Legal Blog - Short Sales and REOs


Compensation for a Short Sale Listing

Oct 31, 2016

Short Sales and REOs

Question: I am the listing agent. As part of the listing I made an offer for cooperation of three percent (3%). Now that we have a ratified contract, the lender will approve the transaction but wants to reduce the amount of commission. What do I do?

Answer: Standard of Practice 3-2 states that a change in the offer of compensation to another REALTOR® shall be timely communicated prior to the time such REALTOR® produces an offer to purchase the property. However, Standard of Practice 3-3 states that after an offer is made, the listing broker and the cooperating broker may enter into an agreement to modify the cooperative compensation. The Code of Ethics does not address the situation the agent finds himself in where the lender is requiring a modification of the cooperative compensation. Is the agent in violation of the Code of Ethics?

Unfortunately, the agent could be in violation of the Code of Ethics. However, the fact that the lender is driving the modification of the compensation is a defense available to the agent. To get around this problem, the listing broker should contact the cooperating broker and explain the situation. If the cooperating broker agrees, then the agent has satisfied Standard of Practice 3-3 and is no longer in violation of the Code of Ethics. Note that these modifications to the cooperative compensation agreement must be approved by the brokers. An agent’s agreement to a modified compensation is not binding upon his or her broker and therefore does not guarantee the modified compensation.

Please also note that according to the MRIS Rules and Regulations, the obligation to compensate a cooperating broker may be excused by an Arbitration Panel if, through no fault of the listing broker, and if the listing broker exercised good faith and reasonable care, it was impossible or financially unfeasible for the listing broker to collect the commission per the listing agreement.

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