Cm Articles Policy Shortsales

James L. Goldsmith, Esquire

Multiple listings services ("MLS") that are a part of, or owned by, REALTOR® Associations are required to implement policies promulgated by the National Association of REALTORS® ("NAR"). In some cases, the policies are optional and may be adopted by a local MLS at its discretion. Of the recent NAR policy changes, the most significant deals with short sales.

For years, MLS policy has required listing brokers to make payment of the commission offered to other MLS members as conditioned only upon the procurement of a ready, willing and able buyer. In other words, the cooperating commission is earned if the selling agent is the procuring cause of the sale. Listing brokers could impose no other condition (e.g., the selling agent must accompany the buyer to the buyer's first view of the property, the selling agent, even if the procuring cause, must be the agent who writes the agreement, etc.). Produce the buyer - you get paid. Fairly simple.

For the system to work, the fee the selling agent will be paid has to be stated clearly. The commission may be stated as a flat amount or as a percentage of the sale price. Terms like "commission split to be determined" are not permissible.

These long-standing rules have worked very well. Before you, as a selling agent, embark on selling a listed property, you know what you will be paid if you produce the buyer. Then came short sales! The old rule requiring listing agents to state a specific sum or percentage that would be paid doesn't work so well in a short sale. Those of you familiar with short sales know that the transfer of marketable title to the buyer requires some compromise on the part of the seller's creditors. Simply stated, they have to be willing to give up some of what is owed them. Most often, the creditors are only willing to take less than what is owed if everyone else is willing to take less, including the listing broker! But if that commission is reduced, isn't it only fair that the selling agent suffer a similar reduction?

It depends. A selling agent might be willing to reduce her commission if she knows, prior to the start of her efforts to sell that particular property, that the transaction will be short and that all parties will be expected to compromise. This selling agent enters the transaction with eyes wide open. It is a different situation if, only after working hard to produce a buyer, the agent is informed of the short sale situation and that she will be expected to reduce her commission from what was promised.

NAR's new policies are designed to address these issues by giving Multi-List Systems the option of requiring members to disclose the potential for a short sale and by permitting them to communicate to other members how any reduction in the gross commission will be apportioned between the listing and selling agents. One would expect that when an MLS adopts this policy, one will see notations for a potential short sale with qualifying language that any reduction in the commission required by the creditors will be split equally, or in some other percentage, between the listing and selling sides of the transaction.

Boards that do not require members to disclose the potential for short sale must make disclosure available as an option and allow listing brokers to advise how commission reductions will be apportioned.

Many local associations are tackling the short sale issue by requiring MLS participants to disclose the potential short sale when the likelihood is reasonably known to the listing agent. While no one favors a moving target, most selling agents appreciate the fact that if they embark on efforts to sell property identified to involve a short sale, their commission is likely to be reduced. In a tight market agents are willing to list short sale properties knowing that while they may work harder, at least there is a commission to be made. Selling agents are willing to do the same, provided they have knowledge as they walk into the transaction of the potential reduction in commission.