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Typically, the co-op commission is non-negotiable (unconditional).   There are, of course, limited exceptions; and, there are times when most of you have reduced your commission to save an escrow. 

THIS BLOG IS UPDATED BY THE FOLLOWING FANNIE MAC FEBRUARY 24, 2009 Announcement:

Announcement 09-03 February 24, 2009 Servicing Miscellaneous Servicing Policy Changes – No Negotiation of Preforeclosure Sales Commission – Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

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Such a negotiation is between the brokers, is not to be a part of the Purchase Agreement, and should be addressed by a separate Addendum.  Negotiating a commission simultaneously with the negotiation of a transaction is not proper, due to the fact that the selling broker is unable to entertain the commission negotiations while simultaneously negotiating the Purchase Agreement.

Plainly stated, the buyer’s agent gets put between a rock and a hard place, a no win situation, and must accept any reduced commission or the buyer may not get the home they desire.  Thus negotiation – or reduction – of an MLS previously offered “co-op” commission during an escrow, which is made a part of a Purchase Agreement, is not binding against the selling broker and can be disputed after the close of escrow via a Greater Las Vegas Association of REALTORS® arbitration, under Article 17 of the REALTOR® Code of Ethics. 

BUT WE HAVE A NEW RULE AND ONLY FOR SHORT SALES [MLS Rule Change]:

As a result of the “short sale” era in which we find ourselves, offered commissions may now be reduced during an escrow.  [Note:  Please review our new Short Sale Addendum]
 
The new rule is as follows:

That compensation payable to cooperating brokers may be reduced if the gross commission established in  the listing contract is reduced by a court or by a lender.  In such instances, the fact that the gross commission is subject to court or to lender approval and either the potential reduction in compensation payable to cooperating brokers or the method by which the potential reduction in compensation will be calculated must be clearly communicated to potential cooperating brokers in Agent to Agent remarks prior to the time they produce an offer that ultimately results in a successful transaction.” MLS 5.0

Plainly stated, if the lender instructs that the commission must be reduced in order to allow the short sale, the ‘offered co-op commission’ can be reduced.  This is a complete shift from the hundred plus year rule and allows an outside party (who is not a party to the broker to broker MLS offering) to tell the selling broker that they will not be receiving their full offered commission.

Prudential®, Americana Group, REALTORS® is a 7% company and 3% co-op company and we do not encourage relying on this rule.  However, if, in your investigation of your potential short sale, the lender has informed you that this , in fact, might occur here is the proper way to handle a potential co-op commission reduction as a result of a lender’s request.

If you have a short sale listing and require the ability to reduce our previously offered commission, you should read Short Sale Tips Dealing With Buyers and Agents by Sue Saunders, General Counsel, NVAR [NVAR Short Sale Tips].  Sue Saunders, Esq. shares in her “TIP” the proper way to document a potential reduction in commission. 

Be sure that the purchase agreement and MLS indicate that the transaction is a ‘short sale’ and within the Agent to Agent Remarks state:

Transaction is subject to and contingent upon bank approval; the compensation offered through the MLS will be reduced if the lender(s) reduce the gross commission; any commission reduction to be split 50/50.”

Click Here to See My May 4, 2007 Blog on Short Sales