Active Rain April 29, 2009

The Bait and Switch vs Good Faith

At the heart of doing business in good faith is representing accurate information. This doesn’t just go for square footage, what appliances convey, or when the roof was replaced. It also applies to compensation. Actually, in my opinion, it especially applies to compensation. 

Charles Stallions has written a thought-provoking post on the re-negotiation of a sales bonus which is going to arbitration. At the heart of the matter is a large bonus promised which was taken off the table by the seller when the offer came in (SHOCK) less than full price. Imagine that in this market. 

A similar thing just occurred with one of my agents. The seller, a licensee selling her own home, offered a $3000 bonus to the selling agent. No other stipulations were on the MLS. When my agent submitted an offer on behalf of the buyer client, he was told by the seller than she had just reduced the price and meant to modify the bonus to $500. He advised her that the printout he had was the most recent price with a $3000 bonus, that was what was in writing, and that was what should be paid. They settled on a $1500 bonus mainly due to the fact that losing a sale for our client over compensation isn’t exactly listed in our fiduciary duties. 

I’m not happy about the settlement, but I will abide by the agreement between the 2 agents. It isn’t about the money- my split of a bonus won’t make or break the company- as a matter of fact I have, in the past, allowed my agents to keep their entire bonus. What bothers me is the bait and switch. That agent should know better. 

The MLS is an offer of compensation in exchange for cooperation. If you cooperate and I pull the compensation rug out from under you, that isn’t doing business in good faith. 

I don’t just see this with bonuses, either. More and more, I see sellers attempting to cut the commission as a bargaining chip as well, and when I am the listing agent I adise my seller client that this could land me in arbitration.  

Simply put, if you are going to offer a certain fixed bonus amout or percentage of the sale price to a cooperating agent, then that is what you should pay at closing, period. The only way out in the case of a bonus is if the bonus stipulates that it will be paid only for a full price sale.  “$1000 bonus for a full price offer that closes” is good verbiage for something like that.

Other than that, your word, and that of the seller client, should be your bond. Good faith has to trump economic convenience-if you make a promise, you should deliver.