lake norman real estate, The Real Estate Process, Home Buying and Selling Tips

Agent Bonuses and Incentives: Buyers Beware!

Lake Norman real estate tipsThe other day I heard something terribly unsettling. An agent was explaining to another agent why they should choose a certain home warranty company because the company “gives back” more money than the others. First of all, any kind of “kickbacks” from any service providers is simply illegal. Secondly, the fact that an agent would choose a service for their clients based upon their own interests is a violation of our code of ethics. This small incident led me to think again about agent bonuses and/or incentives; why I think they are all inherently wrong and the challenges I have faced while trying to give back my bonuses to my buyers.

I recently sold two new-construction homes to buyers. In both cases there were substantial bonuses for me as the buyers’ agent. In the first sale I simply told the builder to put my bonus towards the sales price. The purchase price was reduced by $5,000. That was easy. In the second case, I wanted to give the $5,000 cash back to my buyers at closing so that they would have some cash to build a fence right away for their small children and dog. The builder and the closing attorney fought me every step of the way claiming this was illegal, loan fraud and that they would only credit the purchase price. I called the North Carolina Real Estate Commission whose attorney told me as long as the $5,000 was on the HUD statement and the lender agrees to it that it was definitely acceptable to gift a bonus to the buyer. The key is it MUST be on the HUD statement and the lender must agree to it. If the lender doesn’t agree to an outright gift then there are other options like paying closing costs or buying down an interest rate.

What shocked me was not only how difficult it was to give back my bonus, but the fact that clearly no other agent had tried to do this as the sellers (a very large builder in Charlotte) and a very active closing attorney didn’t even know how to handle it. It felt so wrong to me to take that bonus money, yet I guess it is rather common for agents here to do so. (By the way, these bonuses must be disclosed to the clients.)

As I see it, the bottom line is that I, as a REALTOR, have a “fiduciary responsibility” to my clients which means I am to represent them and ALL of their interests as if I were them…guiding them through their real estate transaction with the mission of representing their interests, and their interests only. Any agent who would determine what properties to show their buyers based upon the commission offered or a bonus their might receive is violating their responsibility to their buyers. If this is true, then any “incentive” is just that, something that is trying to convince a buyer’s agent to show that property. Since it is our job to show every property that the buyer wants to see or that meets their wants and needs, then why in the world would an incentive be appropriate since it should never be a consideration?

I have heard countless agents celebrating the fact that they received a bonus so they are certainly an accepted incentive for sellers to offer. To be honest, I have had some of my seller’s offer bonuses as incentives.  But, I will never accept one!  FYI, bonuses must be disclosed to all parties in the transaction.

As always I welcome your comments!

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