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You realize how small the %'s are, right? Most agents are more motivated to do a good job in hopes of getting future referrals than they are to try to get you to pay an extra 10k to gross an extra $300 which nets them probably an extra $150.
This has come up a many times in this thread. Firstly, my price range runs about $80,000 (our ability to pay is a lot higher than what we'd like to pay), so the difference between being pushed to the top of my range or being pushed to the low end of my range could mean $2,400 to the agent. Given how many agents here complained that my proposal would cause agents to push buyers to the low end, my economic understanding of the importance of incentives (and given my prior experience with a buyer's agent), I'm pretty sure referrals are not enough to keep this pushing from happening. After all, failing to show a buyer a cheaper available house generally does not generate bad referrals as long as the buyer likes the more expensive house that they did get.
Secondly, as I pointed out on the first post, referrals matter under any compensation scheme, so this is another "the current scheme isn't that bad" argument moreso than an argument that x% * sales price is better than either my proposal or flat rate. Nobody has provided that as of yet.
Last edited by perfectlyGoodInk; 09-17-2012 at 11:26 AM..
I registered just to post this. I think perfectlygoodink has a point.
If the sales price is higher, then the buyer's agent makes more money under the current system. This is indisputable.
The buyer's agent is in a position of knowledge and power over the buyer; as such, they can passively let the price float higher by not encouraging aggressive negotiations, not encouraging due diligence, etc.
Referral business / customer satisfaction is irrelevant for 2 reasons. First, people don't buy/sell homes that often (once every 6 years on average). Second, when they do they likely aren't buying in the areas served by the agents that their friends are recommending (only 40% of moves are local), so a friend's recommendation of "use this agent" or "avoid this agent" aren't relevant.
Therefore, the only way to incentivize the buyer's agent is to have their commission increase as the price decreases from appraisal / list.
Given that 10% under list is considered a lowball, it would make sense to do something like commission is say x% of sale price plus y% of the difference between sale and list. I would gladly pay a couple grand extra to an agent if it got me $60k off the house.
Just to debunk a couple of misnomers here:
1-Agents can't easily "hide" information in this internet age. Most buyers are out there looking at properties online. Most buyers are deciding which homes they go look at.
2-All buyers decide what they want to offer and what they'll accept. I've never met a buyer that let the agent make all the decisions and then signs blindly on the contract. Maybe you have.
3-Don't discount referrals. About 65% of my business is referred to me by friends, family, and past clients. The majority of those referrals are actually sent by past clients and it's their friends and family they send over. It is imperative they have a good experience because they are critical to my future successes. How can you tell me you know if referrals are relevant or not having never spent a day in the business?
4-If you get 10% off asking price the property was probably grossly overpriced anyway and you ended up getting around market value. Asking price has nothing to do with actual value.
Lastly, I don't see it from the agent perspective as a "reward" for negotiating a better deal because at the end of the day I have no control over what the seller will or won't accept. Why should I be punished if I find an awesome deal and the buyer pays full price to get it locked up? What I have more control over is problem handling when situations arise during the closing process. BTW, the top agents are distinguished during the contract to close phase, not the negotiation phase.
What I have more control over is problem handling when situations arise during the closing process. BTW, the top agents are distinguished during the contract to close phase, not the negotiation phase.
Well said Brandon.
Today we closed on a listing that was extremely close to falling apart a week ago. I spent about 8 hours just on the phone and in emails with the agent and two contractors, plus several hours at the property with contractors, in order to settle an issue.
There was a dispute over the workmanship of the repairs the buyer requested and the seller agreed to, and did correct.
Fortunately the other agent was a good agent and we were able to negotiate and work things out between an irate buyer and an irate seller; both of whom thought the other was wrong, and both were willing to cancel.
Had a cancellation occurred, it would have cost my seller about $2500/month for us to get it back on the market, find a new buyer and sold again, (he had already moved) so it was in his best interest to get this transaction closed. However, I wanted it closed at the least cost to my seller.
Because of the other agent being reasonable and able to calm her buyer, we were able to resolve the situation so both buyer and seller were happy, and just in time to get the loan funded without having to do a coe extension.
I registered just to post this. I think perfectlygoodink has a point.
If the sales price is higher, then the buyer's agent makes more money under the current system. This is indisputable.
The buyer's agent is in a position of knowledge and power over the buyer; as such, they can passively let the price float higher by not encouraging aggressive negotiations, not encouraging due diligence, etc.
Referral business / customer satisfaction is irrelevant for 2 reasons. First, people don't buy/sell homes that often (once every 6 years on average). Second, when they do they likely aren't buying in the areas served by the agents that their friends are recommending (only 40% of moves are local), so a friend's recommendation of "use this agent" or "avoid this agent" aren't relevant.
Therefore, the only way to incentivize the buyer's agent is to have their commission increase as the price decreases from appraisal / list.
Given that 10% under list is considered a lowball, it would make sense to do something like commission is say x% of sale price plus y% of the difference between sale and list. I would gladly pay a couple grand extra to an agent if it got me $60k off the house.
Regarding the portion I colored red, and in particular the "data" that 40%of moves are local;
Where do you get this info? I think it must be inaccurate. The NAR does a survey of home buyers & sellers every year. This is a direct quote from the summary of that survey,
Quote:
The median distance from the previous residence was 12 miles, the same as in the 2010 study.
Just to debunk a couple of misnomers here:
1-Agents can't easily "hide" information in this internet age. Most buyers are out there looking at properties online. Most buyers are deciding which homes they go look at.
2-All buyers decide what they want to offer and what they'll accept. I've never met a buyer that let the agent make all the decisions and then signs blindly on the contract. Maybe you have.
3-Don't discount referrals. About 65% of my business is referred to me by friends, family, and past clients. The majority of those referrals are actually sent by past clients and it's their friends and family they send over. It is imperative they have a good experience because they are critical to my future successes. How can you tell me you know if referrals are relevant or not having never spent a day in the business?
4-If you get 10% off asking price the property was probably grossly overpriced anyway and you ended up getting around market value. Asking price has nothing to do with actual value.
Lastly, I don't see it from the agent perspective as a "reward" for negotiating a better deal because at the end of the day I have no control over what the seller will or won't accept. Why should I be punished if I find an awesome deal and the buyer pays full price to get it locked up? What I have more control over is problem handling when situations arise during the closing process. BTW, the top agents are distinguished during the contract to close phase, not the negotiation phase.
Totally agree with contract to close being where a good realtor shines - it is the depth of their Rolodex with good due diligence people that saves buyers money by finding things that need to be cured, getting an estimate, and incenting the seller to provide cash at closing to fix, say, an electrical problem.
Say that someone paid you 3% of sale plus 20% of (list+concessions-sale)? That is, for every dollar you get below list, and every dollar of cash to cure objections at closing, you get 20%. Even if you do nothing you still get your 3%, but if you go the extra mile and find people that help find property defects you make even more.
Doing so would incent the buyer's agent to provide the best possible due diligence to find all possible objections after the contract is accepted, and provide an incentive to get the lowest price for their buyer. I want a buyer's agent that will be a pitbull at getting me under contract at the lowest price and then after that finding everything that is wrong with the house so I can get all the cash that I deserve at closing from the seller to fix any problems.
Just to debunk a couple of misnomers here:
1-Agents can't easily "hide" information in this internet age. Most buyers are out there looking at properties online. Most buyers are deciding which homes they go look at.
2-All buyers decide what they want to offer and what they'll accept. I've never met a buyer that let the agent make all the decisions and then signs blindly on the contract. Maybe you have.
The BA agreements that I have seen specify that the role of the BA is to locate a property, negotiate, and provide advice "within the scope of the agents expertise".
You make a good argument that the "locating" and "negotiating" is often done by the buyer, not the BA. So, in the end, the buyer is paying the BA thousands of dollars for advice (within their scope of expertise)?
Quote:
If you get 10% off asking price the property was probably grossly overpriced anyway and you ended up getting around market value. Asking price has nothing to do with actual value.
So if an agent negotiates a price down, it has nothing to do with the skills of the agent, it was just the destiny of market forces?
Totally agree with contract to close being where a good realtor shines - it is the depth of their Rolodex with good due diligence people that saves buyers money by finding things that need to be cured, getting an estimate, and incenting the seller to provide cash at closing to fix, say, an electrical problem.
Say that someone paid you 3% of sale plus 20% of (list+concessions-sale)? That is, for every dollar you get below list, and every dollar of cash to cure objections at closing, you get 20%. Even if you do nothing you still get your 3%, but if you go the extra mile and find people that help find property defects you make even more.
Doing so would incent the buyer's agent to provide the best possible due diligence to find all possible objections after the contract is accepted, and provide an incentive to get the lowest price for their buyer. I want a buyer's agent that will be a pitbull at getting me under contract at the lowest price and then after that finding everything that is wrong with the house so I can get all the cash that I deserve at closing from the seller to fix any problems.
One thing is for sure, if a concept posted on this forum benefits a buyer yet disrupts the RE status quo, you can bet the agents will oppose it.
1-Agents can't easily "hide" information in this internet age. Most buyers are out there looking at properties online. Most buyers are deciding which homes they go look at.
Agreed. But similarly, I don't think the misconception that buyer agency is free is going to stick around forever. A business model based on hiding information from your clients doesn't work as well in the Internet age. To compete with freely available information requires better service. I think offering your clients a pricing plan that makes more sense for them is better service than offering a pricing plan that works against their interests (let alone trying to claim that the price is free because the buyer is paying somebody else to pay it).
Quote:
Originally Posted by Brandon Hoffman
3-Don't discount referrals.
My take from the very first post of this thread was that referrals are equally important under any compensation scheme, so the presence of referrals is not a point in favor of x% * sales price. Referrals are just as important with flat rate. They would remain as important as they are now under my proposal.
Quote:
Originally Posted by Brandon Hoffman
Why should I be punished if I find an awesome deal and the buyer pays full price to get it locked up? What I have more control over is problem handling when situations arise during the closing process. BTW, the top agents are distinguished during the contract to close phase, not the negotiation phase.
Under x% ($YYY,YYY - sales price), agents still only get paid upon closing. The difference is that the agent would no longer get punished for finding a great deal of a home or for negotiating well with the seller. Why on earth should an agent be punished for doing their job well?
No compensation scheme is ever going to be perfect, but some flaws are bigger than others.
Last edited by perfectlyGoodInk; 09-20-2012 at 01:09 AM..
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