The compensation system in real estate is, in my opinion, broken. There are many reasons the way the system has worked for so long doesn't seem feasible any more. But I want to talk about just one aspect today.

Buyer's agents in Virginia (and every other state) get paid based on what is listed in the MLS as the "coop fee" or the fee to the cooperating broker. In most cases, that fee is half of what the listing agent has negotiated as the fee for listing the house.

There is endless debate in the online real estate community over whether or not the seller is, then, in effect, paying the buyer's agent. After all, the listing agent is asking the seller for the X percent and then splitting it. Nowhere does the buyer's agent get asked to come up with this money to pay their own agent. The other side of this debate is that the buyer is paying for the house and that out of those proceeds come the fee for the buyer's agent and so, in the end, they are paying for their agent. I won't come down on one side or the other of this argument. Suffice it to say I think the fact that it's unclear who's paying the buyer's agent is a bad thing!

I think it's a horrendous thing, however, that the buyers agent's compensation is based on the sales price. That means that by negotiating the best deal possible for my buyers, I essentially hurt my own earnings. This is a very basic conflict of interest. It makes no sense that in a huge financial transaction, most buyers are represented by someone who has a conflict of interest!

The origin of this system dates back to when all agents represented the interests of the seller. Back then, even if I never met the seller and if I spent all my time working with you the buyer to help you purchase this home, I was still legally representing the seller's interests. So, it made perfect sense to compensate me based on how much the seller got for his house.

They did finally create buyer agency, but compensation has never caught up with that change.

The argument from agents is often that the amount of compensation difference between getting my buyer that house for $300,000 or $295,000 is so small, typically less than a couple hundred dollars, that it in no way influences my behavior.

And, I agree that in many cases, perhaps even in most cases, that's true.

The problem is the appearance of impropriety. The problem is that the buyer shouldn't have to wonder whether or not you're influenced by that difference. The problem is that it tarnishes the reputation of good agents. And, finally, the problem is that it makes the whole industry look shady.

It's time to fix this. I've got some ideas on how compensation could change. And, there are plenty floating around on the internet. But I'd rather hear your input. How should compensation work for a buyer's agent? What model would allow for a sustainable business on the part of the agent and no conflict of interest?

I look forward to hearing your solutions!