Home buyers generally don’t pay their real estate agent. Their agent is compensated by the seller who sets the commission when they list the property for sale. As a buyer, most of this is pretty opaque, and there are not a lot of agents who even share what the amount is with their buyers. They should certainly tell you what their compensation is if you ask, and personally I think this should be openly shared with buyers who deserve to know what their agent is being paid. (Ask your agent to show you the commission in the listing, which doesn’t show up on consumer websites.) What many buyers don’t realize is that sometimes your agent may receive a special incentive for selling a particular home.
Sellers who need to get their home sold have a few options to try to speed up the sales process. They can incent the buyer with a lower price, upgrades or seller-paid closing costs. They can also incent the agent community by offering a higher than normal commission or early payment of commission. Sellers are free to use whatever means necessary to entice buyers to purchase their home, but the agent incentives set up a terrible conflict of interest that you might not even be aware of. I’ve tried agent incentives like this on my own listings, and found that they don’t actually work, but that is a topic for another post.
So what sort of incentives are offered to agents? In our market, most buyer’s agents are paid 3% of the sale price as the selling office commission. Sometimes it is a touch lower than that, particularly for more expensive homes. Commissions are negotiable and do vary from market to market. Here are the offers I’ve received in the last two weeks:
- 5% commission for offers before the end of the month. Offers must be full price, otherwise reverts to 3%.
- 4% commission for offers before the end of the month.
- 5% commission for offers on standing inventory before Sept 5.
- 3% commission + $3000 bonus
- 3% commission + $10,0000 bonus on all move-in ready homes
- 3% commission paid before closing when all buyer contingencies are satisfied
Are there agents out there looking to make a quick buck? Of course there are. Do you think these agents are going to tell you that if you choose one house over another, they could make an extra $3,000-$10,000? I doubt it. I’m positive that there are pushy agents out there who may steer a client subtly or not-so-subtly towards one of these bonus homes.
A couple of these incentives really make my skin crawl. Do I really want my agent pushing me to make a full price offer so that they get another 2% commission? Or how about an agent that pushes you to waive your contingencies so that they can get paid early? How these incentives are in the best interest of the buyer, I have no idea.
Real estate agents have clear legal and ethical obligations to always act in the best interests of their client. Those who would steer a buyer towards a particular house or a particular builder to get a bonus are clearly not adhering to those obligations. Unfortunately it is up to the buyer to ask about the situation and avoid being pushed towards any particular home. If your agent can’t be straight with you about how much they are being compensated by the seller, or if they apply pressure to pick a particular home, you should find a new agent who treats their obligations to you as a buyer more seriously.