Is your real estate agent about to sell you out?

The Multiple Listing Service® is a system that real estate brokerages use to share information with each other about properties that are for sale. It provides us with opportunities to quickly share details about our listings with all local agents who participate and it also provides us with a large inventory of homes that we can introduce our buyer clients to.

One of the characteristics of an MLS® listing is an “offer of compensation.” The listing brokerage agrees to share the negotiated commission with any other brokerage that might bring a buyer who agrees to purchase the property. That offer of compensation is published with the listing data on the member based MLS® system.  In most cases, the compensation offered gets lower as the price of the home goes up. Most commonly, we’ll see something like what you see below.

3% on the first $100,000, 2% on the second $100,000 and 1% on the balance of the sale price.

Recently, I noticed an MLS listing priced at $399,900 with the following compensation offer.

0% on the first $350,000, 25% on the next $50,000 and 3% on the balance of the sale price.

If you were about to make an offer on this house would you want to know that your agent could be earning nearly two times the commission available on most listings in this price range? Would you want to know that your agent would earn an extra $250 for every additional $1,000 you agreed to pay?

Should you be entitled to full disclosure on this extraordinary and unusual compensation offer?

I think most buyers would want to know and I’m also of the opinion that they’d be entitled to know. Don’t be afraid to ask your buyer’s agent how he or she is paid and instruct them to advise you if you’re about to make an offer on a property that has any selling incentives or extraordinary compensation offers available on it. Better yet, understand that you’re really paying the fee and agree up front on how much it will be.

I’m always happy to answer your Saskatoon real estate questions.  All of my contact info is here. Please feel free to call or email.

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Norm Fisher
Royal LePage Saskatoon Real Estate

Comments

  1. I think this could be taken a number of ways really. Obviously the natural assumption is that its pretty shady and geared mostly towards trying to get the buyers agent to convince the prospective buyers to pay more. I haven’t seen the listing myself and I don’t know how competitively prices it is, and what other factors may be involved. They aren’t necessarily offering the buyers agent more to sell it so it seems offering. The fact that the offer is 0% on $350,000, seems more like they are trying more-so to hit the target price. (Note: $12500 commission for one side of the deal is quite a lot. I definitely need to get my real estate license!) I think as the market continues to tighten and get more competitive we are going to see more of these unorthodox practices. It worked in any case… it got our attention. ;)

    • CMan,

      I’m approaching the end of my 17th year and I don’t ever recall a commission that large, at least not for one side of a transaction. Like I said, this is close to twice what one might expect on a $400,000 deal.

      I think you’re probably right that we’ll see more incentives if the market continues in this direction and I don’t have a big problem with sellers offering bonuses. I just feel strongly that the buyer should know that the agent is being offered a bonus. For the most part I think that sellers would be better off reducing their price by the amount of the bonus. Buyers relate to value.

  2. Michelle says:

    Hi Norm,

    I’ve always been a fan of your site and the articles you post, but I really have to commend you on this article. Not only does it speak to your ethics and provide buyers/sellers with valuable information about this particular aspect of the industry, but it also illustrates that there are realtors out there who believe in transparency. Well done!

  3. MVATRAIL says:

    Having sold 2 properties in the last 11 months, I have set the total amount I was willing to pay in commisions, and my agent adjusted the numbers to fit that total amount. This has worked well for me in the last 5 home sales. Because I move alot, the fees are more flexible and it has never been a problem selling my homes. Last 2 sold in well under a month. Last property sold in less then 2 weeks. Both properties sold at peak inventory in 2010 and 2009 – price it right – it will sell. Make the $$$ attractive so all agents will be interested, and you will be packing.

  4. Spy Hill says:

    In principle, even the more typical commission structure for buyer’s agents is not aligned with the buyer’s best interests. The financial motivation for buyer’s agents is to get a deal done, not to get the best price for the buyer.

    That said, I would prefer to know the nature of compensation for the buyer’s agent I am using.