Broker/Agent Incentives: Are they a conflict of interest?
Let’s say you’ve decided, with the slowing housing market, that now would be a good time to buy your dream condo. After all, there are a lot of condos available and some developers are offering incentives. But you don’t know anything about all of the buildings out there so you get yourself a buyer’s agent to help you along the way. You’re relying on “Chuck” – your agent- to steer you in the right direction.
Chuck takes you to three new developments in the South Loop, all of which are the types of buildings you are definitely interested in. Chuck tells you that Building #2, the modern glass skyscraper, is being built by a “great developer” and that the units are a “deal” compared to the other two buildings.
Based on Chuck’s enthusiasm (he is after all, the expert, and that’s why you hired him), you decide to buy a condo in Building #2.
Everyone is happy, right? Chuck gets a sale, the developer gets rid of a unit and you get your dream condo.
What if you knew that in addition to the normal buyer’s agent fee (which is normally about 2.5% to 3% of the overall agent’s fee of 5% to 6% on a property), the developer had given your agent an “incentive”- maybe much as another 1% or 2% of the purchase price- just to get you to come into the door and buy.
Is this a conflict of interest?
What if Chuck was taking you only to the developments where he was certain to make an extra $2500 or $10,000 out of the deal? (But hadn’t told you.)
Would you feel cheated?
New West Realty is one of the developers that isn’t shy about revealing its broker incentives. They are offering $2500 extra on top of the normal commissions and say so. Said New West Realty in an ad in the Gazette newspaper in September:
“By giving away outrageous buyer incentives to move inventory, you can’t help sending the unspoken message that you’re desperate, and that can reflect poorly on buyer attitudes about your product,” Amy Settich, VP of sales and marketing, said. “We are offering the values and locations people desire…our incentive program clearly demonstrates New West sees the broker community as a valued part of the sales process.”
New West is handling University Station lofts and Eastgate Village in Bronzeville (among other developments.) Should these kind of “incentives” be disclosed to the buyers? Wouldn’t you want to know if your agent was getting extra money on the side from a developer just to get you to buy at a certain development?