AVOID ARBITRATION – KNOW THE RULES!
DIVISION OF COMMISSIONS
RSC has recently re-confirmed that Section 5. (Compensation Specified on Each Listing) of its PPMLS rules and regulations is required and has been approved by the National Association of REALTORS® (NAR). Section 5 sets forth the requirements for offers of compensation to cooperating agents in the Pikes Peak Multiple Listing Service.
NAR recently acknowledged that current market conditions, primarily the high number of pre-foreclosure, foreclosure and REO properties may present challenges to the way cooperating compensation is offered in a multiple listing service and has convened a task force to study the issue. However, pending any change in policy from NAR, the PPMLS rules and regulations remain in effect.
The following explanatory guidelines have been prepared by RSC legal counsel to clarify the policy of Section 5 with respect to offers of cooperating commission set forth in the PPMLS.
PPMLS COMMISSION STATEMENT GUIDELINES
1. By filing a property with PP
(i) court approval; or
(ii) lender approval.
Examples of transactions that
might require court or lender approval include properties under the control of a
bankruptcy court trustee or properties in foreclosure.
If compensation is subject to
court or lender approval, the listing broker must clearly communicate this
condition to potential cooperating brokers prior to the time he/she produces an
offer. In addition, the listing broker must clearly communicate the potential
reduction in the stated compensation or the method or formula by which
the potential reduction in compensation will be calculated in specific terms.
“Gross selling price less concessions” are not specific terms. An example of
specific terms would be “cooperating broker’s compensation could be reduced by
up to 1% by the lender depending on final gross selling price”. In
sum, any statement regarding a reduction in compensation must enable the
cooperating broker to calculate the extent of the possible reduction in
compensation.
2. The compensation specified on listings published in the PPMLS shall be in one of the following forms:
(i) a percentage of the gross selling price; or
(ii) a definite dollar amount.
“Gross selling price” is not defined in the rules however its common meaning is the total sales price before the deduction of any concessions or expenses. RSC uses the common meaning. For the purpose of a typical PPMLS real estate transaction the gross selling price/total sales price should be the ultimate “Purchase Price” pursuant to the Colorado Real Estate Commission purchase/sale contract as negotiated.
It is a violation of the rules to base compensation on an unspecified amount, for example, “gross selling price less concessions”. However, remember that RSC does not regulate or control the commission agreement between the seller and the listing broker; only the way compensation is stated in the PPMLS. So a listing broker may very well agree with their seller to be compensated based on a percentage of the gross selling price less concessions, but this does not allow the listing broker to specify compensation that way in the PPMLS. In such a case a listing broker may be concerned that the ultimate concessions will deplete his/her share of the commission if he/she is obligated to pay the cooperating broker based on gross selling price. That is why a listing broker is provided with another option, namely, a definite dollar amount. A listing broker can always limit compensation paid to a cooperating broker by stating a specific dollar amount rather than a percentage of gross selling price.
Compensation is input into the buyer agent and/or transaction broker coop compensation fields. Keep in mind that:
(i) If a percentage is provided, it will be based on the gross selling price unless further explanation consistent with these guidelines is provided in the agent/showing remarks;
(ii) If a definite dollar amount is provided, then no other explanation is necessary unless it is subject to specifically stated possible reduction.
(iii) A combination of a definite dollar amount and a percentage may be used as long as it is specific.
The Agent/Showing remarks field on the PPMLS Input Worksheet may be used to provide additional details regarding the offered compensation. For example, if a percentage is provided, the Agent/Showing Remarks might say:
(i) percentage commission is calculated on base price of home which is $250,000;
(ii) percentage commission is based on current PPMLS Listing Price; or
(iii) percentage commission may be reduced by amount lender pays for closing costs not to exceed $900.
These examples are specific enough that a cooperating agent could calculate what his/her minimum commission might be.
3. These rules are necessary because, as stated in NAR policy, a cooperating broker has the right to know what his/her compensation shall be prior to his/her endeavor to sell. In addition, failure to comply with these rules will increase the likelihood of a dispute that could result in arbitration. Remember that this policy, applies to all properties submitted to the PPMLS including existing homes, new homes, bank owned properties, and HUD properties regardless of whether the property is in pre-foreclosure or foreclosure. Statements such as “gross sales price less concessions”, “commission based on net sales price”, “commission based on base price”, or other unspecific variations input in the buyer agent and/or transaction broker coop compensation fields, the showing/agent remarks field, the incentives field, or any other field that do not comply with the RSC rules and regulations or are not consistent with these explanatory guidelines are prohibited. Listings with violations that are not corrected within ten (10) business days from the time a warning is issued shall be withdrawn from the PPMLS.