What’s a Variable Rate Commission? Must It Be Disclosed?

ORLANDO, Fla. – Dear Shannon: I’m a cooperating broker, forgive me, but I’m furious! I always work hard for my buyers, but in this case … well, I won’t bore you with the long story and painful details. I’m furious because I had a challenging transaction and at the closing table, I discovered the listing broker got paid more than me.

The listing broker didn’t disclose that we were getting paid different amounts. And while I know the Code of Ethics requires variable rates disclosures, one of my trusted colleagues – a self-proclaimed professional standards geek – says if I file an ethics complaint, the grievance committee probably won’t even send it to a hearing panel because it’s NOT a violation.

As a result, I’m turning to you. I know variable rates of commission must be disclosed. In my case, the listing broker and cooperating broker were paid different amounts, and I believe it should have been disclosed.

I’m angry. Please back me on this. – Furious

Dear Furious: Glad you reached out. But, unfortunately, I’m afraid I won’t be able to back you on all of this.

Your trusted colleague sounds like a true professional standards pro. Obviously, I cannot tell you what any particular grievance committee would decide, but I agree with your colleague: On its face, even if true, this doesn’t sound like a Code of Ethics violation.

The questions are twofold: First, does the Code of Ethics require variable rates of commission to be disclosed? And second: Is what you’ve described a variable rate commission? Let’s look at the section of the Code of Ethics (Code) that seems to apply to this situation.

Standard of Practice (SOP) 3-4 says: Realtors®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease. (Amended 1/02)

First, does the Code of Ethics require variable rates of commission to be disclosed? Yes – you are correct that variable rate commission arrangements must be disclosed.

The plain language of SOP 3-4 says the listing broker had an affirmative obligation to disclose the existence of variable rate commission arrangements. If there was a variable rate commission arrangement and the listing broker failed to disclose it, this could be a violation of the Code of Ethics.

Let’s take a look at SOP 3-4 again and notice where variable rate commission is defined: Realtors®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease. (Amended 1/02)

As to the second question, is what you’ve described a variable rate commission? The answer is no. You said the amount the listing broker got paid “varied” (or was different) from the amount you got paid and that this was a “variable” rate commission that should have been disclosed. This is a common misunderstanding of “variable rate.”

SOP 3-4 defines variable rate commission as one amount of commission is payable if the listing broker’s firm is the procuring cause of the sale and a different amount of commission is payable if the sale results through the efforts of the seller or a cooperating broker.

As outlined here, a seller could get a discounted commission if the listing broker’s firm was procuring cause of the sale.

Here’s a common example: In negotiating with a seller to list their home, a listing broker could offer the seller a commission discount if the listing broker’s firm is procuring cause of the sale. Sellers might find this variable rate commission arrangement (or possible commission discount) appealing if they’re considering multiple brokers to represent them in listing their property. If the seller agrees to those terms, they’d then expect to pay a higher commission if a cooperating broker was procuring cause.

Now do you see why it is important for this “variable rate commission arrangement” to be disclosed by the listing broker? If you’re a potential cooperating broker, you can tell your buyers about the existence of the variable rate commission so they have the opportunity to make a more competitive offer to purchase the property.

In your situation, you and the listing broker were paid different amounts. Under the Code, this is NOT considered a variable rate. A “variable rate commission” specifically focuses on the commission rate the seller agrees to pay their listing broker. The variation of commission rate refers to the potential commission discount offered by the listing broker to the seller, where the seller might pay the listing broker differently (a varying amount) depending on whether or not the listing broker’s firm is the procuring cause of the sale.

Keep in mind that commission is always negotiable and there is NO rule that says both the listing broker and the cooperating broker must be paid the same amount.

Shannon Allen, Esq., AHWD is Florida Realtors Director of Local Association Services
Note: Advice deemed accurate on date of publication. Other laws and rules may apply.

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