The hidden cost of bad advice ......

By
Real Estate Agent with Century 21 New Millennium DC-SP98366576

So the usual suspects were enjoying a little glass of wine after work. Conversation went from the plight of losing a listing to the horrors of dealing with short sales. Eventually, the "forbidden fruit" of commission was discussed.

One agent lamented that co-op commission being offered is not always 3%. She could not believe that agents were only offering 2.5% and in some cases......2%.  She felt that in this "market" it was very poor judgement to offer anything less than 3%. She went on to share that, if you really want your listing to be shown..you should offer a bonus on top of the co-op!

"So", I asked, "you think that the co-op offered is an integral part of your home search for clients? And, you think that you should receive a bonus for doing your job?"

She replied "Absolutely!, if you take the information given and it is 2+ bedrooms and 2+ bathrooms for under $400,000 in Montgomery County, you will have page after page of listings. If you have seen one, you have seen them all. How else are you supposed to seperate them?"

Hmmmm.....Gee...I don't know.........maybe you could ask your client for more specifics. Montgomery County is a pretty big place and if you have that many choices, maybe..just maybe, they could find a home in a more specific area. It is a long way from Poolesville to Silver Spring or from Olney to Potomac.

                                                                 

Agents that claim to be looking out for their clients best interest and somehow bring what they will earn into the equation (after the fact) are nothing more than modern day Snake Oil Salesman. They seem to think that they have the right to preclude properties from buyers based on what they will ultimately earn on the transaction.

Fortunately, they are rather easy to spot.  If you are working with an agent, and the agent did not go over "agency" and have you sign a "buyers agent agreement".....you are working with a Snake Oil Salesman and not someone actually looking out for your best interest.

   

How do you avoid the shell game?

Look the agent right in the eye and ask them if they plan on showing you all the homes that meet your criteria or have they eliminated some because the co-op is not to their liking?  Have them put that in writing. It is very easy to do. Ask them to work under contract to you! Have them sign a buyer agency agreement with you that clearly states how much they will be paid to represent you. (Understand, all or most of the money they will be paid will come from the listing broker. That is what the co-op is all about.)

 

Sign here so we both know where we stand....

There may be laws regarding everyone agreeing on any set commission. There may be laws regarding how an agent must perform. There may be laws that actually require an agent to be under contract before showing you any homes listed with his broker. The only thing keeping you from stumbling and maybe missing the "real" home of your dreams...is the catchy latin phrase "caveat emptor" (let the buyer beware).

If you just blindly go along.....

(2% coop)    (3% co-op)

Well...on the surface they may appear the same, but you will never see the one on the left. That is not what Realtors are trained to do. That is not what ethical people do.

But I just learned over wine..........that is exactly what some agents are doing. You may never know the hidden cost of bad advice.

If you want to have someone represent you that will consider your needs and do the job you expect, contact the MacArthur Group today. Our clients never see the first house without completely understanding the process and having full knowledge of the costs involved.

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Rainmaker
682,641
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

I do not like discussing commissions....however.....in our area the competition is a whole other ball game. The result:  I haven't seen a coop in your "expected range" since I've been in the business.  In fact, the typical coop around here would make your colleague's head SPIN!  People who claim I whine about my commissions haven't tried being a buyers agent around my neck of the woods. With many of my sales being cooperatives in low price ranges it is a problem. With gas prices I could easily LOSE money on a lower end sale.  What I suggest at the lower levels is that the buyer be willing to pay me the higher end of the commission spectrum and put it in an EBA. That way the commission doesn't matter. I am then assured that I will make more than $5/hour!  Btw, this is significantly LOWER than what your friend feels she deserves. 

Sometimes I have to insist on that because quite frankly I can't work for what a lot of these coops are offering at least not in the entry level price range.  After splits my average commission (for all types of property) was less than $3k before taxes last year. The smaller units really dragged it down.  If I have an entry level buyer I no longer have a choice. If they don't want to do it, I let them go. With gas the price that it is, there is sadly no other way!  In truth I have always been able to work the commission into the price of the unit - so no one has ever had to pay me.  However, an EBA solves a lot of these issues.  But I won't misrepresent the issue and "hide listings" from buyers. 

May 02, 2008 02:07 AM #7
Rainmaker
652,773
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
If you have a buyer and they sign a buyer-agent agreement and the commission is too low from the seller, they understand they will be compensating you for the difference.
May 02, 2008 03:38 AM #8
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes
Christine - funny you should say that. When the agent was going on about the situation, I was surprised. When she paused, I did say "Are you serious? I have never looked at the co-op in my life until I was writing a contract."  Now, that does not make me holier than the agent. I just have never felt it was part of the equation. I am glad to here I am not alone.
May 02, 2008 06:16 AM #9
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes
Lisa - Thanks. I is encouraging to hear others do not get wrapped up in this.
May 02, 2008 06:17 AM #10
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Ruthmarie - I know prices are different across the country and co-op rates probably vary widely.  I believe that everyone should develop a way of reasonably guaranting that you will be paid what you deserve while making sure that practice does not preclude you from doing your job.

 

May 02, 2008 06:19 AM #11
Ambassador
2,424,397
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Including specific commission rates in posts makes me nervous too.  That said, the matter of setting your commission is not rocket science.  Buyers' agents don't have to work for hand-outs.  Once the buyer's agent has the trust and confidence of a buyer, the matter of the compensation is easy to handle. 

We're not going to settle the matter of paying the buyer's agent untill we have completely separate brokerage licenses, one for Buyers Brokers and one for Sellers Brokers. 

May 02, 2008 06:21 AM #12
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes
Bob & Carolin - I see you have discovered the true defense against this practice. If you notice, those that are afraid to ask have been given a great method for procuring a buyer broker agreement. Sell it to your clients as protection for them...not you....and do your job and get paid.
May 02, 2008 06:21 AM #13
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Lenn Harley - Do either of us sleep? Great comment. Personally, the discussion of specific commission rates does not un-nerve me. General discussions among agents discussing something like this doe not meet the test of a RICO violation.

I have no problem earning a living as a buyers agent. As you well know, the bulk of my business is on the buyers side and if I had to choose, I would be a buyer's agent. I dare say that I have had success because I have a base frame work that takes place initially that identifies expectations and compensation. Once we are on the same page (and that part is not rocket science. the agreements are required by law if you are going to show all property. well unless you work for a broker that has no listings)

Then I sit and go over criteria. I pull up listings based on what I am presented with like any other agent should be able to do. The amount of compensation being offered is located at the bottom of page 3 of a agents view of a listing. It does not appear at all on the sellers copy. I usually work off the sellers copy. I like to have what they have.

Thanks for dropping in and sharing your thoughts, enjoy the wonderful morning.

May 02, 2008 06:30 AM #14
Rainmaker
634,691
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
John, I'm dismayed by the fact that there are agents out there who will refuse to show listings based on their coop compensation.  Not something I would ever do and not fair to the buyer clients.  
May 02, 2008 07:07 AM #15
Ambassador
1,823,473
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News
I don't pay any attention to the number in the MLS.  If it is the right property for my buyers then it is and we are going to go after it without hesitation.  What becomes interesting in selling foreclosures is that the commission is listed at x rate in the MLS and then when you get the HUD-1 you see a different number.   What is listed in the MLS is the contract between brokerages. It is amazing how fast other agents back pedal when you point this out to them (outside of earshot of your clients) if they don't change the HUD-1 to reflect the MLS number they will be looking at a hearing with the local board.
May 02, 2008 07:09 AM #16
Rainmaker
1,090,519
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc
JMac, I will never understand why REALTORS(R) have an issue with getting a BBA signed. It is the only way to truly do our jobs as professionals. Buyers have NO problem signing these agreements if they are serious about purchasing a home. In fact it's been my experience that they welcome them. It is the most under utilized tool that we have.
May 02, 2008 08:04 AM #17
Rainmaker
198,270
Mary Strang
Viroqua, WI
Real Estate
I also don't pay any attention to the information of MLS about what the co-op agent gets for a fee, it can be re-negotiated with the buyer and/or seller. Nice post.
May 02, 2008 08:17 AM #18
Rainmaker
404,315
Simon Conway
Orlando Area Real Estate Services - Orlando, FL
J-mac - this kind of thing really upsets me. Personally I never look at what I might receive if I sold one home over another. That is never the issue. Unfortunately many out there are not like that. Many times I have been asked directly "are you paying a bonus?" and unfortunately I am now in a position where I have relented and advise my seller clients that they probably do indeed need to offer a bonus these days if they want maximum exposure from the Realtor community. Great post.
May 02, 2008 09:14 AM #19
Rainer
10,839
Katherine Anderson
Coldwell Banker Hobin Realty, LLC - Hampton & Rye, NH, USA - Exeter, NH
Managing Broker
John, how very true.  It's a shame that some agents do business this way.  It's very unethical and especially if the buyer is their client.  Some agents think that they are doing their buyer client a favor by not showing them the properties that are a lower co-broke because then their buyer would owe them the difference.  This should all be disclosed up front and in writing.  If the buyer decides on their own not to see properties that wouldn't cover the buyer agents fee in full, then they should agree to that in writing.  I don't think that agents should be short-changed, but it's their job to look out for their clients best interest and be honest with that client about how much they expect to be paid and who will pay them under various scenarios.  
May 02, 2008 09:53 AM #20
Rainmaker
201,912
Jennifer Monroe
Savvy + Company Real Estate - Charlotte, NC
Real Estate REALTOR®/Broker in Beautiful Charlotte

I rarely even notice the BAC until it's time to submit my commission demand. But I am certain to offer the best I can when it's my listing because I know it's crucial to getting my listing shown and sold. I don't like it, but it's part of our business.

I AM here to make money and I don't appreciate the shrinking BAC's I'm seeing in my area. You remind me that I should be paying a bit more attention because if the BAC is that low, I have to wonder what else is being short-changed on that property. It may not necessarily be the best buy for my client if the owner is a tightwad. Deferred maintenance? Reduced chance of negotiation on repairs? What else are they being cheap about??

May 02, 2008 10:19 AM #21
Rainmaker
31,267
Miami Condo Kings 305-791-5596
Miami Condo Kings - Americore Realty - Miami, FL
Helping You Experience the Miami Lifestyle

Well, John, I like some points of what you said but others I disagree with. Just because you don't ask for a buyers agency agreement doesn't make you a snake oil salesman. We don't require it because many people feel pressured into signing a contract with someone they just met, I don't put my clients in that situation. I am still bound by law to provide the customer with reasonable care even without making them sign a contract.

Second everyone has the right to offer more or less money to the agents who bring their clients, and in a competitive market place and free trade environment agents can choose to sell homes where they make the money they expect to make for their services. That is the freedom we have. You can offer a job at $9 and hour but if a similar job is going for $13 an hour of course the better canidates will not take the $9 an hour job.

It goes both ways, I would say a seller should offer a competitive rate if they want their house to get shown. Most buyers agency agreements if you fill in say for example 3% and the coop is 2.5 would have the buyer then having to pay the .5% to make up the difference. So they may not want to buy that home anyway. You agree with your client in the agreement what youa re working for. So it doesn't matter if they offer lower than your rate. Many discount brokers offering less money get much less showings, they should disclose that to their sellers if they are really looking out for them.

May 02, 2008 11:11 AM #22
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Mead Homes - Can I kindly but strongly disagree with you. If you have a problem having someone sign an agreement, include the caveat that they can cancel at anytime. If they don't like you on the way to the first showing, they can fire you. If they don't like you after day one, they can fire you. They are fully protected and at no risk to keeping an agent that they don't want to keep.

In Maryland, you can not show homes that are listed by your broker with out an agreement. You just can't do it. If you happen to work for a broker that has 43% of the market, you are actually rather stupid not to have an agreement signed. You have to tell the buyers that you can not show them listings that are under your broker. If they agree, well they apparently only want to see 57%. I won't do it. I won't walk out the door if they are not signed. It is never an issue. I happen to think that those that claim "they won't sign" are only exhibiting behavior that indicates they don't know what the BBA is and how to explain it.

You may be bound by ethics to provide them care, but State Law must be followed as well. What part of care includes that you can use the co-op offered as a determing factor of homes you will show?

On your second point, it is a free market. You can not remove listings from possible showings because of the amount of co-op offered. It is a violation of ethics. Your free trade environment only covers the buyers and sellers. You have to answer to a higher authority. For some reason, you are equating everything to reimbursement. If that were the case, we would have no scientist, we would have no one in the Peace Corp and we would not have many elected officials. If you want the term Realtor to mean something, you have to exhibit ethics above the folks that are chasing the dollar regardless of their clients needs and desires.

It does go many ways. I just happen to believe in the standards we preach. I believe we should practice what we preach. If discount brokers are getting less showings because of the co-op they offer, I hope they file a class action suit against any broker that is supporting that behavior.

Perhaps in your rush to judgement, you should put your balance sheet aside and take another look at what our code of ethics contains and understand, your reimbursement on any transaction is the result of the transaction and not part of the transaction.

May 02, 2008 03:58 PM #23
Rainmaker
524,788
Dr. Stacey-Ann Baugh
Century 21 New Millennium - Upper Marlboro, MD
A doctor who makes house calls.

Great post.  I agree wholeheartedly.  I feel the same way about realtors who only shop the listings within their own company - never showing buyers listings that meet their criteria because they are listed with another broker.

May 21, 2008 05:56 PM #24
Ambassador
1,966,095
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

John:  If a buyers agent wants to work for a specific commission,  it is most important to have that buyer agency agreement filled out with whatever you feel you earn doing your job.  That way, you can explain to to your buyers that if they want to see a listing that is 50% less than what you agreed to work for, they will be required to pay the other 50%.  The problem solves itself.  And yes, I do believe I worth every penny I ask for.  The buying sides are much more intense.  And with the cost of gas, what's to be ashamed about for asking what you are WORTH.  This is a job.  I am not a charity.  Get the Buyers Agency Agreement filled out, and send all the listings to your clients and let them decide if a house is worth coming out of pocket for.  You might be pleasantly surprised at how your hard work is perceived.

May 22, 2008 09:43 AM #25
Rainmaker
916,816
Tony Marriott
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Associate Broker, REALTOR

No requirement that the total commission be a 50/50 split with the Buyer Agent.  If they are concerned about their compensation they should use a Buyer Broker Agreement.

Aug 21, 2010 02:14 PM #26
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Rainmaker
219,651

John MacArthur

Licensed Maryland/DC Realtor, Metro DC Homes
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