Real estate is already a poorly regulated industry with very low requirements for becoming a real estate agent. As a result, the quality of realtors varies considerably.
As housing boomed, thousands of people rushed out to become realtors. As housing now slows, the financial incentives and lack of regulation promise to create some very severe conflicts of interests, which may ultimately hurt the credibility of all realtors.
As ever, caveat emptor. The safest course when buying is to find the property yourself and hire an attorney to complete the transaction.
Do Real-Estate Agents Have a Secret Agenda?
In a Softening Market, Many Are Receiving Big Bonuses to Steer Buyers to Certain Properties
Wall Street Journal
November 9, 2006
Home buyers have a new reason to be wary in this weakening housing market: Real-estate agents increasingly have lucrative incentives to push one home over another.
Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer's agent 2% to 3% of the home's price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.
Other builders are offering the buyer's agent jumbo commissions of 10% or more, and some sellers of previously occupied homes are also using bonuses to draw attention from agents. One extreme example is an eight-bedroom mansion, featuring an English-style pub, on six acres of land in Potomac, Md., offered for $4.4 million. The sellers are offering a $100,000 bonus plus a commission of 2.5% to any agent who can find a buyer. If the home sells for $4 million, the commission and bonus would come to $200,000.
The National Association of Realtors, the dominant trade group for real-estate agents, doesn't require its members to tell buyers in advance of a purchase how much the agents will be compensated. Federal rules require bonuses and sales commissions to be disclosed on the HUD-1 settlement statement, but buyers don't see that document until the closing or shortly before. At that point, it would be awkward to start negotiating with an agent about the compensation. The federal rules, enforced by the Department of Housing and Urban Development, or HUD, don't require agents to disclose trips or other noncash awards.
By contrast, federal securities regulations say brokers must disclose any bonuses or special payments they might receive for recommending a particular security. The National Association of Securities Dealers bars the offering and acceptance of noncash awards that are used to promote the sale of specific products.
Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va., says he is most disturbed by bonuses offered on the condition that the buyer pays the full asking price. He argues that such provisions should be banned because they put the interests of agents at odds with those of their customers, who want the lowest possible price.
