Dowtown condo buyer “unconcerned” about overpaying $24K on commission

[powayseller]

Another great story from Will over at the Voice. He reports about some downtown condo sellers paying a 7% or 8% commission to the buyer’s agent in lieu of lowering the price. The seller ends up netting less, the buyer pays more, and the realtor gets the money each of them “lost”. Read on.

QUOTE

“In May, Richard Caty sold his one-bedroom condo in the Grande condo tower overlooking San Diego Bay using a high commission to attract buyer’s agents.

He had been willing to lower his asking price by $25,000, he said, but instead chose to pay out a higher commission upon the urging of his real estate agent. The incentive worked. So well, in fact, that he ended up selling his unit for $651,000 — $2,000 more than the asking price, according to property records.

The buyer’s agent in that deal, Scott Hoover, a broker based in the Ventura County town of Newbury Park, received a $48,825 commission. At a standard 3 percent rate, the commission would have been $13,530.

Caty said the deal left him feeling uneasy — he said he was concerned that the Realtor was reaping the high commission at the expense of his buyer, who could effectively have bought the condo at the reduced price.

“There was a lean, green doubt in my mind,” he said.

The buyer of that property, Gene Azar, also of Newbury Park, said he was happy with how the sale panned out. He said he was unconcerned by the high commission his agent received for arranging the deal, even when he learned he could have purchased the unit at a lower price.

In the end, Caty netted about $14,500 less in the deal than he would have had he dropped the condo’s price $24,000 and sold it with a regular commission.”

[Daniel]

Powayseller,

Thanks for posting this story. It is pretty sad…But not very surprising, I might say. As long as you have one party (the seller) paying the agent of the other party (the buyer), conflict of interest is inevitable. There’s plenty of blame to go around, from the greedy agent to the ignorant buyer…

[PerryChase]

That buyer will not be unconcerned for long. Of course he is unconcerned now because he’s still in denial. If (when) prices drop, he’ll turn bitter real quick. It’s a classic study in psychology.

[powayseller]

I don’t believe this guy that he is unconcerned. If you ask someone, “Hey, does it bother you that you overpaid for this house by $25K because the seller doubled the commission instead of dropping the price?”, how many people would admit they were a fool, i.e. “Yes, I feel really stupid about now, so I will stop this interview”. How did the appraiser justify this one anyway?

[rankandfile]

Whatever happened to the strict code of ethics that all realtors are proclaimed to operate under? Sounds to me like if you raise the commission, Realtors are going to push these units like there is no tomorrow. Like selling a ketchup popsicle to a woman wearing white gloves. I don’t care if it’s a good deal for the buyer or seller, I’ll tell them whatever they want to hear. Just give me my 7-8%!

I know that the higher commissions provide a greater incentive, and that not all realtors are out for the quick buck. But something about this is just unsettling to me, especially considering that the real estate industry is a relatively closed system from top to bottom…they control the entire sales process.

[SD Realtor]

Sometimes I don’t like to read comments on this site as they are so full of stories about LAME realtors and this is another one.

The whole thing just smells bad.

I do believe there are ALWAYS going to be some/alot/most, choose your selection, realtors who are not ethical. (That is a kind way of saying they are greedy aholes). Yet sellers HAVE GOT TO EMPOWER themselves. This seller could have very easily used another agent. Hey if you are selling your home and it is not moving, or you are not getting traffic, try another agent. Try lowering the price. There are alot of alternatives out there. Usually if something looks odd, then it is odd.

The appraisal is not going to catch anything like this as it has nothing to do with it. I do not do loans so I do not know if the commission payouts get reviewed by the lender. I sincerely doubt that they do.

So much for the checks and balances.

I just cannot fathom that a seller would not try other opportunities/methods/people before coughing up that much commission.

Don’t get me wrong, I AM NOT DEFENDING THE REALTOR…

[rankandfile]

You make good points, SD Realtor. I realize you are in a tough predicament being a realtor and having to read about ones that don’t play by the rules. I am sure there are honest realtors who do operate by their code of ethics. I’ll bet they’re the ones that actually earn more money as well.

I agree that buyers need to empower themselves. I think this would be much easier to do if (1) the process was more open and (2) it was simplified a bit.

[powayseller]

SD Realtor, I actually LIKE realtors. But since this is a housing forum, I post the stories I see. I am sorry if this reflects poorly on the profession. Just as the Enron debacle reflected poorly on accountants, although most CPAs are ethical. Those of us on this forum know that you are one of the good ones.

[bob007]

I would not mind getting 24k in free money. I won’t blame the realtor. The buyer is stupid.

[powayseller]

The buyer only found out *after* the purchase, that the realtor was paid more in lieu of a cheaper listing price. Still, the buyer overpaid, so why?

[bob007]

buyer’s job is to perform the due diligence

[powayseller]

I agree with you; the buyer goofed.

[PD]

It is the realtor’s job to protect his/her buyer. Buyers rely on their realtor to look out for them.

[bob007]

it is fine to rely on realtor. but as a buyer i will double check the realtor’s facts and info to the extent it is possible.

[equalizer]

correct me if I’m wrong but buyer has NO right to inspect any of the realtors pay package or MLS data. You are at their mercy.

[Author]

Posts