Real Estage Agent bonus fee

Hi, first post so excuse my ignorance.

I've read all the threads about agents and fees I've been able to find but have been unable to find an answer to a question I have.

Is there any use in paying a bonus to a Real Estate agent if they exceed a selling price for a property?

For example, if I were selling a property that I would be happy to sell at $300,000 would the offer of a bonus to the agent if they exceed that figure be an incentive to achieve a higher outcome?

Pro's, cons, your thoughts would be appreciated.

Hiya Heck.

It would depend on which state you are in.

I don't know the laws in WA, but for example, in QLD the commission rates are capped at 5% for the fisrt 18k, then 2.5% thereafter. In VIC and NSW the rates are totally negotiable, so what you suggest would work.

asy

hecklersun said:

Is there any use in paying a bonus to a Real Estate agent if they exceed a selling price for a property?

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IMO absolutely Not!!!

Will it make them work any harder, again IMO, absolutely Not!!!

I have often had this "bonus" fee suggested, and I promptly told the agent in question what I thought (but with the nicest smile I could muster at the time of course). I think this fee is pure greed.

Let's just say however, that I did agree to it, here is how one of the properties I sold some 18 months ago would have panned out:

Agreed commission: 2%
Bonus fee: 10% above reserve
Reserve (market value) of property est: $550,000
If sold at this price, commission would have totalled = $11,000
Property was sold at Auction for $720,000 ($170,000 above reserve)
10% of $170,000 = $17,000
Total Commission = $28,000 (including the bonus fee)

No thanks. I always insist on a flat (agreed) commission. Paying an agent extra WILL NOT ensure they will work harder, than I believe they already are required to (to secure their already generous commision).

I am sure many agents will disagree with me on this note, and I mean no disrespect to any REA, as I have no obejction to paying a commission for your efforts, but a BONUS is just plain greedy.

Here is an article detailing one (although not popular with everyone) person's view of this "bonus" fee/scheme or as he refers to it as "scam".
http://www.ethicsinrealestate.com.au/NewsAlerts1.php?id=18

Cheers,

Jo

P.S. Agreed Asy, it depends on the state. I am in Victoria.

hecklersun said:

For example, if I were selling a property that I would be happy to sell at $300,000 would the offer of a bonus to the agent if they exceed that figure be an incentive to achieve a higher outcome?

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Personally, I'd be hesitant to use an agent that was interested in this structure.

An agent is contracted to achieve the best possible price - and thats what a good agent should be able to do. If it takes some extra incentive to achieve this price, then the agent has failed to fulfil the original agreement that I had with him/her. I cant imagine having complete confidence in a agent who can achieve a best possible price of $300k on the original commission, but can magically negotiate an extra $20k on the selling price if it means an extra X% of the increase.

Id be interested to hear if you find an agent using this structure, and how it works out for you.

Jamie.

Eh Monopoly

Can I ask why there was such a big difference between the sale price and your estimated Reserve price?

Surely you would have done a better job than that.

toony said:

Eh Monopoly

Can I ask why there was such a big difference between the sale price and your estimated Reserve price?

Surely you would have done a better job than that.

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You've made an assumption that buyers are capable of assessing a fair market value, perhaps she lucked onto two who had no idea.. Cant predict that.

toony said:

Eh Monopoly

Can I ask why there was such a big difference between the sale price and your estimated Reserve price?

Surely you would have done a better job than that.

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It's called a "boom" Toony,

I had 3 individual valuations done on the property prior to listing it with an agent for sale. Two came in at around the 550K mark and one was a bit better at 600K, but I thought it best to be "realistic" in my expectation. Of which was completely blown out of the water when the Auctioneer's hammer finally fell. This has happened to me on 4 occasions, whereby all 4 of my reserves have been exceeded by over 100K. Either I am extremely lucky, or there are people out there with more money than sense!!!

But who cares, I made over 500K (above my reserves) in the sale of 4 properties; not bad going wouldn't you say???

Cheers,

Jo

We looked at it when selling a property a while ago (ended up not selling), but frankly couldn't justify it.

Cheers,

Aceyducey

Jamie said:

Personally, I'd be hesitant to use an agent that was interested in this structure.

An agent is contracted to achieve the best possible price - and thats what a good agent should be able to do. If it takes some extra incentive to achieve this price, then the agent has failed to fulfil the original agreement that I had with him/her. I cant imagine having complete confidence in a agent who can achieve a best possible price of $300k on the original commission, but can magically negotiate an extra $20k on the selling price if it means an extra X% of the increase.

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I have to agree with Jamie.

We've occasionally been offered these types of 'incentives' and have always thanked them for the offer but refused to accept.

I can speak for the four salespeople in our office when i say, it doesn't matter if its a block of land with a $1000 commission (prior to 2003) or a house where we'd get a $12,000 commission, we would be doing everything we can to sell it.

To accept a bonus would be sending a message saying that we weren't trying to do our best if the bonus wasn't offered, and 99% of the time they're not offered!

Cheers

Jamie said:

An agent is contracted to achieve the best possible price - and thats what a good agent should be able to do.

Jamie.

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Jamie,

Excuse my ignorance, but I have read in quite a few books and articles that there are quite a few agents out there who work on volume. ie. They focus on selling the property as quickly as possible rather than achieving the best price. Is this true? If that is the case, wouldn't it make sense to provide a performance incentive?

Are you suggesting that a good agent would not be interested in such an incentive?

Cheers,

House_Keeper said:

Jamie,

Excuse my ignorance, but I have read in quite a few books and articles that there are quite a few agents out there who work on volume. ie. They focus on selling the property as quickly as possible rather than achieving the best price. Is this true? If that is the case, wouldn't it make sense to provide a performance incentive?

Are you suggesting that a good agent would not be interested in such an incentive?

Cheers,

Click to expand...

If agents were solely focused on price there would be no such thing as conditioning vendors right?

Its much easier to get a vendor to accept a lower price by conditioning than it is to get a buyer to agree to paying higher price.

Im not saying all agents do this but it is common, especially in tougher markets.

As to the original question, i see no problem with the incentive as long as the buyer doesnt pay over the odds for a property because of the incentive comission.

likewow said:

Its much easier to get a vendor to accept a lower price by conditioning than it is to get a buyer to agree to paying higher price.

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Really?

Where's the empirical evidence of this?

Otherwise it's a theory, not a fact.

Cheers,

Aceyducey

Interesting topic...

I was surprised by a conversation I had with my agent when he sold one of my investment properties recently, 25k over what he suggested it would sell for, using the old "offers between 200k and 220k" trick. He basically suggested he should get a bonus for it, I gave him a blank look and bit my tongue, almost explaining that my thought was that he had undervalued the property. I kept quite but didn't offer a bonus.

I disagree with most of the above comments and believe that a bonus is an excellent idea. I tried it once on the basis of a 50/50 split above x price. They failed to achieve any price above x (in fact they achieved x) and I was satisfied I had extracted the best price available from the market. To delude yourself that an agent puts as much effort into a listing that pays $1,000 vs one that pays $15,000 is... delusional. This is the reason why finding vacant land is like an easter egg hunt. As they say money talks.... XX walks. I would argue that failing to offer a bonus does encourage volume selling as the agents commission barely changes if the price is $10k lower for example. Agents say "oh our reps are far too ethical and will always extract the best price" - great, but Joe Average has no idea how to assess a good agent from a bad one and usually just rings the guy that has the bright sign on the corner shop (or a little girl with a cuddly teddy on TV). Just some thoughts and everyone has their own ideas - many believe you shouldn't pay an agent anything, so really the structure you use is up to you.

Ausprop said:

To delude yourself that an agent puts as much effort into a listing that pays $1,000 vs one that pays $15,000 is... delusional.

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To delude oneself = being delusional....yep, that's deep!!!

Ausprop said:

This is the reason why finding vacant land is like an easter egg hunt..

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You mean to tell me, that blocks of land aren't as well marketed as your average home, thus making them more difficult to find because of lower agent commission??? What a load of hogwash!!! How the hell are these poor agents expected to promote a stretch of dirt aside from giving some descriptive spiel re it's fantastic, sought after location. Maybe they could try something like, "this block has four corners, is perfectly rectangluar, has lots of grass (albeit in need of mowing) but is extremely low maintenance."

Finding land is difficult predominantly because of its scarcity!! Not it's lack of promotion!!! And no, I am not referring to your acreage in woop woop north!!! I'm sure the land available there is aplently!!!

Ausprop said:

many believe you shouldn't pay an agent anything, so really the structure you use is up to you.

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I don't think any vendor seriously believes this at all. Personally, I would never expect any agent to work gratis, and for them to ask for extra in the form of an "incentive" when they are already being paid a fair amount is IMO nothing more than pure greed, and frankly I just won't buy into such an arrangement, and if they don't like it....THEY CAN WALK.

Let's take "man's best friend" the dog
You hold up a steak and watch him come running, salivating all the way. Just because you hold up a steak in one hand and an ice-cream in the other isn't going to make him run any faster now is it???

Cheers,

Jo

Thanks for your comments, I'm reading them with interest.

Monopoly said:

Here is an article detailing one (although not popular with everyone) person's view of this "bonus" fee/scheme or as he refers to it as "scam".

http://www.ethicsinrealestate.com.a...erts1.php?id=18

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Thanks for the link, I have read some of Jenman's work previously.

Just to clarify something no agent has suggested a bonus to me, it's just an idea I've been kicking around to try and maximise my return.

I have researched property prices in the area and am very comfortable that if the property sold at $300,000 it would be a great result, anything over that would be a bonus to me and a fantastic result. I'm trying to maximise my chances of a fantastic result

Gant said:

........... using the old "offers between 200k and 220k" trick.

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Could someone please explain this trick to me.

Again, thanks for your thoughts and comments.

Monopoly said:

Let's take "man's best friend" the dog
You hold up a steak and watch him come running, salivating all the way. Just because you hold up a steak in one hand and an ice-cream in the other isn't going to make him run any faster now is it???

Cheers,

Jo

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If you held up a steak with one hand and a bitch on heat with the other it might change the equation somewhat.

I think its not real relevant how high you expect an agent to get a buyer to pay to snare his 'incentive comission'. The fact is if you expect too high a price the property wont sell. Its that simple and a smart agent knows that.

Theres only one thing that stops a property from selling and that is its priced too high.

Well said Likewow, it always comes down to the price.

Years ago at my last office, part of the Nationwide Realty group, we were at a sales training day and the trainer was talking about this.

One of my sales guys piped up and said he did not agree, he said we had a property for sale with the main highway at the front boundary and the main northern railway at the rear and that was the problem.

Trainer asked how much the property was to which bright spark said $95,000 (back mid '90's)

Trainer says "so if it was $80,000 you say it would still not sell?"

Brightspark says "well of sure it would if you lowered it that much"

Point made, its always the price.

"You mean to tell me, that blocks of land aren't as well marketed as your average home, thus making them more difficult to find because of lower agent commission???"

spot on Monopoly - blocks of land are definitely not promoted as heavily as built houses. I don't mean imaginitive descriptions.. I mean simple advertisements. The marketing $'s simply are not present... you can't sow an empty field (a deep thought for your benefit seeing as you want to get spiritual ). This presents an opportunity in the market which I use - in fact I used it for a client this week. I found a block in a sell out estate, simply because the national real estate agency hadn't bothered to advertise it anywhere except their own obscure website.

Money makes the world go round - it's always been true and only a fool would try to deny it.

Ausprop said:

"You mean to tell me, that blocks of land aren't as well marketed as your average home, thus making them more difficult to find because of lower agent commission???"

spot on Monopoly - blocks of land are definitely not promoted as heavily as built houses. I don't mean imaginitive descriptions.. I mean simple advertisements. The marketing $'s simply are not present... you can't sow an empty field (a deep thought for your benefit seeing as you want to get spiritual ). This presents an opportunity in the market which I use - in fact I used it for a client this week. I found a block in a sell out estate, simply because the national real estate agency hadn't bothered to advertise it anywhere except their own obscure website.

Money makes the world go round - it's always been true and only a fool would try to deny it.

Click to expand...

I agree with the vacant block scenario. I bough a vacant block of land in the middle of the property boom that no one took any notice of let alone show interest in and there were investors all over the place at the time.

At the time i was looking i went to 2 opens and saw the same 2 ladies at both, at the second open i saw them signing a contract on the boot of the agents car. I asked the agent later and she told me they had bought both!!

Crazy times in 2002-2003 but lots of fun.

Back to the block....No rental return + no deductions on interest payments = no interest from investors = even less interest from agents who were flat out flogging anything that didnt move. (i paid cash)

I couldnt even get the agents to return my calls from the number on the dilapidated sign so i tracked down the owner and bought it privately for a great price, luckily for me it was a distressed sale and he needed to offload it.

I have been deciding on and off since then to put a house on it but i decided to sell it privately recently and should exchange contracts tomorrow. Gross gain of 256% in a couple of years.

btw: dont ya hate that NSW exit tax