Navigating Cooperative Compensation in Compliance with the License Law and the Code of Ethics

QUESTION: Last week you mentioned that it is possible to negotiate cooperative compensation while complying with Article 16 of the Code of Ethics and Rule .0112 of the License Law. Can you explain this in more detail?

ANSWER: Yes, but first let’s revisit the rules at play.

Article 16 of the Code of Ethics states:

REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS®  have with clients.

Standards of Practice (“SOP”) are not meant to impose separate rules or standards of conduct on REALTORS®. The articles, not the SOP, are the controlling authority in the Code. However, the preface to the Code of Ethics explains that the SOP “are applications of ethical principles to specific conduct in specific circumstances[.]”

This means that when REALTORS® interpret Standard of Practice 16-16, it must be read in the context of Article 16, which clearly prohibits interference with another member’s exclusive relationship with their client. It makes sense under Article 16 that a buyer agent cannot use their client’s offer as a weapon to interfere with the agency agreement between the listing agent and the seller. It also makes sense that a buyer, and not a buyer agent on their own accord, can condition their offer to purchase on whether an agreement for cooperative compensation can be reached with the seller or listing agent.

This brings us to Rule .0112 of the License Law, which states in relevant part:

(b) A broker acting as an agent in a real estate transaction shall not use a preprinted offer or sales contract form containing:

(1) any provision concerning the payment of a commission or compensation, including the forfeiture of earnest money, to any broker or firm; or
(2) any provision that attempts to disclaim the liability of a broker for his or her representations in connection with the transaction.

A broker or anyone acting for or at the direction of the broker shall not insert or cause such provisions or terms to be inserted into any such preprinted form, even at the direction of the parties or their attorneys.

(c) The provisions of this Rule shall apply only to preprinted offer and sales contract forms which a broker acting as an agent in a real estate transaction proposes for use by the buyer and seller. Nothing contained in this Rule shall be construed to prohibit the buyer and seller in a real estate transaction from altering, amending or deleting any provision in a form offer to purchase or contract nor shall this Rule be construed to limit the rights of the buyer and seller to draft their own offers or contracts or to have the same drafted by an  attorney at law.

The North Carolina Real Estate Commission restated in its last bulletin that this rule “bars a broker from using a preprinted offer or sales contract form containing any provision  concerning the payment of a commission or compensation to a broker or firm.” The bulletin article further says that while “a client may consider the amount of commission when  considering making or accepting an offer, the broker/firm should not be made a third party in a form purchase contract between the buyer and seller.” (Italics added.)

The reason for Rule .0112 is stated in NCREC’s Real Estate Manual: “In the past, some brokers working with buyers would attempt to improperly force the listing firm to give them a  more favorable commission split by including a commission split provision in the offer to purchase[.]” In other words, some REALTORS® were violating Standard of Practice 16-16 with the standard form contract, which resulted in the Commission adopting Rule .0112(b).

With this background, we can now address your question.

What a Buyer Agent Can Do

1. Prior to the offer’s being made, contact the listing agent or unrepresented seller and ask whether the seller and/or listing firm is offering cooperative compensation.
2. If the listing agent or unrepresented seller has advertised cooperative compensation somewhere off the MLS, you may contact them to confirm the terms of cooperative  compensation.
3. If the seller or listing firm is offering cooperative compensation, you should reduce any agreement regarding cooperative compensation to writing outside the purchase contract. New  Form 220 (Cooperating Compensation Agreement) or Form 150 (Unrepresented Seller Disclosure & Fee Agreement) will work depending on the circumstances.
4. Any agreement that is reached as to cooperative compensation may be amended during the transaction if the contracting parties’ consent. See Standard of Practice 3-3.
5. If the seller or listing firm will not offer cooperative compensation, you may:

a. Ask whether either or both of them will consider offering it;
b. Ask whether the seller will consider including a concession to the buyer in the purchase contract; or
c. If the buyer consents in writing, you may negotiate cooperative compensation prior to submission of the buyer’s offer and condition the offer’s submission (and even the offer’s terms) on whether cooperative compensation can be negotiated.

6. If the seller or listing firm will not offer cooperative compensation, or if an offer of cooperative compensation is not sufficient to cover the buyer’s obligations under their agency  agreement, you may:

a. Submit the offer anyway and make clear to your buyer that they must pay your fee from their own funds;
b. At the buyer’s written direction, not submit the offer to the seller and look at other properties; or
c. Allow the buyer to terminate agency so they can make the offer themselves.

7. As a final resort, if you want to make an offer but you cannot obtain information about cooperative compensation even after making multiple efforts to obtain such information, then  you can submit your buyer’s offer to the seller or the listing agent along with a separate proposed agreement for cooperative compensation (Form 150 or Form 220 will work). If the  buyer directs you in writing, you may explain, in an email or other writing, that the buyer’s offer is contingent on the seller’s or listing agent’s separate agreement as to cooperative  compensation. Agents are strongly recommended to consult with their BIC and legal counsel to make sure any such conditional language used in this scenario will be effective and  achieve the intended result.

What Buyer Agents and Listing Agents Cannot Do

1. Buyer agents and listing agents cannot put the terms of their compensation in the buyer and seller’s pre-printed offer to purchase and contract.
2. Buyer agents and listing agents cannot attach any kind of addendum, including Forms 150 or 220, to a pre-printed offer to purchase and contract that addresses agent  compensation.
3. Once the buyer’s offer is made, a listing agent may not unilaterally modify cooperative compensation that they have offered off the MLS. See Standard of Practice 3-2.
4. Buyer agents may not, without the written consent of their client, condition a buyer’s offer on a potential agreement as to cooperative compensation.

a. If there is no cooperative compensation, or if the cooperative compensation offered is not enough to satisfy the buyer’s obligations under the agency agreement, then the buyer must  pay for their agent’s services from their own funds.
b. If the buyer cannot pay the agent from their own funds, then the buyer agent and the buyer may discuss the terms on which agency may be terminated. To prevent this scenario,  however, buyer agents must have thorough discussions with their clients prior to the signing of a buyer agency agreement regarding how the agent will be paid.

Release Date: 5/23/2024

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