The Variable Commission and What it Means in Arizona Real Estate

By
Real Estate Agent with Long Realty - Dove Mountain, Marana AZ BR564219000
https://activerain.com/droplet/5hSb

The Variable Commission and What it Means in Arizona Real Estate

The other day I received the following email:

I have a client that is interested in your listing located at: 4337 E Seneca Street Tucson, AZ 85712, however, I am a little reluctant to show it since there is a variable commission. Would you explain to me what this is please.

Things that make y ou say hmmm

A couple of things ran through my head immediately.

1)  Why didn't he ask his broker, or know what a variable commission was in Arizona Real Estate?

2) If your client wanted to view a home on MLS, why would you let commission interfere with your fiduciary duty?

3) Don't you have a buyer-broker agreement in place?

 

The existence of a variable commission rate is discussed in the National Association of REALTORS® Code of Ethics we ascribe to if we are, in fact, REALTORS®, and not agents.

  • Standard of Practice 3-4

REALTORS®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/ landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease. (Amended 1/02)

To me, the important question to ask the listing agent in this situation is, "Do you have any offers, or pending offers?"

If the listing agent in fact, has an offer in place from a buyer client of their own, that is when the situation can affect cooperating agents and their clients.  The seller may be able to NET more from the dual agency offer, than from another, supposedly identical offer, from an outside agent.  Knowing that there is a variable commission in place is important disclosure.

I use variable commissions with my investor clients who flip properties to help them with their bottom line.  After all, with each sale comes another purchase, and another flip.  I avoid them like the plague in regular listings because it is my JOB to bring clients in and try and sell my listings.

But back to thought number 2 above.  I believe it is my duty to show homes that my clients are interested in, regardless of the coop commission agreement on MLS.  If I am worried about receiving less than my business plan allows, that's a discussion when filling out the Arizona Buyer-Broker form.

Meanwhile, that agent never showed the listing.  Hmmm

Posted by

If I can assist you in your home buying or selling in Marana, Tucson, Oro Valley, or Vail, please don't hesitate to call me!  Email at swdeserthomes@aol.com

Cara Marcelle Mancuso, Long Realty,

520-909-2988   

Regarding the material posted in my blog postings, these are my personal opinions and not those of Long Realty Company. 

All listing information is deemed reliable but not guaranteed and should be independently verified through personal inspection by appropriate professionals. Listings displayed on this website may be subject to prior sale or removal from sale; availability of any listing should always be independently verified.

Listing information is provided for consumer personal, non-commercial use, solely to identify potential properties for potential purchase; all other use is strictly prohibited and may violate relevant federal and state law.

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 12/28/2013 03:24 AM
Topic:
Real Estate Industry
Groups:
Realtors®
"Whacked"!!!
What's Got Your Goat?
Tags:
arizona real estate
code of ethics
variable commission
buyer broker agreements

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Rainmaker
861,100
Gabrielle Kamahele Rhind
KGC Properties LLC, Tucson Property Management & Real Estate - Tucson, AZ
Broker/Owner

GOOD MORNING CARA ... and to put it in writing - I agree - #2 is the real question! We work for free until a transaction closes so whatever it ends up being is what it ends up being!

Dec 22, 2013 06:46 PM #4
Rainmaker
1,058,316
John G. Johnston
John G. Johnston & Associates, LLC - Westcliffe, CO
An Exclusive Buyer's Agent ~ Westcliffe, CO

Cara  Well said!  I discuss everything (including commissions) with my clients so they understand how real estate works.  Shame on him for not showing the property.  Maybe his clients will just call you to see it.  I would not think procuring cause would be a factor since he refused to show it.  Enjoy your day!

Dec 28, 2013 12:30 AM #5
Ambassador
1,439,216
Richard Iarossi
Coldwell Banker Residential Brokerage - Crofton, MD
Crofton MD Real Estate, Annapolis MD Real Estate

Thankfully, showing homes based solely on commission can't happen as often today as in the past. Buyers see the homes for sale on the internet...and their agent has to explain why it isn't on their list.

Dec 28, 2013 03:39 AM #6
Rainmaker
723,079
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

Cara-Thanks for bringing this up. That is not an arrangement I've seen in our area, but it's helpful to learn of its existence.

Dec 28, 2013 03:56 AM #7
Rainmaker
1,560,281
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

There is a variable rate, most agents don't have a clue, case in point.  If buyers agents aren't affiliated with the brokerage it wouldn't apply.

Dec 28, 2013 04:15 AM #8
Rainmaker
977,460
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Yes, that agent should have discussed this with her Broker to gain every perspective of what Variable Commission is.  Great post!

Dec 28, 2013 04:59 AM #9
Ambassador
1,631,443
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

Yes we have had this for years in Oklahoma and full disclosure is required or you are subject to fine. It has never stopped me and I have never done a variable myself. 

Dec 28, 2013 05:24 AM #10
Rainer
255,016
Geoff ONeill
John L. Scott Medford - Medford, OR

I have not skipped showing a listing due to this, however, this practice does cause some agents to might otherwise show your listing to miss it.

Dec 28, 2013 06:15 AM #11
Rainmaker
738,079
Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

Good Afternoon,  this is some great Info for all in the business,  keep up the good work and good luck in 2014,  E

Dec 28, 2013 07:23 AM #12
Rainer
97,757
Brian DeYoung
Howard Hanna Real Estate Services - Ithaca, NY
Brian DeYoung

I have twice been approached by sellers wanting to use this process. I agreed once and sold the home in 8 days, the sellers were happy.

I was happy. None of the agents who called understood the process or formula, even the one who brought the buyer. She made more than what is a common commision in our area, but still was not happy.

The next time a client suggested a sliding commission, I said no, even though she was a Realtor, her husband an accountant, her daughter a lawyer. Could we craft a great deal? YES. Would the agents understand it?

I was afraid not.

 

Dec 28, 2013 09:21 AM #13
Rainmaker
672,370
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

 

I make a notation on our mls, as required, whenever I list a property with a variable commission. Once in a while, in our mostly multiple offer market, I will be asked by a cooperating agent whether or not I have or expect any offers from my office or from myself. In fact, I will volunteer that information so that the cooperating agent has a clear idea of what the situation will be. It can work in the favor of my seller if the best offer comes from an agent who has counseled his/her client to write a very strong offer in order to potential overcome an offer that I might write.

 

In any event, my advice to my seller is to take the best offer. Just because I write an offer for my seller’s property clearly does not make it the best offer for my seller.

Dec 28, 2013 09:59 AM #14
Ambassador
3,675,572
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Cara, in these parts, a variable commission might just happen unplanned if an unrepresented buyer shows up with a low offer and the listing agent offers to lower their fees to make the net work for the seller.  I think you are right, though, that the most important thing is determining whether there is another offer, and if so, is it the listing agent's offer.  Otherwise, the whole thing is sort of moot.

Dec 28, 2013 10:03 AM #15
Rainer
311,619
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

The safest thing to do is have a buyer broker agreement and havee the buyer pay my commission instead of the seller.

Dec 28, 2013 10:19 AM #16
Rainmaker
677,486
Cara Marcelle Mancuso
Long Realty - Dove Mountain, Marana AZ - Tucson, AZ
Call a Marana neighbor, I'm THERE! LONG REALTY

John - I know dual agency isn't available in all states, so this subject won't apply everywhere...but I thought it important enough to mention.

Lottie - Thanks for stopping by to read my simplistic opinion on the variable commission in Tucson Real Estate.

Juli - I was shocked he wrote me, instead of called his broker!

Gabrielle - Agreed.  I show the homes my client wants to see, no matter the commission.

John - I would imagine you are good at disclosing with your clients.  You seem to be an ethical, honest real estate agent for the folks in Colorado!

Richard - Good point!

Wayne - Do you have dual agency in Texas?

Carla - If I didn't know about something listed on a MLS sheet - I'd be asking my broker first, not the agent on the other side of the transaction.

Jan - I agree!  Happy New Year!

Joe - I've done a variable only once in 8 years.

Geoff - I try to show every listing my client wishes to see that fits their criteria and budget!

Ed and Tracy - Thank you so much.  May your 2014 be prosperous as well.

Brian - One of my business goals for 2014 is to eliminate ANY sort of commission reduction, including variable commission.  After all, it's my job to sell the the home, so if I'm bringing in a buyer that could otherwise purchase another home, why should I be penalized???

Dec 28, 2013 11:40 AM #17
Rainmaker
537,529
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Cara -- I don't like doing listings with variable rate commissions. I like your answer to Brian. 

Dec 28, 2013 12:46 PM #18
Rainmaker
704,351
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Hi Cara, you should went through a tortuous way to explain a variable commission on the Arizona MLS [aka FlexMLS] as I am presuming you are on this MLS. Perhaps, you may be a little taken away by the code of ethics definition and 'may' have mislead the other agent and yourself by the same token.

And you may be confused between and EA agreement and an ER agreement, whereas if the seller sells the property on their own, no commissions are paid. That has nothing to do with a variable commission.

Let me explain.

If you refer to the rules and regulations of the MLS, and you enter the field "Y" to variable commission, it means the following: the total compensation paid by the owner to the listing broker is different if the listing broker sells the property without the assistance of a cooperating broker.

It does not affect the co-broke in the listing. It is NOT a reduction of the commission to the buyer-agent whatsoever. So, when the other co-operating agent called and asked, you should answer truthfully that, yes if you sell it yourself as a listing agent from a sign call for example, the seller gets a higher net. In fact, you are required to disclose this, otherwise, it's a violation and you are subject to a penalty/fine. This keeps the listing agent honest, in case the offer the listing agent brings is lower than the co-op buyer-agent.

In a variable commission, as explained above, if the listing agent sells the property oneself, only the listing agent reduces his/her own commission. Never to the buyer-agent.

Dec 28, 2013 09:40 PM #19
Rainmaker
3,057,843
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Nothing in terms of questions like this surprises me anymore. In our MLS, it clearly states what the selling agent will earn, regardless of a variable commission structure between listing agent and their clients. So this is one question we don't typically get here.

Dec 28, 2013 09:53 PM #20
Rainmaker
677,486
Cara Marcelle Mancuso
Long Realty - Dove Mountain, Marana AZ - Tucson, AZ
Call a Marana neighbor, I'm THERE! LONG REALTY

Hi Richard - Thank you for your answer. 
I am well aware of your definitions and explanations. :)  What surprises me is that an agent would automatically NOT show a listing because there was a Y in the variable commission spot.  Secondly, that he wouldn't ask his own broker what that Y meant, since he didn't know.  I believe I have a fiduciary, and ethical duty to show my client any listing they want, provided they are a ready and willing buyer -- regardless of whether or not it might affect my commission.  Thus, my bringing in the code of ethics to my posting. 

John - good idea.  Why short yourself for a job fully done.

Nina - Thanks for stopping by - Happy New Year.  I think it might be interesting to have it publically posted what the selling agent earns here...

Dec 28, 2013 10:04 PM #21
Rainmaker
1,373,197
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Cara, I have to agree with Richard (#19). A variable rate commission has nothing to do with the selling agent. As to why an agent wouldn't show a property with a variable rate commission is ignorance of the terminology and purpose.

A variable rate commission only applies in a dual agency situation where the listing agent (brokerage) sells the property and offers a reduced fee to the seller for selling it them self. This is done quite frequently; however, what I don't see is the listing agent disclosing the differential in the fee.

Agents often confuse variable rate commissions with a reduced negotiated fee a seller wishes to pay for the sale of their property.

Dec 28, 2013 10:32 PM #22
Rainmaker
520,955
Lisa Friedman
Great American Dream Realty - Essex, VT
29 Years of Real Estate Experience!

In 25 years of real estate, I have only noticed listings with variable rate commissions about ten times.

Dec 29, 2013 05:25 AM #23
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Rainmaker
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Cara Marcelle Mancuso

Call a Marana neighbor, I'm THERE! LONG REALTY
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