 |
        
|
 |
What's a Variable Rate Commission?
|
|||||||||||
|
Most REALTORS® are familiar with a box on their MLS listing form” that has “V” in it.
This box prompts them to check a yes or no box if the commission on the
listing is a “variable” commission or not. Many REALTORS® have a
misunderstanding about what to do with this question and actually aren’t
sure what a variable rate commission is or is not. This column will
attempt to give REALTORS® guidance about this issue. What is a variable rate commission? Sometimes referred to as a “dual commission arrangement” or a “special agreement” with the seller, the most common variable rate commission is where one amount of commission is payable if the listing broker’s firm is the procuring cause of the sale and a different amount of commission is payable if the sale results through the efforts of the seller or a cooperating broker. What isn’t a variable rate commission? There is a misconception that any compensation offered to MLS participants that’s different than a fifty-fifty split is a variable rate commission. This is absolutely not true! Listing brokers may offer whatever compensation they wish to in the MLS, as long as it’s stated in a percentage or a dollar amount. There is no rule nor can there be such a rule that compensation offered in the MLS is based on any particular split or any particular percentage. (See Antitrust Law 101) Another misconception is that a variable commission is when the listing agent wants to “reserve the right” to negotiate the total commission with the seller at the time of an offer. This is not a variable rate commission agreement, because there isn’t an existing agreement at the time an offer is produced. A listing agent always has the right to negotiate the commission with the seller, as long as it doesn’t affect the compensation offered to other MLS participants. Many listing agents do negotiate their fee at the time of an offer – whether it’s from a buyer they have or from a buyer working with a cooperating broker. On the other hand, a variable rate commission agreement is typically negotiated with the seller when a listing is taken. If there is not one that is specific and has been agreed upon by the seller and the listing agent/broker, there is nothing to disclose. NAR Case Interpretation 1-30, effective in 2002, clearly makes this point. Why is it necessary to disclose variable rate commissions? The requirement for listing firms to disclose variable rate commissions is based on MLS policy and the Code of Ethics (See Standard of Practice 3-4 and Case Interpretation 3-8). REALTORS® must disclose the actual terms and conditions of the offer of cooperation to buyers agents and failure to do so results in concealment of a pertinent fact. It is pertinent to potential cooperating agents and their buyers to know the actual terms in order to make informed decisions about the property. Cooperating agents are entitled to know what the terms are in order to make proper value judgments as to accepting offers of cooperation through the MLS. For example, if there was an variable rate commission on a Broker A’s listing, potential cooperating brokers know that the possibility exists that buyers could make a more favorable transaction if they worked directly with Broker A. They may wish to decline to work on that property after evaluating that possibility. Further, the buyer may want to structure a different offer on a variable rate listing than they would have if a variable rate did not exist. Aren’t listing brokers allowed to charge whatever they want? And isn’t it between the listing broker and the seller? Yes and yes. But, when the terms of a commission affect the potential cooperation by other brokers and the terms upon which a buyer may offer to the seller, it becomes necessary for the listing broker to disclose. Does the listing broker have to disclose the full terms of the commission negotiated with the seller? No. If there is a variable rate commission in existence, any potential cooperating brokers may call the listing agent to determine what the differential is between the commission paid in a cooperative transaction and the total commission to be paid under the special agreement. For example, if the terms of the variable rate agreement were for the seller to pay one percent less if the listing firm sold the property, the listing agent must disclose to agents who call that the differential is one percent. The listing agent need not (nor should not) disclose the total commission negotiated. If you’re a buyer’s agent and you are aware of a variable rate commission agreement on a property your buyers are interested in, should you disclose it to the buyers? Yes. You not only should, you must, according to Standard of Practice 3-4, and you must disclose it before the buyer makes an offer. Sometimes, it seems like REALTORS® have to follow rules just because the “board says so” and there isn’t a good reason for such a rule. Most of the time, however, there really is a good reason. In this case, disclosure of any variable rate commissions is required in order to be completely honest with all parties who may become involved with that listing. What could make more sense than that? Revised 2003 |
||||||||||||
|
||||||||||||
