Cooperating with the Out of Town Agent

July 2009

By James L. Goldsmith, Esquire

A listing broker's offer to compensate a selling broker for procuring a ready, willing and able buyer is generally established in the MLS. That offer of compensation applies to all members of the MLS that have not been excepted by the listing broker (via written communication to the excluded selling broker). Some MLS systems provide for reciprocity and thereby extend offers of compensation from listing brokers of one MLS to selling brokers affiliated with another MLS.

What duty does a listing broker have to compensate a selling broker who is not a member of the MLS or a reciprocal MLS? The National Association of REALTORS® Code of Ethics imposes a duty of cooperation with other brokers, but does not require a listing broker to share commissions, fees, or to otherwise compensate another broker (Article 3). Unless an offer of compensation is posted in the MLS in which the selling broker is a participant, no contract to pay co-op compensation exists and the selling agent should not expect to be compensated!

An out-of-town agent who does not benefit from MLS membership or reciprocity must therefore negotiate terms of compensation "before beginning efforts to accept the offer of cooperation" (Standard of Practice 3-1). The selling agent could simply call the listing broker to ask what compensation would be paid if he/she produced a ready, willing and able buyer. Assuming a reasonable response is given, the amount should be memorialized in a Cooperating Broker Compensation Agreement, one of PAR's standard forms.

Is there ever a time when a listing broker should refuse to both cooperate and compensate an out-of-town selling agent? That depends. Hopefully a buyer agent observes the limitations established by Article 11 of the Code of Ethics. This Article requires REALTORS® to conform to the standards of practice and competence reasonably expected in the specific real estate discipline in which they engage. Article 11 provides examples of various disciplines, including property management, commercial and industrial brokerage, appraisal, etc. The obligation to conform to standard of practice and competence may also be limited geographically. That is, REALTORS® should not be involved in the marketing and sale of real estate in locations with which they are unfamiliar and where their knowledge of the market is severely limited. It may indeed be in the seller's best interest to limit cooperation and compensation to buyer agents who have familiarity with the marketplace.

I recently received HotLine calls from both an out-of-town buyer agent and the listing agent who was, initially, refusing to cooperate and compensate that buyer agent. When it was explained that the buyer agent was born and raised in the area where the property was located, that he had continuing ties to that community as well as a history of recent transactions, the listing agent accepted the offer and compensated the selling agent.

Listing agents have an obligation to promote the interests of their sellers. Having a hard and fast rule that the listing agent will not accept offers from out-of-town agents may run counter to that duty. Cooperation is the default; refusing to cooperate with any broker or agent should be supported for good reason.

Compensating the out-of-town broker is another matter. Will the out-of-town buyer agent be available to open doors and supervise inspectors and perform all of the services customarily performed by buyer agents? There is no correct answer to this difficult question. When the listing agent listed the property he/she promised to cooperate and compensate other members of the MLS, but did not offer to compensate out-of-town brokers or licensees who do not participate in the MLS. Sellers, however, are likely to remember that the listing agent promised to lure selling agents by offering compensation.

Ultimately, licensees are rarely hurt when providing services that advance the interest of their clients. If the out-of-town agent is going to perform the majority of customary services to be provided, why wouldn't you compensate them fairly? Keep in mind that if the listing agent refuses to pay a cooperating commission, the offer ultimately submitted by that buyer agent may demand that the seller pay the buyer agents fee. When the seller asks you, the listing agent, why are you refusing to compensate a non-MLS member, will you have a good answer?

Mr. Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. He may be reached at realcompliance.com.