Internal Squabbles

Prospecting? Check company policy before soliciting coworkers’ past clients.

April 1, 2003

Q. I work with several investors who keep me busy, buying and selling a few properties per month. In the past, I often referred my clients to a person who worked for a home warranty company. Later, the person obtained a real estate license and affiliated with my broker.

I began receiving calls from my investors, complaining that the new salesperson was soliciting their business. My broker says, since I didn’t have a buyer agency agreement with these investors, the new salesperson could contact them, even though she knew they worked with me. Is the salesperson’s action ethical?

A. I agree with your broker. Although we may have long-standing relationships with some customers, they aren’t our clients unless we establish an exclusive relationship with them. Article 16 of the Code of Ethics protects exclusive relationships of all types, whether they’re agency relationships or non-agency relationships authorized by state law, such as transaction brokerage relationships.

More specifically, Standard of Practice 16-7 makes it clear that a past client relationship doesn’t prevent another salesperson from soliciting that client’s future business. In addition, even if you had exclusive agreements with these investors, because you and the other salesperson are affiliated with the same company, your colleague may not have violated any ethics by soliciting your clients. In most states, the exclusive agreement is with the brokerage company, not with the individual licensee. Company policy should be your guide.

Q.I represented a buyer on a listing that indicated the cooperating salesperson’s commission as a specific percentage. The MLS data sheet showed this amount before, during, and after the time I showed the property, wrote an offer, and received an accepted purchase contract.

About two weeks after the offer was accepted, I noticed on the MLS that the cooperating commission percentage had been changed to half of the originally offered compensation. I have printouts of the MLS listing with dates supporting the change in cooperating commission. The listing broker didn’t notify me of the change.

The listing salesperson and I are both members of the same MLS in which the property is listed. Is an MLS listing a binding contract regarding cooperative compensation offered to other members of the same MLS? Is the listing broker obligated to pay the selling broker the amount originally offered?

A. When listing brokers put a property into the MLS, they are, by the definition of the MLS, making a unilateral offer of compensation to all other participants in that MLS. In essence, the listing broker’s offer is: “I, listing broker, promise to pay you, cooperating brokers in this MLS, the offered cooperative commission if you become the procuring cause of the sale.”

Under the NAR Arbitration Guidelines found in the Code of Ethics and Arbitration Manual (Appendix II to Part 10), if you become the procuring cause of the sale, you’re entitled to be paid the offered compensation. Supporting this concept is Standard of Practice 3-2 of the Code of Ethics. This standard requires any change in cooperating compensation to be communicated in a timely way to cooperating brokers before an offer to purchase or to lease is produced.

Given your information, it looks to me as if you have a very good case to recover the originally offered compensation.

Bruce Aydt

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.

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