Home buying / realtor questions (long)

[scotchnrocks]

Thremp,

I seriously do not understand why the commission would be under the table or the agent would reimburse the buyer under the table, could you please explain?

If part of the commission were under the table, it seems this would only benefit the RE agent in cheating on his/her taxes and help no one else. On the other hand, if the agent were to reimburse the buyer under the table, he/she would be paying taxes on money she is giving away.

It seems that the agent is the only one who would benefit from any of this. Why would anyone want to help the agent do this? What am I missing?

[Thremp]

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Thremp,

I seriously do not understand why the commission would be under the table or the agent would reimburse the buyer under the table, could you please explain?

If part of the commission were under the table, it seems this would only benefit the RE agent in cheating on his/her taxes and help no one else. On the other hand, if the agent were to reimburse the buyer under the table, he/she would be paying taxes on money she is giving away.

It seems that the agent is the only one who would benefit from any of this. Why would anyone want to help the agent do this? What am I missing?

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Its just a basic ethics violation. There are a number of reasons people do crap like this. Its part of the reason why you wanna work with a reputable realtor.

I don't think anyone willingly helps the agent do this, but the agent might frame it as a "rebate" or who knows what. I'm not really a fraud expert, but there are people who do engage in kick back type deals (I think there was a thread in this forum about someone doing exactly that. Getting bogus appraisals etc for larger mortgages and then getting cashback from homeowners.) It was just a general "beware" type comment.

Also, sometimes people will run deals outside of their broker which exempts the broker from knowing about the money earned and the tax burden. Something that seems much more likely to happen in "kickback" type deals.

[DesertCat]

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Its just a basic ethics violation. There are a number of reasons people do crap like this. Its part of the reason why you wanna work with a reputable realtor.



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It's not unethical and it's not fraudulant to ask for a rebate or lower commissions. The only people who would argue it was are realtor associations trying to maintain high realtor commissions. The same realtor organisations that are under investigation for using monopolistic power to restrict access to MLS listings for the same purposes.

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Getting bogus appraisals etc for larger mortgages and then getting cashback from homeowners.) It was just a general "beware" type comment.


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That's fraud, because you are inducing a lender to lend you more than the property is worth. That's a dishonest transaction with a duped party, the lender.

Getting a kickback or reduced commission from your broker is not fraud. It certainly isn't unethical. If you are a buyer, the seller pays the same either way, so the seller is not harmed by you recieving a rebate. If you are a seller, you are paying the comission, and have a right to negotiate it. And the realtor has to agree to it.

No fraud. No harm. Just a recognition that times are changing for realtors.

Ask any realtor today, most will negotiate the comission levels or offer rebates to the buyer.

[maxtower]

The real estate industry is one of the last bastions of old school inflated costs. Their comissions are too high, and will most certainly come down. A lot of realors are rebating comissions already. You should definitely ask for this. The internet has greatly reduced the need for realtors. I sold my house through craigslist for free in a week. I didn't involve any realtors. It cost me nothing. I didn't even buy a sign to put in the yard.

Max

[Thremp]

I didn't say getting it was, but some realtors who will do that (kickbacks) will use unethical methods to make it happen.

I can't grasp why you don't understand what I'm saying.

[DesertCat]

Not only are commissions negotiable, but it appears some real estate agents aren't above taking more than they are entitled to.

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Do Real-Estate Agents
Have a Secret Agenda?
In a Softening Market, Many Are Receiving
Big Bonuses to Steer Buyers to Certain Properties
By JAMES R. HAGERTY and RUTH SIMON
November 9, 2006; Page D1

Home buyers have a new reason to be wary in this weakening housing market: Real-estate agents increasingly have lucrative incentives to push one home over another.

Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer's agent 2% to 3% of the home's price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.

Such incentives have long been used to sell some homes. But they have proliferated and become more generous recently as a glut of properties on the market makes it harder to sell homes. "These guys are desperate," Ivy Zelman, a Cleveland-based housing analyst at Credit Suisse Group, says of home builders.

...

The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can't make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents' influence can be particularly strong with newcomers to an area who don't know which builders are considered most reliable and which neighborhoods most appealing.
...

Las Vegas builder American West is offering agents a $15,000 bonus to sell homes in its Glen Eagles development, provided they come in with a full-price offer within 30 days. The bonus drops to $10,000 for negotiated offers and those that take longer. "The goal is to try to push them to make a full-price offer," says Jeff Canarelli, vice president of sales at the builder. It is up to the broker to decide whether to give the bonus back to the buyer, he says.

Other builders are offering the buyer's agent jumbo commissions of 10% or more, and some sellers of previously occupied homes are also using bonuses to draw attention from agents. One extreme example is an eight-bedroom mansion, featuring an English-style pub, on six acres of land in Potomac, Md., offered for $4.4 million. The sellers are offering a $100,000 bonus plus a commission of 2.5% to any agent who can find a buyer. If the home sells for $4 million, the commission and bonus would come to $200,000.

...

Bob Poirier, an agent at VIP Realty Group in Naples, Fla., who calls himself "Boston Bob," recently earned a 7% commission for finding the buyer for a condo that was listed by the brokerage firm where he works. He says he didn't discuss that big commission with the buyers. "That's just something nobody ever discusses with buyers," Mr. Poirier says.

The best defense for buyers may be to insist that agents disclose the compensation being offered on any property under serious consideration. That way, consumers could negotiate ways to share anything that goes beyond a normal pay day for the agent -- or at least take the incentives into account in assessing the agent's advice. But few consumers raise such questions. Daniel Ruben Odio-Paez, a broker in the Washington, D.C., area who operates a real-estate search site, www.tbhse.com, says he believes "most buyers have no clue how their agent is being compensated."

The National Association of Realtors, the dominant trade group for real-estate agents, doesn't require its members to tell buyers in advance of a purchase how much the agents will be compensated. Federal rules require bonuses and sales commissions to be disclosed on the HUD-1 settlement statement, but buyers don't see that document until the closing or shortly before. At that point, it would be awkward to start negotiating with an agent about the compensation. The federal rules, enforced by the Department of Housing and Urban Development, or HUD, don't require agents to disclose trips or other noncash awards.

...

Tom Early, the owner of Buyer's Real Estate Brokerage in Columbus, Ohio, suggests that consumers reach an agreement with the agent before starting to look at houses, establishing how much the agent will be paid and stipulating that the agent must represent the interests of the consumer. Any bonus above that specified compensation should go to the buyer, says Mr. Early, who is also president of the National Association of Exclusive Buyer Agents, a trade group for brokers that represent only buyers. "It's their money," he says.

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[DesertCat]

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I didn't say getting it was, but some realtors who will do that (kickbacks) will use unethical methods to make it happen.

I can't grasp why you don't understand what I'm saying.

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Perhaps if you give an example of an unethical situation I could understand your point better, and change my mind. Right now my opinion is that brokers work for the consumer, and the consumer has the right to negotiate with the broker for a fair commission level. How it's paid, either through a directly reduced commission rate, or kickbacks from full commissions, is immaterial.

[Thremp]

Okay... Lemme try to phrase this better.


You ask your realtor for a kickback. You want 2.5% on your end. She agress knowing that her broker doesn't do discount commissions. So she decides to do this one on her own without the broker. The house you find is a FSBO so there are no worries there with any information. (We for the sake of the example are gonna assume you are fairly naive to the system) She drafts up some documents, gets someone "official" to handle the closing and boom its closed. Escrow checks go through etc. You are informed everything is fine with the home and that its been inspected yada yada. You get your kickback from the realtor and are happy with the discount. Your realtor moves away. You need to move 1 year later. You get an inspection done after someone wants to buy... And you have a structural problem that renders the home unsellable. You try to take to the company the realtor worked for but they have no records. Your documents turn out to be marginally forged (It is your house, but there was no inspection etc). And now you're stuck.

Of course this is extreme, but I was merely just trying to give a warning to people who are first timers so they wouldn't get the shaft for a grand or two.

I wasn't trying to get you to change your mind about negotiating kickbacks, but to merely ensure that everything is done how it should be done. And that you are protected when push comes to shove.

On the previous article, how in the world is it unethical to promote a home you get a bigger bonus for? Do you discuss commission rates with every salesperson who comes in your home? Why would you grill a real estate agent on it?

[scotchnrocks]

In short, only a retard would buy a house in that manner (i.e. without being present for inspection or closing and not using an independent closing attorney). And re:company not having your records, you would have copies of all your paperwork in your hand with signatures the day of closing so no probs there.

Agents are also required by law to recommend a third party inspection (at least in GA). And it seems like when you discover the documents have been forged your agent would at least lose his/her license and may be be fined or arrested. The situation you describe is a fraud that extends beyond rebating commissions.

[DesertCat]

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On the previous article, how in the world is it unethical to promote a home you get a bigger bonus for?

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The article talked about bonuses being paid to the buyer's agent. If not disclosed I think it's clearly unethical for two reasons. First the buying agent knows their client could get negotiate a cheaper price, i.e. that bonus is a "discount" that should accrue to the client. Secondly, the agent is misleading the client about their level of compensation. I.e. clients assume the agent is only getting 3%. If the client knew the agent is getting more than 3% they may want to negotiate for part of that commission, or they might not care.

The act of getting a larger commission is not unethical. But not disclosing it clearly is. It produces a conflict of interest. Any agent should know this.

But that's just ethics. The article makes it pretty clear that it's legal in most cases. Each agent has to decide how they want to conduct their business. My belief is that treating clients honestly and ethically is the best route for long term success (and personal happiness). Clearly from the article there are many agents who think differently.

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Do you discuss commission rates with every salesperson who comes in your home? Why would you grill a real estate agent on it?

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My relationship with most salespeople is a simple one. They don't represent my interests, they represent the sellers interest. I don't care about their compensation, I care about negotiating the best possible price for my purchase. To that end they may accept lower commissions or not, I don't care. If I don't like their price, I'll go elsewhere to someone who will do better.

But my relationship with my real estate agent is a complex, two tiered relationship. They represent my interests in one of the largest financial decisions I'll ever make. They are also selling me a service (representation in a real estate transaction). For my agent to take a kickback in my real estate transaction to increase their compensation is clearly wrong. I deserve the right, to negotiate compensation with them up front and to know what their compensation is, since it effectively comes out of my pocket.

Have you read Freakanomics? There is a discussion about why studies RE agents get better prices for their homes than their clients do. It's because the current commission system incents agents to sell your home faster, even if it means a lower price. The loss of net commission due to a 5% lower price is trivial in relation to the benefit of earning that commission much faster. When a RE agent sells their home, they are more patient and less willing to take an offer that is a discount to true value.

I've never understood the idea that realtor can sell a $100k home for $3k in commission, but wants $30k to do to sell a million dollar home with basically the same workload. Why should I pay more than $3k in either case? If I'm buying an expensive home, why shouldn't I offer to pay the realtor an hourly rate + expenses and pocket the commission myself? Or if a RE won't do it, just hire a RE lawyer?