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"The" commission.

By
Real Estate Broker/Owner 8639604

When a consumer comes to a Realtor looking to list their home they are told "the" commission is negotiable. They negotiate "the" commission with the listing agent they select. The home is listed. They would do well to look at that listing agreement carefully. They will notice that no buyer or selling agent is listed as a party to that agreement. That being the case the selling agent is not bound by the listing agreement no matter what they are 'offered'.

When a buyer comes to a Realtor they may enter into an agreement regarding commission and the buyer may ask the seller to pay that commission when they make an offer. That commission might be lower than anticipated by the seller - or it might be higher.

There are two sides to each transaction - neither can unilaterally dictate the commission paid to the agent on the other side.

It is unfortunate and not ethical that listing agents never let the seller know that they don't have full control over the commission and that the buyer may condition their offer on the seller paying a commission that differs from that in the listing agreement.

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Do you have good credit? Looking to buy a home? If you are thinking about buying a home in the areas we serve , call Paul at (856) 488-8444 or send an email to Paul@SouthJerseyHomes.com for information.

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Paul Howard

Cherry Hill NJ

NJHomeBuyer.com Realty

www.homebuyerhomesearch.com

Cherry Hill NJ 856-488-8444

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Paul Howard, Broker

NJHomeBuyer.com Realty

80 Barclay Center Suite 4A

Cherry Hill NJ 08034

856-488-8444

Show All Comments
Larry Riggs
Century 21 Redwood - Frederick, MD
GRI, SRS Your Frederick County Specialist

Paul,

    I suppose the laws differ from state to state but in Maryland the buyer absolutely cannot condition the offer on altering the commission. Commissions are negotiated between brokers. We were having agents try including commission alteration in offers so we got a legal opinion on the matter. If a commission amount is negotiated in the body of the contract, even if all parties sign it, it is not enforceable because the brokers and their agents are not parties to the contract. Many agents have let this slip by not knowing the law but it is very clear. Commissions can only be changed in a broker to broker agreement and the buyer and seller are not parties to that negotiation.

Nov 30, 2008 01:22 AM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

Larry, you are comparing apples and oranges.

 

step 1:  my buyer client signs a buyer broker agreement for 6 months specifying that I'll receive a 3% commission at time of sale.

step 2: The agreement further requires that either they pay the commission or they condition any purchase offer on the seller's agreement to pay my commission.  My company rejects the 'offer' of compensation in the MLS. (It can be rejected: that is why it is called an "offer" instead of "the" commission.

step 3: Seller agrees to pay the 3% commission and this is provided for in the contract between the buyer and seller.  The buyer can and will enforce this contract - otherwise they would end up paying out of pocket.

 

The comment you made above refers to the the fact that I, as a broker, cannot interfer with the listing company's commission agreement with the seller.  That is an entirely different matter than the buyer conditioning an offer on the seller's payment of a commission.  Further, a listing broker cannot interfer with a contract that I have with a buyer client.

This has been accepted by NAR for many years and they will not contradict my statement above.

 

 

 

Nov 30, 2008 02:11 AM
Larry Riggs
Century 21 Redwood - Frederick, MD
GRI, SRS Your Frederick County Specialist

Paul, 

     You are correct that each agent has an agreement with their client regarding commission. I still maintain, however that a buyer cannot make an offer based on payment of any commission. At least in Maryland, the buyer can make an offer with various contingencies. Commission, however cannot be one of them. At least in our state, only the brokers can negotiate commission amounts. If there is a difference between what is offered by the listing broker and the amount a buyer agent is charging their client then either the buyer makes up the difference (if it's more) or the brokers must renegotiate the offer for compensation.

Nov 30, 2008 07:11 AM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

I have to differ, Larry.  There is no law regarding who can charge or negotiate a commission or that would prevent a buyer from conditioning an offer on a seller's payment of that commission.

I'm willing to be proven wrong though.  Send me the cite for the applicable statute - for Maryland or anywhere else. Just because that is what you were taught does not make it  a fact.

 

 

 

Nov 30, 2008 07:19 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Home is where the hearth is.

Larry's statement would be correct in Illinois as well.  A buyer's agent cannot legally, or ethically, make the purchase contingent on commission.  Commission cannot legally even be a part of the purchase agreement.

Nov 30, 2008 10:32 AM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

You are correct that the buyer's agent can't make the purchase contingent on commission.  But the buyer can and I'm quite sure you can not find a legal citation that will prove me wrong.  If you can, I'll listen.

A buyer and seller can put any provision in THEIR contract that they agree to.

 

 

 

Nov 30, 2008 10:36 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Home is where the hearth is.

You are correct... a buyer is not ethically or legally bound to not put that provision in their contract. A non-Realtor is not held to the same standards as we are.

But for you to suggest that listing agents are not doing their job... (by not notifying the seller...) and then suggest that you're the only one in South Jersey that's doing it ethically... well, that's where you cross the line.

and no, i'm not in South Jersey... but for that... I take offense for them.

Nov 30, 2008 10:43 AM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

Alan, Do you really think it is ethical not to tell the seller that the commission you quote is 'the' commission and not advise them that your offer of compensation to a buyer's agent does not have to be accepted by the buyer's agent?

Take all the offense you want.  The industry crosses the line every single day and that offends me.

 

 

 

 

 

Nov 30, 2008 10:55 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Home is where the hearth is.

Paul, the situation you describe is the exception, not the rule.  And the compensation that you offer the buyer's agent DOES have to be accepted by the buyer's agency 99+% of the time... (as you so correctly pointed out, it's the buyer that is not held to the standard... but the buyer's agent and agency is held to the standard.).  So it's not "unethical" to "not tell the seller" about this potential, since there's a very minor chance that it will occur. 

We don't, routinely, explain every single potential variable in the process, and that doesn't make us unethical.

Nov 30, 2008 11:30 AM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

The exception. In fact it  occurs every time a buyer's agent has an agreement with their client concerning their commission and the buyer asks via their offer for the seller to pay. 

It is not that rare and will become less so as buyer's agents realize they can't be held hostage to desires of a listing agent.

Why is it that listing agents feel they can defend the terms of their listing agreement but those same agents ascribe second rate status to the agreement between a selling agent and their client?

 

I'm still waiting for those legal citations.

 

 

 

 

 

Nov 30, 2008 11:39 AM
Larry Riggs
Century 21 Redwood - Frederick, MD
GRI, SRS Your Frederick County Specialist

Paul,

    Again different states have different laws. The opinion I express came from our previous board attorney, MAR attorney and the attorney tapped by the Maryland legislature to craft our current agency law (All the same guy) His assertion was based on contract law. Individuals who are not parties to a contract cannot alter the terms of that contract. The compensation is determined by the seller and listing broker in an independent contract. Putting terms in a contract of sale that alter the terms of the listing contract makes those terms unenforceable. The only thing a buyer can determine is what compensation they, the buyer, agree to pay their agent. Again, all this is based on Maryland law and the source has been practicing law for decades specializing in real estate. I trust his opinion. 

Nov 30, 2008 01:45 PM
Paul Howard
Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

Larry, you are still mixing apples and oranges.

You said, "The compensation is determined by the seller and listing broker in an independent contract. Putting terms in a contract of sale that alter the terms of the listing contract makes those terms unenforceable."

I say, the commission of a buyer's agent is determined by an independent contract between the buyer and thier agent. Also, the terms of a purchase contract are determined by a contract between a buyer and a seller.

There are 3 contracts: 

  1. Between listing agent and seller.  Terms included would be commisssion and length of contract.
  2. Between selling agent (aka buyer's agent) and buyer.  Terms included would be commission and length of contract.
  3. Between buyer and seller (Purchase contract). If they desire, terms can included what costs each party pays - including commissions. Neither buyer or seller can interfer with the terms of the contract the other has with their agent. They can, though, decide who pays what.

All 3 contracts are independent of each other and  persons that are not parties to those contracts are not bound by them.

You might consider the arrangement of the MLS a 4th contract but it does not affect the other 3. At most it requires cooperation.  That cooperation does not  require either an offer or acceptance, of an offer of compensation.

Regarding your source of information (the attorney).  Either the attorney is wrong or you misunderstood, or you applied the information inappropriately. I'm leaning toward the latter 2.  It is most likely that the attorney understands the situation and I'm quite sure the attorney would agree with my position.

 

 

 

 

 

 

Nov 30, 2008 02:18 PM
Mary Strang
Viroqua, WI

Wisconsin listing agreement have a place where the seller agrees as to what is going to be paid to the buyer agent or (sub-agent) also hard to believe we still have sub-agents. Also it is OK for the other agent to put into the offer what amount the seller will credit the buyer at closing. Thankfully, Most agents are ethical enough to discuss that first with the listing agent.

Dec 01, 2008 12:44 AM
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