COMPENSATION AND DISCLOSURE OF SHORT SALES 5/21/2009
REVISED RULES REGARDING STATEMENTS OF COMPENSATION AND DISCLOSURE OF SHORT SALES
The Pikes Peak REALTOR® Services Corp. (RSC) recently updated its rules regarding statements of compensation specified on listings filed with the PPMLS. These revisions reflect recent changes to the National Association of REALTORS® (NAR) rules and an effort by RSC to assist participants of RSC in dealing with lenders in short sale situations. The changes impact Section 5 (Division of Commissions) of the RSC Rules and Regulations. Below is a summary and explanation of the revised rules.
1. Statements of Compensation. The compensation specified on listings published in the PPMLS shall be in one of the following forms:
a. By showing a percentage of the gross selling or lease price;
b. By showing a definite dollar amount; or
c. By showing a percentage of the net sales price. “Net sales price” shall mean the gross selling price minus buyer upgrades (new construction) and seller concessions. “Seller concessions” shall mean buyer’s customary closing costs, loan discount points, loan origination fees, prepaid items (including any amounts that the seller agrees to pay because buyer is not allowed to pay to FHA, CHFA, VA, etc.) and any other fee, cost, charge, expense or expenditure related to buyer’s new loan or other legitimate and allowable seller concession.
If compensation is specified as a percentage of the gross selling price or a definite dollar amount but is qualified by a statement in Agent Remarks such as “subject to lender approval” or “may be reduced by lender” or something similar and no explanatory statement is provided in Agent Remarks which specifies how much the cooperative compensation could be reduced then option c. (percentage of net sales price) shall be deemed to apply.
In the event of a conflict regarding statements of compensation payable to a cooperating broker as set forth in: (i) the commission fields in the PPMLS listing input worksheet; (ii) the Agent Remarks field; and (iii) any other document or statement attached to or otherwise included with the listing, the Agent Remarks shall control and prevail so long as it is consistent with the Rules and Regulations. As to conflicting statements between only the listing input worksheet and any other document or statement, the listing input worksheet shall control and prevail.
The essential and appropriate requirement is that the information to be published shall clearly inform the Participants as to the compensation they will receive as, buyer agents, or transaction brokers in cooperative transactions unless advised otherwise by the listing broker in writing in advance of their producing an offer to purchase.
2. Disclosure of Short Sales. Participants may, but are not required to, disclose potential short sales to other Participants on their listings. When disclosed, Participants may, at their discretion, advise other Participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating Participants.
Notwithstanding, if a Participant knows or has reason to believe a short sale is likely and the short sale would likely result in a reduction of the gross commission, then the Participant is encouraged to (with the consent of his/her Seller) disclose such fact in the listing “Optional Disclosure” field to avoid misunderstandings. In addition, to avoid disputes, the Participant, should consider clearly communicating how a potential reduction in gross commission may likely be calculated and how such reduction would be apportioned between the listing and cooperating Participants. (Disputes regarding a listing broker’s obligation to compensate a cooperating broker may be subject arbitration pursuant to these Rules and Regulations, See Section 5. (Compensation Specified on Each Listing).)
“Short sales” are defined as a transaction where title transfers; where the sales price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies.
· The optional disclosure of potential short sales only relates to listings filed with the PPMLS. It does not indicate that short sale disclosures should not be made once negotiations begin or contract offers and counter-offers are made.
· A Participant’s decision to disclose a potential short sale does not change his/her obligation to offer compensation pursuant to RSC rules; and, regardless of the outcome of the transaction, does not excuse payment of the offered compensation unless it is excused through arbitration or is otherwise agreed to by the Participants involved.
· Potential modifications to cooperating broker commissions arising from a short sale and lender conditions regarding approval of a short sale should be provided in the Agent Remarks.
· The PPMLS shall withdraw listings that do not include an offer of compensation expressed as a percentage of the gross selling or lease price, a percentage of the net sales price or as a definite dollar amount, until such time as the appropriate commission is declared.