Paying A Bonus To The Broker?

Written by Posted On Monday, 16 June 2014 06:09

Question: Our home has been listed for sale for several months. Early on our real estate agent hosted an open house for real estate agents and brokers. At this meeting, someone suggested to our agent that we should offer a bonus to the selling agent. Afterward our agent pushed this idea with us stating that "with the bonus our house would go to the top of the list for showing and without a bonus we would get no action". I considered this blackmail and refused the idea. We have had only one showing since that time. What is your opinion about the ethics of this practice?

Answer: Every time I write something critical of real estate agents, I get a large number of complaints that I am not being fair to that industry. So, in fairness, unless your agent has stopped actively marketing your property, I do not blame her. I believe she was merely providing you her opinion of how her industry would respond.

In those markets where the economic recovery has not yet taken effect and where sales are sluggish, many sellers will offer an incentive -- a bonus -- if their house will sell quickly. Some sellers will agree to pay one or two percent more in commissions, but often with specific time limitations built into this incentive. For example, I recently learned of a couple that have offered to increase the commission by two percent if the house goes under contract within two months, but this will drop to only one percent extra thereafter.

But since sales are slow, I seriously doubt that the absence of a bonus will deter brokers and agents from actively pursuing your house. As one agent told me "a five percent commission is better than no commission at all".

Clearly, however, a house that will pay 7 or 8 percent will obviously be more attractive to real estate brokers than a commission of 4, 5 or even 6 percent.

Everything in real estate is -- or should be -- negotiable. If sellers are prepared to offer a bonus -- an incentive -- to their agent, that is their absolute right. And if real estate agents want to show those "incentivized" houses to their prospective purchasers, that is also their right.

But is it ethical? Is it legal? If an agent only shows his client those houses where a bonus is being offered, I believe this violates both the Code of Ethics of the National Association of Realtors as well as State laws which regulate the conduct of the Real Estate industry.

According to the Code of Ethics, Article 1 states:

When representing a buyer, seller, landlord, tenant or other client as an agent, Realtors pledge themselves to protect and promote the interests of their clients. This obligation to the client is primary, but it does not relieve Realtors of their obligation to treat all parties honestly.

The applicable law in the District of Columbia (which is similar to laws and regulations throughout the country) states that "a licensee shall exercise fidelity and good faith to a client in all matters within the scope of the licensee's employment... (DCMR 17-2609.11).

Buyer's are entitled to be shown all houses on the market that meet their needs -- and not just those houses where the agent will get a higher commission. If all such houses are made available for inspection, then I have no objection.

I am not sure that I would agree with your characterization of "blackmail", but I agree that the practice raises ethical issues. I think you should discuss your concerns with your agent -- and her manager. I cannot believe they are not interested in selling your house. Find out what their concerns are? Have you overpriced the house? Is there something you can do to make the house more presentable? If you cannot reach a satisfactory resolution -- and get answers to your questions, then I would recommend looking for another agent.

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

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