Would you buy a house or a condo from a Realtor solely because that Realtor will give you cash back?
What works for a credit card company just may not work for a successful Realtor…
I was in the bank the other day, and the teller tried to pitch me on a new credit card.
The credit card offered 1.0% cash back, with every purchase, paid each month either by cash deposited to your bank account, or paid against your balance.
I told the teller that I was fine with an exceptional card that I’d been using for the past decade – the TD Travel Platinum, whereby you get 1.5% of all purchases in travel money.
He said to me, “But sir, you get this money BACK! Into your pocket!”
I told him, “The key here is to get the highest amount, no matter in what form. If there was a 2.5% “Gum Card” and I thought I’d spend a thousand bucks on gum next year, then I’d take that. We all travel, right? So eventually, you’ll spend that money. So take the 1.5% instead of the 1%, and then apply it to your travel cost.”
I felt like I had just told a child that there was no Santa Claus.
It’s true, if there was a credit card that offered 2.5% on all purchases, used towards, say, the purchase of groceries, why wouldn’t I switch? Everybody needs groceries, right?
My point to this story (actually come to think of it, I’d LOVE to explore today’s credit card companies and subsequent exploitation of the low-brow consumer in a blog post…), is that I had a conversation with a gentleman last week, who said that he wanted to buy a property through a brokerage that offers “cash back.” His reasoning was that, “You get cash back when you use a credit card, so why shouldn’t you get cash back when you use a Realtor?”
I didn’t know where to start.
Comparing a credit card company to a Realtor is somewhat flawed. What does one have to do with the other? They’re both services, okay. But you don’t ask your mechanic for cash back, or your drycleaner. Even still, the comparison between a Realtor and a credit card company wasn’t my major issue.
My issue is this: how GOOD could a Realtor truly be, if he or she is offering part of their pay back, in order to use their services?
Look, I know that there’s segment of the general population that doesn’t see the value in a Realtor, and if you fall into that category, then I perhaps can’t convince you otherwise.
But what does it say about a person – no matter what they do for a living, if they give you part of their salary, pay, commission, bonus, or other?
I’ve made this argument about listing agents as well.
Consider going for laser-eye surgery, which costs $10,000, and asking the supposedly qualified person who is going to do something that affects you for the rest of your life, if he can do the procedure for $4,000 instead. If he said, “Sure, no problem,” how would that make you feel? Would you wonder why he’s so quick to act? Is he really as good as he says? Is he qualified? Is he going to do the same job and take the same care as he would if he were getting his full rate?
That’s how I look at a broker who walks in to your living room and says his rate is 5.0%, but then has no problem jumping at 3.5% when you ask him to do so.
Is he really that bad at negotiating? How is he going to negotiate for you if he can’t negotiate for himself? If he’s that quick to take money out of his own pocket, how will he act when it’s time to look after you?
But the flip side of the equation – buyer agents giving “cash back” to the buyer, is just utterly insane to me.
A buyer doesn’t pay commission, although some might argue that they effectively pay commission since the seller is taking 5% of the sale proceeds off the top. So why would a buyer agent feel the need to pay back part of his or her earnings?
Would you hire a plumber solely because that plumber said, “My company charges $200, and I get $80 of that, but if you promise to hire me, I’ll give you $7.50 back”?
I understand in the concept of something being on sale, but when it comes to professional services, in an industry that is competitive, the cheapest doesn’t mean the best, and doesn’t mean it has value.
If somebody said, “I usually charge $200 to shoot you in the head, but I’ll do it for $80 for you,” does that necessarily mean that being shot in the head is a good thing?
This is the point I’m trying to make: using a Realtor who is so desperate for business that he or she gives part of their salary back to you, does not necessarily make their services worthwhile. It could very well be that their services are a detriment to you. Right?
If a buyer agent is only interested in getting paid, and getting whatever percentage is left before you’ve been given your “cash back,” then what guarantee do you have that this person is going to do a good job? Maybe he or she will push you into a property that isn’t right for you, is a bad investment, or – as is often the case, is the very first one you express interest in?
That’s my fear, no doubt about it.
As an active Realtor, I see people out there every day that are just trying to sell real estate to pay their rent, or put the proverbial food on the table. There are 36,000 Realtors working in the GTA and (gulp!) some of them aren’t any good!
I don’t think it’s a stretch to suggest that the ones giving part of their salary back in order to attract clients are likely at the lower end of the scale when it comes to skill, knowledge, client retention, client satisfaction – all traits that are a function of one another.
A couple of weeks ago, a reader on my blog emailed me and said that he was looking at a $250,000 condo for investment, and asked if I would give him back 25% of the commission I earned in the form of a “cash back incentive.” I explained that I was a full service agent, and that I wasn’t interested in a quick sale for a quick buck, while also giving him a pretty thorough explanation of my business model, and the style in which I work.
I also added that the $6,250 commission an agent earned for selling such a property would provide for a $1,562.50 “cash back incentive,” and I simply asked, “Do you think that I can do a $1,562.50 better job than the agent you talked to from (Guess The Name Of The Brokerage…)?”
He met me the next day.
Maybe I can get $10,000 more off the purchase price than the agent from (Brokerage), who probably wouldn’t be working there if he or she was skilled and trusted enough to work for a full service brokerage.
Or, maybe the buyer doesn’t purchase that property, but instead, I work with him for six months to find the best property available, and along the way, teach him every thing I know about investment properties, investing, real estate, and everything in between.
Is that worth $1,562.50?
Yeah, it was meant to be a rhetorical question, but some people have their teeth so firmly clenched when they hear the words “real estate agent” that they’re too far gone to converse with.
Just hear me out when I say that just as “a deal that too good to be true, probably is,” there are a lot of Realtors out there with this new “business model” of giving money back to their buyers as an incentive, when it’s really just a reason to use a bad agent.
You know those radio ads for that brokerage (which is failing, FYI…) that advertises, “Up to $2,000 cash back when you use an agent from our stable of top Realtors”? Just answer me this: is using a bottom-feeding agent to buy your $800,000 home REALLY worth $2,000?
If you answer “yes,” then please email me a 2,600 word response, double-spaced, size-10 font, 3-point thesis with attached skeleton plan and references, stapled in the top-left corner, and you will get three sips of tomorrow’s coffee FREE in the form of a “coffee back” incentive.
Happy Monday, folks! 🙂