Show Me the Money: Commissions and the MLS


 Tracy Rucka  |    August 10, 2006
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Selling Commissions

Entitlement to cooperative commissions may be confusing for some agents. Any analysis of a cooperative commission situation should determine the basis of compensation between the listing and cooperative brokers, the amount of the commission, and whether the cooperating broker performed in a manner that triggered the listing broker’s obligation to pay.

Offers of compensation

A cooperating agent should first determine what commission is being offered before providing brokerage services. Don’t assume that the agent who drafts the offer or who is a buyer’s agent will automatically be paid a commission by the listing broker.

  • Is there an offer of compensation via the MLS?
  • Is there a policy letter between the companies?
  • Is the offer of compensation through the MLS modified by an effective policy letter?
  • Is there a compensation agreement negotiated for a specific transaction?

Provided the answer is yes to any of these questions, the next step is to meet the standard of performance to be entitled to the commission.

Entitlement

In the MLS paradigm, the standard of performance for determining entitlement to commission focuses on procuring cause: who caused the sale to happen. Was there an uninterrupted series of events that resulted in a sale of the property?
One source of confusion is when a cooperating broker produces a full-price offer or an offer is accepted but does not close. According to MLS policy, a successful transaction is required. A successful transaction is defined as a sale that closes or a lease that is executed. A cooperating broker may be instrumental in procuring a buyer, and that buyer’s offer may trigger the listing broker’s right to commission under the listing contract, but unless the transaction closes, the cooperating broker is not entitled to the compensation offered through the MLS by the listing broker.

If the agreement to pay commission is based upon a written policy letter or a separate written compensation agreement, the agreement should state when and how the commission is earned. Legal Update 02.01, online at www.wra.org/LU0201, contains information regarding negotiating non-MLS offers of compensation.

MLS participants

Many REALTORS® may be members of one or more MLS. By entering a listing in the MLS, the listing broker makes a blanket offer of compensation to cooperating brokers as either buyer’s agents or subagents or both. Before providing brokerage services, a cooperating broker may check the MLS to determine what compensation is offered on the specific property. Membership alone does not dictate compensation because some sellers choose not to have their property included in the MLS.

Know where your offers of compensation are going

Due to the reciprocity agreements recently entered into between various Wisconsin MLSs, agents must also consider the scope of the listing broker’s offer of compensation. The question is, “Are the brokers in the same MLS or in an MLS that is connected by agreement to other MLSs, which extend offers of compensation and cooperation to the Participants of other MLSs. Based upon MLS partnership agreements, reciprocity agreements and service agreements, offers of cooperation and compensation extend between members of the several Wisconsin MLSs.

Given the agreements between the MLSs, by entering a listing in any linked MLS, the listing broker is making an offer of cooperation and compensation to members of several MLSs. Not only can members of the first MLS see the listing, but also, by using passwords and links, brokers in other MLSs may see the listing and earn the offered commissions.

Scope of agreements

The Metro MLS and the South Central MLS have extended offers of cooperation and compensation between the Participants of each MLS through their reciprocity agreement. The Metro MLS has also negotiated agreements with Racine, Ozaukee, Sheboygan, Washington, Kenosha, Lakes Area, La Crosse and portions of Jefferson to extend offers of cooperation and compensation between the Participants of all of these MLSs. In addition, a reciprocity agreement between Northwest and Metro extends those offers of cooperation and compensation between members of Northwest and Metro and to the participants in Sheboygan, La Crosse and Kenosha. The South Central MLS has service agreements with Rock, Green, and Dodge, and reciprocity agreements with Central Wisconsin and Southwest Wisconsin.

Brokers having questions about offers of cooperation and compensation and the reciprocity agreements between the MLSs may contact their own MLS to determine the scope of their offer of compensation and obtain a copy of the MLS' rules and regulations.

Amount of commission

If the cooperating broker’s entitlement to commission is based upon the offer of compensation made via the MLS, the cooperative commission is determined by the percent offered in the MLS multiplied by the gross sale price; or by the dollar amount entered in the MLS.

Modification of MLS commission

A listing broker may choose to modify the MLS offer of compensation by policy letter. Pursuant to Standard of Practice 3-2, once an offer has been submitted, the listing broker may not unilaterally change the percentage of commission.

Brokers who have received unilateral policy letters or have negotiated bilateral policy letters should keep their agents informed about policy letters so the agents know what to expect. Due to the dynamic nature of the industry, it is prudent to revisit policy letters on a regular basis.

Commission disputes, REALTOR® arbitration

Brokers seeking compensation may attempt to negotiate a mutually agreeable solution with the listing company. If this is not successful, the cooperating broker may contact the local board for information and applications for mediation and arbitration services. Article 17 of the Code of Ethics provides that brokers agree to arbitrate contractual disputes.

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