are catering to a few Realtors who don’t have much ethics. Good luck with your new Real Estate blog!

Marilyn Messenger February 3, 2011 at 6:33 pm

Another great post; thanks Bill!

I always thought that bonuses are supposed to be disclosed; I disclose any and all forms of compensation to my clients. I agree with you that buyer agents should discuss compensation with their clients when the relationship is established. That is one of the reasons a written contract is so important, it gets all of those issues out on the table. The problem is that so many agents still do not use written agreements or have minimum compensation requirements, they just check of buyer agent on the disclosure form and take whatever the listing agent offers. It is unfortunate that so many agents are so afraid of losing a buyer if ask for a contract or if they discuss compensation. Fear and and greed leads to bad behavor in any industry.

Bill Gassett February 4, 2011 at 4:58 pm

Thanks Marilyn! There is nothing worse than a Real Estate agent who puts their interests before their clients. As we both know there are agents that just care about the almighty dollar and nothing else. This is the perfect example of why consumers should work with an agent that doesn’t NEED to make a sale. Agents that produce think differently than agents who are looking where their next check is coming from.

Mark Brian February 4, 2011 at 9:30 pm

I will always disclose the existence/terms/etc of a bonus to my clients. I understand that greed can motivate some or else the use of a bonus would be not be so popular.

Mary Pope-Handy September 29, 2012 at 4:36 pm

Bill, great post. I’d like to add one more element from the opposite side: listing agents whose offer of compensation is $1. The whole idea of the MLS, as you explained, is broker to broker compensation. One dollar won’t pay the gas to get to the house. The real reason these listing agents put in an ultra low number is not to bring other brokers in at all…but to have buyers come to them directly so they can “double end the deal”. It’s a tricky thing to set out what is OK on the MLS in terms of compensation, but clearly $1 is lip service to the concept only. (I see it here in Silicon Valley once or twice a year.)

Bill Gassett September 29, 2012 at 4:43 pm

Mary that is interesting. Fortunately here in Massachusetts I have never seen that type of compensation offered. I see exactly what you mean and it is a very poor way of doing business. Double ending deals is far less common here since buyer’s agency was instituted.

Dietmar Stapelfeld January 22, 2013 at 7:44 pm

Bill, this is a great post – and it raises very relevant issues! But, at the risk of being very unpopular in the Realtor community, I am going to offer a slightly different perspective as to what the originating problem is:

“The real problem arrises from the fact the listing brokers offer compensations to buyer’s agents!”

While common the Real Estate World, it is just about unheard of elsewhere in the professional arena.
IF each agent only charged for their half of a transaction, so that sellers and buyers would compensate their Realtors independently it would accomplish a lot:

1. All issues discussed in your article are addressed and solved.
2. Sellers would feel that commissions are “reasonable” – since they are now 1/2X
3. Buyers would finally understand that they are actually paying for a service as much as the seller, since they are bringing money to the table. Therefore they would negotiate fees – and their agents would be held more accountable. Having a contract might prompt even buyers to be a bit more definitive and decisive in their expectations and decisions; since time would likely be tied to the compensation, just as in other professions (one visit versus 10 visits). Furthermore, it might weed out a portion of agents that are selling today without being able to sell themselves?
4. It would eliminate the industry’s “commission dilemma”, which (in my opinion) unfortunately DOES exist, since the “HUD” clearly states commission rates and distributions in every transactions. So, de-facto the rate for every broker is published every day with every transaction (the government made a very poor decision in regulating this matter)!

So, just as a side note:
1. The current commission arrangement dilemma is one of my pet peeves – and I wish I knew how to change it.
2. I always make buyers and sellers aware of the commission distribution and the fact that De-facto they are paying 1/2 of the deal.

Bill Gassett January 22, 2013 at 7:51 pm

Awesome thoughts Dietmar! I have often thought the same thing. Real Estate unfortunately is one of those old fashioned businesses where change can be hard. Your points are very valid ones.

John February 2, 2013 at 7:35 pm

I have always catagorized real estate agents with car salesman, politicians, and criminal defense lawyers.

Bill Gassett February 3, 2013 at 12:44 am

John there are certainly some in the real estate industry that I would agree with you give our industry a bad rap.

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