Can a listing firm reduce its commission to promote an “in-house” sale?

QUESTION:  I am the Broker-in-Charge at my firm. An agent at our firm has a listing and has received two offers, one of which was presented by a broker with our firm. Can our firm offer to reduce our commission if the property is sold to the buyer represented by our buyer agent? If so, do I need to disclose the commission reduction to the agent who is affiliated with a different firm?

ANSWER:  There is no prohibition on your firm agreeing to reduce its commission at any time. However, on the issue of disclosure, the requirements of the REALTOR® Code of Ethics and the Real Estate License Law may be different. Specifically, while the Code of Ethics may not require disclosure of the commission reduction to other buyers, it appears that the Real Estate Commission might discipline a broker that agrees to reduce its commission on an in-house sale without timely disclosing that reduction to all competing buyers, and giving those buyers an opportunity to submit revised offers.

The Code of Ethics provision that touches on this issue is Standard of Practice (“SOP”) 3-4. It states: “REALTORS® acting as listing brokers have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements.” A listing broker’s agreement to reduce his or her commission if a listed property is sold to an “in-house” buyer would appear to create a “dual or variable rate commission arrangement”. However, an attorney with the National Association of REALTORS® has advised us that SOP 3-4 does not bar a listing broker from renegotiating his or her commission at any time. NAR’s attorney also opined that the Code of Ethics does not obligate a listing agent to put the acceptance of an offer produced by that agent’s firm on hold until the listing agent informs all other MLS participants of his or her agreement with the seller.

The Real Estate Commission’s legal staff has a different view. The Commission’s overriding rule in the multiple offer context is that there must be a level playing field for all buyers. Listing brokers must treat all buyers fairly and honestly. In the opinion of one Commission attorney, these principles obligate a listing firm that agrees to reduce its commission on an in-house sale to inform all other buyers of this agreement, and give them an opportunity to present a revised offer.

Ultimately, it would be up to an ethics hearing panel, or the Real Estate Commission itself, to decide each particular case based on the facts presented. However, brokers who elect to reduce their commission without informing the agents for other buyers should do so with knowledge that there are risks involved.