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Over the course of the past few years, many MLSs, as well as their brokers ("participants") and agents ("subscribers"), have had an increasing number of questions and concerns about what the National Association of REALTORS® ("NAR") terms "conditional offers of compensation," made through the MLS. This legal article addresses this subject and some of the related issues.
Q
1. What is a "conditional offer of
compensation?"
A A
conditional offer of compensation occurs when the amount of compensation
offered to cooperating brokers in a listing submitted to the MLS varies
based on the performance or nonperformance of certain activities.
Essentially, one rate is offered if "xyz" occurs and another rate is
offered if it doesn't. A classic example would be when a listing
broker offers to compensate the successful cooperating broker more if the
cooperating broker shows the property to the buyer than if the cooperating
broker does not show the property to the buyer. Other examples
include conditioning the rate of compensation on close of escrow by a
certaindate or receipt of a full-price offer.
Q
2. May I make a conditional offer of
compensation on my listing through the MLS?
A No.
According to NAR, as long as NAR's MLS policy relies solely on the
procuring-cause test as the basis for entitlement to a cooperating broker's
share of a commission when such offer is made through the MLS, it will be a
violation of NAR policy to condition or offer varying amounts of
compensation through the MLS to other brokers based on whether they
perform--or not perform--certain acts that are "sub-activities" under the
umbrella of procuring cause or are additional acts beyond those necessary
to qualify as procuring cause. NAR defines procuring cause as "the
uninterrupted series of causal events which result in the successful
transaction." So, if a cooperating broker is the procuring cause, she
is entitled to the compensation.
Q
3. Does this mean that I can't offer a
bonus to create incentives for certain conduct such as close of escrow by a
date certain or for a full price offer?
A Again,
the listing broker may not condition her offer of compensation through the
MLS on the performance of such conduct, however it would be permissible for
a listing broker to offer compensation through the MLS and, in the
appropriate MLS field, invite cooperating brokers to contact listing broker
for terms of additional compensation that may be available. Listing
brokers could also offer bonuses to cooperating brokers through some other
method of communication outside the MLS.
Q
4. What if my seller wants to offer a
bonus tocreate incentives for certain conduct such as close of escrow by a
date certain or for a full price offer?
A
Sellers have no authority to convey offers through the MLS. That's
not to say that such offers cannot be made outside the MLS, but offers of
compensation made through the MLS are broker to broker.
Q 5.
Does offering compensation through the MLS based on a formula
or sliding scale violate the policy against conditional
offers?
A
No. While an offer of compensation in the MLS must bein the form of
either a percentage of the gross sales price or a determinable dollar
amount, the compensation offer may be calculated by a formula or sliding
scale or by some similar approach. Use of this method would not, in
and of itself, constitute a conditional offer.
Q 6.
Is NAR's prohibition against conditional offers
of compensation a new policy?
A
No. NAR's policy prohibiting conditional offers of compensation is
not new, but until recently it has just been a little hidden,
requiring MLSs and practitioners alike to read between the lines in order
to interpret the policy. (See Question 7 below.) This uncertainty has
created some confusion out in the field about how to handle conditional
offers of compensation that have found their way into the MLS.
Q 7.
How has the issue of conditional offers of
compensation been clarified recently?
A
In addition to providing you with this nifty legal memorandum, the C.A.R.
Model MLS Rules have been revised as of February, 2004 to expressly state
that conditional offers of compensation made through the MLS violate the
MLS Rules. This new language is set forth in C.A.R. Model MLS Rule
7.12, titled Unilateral Contractual Offer; Subagency Optional, and states,
"The amount of compensation offered through the MLS may not contain any
provision that varies the amount of compensation offered based on
conditions precedent or subsequent or onany performance, activity or
event." Furthermore, in the event a listing broker refuses to comply
with this requirement in the way he or she makes an offer of compensation,
the Rule also gives MLSs the authority to enforce the policy by removing
the offending listing, if it should come to that. Again, please keep
in mind that these revisions to the C.A.R. MLS Rules do not reflect an
actual policy change but instead offer clarification on this issue.
