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Commission policy updates coming to connectMLS
May 1, 2018Posted by on
You want your commission amounts to be more definite. We heard you and we’re making it happen!
Starting June 4th, 2018, Net Sale Price will be more clearly defined. For residential and commercial sales, the Net Sale Price will be the Gross Sale Price minus amounts to be credited or paid to the buyer as reflected in the initial contract.
This update mainly affects transactions where commission is influenced by concessions or other changes that were not a part of the initial contract. The rule modification is designed to protect broker commissions from last-minute concessions often introduced by attorneys and other third parties. It also honors the differences between commercial and residential transactions, allowing flexibility for the intricacies of those deals.
The option to pay on Gross Sale Price or a flat dollar amount is still available. Properties currently listed in connectMLS do not require any changes, i.e. listings already in the system are “grandfathered” in and will not be required to comply.
For rentals, the Net Rented Price will be defined as the Gross Rented Price minus amounts to be credited or paid to the tenant as disclosed in the agent remarks and/or compensation field on the listing. For commercial lease properties, net compensation may be paid on negotiated variables as indicated in the compensation/commission agreement.
These clarifications ensure all parties involved in a transaction know what they will be compensated. MRED does not influence commission payments in any way, so please refer to the FAQs on this topic below or contact your managing broker for questions on your office’s best compensation practices.
Still have questions? Check out these FAQs.
We’re always ready to help. You can contact MRED’s Help Desk at 630-955-2755 or send us an email.
Thank you so much for this clarification!
We’re always happy to help! Thanks for reading, Pamela!
Thank you very much for the information and clarification of the new policy.
It’s our pleasure, Linda! Thanks for reading!
I’m so glad that you published this. I can’t even begin to tell you how many times, within the past year, that I’ve had to hunt money down due to a shortage or overage on our brokerage commission. It seems like a lot of people who are in charge of handling the final numbers get confused on how to calculate gross vs net especially when there are buyer and or seller credits involved. Hopefully, these changes will minimize those issues. Great job!
Thanks for the kind words, Shena! We’re always excited to serve you better.
Thank you for the clear concise explanation.
You’re more than welcome, Maria! Thanks for reading!
What happens if you are at closing, (representing the Buyer) and a listing brokerage doesn’t follow the new rule and still wants to make the Net Pay based off of any initial closing credits shown on the initial sales contract and adding additional closing credits added during the attorney review period?
Hi Dean, thanks for the comment!
In this situation, we would recommend contacting your association for arbitration, as MRED does not handle commission disputes.
I am currently dealing with an attorney that wants me to change page 1 of the contract to reflect the closing cost credit negotiated due to inspection items. Is this even something I can do? Shouldn’t the initial contract stay the way it is and an addendum be drafted for both parties to sign and send to the lender?
Hi Lori, thank you for the comment. Someone will be reaching out to you to discuss this further. We’re always happy to help and we look forward to getting your question answered!
This is why MRED shouldn’t have gotten involved in this unless they were going to fix it all the way. The new rules create more problems than they solve. What happens if you have a low appraisal? I once had one several years ago that lead to a 40k reduction. Is the coop supposed to be paid on the contract price? On a 2.5% coop that’s a $1000 difference. In instituting the rule, I do not believe that MRED considered all the possibilities and ramifications, and I for one still find the definition of “net” lacking. It still is not clear if home warranties are included, or termite, or well/septic. Furthermore, none of the board listing agreements to which I had access support it. Also, if the buyers broker brought buyers who nickel and dime and get credits so the buyer’s broker gets less coop comp, how is that unjust? I’m fact, sometimes that’s a strategy buyers and their agents use, at least with the 6.1 contract it was. In truth, net commission should include credits negotiated after the fact. It’s far less complicated that way and more fair. If you’re going to fix something then fix it, don’t make it worse.
Hi Anthony, thank you for your insights on this matter; we greatly value the feedback. We’ve passed along your comment to management and someone will be reaching out to discuss with you further. Thanks again!
Anthony, you are 100% correct in everything you said. I’ve encountered this problem today. I called the rules and regs dpt. and was told about the newly adopted definition. I will comply, however, I disagree with it in the strongest terms possible. I’ve consulted 2 lawyers on this, one is a real estate lawyer and one is a litigation lawyer, I was told by both – if this ever ended up in court, there is no way on earth that any judge would have the home seller pay commission on amounts not received, regardless of the technicalities such as… when was it agreed upon..? Why does it even matter when was this agreed, initial contract or 2 weeks later after the home inspection, what’s the difference? At the end of the day, it’s money out of the seller’s pocket. And, you give a perfect example with the 40K reduction after a low appraisal report. How do you explain it to the seller that not only is he forced to drop the price by 40K, he is also expected to pay a commission on the 40K..? Nonsense. I have another question on this issue, if this was a flipper sale, say.. seller is forced to drop the “initial contract price” by 40K, will IRS expect the 40K to be included or will the seller be allowed to show the sale price less the 40K as a cost of doing business? I think we all know what the answer is. If the IRS does not expect any tax dollars on the 40K, why would the seller be expected to pay commission on this amount just because it’s in the initial sale contract? What if the seller said NO, I will not pay? This puts the listing broker in a position of having to pay the co-op broker based on the MLS listing sheet and the “initial contract”. It exposes me, as the listing broker, to unnecessary liability. I’m asking WHY? Whose idea was this?
Hi Tom, thanks for checking in.
We’re constantly reviewing our rules and will take your feedback into consideration on this.
This particular rule modification is to protect broker commissions from last-minute concessions often introduced by attorneys and other third parties.
I completely agree 100%. This has been crazy since the rule was modified and led to many arguments. I get it if there’s something major that happens during the final walk through and the price is adjusted then at the closing table. That makes sense not to adjust the commission then but if it’s during the A/I period or after a bad appraisal comes in then it should certainly effect the commission. I’ve had a couple instances where the seller agreed to do repairs for the buyer during A/I but the sales price was increased to cover those repairs the buyer didn’t want to do after closing. In those situations the buyers agents want their commission to now reflect the new increased sales price but it doesn’t work that way. You can’t expect this rule to come into effect only when it benefit’s you. In those situations the commission remained what it was during the initial contract, not the new increased SP agreed upon during A/I.
Hi Dustin, thanks for the comment. Your comment has been passed along to management. We greatly value feedback and use it to help serve you best.
While the new clarification will solve some issues it might create other. It has to be explained in a clearer way. My understanding is below. Looking at the MRED explanation of:
1. “Net sale price” taken into consideration for commission calculation:
– The net sale price is the gross sale price minus amounts to be credited or paid to the buyer as reflected in the initial sales contract.
2. At the same time MRED definition of “Gross sale price” is not the initial contract price but the sold price by the “County Recorder’s Office”. Using those definitions then:
– any contract price reduction becomes the gross sale amount and if no credits on the initial contract then the gross and net are the same.
– any credits after the initial contract are not taken into consideration.
So in a situation that the appraisal is 40k below, then the gross sale price would be 40k lower. Seller would not pay commission on the contract price. Any inspection issues will not be taken into consideration for calculation of commission unless there is purchase price reduction. So 20k inspection credit divided into 10k purchase price reduction and 10k closing cost credit will reduce the commissionable price by 10k. At the same time 20k inspection closing cost credit would not reduce the commissionable price. Warranty should be taken into consideration if it is on the contract. Septic,well and termite probably not as they do not show $ amounts.
Thanks for sharing your insights! We love hearing the feedback. We’ll be passing along your comment to management for further evaluation. Thanks again!