Good system I've seen for domain buying is this: You set price you'll pay. Broker decides to take job. They negotiate a price that equal to or lower than your cap. They get fixed fee plus X% of difference between price paid and max price you'd be willing to pay.

I've always wondered why this isn't the way real estate agents work.

There are some complications to the implementation of this system. If you choose to incentivize the Realtor to stay below a specific budget, the Realtor might start steering you to cheaper units (re: smaller, shabbier, poor neighborhoods) in order to get a bigger commission. If you base the commission on the discount negotiated off the list price of a home, you may push the Realtor into low balling offers and not closing deals (not to mention, in many markets, homes sell for over list price).

Probably the best method would be too use a flat fee, or a percentage of list, and then add bonus commissions for performance in negotiations, using the average 'over/under asking price' in the local market as an index. But this is probably too complicated for most people, and at the end of the day, the Realtor is more concerned about the volume of deals they can close rather than the individual deals, so performance based commissions will still probably have minimal impact on behavior.

> If you base the commission on the discount negotiated off the list price of a home, you may push the Realtor into low balling offers and not closing deals [...].

That's not too bad an incentive, because all other incentives lead to them closing more often than you'd like.

It might make more sense when negotiating with a selling agent rather than a buying agent.

Because most real estate purchasers aren't sophisticated enough to manage their end of a deal like that well.

Unless the US market is very different, I thought it was pretty obvious that the sellers/landlords are the real estate agent's customers and the stream of prospective buyers are the product...

It's different in the US. Buyers and sellers both have agents. They split the commission when a sale goes through. In some cases they end up being the same person (e.g. if an individual approaches the buyer's agent directly).

(I do this and work buying domains for people.)

There is a problem with that.

That system only works in the case of names that you don't care if you get or not. In the case of a domain that you really need (and most buyers that I've dealt with really want the name or names they have decided on) you run the risk of pissing off the seller and having him play all sorts of games that can result in paying more or deciding to not sell at all. The broker stands less to lose than the buyer does. They only lose their commission but a deal screwed up means you don't get your domain name.

But most importantly an incentive like that assumes that every seller is the same and can be manipulated with effort. I can assure you that is not the case.

These are all good points I hadn't thought of. It's clear you have a lot of experience in this--what have you found to be the best structure?

I do this for a living. You are correct. The way I work is a fixed fee in advanced based on rough estimates of the final value of the domain. Consequently I get paid the same but I'm incentivized to purchase as cheaply as possible in order to get referral business (but not at the expense of making money).

They also talk about setting a budget. It's easy to imagine schemes where there is a fixed fee plus a percentage of the part of the budget that is saved.

Works excellent for NY real estate brokers.

You are right it seems a little odd. Seems to always work in the sellers favour.

Like buying a house, no?

For a house it's 2-5%. At this Rate, it's usually better for the broker to just close the sale whether it's $400k or $500k.

This was an example in Freakanomics Vol 1 I believe.

That's the American housing market, I believe.