Has Anyone Restructured Broker Commissions to Fix the Incentive Problem?

Question

Overpriced Land in Mid-Florida — Has Anyone Restructured Broker Commissions to Fix the Incentive Problem?

Fellow investors,

I'm actively searching for residential land in mid-Florida and running into a frustrating pattern: parcels routinely listed at $100K+ per acre in markets where fundamentals support $25k-$35K per acre (itself a significant run-up from the $12–$15K range just five years ago).

There are several forces driving this, but I want to focus on one that doesn't get enough attention — broker commission structure.

Traditional commissions of 4–6% are calculated on sale price, which creates a misaligned incentive in my view - especially when land is over priced across the board: the broker is financially rewarded for higher prices.  This works against both parties in the transaction:

• The seller watches their listing sit with little activity because the price doesn't pencil for developers.
• The buyer can't acquire land at a basis that supports a profitable project.

A potential solution I've been thinking through:

What if a buyer engaged a broker to represent them (looking for off-market deals) under an inverted incentive structure — one that pays more for lower-priced acquisitions?

For example:

• Land acquired at or below say $35K/acre → broker earns an additional 5% bonus plus a standard commission
• Land acquired above that threshold → standard 5% commission

I'll acknowledge it sounds unconventional — and the higher-than-standard commission on the low-price scenario might raise eyebrows — but the incentive alignment appears sound on paper.  Under this model, the broker earns more on a lower-priced deal.

Has anyone actually tried something like this?  I'd love to hear whether it worked, your experiences, how brokers responded, or whether there are fundamentals that would inhibit this buyer rep structure from working as predicted.

— Steve Harris

Evan Polaski · Answer

While I love the creative thinking, I guess I don't see the point. Mainly because sale prices are pretty publicly known, and the broker commission is not the driving factor of that. Yes, the broker, under current structures, is more aligned with a seller than a buyer.

That being said, I also take the stance that buyers have the ultimate power and alignment.  If you don't want to pay more than $35k, then don't offer more than 35k.  The market will bare what land is worth.  Much like my market, when I see crap single families sell for $300k+, I don't like it and don't think it is worth that, but someone else does, and therefore I don't buy the property.

Steve Harris · Answer

Mike - Thanks for the response.  Based upon your comments and a few others, my note wasn't clear enough.  This commission concept is specifically for a buyer's rep, not a listing broker.  The approach shifts once a property is listed.

The core issue: a buyer's rep paid on a percentage of the sale price has little reason to push hard for a lower one - even when they rep me.  I hear, "that's the going rate" constantly — and that rate is typically 50% or more above what the land is worth.  Market-priced land moves fast; overpriced land sits.  I'm indeed trying to be creative to solve this long time dilemma.

If my buyer broker knows the price target I'm working toward when approaching off market land owners, and will earn more at a lower price than they would on an inflated one, that should result in downward pricing pressure than endlessly higher pressures - at least that's the objective.  Earning a good commission will address any expenses to date for the buyer rep.

To Ron's earlier point about kissing frogs — that's basically my full-time job. Most listed deals I look at are either in the middle of nowhere or priced at double what they're worth or more (sometimes both!).  All the national builders I sell lots to complain about the same thing here in FL - likely not just in this state.

Steve

Ronald Rohde · Answer

it could work, but you need to kiss a lot of frogs before you find the right partner. They need volume and trust you'll close dozens of deals

Michael K Gallagher · Answer

@Steve Harris love the creativity, but not sure it really gets to the heart of the issue. generally we just have a minimum fee structure.  so the client knows upfront that if the price of the asset we are going after or selling doesn't cover that minimum fee then they are bringing the difference under the contract.

additionally broker's are incentivized to get deals done, not have listing days high.  they don't get paid or recoup marketing dollars spent and man hours spent until the deal closes, generally, so I'd challenge your logic a bit that the price is being driven up by brokers, if anything I feel like we tend to drive them "down" form where sellers think they are.

Has Anyone Restructured Broker Commissions to Fix the Incentive Problem?

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