Clarification On Compensation To Cooperating Brokers For A Short Sale Subject To Lender Approval

Are you listing a short sale that is subject to lender approval?   Are you concerned that the lender will try to reduce the total commission?   If so, make sure to warn cooperating brokers properly or else you could owe the full compensation to cooperating broker that you originally offered in MLS.

The National Association of REALTORS has informed State-Wide MLS, in response to our request for further clarification that displaying  “X% subject to lender approval” is not adequate to warn a cooperating broker in a short sale transaction that his/her compensation could be reduced.  Although 50% (or whatever apportion) may intend to relay that the co-broke will receive half of the total commission, a cooperating broker should be able to see the intended compensation (% or dollar amt of gross sale price).

[REMINDER:   If the short sale involves a Fannie Mae servicer, the lender cannot force the listing broker to reduce the gross commission as long as it is not more than 6%.]

When listing a property that is or could be a short sale subject to lender approval, a listing broker may wish to protect his/her office and the cooperating broker in case the lender reduces the commission.   If the listing broker intends to reduce the compensation to cooperating broker if the seller's lender reduces the total commission, then the listing broker needs to select one of the following options in order to comply with NAR policy.

OPTION #1:   

Make an offer of cooperating compensation as either a percentage of the gross sale price or as a flat dollar amount…. 

Example :  Compensation to Cooperating Broker =  “X% or $XX.”

State how the compensation to cooperating brokers would be changed if the seller's lender reduces the total commission…..

Example #1 :  Compensation Comments = “Any reduction in the gross commission required by the seller's lender as a condition of approving the short sale will be apportioned 50/50” (or 60/40 or 90/10 or whatever percentage the listing Participant chooses).

Example #2:  Compensation Comments = “If total commission is reduced by Lender, listing Participant will pay 50% (or 40% or 30%, etc.) of what Participant receives”

NOTE:  Abbreviating or similar language will be necessary to properly adjust to the field length, but is intended to give an example of appropriate language. 

OPTION #2: 

Make an offer of cooperating compensation only in an amount that the listing office could afford to pay even if the seller's lender reduces the total commission.

Even if a listing broker does not select one of these options, the listing broker can try to convince the cooperating broker to agree voluntarily in writing to a lower commission if the seller's lender plans to reduce the gross commission as a condition of a short sale.

QUESTIONS?  Contact MLS Customer Service at 401-785-9898 or the MLS Legal Department at 401-785-3650 ext. 5