FANNIE MAE / FREDDIE MAC / NAR Protecting Your Sales Commission

The following Policy Changes prevent modification of sales commissions as a condition of approval on pre-foreclosure sales (Short Sales). The FREDDIE MAC Bulletin of August 22, 2009 establishes guidelines similar to those established in the earlier FANNIE MAE Servicing Guide Announcement of February 24, 2009. Furthermore, The National Association of REALTORS® Code of Ethics and Standards of Practice has been revised January 1, 2010 including changes to Article 3.

To protect your compensation please take two mintues to familiarize yourself with the following changes provided below!

FANNIE MAE - Servicing Guide(Announcement 09-03 February 24, 2009), Part VII, Section 504.02: Contacting Selected Borrowers, Effective March 1, 2009, closing of pre-foreclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with pre-foreclosure sales.

FREDDIE MAC(Bulletin 2009.22 August 29, 2009) - Chapter B65, Workout Options Effective, August 29,2009, has been updated to provide Servicers further guidance regarding the negotiation of broker real estate commissions on a short payoff. Unless a real estate broker's sales commission exceeds 6% of the property sales price, Servicers must not, as a condition of the Servicer's acceptance of an offer, renegotiate the real estate broker's sales commission to an amount that is lower than the amount that was originally agreed upon between the broker and the Borrower. In the event the sales commission exceeds 6%, the Servicer must renegotiate the commission to limit it to 6% of the property sales price. Servicers must continue obtaining all applicable third party approvals and ensuring that the transaction is arms-length in accordance with the requirements specified in Section B65.37. Section B65.37 has been revised to reflect this change.

This is great news for REALTOR’s® who provide high-fiduciary services to their clients and have been victim of the lender’s compensation reduction. This move is expected to reduce NAR Code of Ethics and Professional Standards complaints citing Article 3, Dispute Resolution Services (DRS) such as Mediation and Commission Arbitration complaints, and assist in enforcement of  Multiple Listing Services Rules and Regulations.

Should you encounter a compensation negotiation in the pre-foreclosure negotiation process on a Fannie Mae or Freddie Mac loan, provide the bank contact with a copy of these revisions (link provided below), and request they cease from further compensation modification attempts.

Click on the appropriate Name to be directed to the site:  Fannie Mae      Freddie Mac

Should you encounter a REALTOR® who requests that you modify your compensation after you have submitted an offer to purchase/lease a property, provide the REALTOR® or Broker with a copy of the NAR Code of Ethics (link provided below), specifically Article 3.
2010 National Association of REALTORS® Code of Ethics, Article 3, Standard of Practice 3-2 states "To be effective, any change in compensation offered for cooperative services must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property. (Amended 1/10)"

"Standard of Practice 3-2 does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation. (Adopted 1/94)". (See Article 3, S.O.P. 3-3)

Article 3 states "REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95)"

"REALTORS®, acting as exclusive agents or brokers of sellers/ landlords, establish the terms and conditions of offers to cooperate. Unless expressly indicated in offers to cooperate, cooperating brokers may not assume that the offer of cooperation includes an offer of compensation. Terms of compensation, if any, shall be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation. (Amended 1/99)"

Finally, the question as to whether a property listed in the multiple listing system (MLS) actually contains an "offer" of compensation and to whom is a MLS membership issue. Review your local Multiple Listing System (MLS) Rules and Regulations for important details.
In the Greater Phoenix AZ market, The Arizona Regional Multiple Listing System (ARMLS) Rules & Regulations, effective May 2009 states in Sections 12-1, Division of Commissions states - "Listing Participant shall specify, on each Listing that is FWA, the compensation being offered to Participants for their services in the sale/lease of such Listing. The compensation amount shall be either a percentage of the gross selling/lease price or a definite dollar (non-zero) amount. Compensation amounts that are not based on the gross sales/lease price (e. g., compensation is based on the base price of a new home) must be shown as a fixed dollar (non-zero) amount. ARMLS shall not accept or publish any Listing that does not include an offer of compensation...","Such offers of compensation are unconditional except that entitlement to compensation is determined by the Cooperating Participant’s performance as the procuring cause of the sale/lease".

I hope this has been helpful. As you know, I am not a real estate attorney therefore this is not intended to be legal advice, rather, this is to be considered real estate information that any experienced REALTOR® should be able to provide. If you feel you have been a victim of such commission modification, please contact your local association and ask to speak with the Professional Standards Coordinator or the like.