A short sales rules yo-yo

In 2008 the NAR Model MLS Rules were amended to deal with short sales. Those rules provided that:

1. An MLS must allow participants to disclose in the MLS if a potential transaction might be a short sale;
2. An MLS may institute a rule requiring disclosure of a potential short sale where the participant believes a short sale is a possibility; and
3. In any instance where a participant does disclose a potential short sale, the MLS must allow (but can’t require) that participant to also disclose if and how any lender-imposed fee reduction would be split with a cooperating broker.

For example: if Broker X knows that a property will end up being a short sale, he always has the ability to tell cooperating brokers and buyers that this will be the case.  Some MLSs might require him to make that disclosure. Whether it is required or voluntary, however, Broker X must always have the ability to say something like “If the lender requires me to reduce my fee, I’ll absorb xx% of the reduction but you’ll have your cooperating fee reduced by the other yy% of the reduction.” The theory here is that since many lenders were insisting on fee reductions in order to approve short sales, the listing broker shouldn’t be tied into whatever compensation was originally offered now that the circumstances have changed.

At the NAR Mid-Year meetings, a proposal was made that would allow MLSs to stick to the traditional rule of a uniform offer of cooperating compensation and not allow listing brokers make the compensation contingent upon their eventual listing fee. An MLS that wishes to allow brokers to include this provision may still do so, but others will not be required to do so.

How does this affect you? Well, if you have a known short sale, but you can’t make cooperating compensation contingent on bank approval, you may end up reviewing what you’re offering. Of course you can always come back and try to negotiate a different fee with the cooperating broker (Standard of Practice 15-3 says so), but if they won’t agree voluntarily the listing broker will absorb the entire reduction.