How to Give Right Financial Incentive to your Phoenix RE Agent (Buyer's Agent) - Freakonomics (Scottsdale: sales) - Arizona (AZ) - City-Data Forum

Potential_Landlord · 02-27-2011, 01:07 PM

All,

I want to buy a house in north Phoenix. My buyer's agent is paid by the sales commision as a percentage of the sales price. Thus, we have fundamentally different incentives - he wants the price high and a fast contract (= fast payout) whereas I want a low price and can wait as long as I want.

In "Freaconomics" the authors proof the issue with the fact that RE agents sell their own houses, which they leave longer on the market, at a higher price than identical homes of their customers. For buyer's agents the incentive schemes work even stronger against their customers.

How to overcome this? What should I offer my buyer's agent so he has a good incentive to go for a lower price. To throw some numbers out: should I offer him 25% of what we stay under the asking price?

Thanks, PL

P.S. This is not a moral issue or discussion. We all react to the incentives we receive. I bribe my daughter for good grades and it DOES work.

Zippyman · 02-27-2011, 02:53 PM

Unless you're looking at properties well above the averages in Phoenix, the difference in commission is a nothingburger. If you're worried that the "incentive" is to pump the sales price, go sit through the 99 classroom hours and pay the fees, and you can represent yourself. All in, you'll front about $2k for classes, fees & licensing dues, and you'll get it all back as a commission when you buy your first house.

It amazes me that so many people quibble over the agent's commission, but don't even blink at a $6,000 bill for "closing costs" on a $50k property. Everybody involved sticks their hand out when you back up the "money truck" to buy a house, but the only person who gets questioned about fees is the agent.

Ask your mortgage broker & the title office how much they're making on your deals... it's likely significantly more than your re agent.

rjrcm · 02-27-2011, 05:09 PM

Quote:

Originally Posted by Potential_Landlord

...Thus, we have fundamentally different incentives - he wants the price high and a fast contract (= fast payout) whereas I want a low price and can wait as long as I want....

Then you need to find a better agent that will live up to their fiduciary duties to you.

Potential_Landlord · 02-27-2011, 05:11 PM

The fact that you have a lot of fees when buying properties is without question. I have no influence over that (unless you tell me otherwise). The only influence over the transaction I have is to align my agent's interest with mine as closely as possible. Besides, I'll have to pay him anyways -and deservedly so.

Most likely I won't do anything because we know each other for so long and get along very well. I was just thinking out loud.

But it's true - everybody reacts according to the incentives available to them. See Freaconomics.

EnicAZ · 02-27-2011, 05:35 PM

The best way to purchase a house is without a real estate agent. You can then receive an average 2.5% cash back discount from the listing agent in return. All you really need is a one time consultation with a lawyer to make sure you are covered, and the title company will take care of the rest.

Captain Bill · 02-27-2011, 05:55 PM

The agent must place the client's interests above his. As Zippyman said, the few extra dollars that an agent may make by your paying a little more is miniscule compared to the goodwill (and resultant referrals) from a satisfied client who knows that their agent negotiated a good deal for them.

I always advise my clients on what I feel is the current market value in the present condition. Sometimes that number is less than the client was thinking. I will tell them that if we can't get the house at or below current value, then we should continue looking.

That being said, sometimes there may be a house that is special and is a perfect fit, and if there's competition for it, then the buyer may have to, and be willing to, pay a little more.

If you feel you cannot trust an agent, here are some options.

Don't hire an agent, buy the house as an unrepresented buyer. Just know that if you use the sellers agent to represent you as a dual agent, in Arizona that agent then must become neutral. S/he cannot negotiate for, nor be partial to either side. S/he cannot offer any price guidance other than providing a comparative market analysis.
Sign a buyer/broker agreement with the agent and include an incentive clause. For every dollar he negotiates below the list price, you agree to give him 20 cents, paid in escrow.

If he saves you 20,000 below the list price, you owe him $4,000. You gained $16,000. You can mutually agree to any incentive.

That way if the agent tells you that you're going to have to offer more than list price in order to get the house (and that happens in certain properties in certain markets) then you should believe him/her.

With or without an incentive, the agent should provide you with a comparative market analysis, and provide you with sufficient information so you can make an informed decision on the value of the house to you.

The agent can give you a ball park range of what s/he feels is the current value. The final decision on how much to offer is yours in every case, whether or not you've offered an incentive.

sunnyflower · 02-27-2011, 06:44 PM

Hi

I have a question.
How to find out good agent for buying house? Is there any nice site for it?

Potential_Landlord · 02-27-2011, 08:51 PM

Hi Captain Bill,

Thanks and I think my agent will do the same. This is an investment property as I want to finally live up to my name and become a landlord. I am looking for a 4-plex. I'm starting to see more activity and thinking it's time to start buying. Other cash-flow oriented investors are starting to see the value too. Time to move.

Zippyman · 02-27-2011, 10:24 PM

Quote:

Originally Posted by Potential_Landlord

Hi Captain Bill,

Thanks and I think my agent will do the same. This is an investment property as I want to finally live up to my name and become a landlord. I am looking for a 4-plex. I'm starting to see more activity and thinking it's time to start buying. Other cash-flow oriented investors are starting to see the value too. Time to move.

If you're thinking of becoming a landlord, I'd strongly suggest getting some education on the subject first - the school I go to for continuing education is in Scottsdale and they have classes that can help you start out on the right foot - taught by those who currently work in the field. They have a class "package" for about $100, and the knowledge you'll gain is worth far more than that. The classes count as renewal hours if you're a RE agent, but anyone can attend.

How to Lease & Manage Residential Property - 24 Hours (Arizona School of Real Estate & Business)

FWIW, I considered multi-family homes myself, until I took the classes. One of those classes was taught by someone who had managed properties professionally for over 30 years, and his advice was to stay away from 4-plexes due to vacancies. YMMV.

Captain Bill · 02-28-2011, 05:09 AM

Quote:

Originally Posted by sunnyflower

Hi

I have a question.
How to find out good agent for buying house? Is there any nice site for it?

Sunnyflower, there are agents on this site who contribute information. You can send a direct message to them and ask them questions about what areas they cover, etc. You can read all of their posts on the forum to get a feel for their personality and knowledge to see if you find one that you will be comfortable with.

On the top left of the posts where you see the poster's screen name, there is a little house next to the agents names to identify them as agents, and below the name it will either say Real Estate Agent or Real Estate Broker.