Can a listing agent offer compensation expressed as a percentage of the net sales price?

QUESTION: One of my clients contacted me and expressed interest in seeing a property that is listed in the MLS. When I checked the listing, I noticed that the listing agent is offering compensation based on the net sales price rather than the gross sales price. Is that practice permitted?

ANSWER: The answer depends on whether your local MLS has elected to allow the offering of cooperative compensation as a percentage of the net sales price.

Association-owned MLSs are required to conform their governing documents to the mandatory MLS policies established by the National Association of REALTORS®. Among the policies established by NAR are policies associated with the offering of cooperative compensation. They include the requirements that participants make “blanket unilateral offers of compensation to the other MLS participants,” and specify on each listing the compensation being offered by the listing broker.

A note that is part of NAR’s compensation policy states that the compensation specified by listing agents shall be expressed either as a percentage of the gross sales price or as a definite dollar amount. However, the policy allows for an exception to this rule. It states: “Multiple listing services may, as a matter of local discretion, allow participants to offer cooperative compensation as a percentage of the net sales price, with the net sales price defined as the gross sales price minus buyer upgrades (new construction) and seller concessions (as defined by the MLS).” The model MLS rules promulgated by NAR state that MLSs that elect to permit such offers of compensation are required to define the term “seller concessions.” The model rules even include a suggested definition.

If your MLS has elected to allow offers of compensation based on net sales price, listing agents are free to make such offers. Before doing so, listing agents should confirm that their listing agreements authorize such offers. In Standard Form 101, two of the three checkboxes in paragraph 8 authorize offers of cooperative compensation based on the gross sales price. Agents seeking to offer compensation based on the net sales price will need to check the third checkbox only, and also attach their Firm’s cooperative compensation policy that describes how compensation will be offered.

If your MLS has not affirmatively authorized the offering of cooperative compensation as a percentage of the net sales price, it should not permit a listing agent to publish a listing that offers compensation on that basis. If you see a listing in your MLS that violates NAR’s compensation policy, we suggest that you bring the matter to the attention of your MLS, and do so before you tender an offer on behalf of your client. The MLS should insist that the non-conforming listing be amended to reflect that the compensation specified by the listing agent is expressed either as a percentage of the gross sales price or as a definite dollar amount.