Unethical Practice #1: Buyers’ agents who steer clients towards properties that offer higher
In a mandatory Realtor® ethics course
I once took, someone asked if it’s
ethical for buyers’ agents to let the size of the commission
influence which homes they show their clients.
reply went something like this: “Suppose you have fifteen identical homes
that fit your clients’ needs. You can’t show all of them, can
you? Since you need to narrow down the list, it is okay to
consider the commission when deciding which properties to
show. There’s nothing in the Code of Ethics that prevents agents
from making a profit.”
I was mystified by
her response, since agents never encounter identical homes. I got
the impression she was giving us permission to steer clients towards
listings with higher commissions.
I believe that it's a breach of the agent’s fiduciary and ethical
duty to steer clients towards high-commission listings. But there’s
evidence it happens all the time:
Redfin study found that homes took an average of 68
days to sell when the buyer’s agent was given a 3% commission,
and 89 days when the commission was below 3%. The study
also found that homes took and average of 129 days to sell when
the commission was above 3%, but this may be because the highest
commissions were being offered on hard-to-sell properties.
offer high commissions to buyers' agents. Why would they do that if they
felt it was ineffective?
can also occurs in areas where one real estate agency is dominant
and wishes to protect its monopoly by blackballing listings from
How to protect
Search online for properties
yourself. Present your agent with a
list of properties you want to see. The agent might want to
add to that list, but by taking charge you put the agent on notice
that you're monitoring his or her choices.
Insist on a buyer
rebate. Limit the buyers' agent's
commission to a fixed percentage of the sales price, and have the
agent rebate the balance--plus any selling bonuses--back to you as a buyer rebate. This
will eliminate the agent's incentive to steer you towards
high-commission properties since it will be you--not the agent--who
sometimes act as if they've never heard of buyer rebates, but
they're quite common except in a few states where they're outlawed. I have another website,
CapturetheCommission.com, that explains how to negotiate buyer
agents free to buyers?
shrug it off when their agents behave badly, perhaps because
they think a buyers' agents' services are "free" to buyers.
But they almost certainly are not.
It's true that the
seller usually negotiates the buyers' agent's commission,
and that the commission is debited from the seller's side of
the settlement statement at close of escrow. But if
sellers didn't have to pay high commissions, they'd likely
be willing to accept lower prices. This means that
buyers indirectly pay part of the commission, too, in the
form of higher purchase prices.
Allowing the sellers
to "pay" the entire commission conveniently allows the
commission to be incorporated into the purchase price, where
it can be largely financed with a mortgage loan. If a
buyer and a seller each had to "pay" their own commissions,
the buyer's agent's commission would need to come out of the
buyer's often scarce cash reserves. So making the
seller "pay" the whole commission is more about stretching
the buyer's cash than it is about allocating a cost between
a seller and a buyer.