Adverse splits are commonly known as fees offered by a listing broker to cooperating brokers that are below what is offered to other brokers. Adverse splits can be used to establish a fair trade for commission splits, or to teach a competitor a lesson. One way is legal, the other isn't.

In a recent Realty Times story, Iowa Realty president Mike Knapp made the statement that his company had offered another company the same split that the other company offered. "'If you come up with a dollar amount, we will offer you that same dollar amount," Knapp said to Next Generation Realty.

Since then, Realty Times has been inundated with mail that Mr. Knapp's statement sounded like price fixing, which is against the law. But he and others beg to differ.

"Price fixing is to conspire with others to charge a price for services or products that are charged to the consumer," says Knapp. "Price fixing has nothing to do with how a broker splits the commission on a sale of one of his listings with another. Price fixing is also if you at any time sit down with a competitor and agree you are going to do something to somebody else.

"The bylaws of any association of Realtors says that compensation is solely determined by the broker offering the compensation," explains Knapp. "If someone offers me a dollar, someone else might offer two dollars, but that is each business' right to determine."

How are adverse splits handled outside of MLS listings? "You don't put your agreement in the listing. You have to notify the broker in advance in writing and it can be a blanket notification, it doesn't have to be property by property. It is an agreement between brokers. If I am a broker in a marketplace, I don't have to split my commission with every other broker in exactly the same fashion. I don't know of any law that prohibits a broker from making a sole determination on his own listings what he wants to share with other brokers."

How are such adverse split decisions made? "I would need to assess the value of the opportunity," replies Knapp. "I don't care if a broker is a discount broker or a flat-fee broker, what is consequential to me is what kind of opportunity my agents have? In the case of Next Generation Realty, they didn't offer our agents an opportunity to earn any kind of commission, so what kind of opportunity should I offer them?"

Laurie Janik, general counsel to the National Association of Realtors, agrees. "The practice of Iowa Realty is not price fixing because there is no agreement between competitors. `To engage in price fixing, there must be a conspiracy or agreement among competitors to fix prices. A single brokerage can lawfully determine the amount of cooperative compensation his brokerage will offer to other brokers.  Such decision must, however, be made independently and not as part of an agreement with other competitors."

Published: February 24, 2003

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