Expert: Todd C. Menard - 3/22/2011

Question
Hello Todd,
I am a NYC licensed Real Estate broker representing a buyer who is interested in purchasing a specific property in a part of the state that uses an MLS that I am not a member of. I was told by the firms in that area that my only options were to either refer my client to one of their agents, who would then be representing my buyer, or have my buyer sign a Buyer's Broker agreement indicating that my client, the buyer, would be paying my commission. Being that neither of these options are feasible to my client, do I have any recourse in the matter? Agents from this area outside of NYC refuse to do a standard co-broke (where the seller pays the commission and it is split on the buyer and seller side) with agents that not from the area and not a member of their MLS. I see this as a great disservice to both buyers and sellers and feel genuine concern for potential ethics violations that are occurring. Thank you!

Answer
Hello Nadia - This is an excellent question that many other real estate licensees will appreciate. Article 3 of the NAR Code of Ethics indicates 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". To clarify the duty to 'cooperate' established in Article 3 was re-defined in January 2011 and relates to the obligation to share information on listed property, and to make property available to other brokers for showing to prospective purchasers when it is in the best interests of the seller. The obligation to compensate is established when a brokerage signs a subscriber agreement with a Multiple Listing Service. The MLS's rules and regulations include the contractual obligation to compensate the cooperating broker typically as a condition of successful close of escrow. However, Article 3 S.O.P. 3-1 states "Unless expressly indicated in offers to cooperate, cooperating brokers may not assume that the offer of cooperation includes an offer of compensation. Terms of compensation, if any, shall be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation". This is similar to the process followed when showing properties for-sale-by-owners. The greatest concern is whether it is in the clients best interest for the real estate licensee to represent them in an area which the real estate licensee does not have knowledge or competence. Typically, it is considered reasonable that a real estate licensee operating outside their primary geographic MLS might purportedly be in violation of NAR Code of Ethics Article 1 and or Article 11, S.O.P. 11-2 which states, "...with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the REALTOR® is an agent or sub-agent, the obligations of a fiduciary". On another note, it is possible to join more than one MLS should a real estate licensees experience and competence reach into additional geographic locations as you describe which would eliminate the situation as posed. As you indicated should you elect to enter into an Exclusive Buyer Broker Representation Agreement for a proposed compensation you would be obligated to provide objective information to your client so they understand the position this agreement would place them in. This would include your clients understanding that they would be responsible for paying this compensation at closing in addition to the sales price, that the listing brokerage would still be compensated the full amount indicated on the Exclusive Listing Agreement by the seller which normally would include an offset to the compensation indicated on the Exclusive Buyer Broker Agreement, and should they used a local real estate licensee their representatives compensation would be compensated by the listing brokerage, and finally that you do (or do not) possess the knowledge and possible competence required to properly represent your clients interests. I can't answer the question of competence or what's best for your client, nor am I suggesting that I challenge your experience or competence, however, I believe this post identifies the NAR Code of Ethics and MLS rules and regulations as well as your fiduciary obligations relating to your question. This was an excellent question. Please reply if you have additional questions regarding this post. Thank you - Todd Menard