The practice of a Bonus To Selling Agent (BTSA) should be banned.
I know that statement will be hugely unpopular to a number of agents, but it doesn’t change the fact that a BTSA is at least unethical and at worst illegal.
For a refresher for agents, what is a BTSA? A residential property is usually sold with approximately a 5-6% commission built into the price, and the commission is split between the seller’s agent and buyer’s agent (also known as the “selling” agent). On a $200,000 home, that’s a $6000/$6000 split for each agent. Sometimes, the seller will offer an additional incentive called a Bonus to Selling Agent (BTSA), above and beyond the 3% commission split. A BTSA of 1-2% is typical on new construction from a home builder, and is also offered frequently on existing homes.
Listing agents often advertise these bonuses in email marketing flyers sent to buyer’s agents in the hope that the bonus will be an incentive for the agent to show the property to their client. ‘Take a look at this – we’ve got a great deal for you!’ is the message. Some of the recent email flyers I receive on a daily basis said “$5000 Bonus to Buyers Agent”, “5K BTSA”, and “Who wants to pay you $11,510???”
Whose pocket does the extra $5K come from? Ultimately, the buyer. It is $5,000 they could have used to reduce the price of the home or buy new furniture.
Why is a BTSA unethical?
The Realtor Code of Ethics states in Article 1 that “when representing a buyer… as an agent, REALTORS® pledge themselves to protect and promote the interests of their client.”
On advertising, Article 12 of the Code of Ethics goes on to state that “the offering of any inducements to do business is subject to the limitations and restrictions of state law and the ethical obligations established by any applicable Standard of Practice.”
In other words, the NAR Code of Ethics acknowledges that agents have an obligation to their clients, and that you should not induce someone to do business if it is at odds with the Code of Ethics. But clearly, a BTSA advertisement by a listing agent conflicts with the duty that the buyer’s agent owes to his client. The advertisement isn’t for a compelling feature of the house, a price reduction, or anything else that would benefit the buyer. The only benefit is to the buyer’s agent. That’s a problem.
Is a BTSA Illegal?
There is a bigger problem with bonuses to buyer’s agents. As most agents learned in real estate school, agents have a fiduciary responsibility to their clients. Businessdictionary.com says that a fiduciary “must not exploit his or her position of trust and confidence for personal gain at the expense of the principal.” In other words, the agent has to hold his buyer’s wants and desires above his own.
If a buyer’s agent steers his buyer to a particular house because a higher commission is offered, that is a violation of his fiduciary responsibility to the buyer. He should find the best home at the best price for his buyer, not one that fills his wallet better than another.
So why offer a Bonus to Selling Agent? Why is a BTSA offered on literally thousands of properties every year?
Because sadly, often times it works. Some real estate agents will say a BTSA should not work, but does. It’s human nature. And therein lies the problem.
Consequently, the only solution I see is to simply ban BTSAs. Clearly a bonus for the buyer’s agent is not in the buyer’s interest, as the buyer ultimately pays more for the house. Real estate agents have a duty to the buyer, and a buyer’s agent bonus conflicts with that obligation.
© Copyright 2010, Andy Salo, Yigdigs LLC
