Should Alan get paid?

By
Real Estate Broker 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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Comments 43 New Comment

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Ambassador
957,851
Alan May
Evanston & Northshore of Chicago real estate
Coldwell Banker Residential

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.

January 23, 2012 08:43 AM
Rainmaker
159,856
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp.

"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.

January 23, 2012 06:34 PM
Ambassador
957,851
Alan May
Evanston & Northshore of Chicago real estate
Coldwell Banker Residential

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.

January 23, 2012 09:05 PM
Rainmaker
159,856
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp.

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.

January 23, 2012 11:35 PM
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Alan May
Evanston & Northshore of Chicago real estate
Coldwell Banker Residential

Satar - gee, I wonder who you mean?

January 24, 2012 08:54 AM
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Alan May

Evanston & Northshore of Chicago real estate
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