The following TSMLS rule changes will go into effect January 1, 2013:
- The Active Contingent status will no longer be available; all listings with the Active Contingent status must be changed to Contingent with the sub status of Short Sale.
- 7.28 Short Sale (Lender Approval) Listings. Participants must disclose potential short sales (defined as a transaction where title transfers, where the sale price is insufficient to pay the total of all liens and costs of sale and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies) when reasonably known to the listing broker. This section does not allow Participants with short sale listings to place any reduction conditions on compensation offered through the MLS for items such as lender reductions of the gross commission, short sale negotiator fees or other administrative costs of the transaction. Any reductions from the commission for such items, if any, should be factored in as a reduced amount the listing broker initially offers to a cooperating broker and may not be made a condition of the offer.
- 13.2.2 Lockbox Requirements. If any lockbox or other device giving access to On Market listed property for real estate professionals and/or service providers is authorized by the seller and/or occupant and is placed on or present on property listed through the Service, such lockbox or device must be one that is approved by the MLS where the listing has been submitted. The authorized lockboxes sold by, leased by or otherwise offered through the local Association or MLS where the listing is submitted have been approved by the MLS. Unless expressly indicated otherwise by the MLS, for any other lockbox or device to be considered “MLS-approved,” use of it must provide reasonable, timely access to listed property such that (1) it allows all participants and subscribers timely access to listed property by reliance solely on data submitted to and residing on the MLS; (2) complete, accurate and stand-alone instructions are provided for accessing the listed property in the appropriate agent section on the Service; and (3) it ensures that the lockbox or device will provide reasonable access to listed property with any information, code or key needed to access the contents of the lockbox or device to be made available or access to the property otherwise scheduled within four [4] hours of initial contact in the event the lockbox or device requires the participating member to obtain additional information to enable access (ex: “call listing agent for entry code”) with said 4 hour response obligation in effect every day from 8am to 6pm. The MLS reserves the right to require that the device be submitted in advance for approval. The MLS also may revoke the approval and/or subject the participant to discipline if the device is used in a manner that fails to continue to satisfy this requirement. Failure to provide reasonable and timely access as required by this section will subject the listing agent to discipline and potential fines. More than one lockbox or access device may be used on a property as long as one of them is MLS-approved where the listing is submitted.
Question: What are the implications of the new Model Short Sale Rule and how does it work?
Answer: Under this standard, the ability to offer a conditional offer has been eliminated. With the short sale compensation exception removed, listing brokers will have to stand behind what they offer on the MLS. The listing broker will be obligated to pay the compensation offered, even if a request is made by a lender to reduce the gross commission. If the bank reduces the gross commission, listing broker has to absorb the loss or renegotiate with the cooperating broker (as in any traditional seller-request of a reduction, there are some ways to do it but the cooperating broker can always say no). If the cooperating broker refuses to work with the listing broker in reducing his or her part of the compensation, the matter is similar to any other sale where the principals cannot agree on price, and they ask the brokers to reduce their commissions. The listing broker then has a business decision to make as to whether or not to take the entire cut in commission or whether to refuse to take the cut, thereby making it unlikely the sale will go through.
Removal of the short sale compensation exception requires listing brokers to better project the likely commission that will be received and go ahead and make a judgment on the amount to offer the cooperating side. To that end, any considerations of the potential of a lender reduction or the use of a short sale negotiator, etc. would have to be factored in up front by listing agent in his determination of the amount of compensation to offer potential cooperating agents.
Also, instead of being alerted to the existence of a short sale listing by a listing broker’s indication that he is offering conditional compensation subject to lender approval (as was allowed under the old rule), the new Short Sale Rule requires an affirmative disclosure on the MLS of potential short sale status when reasonably known to the listing broker.
Question: Since removing the lender reduction conditional offer exemption could be harmful to listing brokers, what is the rationale for taking it out?
Answer: While removal potentially could be harmful to listing agents, manipulation of it has been harmful to cooperating agents. In these instances, listing agents have used it to make their offers of compensation appear more generous on the MLS than they actually intended to honor. These listing agents have “spiked” up commissions in the listing agreement to a rate beyond the range market forces would typically bear so as to trigger lender reduction when they know (1) the seller will not be paying the commission as it is a short sale and (2) the lender will reduce it to a market rate and (3) cooperating agent (who was advised on the MLS of what appeared to be an “equitable” split of any lender reduction) will actually bear the weight of the reduction. In these instances, a cooperating agent may be unpleasantly surprised to get a lesser commission than reasonably anticipated from the MLS listing.
At this stage in the market, REALTORS® seem to report that commission ranges lenders will approve are fairly predictable and that short sale listing agents are generally in a reasonable position to anticipate what to expect, thus reducing the need to maintain the compensation exception. With this climate as a backdrop, and in light of increasing instances of abuses along the line referenced above, on balance C.A.R. decided that maintaining the short sale compensation rule was more hurtful than helpful to members.
Question: Why are the rules regarding lockboxes changing?
Answer: In the face of countless member complaints of being denied access to show listed property, NAR created a new standard for lockbox policy based on requiring “reasonable and timely access” to listed property. The new policy allows an MLS to require placement of an “MLS-approved” lockbox or access device, but then expressly states that non-AOR/MLS issued access devices could qualify as “MLS-approved” if they provide “reasonable and timely access” to the listed property. The new lockbox rule 13.2.2, above, includes the criteria for defining “reasonable and timely access.”