Florida Realtor • June 2022 • LAW & ETHICS

Call Florida Realtors^® Legal Hotline to speak with an attorney on a range of topics. Or enter your question online. Members will receive a callback from a Legal Hotline attorney. As always, there is no charge for members. Call (407) 438-1409 or log in to floridarealtors.org and click on the “Florida Realtors Legal Hotline” page in the Law & Ethics section.

Dual or Variable Rate Commission?

Most if not all Florida MLSs provide participants a way to disclose whether their listing agreement for sale or rent contains a dual or variable rate commission arrangement. What’s the difference?

The National Association of Realtors^®’ Code of Ethics obligates all Realtors^® to disclose the existence of dual or variable rate commission arrangements to cooperating brokers as soon as practical. Most MLSs enable participants to make this disclosure when completing an MLS entry form.

What is a “dual or variable rate” commission arrangement? It’s defined in Article 3, Standard of Practice 3-5, as “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.”

Under these agreements, the property owner typically owes less commission if the listing broker handles both sides of the transaction, and a higher commission if another brokerage firm procured the buyer or tenant. Technically, it could also apply if the owner has agreed to pay more if the listing broker has both sides, although those types of listing arrangements are extremely rare.

Now that we’ve looked at the correct definition from the Code of Ethics, what’s the wrong definition?

Many members think that it’s when the amount of compensation the listing broker receives is different from the amount offered to the cooperating broker. When the cooperating broker discovers this —often when they see it on a closing statement—they think it’s an undisclosed dual or variable rate. But it isn’t.

A dual or variable rate is analyzed solely from the seller’s perspective: Do they owe a different amount if the listing broker handles both sides? In this example, no. The amount the listing broker gets and the amount the cooperating broker gets are different. However, the total amount the seller owes is the same, regardless of whether the listing broker has both sides or not.

Is it OK for a seller and listing broker to agree to this uneven split? Yes. The listing agreement and amount of commission described in it is negotiable, so those terms are up to them.

What can a buyer’s representative do if they believe the amount offered is too low? In short, they can ask the buyer or listing broker if either is willing to add commission. NAR provides a more detailed article about a buyer’s broker negotiating commissions on its website (tinyurl.com/negotiable-commissions).

This rule actually describes a total of three possible disclosures. The first disclosure, which we already covered, is the listing Realtor^®’s obligation to disclose the general existence of this arrangement when the amount the seller owes is different when the listing broker represents both sides. That’s where the MLS checkbox “dual or variable rate” comes in to help with compliance.

The second disclosure only kicks in if a cooperating broker asks what the difference is. When that happens, the listing member must provide a number showing the actual difference. For example, if a cooperating broker asks what the difference is, the listing side would need to respond with a statement like “seller will owe X% less (or $Y less) if our company has both sides of the transaction.”

The third and final disclosure is from the perspective of the buyer or tenant representative. Once they know the difference, they’re obligated to pass this information on to their client. This way, their client has full disclosure that an identical offer from them and a buyer or tenant represented by the listing brokerage will net the seller a different amount of money due to the commission differential.

Q: TALK TO AN ATTORNEY

A buyer and seller have encountered a contractual issue that needs to be resolved before they can go to closing. The buyer is reaching out to the seller directly to attempt to navigate the issue. Is the buyer allowed to do this, or must the buyer use the real estate licensee who represents him as an intermediary?

Unless there’s an unusual and specific term obligating the buyer to use brokerage services to negotiate a resolution to this legal issue, the buyer is welcome to contact the seller directly.

The buyer may also retain a lawyer to advise and speak on his behalf. The buyer and seller entered into a Florida Realtors/Florida Bar As Is Residential Contract for Sale and Purchase. The inspection period ended last week, but the buyer just presented a proposed contract amendment requesting repairs to the property. Is the buyer allowed to ask for this after the inspection period expired?

Yes. A proposed contract amendment is just that—a proposal. Either side is welcome to present a proposed change at any time. That said, if the buyer doesn’t like seller’s response (or lack of a response), they don’t have the right to back out of the contract due to their dislike of the property condition, since the inspection period expired.

I represent the buyer. The transaction failed, and the seller refuses to release the escrow deposit to my buyer. The seller put the property back on the market. Is the seller permitted to advertise and sell the property when there’s a pending escrow dispute?

Yes. An escrow dispute does not prevent the seller from advertising the prop-erty or entering into a contract with a second buyer. That said, there are a few different issues a seller may encounter when there’s an unresolved legal dispute pending, so they would be well-advised to consult an attorney if they need help navigating the dispute.

A landlord’s rental property is in a military town. The landlord has had a string of bad experiences renting to military personnel, so she wanted to know if it would be OK to just not rent to anyone in the military going forward. Is this permissible?

No. Section 83.67(3), Florida Statutes makes it illegal to discriminate against servicemembers in how property is offered for rent, or in the terms of a lease offered to a servicemember. If landlords or property managers violate this law, they could face stiff penalties.

TIPS FOR NEGOTIATING A CONTRACT AMENDMENT

Most parties can successfully negotiate a change to legal agreements if circumstances change, but here’s a chance to learn from other people’s mistakes—parties who failed to fully understand the contract they currently have.

Buyers, sellers, landlords and tenants often change the terms of their agreements when their circumstances change. Most of the time, these parties negotiate changes and documents without a hitch. However, when things don’t go as planned, we often hear about the fallout on Florida Realtors^® Legal Hotline.

Following are some tips gleaned from their experiences. The overarching theme? It’s extremely helpful to understand what the agreement currently provides while attempting to negotiate a change.

What happens if the title agent tells the parties that a title defect needs to be addressed before they can close the transaction? Many times, the buyer and seller simply sign an amendment to extend the closing date. While this isn’t necessarily wrong, it can create some unnecessary wrinkles because it ignores the procedures and timeline that already exist in the contract.

The contract puts the ball in the buyer’s court first. It provides that “Buyer shall have 5 days after receipt of Title Commitment to examine it and notify Seller in writing specifying defect(s), if any, that render title unmarketable.” Just a bit later, the contract provides this ominous sentence: “If Buyer fails to so notify Seller, Buyer shall be deemed to have accepted title as it then is.”

This buyer notice is not a contract amendment—it’s a one-way communication from the buyer to the seller, in writing. Once that happens, the seller has a 30-day window to try and cure the defect. If that’s not feasible despite the seller using reasonable efforts to cure the defect, then the buyer has an option to terminate the contract or give the seller more time (up to 120 more days).

Again, extending the closing date isn’t necessarily wrong, but it’s better for the buyer to use the contract’s existing tool (notices) unless the buyer has a specific reason to reject the contract’s path in favor of their own (extending the closing date).

Some parties ask what the contract says only after the other side rejects or ignores their proposed amendment. This can be very costly.

One common scenario: A buyer waiting on inspection results asks the seller to extend the inspection period deadline. This makes a lot of sense under the circumstances. That said, what happens if, despite hearing that the seller will agree to it, they’re told the day after the inspection period expired that the sellers changed their mind? The answer is that the inspection period expired, so the buyer is likely out of luck if they want to back out later based on the results of their inspection. There are a few rules in play here:

Had the buyer properly focused on the contract while waiting to see how (and if) the other side responded to their request for more time, the buyer would have realized that they faced a decision deadline. They either cancel based on whatever information they have by the deadline, or they go forward with their deposit potentially at risk should their opinion change based on future information.

Are emotions ruining your party’s chances of successfully amending the agreement?

We occasionally hear about parties incensed that the other side snubbed or ignored a requested amendment. “We’ve left 10 voicemails, each more demanding than the last, but all we heard back was one word—‘rejected’—a day or two later than we needed!”

It’s important to remember that the recipient of a proposed contract amendment can accept, reject, counter or ignore the request, even if it seems like a routine request. They may have any number of reasons for doing so, and they’re not obligated to share their reasoning. Sometimes, the side asking for an amendment may need to come back with a more attractive offer.

However, if the door slams shut because of personality conflicts, it can be very unfortunate for the side that’s requesting a change.