Listing Brokers Must Honor MLS Offers of Compensation

Three unusual commission scenarios


 Debbi Conrad and Tracy Rucka  |    November 07, 2005
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The MLS is a means by which brokers make offers of compensation to other MLS participants. As with any contractual offer, the cooperating participants have a right to know in advance what compensation they will earn if they procure the buyer. The listing broker’s obligation to pay the MLS offer of compensation is not waived due to the amount of funds the listing broker receives from the seller.
 
The following three scenarios are examples of unusual commission issues sometimes faced by listing brokers where they might not have the money to pay the full amount owed to the cooperating broker. In the first case, the listing broker’s failure to create listing protection does not constitute a good faith, reasonable effort to collect commission from the seller, leaving the listing broker potentially liable to pay the cooperating broker out of his pocket. In the second case, the listing broker reduces the amount of the commission paid by the seller but fails to reduce the commission he owes the cooperating broker by a like amount, resulting in another out-of-pocket disbursement for the listing broker. In the third case, a limited service broker mistakenly assumes that he is not answerable for the offer of compensation he made to the cooperating broker in the MLS.

Scenario 1: Listing broker fails to create listing protection

A property was listed in the MLS and just before the listing expired a cooperating broker showed the property to a buyer. The cooperating broker submitted a showing report, including the buyer’s name, to the listing broker. However, the listing broker did not deliver the buyer’s name to the seller to create listing protection per lines 64-79 of the WB-1 Residential Listing Contract Exclusive Right to Sell.

Subsequently, the seller listed the property with another listing broker who did not put the property in the MLS. Although the first broker did not deliver the buyer’s name to the seller to create listing protection, the seller was aware of the buyer and told the second listing broker about the buyer. The second broker immediately contacted the buyer directly and negotiated the offer for the parties and the transaction closed. May the cooperating broker file arbitration against the first listing broker to claim the co-broke commission?

Yes. By introducing the buyer to the property and taking the buyer to a showing, the cooperating broker accepted the first listing broker’s MLS offer of cooperation and compensation. If the first listing broker does not pay the cooperating broker the commission offered in the MLS, the cooperating broker may file for arbitration against the first listing broker. Because it appears the cooperating broker initiated the uninterrupted series of events that resulted in the buyer successfully purchasing the property, accordingly, this broker may file for arbitration claiming to be the procuring cause of the sale. The first listing broker is not relieved of his or her obligation to pay the co-broke commission because he failed to assert his rights and create listing protection for the buyer.

Where, through no fault of the listing broker and in the exercise of good faith and reasonable care, it is impossible or financially infeasible to collect the commission from the seller, the listing broker may be excused from paying the cooperating commission. However, these facts and circumstances do not appear to relieve the listing broker’s contractual obligation to pay. The listing broker’s failure to establish listing protection and put himself in the position where he could contractually require the seller to pay commission does not demonstrate a good faith effort to collect the commission from the seller. See MLS Policy Statement 7.23 for further discussion of this policy.

This result illustrates that there are potential consequences when a listing broker fails to establish listing protection. Although in many similar situations the cooperating broker may have sought his co-broke commission from the second listing broker, in some situations the cooperating broker may also have the option to seek commission from the first listing broker. This result also demonstrates a new interpretation from NAR, namely that where there has been an accepted offer of cooperation and compensation, and the cooperating broker becomes procuring cause, the fact that the uninterrupted chain of events continued past the conclusion of the first listing contract does not impede the cooperating broker’s right to seek co-broke compensation from that first listing broker.

Scenario 2: Commission reduction impacts broker’s net proceeds

The listing broker and the seller agree in the listing contract that the seller will pay commission on the net sale price. Is the commission this listing broker pays to the cooperating broker, per the MLS offer of cooperation and compensation, to be based on the gross sale price or net sale price (sale price minus credits)? What are the MLS guidelines?

MLS offers of compensation must be based upon a percentage of the gross sales price or a specific dollar amount. This is a national MLS rule imposed by NAR in Statement 7.23 ‚ÄĒ ‚ÄúInformation Specifying the Compensation on Each Listing Filed with a Multiple Listing Service of a Board of REALTORS¬ģ,‚ÄĚ in NAR‚Äôs Handbook On Multiple Listing Policy. This rule applies regardless of the commission amount that the listing broker receives from the seller.

In this situation, the listing broker’s portion of the commission proceeds may have been a bit less than he or she had originally contemplated because the amount of the commission to be paid by the seller was reduced without a corresponding reduction in the amount owed to the co-broke. The listing broker may not unilaterally change the basis of the MLS offer of compensation.

The MLS commission will be based upon the gross sales price unless the brokers have expressly agreed otherwise. If another arrangement were contemplated, an agreement would have to be entered into between the brokers, such as standing policy letter or compensation agreement, signed by both MLS participants, or an agreement for the individual transaction. For more information about offers of compensation, please refer to the January 2002 Legal Update, ‚ÄúGetting Paid Outside of the MLS,‚ÄĚ online at www.wra.org/LU0201.

Scenario 3: Limited service listings

A subagent showed a woman a duplex that was listed by a limited service broker in the MLS. The woman contacted the seller directly and got an accepted offer. The subagent continued to work with the buyer to complete the transaction. The limited service broker told the subagent that they were done and anything else had to go through the seller, including the co-broke commission. How does the cooperating broker collect the co-broke commission?

The subagent’s expectation of commission is based upon the limited service broker’s offer of compensation in the MLS. Although the seller retains the right to negotiate directly with a buyer and the listing broker may give a cooperating broker permission to negotiate directly with the seller, this does not relieve the listing broker from his contractual obligation to pay the offered compensation to the cooperating broker who procured the sale. Look for additional information about limited service listings in the article, "The Best of the Legal Hotline: Limited-service Brokers" in the January 2005 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Jan05/Hotline. 

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