Wednesday, May 27, 2009

The Conflict of Interest Myth

The Los Angeles Times business section featured a story Sunday about the declining ranks of real estate agents, Realtors are Abandoning a Listing Ship.  Amongst other items, the article details conflict of interest concerns, whether agents push more expensive product to secure richer commissions.  I'm sure it happens--all things happen, but I don't believe it's prevalent.  Moral and ethical obligations aside (and those aren't easily hopscotched for living, breathing, licensed, 
regulated professionals), practice of the sort would be a bit uncomprehending.

For starters, commissions are not fixed.  Sometimes a lower priced property compensates more amply.  For example, a three percent sales commission on $500,000 bears a greater sum than 

2.5% of $585,000.  Some listings even offer bonuses to the selling agent, further complicating the assumption.  (As an aside, I showed over 30 properties last weekend and I haven't the 
slightest sense of what was offered by whom.)

But perhaps what derails the conceit altogether: the difference in the numbers is de minimus, because buyers usually court properties in a fairly narrow price range, plus/or minus 5-10%.  Supposing all things equal, commissions of 2.5%, and a 75/25 agent/brokerage split, consider the following scenarios:
Property A: Sales price $330,000.
Property B: Sales price $300,000.

Brokerage commission Property A: $8250.00
Agent take home: $6187.50
Brokerage commission Property B:  $7500.00
Agent take home: $5625.00

The pre-tax difference is $562.50.  Would anyone really 
jeopardize a client relationship, in a highly competitive marketplace, for 500 smackers?  That's just crazy talk.  Sure, as the numbers get higher the spread increases, but so does the payday. 

I always want my buyers to get the best deals and the best properties, regardless of the remuneration.  In part because I want to be affiliated with the best houses and potentially represent them at a later date; but, also because I'm highly competitive, desire to be liked, and have a big ego.  Ahhh, but you readers already knew about the ego part.   



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