By guest blogger Sally Ireland, SFR
Having previously discussed the Code of Ethics: Duties to REALTORS® – Standard of Practice 16-13 with regard to buyer/tenant representation, there are additional considerations:
- The Buyer’s Agent (BA) cannot condition an offer in an attempt to modify the commission being offered. In addition, there are many reasons to keep commissions out of the contract.
Standard of Practice 16-16
REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation. (Amended 1/04) [emphasis added]
- If the LA has agreed to work with a potential buyer for a different commission than offered to a potential co-broke, he must disclose the differential to the BA as soon as practicable. If he doesn’t proactively disclose, BA should ask.
Standard of Practice 3-4
REALTORS®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/ landlord. If the cooperating broker is a buyer/tenant representation, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease. (Amended 1/02) [emphasis added]
Look at the commission being offered by the listing broker in the Multiple Listing Service (MLS) sample above. Does it cover the Buyer-Broker Exclusive Employment Agreement (BBA) amount your buyer must pay you? If not, does your buyer understand they will be expected to fill that gap?
If you don’t have a signed and delivered BBA with your buyer, this is the amount you will be paid at Close of Escrow (COE) unless you negotiate your pay with your buyer via the BBA or with the Listing Agent (LA) before you submit the offer.
There is no “required” or “market rate” commission in the MLS and therefore your pay could be as low as a single dollar. MLS cannot dictate commission amounts. It is up to the BA to negotiate his pay, either 1) with the LA, 2) his buyers, or 3) both.
- Look at the variable commission rate. Does it say “Y” or “N”? If it says “Y”, that means any offer submitted by another buyer working directly with the LA will pay the LA less commission and therefore your buyer will be competing on uneven ground. Your buyer needs to know this before you send the offer. It will most probably affect how you and your buyer construct the offer.
In summary, there are several different methods and approaches that can be used to satisfactorily resolve the commission situation. Sticking your head in the sand is another option, but you and your broker probably would not choose to accept liability without being paid appropriately for taking on that risk.
Remember, representation does not necessarily include compensation.
This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.
Next: What REALTORS® Need to Know About Disclosures