Do big cash bonuses sell homes?

From the Trenton Times:

A NEW THRESHOLD

Considering all the noise consumers made in recent years about home sale commissions being too high, the last thing you’d expect to see is people throwing even more money at real estate agents.

But apparently, that’s exactly what is happening.

In the face of declining home sales and rising inventories, real es tate brokers and agents in New Jersey and across the country are reporting that desperate sellers are upping the ante and offering them everything from cash bonuses and higher commissions to elaborate lunches and raffles to drum up interest in their homes.

The idea: dangling a bonus in front of agents, theoretically, will give them more reason to push your home over others in the stock pile.

During the housing boom when sellers called the shots and multiple offers rolled in soon after homes were listed for sale, the idea of lur ing buyers’ agents with perks was practically unheard of. But bonuses ranging from $1,000 to $25,000 to agents who find a willing buyer are now fairly routine, according to data found on multiple listing services.

They said the number of sellers offering selling bonuses has risen dramatically in recent months be cause those homes tend to sell faster.

“As a Realtor, you are not sup posed to bring clients to a home based on commissions or bonuses, but I certainly see the listings that pay out more commissions sell be fore the listings that give lower commissions,” said Linda Lordi. “They get more showings. It’s just a way to bring attention to a property. There is so much inventory on the market now and you can’t possibly show everything and this sort of thing brings it to everyone’s attention.”

In a typical transaction, most traditional brokers charge commis sions equal to about 5 percent of a home’s sale price, with half (2.5 percent ) going to the seller’s agent and the other 2.5 percent going to the buyer’s agent. But these days its not unusual for consumers, who paid an estimated $65.7 billion in residential real estate brokerage fees in 2005, to pay 3 percent, 4 percent or even 5 percent in commis sions to a single agent who brings in a much-sought- after buyer.

For his part, Les Newlands, senior vice president of sales and marketing at West Long Branch-based Foxtons, a low-commission real es tate company, said he is distressed by the trend — especially because buyers typically don’t know what incitements are being dangled in front of their agents.

Newlands likens the practice to bribing Realtors to show some properties over other properties and said his company discourages sellers from engaging in the practice.

“Realtors have a fiduciary responsibility to show buyers any and all properties that meet their criteria, regardless of the commis sions being offered. If they do their jobs in terms of providing maxi mum exposure to the seller’s home, then buyers will know about that property.”

——————————————–

The good folks over at the New Jersey Real Estate Report (read: me), decided to do a little data digging to see just how commonplace these incentives are. After going through 4 records I had just had to share some of these with everyone here.

These go from the basic:

$$$$$3,000 bonus to S.A.

$3,000 BONUS TO SELLING AGENT AT FULL PRICE.

$5,000.00 *BONUS* IF IN CONTRACT BY 11-15-06- SHOW M-F 10:00-6:00 S & S 11:00 TO 3:00- MUST SELL

To the more interesting:

$10,000 AMERICAN EXPRESS GIFT CERTIFICATE BONUS TO SELLING AGENT.

$6500 commission + $10,000 bonus to selling agent – must have $5000 deposit and credit report!

$10,000 bonus to selling broker. Call listing agent Nanette 201-###-#### for more details

To the jaw droppers:

$20,000 BONUS to SELLING AGENT for full price offer!!!!! $10,000 towards the BUYER’S CLOSING Costs

$25,000 BONUS at closing to selling agent

$25,000 bonus payment to selling agent / broker for acceptable offer.

Ah heck, I might as well just put them all in a spreadsheet and let you take a look. After all, what good is having this data if you can’t share it..

North Jersey Incentives Spreadsheet (Large XLS)

Caveat Emptor!
jb (aka Grim)

This entry was posted in Housing Bubble, New Jersey Real Estate. Bookmark the permalink.

64 Responses to Do big cash bonuses sell homes?

  1. James Bednar says:

    One thing to keep in mind here, as a buyer, you are generally not privvy to the agent remarks section where this data is displayed. These remarks are not typically displayed on client reports. I’m not insinuating that an agent would try to hide this from you, just simply point out that it’s not something made obvious.

    jb

  2. Pat says:

    I like the HOA fees paid for a year or two.

    In my neck of the woods, it can be 5% of the purchase price of the house. Stinks that it’s not deducted from the comps.

  3. curiousd says:

    I’ll give you an analogy to what is happening with these real estate agents at this moment at the peak and downside of the bubble: Mutual Fund Salesmen Commissions just before the bubble burst.

    Every mutual fund company and their mother was throwing incentives at the big broker’s ‘financial consultant’s’. It was horrible… people were being ‘consulted’ into funds that paid the highest commission to the financial advisor…. sometimes $200,000 allocations were being made literally over a perk like a meal for them and their sig.other at a nice restaurant.

    Even today there are an amazing amount of MF lingering (almost none being the market in the mid to long term)… it never really went away… it just gave vanguard, fidelty and a few others alot of business for ‘street cred’.

    predictions? this won’t go away. you will see it help push the >$600K market where inventories are WAY high and growing… and a substantical incentive can be priced in without too much pain.

    (wealthy) buyer beware.

  4. James Bednar says:

    Unrelated, but interesting nonetheless. From Marketwatch:

    Gates Foundation reports stakes in homebuilders

    The Bill & Melinda Gates Foundation on Tuesday disclosed that it has taken an interest in homebuilders, reporting new stakes in KB Home (KBH), Pulte Homes Inc. (PHM), Centex Corp. (CTX), and Lennar Corp. (LEN).
    The foundation’s report for the quarter ended Sept. 30 included total holdings valued at $6.2 billion. The new stakes in the four homebuilders had a total value of more than $186 million as of Sept. 30, the filing said.
    The following table details the Gates Foundation’s new homebuilder holdings as of Sept. 30. None of the following companies was listed on the company’s report for the quarter ended June 30:
    Company Class Value No. Shares LENNAR CORP CL A $25,987,000 574,300 PULTE HOMES INC COM $58,001,000 1,820,500 KB HOME COM $44,369,000 1,013,000 CENTEX CORP NEW COM $57,787,000 1,098,200

  5. SAS says:

    wow Grim, damn good work lad.

    How did you get your hot little hands on such data?

    SAS

  6. BC Bob says:

    “There is so much inventory on the market now and you can’t possibly show everything”

    Sobering news for sellers!!!

  7. AntiTrump says:

    I got to say that some of these sellers might be lucky enough to find a sucker willing to cough up all his future income to become a *Home Owner*.

  8. SG says:

    I just wish someone creates an Open MLS with all information made public. I don’t understand why giants like Google or Yahoo won’t do that. After all almost all buyers do their research online first. Who needs all this agents !!!

    One thing I noticed on the spreadsheet was COMPSELL field is not filled most of the time. Is it that Sellers agent don’t want to put that data or are folks listing thru discount MLS fixed fee brokers ????

    Grim – What happened to Open MLS project that you were mentioning earlier? I can help if needed.

  9. SAS says:

    What does the NAR code of ethics say about such comps?

    SAS

  10. James Bednar says:

    Isn’t it’s amazing how much your perspective can change when you have access to information that you otherwise wouldn’t have had?

    jb

  11. SAS says:

    anyway we can get some names of the local RE buisness that allow such practices?

    SAS

  12. BC Bob says:

    So what is the course of action for individuals that bought in the last few years, with an arm and those that refinanced and pulled out their equity, like our 62 year old friend yesterday???

  13. SAS says:

    grim,

    “Isn’t it’s amazing how much your perspective can change when you have access to information that you otherwise wouldn’t have had?”

    same concept goes on in banking, politics, buisness, etc…etc…

    that is why it is of upmost importance for the powers that be to keep us dumb.

    Knowledge is power.

    SAS

  14. James Bednar says:

    You know, I never did post that spreadsheet of the biggest relisting offenders (agents and offices) in North Jersey.

    jb

  15. SAS says:

    man Grim, you have me salivating….
    by all means…

    do print the offenders…..do print..

    I am in the mood to go for some jugualrs this morning.

    :)
    SAS

  16. SAS says:

    This person was a big offender on the excel spread.

    This is too funny:
    I don’t thinking taking comps/bribes is honest and does not show much integrity.

    “Honesty, Integrity, Positive Attitude and Commitment in Managing all Your Real Estate Transactions”

    http://www.luxuryhomes.com/Broker.aspx?BrokerUID=517bcefa-118e-446f-8837-7ed39977d250

    SAS

  17. SAS says:

    this is too add to my above post #16

    2218628 Sussex $905,000 $849,000 $10,00 bonus to selling broker. Call listing agent to show – Nanette 201-280-2713. Thank you.
    2219479 Sussex $849,900 $849,999 $10,000 bonus to selling broker. Call Nanette for more information. 201-280-2713. Thank you.
    2219508 Sussex $1,100,000 $1,069,000 $10,000 bonus to selling broker. Call listing agent Nanette 201-280-2713 for more details.
    2231499 Sussex $1,498,000 $1,500,000 $10,000 bonus to selling broker. Call Listing agent Nanette for more info 201-280-2713.
    2239305 Sussex $1,669,000 $1,499,000 $10,000 bonus to selling broker. Call listing agent Nanette 201-280-2713 for more details.
    2239658 Sussex $1,569,000 $1,399,000 $10,000 bonus to selling broker. Call listing agent Nanette 201-280-2713 for more details.
    2239693 Sussex $1,269,000 $1,269,000 $10,000 bonus to selling broker. Call listing agent Nanette 201-280-2713 for more details.

  18. SAS says:

    god damn, I should call this Nanette.
    Maybe she could spare a brother a dime.
    hell, how about a couple of thousand.

    SAS

  19. James Bednar says:

    Watch out SAS, I hear we’re in hog’s head season again.

    Hog’s Head Dumped At Former N.J. Sen.’s House

    http://www.wjactv.com/mostpopular/10322712/detail.html

  20. SAS says:

    yup, I am all too familiar with such things.

    I found mine under my hotel room one night in the early 80s in Vegas. Except it wasn’t a hog, it was something else, but it sent me the same message.

    SAS

  21. Pat says:

    Too funny. Just in time for Thanksgiving…I get to pull out my “Time-Honored Recipes for Horse’s Head.” Just have to cook a little longer for hog to be safe.

    On the other hand, seems RE agents are fighting over the dregs. And we’re called the vultures?
    # 4809161
    “HUGE REDUCTION! Previously listed w/another broker at $282,000!”

    Why to they stomp each other?

  22. skep-tic says:

    what happened to the buyer’s agent having a fiduciary duty to her client?

    I still find it hard to understand why any buyer would hire an agent

  23. BC Bob says:

    Reminds me of No-No Nanette. Babe Ruth sold to the Yankees to finance this broadway show, by the way it flopped!!!

  24. James Bednar says:

    As a buyer without your own agent, the only other option is to enter into a dual disclosed agency relationship with the listing broker/agent (aside from dealing with FSBO of course).

    I have a hard time believing that someone lured by a double commission would care about the interests of either party.

    If commission rebates become allowed, I can see a potential third model become a possibility. A flat-fee buyers agent. Basically, this agent would work for a flat-fee (Say $1,000) with the difference in commission being refunded to the buyer at closing.

    jb

  25. SG says:

    Another good editorial article on Housing.

    http://www.financialsense.com/fsu/editorials/willie/2006/0929.html

    Few analysts seem to properly recognize the upcoming housing market decline, its bear market highly likely to form a gathering storm with vicious momentum. Yet another laughable “Soft Landing” has been forecast. Such an outcome seems far more convenient, politically valuable, delusional wishful thinking, than adept well-founded analytical forecast. The entire concept of Soft Landings would make an interesting chapter in Economic Mythology. We have never seen one, but we continue to have them thrust before us by proclaimed experts. The Soft Landing forecast is a convenient weapon used to deceive, in the wake of busted bubbles and ended trails. Doctored statistics unquestionably aid in the real-time telling of the story. A new fairy tale is needed, and sure as shooting, as a new calamity presents itself.

    Lower interest rates will do little if anything in preventing a substantial decline.

    Speculators and flippers have grown in size as obstacles within the market, as they take heavy losses and must liquidate.

    The option adjustable mortgage (ARM) have emerged as a vicious vehicle, nay weapon, which will separate homes from owners, only to leave the structure preserved.

  26. skep-tic says:

    maybe this is a stupid question, but why is the only choice (1) get your own agent, or (2) dual agency.

    how about NO AGENT?

    would someone refuse to sell you their house if you were unrepresented?

  27. SAS says:

    what exactly is a “soft landing” anyway?

    It don’t matter if its hard or soft, your going to hit the pavement in either case.

    SAS

  28. skep-tic says:

    BTW, I don’t really see what the functional difference is between dual agency and no agent. an agent can’t have simultaneous loyalty to two parties whose interests are opposed.

  29. SG says:

    This was most interesting observation in the editorial link I posted earlier.

    As the USFed might cut short-term rates in the future, it might not have an effect on ARM holders. The hedge funds tied the adjustable rate to the LIBOR overnight rate in London. Read the fine print. In the midst of enthusiasm, most people do not. Very few will probably lay blame on Greenspan, as is deserved. Bankers smile with glee.

    So, FED rate reduction will be no help !!! Very interesting.

  30. SAS says:

    “$549000 Open house11/12 1-4 convenient to mid-town train”

    http://newyork.craigslist.org/jsy/rfs/233009284.html

    Anyone dare to take a guess what the proprty taxes on this house would be?

    Its kind of a cute house, but at that price….its way overvalued.

    SAS

  31. Pat says:

    J.B. on that flat fee…why exclude an hourly rate service provision?

    It would stop the quick, self-service buyer from subsidizing the lingering wastrel buyer. Why should I [who can find my house on my own, have my own inspector and attorney] pay the same $1k as a buyer who needs to be attached to an agent by a leash?

  32. SAS says:

    “everyone is getting refi-ed in to a fixed rate. seems there are not so many morons out there after all…”

    Yes, they are getting that fixed rate because many are now realizing that they can’t make a quick sell. So, people are getting stuck in their home. Imagine, getting stuck in house that you bought that will not sell, won’t make you any money, any you proabley couldn’t afford to begin with…. kind of sucks for that person.

    Now this trend continues across the state, wow….

    SAS

  33. curiousd says:

    SAS agreed, it sucks… but does not precipitate a major correction either. so, things will not change and/or correct in the near term IMHO.

  34. FirstTimeBuyer says:

    Cash may influence the agents, but it doesn’t mean anything to the buyer.

    Slightly OT: 2282891′s remarks are hilarious:
    Remarks: SELLER OFFERING $10, 000. TOWARDS CLOSING COSTS TO QUALIFIED BUYER. HOUSE VACANT.LAST MONTH FOR OFFERS! WILL BE RENTED NEXT MONTH. R OOF 2 YRS, FURNACE, HW/FLRS 1 YR. AWESOME KITCHEN W/ BAR DIVIDER..

    Why would I care if it’s going to be rented next month? It’s not much of a threat to me to take your crappy house off the market.

  35. James Bednar says:

    2006 was forecast to see approximately $300 million in ARM resets, 2007 is forecast to be greater than $1.1 trillion.

    How much of the increase in inventory that we saw in 2006 is due to these resetters? I don’t think we can answer that question definitively, but it’s reasonable to think that at least some portion was.

    How much new inventory will we see in 2007 due to resetters?

    The macro question is what impact will refinancing into a fixed rate loan have on consumption/savings for those who can afford the higher loan amounts.

    Too many questions, even more unknowns.

    This fence sure is comfortable, comfortable enough for me to let the game play out a bit longer before I make any decisions.

    jb

  36. SG says:

    Can anyone post Sales Price (SP) on MLS 2296346.

    Thx in advance.

  37. Pat says:

    FTB, and you know what’s even more hilarious? The pounding they’re gonna take on the rental. Will the rent pay even half the taxes on it? SAS, you have any coffee beans you can send over to 2282891?

    $1300
    http://newjersey.craigslist.org/apa/234648624.html
    $1250
    http://newjersey.craigslist.org/apa/234169009.html
    $1750
    http://newjersey.craigslist.org/apa/221654328.html

  38. James Bednar says:

    Pat,

    The hourly provision is an interesting concept as well. Gut feel tells me it’s going to be a difficult concept to market/advertise and get buyers to buy in. It really is a major shift in the paradigm..

    jb

  39. curiousd says:

    “2006 was forecast to see approximately $300 million in ARM resets, 2007 is forecast to be greater than $1.1 trillion.”

    From above link:
    “Borrowers are proactively refinancing in advance of rate resets,” he said at a Merrill Lynch & Co. investor conference in New York on Tuesday. “There’s a high level of consumer awareness and astuteness.”

    This means much of the 2007 1.1 trillion is already beginning to adjust NOW (read above:proactively refinancing).

    Still lots of questions, and am too enjoying the view from the fence.

  40. James Bednar says:

    SG,

    465

  41. SAS says:

    the housing stocks are moving pretty good today..

    anyone else see that?

    SAS

  42. James Bednar says:

    My question is, what are they refinancing into?

    What percent of these refinancings are moving into IO loans?

    What percentage of refinancings result in new ARMs, new teasers?

    What percentage is cash out?

    What percentage is going from ARM/IO into fixed?

    What percentage is going from fixed to fixed
    (w/ cash out)?

    How many of these refinacings are even from the 2003 vintage?

    jb

  43. SG says:

    Another good article,

    http://www.financialsense.com/editorials/benson/2006/1109.html

    Some of our clients who work in the distressed arena and buy crappy mortgages have reviewed large nationwide portfolios of existing homes that are up for sale because of mortgage default. Their findings indicate that prices are already down 8 – 20 percent on average across the country! Remember, based on actual history of past real estate bubbles, the housing price drop is almost certain to take 2 to 3 years before it hits bottom.

    There are currently 10 million homes in this country and if they were sold today, they would sell for less than the existing mortgage balance. This means the homeowner has “negative equity”.

    The interesting forecast is

    Existing Home Prices (from peak)
    Locked In 2006: -10%
    Quite Likely In 2007: -20%
    Certainly Possible in 2008: -25%

    Wow !!! 25% decline by 2008. The house sold to 600K in 2005, will be worth only 450K in 2008 !!!

  44. SG says:

    Many may have read this one, but still a good story.

    http://www.financialsense.com/fsu/editorials/2006/0909.html

  45. skep-tic says:

    interesting idea that because of high level of refinancings, effect of expected 2007 ARM resets are being felt now

    2 questions: (1) can recent buyers actually afford making payments under their new fixed rates and (2) how many will want to when/if they realize they are underwater on their mortgages?

  46. kc2nj says:

    jb said:
    “If commission rebates become allowed, I can see a potential third model become a possibility. A flat-fee buyers agent. Basically, this agent would work for a flat-fee (Say $1,000) with the difference in commission being refunded to the buyer at closing.”

    I was talking to someone at HungryAgents.com, and they said they were discussing this with their lawyers on how to make a flat-fee buyer’s agent work in NJ.

    I, for one, am looking for a flat fee buyer’s agent. I put an ad out on craigslist..offering $5000, and got no responses. Then I put another ad, calling for realtors who want to make a fixed 1.5% buyers commission (that they disclose this to the seller when they present the offer).
    I got like 3 responses.

    There’s certainly a market for a fixed-fee buyers agent

  47. kc2nj says:

    to add to my last comment, the 3 agents who contacted me sounded like crooks. I did not bother to contact them again

  48. Except it wasn’t a hog, it was something else, but it sent me the same message.

    Dead hooker?

  49. BC Bob says:

    “It don’t matter if its hard or soft, your going to hit the pavement in either case.”

    A brick always lands hard.

  50. BC Bob says:

    “but does not precipitate a major correction either”

    That’s funny, just read what H-Builder’s are saying about their market, no need to reiterate. Do you know something that they don’t???

  51. SAS says:

    “A brick always lands hard”

    I guess that is true.

    he he…..

    SAS

  52. scribe says:

    I’ve been wondering – if a house disappears from the MLS, how do you know if it was withdrawn, the listing expired, or it was sold?

    Is it that the agents’ version shows that info, while the public version doesn’t?

  53. James Bednar says:

    You need access to the MLS to find out the status of an non-active listing (Sold, Withdrawn, Expired, etc).

    jb

  54. Lucky Dog says:

    Are we within our rights, as a buyer, to

    a) ask to see the MLS listing on AGENT’S COMPUTER SCREEN to determine if they are getting extra incentives to sell?

    b) ask the agent for a cut – 33%, 50%, etc – of whatever they are getting?

    Maybe ‘within our rights’ is a bad phrase … of course we are. But how will agents react? I haven’t tried this … then again, i haven’t spoken to an agent.

  55. James Bednar says:

    Sure, just ask.

    Are you aware that all commissions are negotiable?

    As buyer you can’t be paid any part of a commission unless you hold a NJ RE license. So instead, ask that the commission be reduced. The sales price should be reduced by the difference.

    jb

  56. Chip says:

    Grim — thanks for the butt-busting amount of work it must have taken to put that spreadsheet together.

  57. Clotpoll says:

    Glad to be back here after a couple of days (illness in the family). Good to see it only takes about 10 minutes to catch up with four days’ worth of comments…90% are pure stupidity, and the other 10% move slower than a bad soap opera.

    Good God, you guys…go out and get some fresh air! The bunker mentality jumps off the screen.

    To SG in #8- hooray for an Open MLS! I hate my local MLS (Garden State, if you want to know); they are a bunch of goobers who perpetuate the hoarding of information and suck up money and time to run a Lonely Hearts Club for people in RE who have no social life. It is pathetic beyond belief, and I fully endorse the complete sharing of information with the buying and selling public.

    Which brings me to Grim (from #10)–
    You’re just way too focused on information. The fatal flaw of the blogosphere is the confusion of information with knowledge. I know from your star (no pun intended) profile that you’re an obsessed guy…but there’s no payoff waiting for you on the other end of this. So you call the bottom of the market and make the score of the century to land your first home…what a mundane anticlimax to this monumental effort! One illness to you- or a loved one- will make all this seem like one second of a badly-remembered dream.

    To Skep-tic (from #28)- A completely neutral type of agency exists in NJ. It is called Transaction Agency and can be practiced by any licensee. A Transaction Broker may prepare and present offers and paperwork but MAY NOT negotiate on behalf of a principal. Wanna be your own agent? Wanna negotiate on your own? Just find a licensee who will agree to this form of agency.

    Any thoughts on why the former CEO of KB Home got caught backdating options?

    Could it be that he saw better things coming and decided to deal himself into the money ASAP? No CEO who sees things going down the tubes for his business is trying to backdate options for himself.