MLS boards should prohibit commission haggling, because it is in the public's best interest to do so!

Coercion from sellers and side deals between agents after the commission has been published in MLS undermine the system and introduce the spectre of fraud. The buyer's offer becomes a behind-the-scenes pawn caught between a seller and two agents fighting to be paid. Making an offer contingent upon a reduced commission should be banned by MLS rules and recognized as what it is--a fraudulent and dangerous practice. Not only would agents be protected, but prohibition of that practice would protect the public, as well.

In my area, it is usually the seller who demands that agents "pitch in" to make an offer work (but I do believe that some agents also use the tactic when they fear the offer in hand might be a little too low). The rationale goes something like, "I will take a third of the hit, my agent will take a third of the hit, and the other agent will take a third of the hit--then I will accept the buyer's offer." At that point, the seller is trying to renegotiate the listing agreement, and that is where the listing agent should stand firm. When this "offer" gets passed on to the buyer's agent, it is clear to me that the listing agent did not do their job in upholding their own contract that is already signed AND published to the MLS. The listing agent has broken his/her contract with MLS, a contract which predates the sales contract that is being offered. That should be punishable by the local MLS.

One investor in my town regularly demands that agents "pitch in" to make his deals work. He signs the listing agreement, he knows the co-op commission is published in MLS, and then he uses those commissions as his fall-back stance. Agents who have never brought an offer on one of his properties do not know that this owner will renege on commissions. To the unsuspecting buyer's agent, it's a cheap shot, a blindside hit. To his listing agent, it's just that seller's way of doing business. At best, this agent is being disingenuous; at worst, the agent is knowingly perpetuating the owner's fraud.

It is a form of blackmail, and I have consistently refused to play that game when I bring a buyer. The seller and the seller's agent are, in effect, colluding to force the buyer's agent to participate. Though perhaps unsaid, the message to the buyer's agent is clear, "You are going to mess up your buyer's deal, and he might even find out."

Unfortunately, when agents have problems upholding fair practices, it is the MLS, NAR, or the state board that has to step into the gap by making a new rule. Make no mistake, though. When the public interest is at stake, it's the law that will change. If we want less regulation from above, we must deal with issues at the MLS level.

Jeffrey DiMuria created quite a stir with his ActiveRain blog about this topic: Stop Playing With Commissions.

As Diane Wheatley pointed out in that blog's comment section, renegotiation of the published commission can become the norm, if agents do not stand their ground, and is, in fact, becoming common in her area. My point of view is that, ultimately, it will be the public that suffers when compensation for real estate agents regularly becomes another level of negotiating the sales contract. Settling agent commissions will become an obstacle to contract finalization, and that does not serve the public interest!

It is such a BAD practice, in fact, that Fannie Mae prohibits lenders from lowering commissions as a condition of accepting a short sale offer on a Fannie Mae backed loan. And that has been true for more than two years.

Fannie Mae policy says the following:

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers

Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

Clearly, commission haggling was getting in the way of contract negotiations, and that's why Fannie Mae made the rule. It happened in the short sale arena, and it will happen in the market at large.

Bottom line: Agents are not a party to the ownership of the property. Let's all be clear about that. The seller receives the sales price from the buyer. The buyer provides the money. It's pretty simple, after all. Sorry I wrote such a long blog to say it!

NOTE: While I understand that this is an issue usually discussed in Members Only sections of forums, I am posting it out in the open; because I believe the public also needs to understand why these tactics are dangerous, not merely unfair. I am NOT suggesting that companies or agents collude to set commission rates. Let's also be clear about that, by the way.