A Real Estate Practice That Should Be Disclosed

Agent incentives beyond the trivial create conflicts of interest, especially those of the type described in the last paragraph of the excerpt:

….. Although there are no national data on the practice, real-estate agents and builders agree that incentives have become much more widespread in recent months, especially in areas such as Florida, Nevada, Arizona and Washington, D.C., where inventories of unsold homes have soared. Builders and sellers also are offering lots of incentives to buyers, including free kitchen upgrades, help with closing costs and even new cars.

The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can’t make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents’ influence can be particularly strong with newcomers to an area who don’t know which builders are considered most reliable and which neighborhoods most appealing.

GoldStar Homes of Texas, based in the Dallas-Fort Worth area, recently has been offering a $2,000 bonus atop the usual commission on some of its new houses. The company resorts to these extra payments “if we need to move some homes,” says Paul Garrett, project manager for GoldStar.

Las Vegas builder American West is offering agents a $15,000 bonus to sell homes in its Glen Eagles development, provided they come in with a full-price offer within 30 days. The bonus drops to $10,000 for negotiated offers and those that take longer. “The goal is to try to push them to make a full-price offer,” says Jeff Canarelli, vice president of sales at the builder. It is up to the broker to decide whether to give the bonus back to the buyer, he says.

Jim Duncan, who is apparently in the business, suggests:

If they do not disclose any additional fees that they may receive, they are, in my book, not serving their clients’ best interests.

I agree.