One of the key principals in NAR’s definition of a Multiple Listing Service states: MLS is “a means by which authorized participants make blanket unilateral offers of compensation to other participants (acting as subagents, buyer agents, or in other agency or non-agency capacities defined by law)”. MLS rules go on to further state “Such offers are unconditional except that entitlement to compensation is determined by the cooperating broker’s performance as the procuring cause of the sale (or lease).”
This means that comments such as “reduced commission to buyer’s agent if listing broker shows property”, “$xxx bonus to selling agent for a full price offer” or “agents commission may be reduced” should not be entered into the MLS as these are not determinants of procuring cause. If a listing agent wishes to offer compensation that varies from the compensation indicated on the MLS listing, the listing agent must notify the cooperating broker in writing and in advance. This notice should be handled outside the MLS directly with the cooperating agent before a prospect is introduced to the property, provided that the modification in the specified compensation is not the result of any agreement among all or any other Participants in the MLS.
These types of issues are also becoming more prevalent with the increase of “short sales” and foreclosures that are occurring across the country. In most short sale transactions the lender must approve the offer before the seller can accept it and may ask the buyer’s broker to accept a reduced commission as part of the consideration. In foreclosure transactions the seller/lender may require an Addendum including a reduced commission to the buyer’s broker for a delayed closing. It is appropriate to indicate in MLS agent remarks that “lender must approve all offers” or “seller/lender requires Addendum” and the listing broker can attach the addendum to the MLS listing as an agent only PDF.
It is well established that the listing broker cannot change or alter offered compensation to buyer’s brokers once the offer of cooperation has been accepted by the buyer’s broker, unless the buyer’s broker consents to the changed compensation. In the cases mentioned above, a buyer’s broker is not obligated to accept a reduced commission and it is not appropriate to indicate in the agent remarks that the buyer’s broker commission may be reduced since that is only the case if the buyer’s broker agrees to such commission reduction.
It has also been established that the listing broker is the party responsible for ensuring offers of compensation to cooperating brokers are satisfied, regardless of what the listing broker’s compensation from seller may be or regardless if the listing broker’s compensation from seller is reduced. MLS rules do provide some relief to the listing broker by stating “The listing broker’s obligation to compensate any cooperating broker as the procuring cause of the sale (or lease) may be excused if it is determined through arbitration that, through no fault of the listing broker and in the exercise of good faith and reasonable care, it was impossible or financially unfeasible for the listing broker to collect a commission pursuant to the listing agreement. In such instances, entitlement to cooperative compensation offered through MLS would be a question to be determined by an arbitration hearing panel based on all relevant facts and circumstances including, but not limited to, why it was impossible or financially unfeasible for the listing broker to collect some or all of the commission established in the listing agreement; at what point in the transaction did the listing broker know (or should have known) that some or all of the commission established in the listing agreement might not be paid; and how promptly had the listing broker communicated to cooperating brokers that the commission established in the listing agreement might not be paid.” Again, this relief must be granted through the process of arbitration.
NAR defines procuring cause as “the uninterrupted series of causal events which results in the successful transaction”. Commission conflicts must be evaluated based upon all the relevant facts and circumstances leading up to a sale. “Rules of thumb” and other predeterminants must be disregarded. Although the NAR manual provides an extensive list of specific factors to be considered in procuring cause disputes, most cases will turn to the following factors:
- Who first introduced the buyer to the property, and how was the introduction made?
- Was the series of events starting with the original introduction of the buyer to the property and ending with the sale hindered or interrupted in any way?
- If there were an interruption or break in the original series of events, how was it caused and by whom?
- Did the action or inaction of the original broker cause the buyer to seek the services of the second broker?
- Did the second broker unnecessarily intervene or intrude into an existing relationship between the buyer and the original broker?