Isn't commision for a buyer's agent based off total selling price a conflict of interest?

Question

I am not a seasoned real estate person so this may seem like a beginner question but I've not seen this talked about.  It seems like a conflict of interest that a buyers real estate agent gets paid 3 percent of the purchase price.  In the agent's  interest they would want the price as high as possible right?

In my own experience I've made bids on personal residence houses with two different realtors.  They both recommend I offer listing price.  Of course they would do this because they make more money this way.

I see tv shows like Property Brothers and the buyer's agent brother's first impulse is to offer less than asking price on the house.  This will actually make his commission less, why would an agent do that?

It would seem like a better idea to get a commission based on how much less you got the property for your buyer.

I'm probably missing something......seems wierd

J Scott · Answer

Yes, there is a certain amount of conflict of interest in how agent commissions work.  That said, good agents realize that happy customers are worth more than 3% of a few extra dollars in sale price.

The most likely reason you're seeing agents pushing full-price offers is that they realize that -- especially in hot seller markets -- it often takes a full priced offer to get the deal.  In other words, they're not trying to eke out an extra couple bucks by increasing the offer amount a few thousand dollars; instead, they're trying to increase their commission from $0 (if you don't get the house) to more than $0 (if you do get your offer accepted).

Just another reason why you need a great agent on your team, and not just an average (typical) agent.

Bryan Hancock · Answer

Most brokers or agents have a tendency toward making a deal happen; be it good or bad for their client.  Our broker has probably written 100 contracts for us in the last year and I think she is probably one of the best in the nation for what we're trying to do.  She has 31 years of experience and was one of the state's top producers many years.  Even she has a built-in tendency to get a deal done and it shows at times despite her experience.

You as the investor have to be disciplined enough to say no when the deal doesn't fit your strike zone.  We say no to probably 95% of the selective deals presented to us.  Our finders all know that if the deal fits we'll pay cash for it and close; period.  Thus we get first look at most of the stuff in our target zip codes and strike zones.  We routinely pass on good deals to conserve equity for the great ones and our finders are okay with this because we are happy for them to move them to the next folks on the list.

J Scott · Answer

Keep in mind that this is generally the goal of the buyer and seller as well...

A lot of times, in the heat of negotiations, buyers and sellers will get stubborn and dig in their heels out of principal.  Part of the agent's job is to help determine if the buyer/seller is acting emotionally and would actually want to act differently were they being more rationale.  If so, a good agent will try to get their client to realize that and change their attitude.

Sure, the agent is being selfish to a degree...but a rational buyer/seller would probably appreciate it (and often does in retrospect).

Alex Baev · Answer

Remember that the objective of a real estate agent is to bring both party to a closing. Period. Whatever it takes, no closing = $0 commission, and no repeat business. That's a an inherent conflict of interest, even when you're talking about a true "buyer's agent". The great ones will use subtle negotiation techniques both on you and the counter party, but the objective of those techniques is still to close the deal.

P.S. Property brothers (like all but a handful of rehab shows) are filmed entirely in Canada, either Toronto or Vancouver markets with their unique features then made look generic like "any-town USA". Toronto has been a huge seller's market for almost a decade now - expecting to crash sometime soon - Vancouver is much less so

Michele Roseland · Answer

I am with Scott.  I will take a happy client that will refer me out to a few bucks extra on a deal.

The Madison WI area market is hot, it was hotter a couple months ago, but I could not write an offer at listing price and get the deal. We were writing over the listing price just to compete with the other offers coming in.

Jeff S. · Answer

It is good for you and your buyers agent to know the market. In some areas you could write full price offers and never get a house because cash and over list price offers are getting the places.

You can analyze, especially being an agent, what percentage of list price and % of assessed value and $ per sf etc to see what is a good price. In the end an agent needs to make sales to stay in business and if he does nothing else than write low offers to make the buyers happy he will cease to exist.

It used to be both agents worked for the seller as he was the one paying the commission. It was more of a buyer beware scenario and in a way much more straight forward. An agent was really supposed to get full price offers and it was up to the buyer to try to get it for less. Of course many agents would write low offers working for investors but there was always the conflict there.

Isn't commision for a buyer's agent based off total selling price a conflict of interest?

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