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March 15, 2012

2

Care Required When Cutting Commission at the Offer Table

by mark mclean

Whenever I need a good meeting topic I usually just  head to the RECO site and look at some past discipline hearings. First I read the statement of facts to get the back story, then read the decisions and then review the rules associated with the case.  In my meetings I put the story in plain language and we have a great time discussing how the agent or brokerage should have handled the situation. These topics make for some boisterous meetings. The case I talked about this week caught my eye because it happened to a well-respected agent I know. Clearly, mistakes can happen to the best of them. Here is the story;

Agent Smith, an agent for ABC Realty, lists a home at 123 Anywhere Avenue for $629,000 and the sellers agree, under Smith’s recommendation, to hold back offers until June 7th. Over the course of the week, the house gets a fair amount of showings and on offer night there are two registered offers. The first offer is from Agent Jones, a representative of Plum Realty and the second offer is from Agent Doe who works in the same office as Agent Smith. After several rounds of improvements by both agents, the sellers finally accept Agent Doe’s offer of $705,000  even though Agent Jones’ offer for $709,000 was slightly higher. So why was the lower offer accepted? That’s where the story gets interesting. What you don’t know is that during the last round of negotiations Agent Doe agreed to reduce his commission by half a percent in order for the sellers to net more money than Agent Jones’ offer. A few hours after the negotiations were completed Smith called Jones to tell him that in fact his offer was slightly higher but that Doe had reduced his commission. Needless to say, Jones was upset because he presented his final offer after Doe’s  and was not given an opportunity to match Doe’s commission reduction. After Smith’s acknowledgement of the commission cutting, Jones filed a complaint with RECO.

As a result of the investigation it was determined that Smith acted unprofessional in three ways. First, she failed to disclose the existence of terms relating to a commission agreement that directly affected whether an offer was accepted. Second, she failed to provide conscientious service to Jones’ clients and failed to demonstrate reasonable knowledge, skill and judgement. Finally, her acts would reasonably be regarded as disgraceful and unbecoming an agent. Her punishment? A hefty $5000 fine and an order to complete an “Ethics and Business Practice” course.

What is the take away here? Clearly an agent’s duty is to fully disclose anything that might give one buyer an unfair advantage over another. Our job, in the offer negotiation, is to make the playing field level. In the final analysis, it is unclear if Agent Smith pushed the sellers to accept Doe’s offer because they worked together, however, it should be noted that there is an even greater duty of care when dealing with other agents from your own office as  multiple representation ( also known as dual agency) comes into play. Even more of a concern is how you handle cutting your commission when the buyer is a customer of yours. More on that in a later post.

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2 Comments Post a comment
  1. Josie Stern
    Mar 18 2012

    This scenario would not have been against the rules if Agent Doe was a co-operating broker with a different brokerage. If a co-operating agent from a different brokerage cuts commission and that’s what clinches the deal then the listing agent does not have to disclose itt to all agents involved. I have come across this many times especially when a co-operating agent is related to the buyer and chooses to cut their commission.

    Reply
    • Mar 22 2012

      Hi Josie, sorry for the delay in responding. Yes you are correct. It’s a bit of an odd “loophole” if you like, but at the end, it boils down to multiple representation.

      Reply

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