Buyer Beware – Protect Yourself!
[photopress:ca.jpg,thumb,alignright]Every day I get flyers from agents in my email hawking their wares. Seriously, if you could see what these say you would know what questions to ask when hiring a buyer’s agent, and trust me, they ain’t the questions agents TELL you to ask! 
Anyway, here’s what prompted this post today. Yesterday I got a cool email saying “Ask the friendly and helpful listing agent”. I thought cool, they are not trying to fight the whole Redfin thing. But then I realized they aren’t talking to buyers at all. They are talking to the agent, as if the buyer’s agent is supposed to be the seller’s agent’s good buddy. And sometimes they are, don’t get me wrong. But I still would have given this guy the benefit of the doubt and be happy about his “helpful listing agent” until TODAY when I got THIS in my email from the SAME agent about the SAME house!
*** $1000 ***
Buyers Agent Bonus
For full price offer
Yeah, he’s going to help the buyer’s agent right into a FULL PRICE OFFER for his seller client, and pay the buyer agent $1,000 to have done so!
1) Agents – please get how BAD it is to suggest an agent should sell his soul and his client’s best interest for $1,000 bucks!!!
2) Buyers – PLEASE, PLEASE ask your agent what he is going to do with any bonus offerings up front, to remove the carrots from the sticks!!!
No, I’m NEVER going to stop talking about this. I get a ton of emails every day like this. But this one took the cake!
Get that bonus issue OFF THE TABLE before you go look at property with an agent. You don’t want him twisting your arm to make a full price offer, so he can get his $1,000 prize for offering you up for the slaughter like the sacrificial lamb!
About the Author: Ardell DellaLoggia
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Hi ARDELL,
This always makes me think that the agents that do this kind of bonus, appeal to SALESMEN!
Not a Buyer’s “Consultant” or a good, ethical RE agent; someone who counsels Buyers on the pros and cons of homes, how well the home fits into the Buyer’s overall financial and other needs, offer strategy on the property Buyer’s are interested in and so on.
A SALESMAN, is all about making the sale, not about what is in the Buyer’s best interests as it should be for a Buyer’s “Consultant”.
No doubt there are SALESMEN in real estate just as there are in mortgage.
you need look no further than NBC Evening News, CBS, ABC, CNN, etc where wannabe anchors like what’s his bucket at NBC and katie couric act like they’re educated, but really are nothing more than gossip mongers and the top news stories are about paris hilton and nicole ritichie… where “international news” is nothing more than a skewed update on Iraq as if nothing worth reporting has happened in any other single country (thank god for BBC news on directv)…
western civilization (and especially those who believe sean hannitiy) is in a free fall and honestly, nothing surprises me anymore. i knew the scheisters who were hocking subprime loans a few years ago would find some new way to capitalize on their kindergarten knowledge of real estate.
it’s nothing more than a bigger penis, a home equity loan or one’s billionth capital one gold card offer…but it’ll work for 3 out of a million and taint the other 900,000,000,097 to consumers.
I’m glad I am not alone on this one. It’s always made me feel uneasy to see the agent bonuses and I’ve seen a lot of the unusually large buyer agent commissions (on resales) too. I am always clear to my clients before we even look at a house if there are any extra agent incentives. I like to lay everything on the table in advance.
What I don’t get is here we are in one of the ONLY States where the default under our laws is that every agent represents buyers. EVERY agent except one. The guy doing the bonus thing represents the seller.
How many years is it going to take agents to STOP offering the stupid bonuses in that manner. “A full price offer” is he kidding? IF you are offering a BONUS by definition you have a problem selling the property. So WHY in God’s name would anyone be even THINKING about a full price offer on a bonus offered house?
The whole concept relies on someone being unethichal, and stupid to boot.
Deborah,
You make a good point, I just don’t like the confusion in the word “consultant”. In fact it is illegal for an agent to use that word in some States (not ours). Agent really should be enough for licensees to understand what they do for a living. They really have to stop the duplicity of having a law that says “represents the buyer” and a license than says “salesperson”. I had to get a Broker’s license just to get “salesperson” off my license
And Brokers have to stop treating their agents like “salespeople” too, it really is the Borker’s responsibility to drive the point home that the agents represent people…they don’t sell stuff TO people.
I got one of these emails today offering a TEN PERCENT SOC if you wrote a deal on a property. Crazy stuff.
Sandy,
That’s wild! I haven’t seen any like that! Where was the property? In a swamp?
ARDELL, it’s funny you posted this today because earlier this afternoon someone I was talking to said he was a salesman too (used to sell cars, he’s a very nice, kind man who is now out of that business) and I had to tell him that I was not a SALESPERSON, rather I marketed homes (I will be listing a home that belongs to a member of his family).
Ardell/all,
When must a buyer’s agent disclose the dollar amount of the commission that a buyer’s agent earns, to the buyer?
Second question: When must a buyer’s agent disclose that the buyer’s agent is receiving a bonus like this?
I’m wondering how often the seller pushes the agent to offer a SOC bonus?
Deborah,
Listing agents represent the people who sell them. You can’t turn that into “marketing” or your job is done while the ink is still dry on the contract. I know you are focusing on marketing because you are working on that right now, but clearly that is only 5% of the job once the property is in the mls. Getting the property “positioned to sell” BEFORE it goes into the mls, is sometimes 80% of the “the job” when representing a seller client.
If our job was to “market” then clearly a bonus of a trip to Hawaii would be appropriate. The problem highlighted here is if an agent thinks that offering money to get a full price listing is “good marketing”, then might you not expect that same agent to bring buyers to listings with great bonuses?
How can we all know that running after the bonus is wrong as a buyer’s agent, and yet offer them when we are the seller’s agent? Makes no sense. Time for the industry to respect the role of buyer’s agent and stop waiving carrots.
It could be my upbringing. I was taught that the person who leaves $20 sitting out, is just as guilty as the person who takes it. The person tempting people to do the wrong thing is just as wrong as the person who takes them up on the offer.
I don’t blame builders because I guess I expect them to act like a desperate seller at times. But I see BONUS and I see a problem property or an overpriced listing. Bonus’ should not be used to encourage buyers to buy overpriced property, nor should they be used to tempt buyer agents to put their own interests ahead of their clients.
This entire discussion would be moot if a Buyers Agency Agreement was signed by the parties. In a typical agency agreement, the amount the agent receives is pre-negotiated, and any amount above that is refunded to the Buyer. So, Jillayne, to answer your question, commission should be discussed then, at time of negotiation and signing. If a Buyer doesn’t want to sign an agreement, then I believe the agent is not legally obligated to disclose or discuss commissions. (Hence, in my mind, the benefit to both parties in coming to an agreement prior to the commencement of “hiring” and the decision to work together.)
Jillayne,
I don’t believe there are any laws or rules that address this subject. By blogging on the topic, it alerts buyers to be aware of these bonuses and ASK their agent what the commission is when they are making an offer. Even if the commission is established up front, the buyer needs to know the commission, including the bonus, at the time the offer is being written.
The whole concept of “agent bonuses” is a leftover from the days when all agents represented sellers, and should be eradicated.
I have seen an agent say “Oh, that wasn’t “commission”, that was a BONUS”. Bonus for what? For “convincing” your buyer client that this was the best house for them? The only bonus’ offered should be offered to the buyer, not the buyer’s agent.
Marlow,
It is not “moot” for buyers to know if there is a bonus, because it is not just about amount of payment.
If the seller is offering a bonus, the buyer needs to know that, and ask themselves WHY the seller felt a bonus was needed? The buyer would then know that either the seller is desperate or the house is overpriced or whatever the reason is for the seller to offer a bonus.
That the seller is offering a bonus is a critical piece of information for the buyer. It says something about motivation and maybe product as well.
Rhonda,
If the MLS would change SOC to BA…life would be a lot better. Many areas around the Country did that years ago. Calling the Buyer’s Agent by the correct name would help a lot.
They didn’t “sell a house”! They represented the buyer who bought the house. HUGE difference. It Should be Buyer Agent Commission, not Selling Agent/Office Commission.
Did you know that NWMLS denegrates the role of “Buyer’s Agent” to the point where the name of the Buyer Agent never even shows on the sold record? First place in the Country I have ever seen determine that the role of Buyer Agent is worth NO mention. Only the Seller’s Agent is known by name and not the Buyer’s Agent.
They only acknowledge that some office sold a house FOR the seller’s agent’s office, not that someone represented the buyer in the purchase of a house.
Escrows are getting better. Three years ago you had to know the name of the seller for them to know the escrow. If you said my client is the buyer, they said, I only can find a file by the name of the seller. That has gotten better, in my experience, as I refuse to call my file by the name of a person I have never met and do not represent.
When you don’t acknowledge the role of Buyer Agent in the MLS, you send a message that everyone represents sellers and selling, and that is a leftover from days gone by that really needs to change.
That is one of the disadvantages of the mls being owned by brokers and not part of the REALTOR Association. Most MLS’ around the Country have BA/Buyer’s Agent. Even mls’ using the same mls system show the Buyer’s Agent. This is a decision of local brokers, and that decision needs to be looked at and overturned.
Rhonda,
Regarding your comment #11, now that I’ve freaked out over the term “SOC”
When you tell the seller they should price the property at $499,950 and not $529,950, often the seller or the agent says, “let’s keep the price at $529,950 and offer the agent a bonus”.
A bonus is often used instead of a warranted price change. It is a means of keeping prices artificially high.
If the bonus was offered to the buyer or made public by some other means, people could determine better if it is a seller’s market or a buyer’s market, by the amount of sellers offering bonuses. An important market indicator that is not made public when hidden behind “the curtain”.
For Jillayne, who likes to know the WHY of everything
when bonuses first started back in a Buyer’s Market, the agent had to split the % with their broker, but got to keep a dollar bonus in full. So offering $1,000 was more effective than changing the percentage. The seller got more bang for their buck. Over time, those $ bonuses were split the same as percentages, but that is between each office and each agent, so no way to track that. Just telling you how it played out when $ bonuses were first used instead of % increases.
This is one point where I completely agree with you Ardell. You have so many opinions that I can’t agree with all of them.
I am someone who works both sides of the fence. Buyers and Sellers.
I always tell the seller that a price reduction is more effective than a bonus or even a higher commission.
A Buyers Representative should agree with the buyer how he is to be paid and leave all of that on top the table all the time. Bonuses really have zero effect on the buyer’s reps that do almost all the business.
Other than that last sentence, Marty, I agree
It’s the newest of agents that are likely to be most blinded by the dollars.
One, because they need them (not that we all don’t from time to time)
Two because they think they are selling houses.
Three because if you haven’t sat down with sellers and negotiated commissions, it makes it that much harder to know HOW to negotiate commissions. So newer agents are less likely to handle buyer agent fees and bonuses well.
Maybe experienced people handle bonuses better and sell most, as you say. But newer agents cumulatively impact the consumer just as much.
Ardell
The property was in Everett. It’s condo conversion and they are trying to liquidate the last few properties. What’s odd is that it’s been a pretty popular complex and sold relatively quickly–I actually sold one in there–but as I recall there were a few units that it seemed to me would be tough to sell and I think these are the ones in question. It’s a high rise and the units are at street level. And it’s downtown Everett which is an area that is probably better than most people think, but still, a lot of people aren’t going to be feeling too good about being at street level in a downtown area from a security perspective.
I think what they should do rather than offer the 10% SOC is market the units as commercial property or as live/work space. The building is already zoned for mixed use, so they do have that option. It would be a great place for a coffee shop or something.
Hi ARDELL,
You’re right about the marketing and not being the whole story when representing seller clients, I am focused right now with a lot of time and effort in pre-market prep. In this particular case I have already contributed a couple of hundred hours towards assiting out of state clients in getting their property market ready; yesterday I spent 3.5 hours just watering the lawns and flowers, and fertilizing the flowers that I had planted weeks ago! This home is not yet on the market, nor under any contract with me.
Jillayne,
So far, none of my commissions have ever had a bonus and all the commissions have been variables between 2.5% and 3% (of which I split 50% with my broker). I am uncomfortable with the idea of a bonus attached to a property, and if there was one for a property my buyer client wanted, then I would disclose it and work it out so that it was applied to my buyer clients closing costs.
Deborah,
I’m doing the same thing (not gardening but stripping wallpaper and helping to pack up much and move it to storage) up in Edmonds. I also do the work without contract as by and large I don’t believe in contracts being the binding force of a relationship. A contract simply records a meeting of the minds, it does not create a meeting of the minds…but that’s another topic
I’m working with the client, and sometimes when I get them moving in the right direction I can leave and help in spurts as they lose direction or get worn out.
Jillayne,
In case you are taking a poll
my experience with bonus’ is the same as Deborah’s except I only pay the Broker 10%. It’s somewhat moot in my case, but emulates the same as our agents, so I keep it that way. Usually a bonus property is not one I would recomend to my clients so I can’t think of a time when one of my buyer clients bought a bonus house. But we are coming out of a strong seller’s market where bonus’ were not as common as they are becoming. If I run across one, I’ll come back and post it, as we are seeing the tide turn a bit in some places.
I can start counting them, but seems to me that at least 80% of the bonus’ I get in my email are from builders who may have overpriced by building in an area where prices are lower on resale, than the prices builders are trying to command for new construction.
Sandy,
Yes, those last few that are the ones no one wanted…that’s my point. They should be priced to where they become “of value”, not people dragged to them by an agent who makes a higher commission by “selling” it TO their buyer client. It’s just too wrong for words.
http://apps.leg.wa.gov/RCW/default.aspx?cite=18.86.050
This section of the Revised Code of Washington as it applies to real estate brokerages and buyer’s agency makes mention of the requirement of a real estate licensee to advise their client when there is a conflict of interest as it arises. A buyer’s agent accepting a bonus for bringing in a specific kind of offer fits into this category and therefore should be brought up immediately to the client. Prior posts in this string of posts have tried to state that there is no lawful provision that requires a buyer’s agent to do so. Baloney. It’s right there for all to see in agency law.
In our team we notify a client immediately of any bonuses or other monetary/compensation offers to the buyer’s agent immediately and discuss within the context of what it would mean to them and to an offer. Because we sign buyer’s agency agreements with clients we do typically have our compensation information discussed up front and we frequently will provide the bonus or additional compensation to our client instead. If there are special circumstances, such as only a certain amount of credit can be applied to the buyer’s purchase per the lender’s requirements, we’ll discuss those and act accordingly and appropriately with the client.
Ardell–I totally agree. Why add 7% to the SOC when you could just drop the price by the same amount. And I really can’t imagine being the kind of person who would steer a client in that direction without making a disclosure. In fact, typically when I see the increased SOC my first question is “what’s wrong with it?” and my instinct is to steer my buyers clear of it.
That said, the only time I even pay attention to what the SOC is, is when I get these emails. When searching properties for clients on the MLS, I don’t even look at it, because I don’t care. My job is to find a property that meets my clients’ needs, not to find them a property that pays me a 3% or more SOC.
Part of the problem here is that I don’t think all agents have the same conception of their job as most of the agents who read this board do. I don’t think they would recognize this as a conflict of interest. Further, the kind of person who steers a client to offer on the 10% SOC property isn’t the kind of person who would rebate it back, or disclose that it even existed.
Or maybe I am just cynical.
Sandy,
That is why I think the “client version” of the mls printout should include the buyer agent’s fee. Why not? What’s the big secret? At least the buyer could see the bonus and say “What’s wrong with this house that the seller need to offer a bonus?” Same as they might if the bonus were offered to the buyer direct.
In a buyer’s market where the bonus is simply to differentiate and distinguish, then same holds. Better for the buyer to say the “bonus” makes the house “worth it” than the agent getting a bonus.
Reba,
Conflict can describe many, many issues vaguely. But is vaguely good enough? The problem with your resolution and Marlow’s is that would require all buyers to sign buyer agency agreements. It would suggest that buyers who are not willing to sign buyer agency agreements somehow deserve what they get. Wouldn’t it be better if it were mandatory by mls rule or law for all agents to disclose the buyer agent fee, including bonuses? Shouldn’t that be a right of all buyer consumers, whether they are willing to sign buyer agency agreements or not?
Ardell -
I haven’t read the comments yet (By the time I read RCG there is always 1000 comments). So this is my comment strictly on your post:
If I was an elderly woman in a Pentecostal Church in Mississippi, I would be waiving my fan, shaking my hips, and saying Amen Sista, Amen Sista, Amen Sista.
LOL Trevor! I’m waving my fan and clappiing for your comment. Funny!
RCW 18.86.080
Compensation.
(1) In any real estate transaction, the broker’s compensation may be paid by the seller, the buyer, a third party, or by sharing the compensation between brokers.
(2) An agreement to pay or payment of compensation does not establish an agency relationship between the party who paid the compensation and the licensee.
(3) A seller may agree that a seller’s agent may share with another broker the compensation paid by the seller.
(4) A buyer may agree that a buyer’s agent may share with another broker the compensation paid by the buyer.
(5) A broker may be compensated by more than one party for real estate brokerage services in a real estate transaction, if those parties consent in writing at or before the time of signing an offer in the transaction.
(6) A buyer’s agent or dual agent may receive compensation based on the purchase price without breaching any duty to the buyer.
(7) Nothing contained in this chapter negates the requirement that an agreement authorizing or employing a licensee to sell or purchase real estate for compensation or a commission be in writing and signed by the seller or buyer.
The law of Washington State does require that agents, both buyer and listing agents, put their compensation in writing. Read the information above for reference.
http://apps.leg.wa.gov/RCW/default.aspx?cite=18.86.080
in case people want to review the Revised Code of Washington information themselves and to also access other aspects of agency law as it applies to our state.
Thanks Reba,
To further clarify, the buyer agent’s compensation is in a contract that is signed by the SELLER and not available to the buyer.
That fee is then shown in the MLS to the Buyer’s Agent, but not on the listing as shown on the internet and the fees and bonuses are not available for public viewing. It is also not shown on the client version of the mls printout.
When a buyer views property on the internet or in person with their agent, there is generally nothing available to the buyer that shows the buyer agent bonus, as that agreement is signed by the seller and not the buyer.
So nothing in the law or common practice addresses this issue. This issue being the buyer potentially being brought to an inferior property or overpriced property, because the seller promised the buyer’s agent a BONUS to SELL it to the buyer.
There is no justification for a seller giving the buyer agent a bonus for bringing “a full price offer” as that agent represents the buyer and not the seller. And there is nothing in the law that addresses or clarifies the subject of this post.
I’d be interested to hear how the attorneys that write for RCG would interpret this issue. Russ? Craig? Let’s hear a bit from you.
Here in FL, it seems every agent is acting as a transaction broker these days. I understand the logic, but still feel it’s cheating the client.
I’ve actually seen worse emails come through, but your example ranks highly in the worst ever category. I had to laugh at your #1 though – you say, “please get how BAD it is to suggest an agent should sell his soul and his client’s best interest for $1,000 bucks!!!” almost saying that there IS a price, but $1000 isn’t it. I’ve read your blog long enough to know this isn’t true, but it just seemed funny to me when I read it.
Oy — late again to another interesting thread!
First, Reba, thank you for citing to the relevant statutes. In fact, thank you for pointing out RCW 18.86.080(7) which seems to indicate that ANY agency agreement — whether between seller and listing agent or between buyer and buyer’s/selling agent — be in writing and signed by the client. I was not familiar with this provision and I have no knowledge as to whether or how it has been interpreted either in practice or by the courts. Hopefully, Russ gets up to speed on this thread and weighs in on this interesting tidbit.
Second, I agree with Reba and disagree with Ardell (what?!:)) as to whether the law addresses the topic of this post. Admittedly, the law does not address it squarely, but I think one can piece together a pretty good legal argument that this conduct (listing agent offering SOC bonus for full priced offer) is in violation of the law.
Here goes (see RCW Chapter 18.86 for legal authority): Agents have an obligation to deal honestly and in good faith. They also have an obligation to disclose to their clients all known existing “material facts.” A “material fact” is one that, in part, “operates to materially impair or defeat the purpose of the transaction.” Finally, and most importantly, a buyer’s agent must “timely disclose to the buyer any conflicts of interest.”
In the scenario being discussed here, I believe a bonus based on a offer at a certain price is undeniably a conflict of interest between the agent and the buyer client. On the other hand, there is a conflict of interest inherent to a system whereby the agent’s commission is tied to the price paid by the buyer, so that the agent has a disincentive to negotiate a lower price. Nonetheless, a significant bonus tied to a full priced offer would seem to fall squarely into the definition of a conflict of interest that must be disclosed to the buyer (and, arguably, the buyer should also be aware of the method of compensation generally).
Moreover, by failing to disclose the agent bonus for an offer that is arguably inflated, the agent is not dealing honestly or in good faith. Finally, from the buyer’s perspective, the “purpose of the transaction” is to buy a house for fair market value. If the buyer’s agent counsels the buyer to pay greater than FMV because of the SOC bonus, then the buyer’s agent has failed to disclose a material fact (bonus for full priced offer).
Given the above, I believe any aggrieved buyer (i.e. a buyer who made a full priced offer on a property that offered a bonus to the buyer’s agent based on that offer, where the property was actually overpriced) has a cause of action under the Consumer Protection Act. The buyer would be entitled to the difference between the price paid (full price) and the actual value of the house, multiplied by three (up to an additional $10k), plus — ahem — attorney’s fees and costs.
I would be more than happy to speak with anybody who believes they may be such a buyer. You agents who are concerned about such shady conduct (i.e. RCG agent contributors): pass my name along. The Consumer Protection Act is supposed to create “private attorney generals” — private citizens who take the initiative to force businesses to act in a fair and straightforward manner. This — like many other scenarios discussed here on RCG — would be an excellent use of the CPA. Unfortunately, attorneys are rarely in a position to identify potential CPA plaintiffs. How can I get on that email list, Ardell?
Oops — forgot to check the “notify me of followup comments”!
Shaun,
I think we have always reacted badly to bonuses “with full price offer”. It’s so oxymoronic to say “we need to offer a bonus to sell this place, BUT we want full price!” isn’t it?
Ardell, I do agree, but sadly, as I look through my local MLS, I see hundreds of them.
Ardell — Is that the case here in NWMLS-land? Does the agent-only portion of the NWMLS identify bonuses “with ful price offer”?
LOL Craig! “Unfortunately, attorneys are rarely in a position to identify potential CPA plaintiffs. How can I get on that email list, Ardell?”
Always a hook
You crack me up.
We both know there is nothing in the law saying that a seller cannot use these methods to attract potential buyers. But hey, if you can’ make money off the concept…go for it! Now tell me how you are going to prove beyond the shadow of a doubt that the property was worth $440,000 and not $449,950? We both know you can’t.
We also know there is nothing in the law that says the buyer gets to see that commission contract signed by the seller.
I would like it if the lawyers got involved in pressing for new laws that say the buyer is entitled to SEE the commission, and the mls MUST show that on the customer format. But something tells me you ain’t that guy.
Craig,
I’ll do you one better. I’ll email you three listings from the mls. Two with agent bonus offers and one without. You tell me if you can SEE the bonus. Pretty sure the email will automatically convert to “client format” by the system. Then you can tell if the commissing is 2.5% or 3% or if it has a bonus or not.
They make new changes all the time. Who knows. Maybe we’ll learn something new.
Ardell — you’ve been watching too much Law and Order (or maybe LA Law reruns — Law and Order actually has some basis in reality). There is no such thing as “beyond a shadow of a doubt.” In a criminal case, which requires the highest burden of proof, the burden of proof required for the prosecution to prevail is “beyond a REASONABLE doubt.” A prosecutor would be anxious to tell you that even a reasonable doubt might cast a shadow but that the defendant is guilty nonetheless. In a civil case, on the other hand, the burden of proof is typically a “preponderance of the evidence.” Thus, if 51% of the evidence supports the plaintiff’s theory, then the plaintiff should prevail. I’d would have no problem whatsoever (assuming I can line up some knowledgable and personable experts — interested?) showing by a preponderance of the evidence that the buyer overpaid by $10k.
As for lawyers getting involved in the legislative process: putting aside that many legislators are also lawyers, we’re in this business to make a living. Who would pay for such lobbying?
Craig – thanks for weighing in and not just because you agreed iwth me. FYI – While the standard emails from the NWMLS don’t post the SOC because it is a default to go to client version (mostly to prevent the non-publishable agent comments from public view) it is possible to send a client an email of the PDF format of the agent version of a listing which will show the SOC. We’ve done this frequently with clients and we usually give them a copy of the listing at the showing in the event they want to make an offer on that particular property. We also have gotten into the habit of submitting this with the offer to show the listing agent what was showing as of the time we showed the property – this being the case after I had that agent change the SOC from 3 to 2.5% mid-stream in negotiations on a $1M+ house I ended up selling. I’m still taking her to arbitration for it and my clients are in full support of us taking the action against her.
Reba,
What you and I do to circumvent the built in biases against the buyer consumer, is not of issue. That the buyer needs to rely on our willingness to do that is the issue.
Many buyers believe they have a RIGHT to know what the commission is, since that commission is included in the price that they pay for the house. Many buyers believe they have a RIGHT to see the commission, without needing to have an agent at all, or needing to sign a buyer agency agreement to pevent being taken advantage of.
I don’t understand why you are not getting this point. It’s not about you. It’s about buyer consumers generally, so that they can buy a house without an agent at all and be privy to the commission monies included in the price they pay. As it stands now, if a buyer represents themselves, they have no access to the total commissions and bonuses being paid to agents. I’m sure you will agree that is unfair given they are paying those commissions in the sale price.
As to Craig “agreeing with you” LOL…dream on.
Craig,
I used “shadow of a doubt” instead of “reasonable doubt”, so you wouldn’t accuse me of “practicing law”
Craig,
I saw a horrendous “case” of someone paying $75,000 more than they “had to”, by going to the listing agent direct who didn’t advise them to use a 35E. They only needed to pay a few thousand more than the other offer, and ended up paying $75,000 more than the other offer. I know because I had the client with the other offer. The agent was also a close relative of the owner and did it as a Dual Agency to the buyer consumer’s huge disadvantage.
Off topic, but likely worse than this bonus issue. I’m still appalled at the injustice of it and it happened almost a year ago. Everytime I pass that house, my client and I shake our heads.
If a buyer is going it alone and unrepresented when buying a property then that is a completely different topic than what you started out with in your original post. Your original premise was regarding listing agents advertising commissions and bonuses to buyer’s agents and pushing full price offers with the “carrot” of a bonus for that full price offer. If we’re talking about the public at large without agency representation then the buyer has the duty to protect their own interest and they can ask questions such as, “if I am not working with an agent and you are offering a SOC to agents, would you be willing to negotiate the price with me?” Or something to that effect. That is entirely different than discussing the conflict of interest inherent in a buyer’s agent pushing a full price offer to gain a bonus from a listing agent without disclosing the bonus to the buyer client.
In line with a recent post of mine dealing with SOC’s and fiduciary duties, any agent who attempts to influence their buyer client to a property that has a compensation bonus without disclosing this bonus has breached their duty regarding conflicts of interest. This applies equally to an agent who influences their buyer to buy a property that has a larger SOC or eliminates properties from showings because they don’t have the standard SOC (and yes, there IS a standard even if it is a de facto standard). There is no difference between the conflict of interest in recommending a “bonus” house and not recommending a house with a 2% SOC.
Ardell,
In a recent post of mine dealing with SOC’s and fiduciary duties, you said
“More buyers may come at a higher offering and fewer buyers may come at a lower offering. It is the duty of every seller’s agent to advise what the impact might be. The seller’s offering is to attract buyers. What the buyer agent gets paid is then the between the buyer and the buyer’s agent. Seller’s simply set the financable cap.”
Now you are saying that a listing agent (and their seller client) is behaviing poorly by offering a bonus knowing full well that some agents may actually bite. The fact that there are “hundreds” of “bonus” listing in the MLS would seem to imply that it may work, at least some of the time.
So which is it?
Russ
Ardell — relieve your guilt. Tell me the property address (off thread) and I’ll send the buyer a friendly letter asking for a call. I can get the details from him/her/them as to their relationship with this dual agent. Perhaps there is a claim there. If there really was an injustice, it need not stand.
Russ,
The eyes of the worms are peeking out of this “can ‘o worms”, big time. Lot’s of bonus commissions are out there for “full price offers,” going “through x mortgage company,” closing by “x date” and so on. A few months ago, there were no bonuses for selling agents.
Is there a difference in spirit if an agent represents a buyer as disclosed on the NWMLS Form 42 standard disclosure form or an actual buyer agency/brokerage agreement as Marlow indicated in an earlier remark? Do buyers really understand any difference and the consequences of one form over the other? I would guess that most consumers think they are the same, with the same duties owed. But is this so?
Excellent question Russ! Before I go there, can you and Craig weigh in on:
1) Does anything in RCW 18.86.080 prevent a seller, for sale by owner included, from offering these bonuses in order to help sell their properties?
2) Does anything in RCW 18.86.080 require a buyer’s agent working under the listing agreement as to commissions, with no buyer agency agreement, to show the buyer the commission structure, unless they ask? If they ask, I’m sure honesty is required. But if they don’ task, does the law address the issue of the buyer’s “right” to know such things, given the mls says the contrary by not posting it in the consumer format email or printout?
I don’t see anything in the law, in and of itself, that addresses this clearly and definitively or even adequately. If the law says the buyer has to see the commission, then clearly the mls has to change the practice of not showing it.
Reba seems to think the law covers this. I can’t believe the law covers this, because if it did, NWMLS would certainly comply with that law.
Since that is why you were called in here in the first place, let’s get that out of the way before proceeding with questions and answers outside of comment #30. Comment #30 suggest that the law quoted makes this discussion moot, and buyer consumers MUST be told about bonuses as a matter of course. I’m sure that is not local practice when agents are working without a buyer agency agreement.
If that is “against the law”, then that is an important issue to resolve before taking this discussion elsewhere.
Ardell — in answer to your questions:
1) No; and
2) I don’t think anything in RCW 18.86.080 requires such a disclosure. Section (8) of that statute simply confirms that it does not alter any existing law requiring a written agreement for an agent to assist in buying or selling real estate. This requirement arises out of RCW 19.36.010, which states (paraphrasing for the sake of brevity): “An agreement authorizing or employing an agent or broker to sell or purchase real estate for compensation or a commission shall be void, unless such agreement, contract or promise, or some note or memorandum thereof, be in writing, and signed by the party to be charged therewith, or by some person thereunto by him lawfully authorized.”
I assume the NWMLS is aware of this requirement and has determined that it does not apply because the compensation paid to the buyer’s agent is paid by the seller via the listing agreement — which is always in writing — and internal MLS contractual arrangements with the member brokers, which are also in writing. Thus, the statute is satisfied. This is arguable, I’m sure, but I’m not certain how the issue would arise.
Returning to your question, Ardell, even if the statute does apply to buyers and their agents, I don’t think it requires that every term or source of compensation be included in the writing. I would need to read the case law, though, to flesh that out.
Regardless, given the law as it exists, the issue is not whether the buyer has a right to see the commissions. Rather, the law as written approaches it from the other direction: the agent must disclose a conflict of interest and material facts, and so therefore must disclose the “full price offer” bonus and any other bonus that creates a conflict of interest between buyer’s agent and buyer (but not the commission structure generally per RCW 18.86.080(6), notwithstanding my earlier comment suggesting otherwise).
As I’ve been thinking about this issue today, the role of the NWMLS in all of this is indeed intriguing. On the one hand, they do not inform the public of the various bonuses offered to buyer’s agents, and there is apparently no legal duty to do so. However, they also prohibit (or just discourage? or no input at all?) the dissemination of such member-only information to non-members. Accordingly, to a certain extent, the NWMLS contributes to the secrecy that is to the buyer’s distinct disadvantage. Whether that too gives rise to a CPA claim against the NWMLS — well, I need to think about that.
Ardell, I’n still waiting for that address so I can right that injustice you note in 46 above…
I’m still pondering Michael’s comment about the bigger penis, but notwithstanding my puzzlement over what this has to do with this . . .
Bonus commissions to selling agents are absurd.
They imply that the property is overpriced, or has other “issues”.
The most egregious example of this , in the Boise market, was when one of our local production builders offered a $10k bonus on TOP of a 3% selling commission last winter.
How in the world would a selling agent explain that bribe to a buyer?
Huh????
Gee, well, it was overpriced to begin with?
Or, the value isn’t really there?
Or, they are so desperate that they will buy me off to show you their homes?
Latest twist, as of last week, is that this same builder will pay ME $50 to bring in a prospect, and they will pay the BUYER $50 to look at their homes!
How bout just offering a decent product at a fair price instead of looking desperate?
Am I the only one who thinks this stuff is NUTS????
No Phil, you are not alone. Bonuses just scare me.
You probably won’t believe this and maybe I live in Oz, but I do not look at commission paid OR bonues when selecting property for clients to consider. If I’m a buyer’s agent, that’s what I am. Not my agent. A buyer’s agent.
Now, as a seller’s agent I realize most agents don’t feel the same way I do. So I encourage my clients not to offer below a specific minimum that in my mind will not motivate the “buyers” agent.
Chris–most of us who read or post at RCG probably would believe you. The authors, posters and readers here tend to be a fairly self-selecting group, most of whom approach their business same way you do.
Okay, while we’re on the subject of bizarre goings-on in the real estate industry, allow me to promote my own blog a little bit (I’m on a new kick where I actually POST on it…). Today’s post:
What’s Wrong With This Picture
Craig,
I emailed you three bonus listings from the mls, which automatically will print in the only version available to non members. My copy of what I sent to you, does not show any commissionor bonuses. So that question is answered.
As to giving you the address of the owner who purchased well in excess of the other offer, I assume you are kidding. I only know this because my client made the other offer. I’m pretty sure it would be unethical for me to reveal that address. If someone goes directly to the listing agent and doesn’t use a buyer’s agent, and pays too much for the property, they probably don’t even know it. My client and I are the only ones who do know it, and information derived while representing my client are confidential to me and my client. So it clearly seems unethical for me to reveal the particulars.
In a Dual Agency situation, would the listing agent be required to tell the buyer they were offering more than they needed to?
Russ,
You seem to think that agents and buyers look at all properties in their price range. In my experience this is not the case. I, like Chris and others, do not look at the SOC in determining which properties to recommend and show. But no one shows them ALL, nor do clients want to see them all.
Clearly an agent who sees a huge bonus may simply have found another reason to like the house. Hard to say if they would have picked that house if it did not have a bonus. So holding carrots in front of agents is just asking for trouble. The agent may even have convinced themselves that the bonus wasn’t the “reason” they picked it.
Reba,
I’m pretty sure turning agent printouts intp PDFs and emailing them is “not allowed”. That is why that version is not “emailable”. It has seller phone numbers and other info that only you as the agent are permitted to see. If you do that as you say, you may want to say that you do it, on a blog.
Ardell and Reba — it turns out that agents probably can share and disseminate the “confidential agents-only” remarks. Per the NWMLS Forms Manual instructions for the Listing Agreement:
Confidential Agents-Only Remarks. Keep in mind, even though only agents see these remarks, they may be disclosed to potential purchasers. In addition, NWMLS requires that any comments comply with state, federal and local fair housing laws.
So it appears that Reba’s acts are consistent with NWMLS rules. That makes sense, as the NWMLS could potentially face some liability if it prohibited the sharing of this type of information. Thus, the only claims are against the individual buyer agents who fail to disclose the conflict of interest inherent to commission bonuses (at least those based on procurring a “full price offer”). I think we all agree that this conduct is inappropriate, unfair, and deceptive. Now all I need to do is to figure out how to find a client…
Ardell — in follow up to our off-topic discussion begun in no. 46: For purposes of this discussion only, I admit that the fact of an offer at a certain price on a certain propety by your client constitutes confidential information and therefore you may not disclose it ABSENT AUTHORITY TO DO SO from the client. I know you maintain a relationship with this client per your initial comment (you and your client shake your heads about the injustice of it all). If you really believe an injustice occurred, then ask the client for his/her/their authority to provide me with the address and other relevant (although hardly “confidential” in the true meaning of the word) information so that I can follow up with the victim of this injustice.
As an attorney, I have the unique opportunity to not only prevent injustices (like agents, by promoting fair transactions and by protecting my clients’ interests) but also to correct injustices after they have occurred (through the threat or initiation of litigation). As agents, you all have direct insight into some pretty shady business practices that undeniably cause harm to many members of the public (how many “full price offers” will be submitted TODAY based not on the value of the property but on the undisclosed bonus to the buyer’s agent?). You should share that information with people like me who can do something about it. At the very least, Ardell, you should not brag in a public forum about some injustice but them invoke a weak claim of confidentiality to absolve yourself of any further responsibility. Talk to your client. Get me the information. Let me right that wrong — [cue dramatic, patriotic music] — and hopefully get paid in the process [cut music with screeching, needle-pulled-off-record sound].
Craig,
Alerting people in a blog about such things so that they can be mindful and not fall victim to the same injustice is “of value” to readers IMNSHO My client is reading this and he can, if he so chooses, contact you directly. You are after all…”reachable”.
My client knows this person now, so clearly it would be up to my client to reveal this or not to that party and to advise that party of your offer. Not me.
Passing this post in a link to my client is the best I can do for you.
Ardell — I appreciate that. However, I’d point out that this post, standing alone, has little value to the person who got screwed to the tune of $75k but apparently does not realize it.
Craig,
I very much appreciate your research. It is very important for MLS services to be very clear about this rule. Most if not many have restrictions regarding passing out Agent format printouts due to security codes to homes and Agent remarks like “owner is on vacation this week so go show and sell”.
I believe simply emailing pdf formats as general policy is not a good idea, and agents need to be mindful of ALL the info on that sheet before transmitting it, as I’m sure REBA is. I am more likely to hand it to someone in person or circle the commission portion in red so they can see that, but not let that paper leave with the client, unless I have blacked out the security issue info.
People can be careless with that info and leave it on a table at work or in the lunchroom, and others will then know the owners home security code. So “giving” it and “showing” it are two different things. Clearly if that printout ends up in the hands of a thief, inadvertently, because the client tossed it in a public trash can, is the liability of the agent who transmitted it or handed it out. Don’t you think?
If the thief left the print out in the house as a HA HA when he robbed the place…I’d think Craig, you would take the case
But did he “get screwed” or did he screw himself.? If he represented himself and the agent did not do a Dual Agency, but instead checked “seller/seller” in the agency portion of the contract, then the buyer simply paid too much for a property. I didn’t see their contract, only ours. (not sure why you call that “bragging”…just IS)
I’m sure buyers pay too much every day. When you are representing for sale by owners and the buyer comes without an agent, what safeguards are in place in your operation for the seller to not “make a killing”? I don’t think there is any law against a buyer overpaying for a property. So if the buyer did so and represented himself in doing so, then maybe he’d be happier with “ignorance is bliss”. Most would be.
I’m sure the other agent would have some claim against me personally, if I revealed this to HIS client through you. Sorry if you can’t make money off my story. Hopefully people will get a better understanding of the risks involved in going to the listing agent direct, or the seller direct, and be better informed. Not saying they shouldn’t do that, as there are benefits as well. Just saying the agent is not obligated to advise the buyer regarding price etc., if they represent the seller at the time you meet them. If the buyer offered that price, I don’t think the agent had any obligation to say “you offered way too much” does he? I don’t think Dual Agency requires that…but I could be wrong. I’m sure as the seller’s agent he isn’t required to tell the buyer they paid too much. So where’s your case? Injustice doesn’t always equal illegal.
In any case, I notified his broker and my broker before the sale closed. I think that is the extent of my authority to “report”, which I did. I reported it before it closed so the Broker could advise his agent, given the agent’s close personal relationship with the seller. It closed at the inflated price, so I assume their attorney or their Broker found no fault on the agent’s part.
Any buyer who does not have their own buyer’s agent should read about escalation clauses, is the moral of this story. And one many who read RCG can learn from. Not bragging…informing. In fact, I think I’ll change the numbers and tell the story in a post rather than down here on comment 65 of an unrelated topic.
P.S. I also had my Broker call his Broker back when it happened and before the sale closed.
[...] A great fellow blogger, Ardell Dellaloggia posted an article on a topic that I felt merited attention here on our site. The topic of the article, buyers bonuses. Let me explain. [...]
[...] A great fellow blogger, Ardell Dellaloggia posted an article on a topic that I felt merited attention here on our site. The topic of the article, buyers bonuses. Let me explain. [...]