This post and the next are revised versions of posts I did on my short-lived ActiveRain blog a couple years ago. They came to mind because of an Inman column by Teresa Boardman two weeks ago regarding the amount of cooperating compensation offered in MLS.
Some listing brokers in many markets are offering bonuses to buyer brokers in an effort to speed the sale of their listings. Bonus offers of this kind are bad for the industry.
What bonus offers look like
Here are examples very similar to bonus offers my MLS clients have asked me to evaluate.
“$5000 bonus to selling agent on sale closing before July 31”
Listing broker puts 1% in the MLS compensation then in agent remarks says, “1.5% of sale price as bonus if you negotiate for your buyer and arrange inspection and appraisal”
Example 1 is the typical bonus offer that has been around since before my time. Example 2 is of a type that is showing up more frequently as listing brokers want to try to specify exactly what a buyer broker must do to earn her commission. There are also very poorly worded bonus offers, ones so confusing that I can’t imagine anyone being able to figure out whether she had satisfied the conditions or not; that’s a discussion for another day.
Bonus offers send the wrong message to consumers
Why do listing brokers make bonus offers like example 1 above? How do they justify them to sellers? The only justification I can think of is that it will encourage a sale because cooperating brokers will be motivated by the opportunity for personal gain to show buyers the listings with bonuses, or to show such listings more favorably.
Many brokers have told me (1) that they would never put their own interests ahead of their buyers’ to obtain a bonus, and (2) that they do not believe other professional brokers would do so. I hope they are being honest about (1), but if they are putting bonus offers on their own listings, I think they are being less than honest about (2). Why would they put bonus offers on their listings unless they believed they have an impact?
Brokers point out that it is nearly impossible for a buyer’s broker to conceal listings from her buyer that pay less and show only ones that pay more, because consumers have access via IDX and sites like REALTOR.com to nearly complete listing compilations. They can thus “check up” on their brokers. This may be true, but the broker holds more subtle influences than just choosing which listings to show; she can also influence the buyer by the order in which she shows listings, how she shows the listings, what features of each listing she identifies as being important, etc. That’s why consumers hire brokers – for their expertise.
Consumers know about the bonus offers: A listing broker generally needs consent from the seller to offer a bonus under the Code of Ethics and other regulations. I’m assuming every broker is aware that she must disclose bonus offers to her buyer in a transaction, at least in every state I can think of.
What messages do these disclosures send to sellers and buyers? Simple: “Listing brokers believe they can buy influence with buyer brokers by offering them extra compensation – despite the buyer brokers’ duties to their clients.” Does anyone think that’s a good message for the industry?
There are other problems with bonus offers in MLS – I’ll try to tackle them in the next post.
Your thoughts?
-Brian
I've always been against bonuses. I don't accept them. They go back to the buyer.
But I did get ticked when I put in an offer for a home that offered 4% and after we put in the offer he countered and put "3% to the buyer agent."
Um, you can't do that. You can't do a bait and switch like that. His reply was "but your offer was so low." I
I agree that conditional bonuses are, at best, inappropriate.
There is another reason for bonuses in general. It is an attempt to circumvent the split agreement between the (buyer's) agent and their broker.
Jeff, many brokers treat the bonus like a regular commission. They don't let the seller bypass their cut.
Where it gets tricky iswhen the new construction offers a trip to Fiji for selling a house. I guess the broker gets a trip to Miami?
I got a message from a friend who is an executive at a state REALTOR assn:
"Here is one for you to add to your file. I had an email from one of the local boards asking about arbitrating a ‘Flat Screen TV’. Apparently, the LB offered a flat screen as a bonus. There was a selling broker and the sale closed. I believe the selling broker got paid the commission but did not receive his