From a consumer's point of view a Multiple Listing System (MLS) is a data base that contains information about property that is or has been for sale. Yet, to a real estate agent or broker, the MLS is much more than that. It is a cooperative venture whereby members who have properties listed for sale offer compensation to other members in the event that those members will bring and represent a buyer for the listed property.

How much compensation is offered to the buyer's agent (often, and puzzlingly, referred to as the "selling agent") is, of course, a critical piece of information. Compensation amounts are not set by law or regulation. Nor, contrary to what some may have been led to believe, they are not determined by MLS rules either. Furthermore, any tacit or "informal" agreements among brokers as to a standard compensation rate would be an anti-trust violation. Avoiding such a violation is something that the real estate community takes quite seriously.

So who determines the compensation rate and what considerations go into that determination?

Ultimately, it is the listing agent who determines the rate of compensation to be offered to the buyer's agent; but that determination will be subject to the approval of the agent's broker and, in many cases, the informed consent of the seller.

The reason it is the listing agent's decision is that the compensation offered to the buyer's agent will come out of the total commission amount that the listing agent and the seller had agreed upon. (There will be exceptions to this under certain buyer-broker agreements; but that is a topic for another day.) To be sure, a closing statement will show commission disbursements from the seller's funds to the two different agents. But, in effect what has happened is that the listing agent has assigned a portion of his commission to the buyer's agent.

The listing agent has considerable latitude in deciding how much to offer the buyer's agent. Whether it is expressed as a percentage of the sale price or as a fixed dollar amount, the split between the agents does not have to be 50-50.

Suppose I, the listing agent, have negotiated a commission amount of 7% of the sale price. I might reason that I have considerably more expense than will a buyer's agent. I have to do advertising, etc. So, through the MLS, I offer a potential buyer's agent a 3% commission, and I retain 4% for myself. No rule has been violated.

Conversely, suppose the best I can do is a 6% commission. Under certain circumstances I might reason, "It is a buyer's market. There is a lot of inventory for sale. I will offer 4% to entice the buyer's agent. I will take 2% for myself."

But the listing agent does not simply have a free hand in setting the offer of compensation. He cannot, for example, say "2½ % to the selling agent, except for agents from ABC Realty. They only get 1%." (That would take us into anti-trust territory.) Nor can an offer of compensation be conditional. To quote from the California Association of Realtors® (CAR) Model MLS Rules, "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."

For example, a listing agent is prohibited from conditioning the offer of compensation in the following way: "2½ % to the selling agent, unless the buyer saw the property with me first". (Whether, in such an event, the listing agent would have a procuring cause case is a different issue.)

Offering a bonus for fulfilling a certain condition (e.g. "$1,000 bonus if accepted offer before Thanksgiving") is also prohibited by the MLS rules.

There are certain exemptions to the MLS prohibition against conditional offers of compensation. These include auction and probate listings, and also – of particular interest these days – short sale listings. That will be the focus of next week's discussion.

Published: August 23, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .