January 31, 2008
Your Agent Might See Value, But Be Sure To Ask For Whom
It’s no longer only the townhomes at Park Terrace which will garner brokers an increased sales commission (which might speak to the strength of sales since our last update). And it’s a good reminder to ask, is your agent working for you or selling for the developer?
∙ Arterra's New Buyer's Incentive And Park Terrace’s Broker's Bonus [SocketSite 9/07]
∙ Park Terrace (325 Berry) Sales Update: Now 70% Sold? [SocketSite 11/07]
First Published: January 31, 2008 3:00 AM
Comments from "Plugged In" Readers
LOL! Just lower the price! They'll sell. Lower the prices! Works every time.
Posted by: Satchel at January 31, 2008 6:19 AM
Amen, Satchel. I have been in the Park Terrace office several times, genuinely interested in a home there, but have always found the prices completely unrealistic (e.g., over $1.4M for some of the townhomes facing the "water" - i.e., the little canal). When I suggested that my wife and I would be interested if the prices were reduced 7% to 10%, the answer has always been "oh no, if you don't buy it, someone else will at this price."
I also wonder if they have been disclosing to buyers on the "water" side that directly across the canal in a couple of years will be high-rise housing developments - so even the current "view" of the Mission Bay office buildings will be obliterated.
Posted by: Mark at January 31, 2008 7:44 AM
Exactly why RE agents suck - how many agents that took their clients to see PT actually disclosed this deal to them?? They don't represent the buyer - they only represent the deal.
Posted by: ejay at January 31, 2008 9:19 AM
If you want to buy, take this flyer with you, and say "lower the price by 5% and I will buy without an agent".
There is no point using an agent for a new unit purchase.
Posted by: John at January 31, 2008 9:50 AM
Agents should be legally required to disclose incentives to buyers. Of course, NAR would use it's lobbying $$$ to resist this.
Posted by: Amen Corner at January 31, 2008 9:59 AM
never trust a real estate agent.
they're unskilled parasites (generally failed at other professions or just looking for a quick buck) who collude to try to maintain an unnecessary bureacracy on home sales with themselves as the gatekeepers in order to skim off the surface.
Posted by: truth and justice at January 31, 2008 10:02 AM
I'm not a huge fan of the RE industry (I'm a lawyer, and I'd have been disbarred long ago if I did half of what goes on every day there). There are obviously some extremely good, conscientious agents who work hard for their clients' interest. What puzzles me is why the good ones don't fight harder to prohibit the unethical ones from acting unethically.
Posted by: Trip at January 31, 2008 10:10 AM
@ Satchel - exactly, could not agree with you more. Pricing is the absolute key to everything right now. Lower the prices or price it right from the beginning and it will sell.
@ejay - agents don't have to 'disclose' to a potential buyer client the amount of commission they will receive from the developer or seller when representing a client on the buy side. However, you can always ask your agent how much they are making on commission from the seller - most agents will tell you. This money is paid by the seller or developer and does not come from the buyer's pocket. It is very normal to see 'tiered' increases in the commission structure from developers for agents who have multiple buyer transactions at the same development, especially with so many projects in similar locations which appeal to the same buyers. Many developers have cut agent commissions significantly during the housing 'boom' of years past and now they are simply making up for that trend and in most cases reversing it. It's been going on in other parts of the country for a few years now, just a matter of time before it caught on here.
Make no mistake about it, the developer loves a potential buyer who walks in without an agent - most of them had set rules in years past that if the agent didn't accompany the buyer client in the door during the very first visit, the agent would not be entitled to any commission whatsoever. Indeed, some will negotiate off the sales price when you don't have an agent with you. Most all of them are negotiating on the prices now anyway, the market being what it is. But the vast majority of the developers are more than happy to put the money they would have paid to an agent in the form of a commission right back in their own pocket.
Make no mistake, if you have ever purchased from a builder or developer, the purchase contract you sign is written specifically for and geared completely toward them. It is not the typical contract you would use when purchasing any other property in San Francisco, or California, for that matter. Language is written to protect the seller or developer and any money you have given to them at the time of contract - general deposits, money towards options and upgrades, etc. It also clearly states who is represented on each side of the transaction. The purchaser has very little wiggle room (if any at all) in most cases to back out of the transaction, regardless of reason(s), without losing every single penny. So, they really do love it when a potential buyer walks in the door without an agent - or when they can get you to 'please sign in' and indicate that you don't currently have an agent.
These places are selling - perhaps not as quickly as many of the developers had hoped, but they are certainly not going to be giving them away. You also have to remember that these various builders and developers are all keeping tabs on each other as far as pricing, commissions,incentives toward options and upgrades, special financing options, % sold vs. what is still available, actual sales price vs. asking price, and general 'word on the street' (trust me, it travels quickly) about who is dealing, what kind of deals are going on, etc. Overall you will find they are all going to remain competitive one with the other.
For whatever it is worth, I hope this helps.
Posted by: anon at January 31, 2008 10:46 AM
@ Trip, @ Truth and Justice -
Trust me, there are many out there working hard and ethically to overcompensate for the 'parasites and gatekeepers' that are not, and that have given many a bad impression of the group as a whole, which in turn (I suppose) bring so many of the evil and nasty comments on this website. A few bad transactions and word travels fast - very fast.
There are many who did get into the game during the boom just to make a quick buck and take advantage of the situation, absolutely no doubt about it. Most of those are finding it not so easy or so much fun any more and are leaving for other pastures. I think this trend will continue with the adjusting market, and in hopes that we will be left with the hard-working and ethical group that we started out to begin with.
Again, for whatever it's worth, I hope this helps.
Posted by: anon at January 31, 2008 11:00 AM
Anon, as a seller's agent you certainly are entitled to your point of view. I agree that an ill-informed buyer is better off with an experienced seller's agent. But the fact of the matter is, a rational seller will be willing to rebate to a buyer without an agent the entire selling agent's commission. The only reason they say "they don't do that" is because (as you suggest) they love nothing more than finding out that the buyer is in fact ill-informed. Once they understand that the buyer understands basic math and has half a brain, they will give on this point.
As a buyer, I have sometimes encountered these types of sellers. Each time, I have simply brought in an agent friend who then received the selling agent's commission and promptly rebated all or almost all of it to me.
Posted by: Robert at January 31, 2008 11:55 AM
Ah. So the dirty little secret is out. No wonder my agent was so excited to tell me about this place. Forget about dropping prices; all the developers are in cahoots. As the seller's agent of another development keeps telling me, the SF RE market is still strong, so they're not budging on price. Now, if only we buyers would be in cahoots and hold out in this little power struggle and see who wins in the end.
Posted by: S&S at January 31, 2008 12:30 PM
@ Robert - bringing in a friend that is an agent for the sole reason of your friend getting the commission and then rebating all or most of that commission back to you is precisely the reason that so much of the general public has a poor and negative view of agents in general during the boom years of the market. Those of us that have always been ethical and that have worked extremely hard for our clients during the ups and downs of the market have to constantly struggle to overcome the general perception put upon us by agents such as your friend - whom some would argue is pretty unethical.
By the way, the agent for the buyer is the buyer's agent, not the seller's agent. In a new development, if a potential buyer walks in the door without an agent and puts down a deposit or purchases a unit, the seller's agent is the developer. If the potential purchaser walks in the door with an agent, then that agent is the buyer's agent, representing the buyer. Same with resales, TIC, condos throughout the city. The seller's agent is the actual person/company/developer/brokerage that has the property listed for sale, the buyer's agent is the person representing the buyer in the transaction.
If you can negotiate a deal to get the entire buyer's agent commission back from the seller or developer, then go ahead - give it a shot. It never hurts to try. Most builder/developers that I know of are dealing a bit from asking prices (I am only talking in San Francisco here) but usually only when things get desperate will they throw in the farm. Or, as you mentioned, you can simply find a friend who became a licensed agent in the past few years to step in on your behalf, collect the commission for simply being your friend( and being an agent, of course),and then give it back to you to show what a good friend (and agent) they are.
I have had at least 4 clients over the past 3-4 years call me after casually walking into a new development and putting down a deposit or writing a contract on a property to ask me how they can get out of the deal because they have gotten cold feet, have had second thoughts, or simply had circumstances that have changed and they no longer wanted to move forward. Every single one of them lost every penny they to the builder/developer with the exception of 1 - because the developer had not broken ground on her particular building during the time that had been stated in the purchase contract.
Regardless of how you view the market and agents in general, Real Estate has always been and will continue to be big business, folks. A lot of money is at stake - those of you that have bought or sold in the past can attest to this. I am sure many (if not most) of you have a friend or know someone who has had a great experience with an agent and would highly recommend this person to you. The good stories don't spread around town nearly as fast as the bad stories do.
For whatever it's worth - hope this helps.
Oh, back to the Park Terrace - I happen to think it's a nice development. I do have friends who live here, they used another agent who is a close friend to purchase. Their personal situation was a very sticky and complicated one but it all worked out in the end - just barely. Once all the dust has settled and the apocalypse is over, I personally think Mission Bay is developing into a great location.
Posted by: anon at January 31, 2008 1:12 PM
Count me among those who were shown this place by my (former) agent without the disclosures...
Posted by: Foolio at January 31, 2008 1:21 PM
"I have simply brought in an agent friend who then received the selling agent's commission and promptly rebated all or almost all of it to me."
Robert - How does this transaction work tax-wise? I'd assume that your agent friend's part of the transaction is going to be reported to the IRS via a 1099 or similar mechanism. Then when s/he relays the money to you it is sure to be a large enough sum to trip some IRS monitoring.
Its too large of a sum to let be double taxed.
Posted by: The Milkshake of Despair at January 31, 2008 1:33 PM
This is totally conflict of interest. And the buildings are putting Realtors in a bad position.
A smart Realtor should refuse this incentive because when a buyer sues a building over it, the Realtor can say they never accepted it.
It is essentially a bribe. A smart lawyer should talk to the people at these buildings.
Posted by: Anon Realtor at January 31, 2008 2:08 PM
Meanwhile, it's actually a pretty nice building.
Posted by: anonyman at January 31, 2008 2:22 PM
Anon realtor - Not entirely sure why a buyer would or could “sue the building over it” (assume you mean developer). Why is this “putting the realtor in a bad position”? Realtor fees are negotiable – the developer can pay whatever he likes. The “smart realtor” should (and does) explain to the buyer exactly from whom, and how much, he or she is to be compensated from the transaction. The realtor may, if she so wishes, then share a part of that fee with the buyer. Redfin’s entire business model is based around this. The developer in this instance is simply trying to increase traffic, albeit in a somewhat unsophisticated and probably ineffective manner. I’m not sure if the illustration shows the entire marketing piece but it would probably behoove them to mention some of the attributes of the building and how much the realtor’s client might enjoy the building rather than simply how much money the realtor will make.
In response to Satchels comment. “Lower the prices! Works every time.” Actually this is not necessarily true. If he lowers the price he runs the risk of losing transactions that are already pending and end up with fewer sales. What would you do if you had a deposit down on a building only to discover that prices had since dropped, say, 5%? It also then reduces the appraisal values going forward. Existing home owners within the building would also be none too happy to see prices dropped and these are typically a strong source for additional sales. It is usually better to provide non-financial incentives such as appliances and upgrades, or, the buyer could of course, request a portion of the selling agents’ commission if this happened to be an amount larger than that typically offered.
Posted by: Expat at January 31, 2008 3:52 PM
"It is usually better to provide non-financial incentives such as appliances and upgrades"
Better for who? The realtor, of course, so they can charge a larger commission and claim prices are not down. This is the absolute worst outcome for any new buyer since they now roll the cost of an oven, car, or TV (or whatever "upgrade" they end up with), all depreciating assets with 10-15 year lives, into their 30-year loan. Who wants to finance a granite countertop for 30 years if they only plan to live there 5-10? Even when they sell, they need to net the loan balance out of sales proceeds and get hit on their exit. Just to make the neighbors happy because they bought in earlier? Sorry, I don't think so. For any current buyer, the best case scenario, as Satchel and anon point out, is lowest price going in.
Posted by: Dude at January 31, 2008 4:37 PM
@Expat - exactly. No reason for the purchaser to sue the builder over the buyer agent's commission. Anon Realtor's point doesn't make any sense. I can see, however, the purchaser trying to sue the seller/developer for slashing the prices after said purchaser has bought at a much higher price and moved in. You bring up a good point.
Everyone knows that commissions have and always will be negotiable - more so in a very hot market, and not so much so in a slow, falling, or correcting market - however you want to look at it. As I mentioned earlier, I think you will see sellers and developers start to offer more 'tiered' type commission structures and/or incentives to agents who have multiple buyers or properties in escrow at the same development - it's been happening in other parts of the country where markets have already softened for some time now. I agree it's probably not too effective. But many developers are simply reversing a trend that started during the run-up and boom times of the market, where they were typically paying agents much less in commissions when people were lined up at the door to buy at these places. Just a part of the playing field leveling itself back off again, I suppose.
Posted by: anon at January 31, 2008 4:38 PM
Re Expat's "Not entirely sure why a buyer would or could “sue the building over it” (assume you mean developer). Why is this “putting the realtor in a bad position”?"
I'm not a real estate attorney, but my understanding is that a buyer's agent has a responsibility and obligation to act as a fiduciary for his or her client, the buyer. The widespread use of this type of incentive arrangement, at a minimum, gives rise to the possibility that the buyer's agent is compromising his or her fiduciary duties to the buyer, exposing not only the agent to the risk of a lawsuit, but I would think the developer/seller as well for knowingly encouraging and enticing the agent to take actions contrary to the agent's fiduciary obligations. Damages would be the amount the buyer overpaid, and because deceit and malice are involved, punitive damages in excess of the amount the buyer overpaid may be available.
Is anyone familiar with what would be a kind of malpractice lawsuit against a real estate agent? I am not, but would be interested in learning if anyone else is.
Posted by: Mark D. at January 31, 2008 4:42 PM
There sure was a lot of realtor hatred in this thread. I think a lot of realtors probably credit this bonus back to the buyers for closing costs. I would. For every bad agent or three out there there is a buyer and a seller or three who are completely dishonest about damn near everything and will lie and double cross anyone who stands in their way. It's just people. Good people, bad people, the world is full of them.
Posted by: fluj at January 31, 2008 6:29 PM
Oh my god. He is back..........
Posted by: anon at January 31, 2008 8:14 PM
@ Mark D - Fluj brings up a very good point. The agent could actually use this additional incentive to credit back to their client, the buyer. You act as if all agents are crooks and don't know what fiduciary duty means when it comes to dealing with their clients. Why don't you ask around - perhaps some of your friends or friend of a friend that might be an agent - see if they understand fiduciary duty when it comes to their client and see if they deliberately go out and conduct business on a daily basis in a way to try and leave themselves open to a lawsuit.
You also fail to take into account that a portion of the purchase price of any of these properties has the buyer's agent commission built into the pricing of the units - they didn't raise the asking prices, they are simply offering a tiered commission incentive to those agents who might have multiple purchasers interested (or in escrow) at the same development. Many buyers in San Francisco are looking in SOMA / South Beach / Mission Bay (I know it's shock to many of you) and are all considering the same developments - Soma Grand, The Arterra, Park Terrace, 170 Off Third, The Infinity, 1234 Howard, ORH, etc. etc. Resales at The Beacon, The Bridgeview, The Metropolitan - the list goes on and on. Many people prefer the quieter location of the newer developments in Mission Bay, the amenities and services that are included, and the easy access to so many parks and outdoor space (especially if they have dogs). Some prefer SOMA and South Beach because the neighborhoods tend to be more established and there are more loft-style buildings to choose from. In the end it all depends on where people feel the most comfortable spending their money, and where they want to call home. I recently had one client that after looking at almost every single development in Mission Bay and South Beach, has decided she wants to keep looking for something in a older, more established neighborhood - so we are back to square one. I have another client who is leaning heavily towards The Arterra because of the outdoor space in the courtyard and on the roof tops of the buildings, as well as the fact that it is a LEED certified development - plain and simple for these folks.
As far as the builders and developers, who do you think drafts the purchase contracts for them - the same contracts that prospective purchasers sign when they make a deposit to purchase one of these units? The Attorneys that work for and represent the builders and developers.
Most agents work very hard for their clients and the repeat business and referrals this hard work will bring in over many years to come - not trying to strong arm them into purchases or properties they really don't like just because it means a little bit more money and the risk of a potential lawsuit in the future. Do you honestly know anyone that has purchased a property anywhere in San Francisco that didn't really want to live there or didn't fall in love with the place for one reason for another? Or because it really wasn't what they were looking for to begin with or didn't fit their needs at the time?
Do you know someone who has gotten in way over their head, and wants to blame someone else for it? In today's market, that is more than likely. But another story completely.
Like Fluj said, good people - bad people - the world is full of them.
Posted by: anon at January 31, 2008 9:04 PM
Wow. Now I am convinced. Make that 7% then and do order that new Lexus. Would be a shame to get the tour in a Kia.
Posted by: anon at January 31, 2008 9:54 PM
@ anon - sorry to disappoint you, love - if you are riding with me, it's in the Prius. A Lexus wastes too much gas and attracts too much attention in The Mission. ;-)
Posted by: anon at January 31, 2008 10:19 PM
To sum up the obvious - there is nothing immoral about Park Terrace offering these tiered commissions - but CLEARLY it is unethical for a buyer's agent to show a client the building without disclosing this very unusual fee structure. Even if one accepts the notion that it is the seller that is paying the commission, the client is entitled to know that his agent may be conflicted in presenting/pushing this opportunity. The notion that the seller (and not the buyer) is "paying" the commission in this scenario is pure fantasy - every penny of the extra percentage points is being paid by the buyer in the form of a higher purchase price than the unit would otherwise fetch without the special incentive payments to the buyer's agents.
Posted by: Robert at February 1, 2008 12:10 AM
@ Robert - it's not clear at all whether or not it is unethical that an agent does or does not reveal to a client the stepped-up commission incentive for selling multiple units at the same development. I think it is your assumption that it is unethical. I also don't see your point about an agent being 'conflicted' for showing a potential buyer the development, especially if the client wants to see it. It's no different than showing a client a handful of resale condos or TIC's in Hayes Valley, for example, where one listing agent is paying 2.5% commission to the buyer's agent, and the listing agent on another property might be paying 3%. Commissions have been, and always will be, negotiable in real estate - period.
'By the way, clients, I just wanted you to know that Park Terrace is offering an incentive right now that they will pay me an extra 1/2% commission for each unit I sell after the first one'.
'Sure, agent - now can we still go take a look at the development? We took a look at the website/saw it in the Chronicle/drove by it/saw it on CraigsList/have some friends that bought there/live there/told us about it and we think we might like it.'
'Sure, client - as long as you understand that I will get paid if you decide to buy a unit there. And I'll get paid again an extra 1/2% if someone else decides to buy a unit there and I am the buyer's agent'.
'Sure, agent - now can we still go see it?'
However you want to look at it, the seller/developer is paying the commission to the buyer's agent - it is not coming out of the pockets of the buyer. It's coming out of the pockets of the seller. Another reason they can offer these tiered incentives to agents is because they are not paying any commission on the listing side of the transaction - typically an additional 2-3% if the property were listed through a traditional broker - and as I mentioned earlier, the commissions are built into the sales price from the beginning, negotiations or not.
Posted by: anon at February 1, 2008 1:04 AM
@anon at 1:04 a.m. - I've pasted the definition of "fiduciary" from Wikipedia below. Your position that it's "not clear at all" whether these incentives are unethical, in my humble opinion, rests upon your own (willful?) lack of knowledge regarding the elements that constitute a fiduciary relationship.
From Wikipedia: "A fiduciary duty is the highest standard of care imposed at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom they owe the duty (the "principal"): they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust...."
"When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict ... and a duty not to profit from their fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest. It has been said that ... '[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.'"
@fluj at 6:29 p.m.: Either buyer's agents are acting as fiduciaries for their clients or they are not, and I hardly think it's "realtor hatred" to suggest that buyer's agents should avoid and/or disclose conflicts of interest to their client.
Posted by: Mark D. at February 1, 2008 4:38 AM
The Milkshake of Despair "How does this transaction work tax-wise? I'd assume that your agent friend's part of the transaction is going to be reported to the IRS via a 1099 or similar mechanism. Then when s/he relays the money to you it is sure to be a large enough sum to trip some IRS monitoring. Its too large of a sum to let be double taxed."
In one of my prior transactions the commission rebate was reflected in my closing statement, thereby reducing my cost basis in the property acquired. The agent/broker will probably need to report his commission 'gross' in order to reconcile to his 1099 and use the rebate as a business deduction/expense.
Posted by: Mike at February 1, 2008 6:02 AM
and I hardly think it's "realtor hatred" to suggest that buyer's agents should avoid and/or disclose conflicts of interest to their client" --
Who said that? I didn't. I said I would disclose it, and give it to the buyers. Sheesh. The words people put in my mouth on this site. Further, my complaint of realtor hatred was directed at a deleted comment which used the word "scumbag" if I recall.
@ (my sarcastic foil) anon -- I was correct regarding the Douglass property you so loved to goad me about. You were wrong. Nice one.
Posted by: fluj at February 1, 2008 9:22 AM
@ Mark D - Many will appreciate the cut and paste of the definition of fiduciary from Wikipedia. In my many years of buying and selling and working with clients I have never compromised my fiduciary duty to my clients and have consulted personal as well as in-house legal counsel several times during my career to make sure that my client's best interests are always represented. My example of what a typical conversation with a client would be like regarding the stepped-up commission structure for agents at Park Terrace pretty much proves my point.
@ Fluj - it wasnt' me! Are you talking about your Broker's listing on Douglass? I have always liked that house - we were even discussing the fact that it came back on the market several weeks ago at a slightly higher price than before the holidays, and give the current demand in Noe Valley, we were pretty sure it would sell - good job.
I had some doubts about the one across the street that was listed with a different Broker being a bit too high.
Posted by: anon at February 1, 2008 10:24 AM
Also, I wanted to add the majority of people who are in the market to buy or sell a property clearly understand that their agent makes money (most of the time) when a transaction actually goes to closing and property changes hands. There are several forms as well as steps that are in place to make sure all parties involved understand who is walking away from the table and with what. I have never had a client assume that I work for nothing.
Posted by: anon at February 1, 2008 10:30 AM
"I have never had a client assume that I work for nothing."
I do not assume that my stockbroker works for nothing either. I do assume that he's working for me and not getting a bonus above his normal fees to sell me on one stock over another.
From above: "The More You SELL The More You Earn"
Posted by: Michael at February 1, 2008 10:43 AM
Interesting that none of the realtors (tm) on here have agreed that there should be a legal requirement for a buyer's agent to disclose what remuneration they would receive from the seller. I wonder why that is?
Posted by: Amen Corner at February 1, 2008 10:44 AM
Under standard conceptions of "fiduciary" duties or responsibilities, the fiduciary is required to disclose actual OR potential conflicts of interest to those to whom the duty is owed. As Trip or one of the other lawyers would confirm I'm sure, legal ethics in practically all states requires that lawyers (when acting in situations under which the fiduciary duty arises) should disclose all actual and potential conflicts and should further refrain from activities giving rise to even the APPEARANCE of conflict or impropriety (this last proscription is very broad, extending to most activities of a lawyer).
Not sure about the ethics of the real estate profession, but given the numbers of times I and my wife have been outright lied to by agents, I suspect the standards are a little loosy-goosy.
Posted by: Satchel at February 1, 2008 10:55 AM
Bottom line is that realtors decline to make full disclosures at their peril. California law is clear that a buyer's agent is a fiduciary. If a buyer later finds out there was some undisclosed commission that went to the agent (and it is based on the selling price at that -- higher the price, higher the number) that opens up a lot of questions about the agent's motivations. If the property drops in value by a couple hundred thousand, the buyer has a pretty decent case against the agent to claim that he would not have bought at all had the agent disclosed this "secret side deal with the seller" and damages are the hit on the property value. I wouldn't want to be the agent trying to explain this all away to the jury by saying "everybody hides this kind of thing."
Posted by: Trip at February 1, 2008 10:58 AM
To answer Satchel's question -- yes, attorneys have to disclose and get the client's approval in writing on all potential conflicts. If you don't, the client need not pay. As for actual conflicts, if you have any confidential info you just can't take the matter on (lots of complicated analyses go into determining "actual conflict").
Posted by: Trip at February 1, 2008 11:05 AM
@ Michael - in real estate, commissions have always been, and will always be, negotiable.
@ Amen Corner - you are incorrect. There are several documents that are put in place during a transaction to buy or sell a property where all parties know exactly what each one is walking away with at the settlement table - we don't make this stuff up. The first document is what we call a 'Good Faith Estimate' of closing costs, which clearly states how much commission the agent is earning from a transaction. Secondly, and prior to close of escrow, buyers and sellers are presented with an early copy of the 'HUD-1' or closing statement which they may scrutinize at their leisure - this statement is required by law and clearly states the amount of commission any and all agents will walk away with at the close of the transaction. Any and all credits to the buyer(s) or seller(s) are also shown on this form. Many times last minute adjustments are made prior to closing due to errors in pro-rated taxes, commissions, etc.
They don't simply show up at the closing table and suddenly find out how much they are paying for a property, how much proceeds from the sale of a property they are walking away with (sometimes the opposite) or how much their agent will make in commission. It's all there in black and white. It is required.
If you have ever bought or sold a property anywhere in San Francisco or in the country for that matter you would already know this.
For what it's worth - hope this helps!
Posted by: anon at February 1, 2008 11:05 AM
@ Satchel - indeed, standards may be a bit loosy-goosy, as you put it. But what it all boils down to is what Fluj has said before - for every 1 good agent out there, there are 3 or 4 bad ones that make everyone look bad. The bad stories spread around much faster than the good ones. There are good people and bad people everywhere, in every line of work. I am sure if you look hard enough you have a friend, or a friend of a friend, that has a good story to share regarding their agent and would emphatically recommend this person to you or someone else.
As the market changes, hopefully a lot of the 'bad' ones will leave - and we'll hear more good stories in the future.
I know there are a lot of agent haters here, it's pretty obvious. I meet potential buyers all the time that choose to 'go it alone' and don't want the help of an agent. It's fine with me and more power to them if they can do it alone, or perhaps simply with the help of a friend that is an Attorney.
Trip makes a good point - agents that decline to make full disclosure do so at their own peril.
Posted by: anon at February 1, 2008 11:19 AM
Re Fluj - "Who said that?" Um, you more or less did. "It's just people. Good people, bad people, the world is full of them." It's just a very small step from saying that to saying this: "It's just behavior. Ethical behavior, unethical behavior, the world is full of it."
I just spent 5 minutes or so poking around www.parkterracesf.com as a buyer might, and I couldn't find the graphic that is at the head of this thread. [SocketSite: can you tell us where this graphic comes from?] I can't be certain that the graphic is not posted somewhere where it is available for viewing by a typical buyer (apart from its posting here on SocketSite), but assuming that the graphic is not available to be viewed by the typical buyer (who may or may not read SocketSite), why might that be? Is it because neither the developer nor the agent want the buyer to know about the additional incentive commission that is being offered to the buyer's agent and that may influence the kind of advice and work that the agent does for the buyer? If it's all so above board, why is it hidden?
Re Michael at 10:43 a.m.: No one is suggesting that buyer's agents should work for free, and it's a silly straw man argument to suggest otherwise. But if I as a buyer think my agent is getting 3% when he or she is actually getting 3.5, 4 or 4.5%, I'm gonna be pretty damn mad that this wasn't disclosed to me.
[Editor's Note: The graphic was passed along by a plugged-in tipster on the "sell side."]
Posted by: Mark D. at February 1, 2008 11:24 AM
@anon 11:05. At what point in the process is there a legal requirement to receive said good faith estimate? If it's typically after contingencies have been removed, it's essentially useless.
Posted by: Amen Corner at February 1, 2008 11:28 AM
@ Amen Corner - you don't use a good faith estimate to back out of a deal, it's not a commitment or contingency. However, some people do decide to stay put after reviewing a good faith estimate. The purpose of the good faith estimate is so all parties involved know what type of money is required and how much, and who is walking away with what at the closing table. Typically the good faith estimate is presented in the initial first steps of the (potential) transaction and is often the document many clients use when negotiating on commission.
The lender will also provide a good faith estimate as well in regards to down payments, loan amounts, rates, points, pro-rated taxes, HOA dues, closing costs, insurance, etc, etc.
I think you are confusing this with the contingencies in a purchase contract - financing contingency, loan contingency, inspection contingency, etc. There are many ways to back out of a transaction before it goes to closing.
Posted by: anon at February 1, 2008 12:00 PM
Mark D, we are very much not on the same page, and the initial comment I was objecting to has been deleted. I said what I would do. Wouldn't you like it if your realtor hooked you up like that?
Posted by: Mark D at February 1, 2008 12:03 PM
@ Mark D - Park Terrace isn't hiding anything from potential purchasers at the development - the commissions are offered to the agents that bring in the purchasers, not the purchasers themselves. Unless of course one of the purchasers happens to also be an agent. Commissions are paid to licensed agents, not anyone who just walks in off the street. There are laws in place about who can earn a commission or be paid renumeration in a real estate transaction and who can't.
It's pretty cut and dried if you ask me.
Posted by: anon at February 1, 2008 12:15 PM
"I think you are confusing this with the contingencies in a purchase contract - financing contingency, loan contingency, inspection contingency, etc. There are many ways to back out of a transaction before it goes to closing."
I'm not confusing anything, thanks. I am alluding to the fact that the later in the process one discovers the vested interest in one's seller's agent has in your buying a particular property, the more difficult and unlikely it is that you have the ability or inclination to withdraw from the purcahse. The time for a buyer to find out the agent's vested interest is at offer time. And that should be a legal requirement, imo.
Posted by: Amen Corner at February 1, 2008 12:16 PM
@ Amen Corner - like Trip mentioned earlier in the thread (and I believe Trip is an Attorney, if I remember correctly)- agents that decline to make full disclosure do so at their own peril. Conflict has always and will continue to arise in transactions of any type. As I mentioned above, all the clients I have ever worked with understood that I would get paid then the transaction goes to closing and that I did not work for free. Many do try and negotiate commission, however, the majority do not. It's the nature of the business. In the end, 99.9% of all transactions (personally) end up closing without a hitch, and everyone is happy.
As I mentioned before, most agents don't go to bed at night trying to hide things from their clients, or with the intentions of screwing a client over, knowing full well that a potential lawsuit could come up in the future and wipe out their entire career. It's all about ethics and standards. Many people have a problem with that part of an agent's job - sounds as if you might as well. There is not much any agent can say or do to prove otherwise to you.
I have closed escrow with clients at new developments that paid me anywhere from 2% to 4% commission for the buyer's side of the transaction. The amount of commission I received was always disclosed to my client and if they wanted to negotiate then we did so accordingly. A few times it came up during the frenzied period of the market but in most cases it was not an issue. I can only think of one development where I actually had more than one client in escrow at the same time - under a stepped-up commission structure - 2% on the first sale, 2.5% on the next. Client # 2 (from which I would have earned 2.5%) got cold feet when it was taking too long from their current house to sell another part of the country (where prices were deteriorating rapidly) and in the end they decided to stay put. They lost about $75,000 in deposits to the seller/developer and hired an Attorney to try and take on the developer to no avail. This went on for a year and a half before it was finally put to rest and I didn't make a single penny.
It would be interesting to hear what a real estate attorney (if there are any on here) has to say about the debate you bring about an agent earning a stepped-up commission for having multiple clients in escrow at the same development.
Posted by: anon at February 1, 2008 12:38 PM
Greg Garver you are annoying. Stop posting to drive people to your website. Why don't you try and contribute to the conversation?
Posted by: anon at February 1, 2008 12:41 PM
Re anon at 12:15 p.m.: "It's pretty cut and dried if you ask me."
It surprises me how something as elementary as a basic conflict of interest can seemingly elude certain posters on this thread (which is entitled "Your Agent Might See Value, But Be Sure to Ask for Whom" - i.e., there's a potential conflict of interest here, fellas....).
The incentive commission structure of an additional .5%, 1% or 1.5% for multiple sales creates, at a minimum, the **appearance** of a conflict between the agent and his principal.
From my post at 4:38 a.m. above (I woke up early today): "The fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict ... and a duty not to profit from their fiduciary position without express knowledge and consent."
The issue is that, with this commission structure, it's unclear whether the agent's advice is being guided by what the agent, based upon his or her experience and expertise, thinks is best for the principal (i.e., the buyer), or by what the agent thinks is best for him or herself.
It's a conflict of interest that should be either avoided or disclosed. And the fact that the commission structure is not being disclosed to potential buyers early by the developer early in the process (i.e., by posting somewhere on the developer's web-site) frankly smells very bad.
Posted by: Mark D. at February 1, 2008 12:57 PM
@ Mark D - as long as an agent fully discloses the stepped-up commission structure that the Park Terrace is offering to a potential purchaser, and said purchaser is willing to accept the fact, I don't see any problem.
If a purchaser gets to the closing table (or after close of escrow for that matter) and suddenly finds out that the agent could have been hiding something from them that could have impacted the bottom line, then I can see/smell a problem.
It's still law as well as fact that the only person that can earn a commission on a transaction is a licensed real estate agent. Therefore Park Terrace is letting agents know - since they are the only ones legally allowed to earn a commission - of this new stepped-up commission structure or incentive. Members of the general public that are not licensed agents are not entitled to earn a commission on the purchase of property. Therefore I don't believe it's a conflict of interest that they are NOT advertising this to the general buyer public.
Disclose - knowledge - consent - as long as everyone knows then there really isn't a problem.
Posted by: anon at February 1, 2008 1:09 PM
Also, I don't see the original title of the post as 'elementary' or a 'basic conflict of interest' and by no means does the post elude me. I think I have made my point clear on that.
Sorry, while I enjoy reading (and posting) on SocketSite, I don't consider it to be the 'Holy Grail' of real estate (or real estate blogs for that matter) nor do I consider it to be a source for the most accurate information. It all about opinions and viewpoints, and there are many of them.
This type of stepped-up commission structure has been going on in other parts of the country where the markets started to slow down long before the Bay Area, and I haven't heard of much (if any) conflict of interest that has arisen from such. I personally don't think it's very effective to begin with but time shall tell, I suppose.
Posted by: anon at February 1, 2008 1:18 PM
Re Anon at 1:09 p.m.: "As long as an agent fully discloses the stepped-up commission structure that the Park Terrace is offering to a potential purchaser, and said purchaser is willing to accept the fact, I don't see any problem."
Agreed, provided that the disclosure occurs early in the process when the potential buyer is considering different alternatives. Disclosure is the heart of the issue, isn't it? The fact that the commission structure is not disclosed on the developer's web-site (but rather via "a plugged-in tipster on the 'sell-side'") doesn't give much reassurance on this point, and the fact that this type of arrangement "has been going on in other parts of the country" is not all that reassuring either re the integrity of the industry.
To avoid repeating myself (which I've already done - apologies), this will be my last post on this thread.
Posted by: Mark D. at February 1, 2008 1:46 PM
We could go round and round on this one - I don't see that it compromises the integrity of the industry, but others will always see things differently. It's my belief that it is a rather ineffective way to stimulate sales in a sagging market and try and bring agents back into a development after (in many cases) turning their backs on agents during the boom years. Most developers realize that it is still agents that bring most potential purchasers to their projects.
Let's stick a fork in this one and call it done.
Posted by: anon at February 1, 2008 5:56 PM
Who keeps deleting my post? Love it when people post as anonymous and think they can say whatever they want. Almost as bad as someone giving me the finger from their car. Anyways... offering a higher percentage to the selling broker is a tried and proven method, not saying I like it just stating fact..............
Posted by: San Francisco Realtor at February 1, 2008 7:34 PM
Does anyone have information on the BMR units in the area around Park Terrace and on the plans for the area across the creek? The SF development plans show much affordable and very low income housing going up and already available. Will this affect property value and resale at the Park Terrace?
Posted by: curious at February 4, 2008 12:31 PM