Ethical and Legal Considerations When Negotiating Cooperative Compensation

QUESTION: A listing firm in my area advertised that cooperative compensation was available for a seller’s property. I contacted the listing firm, and the agent informed me that the listing firm was offering to pay a specific amount. The listing agent did not indicate that the amount of cooperative compensation was dependent on the buyer’s offer terms. I then filled out the Cooperating Compensation Agreement (Form 220) and emailed it to the listing firm along with a separately attached, unsigned copy of my buyer’s offer on Standard Form 2-T (Offer to Purchase and Contract). The listing agent emailed back that the seller would accept my client’s offer, but only if the cooperative compensation was significantly reduced in Form 220 and the Due Diligence Period was shorted by two weeks. Is this ethical?

ANSWER: Scenarios like this will always need to be decided on a case-by-case basis after all the facts are presented. That said, it is possible in this case that the listing firm may be in violation of the Code of Ethics and the License Law.

Article 3 of the Code states that “REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker.” Standard of Practice (“SOP”) 3-1 explains that cooperative compensation, if available, must “be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation.”

Once cooperative compensation has been ascertained, SOP 3-2 states that any change to cooperative compensation “must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property.” And, importantly, SOP 3-2 also states that after “a REALTOR® has submitted an offer to purchase or lease property, the listing broker may not attempt to unilaterally modify the offered compensation with respect to that cooperative transaction.” SOP 3-3 does permit listing agents and cooperating brokers to mutually agree to change cooperative compensation, even after an offer is presented.

In your case, it sounds like you ascertained the terms of cooperation with the listing firm which included cooperative compensation. This means that once your buyer made the offer, the listing firm no longer had a right to unilaterally change the agreement for cooperative compensation. While there are not enough facts here to conclude whether the listing firm was trying to unilaterally change the terms of cooperation (as opposed to making an offer to mutually agree to different terms of cooperation pursuant to SOP 3-3), you may consider filing a complaint with your local board so that all the facts can be examined by a Grievance Committee.

It is also worth noting that we wrote extensively in this Q&A that a buyer agent who uses their buyer’s offer as a weapon to interfere with the agency agreement between the listing firm and the seller may be in violation of Article 16 of the Code and Rule .0112 of the License Law. The same rules and the same analysis could apply to a listing agent using their seller’s counteroffer as a weapon to interfere with the agency agreement between the buyer and their agent.

As we have previously written, listing firms making offers of cooperative compensation, whether those offers are on a website, social media, yard signs, email, text message, or anyplace else, should consult with legal counsel to make sure that an offer of cooperation is clear. Form 220 is meant only to reduce an agreement for cooperative compensation to a written contract. It is not meant to establish or explain the terms on which cooperative compensation will be offered by a listing firm and potentially accepted by a cooperating agent. Listing firms who are not careful in their communications with cooperating agents may be subject to an ethics complaint or discipline from the North Carolina Real Estate Commission.

Release Date: 9/5/2024