Sunday, April 09, 2006

Secret Commission Rebates

What’s wrong with your agent promising to rebate you all or a part of the fee that you are theoretically paying that agent when buy your house?

Hold on, some of you will say: the seller pays the commission. Others may argue that the buyer pays it because it is computed into the price of the house. Marcie Geffner, a reporter with the Inman News Service has an article about a Los Angeles agent who lost his job because he formed a network of real estate agents who agree to offer secret commission rebates to buyers.

Here’s the idea:
The home buyer who has been promised a secret rebate can offer the seller a higher price for the house, which may capture the deal, especially if multiple offers are on the table. The seller then pays a commission to the listing agent from the proceeds of the sale and the listing agent divides that commission with the buyer’s agent, who puts the money back into the buyer’s pocket. Paying the rebate outside of the settlement to keep it secret doesn’t solve the problem; it just makes the rebate itself smell fishy.

But the rebate itself isn’t the problem. Rather, it’s an unhappy side effect of a structural problem in the industry — that the buyer cannot negotiate how much his or her own agent is paid.
Her final point: sellers ought to pay their agent for what the agent’s services are worth and the buyer should do the same. The problem is the commission as well as the commission split.


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