Home builders have been offering incentives for some time now to get buyers to purchase their homes.  It’s not uncommon to hear of builders offering to pay for upgrades for appliances, cabinetry, flooring and landscaping.  They will also cover closing costs for many transactions if you use their preferred lender.

But a more recent development has been to offer incentives to the agents who bring the buyer for the property.  This is happening both in new home sales as well as resales.  The incentives may include a mini vacation, flat panel TVs or thousands of dollars in bonuses for the agent.  BusinessWeek reports on this strategy this week.

I have personally never felt comfortable with this.  If I’m helping someone buy say a $500,000 home.  The commision paid out to my broker since I’m the buyers representative is normally 2.7%.  That’s $13,500 paid to the buyer’s agent’s broker.  The broker takes his cut and then pays me the agent.  Some sellers offer 3.15% payout.   Those homes represent somewhere between 5-10% of the market.  But there are some who would offer an additional $5,000 to $10,000 bonus to the agent who brings the buyer.  I’m not comfortable with that and if I did show a home that offered a bonus, I would clearly disclose that to my client.  In the end, they are paying for it.

My recommendation for sellers who are considering this strategy is to just lower the price of the home by the amount of the bonus you’re willing to pay.  Typically what would work better is to list it as a 7% listing with a 3.15% payout rather than tacking on $5,10,20k in bonus money.