by

Suburban Phoenix Real Estate Broker

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This is me from this morning’s Arizona Republic (permanent link).

 
Protect yourself from agent bonus fees by builders

Are you buying a home? How much is your agent getting paid?

If you’re buying resale, the answer is probably 3 percent, and possibly even less, although there may be buyer’s agent bonuses that your agent should have disclosed to you.

But what if you’re buying a new home? Right now, builders are paying agents 5 percent, 6 percent, 8 percent — even 10 percent of the base price of your home.

The builders are paying for the introduction. They don’t expect — or even want — your agent to represent your interests.

They’re paying so much right now for two reasons: They want to sell as much inventory as possible between now and the end of the fiscal quarter on September 30th. And they hope that by offering very high commissions, they can induce your agent to persuade you to buy at one subdivision over another.

Your agent may be faithfully representing your interests, but the objective of an exorbitant commission is to induce the agent to betray your interests in the builder’s behalf.

Here’s the kicker: Every cent of that commission will be paid by you. The buyer pays for everything in the sale of the home. If the builders were offering a 2 percent buyer’s agent’s commission instead of 10 percent they could charge you 8 percentage points less for the home, or give you 8 percentage points more in upgrades, or pay your down payment or closing costs, or buy down your interest rate.

How can you protect yourself?

First, stipulate in your employment agreement with your agent that all commissions and bonuses will be disclosed to you.

Secondly, agree in advance on the maximum compensation to be paid to your agent, with all the rest of any sales commission or bonuses going toward your down payment or other costs.

How much is enough?

New home builders make all the rules. No matter how much your agent might want to work on your behalf, there is a hard limit to how much the builder will permit.

Except in extraordinary circumstances, I think 2 percent is more than enough. Anything over that should be coming to you.

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