Negotiating the Split

When or how can you alter a commission split?

December 1, 2005

Q: Before I wrote an offer for a buyer client, I asked the listing broker about the possibility of increasing the cooperative commission. We came to an agreement for a higher fee, which I wrote into the purchase contract. The offer was accepted.

The next day the broker called to tell me he’d made a mistake when he originally put the cooperative compensation for the listing in the MLS. He said that the actual co-op fee being offered was lower, and that the compensation I’d shown in the purchase offer wasn’t correct.

When the transaction closed and the commission check arrived at my office, it wasn’t for the higher amount I had negotiated with the listing broker or even the amount offered through the MLS. Instead, it was for the lower amount the broker had told me about in his phone call after the offer had been accepted. When he updated the listing to “sold,” the broker had also changed the cooperative compensation in the MLS to the amount he paid me.

Although I may not be able to collect the compensation stated in the purchase contract (since the broker denies we had an agreement), shouldn’t I at least be paid the cooperative compensation promised by the listing broker through the MLS at the time I produced the offer to purchase?

A: Yes, at a minimum you’re entitled to the cooperative compensation offered in the MLS at the time you produced the offer. Standard of Practice 3-2 requires the listing broker to communicate any changes in offers of compensation before an offer to purchase is produced. If you can convince an arbitration hearing panel that you and the listing broker had agreed on a higher amount, you may be awarded that amount.

On the other hand, REALTORS® need to be very careful about how they negotiate increases in cooperative compensation. Standard of Practice 16-16 says a REALTOR® “shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation . . . nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.” If you had refused to present your offer unless the listing broker agreed to pay increased compensation, you most likely would have violated Article 16 as interpreted by Standard of Practice 16-16. The time to negotiate increased cooperative compensation is well in advance of writing a purchase offer. Then enter into a separate written compensation agreement with the listing broker.

Q: Sales associates in my office are encouraged to refer clients to our in-house, company-owned lender. Is it ethical to encourage buyers who’ve already been prequalified by another local lender to switch to our house lender once a purchase contract has been accepted?

A: If the client or customer has made a legal commitment to do business with the initial lender, the REALTOR® making the referral should be careful not to interfere in an existing business arrangement.

In other cases though, as long as you make the ethical and legal disclosures required by the Code of Ethics and the federal Real Estate Settlement Procedures Act to your client or customer when you make a referral to your in-house lender, you won’t be violating the Code. Instead, you’ll just be providing the client or customer with another choice of lender.

Specifically, the second paragraph of Article 6 in the Code requires that REALTORS® fully disclose any financial benefit or fee to themselves or to their company as a result of the referral of business such as mortgages and home warranties. RESPA also requires a specific disclosure of affiliated business arrangements at the time the referral of business is made.

Bruce Aydt
columnist

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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