The real estate industry sanctions a number of dubious practices that most agents would rather not discuss. One of the more egregious practices is a buyer’s agent quietly accepting a commission bonus offered by the seller to induce that agent to sell the seller’s home to her buyer client. In most cases, the buyer doesn’t realize the bonus is offered /paid to his agent. A buyer agent accepting a commission bonus from the seller raises the question: is the agent is putting her own interests ahead of those of her buyer-client?
In nearly all cases, a buyer agent’s compensation effectively comes from the seller. The seller’s agent (the listing agent) markets the property with an offer to share the listing commission with an agent bringing a buyer. Although there are no set real estate commission rates, 3% is by far the prevailing buyer agent commission share offered in metro Atlanta; anything over 3% is considered a bonus. When a listing offers say a 3.5% buyer agent commission or say a $2,500 agent incentive, it is obviously done to induce agents to steer clients toward purchasing that home. Clearly bonuses work; we’ve used them effectively in some of our listings (note the issue here is not the offering of a bonus, it’s the non-disclosure and accepting of the bonus).
Nothing requires a buyer agent to disclose to her client the commission being offered on any particular listing. Because the commission is “taken care of” by the seller, it is rarely discussed between a buyer and her agent. While the commission being paid to the buyer agent is reflected on the Settlement Statement at closing, by that time, the potential damage is done.
As a homebuyer, you would (and should) expect your agent to be committed to representing your interests in helping you purchase the best home at the best possible price, free from any conflict of interest or even the perception of a conflict. The prospect of your agent secretly selling you out for several thousand dollars of extra commission would (and should) be cause for concern.
I suggest that the ethical approach to buyer agent bonuses is: (1) disclose to the client the commission being paid on a listing prior to an offer being submitted, and (2) rebating to the buyer any commission or bonus paid to the agent above 3%. This policy (which Sage adopts) eliminates any concern of conflict of interest and gives back to the client the money he/she arguably overpaid for the property to cover the agent bonus. The policy also fosters the client’s trust in his/her real estate agent.
Tip: The agent version of the FMLS listing shows the commission (and bonus) offered to buyer agents. If you want to know what your agent is being paid, ask your agent for a print-out of this.