buyer's brokers bonus for sale less than appraisal

sniglet

Has anyone ever tried working out an arrangement with a buyer's broker where they offer to give a bonus based on how far under a fair appraisal value the purchase is?

Maybe the purchaser and broker could agree on an impartial appraiser before they even start the house search, and then contract the appraiser once they've found a house to buy. If the appraiser thinks the house is worth more than the sale price, then the buyer's broker would stand to earn a higher commission. The greater the discount from appraisal value, the greater the commission.

The next time I buy a house (in 2 or 3 years), I am wondering if there are any ways to incent a broker to fight for finding a "deal". Could such a brokers bonus scheme work?

CKT

sniglet wrote:

Has anyone ever tried working out an arrangement with a buyer's broker where they offer to give a bonus based on how far under a fair appraisal value the purchase is?

This has always bugged me about the real estate biz. There are four people involved in any transaction: A seller, a seller's agent, a buyer, and a buyer's agent.

The seller's agent gets 3% of the closing price of the home. He has every motivation to make sure that the price of the home is as high as possible. Since the seller's agent represents the seller, this motivation for a high price is just dandy because the seller wants the closing price to be as high as possible as well. Their desire for a high price is in sync.

This is decidedly not the case for the buyer and his agent. The buyer's agent is also paid 3% of the closing cost. The higher the price at closing, the more money he/she makes. What motivation does the buyer's agent have to lower the price for his client? Because he's a nice guy? Puh-leeze.

The system is rigged to create higher and higher prices, because there is no one advocating to negotiate a lower price.

biliruben

There was a study done that, contrary to what you would think about incentives for the seller's agent, Both agents are more motivated by moving quantity of product.

In other words, they would rather buy/sell two houses at 20K less than work hard to get that extra 20K, but sell one less house.

The agents only make at most 1.5%, unless they are their own broker. So their profit of 1.5% of 500K is $7500. The fee of 1.5% of 480K is just $300 less. Not worth the time and effort. They'd rather spend it trying to sell another house.

deejayoh

There was a study done that, contrary to what you would think about incentives for the seller's agent, Both agents are more motivated by moving quantity of product.

funded by the NAR, I am sure

biliruben

Ha! But actually, I doubt it. Simple Academics, it looks like. Check out the 2nd article in the Journal of Real Estate Finance and Economics if you want the a few details, and cites to other articles on this issue (who knew there was such a journal? Not me, until banging around my library online yesterday).

I don't find this a particularly attractive characteristic of a seller's agent.

Wouldn't you want them to put in a couple extra weeks and earn you an extra 20K?

Alan

My brother has been active in real estate in AZ for about 20 years (not as an agent).

He says that you will not get a good deal in real estate going through traditional channels. Period.

If that agent could get a good deal, why would he only take a percentage of the proft instead of the whole bag? He is going to buy that property himself as soon as he see it come on the market (or tell a close friend or relative to buy it).

His suggestion was to write letters to everyone in the neighborhood saying that you want to live in that neighborhood and to contact you if they are thinking of selling. But you still have to know the market so that you don't overpay.

mike2

There is a section on agent motivations in Freakonomics. The conclusion in that case was that Realtors would rather the home sell at a reduced price so they can move on to the next deal.

Anyone that does commissioned work is generally better off getting a slightly lower per unit rate and making up for it in volume. The increased time spent squeezing a few extra bucks out of a project starts to dimish the returns.

carlislematthew

Anyone that does commissioned work is generally better off getting a slightly lower per unit rate and making up for it in volume. The increased time spent squeezing a few extra bucks out of a project starts to dimish the returns.

Absolutely. This is why a number of real estate agents would like prices to be low. They know that higher prices is a double edged sword. On the one hand it encourages a frenzy of buying which gives them higher prices AND higher volumes (good+good). But if prices get too high, they lose volume and this is going to hurt. It's much better to have a 10% decrease in commission and keep volume steady, than a 50% decrease in volume on a 0% decrease in commission.

If the price could drop overnight and everyone could be assured that the price wasn't going lower, they'd LOVE that. However, lowerING prices means that people are expecting prices to continue to decline, which also hits volumes as people are afraid to get into the market.

In summary, with regards to volume of transactions:

-High prices, going up = good+good
-Low prices, staying level = good
-Low prices, going down = bad
-High prices, staying level = bad
-High prices, going down = bad+bad

In San Diego (where I lived for the last couple of years), they are in the bad+bad phase! Most people expect that prices will go down, but STILL people say "now is a good time to buy". They expect that this is a blip, and will be over very soon. It takes longer for someone to start being negative than it does for them to start being positive, in my opinion.