Multiple Offers Where Listing Broker Agrees to Reduce Listing Broker’s Commission

Article 1, Part 9

The Complaint

REALTOR® A listed Seller S’s house. He filed the listing with the MLS and conducted advertising intended to interest prospective purchasers. Seller S’s house was priced reasonably and attracted the attention of several potential purchasers.

Buyer B learned about Seller S’s property from REALTOR® A’s website, called REALTOR® A for information, and was shown the property by REALTOR® A several times.

Buyer X, looking for property in the area, engaged the services of REALTOR® R as a buyer representative. Seller S’s property was one of several REALTOR® R introduced to Buyer X.

After the third showing, Buyer B was ready to make an offer and requested REALTOR® A’s assistance in writing a purchase offer. REALTOR® A helped Buyer B prepare an offer and then called Seller S to make an appointment to present the offer that evening.

Later that same afternoon, REALTOR® R called REALTOR® A and told him that he was bringing a purchase offer to REALTOR® A’s office for REALTOR® A to present to Seller S. REALTOR® A responded that he would present Buyer X’s offer that evening.

That evening, REALTOR® A presented both offers to Seller S for his consideration. Seller S noted that both offers were for the full price and there seemed to be little difference between them. REALTOR® A responded, “They’re both good offers and they’ll both net you the same amount.” Seller S asked about the feasibility of countering one or both of the offers. REALTOR® A agreed that was a possibility, but noted that countering a full price offer could result in the buyer walking away from the table. Besides, he reminded Seller S, production of a full price offer triggered REALTOR® A’s entitlement to a commission under the terms of their listing agreement. Seller S acknowledged that obligation but expressed regret that, faced with two full price offers, there was no way to increase the proceeds he would realize from the sale of his property. “I’ll tell you what,” said Seller S, “if you’ll reduce your commission, I’ll accept the offer you procured. While you’ll get a little less than we’d agreed in the listing contract, you’ll still have more than if you had to pay the other buyer’s broker.”

Upset that his purchase offer hadn’t been accepted, Buyer X called Seller S directly and asked, “Just to satisfy my curiosity, why didn’t you accept my full price offer to buy your house?” Seller S explained that he had accepted a full price offer produced by REALTOR® A because of REALTOR® A’s willingness to reduce his commission by one percent.

Buyer X shared Seller S’s comments with REALTOR® R the next day. REALTOR® R, in turn, filed an ethics complaint alleging that REALTOR® A’s commission reduction had induced Seller S to accept the offer REALTOR® A had produced, that REALTOR® A’s commission reduction made his presentation of the competing offer less than objective and violated Article 1, as interpreted by Standard of Practice 1-6, and that REALTOR® A’s failure to inform him of the change in his (REALTOR® A’s) commission arrangement violated Article 3, as interpreted by Standard of Practice 3-4.

The Hearing

At the hearing, REALTOR® A defended his actions stating that he had said nothing inaccurate, untruthful, or misleading about either of the offers and that he understood that his fiduciary duties were owed to his client, Seller S, and that he and Seller S were free to renegotiate the terms of their listing agreement at any time. REALTOR® A acknowledged that by reducing his commission with respect to an offer he produced, he might arguably have created a dual or variable rate commission arrangement of the type addressed in Standard of Practice 3-4. He pointed out that if that commission arrangement had been a term of their agreement when the listing agreement was entered into, or at some point other than Seller S’s deciding which offer he would accept, then he would have taken appropriate steps to disclose the existence of the modified arrangement. He noted that Standard of Practice 3-4 requires disclosure of variable rate commission arrangements “as soon as practical” and stated that he saw nothing in the Standard that required him and his client to call “time-out” while the existence of their renegotiated agreement was disclosed to other brokers whose buyers had offers on the table—or to all other participants in the MLS. He acknowledged that if the accepted offer had subsequently fallen through and Seller S’s property had gone back on the market with a variable rate commission arrangement in effect (where one hadn’t existed before), then the existence of the variable rate commission arrangement would have had to have been disclosed. But, he concluded, the accepted offer hadn’t fallen through so disclosure was not feasible or required under the circumstances.

The Conclusion

The Hearing Panel agreed with REALTOR® A’s reasoning and concluded that he had not violated either Article 1 or Article 3.