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Do Increased Commissions Sell Homes?

Posted By Paula Henry on Friday, February 22, 2008 7:05:00 PM | 10 Comments

Does offering more commission to the buyer's agent help sell a home?

Several times this week, I have received flyers and info advertising homes for sale with an increased commission for the real estate agent who brings the buyer.

One offered 6% to the buyer s agent on a home priced at $681,000. Almost $42,000. if I bring a buyer for this home. A similar one offered the same and boldly stated, $42,300 Commission.

Another offered 5% plus $5000. on homes priced between $299,000 and $350,000. One of these offers was from another city and two were here in Indianapolis.

There are two schools of thought about increasing the buyer agents commission to help sell a home.

One school says it s the seller s equity and they can do what they want with their equity. I agree! The other side says the commission is built into the price of the home and the buyer ends up paying the commission. On this, I also agree.

Allow me to explain .

If a home is priced well and comparable to other homes and the seller offers an incentive for the buyer s agent, it is truly the seller s equity. If, on the other hand, a home is overpriced to begin with, the increased commisssion is a attempt to get buyers agents to sell the home. Then, it does become the buyers cost, because it is built into the price of the home, which the buyer will pay for.

Luckily, I know many honorable, trustworthy agents who would never allow their clients to pay more for a home than it s current market value, just so they can make an extra buck. These agents research and know the true value and will advise their clients about the recent sales and comparable properties in the area. These agents will be worth every penny when they are able to negotiate the price their clients should pay for the home.

Although I have had clients who have offfered an increased commission to the buyer s agent, I always tell them I do not believe increased commissions sell homes. Homes sell when they priced right, properly presented and well marketed. BTW marketing does include a buyer s agent commission. It just doesn t have to be excessive when all other factors are in line.

I personally believe there is a limit to the amount I feel comfortable accepting to represent my buyers. As a Fiduciary, I would not feel comfortable accepting $42,000 on the sale of a home priced at $681,000. Disclaimer: Real estate commissions are not set by law and are negotiable.

These are my own personal opinions. ~ Paula

Discussion

#1 Posted by Paula Henry at 3/10/2008 4:43 PM

Hi Daytona - It could be, if it is not at an inflated price. I would rather be paid my normal compensation and the price reflect a reduction for my buyer.

#2 Posted by Daytona Beach Florida Homes at 3/10/2008 7:11 AM

I think this is an attractive deal for some. May motivate a realtor to try to find someone faster. If time is of the essence this may be a great alternative.

#3 Posted by Paula Henry at 2/24/2008 6:03 PM

Jay -

Commissions alone do not sell homes! A well priced home does not need excessive commissions. There are many agents who do offer a deal to the seller if they represent both the buyer and seller. I don't see too many rebating back to the buyer - how would that work..... here, Mr. Seller, we'll just take this extra commission I recommended you offer and give it to the buyer - I don't want to be in the middle of that one. It's just better to price it right!

VFlyer is very cool - I am getting ready to upgrade. I'm sure you will have many listings soon! :)

#4 Posted by jay at 2/24/2008 3:40 PM

Increased commissions do not sell homes if the selling agents have any integrity/commitment to their fiduciary duties. the only way it could help is if the selling agent is rebating back to buyer to help "make it work", but I would never recommend to an owner to waste his/her $$$$.

Whoa! That Vflyer thingy in the right column is groovy. I'll have to check that out! I guess some listings first would help, eh? :)

#5 Posted by Paula Henry at 2/24/2008 5:36 PM

Joshua-

I am not talking about discount vs. full commission. Since there are no set commissions, there can be no discount........The question is whether an increase such as 6% to a buyer's agent really helps sell a home. Like Missy said, it may help showings; I am not convinced it actually sells homes. It may motivate an agent to show the home, but not result in a sale, especially if the home is overpriced to begin with. On the other hand, if the home is priced right, an increased commission could help sell it.
Although I do work on commission and have to make money, an increased commission could not make me recommend a home which is overpriced, then collect 6% on that home. I am not motivated by money - I am motivated by my client's satisfaction with my service and my ability to negotiate on their behalf. This brings me referrals and helps me sleep well at night.

#6 Posted by Joshua Dorkin @ BiggerPockets at 2/24/2008 1:57 PM

I agree with Missy. I believe that commission incentives definitely work to get a home more showings. Look, full commission agents hate showing properties offered by the discounters, and are absolutely motivated by the money. While there are definitely many great agents out there who are there to serve exclusively, a commission incentive will absolutely motivate any agent, good or bad.

#7 Posted by Paula Henry at 2/23/2008 3:46 PM

Thanks Missy - I don't know, I have never seen a significant increase in showings here in Indy or quicker sales. With all things equal and priced properly, a small increase may make a difference, I just haven't seen it much.

#8 Posted by Missy Caulk at 2/23/2008 8:01 AM

I don't think it helps sell homes either, Paula. But, I do think they get shown more often, especially in this market which has so much inventory.

#9 Posted by Paula Henry at 3/2/2008 3:31 PM

Jonathan - It is a tough issue! I agree with you. We always have to do what is BEST for our client, not our pocketbook. When the client is first - the money will follow.
One can never be too honest:)

#10 Posted by Jonathan Bunn at 2/29/2008 -1:15 PM

Great topic. Tough issue.
I would agree with most of the comments made here. I will not NOT show a listing because it offers less than what I expect in a commission. I may be more motivated to show a home that offers extra commission (I'm too honest). However, I will NEVER twist my clients arm to buy one house over another based on commission. I advise, which is my job, but I am not the one that will live there and make the payments. I couldn't sleep at night if I worked in this manner.