Legally speaking: Do’s & don’ts when showing a property outside of your MLS
On May 15, 2017
By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration
Are you showing buyers property outside of your MLS? If so, make sure you talk to the listing agent about compensation or you may end up working for nothing!
Here is a frequent scenario we’re hearing about on the OAR Legal Assistance Hotline:
A buyer’s agent has a client interested in properties in a neighboring county or maybe in another city. After showing the buyer several properties they make an offer on a property that is subsequently accepted. Before closing the buyer’s agent learns that the listing broker is not willing to pay her the commission that was offered to buyer’s agents in the listing broker’s local MLS. When questioned, the listing broker explains that even though the buyer’s agent was the procuring cause of the sale because the buyer’s agent is not a participant in his Board’s MLS and there was no other agreement to pay the buyer’s agent, he is not required to pay her.
Is the listing broker right? Technically, yes. Offers of compensation made in an MLS are only made to participants of that particular MLS, not to all REALTORS in Ohio. Moreover under Ohio license law a listing broker has no legal duty to pay the broker who is representing the buyer. The license law merely requires that a listing broker disclose his policy on cooperation and compensation to his client as that policy may impact the sale of his property. But as long as such disclosure takes place there is no license law violation. (However, listing brokers who decide not to offer compensation to brokers outside their MLS should really consider whether such a policy is truly in the best interests of the seller.)
Most REALTORS get confused on this issue because the NAR Code of Ethics requires that all REALTORS cooperate with other REALTORS unless it is not in the best interests of their client. While Article 3 does require such cooperation, the term “cooperation” is misinterpreted by many REALTORS. Cooperation is not synonymous with compensation; instead a REALTOR complies with this duty to cooperate by sharing information on their listing with other REALTORS, making the property available for showings, answering their questions, etc. Standard of Practice 3-1 clearly states that unless expressly stated in an offer of cooperation, other REALTORS may not assume that offer includes an offer of compensation. Instead this Standard of Practice provides that it is the responsibility of the buyer broker to ascertain if compensation is being offered by the listing broker.
So why doesn’t the NAR Code of Ethics require its members to compensate each other? The answer is simple: the antitrust laws prohibit a trade organization such as NAR or OAR from mandating or setting the payment of fees between brokers. That is why Article 3 clearly sets forth that the obligation to cooperate does not include an obligation to share commissions or fees or to compensate another broker.
So how do you make sure you get paid if you represent a buyer on a property and you don’t belong to the MLS in which the property is listed?
- In your first conversation with the listing broker tell them you don’t belong to their MLS and ask if they will compensate you if your buyer purchases the property
- Be specific — agree on the exact amount of the compensation as either a percentage of the sales price or a flat fee
- Get it in writing! In the world of e-mails this is easy to do.
- If the listing broker won’t pay you, hopefully you have a written buyer representation agreement that requires the buyer to pay your commission. If not, discuss your compensation with the buyer now and try to get them to agree to pay you.
Here are a couple of things you definitely DON’T want to do!
- Don’t assume that just because the listing agent sent you MLS listing information about the property that includes the buyer broker compensation that you are entitled to that compensation if you aren’t a participant in that MLS.
- If the listing broker won’t agree to pay you a coop fee or you don’t like the amount that is offered to you, do not use the terms of the offer to purchase to modify the listing broker’s offer of compensation or make the contract contingent on the listing broker paying you a different amount. Such conduct is prohibited by Standard of Practice 16-16 of NAR’s Code of Ethics.
- Don’t wait until you are ready to write an offer to address the issue of compensation with your buyer. Before you even show the property you should discuss with your buyer whether they will be willing to pay for your services if the listing agent won’t. If neither the buyer nor listing agent will pay you, you can include a provision in the purchase contract asking the seller to pay your commission, but of course there is no guarantee they will be willing to do that and the seller may merely counter back striking that compensation provision.
Today — more than ever — REALTORS are working hard to put deals together for their clients and to make a living for their families. As market boundaries become more blurred it is important for buyers’ agents to discuss compensation issues upfront with the listing REALTORS and their clients…and as always, to get it in writing.
Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.