Question Details

Walstmnky, Home Buyer in 07093

Modified commission schedule for a buyer's agent. Need opinions of the professionals.

Asked by Walstmnky, 07093 Tue Jan 1, 2008

In a typical RE transaction agents on both side get paid as a % of the closing price. This structure has issues for the buyer: commission of the buyer's agent is not aligned with the interests of the buyer. A friend just bought a house in SFO area where we believe there was money left on the table (read: he overpaid for it).

How would buyer's agents out there perceive of the following commission schedule:

- buyer's agent still gets the 3%,
- plus he gets 10% of each "extra" percentage discount negotiated, where "extra" discount is beyond the typical sales / list ratio.

E.g., listed price is 100K, typical sales / list ratio is 94%. So for each percentage discount beyond 94K, buyer's agent gets 10% of that.

93K - 100 more,
92K - 200 more,
84K - 1000 more.

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Answers

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BEST ANSWER
I would love to know what 'Walstmnky' stand for and your background one day as I am quite interested in people (one of the main reasons why I like real estate) :-)

Yes, it's typical fore RE agents to post references on their websites or include the letters in their listing presentations - with approval by their clients - they had better be able to substantiate the recommendations.

I understand what you are trying to say about treating clients differently if the properties are significantly differ in value – I agree with you that if I list a $5M property, it will be treated differently than a $500K property.

However, the fundamental difference will be how to market the property to gain the exposure each requires – the market place and medium will be vastly different and the potential buyers will be luxury property buyers vs. first time home owners (this is in Marin property terms). The marketing material will also be different (such as you might want to have a movie made and ad posted on luxury property magazines/websites for a $5M property but it will totally not make sense to have a virtual tour made for a property that needs a lot of work and shows poorly); the house might be by appointment only and might not have many public open houses, etc. You get my point.

How I treat each seller will not be different just because the price points are different. I will also negotiate from the seller’s side the same way for both types of properties.

For $5M buyers vs. $500K buyers and how to negotiate; I guess I can’t think of anything that’s much different one from the other; other than, again, the potential differences in mentality of sellers. I might even show the $5M buyers fewer properties than the $500K buyers just because there will be less to choose from and possible more specific requirements; then again the opposite can also be true. On negotiation, for the same 10% I negotiated for my clients, one will receive $500K reduction and the other, $50K. I guess that should make up for the difference in commission.

Do I make $20K vs. $2K commission (hypothetical numbers proportional to $5M vs. $500K) mostly due to the physical effort/hours I spend on each property or due to the experience, knowledge, skills I have accumulated during the years I would like to think it’s the latter rather than the prior.

Am I motivated by money? Yes, I am, just like everybody else; if not, I won’t be working at all. But I am more motivated by doing the right thing because we all know, the rewards will come naturally (if you built it, they will come).

The results and satisfaction of my clients are extremely important for me – I believe in everything is possible. So, I am counting on my $500K owner to trade up to a $5M property in the future, and I had better be the one to list it.

It's kind of late, just got back from Tahoe, hope I am making sense.

Best,
Sylvia
5 votes Thank Flag Link Tue Jan 1, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
Hi Walstimnky:

First, I am sure some agents out there will take up on your offer, but you asked for our own opinion, and here is mine. It might sound like a stock answer, but this is what I truly believe in and what I practice –

Negotiating on the behalf of my clients is my fiduciary duty when I signed on and took the job to represent them.

I treat all my clients equal and I try to find the best property to fit their needs and negotiate on their behalf to get the best deal for them, that’s just what I do (and I am proud of my negotiations :-)).

I don't spend the time worrying about if I am going to get $X dollar extra incentive from one buyer vs the other, nor do I worry about if I am get X% of commission from one property or another.

Do you want an agent not to look into a certain property because the seller may not be anxious to sell and may not want to negotiate or do you want the agent to treat each property the same and find the best one for you? – A reality on pricing and negotiation – motivations of buyers and sellers.

I don’t have to decide if one client is more important to me than the other – Shall I treat a $1M buyer better than a $500K buyer? What do you want and how do you want your agent to treat you? That’s the kind of agent you want to look for not the one only motivated by $ signs. .

If my clients love what I do for them, I’d love to have them write a recommendation letter, refer me to their friends and families, and use me for their future transactions.

That’s the best bonus structure I can think of.

Happy New Year.
Sylvia
3 votes Thank Flag Link Tue Jan 1, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
Hi Walstmnsky - I too think that it is great that you are willing to reward a Buyer's Agent for good performance. I do think that the RE Pros are telling you the truth - a good agent is pretty much gonna try and get you the best deal anyway.
As a seller, I periodically offer a buyer broker "bonus" of 1% over the standard buyer broker commission. This is on a high end house so it a substantial amount. My agent told me that it really will not make a difference - the Buyer's Agent will show the house if it meets their client's needs. My agent was right.
I do think that the reverse is true - consumers who attempt to "squeeze" an agent on commission are penny wise and pound foolish.
2 votes Thank Flag Link Wed Jan 2, 2008
Interesting concept. . The question I have is, if you are representing the buyer and being paid by the seller why would the seller want to pay you more for selling his home for less? If the buyer was willing to pay that fee then it would make sense and that would have to be written in the Buyers agency agreement.
2 votes Thank Flag Link Tue Jan 1, 2008
Walstmnky...my response was to Brian and Cindis comment to Brian which had nothing to do with your question.

I think a bonus to buyers agent paid by the buyer is a nice thought. It is not too complicated to me. You are talking about giving your buyers agent an incentive to dig a little deeper for you. I do not think it is necessary if you hire a great agent; however, if it makes you feel like you are sharpening their skills then go for it.

For me personally, I dig in deep for my clients regardless of the commission waiting for me. For me personally, the satisfaction is knowing the I truly helped my clients and did right by them... the paycheck is reward. Quite honestly, my reasons for digging deep and negotiating hard are also selfish. When I get my clients a great deal and represent their interest... it shows in my statistics of sales price to list price for both buyers and sellers plus with sellers it shows in days on market. And I get to use those statistics to earn more clients. It strokes my ego because it cements that I am one of the best agents in the marketplace. My clients refer me and one of the things that I am told is said about me is that I fight for my clients interests.

I agree with Sylvia. I am not going to treat clients different because the paycheck will be less or more. Is there a difference between marketing a $5 million dollar home compared to a $500,000 home...you betcha. Can the needs of a $5 million dollar buyer be different than a $500,000 buyer...you betcha. Two $500,000 buyers can be different and have different needs. I am about catering to the different needs of my clients which makes the service each client receives a little different not because of money but because of the client.

I would say that many top producing agents are more motivated by ego than money. I have seen top agents take a listing for free just to keep a competitor from getting the listing so that it is their sign consumers are seeing... that is about ego. Some may call this stupid but the agent would disagree... he is in Arizona and he basically owns his market. When people think of real estate they think of him. His team closes 300 plus homes a year.

My point to you, Walstmnky. It is not all about the money!
1 vote Thank Flag Link Wed Jan 2, 2008
Sylvia:

[[If my clients love what I do for them, I’d love to have them write a recommendation letter, refer me to their friends and families, and use me for their future transactions.]]

Those are great ideas. Is it typical for RE agents to post references on their websites?

[[I don’t have to decide if one client is more important to me than the other – Shall I treat a $1M buyer better than a $500K buyer? What do you want and how do you want your agent to treat you? That’s the kind of agent you want to look for not the one only motivated by $ signs]]

In terms of treatment, of course one should treat all their clients in the same manner. However, business sense tells me that someone doing a 1MM transaction should get more of your time and effort than someone doing a .5MM transaction. It's basic business. You are getting paid 2x more for the first transaction, hence it should require twice the energy, effort, due diligence etc.

Wouldn't you want to get a 2x better car if you paid 2x more for it? And possibly a better service at the dealership during the sale, during maintenance visits, etc.
1 vote Thank Flag Link Tue Jan 1, 2008
Well said Cindi. And I would like to clarify on my earlier opinion/ answer. Commissions are negotiable... they are negotiated upfront in the listing agreements or buyer agreements when a buyer is actually responsible for paying the commission. As we all know buyers typically do not pay the commission... it is paid by the listing agent as part of their marketing plan. Technically the seller is paying the commission but in reality the listing agent is paying the commission because the listing agent will either get paid the full amount specified in the listing agreement to be paid by the seller or they will share a portion with a buyers agent should the buyers agent bring a buyer to their listing.

With that being said, why should the buyer get a portion on a persons paycheck that they are not paying? There are agents that earn the business through referrals from providing excellent customer service and represenation and there are agents that feel they need to "Buy" the business by offering a portion of their paycheck to "buy" clients probably because they have not provided excellent customer service or representation and are not getting referrals and repeat business.... bad representation and/ or bad customer service usually equates to poor negotiation skills so that "buyer rebate" one thinks is so great actually cost them thousands because they did not get the best deal on the home or some important details were missed. In my experience, agents that have a lot of business and receive referrals for buyers because of their excellent service and representation of their clients do not have to "buy" the business with buyer rebates.

It always amazes me how quick some people are to ask an agent to give up their paycheck. I wonder do they do this with their doctors, attorneys, CPA's, dentists, etc. I wonder how excited these people would be if someone ask them to give up a third or half of their paycheck.?
1 vote Thank Flag Link Tue Jan 1, 2008
Walstmnky... I think it is a great that you would want to reward your agent for being a great negotiator on your behalf. You are always entitled to bonus your agent via their broker should you feel they are worthy. If you hire a great agent they are going to do the research to ensure that you do not overpay for a property and negotiate to find the sellers bottom line.

Brian... I disagree with discount brokers doing more transactions than full service, full representation brokers because they discount. In Georgia, the discount brokers combined do not hold much market share... they do not hold enough market share to show up on our charts.

I do agree with you Brian that an agent choosing to offer a reduction in their commission to benefit their clients does not make them a poor agent. I am not one of those agents. There are poor agents charging a premium and there are poor agents discounting their commission rates. Commissions are negotiable.
Every agent should be entitled to charge what they want to charge for their services with permission from their broker.

The only problem that I have is with agents that reduce their commission and deliver poor service and representation because they reduced. Should the client be cheated because they chose to accept a cut in pay?
1 vote Thank Flag Link Tue Jan 1, 2008
I like your thinking here -- but, I also agree that the math is a bit too complex. I think the best solution is always to make sure you hire a talented (servant hearted) Realtor/agent. Great agents negotiate better deals for their clients all the time. In fact, I'd say that it's a big part of what "great agent" means to most people. As another agent has already commented below, it's our fiduciary responsibility to do the best possible job for the client -- putting their needs ahead of our own. Getting referrals from other satisfied clients is the best way for you to find the right Realtor. Find out who is doing a great job in your market and then trust them to help you make a sweet deal!
1 vote Thank Flag Link Tue Jan 1, 2008
Perhaps it's the fact that I might still have some residual NYE champagne swirling around in me, but this example makes my head spin.

Maybe I'm a simpleton, but WAY too complicated for my blood.

Honestly? If it takes this much thought and analysis for a buyer's agent to do for her buyer what she should do as part of her fiduciary duty and obligation to her client, the client should be looking elsewhere.
1 vote Thank Flag Link Tue Jan 1, 2008
Linette, how am I selling eperks? I can see why a full price agent would not want me to inform Walstmny of such a site for it may reduce your book of business.

I am not trying to step on anyones toes, I heard of something interesting and I thought I inform a HOME BUYER not real estate agent of it.

I do not have any type of documented evidence supporting my statement that eperks (discount) agents close more transactions. It was only an assumption, my apologies if it came off as fact.

Walstmnky you can still offer your bonuses and incentives but it would be at a reduced cost given you are already offered other incentives. Personally I think it would be foolish not to look into something like that.

Not saying all agents are the same but a $300k fee to sell a $5M is a bit much.
0 votes Thank Flag Link Wed Jan 2, 2008
Lorie, Cindi:

>> With that being said, why should the buyer get a
>> portion on a persons paycheck that they are not paying?

Where did you get that idea from? The idea I am proposing is the opposite of "discount brokerage rebates". The buyer's agent gets paid a bonus for negotiating a deal that is extra well-priced (read: low) from the buyer's point of view.

As for Brian, I'd recommend he take a basic reading comprehension course.
0 votes Thank Flag Link Tue Jan 1, 2008
Several thoughts:

>Brian - I would love to see backup research to prove that discounts agents close more deals than full service.agents. I cannot back it up - but I rescue a lot of buyers/sellers from discount agents....my guess, from experience, is that it is the other way around!

>While I find theidea of a bonus structure interesting, the bottom line is that there are poor agents, good agents, really good agents, and GREAT agents. When choosing a buyers agent, ask them for specific negotiation examples.

And one hint....if they are quick to give you THEIR money in the form of discounts....what are they going to do with YOUR money when it comes time to negotiate with the seller?

You get what you pay for. Good luck! It's a great time to buy!
Web Reference: http://www.cindihagley.com
0 votes Thank Flag Link Tue Jan 1, 2008
The Hagley G…, Real Estate Pro in Pleasanton, CA
MVP'08
Contact
Walstmnsky, When you hire a realtor you are hiring their Broker. You can't pay a realtor a side bonus.
If they accepted it on the side they would be stealing.
Brian, You are selling Eperks.com. Part of the rules of this site are that you are not allowed to solicit. I am sure this was an oversite on your part.
0 votes Thank Flag Link Tue Jan 1, 2008
Ok, I appreciate the responses received so far. The overwhelming advice has been that the structure is too complicated.

To put it in simple terms, the buyer pays his buyer's agent an additional bonus (let's not commission) if the agent negotiates a price lower than a certain threshold. The lower the price, the higher the bonus. That's all.
0 votes Thank Flag Link Tue Jan 1, 2008
I agree with the rest. That structure is way too complicated. If you're looking for a break on your commision payouts then you may want to look into eperks. All their agents offer a reduction on their commision fees. Some even offer other "perks". Some people have compared it to redfin but my understanding is that the agents on eperks actually do real estate work rather then just write an offer like redfin.

Some full price agents on this site claim discount agents are of poor quality, however I tend to disagree since I'm sure they close more deals as a result of their discount offerings.
Web Reference: http://www.eperks.com
0 votes Thank Flag Link Tue Jan 1, 2008
First of all, thank you for all the answers.

>> First of all discussing commissions is not allowed by most real estate boards so I doubt you'll get a lot of discussion here.

I beg to differ. There are some threads on trulia that discuss commissions.

>> Additionally, it would give an economic incentive to search out the most overpriced listings and negotiate down from there.

That assumes a naive buyer. Buyer will only move to make an offer if he feels the price is about right. After the 20 overpriced properties are rejected by the buyer as not even worthwhile to visit, the buyer's agent will learn not to bring overpriced properties.

>> There would be little or no discount on a very well priced, perhaps underpriced, "hot" property.

Great. Then if the buyer and the agent agree this is a good deal, there won't be any bonus, but the agent will get 3% of nearly all of the listed price.

Of course it is more work for the buyer's agent, but also potentially more reward.

>> the Buyer's Agent would have to do more work to secure this desirable property, for less commission.

How is that more work and less commission? There is no way that the buyer's agent gets less money. There is only the possibility of getting more money.

Once again, the extra bonus is paid for by the buyer, as service to the buyer's agent.
0 votes Thank Flag Link Tue Jan 1, 2008
That structure would be too complicated for me.
Additionally, it would give an economic incentive to search out the most overpriced listings and negotiate down from there. Think this through. There would be little or no discount on a very well priced, perhaps underpriced, "hot" property. There may be a very substantial discount on a stale, grossly overpriced property. If there is a lot of interest in the first property, and I see some of these even in today's market, then the Buyer's Agent would have to do more work to secure this desirable property, for less commission.
So this commission structure would not work for me.
0 votes Thank Flag Link Tue Jan 1, 2008
Hi Walstmnky. While I understand what you are trying to say, I am not clear on who you suggest will pay the additional compensation. Since the buyer's agent commission is typically paid for by the seller and the seller would certainly not pay more to the buyer's agent for negotiating a lower price for himself, the extra 10% that you propose, would have to be paid by the buyer. Is that what you had in mind?

I personally believe that a buyer should not have to pay a "bonus" when an agent negotiates a lower than typical purchase price. It is the buyer's agent to do what's in the best interest of the buyer and get the lowest price possible without an additional incentive. If you believe your agent will not use all negotiation skills without receiving more than the commission offered by the seller, look for a new agent. I personally would not enter into such an agreement with a buyer.
Web Reference: http://www.theMLShub.com
0 votes Thank Flag Link Tue Jan 1, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
Contact
Ok, sorry for the confusion.

The bonus will be paid by the buyer, this bonus will be agreed upon in a buyer's aggreement, and it will be paid to the buyer's agent directly, as a free for services performed. As a matter of fact, the buyer's agent will take the money directly into their own pocket - no need to give the broker a cut.
0 votes Thank Flag Link Tue Jan 1, 2008
First of all discussing commissions is not allowed by most real estate boards so I doubt you'll get a lot of discussion here. Commissions are structured between the home seller and the broker/agent. Whatever they agree to is what it is, barring anything illegal like offering a commission to an unlicensed person. Additionally we are subject to antitrust laws just as any other profession so if the appraiser felt that the property was worth the price paid and the lender supplied a loan there isn't much argument.
0 votes Thank Flag Link Tue Jan 1, 2008
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