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Cooperating Compensation: ‘My Seller Must Offer More?’

Listing brokers determine cooperating compensation, either an amount or percentage. However, the issue has been a frequent topic of discussion in today’s market of thin listings and high buyer demand.

Dear Joey: How does cooperating compensation work?

ORLANDO, Fla. – Dear Joey: I recently encountered a buyer’s agent who refused to show my listing unless I increased the offer of cooperating compensation. I was told to “tell my seller to raise the compensation.” – Curious One

Dear Curious One: We’ve been seeing your question more frequently in this historic market.

Cooperating compensation is determined by the listing broker, not the seller. However, the seller has the right to know what the compensation will be for a cooperating brokerage before entering a listing contract.

Standard of Practice 1-12 of the Realtor® Code of Ethics states: “When entering into listing contracts, Realtors must advise sellers/landlords of “the Realtor’s company policies regarding cooperation and the amount(s) of any compensation that will be offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities …

The MLS requires the offer of compensation to be entered into the MLS either as a dollar amount or a percentage of overall compensation.

I liken cooperating compensation to a contractor who charges homebuyers a set price to build the buyer’s dream home. The sale price includes the contractors profit margins, expenses and the cost for bringing in tradesmen to do the electrical, plumbing and carpentry.

The same goes for cooperating compensation, the amount offered in cooperation to sell the listing broker’s listing, which is paid through the proceeds of the sale. And, at the conclusion of the transaction, the listing broker pays the cooperating broker for being the procuring cause.

It’s unethical for an agent to deliberately refuse to show a property based on cooperating compensation. This could potentially be a violation of Article 1 of the Code of Ethics, which says when representing a buyer, seller, landlord, tenant or other client as an agent, Realtors pledge to promote and protect the best interest of their client.

With that said, Realtors are obligated to treat all parties in a transaction honestly. So, if I am working with a buyer, and I conveniently fail to inform my buyer that I have found a property that checks the boxes on the buyer’s “wish list,” have I been honest? It boils down to self-dealing plain and simple.

If you want to make more money and you do not want to spend time on a listing because it doesn’t pay enough, refer the buyer to another brokerage and collect a referral fee.

Taking this scenario a step further: If the buyer’s agent shows the property and refuses to submit the offer unless the listing broker increases the offer of compensation, we could be talking about a violation of Article 16, more specifically, Standard of Practice 16-16, which clearly states Realtors shall not use the terms of an offer to purchase to modify the listing broker’s offer of compensation.

To sum up, it’s important to reiterate that, ultimately, the listing broker negotiates their compensation with the seller and then offers part of that as the cooperating compensation. This cooperating compensation can be more; it can be less; it can be equal to the amount the listing broker collects for services rendered. The listing broker decides, period.

We all want what’s best for our business and clients. It’s important to remember, regardless of which side of the transaction you work, you can cooperate and get the job done – a win, win for everyone!

Joey Sale is the Director of Local Association Services for Florida Realtors
Note: Advice deemed accurate on date of publication

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