Listing agreements

D - Are there creative bonus incentives for real estate agents?

Market with a bonus:

During a slow (buyer’s) market, your listing agent may suggest that you increase the financial incentive in order to attract more selling agents. Agents chose real estate as a career primarily because of the financial rewards, so a bonus could help.

Make sure to specify to your agent that the added incentive should be offered strictly to motivate the buyers’ agents. If the listing agent takes any part of the increased commission, feeling it’s his or her rightful cut, this portion will do nothing to help entice the other agents to show your home.

Avoid making the buyers suspicious:

Bonuses are highlighted on the listing sheet, a copy of which is given to the buyers. The bonus is commonly printed like, “$1,000 Bonus to Selling Agent.” If the buyers spot it, this could easily make them wonder if their agent is overselling a home because of the bonus inducement. Many local boards require agents to disclose to their buyers if a selling bonus (outside of the commission payout) is being offered. If the buyers know that an incentive is being offered to their agent, this could sour the whole deal.

To avoid this buyer perception, instead of offering a bonus, have the commission payout increased, as an example from 3% to 3½%. The commission, as opposed to a bonus, is usually displayed inconspicuously on the listing sheet so that only the agent would notice it. The commission is not considered a bonus so that advance disclosure to the buyer is not required.

A time sensitive bonus can hurt the seller: 

A common blunder even experienced listing agents do is add remarks to the listing sheet, such as, “$1,500 selling bonus to the buyers’ agent if sold before June 30.”

Based on this statement, it’s highly likely that the sellers need to sell by this date. Usually it’s because they currently have a contract on a house to purchase, but it is contingent upon them selling their home by the end of June.

If the buyers see the proposed bonus on the listing sheet and are interested in the home, this gives them a date that they can plan on to make their offer. Publishing this on the listing sheet has placed the sellers at a serious negotiating disadvantage with their current home. The bonus can encourage offers, but they could be low.

A time sensitive bonus can help the seller:

As shown above, a bonus incentive can provide the buyers with confidential information. Or, it can at least give this perception that a deadline is attached to it.

“$1,500 selling bonus to the buyer’s agent if sold before June 30.”

If this date really doesn’t mean anything, it could be used on the listing sheet as a way to create agent and buyer interest. It suggests a motivated seller. Its intent is to have the desired effect of increased showings, subsequent offers, and hopefully a contract.

Expect the initial offer(s) to be lower than normal. However, you will not be negotiating from a position of desperation since nothing will happen if this date passes and a contract is not achieved. The importance of this date is implied, like advertisements that say, “must sell” that really don’t refer to an immediate problem.

Replace commission percentage with dollars:

A dollar amount could be offered as payout compensation as opposed to a percentage amount. Thus on a $250,000 house, a payout of 3% commission could instead be shown as $7,500. Inserting the dollar amount of $7,500 on the listing sheet instead of 3% will catch the agent’s attention.

Increasing the payout to $8,000 will stand out even more although it only represents a $500 increase in compensation to the selling agent. However, be aware that a specified dollar amount remains the same as the payout commission no matter what the house sells for. So if you drop your price, you could always ajust the dollar amount down by notifying your agent of this amendment to the listing agreement.

Of course, if a high payout becomes an obvious problem during the negotiations, you might appeal to the selling agent to have the commission lowered in order to “make the deal work.”

Incidently, offering a $6,000 commission in the example above will give you some savings over the commission amount of 3 percent. A dollar amount will still be perceived as impressive, especially when selling high-end homes. Offering $20,000 payout on a $900,000 home isn’t 3% but it’s an impressive figure.

A bonus for the buyers:

A bonus is intended to generate a faster sale by offering a larger financial incentive to agents. But rather than appeal to the agent, think about making your pitch directly to the buyers. 

Offering first time buyers a cash rebate can work, to a point. Many lenders will not permit an excessive rebate. Otherwise this can be perceived as the seller’s way of skirting the minimal financial requirements established by the lender for their buyers. If you do offer a sizeable financial amount to the buyers, after the contract is agreed upon, have the buyers run this by their lender to be sure they are OK with it. Otherwise find out what amount would be agreeable to the lender and if there is an excess amount that is unacceptable, offer to take this amount off the agreed upon price. 

There is more acceptance among lenders when seller concessions are used to pay for the buyers’ closing costs.

Offering thousands of dollars in rebates to mid and upper end homebuyers doesn't have the same impact. Also, receiving ten or twenty grand in rebates versus lowering the price by the same amount is the same to a cash buyer.

A better bonus for the buyers:

If unloading your home (as opposed to maximizing profit) is your priority, then consider this approach.

First, determine how much in actual dollars you can come off your asking price for the absolute lowest offer you’d accept. Let’s say you’re asking $275,000 and the absolute lowest you’ll go is $250,000.

Second, calculate what the entire commission package would be if your home sold for that figure. Let’s say your commission is 5%. Calculate the projected commission amount on this sale (5% of $250,000 = $12,500). Subtract this amount from the lowest price you’d take ($250,000 less $12,500 = $237,500). If you’re in a depressed market and want to sell your home, consider offering this very attractive, bottom line figure as a by-owner.

This approach works because your price will beat the socks off the competition. In a depressed market, buyers are really looking for the best deal. Let prospective buyers know how you came up with this great price. This will sell your home.