Ethics Q&A

Disclosing the amount offered to a cooperating broker.

Read the full Code of Ethics updated for 2003.

One of the more recent amendments to NAR’s Code of Ethics directly affects discussions with owners when listing property. Standard of Practice 1-12 states:

"When entering into listing contracts, REALTORS® must advise sellers/landlords of:

1. the REALTOR®’s company policies regarding cooperation and the amount(s) of any compensation that will be offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities;
2. the fact that buyer/tenant agents or brokers, even if compensated by listing brokers, or by sellers/landlords may represent the interests of buyers/tenants; and
3. any potential for listing brokers to act as disclosed dual agents, e.g. buyer/tenant agents."

Prior to the most recent amendments, the REALTOR® had to advise the owner of the company’s policies regarding compensation to cooperating brokers, but the Code of Ethics did not specifically require the listing broker to disclose the amounts offered to cooperating brokers. The italicized term was recently added to require the listing broker to advise the seller of the amount of compensation that will be offered to cooperating brokers.

Standard of Practice 1-12 does not specify the means by which the information must be conveyed. However, TAR’s Risk Reduction Committee suggested that the TAR listing agreements be modified so that this information may be disclosed in the listing agreements. A task force is completing revisions to TAR’s residential and farm and ranch listing forms. The final revisions will include a change in paragraph 8 of the listing forms, which discusses cooperation and compensation to cooperating brokers, so that the amounts offered to cooperating brokers are disclosed in paragraph 8.

Much of the policy behind Standard of Practice 1-12 is that sellers should be apprised of the benefits of cooperation between brokers and how the listing broker’s policy of compensating or not compensating (and the amounts of that compensation) may impact the marketability of the property.

Q I cannot recall the last time that a cooperating broker acted as a "subagent" in my area. Why do the listing forms still require the broker to detail whether we will compensate subagents or not?

A The use of subagency by cooperating brokers has significantly declined and is virtually nonexistent in some areas. Yet, a cooperating broker may still operate under a subagency relationship. NAR’s Code of Ethics simply requires the seller to be aware of any varying commission splits between buyer agents and subagents. It may have little to no effect on the marketability of the property in some areas.

Q Where does the TAR listing agreement state that a buyer’s agent represents the interest of the buyer as required by Standard of Practice 1-12(2)?

A Compliance with Standard of Practice 1-12(2) is achieved in the TAR listing agreement by referencing and attaching the Information about Brokerage Services form, which is incorporated into the listing under the Addenda Paragraph.

Send questions about ethics to texasrealtor@texasrealtors.com. Not all questions received can be answered.

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