That’s the commission being offered to cooperating agents at developments like Post House Condos.
Let’s discuss the “merits” of paying agents 240% of their normal rate all in the name of selling a hole in the ground…
The discussion we had on Tuesday surrounding Trump Towers was more about representation (or lack thereof) in pre-construction sales-centres than anything else, but today I’d like to focus the topic on compensation.
The reader comments on Tuesday’s blog seemed a bit mixed: some people truly believe in “buyer beware,” and others feel as though representation and disclosure should be at the forefront of our business.
But let me throw another log onto the fire here…
What about compensation?
I have a serious problem with the fact that many on-site salespeople aren’t required by law to disclose the nature of their relationship to the builder, and to the buyer. But that’s all hidden, and swept under the carpet. I think we spun our wheels with this on Tuesday.
When it comes to compensation, however, it’s all out in the open!
I received an email this week from Post House Condos whereby they are offering a whopping 6% commission.
I’ve written about this subject before, but here we can actually apply it to a real life situation!
As you all know, the ‘typical’ commission received by a buyer’s agent or “cooperating agent” in a transaction is 2.5%. Sometimes it’s slightly less, sometimes it’s slightly more, but 99% of the time, it’s 2.5%.
So what does it say about a condominium project that they’re offering cooperating agents 6%?
It’s normal for developers to offer more than 2.5%. It’s ‘usually’ between 2.5% – 3.5%, but often we’ll see some whopping 4% commissions!
Once in a blue moon, we’ll see 5% commissions, and they cause a stir.
But 6%? What’s next?
“Six minute abs? You can’t do abs in six-minutes! You need SEVEN minutes to do abs! Not six minutes – that crap will never work!”
I suppose 7% is just around the corner, followed by 8%, but for now – let’s just work with what we’re given.
When I wrote my first blog post about 6% commissions last year, I had every pre-construction salesperson coming out of the woodworks telling me how hard they work, and how much they deserve their precious 6% commissions. I’m not going to get into a conversation about the effort and work put into selling magic beans, that somehow justifies 240% of a normal commission. That conversation could go on forever, and I’m not looking for justification on how much these salespeople know about magic beans, and how Magic Bean University tuition was expensive.
My issue is with the advertising of 6% commissions themselves, and what kind of signal this sends to the marketplace.
There are likely more than one-hundred pre-construction condominiums offering units for sale in the downtown core at the moment, and some of them are offering 2.5%, and selling like hot-cakes.
So draw your own conclusion here: what does it say about the project that is offering 6% instead of 2.5%?
Does it say that they’re having a tough time selling, and that they’re willing to pay 240% of a normal commission to entice buyer agents that currently have buyers under contract?
Feel free to come up with your own answer.
So when I received an email blast the other day from Post House Condos advertising two years of free maintenance fees, only 10% deposit, a 2% cash back incentive to the buyer, and of course, a 6% commission, I said to myself, “I wonder how these units are selling.”
For the record – I love this project! It’s an awesome location in the St. Lawrence Market area, a very cool building design, and above all, they’re working to keep the two historical buildings on the current site (the red-brick post house and the yellow-brick De La Salle College).
I don’t want to talk about Post House directly, as that might be construed as picking on their development. So let’s talk about a fictional development called ABC Condos whereby the developer is offering 6%. Now, I can tell you how I really feel…
I think the “incentives” that ABC Condos are offering right now are cause for concern. You’d be naive to think that a developer is simply offering up discounts and freebies out of the goodness of his or her heart.
If ABC Condos was selling easily, they’d offer the standard 2.5% commission, and they’d offer very few, if any, incentives.
So what would lead ABC Condos to offer almost 2 1/2 times the standard rate as compensation for a successful sale? Well, I’d guess that the units aren’t selling!
Now take that a step further: if units aren’t selling well at all, then perhaps it’s a poor project. So the developer, by offering 2 1/2 times the normal commission, is banking on Realtors to bring their clients to the project and endorse it, all in the name of a juicy 6% rip!
Am I going out on a limb here? Or am I just connecting the dots?
I want to make two assumptions, and tell me if I’m wrong:
1) A development that is selling well would likely only need to offer a 2.5% commission.
2) A development that is selling poorly would be more apt to offer a 6% commission.
Is that fair?
So a message to all the active buyers out there: if your Realtor brings you to a sales centre that is offering a 6% commission, you have cause for concern. You should ask all the right questions, and do a lot of research on the developer, the construction company, the engineers, the architect, and all the principals involved. Find out if they’ve had projects fall through before, and above all – find out exactly how many units in the building are sold FIRM.
Now that leaves me with a burning question: if you decide not to have a Realtor represent you, and you walk into the sales centre by yourself, and purchase through the developer, why can’t YOU get a 6% discount on the price of the property?
Because I can absolutely, positively, guarantee that if you walked into a sale centre and said, “Tell you what, I’m not using Bob Smith as my Realtor for this transaction, but since you’re offering 6% commissions to cooperating agents, I’d like to see that same 6% taken off the sale price,” the developer and the in-house salesperson would collectively say “no.”
Do you know why?
Because they’ve already got you sitting in their sales centre.
That’s all they’re after.
A developer needs to bring buyers into his sales centre, and that can be accomplished in an infinite number of ways.
Sometimes, the brand itself brings people in, ie. “Trump.”
sometimes, it’s partnerships with existing brands, like what Festival Tower did with T.I.F.F. and Bell, and like what DNA3 did with Fashion Week.
Sometimes, it’s good old fashioned marketing and advertising!
And sometimes, not matter what you do, right or wrong, you just can’t seem to get people into your sales centre!
So when all else fails, offer a fat 6% commission, and the bottom-feeding Realtors who are only after their next commission will sell out their naive buyers by bringing them right into the wolf’s lair.
I have a feeling I’m going to take a lot of heat for this post – from the bottom-feeding Realtors, that is, but so be it.
I speak the truth, even if it’s tough to stomach.
These cronies that are “experts” in pre-construction condo sales are nothing but magic bean salesmen.
Ask a teenage drug-dealer why he sells drugs for $1,000 per day instead of working behind the deep-fryer at McDonalds for $11 per hour. Aren’t you answering your own question?