Should Alan get paid?

By
Real Estate Agent with Coldwell Banker Residential

AN ARBITRATION SCENARIO (based on the Code of Ethics)

Listing Broker, I.M. Abigshot listed his new short sale in the local MLS offering 3% co-op commission.  The MLS does not mandate disclosure of short sales.  In the MLS, however, there is a check-box that says "short-sale... yes or no" which the listing agent did not check either yes or no. Buyer's agent Alan May brought a contract that was successfully negotiated with the seller, and I.M. forwarded the contract to the bank for approval.

During the approval process, the bank informed I.M. that the compensation was going to be reduced from 6% down to 4%.

At the closing, Alan was paid 2%, and has now filed for arbitration seeking the additional 1% compensation.

In your opinion, should Alan prevail and be awarded the additional 1%, or is I.M. correct in reducing the co-op commission equally based on the bank-imposed reduction of commission?

(As a second scenario... does your opinion change if I.M. clicked "short-sale-YES" on the MLS input sheet?)

~~~~~~~~~~~~~~~~~~~~~~~

Note: compensation mentioned in this example is for educational purposes only. I am not recommending nor suggesting how much you should charge your sellers nor how much you should offer a co-operating broker.  The numbers are place in the scenario merely for learning purposes.  Answers can be found by turning your computer up-side down, and reading the text in the red box.  Alan accepts no responsibility for any damage caused by turning your computer up-side down, or dropping your computer on your desk, your pets or any body parts.

Posted by

 ALAN MAY, Realtor®
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 2929 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Rainmaker
333,284
Vern Eaton
Askov, MN
Realtor 320-630-6995

Alan gets PAID!!!

We have had banks do this and agent stry to cut the commission but, the MLS is a contract for payment and must be met.  Courts have already ruled that way.

Jan 20, 2012 08:32 PM #24
Rainmaker
256,068
Tim Bradley
Contour Investment Properties - Jackson Hole, WY
Commercial Real Estate Expert in Jackson Hole, WY

Of course, that means you won't be getting any more Christmas cards from Abigshot Realty...

Jan 20, 2012 10:57 PM #25
Rainmaker
899,229
Jane Peters
Power Brokers Int'l - Los Angeles, CA
Connecting you to the L.A. real estate scene

You made me turn my computer upside down.  I am waiting for it to recover before I type....  Here we do have to disclose that it is a short sale or REO, and many times there is a notification that commission will be reduced according to any possible reduction by the lender.  Up front and clear is the best way to go.  I absolutely agree that you should get 3%.

Jan 20, 2012 11:38 PM #26
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Tammy Lankford
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Your Lake Sinclair Expert (706-485-9668)

our mls had to address this issue it came up so much.  We GET what's in the MLS

Jan 21, 2012 12:00 AM #27
Rainmaker
1,067,529
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

The buyer's agent gets paid what is stated in MLS regardless of what the listing agent collects.

Jan 21, 2012 06:20 AM #28
Rainmaker
1,883,011
Gabe Sanders
the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Alan, I don't know what your state's regulations are, but if this were in Florida, you would bet your additional commission.  There was no disclaimer or notice of a possible commission reduction in the MLS, that would be the main reason.

Jan 21, 2012 06:46 AM #29
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Jason - cha-ching, indeed.

Peggy - "commission should be reduced if the bank requires it" oddly enough is not enough language.  Unless you specify how any reduction will be shared... you could be stuck with the original offer, if it goes to arbitration.

Brian - when you stood on your head to read your computer monitor... obviously all that blood flowing to your brian may have affected your logic center.

Jason - d'oh!

Karen - yep... that language will work... (although variable actually means something else)

Mimi - I have had a bank reduce the commission (as the listing agent) but fortunately, I had language in place.

Vern - Alan gets paid (ooh, I love the sound of that).

Tim - it's so true... so true.

Jane - I love it when a good looking woman agrees with me.

Tammy - we sure do... we've even had agents try to change to co-op commission on the MLS after the sale... figuring we won't notice!  as Lenn says: HA!

Conrad - darn tootin'.

Gabe - same rules apply (as per the Code of Ethics, since this is the basis we're using...) it's the same Code of Ethics nationwide.

Jan 21, 2012 09:37 AM #30
Rainmaker
662,228
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

In our MLS, in confidential remarks, we post  "Price, terms, commissions are subject to short sale lender approval; final commissions split 50-50 between agents."

Besides posting the listing as a short sale, there is also a box to check if the commission is variable.

So there's enough information there to indicate that the commission posted on the MLS is not final unless the short sale lender agrees.

And if an agent submits with an offer a statement specifying a 3% commission, I don't sign it because I never know what the bank will allow.

Lately, however, nearly all banks I've worked with on short sales agreed to the 6% commission which we split between agencies.

But this question made me go back and check my short sale listings to make sure I posted something to qualify how commissions may change.

Jan 21, 2012 01:24 PM #31
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Pacita - a short-sale commission isn't variable, if you're offering everyone the same thing.  It's only variable if (for example) you're offering 3% to a co-op agent, but would accept 2% if you double-end it.  THAT's variable.

Jan 21, 2012 05:09 PM #32
Rainmaker
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Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Alan -- that is what we mean by variable in our MLS, and we do post it because some banks won't pay the full commission if the sale is double-ended.

Jan 21, 2012 10:05 PM #33
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Of course, the answer is YES.

As far as I know, the selling broker has been upheld in artibration in all cases filed here.

We collect the co-op offered in the MLS.  That is the only way the system has any validity or value to our busineess, period.

 

Jan 22, 2012 10:53 AM #34
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Pacita - I guess different regions do it differently.

Lenn - that's the way it works, here, too.

Jan 22, 2012 01:14 PM #35
Rainmaker
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Barb Van Stensel
Chicago, IL

Unless Alan and his Managing Broker signed an agreement that they would reduce commission, then Alan Gets Paid. 

 

Jan 22, 2012 03:44 PM #36
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Barb - bingo.

Jan 22, 2012 07:08 PM #37
Rainmaker
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Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I consider myself an expert in short sales (Oh Ohhh! Liability time!)

Here is my take on this whole thing:

The co-broke offered on the MLS should ALWAYS reflect what the buyer's broker will make. I don't care what your MLS allows in the comment section or what check box was checked or not.However, my opinion is just that, and unfortunately, does not apply to every MLS (even though it should).

I think the agents are mostly ignorant and are not knowledgeable on how to collect the remainder of their commissions. And no, I don't mean they lack negotiating skills! What the listing agent should do is to counter the buyer based on what didn't get approved on the purchase offer, this includes unpaid commissions. So in this case scenario, the buyer should have been countered 2% of approved price for unpaid real estate commissions.

Regarding "variable commission":

1. It has no bearing in this scenario because the principals involved were represented by two different brokers.

2. A short sale is not a Variable commission because commission agreements are between principal and broker, not principal and their respective foreclosing lender. Unless you (the listing broker) have a variable commission agreement in place, you should not be indicating that this is a variable commission short sale.

Satar

Jan 23, 2012 12:14 AM #38
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Satar - this has less to do with the short sale, and more to do with "how is commission communicated"... and I have to disagree with you, you NEVER counter as part of the contract with commission issues.  They are always separate from the contract.

Jan 23, 2012 08:43 AM #39
Rainmaker
160,681
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

"this has less to do with the short sale, and more to do with 'how is commission communicated'"

I agree and my take is that it shouldn't matter or not if it is a short sale and that the co-broke offered on the MLS should ALWAYS reflect what the buyer's broker will make.

"...and I have to disagree with you, you NEVER counter as part of the contract with commission issues.  They are always separate from the contract."

My take is that real estate commissions are just another monetary obligation (like deliquent HOA dues, home warranty, escrow, title, legal, property taxes, etc.) that the seller has to pay to consummate the purchase contract, but is not able too. Therefore, that cost can be given to the buyer and the buyer can then agree to move forward or not with the purchase of the property.

Jan 23, 2012 06:34 PM #40
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Satar - and yet it's illegal and against the code of ethics to include the commission as part of the contract.  They are separate issues, and the contract is not allowed to be held hostage by commission negotiations.

Jan 23, 2012 09:05 PM #41
Rainmaker
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Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

The entire transaction is being held hostage by the seller's foreclosing lender! Hey some hostages get shot in the process as well.  ;)

Seriously, I looked into this as my commissions were being cut and I had to find a way to compensate myself. Granted, there are certain wording and disclosure you have to give in my state of California, but it is legal, ethical and doable.

Also, the code of ethics state that the buyer's broker cannot use the purchase contract to collect additional compensation for their brokerage, but it doesn't state that the seller cannot use the purchase offer to extract commissions from the buyer. It also doesn't state that the buyer cannot ask for money to pay their broker either. A common example is when a buyer, represented by a buyer's broker, approaches a FSBO and asks the seller to pay towards the buyer's closing cost, which happens to be the money they owe their broker. I guess the logic behind section 16-16 (which I think you are referring too) is that they wanted to make sure the buyer was not put into a bad position because the buyer's broker wanted to be compensated at a higher rate than what was offered.

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)

Suggested as a feature as I believe a lot of agents, especially those who do short sales, canlearn from the information provided by everyone contributing.

Jan 23, 2012 11:35 PM #42
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Satar - gee, I wonder who you mean?

Jan 24, 2012 08:54 AM #43
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