Notwithstanding the contractual basis of coop commissions, battles over the amount owed a selling broker are everyday occurrences. They should not be, but they are. Much of this fighting stems from not understanding the legal source of coop commissions. That source, as detailed in the section of this topic on Commission Sharing Agreements, is a contract. Because compensation agreements must state a sum certain to be enforceable, there should be no fighting about coop commission. That such fighting exists is evidence that the existing system is breaking down, being ignored or is simply not understood.
Because the coop commission is earned by performance of a unilateral contract that states a sum certain, there should be no opportunity to fight about the split. The split is whatever was offered, period. That is the case because the offer becomes binding on its maker at the moment the called for performance takes place. Assuming the deal closes, that moment is the acceptance of the buyer’s offer. Unless there is some other source of agreement or modification, determining the coop split simply requires looking at the MLS filing and reading the sum certain expressed there.
Notice the caveat: unless there is some other source or modification. Commission split fights invariably devolve into fights about the source of the commission offered, or some modification to that source. Common dispute patterns involve oral or implied sources of agreement or modification of the offered split being indeterminate. Oral or implied source or modification fights are, for the most part, evidence battles. Evidence battles are generally so difficult to win that without some sort of confirmation letter or other contemporaneous evidence of contract or modification; such fights are rarely won or even undertaken.
Implied contracts and implied modifications to existing contracts are no easier to prove than oral contracts. What must be implied is not some new split or new circumstance but an agreement to pay or change the existing split. You will sometimes see listing agents try to reduce the commission to the cooperating broker based on a seller price concession or give back to the buyer. Such changed circumstances do not, however, automatically change an existing coop agreement. To change an existing agreement like the unilateral offer of compensation made in the MLS, you must have evidence the other party agreed to the change, not just that you had good reasons for changing it.
A perceived source for changing the coop commission expressed in the MLS has been the buyer and seller’s sale agreement. Until very recently, sale forms used by REALTORS® in Oregon contained a provision at the very end of the document where agents could fill in the names of the listing and selling firms and state the coop commission. The provision was intended to provide information to escrow regarding commissions already agreed to separately.
Coming, as it did, after the signatures of the parties and having nothing to do with parties’ agreement itself, the provision was not a term of the sale agreement. At the same time, the provision itself contained no words of promise. The blanks were typically filled in by the selling agent, not the listing side who was offering the coop commission. Because it contained no promise to pay and was not even authored by the listing side, the coop provision was not an agreement to pay anyone anything.
Notwithstanding the informational purpose of the coop provision in the sale agreement, selling agents were often temped to fill in the coop commission they wanted or expected rather than the one published in the MLS. This practice, of course, produced nothing but disputes. As a result, the company that publishes the sale form used by REALTORS® in Oregon removed from the form the blanks for stating the coop commission.
The original escrow information function of the coop provision is now fulfilled by a provision directing escrow to the pay the commissions in accordance with the listing agreement, buyer service agreement or other written agreement for compensation.
The sale agreement shifts the coop focus back to the MLS unilateral offer of compensation or to separate coop commission agreements made outside of the contract. Incredibly, some brokers, evidently not understanding the source of coop commissions, have begun attaching “addendums” to their client’s offers purporting to establish their right to a coop commission. This approach is both ineffective and dangerous.
Commission addendums are ineffective because the coop commission comes from the listing broker, not the seller. The listing broker is not a party to the sale agreement and, therefore, not bound by its terms. At most (and this is what makes the approach dangerous) what is accomplished is confusion and controversy at the time of offer. An agent who, for their own purposes, creates confusion and controversy over their client’s offer, runs the risk of breaching their duty to their client. Click here for a detailed discussion of agency duties.
Because the use of addendums to dictate or change commission agreements between the agents is ineffective and dangerous, it has been suggested that the listing and selling brokers should sign and submit a commission form to escrow for each transaction. Although the idea has appeal, care must be taken to not create a commission re-negotiation vehicle. The purpose of making unilateral offers of compensation through the MLS, or having compensation agreements before showing the property or writing the deal, is to keep the deal from becoming hostage to commission negotiations. A separate escrow form that must be signed by both listing and selling side will quickly become the vehicle for just such conduct as either or both agents maneuver after the fact based on the existence and terms of their clients’ contract.
Maneuvering after the fact based on the existence and terms of the clients’ contract means trying to find a way around expressing compensation as a sum certain in the unilateral offer of compensation. A recent vehicle chosen by brokers who wish to avoid making a unilateral offer of compensation before they know the terms of the deal or the firm they will be dealing with is misuse of the MLS “variable commission” rule. Under MLS rules, a broker who agrees to a variable commission with their seller must designate the commission with a “V” to signal cooperating brokers that the commission the seller pays will be less if the sale is in-house.
Almost as soon as MLS rules were changed to require notice of a variable commission being paid by the seller, a few brokers began using the “V” to mean that the coop commission was variable. These few brokers evidently believed they had found a way to modify the coop commission based on the terms of the transaction, or the coop rate offered by the cooperating broker on their own listings or whatever criteria they might desire.
This flagrant misuse of MLS rules demonstrated a fundamental misunderstanding of cooperation and raised very serious antitrust issues. Click here for a detailed discussion of commissions and antitrust issues. Fortunately, the phenomenon has proved short lived because multiple listing services cracked down on the practice. Still, a wise agent will make inquiry if they see a “V” appended to the coop commission instead of just expressing the fact that the total commission paid by the seller may vary.
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