There seems to be a misconception about the rules surrounding negotiating commission and the Code of Ethics. I reached out to the National Association of Realtors to clear it up. Here’s the truth.
There seems to be a misconception in our industry that the buyer’s agent commission is not negotiable.
I came to this conclusion based on the buyer’s agent responses when my sellers wanted to negotiate the commission and based on comments I read on Inman where agents talked about it be against the law and unethical. In addition, I have a possible ethics violation on the commission topic.
For example, say a listing agent puts in the MLS that she will pay 3 percent commission to the cooperating broker. However, when the offer comes in, it is lower than the sellers were hoping for. One area the seller could recoup some additional money is with the buyer’s agent commission.
In the sellers’ counter-offer, they could say they will take X price, but instead of paying the buyer’s agent 3 percent commission, they will offer 1.5 percent.
Due to the misconception that the buyer’s agent commission is not negotiable, you might get a negative reaction from the buyer’s agent. He might run to his broker and ask if this is allowed. The buyer’s agent might be wondering what can be done about this ridiculous and unethical request to reduce his commission.
The correct answer is the buyer’s agent commission is negotiable, and if the buyer’s agent does not like the new commission offered, he has the right to negotiate it. Everything about the offer and counter-offer is negotiable. Nothing is set in stone.
To verify this, I contacted the National Association of Realtors and received a very detailed email reply from the General Counsel and Chief Member Experience Officer for the National Association of Realtors, Katie Johnson.
The common misconception seems to be around Standard of Practice 3-2 and 3-3 of NAR’s Code of Ethics.
They read as follows:
Johnson clarified that the “two Standards of Practice are not contradictory as they address two separate distinctions.” The first references a listing broker’s attempt to unilaterally modify offered commission, without the consent of the cooperating broker.
The second addresses that a listing broker and cooperating broker can negotiate an agreement to modify compensation.
“To be clear, commissions are negotiable. There is no provision in the Code of Ethics or elsewhere in NAR policy that prohibits the negotiation of commissions,” Johnson further clarified.
“Sellers can negotiate the commission they agree to pay their listing broker, which is usually documented in the listing agreement. Sellers can also negotiate (and dictate) the amount they permit their listing broker to pay cooperating brokers who bring the sellers ready, willing, and able buyers.
“NAR rules do not in any way dictate the level, or the nature, of commissions that are offered. Indeed, these rules permit listing brokers to offer as little as one cent to a cooperating buyer’s broker.”
In summary, there is no minimum amount of commission you have to offer the buyer’s agent. And furthermore, the buyer’s agent commission can be negotiated at any time.
“SOP 3-3 supports the SOP 3-2 scenario by stating that listing brokers and cooperating brokers can enter into an agreement to change cooperating compensation at any time, period,” Johnson said.
Unfortunately, these misconceptions have the effect of shutting down any negotiation of the commission, even though our Code of Ethics and NAR support it.
The firm that filed the current class action lawsuit against NAR, concerning the sharing of sales commissions between listing brokers and buyer’s brokers, understands that commission is negotiable, so it included some of the biggest brokers in the country in the lawsuit.
After all, if NAR changes its policies, but the largest brokers do not, it defeats the purpose.
One area we can all agree on is Realtors have a fiduciary duty, or an obligation to act in the interest of their sellers.
So, a listing agent needs to consider his or her fiduciary duty to sellers when advising them on a counter-offer and deciding if a reduction of the buyer’s agent commission should be one aspect of their counter-offer.
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