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There is one other thing that I haven't discussed and it's regarding "transparency" which I believe you've mentioned
The Seller and Sellers agent determine how much the buyers agent is to be paid. The pay is an incentive for the agent to bring a buyer.
That was how things used to be before buyer agency. As Silverfall pointed out, there used to be agents who worked with buyers but who actually worked for the seller, representing the seller's interests. Their job was to bring buyers to the seller, acting like advertising for the property (note that this is even less transparent than now). With the advent of buyer's agency in the 90s, the buyer agents are now supposed to represent buyers. Their mission changed. It used to be to help the seller find a buyer. Now the mission is to finding the best home for a buyer, maximizing value and minimizing cost. Indeed, I suspect the reason that the commission structure is backwards is that it is a carryover from that time when they actually represented sellers.
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Originally Posted by Captain Bill
Neither the seller nor the sellers agent intends for any part of the buyer agent's commission to be rebated to the buyer. If the Seller or sellers agent thought a buyers agent would be as likely to bring a buyer for 2% as for 3% commission, then a 2% would probably be offered, and the seller would theoretically net that much more money for the home.
Neither the seller nor the sellers agent have a right to step on the agreement between the buyer and the buyer's agent, anymore than the buyer has a right to tell the seller how much they should be paying their listing agent. Similarly, the seller and the listing agent have no obligation to disclose the listing agent's commission to the buyer or to the buyer's agent (and indeed, I do not see it on the MLS printouts). The listing agent is providing a service to the seller, not the buyer. The buyer's agent is providing a service to the buyer, not to the seller (not anymore). Prices should be transparent to the people paying and receiving that price. If you are providing a good or service to somebody, you should be transparent on the terms of what you are providing and how much it costs -- and also any conflicts of interest you might face.
A car dealership needs to tell its customers all of the costs they will be paying for a car. They are under no obligation to disclose how much somebody else paid for the same make and model car (and indeed, rarely do, as this weakens their negotiation position). They are also under no obligation to disclose to the buyer the salary of the salespeople or the factory workers.
Last edited by perfectlyGoodInk; 09-27-2012 at 11:04 AM..
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Originally Posted by Captain Bill There is one other thing that I haven't discussed and it's regarding "transparency" which I believe you've mentioned
The Seller and Sellers agent determine how much the buyers agent is to be paid. The pay is an incentive for the agent to bring a buyer.
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perfectlyGoodInk....That was how things used to be before buyer agency. As Silverfall pointed out, there used to be agents who worked with buyers but who actually worked for the seller, representing the seller's interests. Their job was to bring buyers to the seller, acting like advertising for the property (note that this is even less transparent than now). With the advent of buyer's agency in the 90s, the buyer agents are now supposed to represent buyers. Their mission changed. It used to be to help the seller find a buyer. Now the mission is to finding the best home for a buyer, maximizing value and minimizing cost. Indeed, I suspect the reason that the commission structure is backwards is that it is a carryover from that time when they actually represented sellers.
You're confusing Agency representation, (when in the past there was sub agency, where all agents were sub agents of the sellers broker) with the amount of pay that a seller offers a buyers agent to give incentive to bring a buyer.
As has been discussed, (while it should not happen), if a seller offers only 1% to a buyers agent when most other sellers are offering 3%, then that is not an incentive for the buyers agent to bring their buyer and the buyer agents may try to steer their clients away from that house. .
Therefore, what I said is correct: "The Seller and Sellers agent determine how much the buyers agent is to be paid. The pay is an incentive for the agent to bring a buyer."
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perfectlyGoodInk.....Neither the seller nor the sellers agent have a right to step on the agreement between the buyer and the buyer's agent, anymore than the buyer has a right to tell the seller how much they should be paying their listing agent. Similarly, the seller and the listing agent have no obligation to disclose the listing agent's commission to the buyer or to the buyer's agent
You make a big deal about "transparency", but in this case you don't seem to favor transparency.
PLEASE ANSWER: In the spirit of transparency, why should the seller not be informed that the buyer is receiving part of the buyers commission?
I've repeated my supposition that you responded to. Notice that I did not say that one had the "right". I stated my opinion. Also I proposed a scenario, and asked a question. Instead of you responding to what could happen, you gave a car dealer analogy. We're not dealing with cars, so the analogy doesn't fit.
My question was: "Is it possible that the seller, due to this non-disclosure of what the seller considers as a material fact, could cancel the contract, or demand that the money that was shown as some form of rebate to the buyer, be credited back to the seller account?"
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by Captain Bill..... Therefore, if an agent is going to rebate to the buyer any part of the commission the seller is offering, then that fact should be disclosed in the offer, in my opinion. The seller may consider that to be a material fact that the seller should have in order to determine the price the seller is willing to accept for the home.
Wouldn't it be interesting if, when the seller receives the estimated settlement statement, s/he discovers that the buyers agent is not being paid the full agreed on commission, and instead has rebated a portion of it to the buyer?
What if the seller then complains that since she offered the buyer agent 3%, which was intended only for the buyer agent (not for buyers closing costs), and the fact that the money is being diverted to the buyer is a material fact that was not disclosed by the buyer and buyers agent at the time of the offer?
Is it possible that the seller, due to this non-disclosure of what the seller considers as a material fact, could cancel the contract, or demand that the money that was shown as some form of rebate to the buyer, be credited back to the seller account?
One more point about buyer agent rebates to buyer. Here is a "recommendation" from the Arizona Department of Real Estate regarding buyer agent rebates. These are not "required", but it is a "recommended" practice, to prevent mortgage fraud.
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ADRE Substantive Policy Statements No. 2008.06
Short Title: Preventing Mortgage Fraud through Disclosure
Description: The Department recommends that a licensee who provides a premium, credit, or rebate in a real estate transaction disclose the premium, credit, or rebate to all parties in the transaction, including the lender and third-party service providers, such as appraisers, in the purchase agreement and the HUD-1 statement (or other writing if no HUD-1 is required).
Effective Date: June 18, 2008
Note: Although it is not required (but recommended by the ADRE) to be on the purchase agreement, it is "required" to be on the HUD, and the seller will see it when the Estimated HUD-1 is issued.
Therefore, in AZ, it is my opinion that it's a good practice to use the ADRE's recommendations. Since you are a proponent of "transparency" I would expect you to agree.
Last edited by Captain Bill; 09-27-2012 at 04:17 PM..
You make a big deal about "transparency", but in this case you don't seem to favor transparency.
When you are a listing agent, do you disclose your commission to buyers? Why or why not?
The reason I think that might be a bad idea is that it might put off some buyer's agents who notice when the listing agent is paid more than them. My listing agent for my condo in California proposed and was paid under a plan where the commission was 5% if the sale was below a certain amount and 6% if it sold above, but it was 2.5% to the buyer's agent either way, meaning my agent's commission was 2.5% if lower or 3.5% if higher. This was not disclosed to buyer's agents, nor did it need to be. I was the one hiring the listing agent. That agreement was between me and him, and not the business of the buyer's agents. Disclosing that might have put some off, however, and more importantly -- there is no efficiency gain from that disclosure.
The same is true vice versa. If listing agents wanted to prevent the standard pricing from being changed for some reason, they could refuse all offers from agents not adhering to that standard. Transparency is a benefit when it accomplishes something, for example disclosing conflicts of interest between somebody ostensibly serving somebody who might not be. Does it accomplish anything for a listing agent to disclose their commission to buyers? No, because the listing agent is not representing buyers. Buyers are not assuming that listing agents represent their interests. Ditto for vice versa. Sellers do not assume that buyer agents represent their interests either.
A car shop has no obligation to disclose its salaries to customers for similar reasons. A customer might be put off by the salesperson's salary even though it isn't really relevant to them whether the car is a good value or not. Also, transparency of salaries of workers within firms would be disastrous. It is better for salaries to remain confidential because firms are more efficient when workers are paid based on productivity as well as their opportunity costs. Full disclosure of all employee salaries to everybody would lead to huge morale problems, and productivity would likely fall. Transparency of workers' sexual orientation to employers would also be a terrible idea.
When you are proposing a change, it is important to think about what goal you are trying to accomplish with that change. Transparency is a means to an end, and not an end in and of itself. When it leads to more fluid and flexible pricing and free competition, this increases market efficiency. Transparency between a buyer and seller of what the seller is selling and the buyer is paying falls into that (whether that seller be selling a house or a service). Disclosing salaries to people who have no business knowing that -- not so much.
Quote:
Originally Posted by Captain Bill
You're confusing Agency representation, (when in the past there was sub agency, where all agents were sub agents of the sellers broker) with the amount of pay that a seller offers a buyers agent to give incentive to bring a buyer.
The way things are set up is for a system where there was no buyer's agent. Instead, there was someone who acted like a buyer's agent but actually acted in the best interest of the seller. The payment system is setup for that arrangement. The agreement of the amount of payment, however, is now between the buyer or the seller, or else Redfin wouldn't be in business. They have to jump through some hoops to accomplish this, but that is because the system was designed for buyer's agents who worked for sellers. It is not because buyer agents work for sellers.
Now, a buyer's agent has a fiduciary responsibility to look out for the buyer's interest. Their service is not to the seller, but to the buyer. The payment is still going through a system designed for agents working for the seller, and so they are paid by the seller. The job, however, has changed. They used to be paid to find buyer's for houses. They are now paid to find houses for buyers. The payment system is not set up that way, but that is now what they are paid to do.
Remember, of course, that the commission for both agents is still coming out of money paid by the buyer. So technically, it is the buyer paying both agents.
Last edited by perfectlyGoodInk; 09-27-2012 at 06:50 PM..
When you are a listing agent, do you disclose your commission to buyers? Why or why not?.
The listing agent does not communicate directly with the buyer, and my fee is not a material fact that the buyer needs to know.
The buyers agent is free to ask the listing agent if there is a variable commission, and the listing agent is required to answer yes or no.
Quote:
Quote:
ADRE Substantive Policy Statements No. 2008.06
Short Title: Preventing Mortgage Fraud through Disclosure
Description: The Department recommends that a licensee who provides a premium, credit, or rebate in a real estate transaction disclose the premium, credit, or rebate to all parties in the transaction, including the lender and third-party service providers, such as appraisers, in the purchase agreement and the HUD-1 statement (or other writing if no HUD-1 is required).
Effective Date: June 18, 2008
You didn't tell me if you agree with the ADRE substantive policy statements. And if you disagree, Why?
The listing agent does not communicate directly with the buyer, and my fee is not a material fact that the buyer needs to know.
The buyers agent is free to ask the listing agent if there is a variable commission, and the listing agent is required to answer yes or no.
Quote:
Originally Posted by Captain Bill
You didn't tell me if you agree with the ADRE substantive policy statements. And if you disagree, Why?
Disagree, because of my above discussion about transparency being a means to an end, not an end in and of itself (pretty similar to your "not a material fact that the buyer needs to know" point). When you do business with someone, transparency in what is being bought and sold means the buyer can make an informed decision. So if you are selling a house, you should disclose everything about the house and how much it costs. If you are selling a service, you should disclose everything about the service and how much it costs.
Transparency is called for when the person to whom the information is disclosed to can then make a more informed choice that, in the aggregate, causes society and the economy to be better off. Whether or not two parties directly communicate is irrelevant to whether or not transparency accomplishes this goal. Note that coworkers at the same firm communicate with each other all the time, but transparency of their salaries to each other is a terrible idea because it would mostly just create resentment. The salesperson at an auto shop communicates directly with the buyer, but transparency of the salesperson's salary to the buyer is a bad idea as well.
Ditto for the listing agent disclosing their commission to the buyer or the buyer's agent, or the buyer agent disclosing their commission to the seller or the listing agent (the two situations are mirror images of each other, much like my compensation proposal and the standard rate). The two agents do communicate directly, but one of them learning how much the other is paid does not enable the other to make a more informed decision (just a more emotional one, if anything).
But when a buyer and seller are transparent with each other, then buyers and sellers can make more informed decisions about whether they should be buying from that seller and vice versa. This improves market competition and efficiency. Markets fail to achieve efficiency when one side has more information than the other. Economists call this information asymmetry, and it is the biggest reason insurance markets have so many problems. Information asymmetry was also one of the most important factors behind the financial crisis, where investors purchasing CDOs and MBSs did not have as much information about the default risk of borrowers as the banks making the loans, and thus they overinvested in these instruments to create a bubble.
You didn't respond to my points about what a buyer's agent is paid to do. Do you still think the buyer's agent's job is to find buyers for the seller? Most of the agents on this discussion have insisted that the compensation plan didn't matter because they had a fiduciary duty to their client, the buyer (although if that were true, they also wouldn't be objecting so strongly to changing the plan). However, your claim that buyer's agents serve sellers disagrees with this stance.
Last edited by perfectlyGoodInk; 09-28-2012 at 11:48 AM..
Quote: ADRE Substantive Policy Statements No. 2008.06
Short Title: Preventing Mortgage Fraud through Disclosure
Description: The Department recommends that a licensee who provides a premium, credit, or rebate in a real estate transaction disclose the premium, credit, or rebate to all parties in the transaction, including the lender and third-party service providers, such as appraisers, in the purchase agreement and the HUD-1 statement (or other writing if no HUD-1 is required).
Effective Date: June 18, 2008
Note: Although it is not required (but recommended by the ADRE) to be on the purchase agreement, it is "required" to be on the HUD, and the seller will see it when the Estimated HUD-1 is issued.
Quote:
Originally Posted by perfectlyGoodInk
Disagree, .
Ok, you're entitled to disagree.
And I apologize that I cannot relate to your text book theories because I have to deal with current real estate laws and the real world of the real estate business. Since you are not in the real estate business you can't see what issues can occur.
One of the main reasons the ADRE recommends this is to Prevent Mortgage Fraud. Even though the Substantive Policy is a recommendation, I prefer to abide by them because they make for a smoother and safer transaction which can keep my clients and my company out of legal trouble. I don't offer rebates to buyer clients, but if I did, it would be disclosed up front on the purchase contract to avoid any issues with the buyers loan company that could cause them to deny the loan.
The mortgage fraud reason should be obvious.
In addition, since you're not in the business, you wouldn't see that when the buyer does not disclose up front that s/he is getting credit from some sources, such as the buyers agent, the lender invariably holds up the process (after learning of the credit which is usually on the wrong line on the estimated HUD,) until they get letters stating where this money is coming from and why. This can cause a delay in closing, which could cause the seller to cancel, or demand per diem to cover the expenses caused by the buyers delay. In some cases it could cause the lender to remove the approval of the loan.
Oh, I have no problem disclosing rebates to the lender. That transparency serves the purpose you've described (albeit irrelevant to me, being a cash buyer). Notably, the lender is selling something -- a loan -- to the buyer. Thus, the terms and the pricing of that loan are fully disclosed to the borrower, who needs to know what they're buying and how much it costs in order to make an informed decision about which lender to choose.
Likewise, the lender needs to know about the credit risk of the borrower, as the lender is also a buyer in that they are purchasing an income stream from the borrower, and needs to know what they're buying in order to make an informed decision about whether to lend to them or not (CDO and MBS investors lacked this same information, and thus made poor choices that harmed the economy).
My point is that there's no reason for commission transparency between the listing agent or the buyer's agent, even though they communicate directly. Like salary disclosure of employees within a firm, it serves no purpose other than to rile folks up. Transparency is key between parties that are buying/selling something from each other.
...My point is that there's no reason for commission transparency between the listing agent or the buyer's agent, even though they communicate directly. Like salary disclosure of employees within a firm, it serves no purpose other than to rile folks up.
Agreed, and I don't think anyone has suggested that.
Agreed, and I don't think anyone has suggested that.
The quote, "all parties in the transaction, including the lender and third-party service providers, such as appraisers" sounds a whole lot broader than "to the lender." I also fail to see the rationale behind disclosure to the appraiser, who just needs to assess the property value, a task completely independent of the people buying or selling it.
One of the reasons I went with the agent I did is that they had the most sophisticated interpretation of the housing bubble, pointing to conflicts of interest where appraisers were under pressure from lenders to appraise houses at certain levels so that the transaction would go through. This is a case where shielding irrelevant information from somebody improves the situation. For example, when I consider economists applying for contract work with us, I review their writing samples blind of their name and resume so that I can judge their work independently of their background, which might bias me in one direction or another. Similarly, an appraiser will do a more objective and accurate job if they don't know what people are hoping the home will appraise at.
Also, shall I presume that you agree now that buyer's agents work for buyers, and thus are paid to find a home for a buyer, and not a buyer for a home?
Last edited by perfectlyGoodInk; 09-28-2012 at 12:20 PM..
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