by Byron King
Case #3-13 Timing of Commission Negotiations
(Adopted November, 2019.)
REALTOR® A signs a listing agreement with Seller B for the sale of her home. The home is priced at $1,000,000, and REALTOR® A files the listing with the MLS, offering a certain percentage of cooperative compensation.
REALTOR® C sees the listing and knows it would be a perfect fit for her buyers, but unfortunately it’s out of their price range. She discusses it with them, and they ask her to submit an offer for $900,000. REALTOR® C explains the risks in submitting an offer so far below asking price, but the buyers are in love with the home and ask her to submit the offer anyway.
REALTOR® C submits the offer to REALTOR® A, who discusses it with Seller B. Seller B is concerned about accepting an offer so far below the home’s asking price, so REALTOR® A offers to reduce her commission, as articulated in the listing agreement, by 1% if Seller B wants to accept the offer of $900,000 and ensure a quick sale. Seller B agrees to accept the offer and reduce the commission she pays to REALTOR® A by 1%.
REALTOR® A informs REALTOR® C that their offer was accepted, but that REALTOR® A is now being paid 1% less in commission. “Listen,” she explains to REALTOR® C, “it seems like both of our clients are happy with the price if it means the sale moves quickly. Would you be willing to split the difference on my reduced commission and I pay you 0.5% less in cooperative compensation than I specified in the MLS?”
REALTOR® C agrees to accept 0.5% less than the commission specified in the MLS. After closing, REALTOR® C files an ethics complaint against REALTOR® A, alleging a violation of Article 3, as illustrated by Standard of Practice 3-2.
See below for how this hearing panel ruled…if you think a violation, how much discipline would you impose? Fine of $________ and ____ hours of education.
Citations are not available for fair housing ethics article 10 complaints due to the seriousness of the allegation. However, respondents always have the due process right to waive a right to a hearing (e.g., admit the violation, take the discipline imposed). Associations report fair housing violations to the licensing authority. [Citations can apply to other related lesser offenses in a complaint: If you were the respondent (aka defendant) REALTOR® in this complaint would you have considered taking an offered citation (small fine and education) in lieu of a full formal ethics hearing or waiving your right to a full formal hearing and accepting the fine and education imposed by the ethics committee who takes into account your admission of unprofessional behavior (aka take a plea deal)?]
SCR is receiving numerous reports of unprofessional behavior. Across the country, unprofessional behavior is the number #1 complaint by REALTORS® about their colleagues in the market.
There are several ways of addressing and trying to correct unprofessional behavior. Lead by example. If you see unprofessional behavior, say something. Discuss with the other REALTOR®. Discuss with the REALTOR®’s Broker-in-Charge (BIC). Consider filing ethics complaints at the appropriate association and filing license law complaints at LLR.
REALTORS® have an ethical duty to report fair housing/discrimination issues, fraud resulting in substantial economic harm, and misappropriation of client/customer funds/property.
REALTORS® having direct personal knowledge of conduct that may violate the Code of Ethics involving
Misappropriation of client or customer funds or property…
Fraud resulting in substantial economic harm…
bring such matters to the attention of the appropriate Board or Association of REALTORS®.
At the hearing on the matter, REALTOR® C argued that by asking her to accept 0.5% less in cooperative compensation after the offer was submitted, REALTOR® A was unilaterally modifying the compensation with regard to that transaction. The Hearing Panel disagreed and found no violation of Article 3, noting that Standard of Practice 3-3 specifically authorizes listing and cooperating brokers to enter into an agreement to change the compensation for a transaction at any time, and that the Code of Ethics would never interfere with the negotiation of commissions between listing and cooperating brokers. The Panel also noted that REALTOR® C could have said no to the reduced commission, and in that instance REALTOR® A would have been obligated to pay the commission stated in the MLS.
Posted by: Byron King on 07/21/20 (This information is only accurate as of 07/21/20. You must contact SCR for updates and changes to this information after 07/21/20 as laws and regulations may change over time. SCR 803-772-5206 or email Byron)