Should You Disclose Commission Rates in Listing Contracts?

Have your clients ever questioned how much commission you’re making, or the value you bring to a transaction? Recently, one brokerage in Denver decided to avoid this dilemma by publishing set commission percentages promised to buyer agents in listing agreements – a decision which has caused uproar within the community. Now we’re asking you, should you disclose commission rates in listing contracts?

A controversy over disclosure of commission rates in listing contracts erupted in Denver last month, shedding fresh light on what can be a contentious subject, shrouded from public view. The Denver issue: A discount realty firm that offers flat fees — $2,100 to the listing agent, $3,000 to the agent who brings in the buyer — broke ranks with industry practice by publishing the commission percentages promised to buyer agents in listing agreements.

Key details of listing agreements are available online to real estate agents who are members of the local multiple listing service, but not to the general public. In Denver, as in many other areas, MLS rules prohibit disclosure of the commission rates offered to agents working on behalf of buyers.

Joshua Hunt, chief executive of Trelora, the flat-fee brokerage at the center of the controversy, believes that buyers deserve complete transparency upfront regarding the commissions offered to agents on houses they are considering.

Though sellers may pay the commission to both the listing and selling agents, the buyer’s dollars typically fund the transaction. Buyers should know in advance how much their agent stands to make and be able to negotiate that amount lower than what is offered in the listing contract, Hunt said. After being threatened by the local MLS with severe penalties, Hunt pulled down the commission data from his website.

The dispute in Denver pits discount-fee brokers — and their advocates — against traditional brokerages.

Some brokerages charge clients a small fee to list their properties on the local MLS, but offer strictly limited other services. In California markets, for example, MLS Access offers to list houses for six months for a $75 fee. Other firms offer menus of services at flat fees.

More traditional, full-fee brokers, including the major franchises and large independent firms, contend that they not only bring superior skills and service levels to their clients compared with discounters — expensive marketing campaigns, high quality photography, staging, among other things — but that their fees are negotiable and available to clients who ask about them.

Do you think it’s in your seller’s best interest to disclose commission amounts promised to agents with the buyer up front?

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