Ethical Considerations with Commissions and the REPC
August 30, 2018
Author: Kreg Wagner (UAR)
Many of you have taken or will take a Code of Ethics class this year. I want to draw your attention to Standard of Practice 16-16.
It reads, “Realtors®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation.”
When I teach this Standard of Practice, I’ll often ask REALTORS®, “Does this Standard of Practice allow the Buyer and Seller to address real estate agent commissions as part of the REPC?”
The answer is yes. The only thing that Standard of Practice 16-16 prohibits is using the terms of the offer to modify the listing broker’s offer of compensation, i.e., the BAC in the REPC.
Let me illustrate this through an example. Say the Listing Agent puts the Seller’s property on the MLS and is offering a 1.5% BAC. Say a Buyer’s Agent has a Buyer Broker Agreement with a Buyer that states that the Buyer will pay a total of 3% commission.
Most Buyers do not want to pay out of pocket or do not have the funds to make up the difference between the BAC and the Buyer Broker Agreement.
So one way to address this would be for the the Buyer to submit an offer to the Seller that contains language that asks the Seller to pay the Buyer’s brokerage a 1.5% brokerage fee.
Why is this permissible? The key is because the Buyer is asking the Seller to pay. This DOES NOT modify the BAC. So if the Seller accepts this offer, then the Seller would be responsible to pay the Buyer’s Brokerage a 1.5% brokerage fee AND the listing brokerage would still be responsible to pay the BAC of 1.5%.
If you have any general questions about commissions, feel free to call the UAR’s Legal Hotline at 801-676-5211 on Monday, Wednesday, or Friday from 8:30 a.m. to 4:00 p.m.