One of the sales practices of homebuilders that has bothered me for years is the practice of paying additional commission to a buyer’s agent. It is bad enough that the commission is calculated based on how much the buyer pays. The worse deal an agent cuts for their client, the higher commission. Even for agents (in fact especially for agents) with a high degree of integrity, it’s a poor way to get paid. Worse still however is when an additional commission is paid by the seller, or as in this case, by the homebuilder. After all, if their homes were the best possible deal for their clients, an ethical agent should be steering their buyers that way anyway.
During the boom years, realtors complained that homebuilders treated them poorly. After all, people were lining up outside their sales offices, why pay an agent to bring someone in? When the market cooled however, builders started working to bring the agents back in. The incentives must work, the builders keep on using them. I wouldn’t mind the incentives if buyers were made aware of them. However, no sales office I’ve seen notifies potential customers that their agents are receiving additional compensation to bring them in.
Here are a few incentives from just the past week, courtesy of L’s morning spam. (Thanks L!)
First is this one from Richmond American:
The fine print at the bottom of the ad says up to 5% commission + $2500 (standard is 3%) plus that chance to win a trip to Hawaii. Toll Brothers is only offering 4%, but they have an advance commission program- always handy when you haven’t sold anything in awhile:
Here’s another offer from a private builder in the Phoenix area. They are also offering the 4% commission along with a possible advance on the commission (Sorry it’s only part of the ad- it was too large to display properly.)
Do you know what the agent that is representing you is getting paid? Too often they tell you, “And our services are free to you, because the seller pays our fee”. Right- like the seller doesn’t take what they are paying the agent into consideration when they calculate the selling price. You have a right to know what your agent is getting paid. Ask.
Bubble Meter
Northern Virginia Housing Bubble Fallout
Ohio Fraudclosure
Mish's Global Economic Analysis
UK House Bubble
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
Nice post. I would take it one step further and demand a written agreement with the realtor (just like every seller does with a listing agreement) that outlines the duties, scope of work, and compensation for the real estate agent/real estate office. If the buyer fixes the agents compensation from the very beginning, then there is no conflict of interest and the buyer will get a better deal (if the buyer hires the right real estate company as well).
Joe-
Great suggestion. I know of too many cases where the “buyer’s agent” is just working as an additional “seller’s agent”.
When the PHX house sales really started plummeting circa late 2006, some of the builders were offering even higher bonuses. The highest totals were 10-12%. Of course, many agents used the bonus as a “discount” to buy some more new houses for themselves. Undoubtedly, those speculative purchases have entered the REO inventory.
Russ-
I remember those. I think the highest I remember seeing was 13.5% for the last home in some development. They seem to be steadily rising again. HBs aren’t in the financial shape they were back in 2006 and I suspect their margins have thinned, so I don’t know if we’re liable to see those kinds of bonuses again or not.
You know the real estate market is about to crash when builders stop cooperating with real estate agents.