Code of Ethics Case Study – Article 3

Case #3-7: Time at Which Modification to Offer of Compensation is Communicated is a Determining Factor (Revised Case #22-7 May, 1988. Transferred to Article 3 November, 1994. Cross-reference Case #2-14. Revised November, 2001.)

Realtor® A listed Seller X’s home and filed the listing with the MLS. The property data sheet indicated the compensation  Realtor® A was offering to the other Participants if they were successful in finding a buyer for Seller X’s home.

During the next few weeks, Realtor® A authorized several Participants of the Multiple Listing Service, including Realtor® C, to show Seller X’s home to potential buyers. Although several showings were made, no offers to purchase were forthcoming. Realtor® A and Seller X, in discussing possible means of making the property more salable, agreed to reduce the listed price. Realtor® A also agreed to lower his commission. Realtor® A changed his compensation offer in the MLS and then called the MLS Participants who had shown Seller X’s property to advise them that he was modifying his offer of compensation to cooperating brokers. Upon receiving the call, Realtor® C responded that he was working with Prospect Z who appeared to be very interested in purchasing the property and who would probably make an offer to purchase in the next day or two. Realtor® C indicated that he would expect to receive the compensation that had been published originally in the MLS and not the reduced amount now being offered to him, since he had already shown the property to Prospect Z and expected an offer to purchase would be made shortly. Realtor® A responded that since Prospect Z had not signed an offer to purchase and no offer had been submitted, the modified offer of compensation would be  applicable.

The following day, Realtor® C wrote an offer to purchase for Prospect Z. The offer was submitted to the Seller by Realtor® A and was accepted. At the closing, Realtor® A gave Realtor® C a check for services in an amount reflecting the modified offer communicated to Realtor® C by phone. Realtor® C refused to accept the check indicating that he felt Realtor® A’s actions were in violation of the Code of Ethics. Realtor® C filed a complaint with the Board’s Grievance Committee alleging violation of Articles 2 and 3 on the part of Realtor® A citing Standard of Practice 3-2 in support of the charge.

During the hearing, Realtor® C stated that Realtor® A’s modification of the compensation constituted a misrepresentation through concealment of pertinent facts since he had not provided Realtor® C with specific written notification of the modification prior to the time Realtor® C began his efforts to interest the purchaser in the listed property. Realtor® A defended his actions by indicating that timely notice of the modification of compensation offered had been provided to Realtor® C by telephone prior to Realtor® C submitting a signed offer to purchase. Realtor® A also indicated that his modified offer of compensation had been bulletined to all Participants, including Realtor® C, through the MLS in accordance with Standard of Practice 3-2 prior to the time that Realtor® C had submitted the signed offer to purchase. Realtor® A also commented that had Realtor® C submitted the signed offer to purchase prior to Realtor® A communicating the modified offer, then Realtor® A would have willingly paid the amount originally offered.

Based on the evidence presented to it, the Hearing Panel concluded that Realtor® A had acted in accordance with the obligation expressed in Standard of Practice 3-2 based on changing the offer of cooperative compensation in the MLS alone, even without the courtesy phone calls, and consequently was not in violation of Articles 2 or 3.