What is a “Variable Commission”?

Answer:  Code of Ethics section 3.4 states the following:

  • Standard of Practice 3-4

REALTORS®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., 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). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client before the client makes an offer to purchase or lease.

Why is this important and if a listing is marked “Variable Commission”, what should I do?  Here’s a possible scenario:

You represent a Buyer who wants to offer on a listing.  The listing is marked “Variable commission”.  You call agent and find out that there is another offer in play.  Now if your Buyer wants to move forward, they will be in a “Mulitiple offer” situation.  If Your Buyer offers full price, their offer may not get accepted.  Here’s why:  In a variable offer situation, the Listing Agent/Broker may have a scenario where they are offering (for the sake of discussion let’s say 6%.  3% is offered  to the cooperating Broker).  If the Seller finds the Buyer the commission may be 5%.  If the listing Agent represents both sides (Limited Agency) the commission may be 4%.  So if the listing Agent has the competing offer, and your offer and their offer are the same, which one would the Seller accept?  Since the Seller would save 2% if the listing Agent’s offer is accepted, most likely Seller would choose that one.  In order for you to have your offer accepted, your Buyer would have to offer 2% or more.  You could and should inquire of listing Agent before you advise your Buyer to participate in a Multiple offer situation, what the differential would be in a cooperative transaction if there is a variable commission offered.