Broker bonuses: Smart or Dumb?

Gideon Fountain writes:

Last week, broker Cate Keeney sent out a blast e-mail to all 1,007  Greenwich real estate agents offering a $100,000 bonus if you sell her listing at 6 Wyckham Hill Lane by Thanksgiving Day.  This certainly caught everyone’s attention!  Most of the time, bonuses take the form of a one-year car lease, vacation, fur coat, stuff like that.  Sometimes it’s money, but rarely an amount as enticing as $100,000 over and above your regular sales commission.

Selling real estate is the ultimate “eat what you kill” job. Unlike other self-employed professions (medicine, law, accounting, etc.) real estate agents can expect to make nothing from the majority of customer contacts.  They’re busy all week showing their listings and other brokers’ listings, doing research, working on brochures, answering customer calls and e-mails, and at the end of that week it’s entirely possible to have earned…nothing.

So we like to see “bonus to selling broker” on a listing*.  But does it help sell the house?  My brother and I would say to a client contemplating such a move  “Just lower the damned asking price!”, but not always. If the house is already priced “in the ball park” of where it should sell, and it has loads of competition, then maybe a bonus makes sense.

So, if you’ve been wasting your broker’s time for a year or two, and the broker says “In addition to seeing the four houses you asked for, I’m taking you to see 6 Wyckham Hill because there’s a $100,000 bonus”, do your broker a favor and go look. 

6 Wyckham Hill Lane 

*For a broker, a bonus can be life-changing, as it was for me when, in 1997,  I got an accepted offer on a North Street mansion for $4.7M. Listing broker David O’gilvy called me up and said “Oh, by the way, the seller was offering a 10% bonus”.  I got an extra $47,000, and, even after paying big fat taxes, still had enough to put down $35,500 on my first house, a cute little dump on Lake Avenue!


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59 responses to “Broker bonuses: Smart or Dumb?

  1. Whose $100,000 is Agent Cate giving away? And is there a sales price point under which the bonus money does not apply? If you earn the bonus, you could pay off that new Jag and have $2.00 leftover for gasoline! Good luck!

    • Gideon Fountain responds…
      “Earth Ocean Sky Redux”: When a listing broker offers a bonus to the selling broker, it’s the seller who’s paying that extra amount. And yes, as you surmise, if the seller agrees to an offer that’s way below the current asking price, he’ll often make his acceptance of that offer contingent upon the selling broker giving up the bonus, which I think stinks. The Jaguar, by the way, is paid for.

  2. Uncle Zeke

    You mean an extra 1% bonus. Or your calculator needs new batteries. Or you need remedial classes. Or you got seriously ripped off. Take you pick Gid.

    • Gideon Fountain responds…
      “Uncle Zeke”: Hmmm, well let’s see…For this sale (of $4,700,000), the seller was offering 2.5% or $117,500. The bonus brought the selling broker’s commission up to 3.5%, which is a 40% improvement. I forget how broker O’gilvy phrased it, but either way, it helped.

  3. Inagua

    How else can you hope to sell a totally charmless builder’s special McMansion for its 2004 price?

  4. Anonymous

    Instead of a bonus for the broker, the sellers should invest in moving the Merritt parkway or at least a pair ear plugs for the buyer.

    • Gideon Fountain responds…
      “Anonymous”: Ha! A very Chris Fountain-ish remark! Truth is, there isn’t much noise, certainly a lot less than the Route 95 noise in Belle Haven, which doesn’t seem to be pulling their prices down.

  5. One of the 1,007

    Yes, it got my attention as well and I attended the open house yesterday, something I would not have normally attended since I don’t currently have any buyers in that range. And in so doing, the seller and his/her/their broker did two things.

    First, they got my attention which, in a market flooded with inventory, is no small task.

    Second, they introduced me to a lovely home on Wyckham. Over the last several years Wyckham has had some poor house sales and poor commentary here. But this house was a refreshing surprise. I had never been inside and I was pleasantly surprised by its layout and warmth. Sure, it is a lot of house but it somehow feels like a home. A welcome surprise from the soulless spec homes still littering the market. The price seems right, especially considering the space.

    I wish these folks luck and would like to see if this bonus concept bears fruit. I know it drew me in.

    • Gideon Fountain responds…
      “One of the 1,007”: Yep, me too. I hadn’t seen this place since the last time it sold (the seller’s name was “Ford”, I believe). So, as you say, the bonus got our attention, lured us up to the broker open house, and we ended up with a good impression. Not a bad start.

  6. boo-boo

    um,47k is 1% of 4.7 mil.

  7. Inagua

    >>“Inagua”: Sorry, this place ain’t “charmless”. You obviously haven’t been inside.<<

    I saw all ten pictures from the listing. The house was gaudy, pretentious, and filled with cheap ugly furnishings. I though charmless was a charitable decription. We obviously have very different taste, Gideon.

    • Gideon Fountain responds…
      “Inagua”: Sigh…groan….Dude! Pictures-smictures! You gotta get inside to “get it”. It’s a nice house, I’m tellin’ ya!

  8. Pike Johnson

    How the Wyckham developement happened inside a town owned ‘preserve’ will forever be a mystery………….Anybody remember the cabin?

    • Gideon Fountain responds…
      “Pike Johnson”: First of all, I’m impressed with your ability to write to us from the grave. As for the question of how the Wyckham Hill development “got built in a Town preserve”, apparently the family that donated what is now called “The Babcock Preserve” retained a multi-acre piece which they then sold. They donated the remainder (over 200 acres, I believe) to the Town of Greenwich.

  9. The bonus worries me. Sure, in the days when we were all sellers’ agents and trying to goose the buyers’ offers up as high as we could, a bonus was cool– but if I were a buyer and the agent representing me were pushing me toward that house, I’d wonder just whose interest he had at stake. At the very least, I’d want to my agent to disclose the bonus, and me to approve, in writing– and I’d probably want all or a piece of it for myself. Sure, a seller has to offer a competitive selling commission– but this is nearly as ethically iffy as those listing agents who offer a commission bonus for a full-price offer–

    • Gideon Fountain responds…
      “Al Johnson”: I mostly agree with you, certainly regarding the disclosure of the bonus offer to the client you’re showing the house to. As I said, I see nothing wrong with putting the “bonus house” on a list of other houses that the client wants to see, as long as you tell the customer what you are doing. My suggested line: “Please let me show you this house, the owner’s offering an extra $100,000!”. If your relationship with the customer is so tentative and fragile that you can’t have a little fun with them, then perhaps you need better customers.

  10. Been there, saw that

    Inagua – You clearly have never stepped foot into this house and you seem to have an issue with Wyckham generally. An 10,000 sqft house with on 4 acres with four levels and parking for 8 cars is not a McMansion, it close to e real deal. You seem to mix such a house with the true meaning of maxing out FAR on a 20,000 sf lot in a tight residential neighborhood. Seriously, thi is 4-acre zoning so how can you apply the Mc prefix?

    As for “builder’s special”‘ you’ve got me there as this house, based on my own visit to it during last week’s first post-bonus OH,exceeding and maintained to a very high standard. I even commented to a colleague that crown moulding showed extraordinary skill. And the rustic lower level is beyond anything your typical spec builder would create.

    Sorry, Inagua, I am with Gideon and the other broker on this being an outstanding home for a family with a bunch of kids who need space. And your comment about the 2004 price ignores what appears to be extensive renovations done by the current owners. I think it is fairly priced.

  11. Been there, saw that

    Apologies for not proof reading and catching mistakes made with my iPhone keyboard. That one line should read “… built and maintained to a very high standard.”

  12. Anonymous

    Unfortunately for the seller, they bought a beautiful house in a terrible location. 100k is not going to cut it. It seems to me there is lots of inventory in is price range that are either Frankenstein creations (25 beechcroft) or in terrible spots. Seems similar priced inventory that is even a halfway reasonable design and in a good location doesn’t last long if priced realistically.

    • Gideon Fountain responds…
      “Anonymous”: Oh stop with your “terrible location”, would’ja? I walked all around this place, it was nice. End of story.

  13. Cos Cobber

    I didnt have time to look at them all too closely, but in a quick roll through I thought the Riversville Road house stood out as a nice combination of new, but with soul. Unfortunately for Wykham, its a matter of price and a little price adjustment (downward) will make this home stand out.

  14. OG

    Why don’t the sellers of this house just stop playing games and drop the price to a level where it will sell? Any smart buyer should realize that they’d be a sucker to buy any house where a broker is getting paid a huge incentive

    • Gideon Fountain responds…
      “OG”: “If”, and this is a major “if”, the seller has already cut the price to approximately where it should sell and he’s got loads of similarly well-priced competition, then maybe, possibly, this bonus thing could help. And if some couple decides this is the best house for the them, after looking at 10-20 others, then they shouldn’t give a damn about whatever the broker incentive is. Ultimately, this bonus is about drawing attention (and, subsequently, showings) to the property.

  15. Anon

    Why would you pay $5 million for this house when #8 next door recently sold for $2.9 million ?

    • Gideon Fountain responds…
      “Anon”: Number 8 Wyckham Hill Lane did indeed sell for $2,926,000 in 2010, and it was a perfectly nice house BUT, it wasn’t nearly as nice as number 6, not even close.

  16. Anonymous

    Wahhhhhhh. An out of pocket enticement to get RE agents to actually do their job?

    Whining about working tail off all week and getting nothing in return is what y’all signed up for. It’s like complaining about a rigid schedule with no personal time…after joining the Marines.

    Maybe the RE biz model should change. Nominal salary plus bonus, but greatly reduced. You want stability or volatility?

    Hearing this kind of stuff as a seller really chaps my hyde. That the RE markets are not more efficient is a strange thing.

    • Gideon Fountain responds…
      “Anonymous”: My, you do go on, dont you? But I like that line about “chapping your h[i]de”…funny. As for real estate market “efficiency”, it’s all about human nature, chum. Houses are very personal, and will never sell as a commodity.

  17. Retired IB'er

    Sure hope the brokers repping any buyers discloses upfront the additional compensation. I’d be really pissed off if I found out my broker had a bigger financial incentive to a particularly property and hadn’t told me.

  18. I wonder if a buyer would say….”gee, since my agent is getting $100,000 bonus for this house, I should see it”. Or does a buyer think that they may not get the best representation since their agent has some much to gain from the sale. What is in it for the buyer?
    I think a better plan would be to advertise a $75,000 bonus and a seller paid interest rate reduction for the buyer in the amount of $25,000. The agent is still enticed to view the property…..c’mon everyone could use $75,000 and now the buyer has an enticement to purchase.
    Assuming a 2.5 million dollar loan on a standard jumbo 5/1 ARM the going no point rate is about 3.5% (3.665% APR). This would equate to a $11226 monthly P&I payment. If the seller purchased a point for the buyer ($25,000) the rate would be 2.875% (3.124 APR) and the payment would drop to $10,372 per month. Now the buyer “saves” $51,000 over the first five years of the loan.

    • Gideon Fountain responds…
      “Matt Perillie”: Excellent point, and excellent suggestion. On the other hand, as I mentioned, broker attention is the goal here. Whether the bonus ever actually gets paid out or not, the real purpose is publicity.

  19. anonymous

    Anything worth noting on the broker’s open house tour today?

  20. Historian

    The key wording here is a $100,00 bonus IF the home is SOLD BY THANKSGIVING. The window on this selling season is closing fast and showings (to buyers) are slowing from what I hear. Will be watching this one go down to the wire.

    • Gideon Fountain responds…
      “Historian”: Yes, indeedy, we shall all watch to see if the bonus “gimmick” actually works. As for the market “slowing down”, it is not. I shall report on the subject shortly.

  21. Anonymous

    “Guest Host”:
    Clearly you are deaf. The location blows and you would not be doing your clients any favors steering them to this property. There kids could literally toss water balloons from your back yard into the Merritt Parkway. This sucks now, and will suck forever until they invent silent cars. This street is a stinker, and is an unfortunate situation for the owners. Don’t subject another buyer to the safe fate. Nobody in their right mind would spend 5 bills for anything on this street unless they could strip the house and sell off the parts for more. Chris would agree with me.

    • Gideon Fountain responds…
      “Anonymous”: Hmmm, this subject seems to make you a teensy-bit…emotional . Say what you will about this street, or loads of other streets in town, but there will always be something “wrong” about any location you can name.

  22. Krazy Kat

    Inagua – do you know these sellers and hate them? The level of bile in your comments suggests there is more at work here than just this house’s location or price.

    Really, “pretenious”? Since the house is not listed as coming furnished, what difference does their taste in furniture make? If the house were filled with period antiques would your opinion be more charitable? If it were on Lake Ave would that location make it “more attractive”?

    Sorry, as a long time follower of FWIW, i do not believe your comments add to the dialogue here. You are welcome to your opinion, but I will trust Gideon, a pro who has seen this house, on this one.

  23. On WHL

    Anon: I have lived on Wyckham for nearly 20 years so take the following with that in mind.

    #8, if I recall correctly, is one of the lowest, if not the lowest, assessed houses in the development. It has always had trouble selling due to a poor layout, tiny front and back yards and nothing really special about it. A divorcee lived there for years and did not keep it up. That sale you mentioned was as distressed as they get with a bitter divorce and virtual bankruptcy. The sale was just before the bank took the house. Moreover, having benn in both 6 and 8, as Mr Fountain observes, there is nothing remotely comparable about them.

    As for the Merritt noise, it is what it is – neither “babbling brook” nor like 95 or Metronorth noise. After a week or two, you acclinate to it. Anyway, the town’s assessment of all the houses on the parkway reflect a discount for the Merritt and I think the ownwer’s offer price reflects that too.

  24. FlyAngler

    Anon@4:42 – you may or may not be new to FWIW, who knows. I guess you feel the same about Stallion Trails? And every other street along the parkway? Those unfortunate Belle Haven homes within earshot of I95 should be torn down too according to you? And every home along the railroad tracks? And all those along Post Road? What an asinine statement. Are you Inagua posting anonymously?

    More importantly, if you have been around here awhile and have a memory, you might recall Chris acknowledging in an earlier post being friendly with these owners so I am not sure he would agree with you. Just saying’.

    Seems some folks need to take a deep breath. This isn’t about something really important like politics.

  25. Pike Johnson

    Gid forever the salesman would never offend a prospect and would laud a lipsticked pig if he could make a dime on it.

    Whats the deal with the Thanksgiving cut-off. Does a bank take possession Dec 1?

  26. Anonymous

    Yes, “something” like a four lane highway in your back yard.

  27. Krazy Kat

    Gideon – A level of emotion not seen around these parts since the Mad Monkey was arguing with your bro. Same level of rational thought too. Go figure.

  28. NGDGU

    GF. In a typical transaction, who pays the commission and/or bonus? Think carefully before you answer.

    • Gideon Fountain responds…
      “NGDGU”: I…I…hold on, I’m still thinking…..Ok, what was the question again? Oh, right! “Who pays the commission”? Here’s the answer: Obviously, the seller writes the commission check out to the broker. One could make the case that, in the rare transaction where the house sells for over ask or even sells close to ask, it is the buyer who effectively “pays the commission”. But regardless of all that, in the end, the seller writes that check.

  29. Charlie Carroll

    True, the seller does write the check. The buyer, however, might be forgiven if he were to think that his decision to buy and his provision of the funds to effect the purchase were what made it possible for the seller to write the check.

    I must be stupid but it seems to me that if the seller has the funds or is willing to write the selling broker a check to move the house for the standard commission plus $X the buyer (i.e., in this case, the selling broker’s client) overpaid by $X.

    The conflict of interest between the broker and his client in the case posited is so obvious and intractable I am surprised it warrants discussion.

    Only in Greenwich, I guess.

  30. Maybe

    Pike: Let’s use our imaginations for a moment with a few maybes.

    Maybe they chose a bonus expiration date six weeks out hoping to cause some excitement among the ranks of 1,000+ realtors.

    Maybe they chose Thankgiving because it is a date that everyone has firmly entrenched in their minds.

    Maybe they are hosting family for Thankgiving this year and do not want to deal with cleaning the house fully for any showings over the long weekend after they host the holiday.

    Maybe they chose Thanksgiving (6 weeks) so they could evaluate the bonus’ impact on showing traffic and the decide to extend it or not.

    Maybe you should go read the details of the offered provided from the Sotheby’s and see that the sellers write a check directly to the buyer’s broker’s agency. Thus, the sellers would need the financial resources to write a check out of their own funds at the closing. That might suggest to me that the sellers are not in any sort of financial distress if your comment regarding Dec 1 is meant to suggest that.

  31. skeptical

    just remember there are more than 2 interested parties (the seller and the buyer) in a real estate transaction. The listing agent and the buyer’s agent are also interested parties. And if the buyer’s agent has an abnormally large added incentive (like $100,000), you need to question who’s interest they will really be looking after…..their $100k or the buyer’s interest. If I were a buyer in this situation I would be very skeptical.

  32. NGDGU

    GF. Thanks for the ridicule in your response to my query. As I suspected, it appears your brother got the brains in the family… your answer was 1/2 right. In reality, both the seller and the buyer pay the commission. The seller may cut the check, but he/she gets the money to do so from the buyer. Your $100,000 bonus is the same thing as the seller saying that they are willing to net 100k less than the buyer is aware of. The same net to seller would be achieved by paying the normal commission and reducing the offer by $100,000. The bottom line is that whenever the seller offers a bonus, it, and all its implications, have got to be disclosed to the buyer. If they want to let you keep it, great! However, in a very real sense, they are agreeing to overpay by the amount of the bonus.

  33. Charlie Carroll

    Since writing the comment above I have spoken to a realtor friend who explained that my premise–that the procuring broker is working for, and has duties to, the buyer–is false and thus the conflict I cite does not exist. He noted that the arrangement can be varied by agreement but in the absence of agreement all brokers are working for the seller.

    In this light, I must concede there is nothing inherently wrong in the special bonus offered by the seller here. Those brokers who are engaged as buyer’s agent presumably would disclose the arrangement to their clients. The rest evidently would not have any obligation to do so, as the bonus would just be another aspect of the compensation agreed with the seller.

    Perhaps I am especially naive but I wonder how many prospective buyers understand that “their” broker owes his duties not to them but to the sellers of the houses being shown? It seems that if this were understood the “buyer’s agent” relationship would be more common than it apparently is.

  34. Anonymous

    i hate real estate.

  35. Krazy Kat

    Cheers to Charlie Carroll for doing some homework and enlightening us all. Thank you!

  36. Inagua

    “Are you Inagua posting anonymously?”

    Fly Angler – You have me all wrong. I never said anything about the location. I said the house is tacky and pretentious. To each his own. BTW, if you are a fly fisherman, and you ever go for bonefish, the very best bonefishing in the world is at Inagua.

  37. @Charlie: Am I in a time warp here? Selling agents as sub-agents and fiduciaries of the seller was the norm for centuries– but as far as I know that’s been changed virtually everywhere– in my corner of the world (WA), almost 20 years ago. There’s no default into seller agency– just the opposite. You’re a buyer’s agent if you work with a buyer, unless you specifically disclaim it. Is Connecticut still clinging to the old model? Or did your Realtor friend get out of the business a few decades ago?

    • Gideon Fountain responds…
      “Al Johnson”: Sorry, Al, that was my job, I shouldn’t have waited for you to correct that foolishness. I get lazy sometimes and just press “approve” on a comment without responding. Of course, you are correct about the buyer broker relationship in Connecticut (and everywhere else!). Was it “Charlie” who was confused about this? And what about his so-called broker friend who gave him that antiquated information? Very odd.

  38. FlyAngler

    Mu vote is for Andros, middle or southern bight, depending on the wind. Backside of middle if you are adventurous. I lost a 13+ bone back there to a 5′ shark.

    • Gideon Fountain responds…
      “FlyAngler”: I suppose I don’t mind your speaking in code to your insider buddies, but you could at least provide a translation at the end.

  39. FlyAngler

    Sorry Gideon, insider bonefishing geek speak might confuse the uninitiated.

    Inagua, the poster, is referring to Inagua, the island that is at the southeast end of the Bahamas archipeligo. It would seem, both in his (her?) comment, that they are a fan of the bonefishing potential down there (the bonefish is the finest quary for those who whip the water with a flyrod in the Tropics). Having never been there myself, I will take it as an article of faith that there are some fine bones there.

    My experience in the Bahamas is mostly limited to Andros Island, the largest of the Bahama “islands”. Actually (now borrowing from Wikipedia), Andros Island is an archipelago itself and the largest of the 26 inhabited Bahamian Islands. . The land area of Andros consists of hundreds of small islets and cays connected by mangrove estuaries and tidal swamp lands, together with three major islands—North Andros, Mangrove Cay, and South Andros. The three main islands are separated by “bights”, estuaries which trifurcate the island, connecting the island’s east and west coasts. It is 104 miles (167 km) long by at its widest 40 miles (64 km) wide. (end wiki paste)

    When I referred to the “bights” I was referring to the major islands that are above or below each of the through & through “creeks” as they call them there.

    Heaven on earth for a warmwater flyfishing person.