Duty Shifting
One reason a seller, through his listing broker, agrees to pay the buyer's broker, is to compensate the buyer's broker for showing the property to the buyer.8 As I mentioned in the previous chapter, if the buyer's broker refunds part of his commission to the buyer, there will be things that the broker will not do. In fact, some brokers will not show their buyers any houses. Rather, they will say, if you want to see a house, just call the listing broker. But why should a listing broker pay the buyer's broker AND do the buyer's broker's job? The fact that a buyer's broker does not keep all of this payment has nothing to do with the seller or the listing broker. And per MLS rules, the payment is still made in full. Some people have a difficult time with this; they seem to believe that the listing broker has a duty to the seller to show the property. This is most often not true, and certainly never true for represented buyers.
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Let’s continue our discussion of discounters. If the buyer’s broker offers the buyer a commission rebate of, say, half of their commission, that means the broker gets paid at the 50% level. Right? Let’s take an example. The buyer goes under contract on a $300,000 house. The buy side commission is three percent, that’s $9,000. At closing, the buyer’s broker gives the buyer a $4,500 credit. This is great for the buyer. It will pay all or most of the buyer’s closing costs, or it will buy a fair amount of furniture.
But it is, of course, not so great for the broker, who just gave up half of his commission. But that’s the deal that the buyer and his broker agreed to going into this process. I have seen brokers who agree to make, say one percent, and rebate everything above that to the buyer. It’s totally negotiable between the buyer and his broker. As it should be.
So naturally, the broker will take a Walmart approach to customer service. This is pretty much what we discussed in the previous chapter. But I mentioned one thing that I want to pull out and discuss here: Showings. Specifically, if a buyer hires a discount broker, who is responsible for showing the buyer houses?
One way that the buyer broker will try to economize is by not showing the buyer any properties. Or maybe I should say, as few properties as possible. As I said at the top of this chapter, the broker simply advises the buyer to call the listing broker. And quite often this will work.
Now it may be argued that the seller’s broker (the listing broker) has a duty, to the seller, to show the seller’s property to any unrepresented buyer. But even this is debatable, especially when you consider the whole question of dual agency. The point here is that this is a discussion that should take place between the seller and the seller’s broker. Maybe for example, discuss this along with a discussion of fees. Pay the broker six percent and he shows the property to anyone and everyone regardless. Negotiate a lower commission and they both agree to be more discriminating with the broker’s time.
But one thing is beyond dispute: The seller is paying the buyer’s broker to show the property to the buyer. Please think about that, and yes, I have the parties labeled correctly. Again just to be clear: The seller is paying the buyer’s broker.
Again from the top of this chapter: The fact that the buyer’s broker does not keep all of this payment has nothing whatsoever to do with the seller or the seller’s broker. The buyer’s broker is paid to show the house. How this gets done is between the buyer and the buyer’s broker. And however it gets done, do not attempt to shift this duty to the other side.
Duty Shifting: This is a term our firm came up with to describe any attempt by a real estate broker to shift one or more of their duties to their own client, to the broker on the other side. We found that labeling this practice makes it more easily and immediately recognizable. Brokers: Try it, it works.
Now, buyer rebate or not, I have had brokers serving as buyer’s agents call me and say: Hey look, I am in a continuing education class all day (or my kid is sick, or even, hey I’m at the beach), would you do me a favor and show your listing to my buyer? Keyword: favor. I have done this many times for brokers. All of us have.
The difference, of course, is one of expectation. And one of business model. That is, if you design your business model to have someone pay you AND do your job, well, that only works with the grace or naïveté of the listing broker. It also displays an extreme lack of competence and integrity. Or arguably worse, an indifference to these.
Buyers: If you hire a discount broker for a rebate, have this discussion with them. Look for a competent and honest discounter.
Listing brokers: Short of the occasional favor, I urge you to stop showing your own listings to any represented buyers. I assure you, this issue will expand if we let it.
Discount buyer’s brokers, a proposal: Rebate whatever you and the buyer agree minus $X per showing. Where X is $25 or $50 or $100. Whatever you and the buyer agree. That way, you are compensated for your time (the reader should note, still compensated by the seller) and the buyer has an incentive to keep showings to a minimum. You could include some number of showings as part of your deal, and then charge X for any additional showings. Lots of room for creativity here.
Brokers, do your job.
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8. It should be noted that the compensation to the buyer’s broker for showing the property includes the time and effort to show this particular property, but also for the time and effort showing other properties in order for the buyer to narrow his choice down to this property. The fee is not only for the one hour spent showing this property, but also for the twenty hours spent showing other properties that the buyer did not select. In theory, this narrowing process is valuable to the seller, and sellers have traditionally paid for it. But think about how this affects the fee. Instead of paying for one hour of the buyer’s broker’s time, the seller is paying for more than twenty. Point is, this is not an insignificant fee.