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Are Agents Being Overcompensated

(Incentives, bonuses and increased commissions are things that are all too familiar in a slow market. )

Home building companies and regular sellers of previously occupied homes have been offering incentives, discounts and promotions to potential buyers in an effort to secure a sale.

But now, increased commissions and other incentives to real estate agents are becoming more prominent than ever, and it is causing a lot of controversy in the industry.

The reason why this is causing controversy is because many people are worried that increased commissions or other incentives to agents will cause them only to focus on one property, and steer buyers away from other properties that may be just as good, but will not guarantee a huge commission like another property would.

A November 9, 2006 article by James R. Hagerty and Ruth Simon of The Wall Street Journal, “Do real-estate agents have a secret agenda,” looks into how a variety of different people are becoming skeptical of some real estate agents’ true motives.

“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.”

The thing about all of this is that this has been going on for years, it is just more of an issue in a slow market.

People are offering larger commissions and incentives because they are completely desperate to sell, and for people who have extra money to spend, these huge commissions are only pennies.

A mansion’s homeowner in Potomac, Md., is offering an agent a commission of over $200,000 if they get at least $4 million of the $4.4 million asking price. For those sellers on a smaller scale, even others offering their agent just a few hundred extra dollars could out them at an unfair advantage.

“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.”

The other bad part with all of this is that many homeowners and buyers do not even realize what is going on. Nobody really even bothers to ask what their agent’s commission is going to be.

“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.”

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