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Code of Ethics not clear on negotiating commission down.

Code of Ethics ImageMass Code of Ethics confusion is the best way to describe what happened when I inquired in a Facebook Group about an ethics violation another Broker said I committed during our negotiation when I requested he reduce his commission.

Many said it was an ethics violation, many said it was not, and after close to 400 comments about it, I found my answer.

First, however, I want to let you know what happened. I represented the seller, and we were negotiating back and forth verbally with the buyer’s agent on the price. When it seemed like the seller and buyer could not come to an agreement, my seller suggested that the buyer’s agent reduce their commission to 2%, as that was what I was getting, so it seemed fair. With that suggestion, the buyer and seller would have an agreement and go into escrow.

It sounded like a reasonable solution to me. After all, the commission was $45,400 at 2%, and thousands of condos sell for much less and Realtors are satisfied with a much smaller commission.

I was shocked when the Broker representing the buyer told me I broke the Code of Ethics by making this request. I thought how could this be an ethics violation? I am simply passing along my seller’s proposal to complete our negotiations. When I inquired with my local Board of Realtors, I received an email back with the Code of Ethics attached referring me to Article 3 which covers commission between Brokers.

That answer did not satisfy me so I thought I could get some clarification in a Facebook Group for Realtors that I belong to. I was surprised to see Realtors very strongly supporting both sides, and no clear resolution was coming out of it. Realtors were making their case, and some were getting very nasty about it by denigrating other posters, and two even attacked me for even making such an unethical post.

Finally, one of the posters had the smarts to take the entire post to an expert and here is what they said:

“Just showed this entire discussion to someone that actually teaches the COE at our board and is on grievance committees. No code violation as it’s an upfront discussion between the two parties in a negotiation and no unilateral change is occurring.”

For me, this response makes a lot of sense. We are just negotiating. No one is forcing anyone to do anything they do not want to do.

I don’t know if the commission reduction was presented to the buyer. The buyer’s agent was adamant about not reducing their commission at all and was willing to lose this property for their client and their $45,400 commission. The next similar unit was priced $590,000 above our unit, which made me wonder if now the buyer would have to pay over $500,000 more to get a unit because of this disagreement.

My take away from this experience is the Code of Ethics should clarify that commission can be negotiated if the seller wants to. That being said, based on the mass confusion this caused, the response from the other side might be negative, or perhaps you will get accused of an ethics violation like I did.

In the end, we reduced our side of the commission even more, and we are now in escrow. Our seller expressed his appreciation for reducing our commission to meet his bottom line goals.

If you were in my shoes and your seller asked you to lower your commission, what would you do?

About Bryn Kaufman

Principal Broker and creator of OahuRE.com, one of the most popular websites on Oahu. I enjoy working with PHP, MySQL, jQuery, JavaScript, HTML5, Ajax and more. I am always looking to improve my Website and business. When not working, I enjoy spending time with my family and doing anything on or in the Ocean.

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