Who Needs a Commission When You’re Getting a Car?

When real estate agents are offered swanky incentives by developers and other agents — which, as mentioned yesterday, can include gift cards, cars and more — does it create a conflict of interest?

It’s a tricky issue — and one that’s playing out in the industry as declining home sales make developers and agents more and more anxious to sell.

The National Association of Realtors’ Code of Ethics and Standards of Practice states that "REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value."

But there isn’t a law that prevents agents from getting incentives if it doesn’t influence their obligation to get buyers the best price.

And times are tough for real estate agents:

  • Some are cutting their commission on certain sales just to push the deal through.
  • Agents are now finding they’re forced to help perk homes up. One agent in Washington, re-listing  a house that had been on the market for five months, arranged for (instead of merely suggesting) wood floor refinishing, new carpet and staging, which sold the house in 26 days, the Seattle Post-Intelligencer said. Others do menial chores like vacuuming and painting to prepare homes for sale.
  • One agent in California even lost a listing after refusing to pick a client up from his colonoscopy, according to the Virginia Gazette.

So it’s understandable why a monetary bonus or hefty gift (or for that California agent, a cab) would be enticing.

Buyer (and Agent) Beware

True, buyers make the ultimate decision about whether or not to buy. But an agent hoping for a hefty prize if they do — even if that agent is careful to try not to influence the buyer’s decision — can’t be considered completely impartial.

Which makes the practice somewhat unsafe:

  • NAR data from 2000 found that misrepresentation makes up 57 percent of buyer damage claims; true, most claims do revolve around physical property issues, but if buyers discover an incentive was involved in the deal, it could undermine an agent’s credibility — and possibly put that agent in legal risk for misrepresentation, fast.
  • One of the most common charges brought against appraisers involves inflated home appraisal, which hurts future resale chances, according to the Indiana Attorney General’s office (and the Northwest Times). And if appraisers are being eyed for being impartial, you’d better believe agents are going to be examined, too.

That’s no surprise to the Indiana Attorney General. In Northwest Indiana in 2005, local real estate company co-owner Kevin T. Pastrick was sentenced to 3 years and 1 month in prison for persuading a union pension fund to buy 55 acres of land for $10 million.

A large portion of his sentencing hearing revolved around the debate over whether or not the payment was a bribe or a gratuity — ruling it the latter would have saved him 13 months in prison.

However, the judge determined the money was a bribe because it was offered early in the negotiations to ensure the union contact moved the land purchase to completion, the Northwest Times reported.

Is dangling a hefty gift in front of a real estate agent — obtainable only if the property sells — really so different?

Paycheck vs. Paydirt

Everyone appreciates that real estate agents and developers need to make a living — which is likely getting harder for them to do by the week.

But don’t discount the increase of property buy-and-sell Web sites. Last year roughly 20 percent of sellers sold their homes without an agent, up from 12 percent in 2005, according to Real Trends.

If buyers start feeling like using an agent won’t get them the best deal because of the agent’s interests — and sellers then start feeling that buyers would rather contact them directly — what’s to stop everyone from buying and selling themselves? In this time of declining home values, I don’t think anyone would complain about saving the commission cash.

And yet — real estate professionals provide a real service. A Web site can’t address individual purchase questions, give you a property tour, acquaint you with the perfect neighborhood for your price and space needs.

Why, then, has this dubious gift-giving practice seemed to have gone largely unnoticed? Is it a case of clever developers and agents creatively sparking market interest, or is it bordering on bribery?
And should it be stopped?

Because somehow, a gift certificate — no matter how much it’s made out for — just doesn’t seem like that wonderful a bonus if it threatens the future of the industry.