Short Sale Disclosures DO NOT authorize compensation reductions

Our MLS recently adopted a new policy of short sale disclosures.  Many in the REALTOR community are under the incorrect assumption that the short sale disclosures permit the listing broker to reduce their offer of cooperating compensation.

Short Sale MLS disclosures are just that - a disclosure putting any cooperating broker on notice the listing broker may seek to renegotiate their compensation. The listing broker remains responsible for the full commission as offered in the MLS in the event of a sale wherein the cooperating BROKER (not associate) has not agreed to a reduction in their compensation.

For example - listing broker lists a property for 7% commission and offers 4% cooperating compensation. The lender approves 5% total commission. The cooperating broker may attempt to negotiate the 4% compensation with the cooperating broker. However, if the cooperating broker refused to accept any compensation less than the offered 4% the listing broker must determine if they will accept what would amount to 1% commission in this particular instance.

Simply put - the listing broker cannot reduce the offer of cooperating compensation without the cooperating broker's acceptance. Without such an acceptance the listing broker would be subject to arbitration with the cooperating broker seeking the full offer of cooperating compensation in the MLS in the event of a sale.

The listing broker may also demand from the lender their previously negotiated commission with the seller. If the offer is strong enough the lender will generally pay if they may lose the sale. Such a refusal by a lender may expose the lender to a wrongful foreclosure action by the borrower at a later date and may also provide an affirmative defense for the borrower in the event of a deficiency claim by the lender.

One last item - listing brokers should make certain that they have obtained written permission in any listing agreement (preferably using a short sale listing agreement) wherein the seller gives permission to advertise the property as a short sale.