Commissions


Introducing Brooklyn Welsh, born November 1, 2008, daughter of my little brother, Daniel & Tricia Welsh."

Introducing Brooklyn Welsh, born November 1, 2008, daughter of my little brother, Daniel & Tricia Welsh.

November 4, 2008

Update on the Net Listings in MLS

This is an update to my May 23, 2008,  “Net Listings in MLS” [TGIF Legal Tip: Net Sales Listings in the MLS]

Forrest Barbee, Director Of Education & Brokerage Information at PRUDENTIAL, AMERICANA GROUP, REALTORS® updates this subject.

By, Forrest Barbee:

We have been bombarded this past couple of weeks with questions related to commissions being paid on a net sales price.  This is where the commission is computed by taking the gross sales price and reducing it by seller’s concessions in order to determine a net commission on an REO listing.  (Note: The discussion that follows does NOT apply to Short Sales.) This issues remains with us because there are a number of banks or asset managers that have structured their REO listing agreements in this fashion.  In fact, NAR allows each local board make a determination as to whether this type of commission will be permitted or not.  The GLVAR participants (one representative from each brokerage) debated this item at length, but ultimately voted it down for our area.

Section 5 of the most current version of the MLS Rules and Regulations deals specifically with this item as follows:

The compensation specified on listings filed with the Multiple Listing Service shall appear in one of two forms.  The essential and appropriate requirement by an Association Multiple Listing Service is that the information to be published shall clearly inform the Participants as to the compensation they will receive in cooperative transactions, unless advised otherwise by the listing broker, in writing, in advance of his producing an offer to purchase.  The compensation specified on listings published by the MLS shall be shown in one of the following forms

1. by showing a percentage of the gross selling price

2. by showing a definite dollar amount

Multiple Listing Services shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other Participants to discuss terms and conditions of possible cooperative relationships.

So here are some tips to help you out here. First we have discovered that some of the banks/asset managers have listings or riders for areas that allow net commission sales and for those that do not allow this activity.  If you are the listing agent of one of these REO properties you may want to have this discussion with the bank prior to taking the listing; they may accommodate you with a listing or rider appropriate to Las Vegas.  Then, please keep in mind that all listing contracts other than the GLVAR contract needs to be submitted to GLVAR for review and approval. This can help you prevent an unnecessary fine and potential removal of the listing from the MLS

In all cases the selling agent is entitled to a commission based upon the gross selling price – regardless of what may be in the listing agreement.  Therefore the listing agent is liable to pay a commission based on the gross sales price to the selling agent – even in the event they are unable to obtain this amount from the seller (bank).  As a member of GLVAR and the MLS, Americana Group will abide by the MLS rules that govern this issue.

I have also been asked about what other recourse is available to those who may disagree with the current MLS stand on the net commission issue.  First, I would urge any Americana REALTOR who can spare a few hours each month to volunteer to serve on one committee of your choice.  Your voice – as a working, practicing REALTOR – needs to be heard at the Board.  Individually and collectively we can make a difference, but we must participate to do so effectively. Next, I would recommend that if and when you have challenges or concerns about MLS rules, procedures, and policies, please contact a current MLS committee member by phone or email to voice those concerns.  Your questions and feedback will provide the MLS Committee with better information for their meetings, discussion, debates that result in recommendations to the Board of Directors where the MLS is concerned.  For a list of MLS Committee members, go to:

www.lasvegasrealtor.com

Login and then select Committees at the top of the screen. 

Let’s all find a way to be part of the solution as we deal with the difficult issues facing us and our business.

Forrest Barbee of Prudential, Americana Group, REALTORS® can be contacted at 7027967777 or via email at Director Of Education & Brokerage Information

THANK YOU FORREST.

As you are all aware, commissions are non-negotiable.  (see by other blogs on setting commissions) and on (buyer broker commissions within FHA loans).

But what if there is an issue with the commission?  Can the listing and selling broker reduce to writing an agreement to reduce commission?

Well, you as listing agent are between a rock and a hard place when the commission is being negotiated.  You should gain the opposing broker’s approval and even then a negotiated commission may not be enforceable.

Recent examples are when you as the listing agent neglected to warn a selling broker that the commission may be reduced by the lender of the property.  (See my blog on this issue).  But now the lender is validly reducing the commission.  Well, since you did not warn the selling broker, you as the listing agent are stuck in paying the full commission.  “Hail Malthus!” you say?  No, you mustn’t give up yet.  If the selling broker is willing to work with you, you can mutually negotiate a compromise.  The problem is that it is not clear if the selling broker still has the right to file a grievance for commission with the Greater Las Vegas Association of REALTORS® under Article 17.  I believe that if the selling broker executes the attached document, you should be safe [see attachment]

As you know the Greater Las Vegas Association of REALTORS® Multiple Listing Service sign on page is requiring the following be acknowledged.  [Stop-Read-This].  This memo from the Board is quite clear and informative, I suggest you read it a few times.  You might also note that each of these hints and examples have been on your Legal Blog for many months. 

So when you are at a pool party this weekend, you can let your fellow REALTORS® know that your legal department’s blog on REOs:

https://ameglegal.wordpress.com/2007/11/09/tgif-legal-tip-resale-packages-for-nevada-reo-sales/

Foreclosures:

https://ameglegal.wordpress.com/2007/04/27/tgif-legal-tip-foreclosuredeficiency/

Short Sales:

https://ameglegal.wordpress.com/2008/02/08/tgif-short-sales-from-the-listing-agents-perspective/

are cutting edge and already defined each of these terms and created multiple Addendums and helpful hints for you.  When they stare at you in disbelief, looking pale in their terry cloth, realizing the lost opportunities by not being at your brokeraage, freshenup their ice-tea drink and give them Michael Hinton’s phone number at 702-499-0668 (Americana’s Recruiter) and tell them it is time for a successful change.  

 

Today’s FHA loan is not your father’s FHA loan!

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 Can a Buyer Broker Fee be charged to an FHA loan?  Yes.

The HUD HANDBOOK 4000.2 REV-3 – 51L – Real Estate Broker’s Fees (Buyer Broker) [http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4000.2/40002hbHSGH.pdf] as issued May, 2004 is attached hereto.  I suggest you read it.  The Handbook instructs that borrower may be charged real estate broker fees.  However, the borrower must engage broker independently and the fee must be “reasonable and customary.”  Unearned fees are not permitted, unless a service is actually performed.  As you are all aware the amount of commission charged and paid is not an industry standard per NRS 598A.060; 15 U.S.C. § 17.  The historic goal of antitrust laws has been to protect economic freedom and opportunity by promoting competition in the marketplace.  [See blog on commission https://ameglegal.wordpress.com/category/commissions/]  Significant opportunity relates to the ability of real estate brokers to successfully charge and collect certain administrative fees or commissions in transactions with affiliated lenders.

Would this rule allow for what is commonly referred to as Transaction Fees or  Administrative Fees?  Yes.  The rule allows buyer broker fees if “reasonable and customary,” therefore if a buyer broker fee agreement specifies that the broker is engaged and will provide specific services in consideration of a fee the FHA rules allow the charge of a Transaction Fees or Administrative Fees.  Prudential®, Americana Group, REALTORS® Broker Administrative Fee [Americana Doc Fee Invoice] is the result of is a focus as each transaction has a great volume of paper and individual importance.  The Americana Broker Administrative Charge is assessed by Prudential, Americana Group, REALTORS® to its buyer and seller clients in exchange for real estate services provided and actually performed. [Doc Fee Explanation] The Fee is the result of the client engaging Americana for these services and is in excess of the listing, cooperative and/or buyer broker commissions typically paid by sellers and buyers.  It is a form of commission for the real estate services provided by Americana for a buyer and/or seller.  It is for services actually performed and is the result of the client engaging Prudential®, Americana Group, REALTORS®.

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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.

———————

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

Please see my August 2007 post on ‘short sale’ reduced commissions in connection with this blog. 

 

 QUESTION:  I have a client that is interested in a certain area and I found a location that might match their needs but the co-op is less than I would like to earn. Can I raise the co-op in my offer?  Absolutely not! It is a violation to negotiate commission within a purchase agreement [i], but in a perfect world you can request a greater co-op.

 

 

Commission offerings are just that, offerings [ii].  They can be negotiated [iii], but it must not be at your client’s expense.  Co-ops are the base of the real estate industry and are protected, once offered.  Commissions are not set in value in the industry, as that would be a violation of Anti-Trust, and they are negotiable.

 

 

 

Let us first be clear, you must not place your client between you and your commission.  So, if the co-op is not what you desire and you ask for a greater commission in an offer, you are placing your client at risk of not gaining their purchase due to your desire to be paid more.  (But of course you would never do that due to it being both a violation of the REALTORS® Code of Ethics [iv] and NRS 645 [v].) That is a conflict of your client’s interest over your interests.  However, prior to your client instructing you to place a bid on a property you are likely to view numerous properties.  You might view hundreds of properties in your research for current and future clients.  Your clients are your asset in the bargain an exchange of the real estate industry.  You are a within a brokerage and by definition that means you are a middle person.  Listings are the assets of the listing agent, but buyers are the asset of the buyer broker.  The buyer agent has the asset of the many buyers you are educating and cultivating and learning about.  You hold an asset that is ready to buy a certain product.  You control an asset that fits the missing piece of the real estate jig saw puzzle.

 

So . . . you see a co-op that is lower than you would like to earn, but keep in mind this would have to be in advance of your client’s interest.  You would contact the listing agent and discuss with them the possibility that you earn a certain commission in the event you have client at a later date that is procured as a purchaser.  If you are granted the ability to gain a greater commission, you would place in writing the irrevocable commission agreement “In the event [you] of Prudential®, Americana Group, REALTORS®, procures a buyer for the purchase of the above stated [or list real property here] the [listing broker] agrees to pay the following commission ____________________,” and you get it signed by the broker of the listing agent. 


[i] Standard of Practice 16-16 Realtors®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer to compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.  (Amended 1/04)

[ii] Standard of Practice 3-1 Realtors®, acting as exclusive agents or brokers of sellers/landlords, establish the terms and conditions of offers to cooperate. Unless expressly indicated in offers to cooperate, cooperating brokers may not assume that the offer of cooperation includes an offer of compensation. Terms of compensation, if any, shall be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation. (Amended 1/99) 

[iii] Standard of Practice 3-3 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) 

[iv]  http://www.realtor.org/mempolweb.nsf/214c1520b27c9ee286256b2600557d81/3232c1847235fbe2862572340079aaec/$FILE/EnglishCode2007.pdf

 

[v] http://www.leg.state.nv.us/NRs/NRS-645.html

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