Properly Incentivizing Buyer’s Agent

[Ted]

Has anyone come across any alternative fee structures for a buyer’s agent? Standard practice is to have the seller pay the buyer’s agent a percent of the final sales price. I have seen this percentage range from 2.00% to 2.50%. Since a buyer is trying pay as little as possible for a house, the standard fee structure of the buyer’s agent being paid based on a percentage of the final sales price creates a conflict of interest for the buyer’s agent since the more the buyer’s agent can get their client to pay for a property the more money the buyer’s agent will make. Has anyone come across any type of fee structure for a buyer’s agent that properly incentivizes them to negotiate the best possible price for the buyer? For example, suppose a fee structure was created that paid the buyer’s agent a base amount, say 1.XX% of the final sales price, PLUS a percentage of the difference between the last listing price when house goes under contract and the final sales price. The bigger this difference the more money the buyer’s agent would make. Any thoughts on this topic would be appreciated.

[ljinvestor]

IMO, you just need to find a buyers agent you can trust and let them collect the 2-3% that the sellers offer them. If anything, agents are more concerned with closing a deal then selling you something for more or less. You have the final decision of going through with the deal or not.

If you are looking at $500k purchase then at 2.5% they gross $12,500. Do you really think most buyers agents are more concerned with making you pay $25k more for the property so they can gross another $625 vs just trying to close a deal that’s fair. Bottom Line…I really don’t care how much my realtor makes on my purchases as long as they get me the price I am willing to purchase at.

[ucodegen]

[quote ljinvestor]Do you really think most buyers agents are more concerned with making you pay $25k more for the property so they can gross another $625 vs just trying to close a deal that’s fair.[/quote]Some are, and in general, some agents are. The most important part of your message is “you just need to find a buyers agent you can trust”

A co-worker of mine sold her house. The original listing/sale agreement was the standard 3%/3% buyer/seller Realtor split. When the buyer’s Realtor turned out to be a discount Realtor, only charging 2%, the co-worker’s Realtor got her to sign a new agreement with a 4%/2% split.. Increasing his own %.

Some, but not all Realtors are unscrupulous.

[Jazzman]

Have you checked out Redfin. They “share” their commission with you, and have recently changed their fee structure. Can’t remember what they base it on now, but I don’t believe is it contract price anymore. However, their incentive is not based on the fee, but a cost saving encouraging you to do the leg work. It’s a good model, but not for those who want the spoon fed, traditional broker service. They actively encourage transparency in the market, by making data freely available in a digestible format which is laudable. They are the future of Real Estate in my view.

[ljinvestor]

That is in reference to Sellers agent and a very unique scenario. Its the first I’ve heard of a buyers agent asking for less while not discounting the difference off the purchase price.

It really doesn’t make sense because if they didn’t reduce the purchase price by that 1% then the discount agent should have taken the extrra 1% and rebated more to buyer.

Couldn’t your co-worker have said no to the 4/2 split and asked it to be 3/2?

[sdrealtor]

ljinvestor hit the nail on the head. The incremental dollars by making you pay a higher price are neglible. On the other hand the monetary incentive for an agent to get you a lower price isnt there either. Its really all about finding someone you trust to put your interests up front as most agents just want to do the deal and get paid. An agent whose next meal doesnt depend upon your deal is best to have. Any agent who is willing to walk away from a deal not knowing if you will stay loyal to them in return.

On a personal note, I think about those things all the time. I have been fortunate in life. I can and do walk away from deals all the time because I think its in my clients best interest. I have often been asked what my underlying motivation for doing so is. Those of you who have battled with me on this blog wont be surprised by this. Its not about the money. Its about the satisfaction I feel from winning! Getting my client the best deal possible over the seller and their agent. There is something in my makeup that just loves to win. Thats why I love going back and forth with you all so much. I just love to win. CRazy huh?

[bearishgurl]

[quote=sdrealtor] . . . CRazy huh?[/quote]

Not a psychologist but there is just one word (acronym) to describe this “phenomenon” . . . “NPD” (formerly DSM-IV-TR 301.81‎).

[all]

Most agents will try to convince you the house is worth more than what you think it is worth not because of the delta, but because of the base commission. In general, if your offer is not the highest you will not get the house and the agent will make no commission.

You can probably get someone to work with you on an hourly basis, in which case they don’t care if the house sells high or low. You get in a position that people who deal with lawyers are in – the contractor’s incentive is not for you to win (or lose), but to keep playing.

[sdrealtor]

It would be tough to find a competent agent that would work hourly because they dont see the benefit. The truth is most agents would do alot better and most buyers alot worse if they paid on a hourly basis. I have worked with hundreds of people that never bought anything. In this business, most agents end up closing a transaction with about 10 to 20% of the people they work with as buyers. It may even be lower.

[XBoxBoy]

[quote=ljinvestor]IMO, you just need to find a buyers agent you can trust and let them collect the 2-3%[/quote]

This might be a bit harsh, but… I don’t think the OP needs to find someone they can trust. What they do need to do is to firmly understand there are four sets of interest in any real estate transaction. The seller’s interests, the seller’s agent’s interests, the buyer’s agent’s interests, and the buyer’s interests. At no time should anyone really “trust” the other to look out for their interests. Each party needs to look out for their own interests.

As a buyer that means becoming knowledgeable about the market you’re looking in, comps, expenses, etc. Gain as much knowledge about what the stages of escrow are as you can, etc.

But a buyer should not trust their agent with all that they are thinking. For instance, a buyer shouldn’t tell their agent, “heck, I’d go another 10k without walking away.” As a buyer you want everyone in the transaction to be aware that you can and will walk away if you don’t get a deal you feel is fair.

Lastly, if you really feel you want to trust other parties in the deal, trust them to look out for their interests. So, yes if your agent thinks you are going to walk away from the deal, then I think it’s fair to trust that your agent will do whatever he can to make the deal happen, even if it means a slightly reduced commission. But trusting your agent to represent your interests doesn’t seem that wise to me.

XBoxBoy

[ucodegen]

[quote=ljinvestor]That is in reference to Sellers agent and a very unique scenario. Its the first I’ve heard of a buyers agent asking for less while not discounting the difference off the purchase price.

It really doesn’t make sense because if they didn’t reduce the purchase price by that 1% then the discount agent should have taken the extrra 1% and rebated more to buyer.

Couldn’t your co-worker have said no to the 4/2 split and asked it to be 3/2?[/quote]
Yep. I was using it as an example of the lack of scruples for some RE Agents. She should have, I suggested that she do that.. but she didn’t want a ‘conflict’ and wanted to sell one place because she had a purchase contingent on the sale of the old place, which is what I suspect the RE Agent was banking on. I also re-emphasized to her.. Read all documents through before signing. He ‘slid’ the change in rates in on her, saying that the new docs were needed for some other purpose.

[ucodegen]

[quote=bearishgurl][quote=sdrealtor] . . . CRazy huh?[/quote]

Not a psychologist but there is just one word (acronym) to describe this “phenomenon” . . . “NPD” (formerly DSM-IV-TR 301.81‎).[/quote]Actually, Narcissistic Personality Disorder does not fit. NPD people don’t compete, or have to win. They feel that they should win by default.. since they are so special. They don’t have to put out any effort. Excessive competitive can actually be the reverse of narcissism/NPD, in that they feel that they have to prove it continually. If you remember back to when this board first talked about NPD and about a certain individual, this individual didn’t feel they had to put forth an effort.. they were special, the ‘ideas’ person… and went promptly into a hole for over $1Mil, bringing the wife down with them.

The competitive, have to win, personality is a type-A.

NOTE: Narcissistic Personality Disorder is not equivalent to having some Narcissistic attributes. There are also two forms of ‘Narcissism’. ‘Compensatory Narcissistic Personality Disorder'(CNPD) could fit hyper competitive individuals.

PS: btw, the need to respond to sdrealtors post in this manner could mirror the need to put down others… also listed under NPD and CNPD. Kettle, pot…

[SD Realtor]

wait for it….

[sdrealtor]

Lol. I actually checked wiki for the NPD definition. Some of it fit but most didn’t. The biggest part is I don’t do it for admiration from others it is all internal motivation. I learned long ago that others often don’t understand or appreciate things people do for them. I’m ok with all that. I do it for the personal satisfaction of doing the best job possible for my clients whether they appreciate that or not. As an aside, part of my satisfaction comes from helping someone I like and/or respect. If i end up really not liking someone I am working with, I will and have fired clients. As a self employed individual nothing is more empowering than that.

Sorry for thread jack

[sdrealtor]

There is a lot of truth to what xboxboy wrote. With that said you are better off adding a trustworthy agent to your side than not. Far better off

[Author]

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