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New Home Listings In The MLS Need To Conform To Compensation Rules

Written by on Wednesday, 03 October 2012 7:00 pm

In many parts of the country new home builders are making a comeback; and that is certainly good news for both the industry and the national economy. In my market area, and probably in others, many of the builders are placing their inventory into the MLS. This tells you that the new home market is not yet what anyone would call hot.

Over the years MLS members have had an on-again, off-again relationship with new home builders.

Although not universal, it is common for new home builders to exhibit a bit of a who-needs-you? attitude to MLS members when the market for their products has heated up. They don't list their homes in the MLS, and, frequently, they don't even offer to pay a referral or commission to an agent who brings a buyer to their project.

Then, when the market slows, builders are liable to find a renewed interest in all those MLS agents who have a lot more exposure to potential home buyers than the builders do. They may make it known that they will cooperate with (i.e. pay) agents who bring prospects to their development; and they may even join the MLS to give that exposure to their inventory.

When builders use the MLS they must, of course, abide by MLS rules. Unfortunately, this does not always happen. In particular, they are likely to run afoul of the MLS prohibitions against conditional offers of compensation. (I am not saying that these are intentional violations going on here. They may just be the result of ignorance and/or habit.)

Here are some current examples from the MLS that I belong to: "Agent must accompany buyer on first visit to qualify for commission." "Realtor MUST accompany and register client on client's first visit to qualify for the referral fee." "3% Broker Co-op -- Broker must accompany buyer on their first visit and register their client with sales representative."

The rule that those and similar remarks violate is "The amount of compensation offered through the MLS may not contain any provision that varies the amount of compensation offered based on conditions precedent or subsequent or on any performance, activity, or event." This comes from the NAR model rules for Multiple Listing Services. Thus, for example, an agent can't (legitimately) say, "no co-op commission will be paid if the buyer first saw the property at my open house."

MLS rules do provide for some exceptions to the prohibition against conditional offers of compensation. Short sales are among those exceptions. New home sales are not.

Thanks to my colleague and former president of the Southern California Multiple Listing Service, David Silver-Westrick, for pointing out the recent and increasing re-occurrences of this issue.

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  About the author, Bob Hunt

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.