Are Commissions Still Negotiable After an Offer?
After a buyer submitted an offer, the listing broker asked the cooperating broker to accept a lower commission than the amount in the MLS. The cooperating broker agreed – and then filed an ethics complaint. What does the Code say about this?
ORLANDO, Fla. – Dear Shannon: I’m a listing broker and had a high-end property on the MLS for $1,000,000. A buyer’s broker submitted their buyer’s offer but for a purchase price of only $900,000. My seller didn’t want to accept an offer so far below asking price, but they also wanted a quick sale. As a result, I offered to reduce the commission the seller originally agreed to pay me in our listing agreement if they wanted to accept this offer.
The seller agreed, and we reduced the commission the seller offered to pay me by (X%).
I told the buyer’s broker that the offer had been accepted, that I was being paid (X%) less in commission, and summed it up with, “This is great. It looks like both our clients are happy with the price if it means a quick sale. Would you be willing to split the difference on my reduced commission if I pay you (X%) less than what I originally offered to pay you in the MLS?”
The buyer’s broker agreed, and it was a quick closing – but then the buyer’s broker filed an ethics complaint against me, claiming that I violated Article 3 as illustrated by Standard of Practice 3-2. The buyer’s broker’s position: By asking them to accept less in cooperative compensation after the offer from their buyer was submitted, I had unilaterally modified compensation with regard to our transaction.
What? The buyer’s broker agreed to the change in compensation. I didn’t think there was a timeline on when we could negotiate compensation. I thought commission was always negotiable. Will you help clarify whether I did something wrong here? – Just Negotiating
Dear Just Negotiating: Commission IS always negotiable. Thank you for this question. Many cooperating brokers get this wrong.
Based on the facts as presented, you did nothing wrong by negotiating your offered compensation with the cooperating broker … even after they presented the buyer’s offer. The question is, under Article 3, as established by Standard of Practice 3-2, when, after the buyer’s offer was presented, you asked the buyer’s broker if they were willing to agree to accept a lower amount in offered compensation, were you, as the listing broker, attempting to unilaterally modify the offered compensation with respect to that cooperative transaction?
The answer is no – but let’s think through the analysis and look closely at what sections of the Code might apply to this situation. Remember, Standards of Practice serve to clarify the ethical obligations imposed by various Articles.
Here, the buyer’s broker references, under Article 3 and Standard of Practice 3-2, states: Any change in compensation offered for cooperative services must be communicated to the other Realtor® prior to the time that Realtor® submits an offer to purchase/lease the property. After a Realtor® has submitted an offer to purchase or lease property, the listing broker may not attempt to unilaterally modify the offered compensation with respect to that cooperative transaction. (Amended 1/14)
There is no dispute in facts that you reached out to the buyer’s broker to ask if they would be willing to modify the compensation after the buyer’s offer was presented. And there is no dispute in facts that the agreement to change the compensation occurred after the buyer’s offer was presented. The buyer’s broker cites the timing of this change to say you unilaterally modified the offered compensation, however, and this is where the buyer’s broker misinterprets the language.
Merriam-Webster’s dictionary defines unilateral as: done or undertaken by one person or party. Here, you asked the buyer’s broker if they would be willing to split the difference on your reduced commission and accept less than what you originally offered in the MLS. This was not done by just you in a unilateral way. You asked the buyer’s broker to agree and they did. So, regardless of timing, there was no unilateral attempt to modify the offered compensation.
Frankly, buyer’s broker should have kept reading because, the very next Standard of Practice 3-3 states in plain language: Standard of Practice 3-2 does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation. (Adopted 1/94)
In your situation, it is highly likely a hearing panel would find no violation of Article 3, because Standard of Practice 3-3 specifically authorizes listing and cooperating brokers to enter into an agreement to change the compensation for a transaction at any time. Also note that the buyer’s broker could have said no when you asked if they would agree to the reduced commission. And if they had said no, you would have been obligated to pay the commission offered in the MLS.
Based on the facts as presented, you did nothing wrong by negotiating your offered compensation with the cooperating broker … even after the buyer’s offer was presented.
Commission IS always negotiable. The Code of Ethics would never interfere with the negotiation of commissions between listing and cooperating brokers.
Shannon Allen is an attorney and Florida Realtors Director of Local Association Services
Note: Advice deemed accurate on date of publication
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