MLS as an Offer of Compensation is Under Attack...

The?Broker Compensation Clause?in the NAR?MLS Model Rules?is being challenged in court in the Moehlr Case, as has been discussed.

But where and when did the?"Broker Compensation Clause"?originate, and why?

The Offer of Compensation Clause (Broker Compensation Clause) was a replacement for the?Unliteral Offer of Sub Agency Clause?in the NAR?MLS Model Rules?in the early 1990s.

Prior to this, an MLS operating under NAR's?MLS Model Rules?was, among other things...but this was primary, a "unilateral offer of sub agency."

The?unilateral offer of sub agency?was justification for the listing broker to share commissions with a broker bringing a buyer to a transaction. The seller paid the commission, and all agents represented the seller (While compensation does not determine agency, that is a different discussion).

Everyone worked for, was the agent of, and had a fiduciary duty to the seller, by virtue of the MLS rules. It was unilateral and automatic if one was an MLS member, and no one was required to inform buyers that all agents had a fiduciary duty to the seller.

Many buyers believed that they were being represented by the agent working with them. It seemed only logical that this was the case. But because of the construct of the MLS rules, this was not the case.

While agents owed a duty of fairness and good faith to buyers, all agents had a fiduciary duty, a higher duty, to sellers, and this was not disclosed to buyers.

This put buyers at risk that what they told who they believed to be their agents, would go back to the seller, because of that fiduciary duty to sellers. Buyers were flying unrepresented and were not aware of this.

It was an inadvertent industry secret (ignorance of the true nature of MLS by licensees) that buyers were not being represented by fiduciaries.

Representing buyers as a fiduciary was next to impossible if one was a member of an MLS, and just about everyone was a member.

The only way a "cooperating broker" MLS Subscriber (and the sales agents of a broker) could get out of being a sub agent was to "refute the unilateral offer of sub agency," but this was not a customary practice and there were no guidelines or instructions for just how this was done.

And, if a broker refuted the offer of sub agency, what might that do to the paying of commission to a broker bringing a buyer to the table?

Attorneys I discussed this with, at the time and over the years, including extensive conversations with Attorney Alex Creel of the California Association of REALTORS Legal Staff during 1986-88 when the California Agency Disclosure Requirement was being enacted...and with my partner, Mr. Agency himself, John Reilly, had no consensus as to how "refuting the unilateral offer of sub agency" could be accomplished. Besides, why would one want to be anything but a sub agent...that was the way it was always done. And again, it might jeopardize the commission split.

Then, in 1988, the California Agency Disclosure Requirement placed California REALTORS in danger of making disclosures that they were "representing the buyer exclusively" (one of the agency choices under the new disclosure law), while at the same time they were already agents of the seller because of the?NAR MLS Model Rules, with not even the slightest clue that "refuting the unilateral offer of sub agency" was an option.

And, on top of this, no one could tell a broker how to go about?refuting the offer of sub agency. In writing, to listing brokers seemed like a plausible way to accomplish the refutation of sub agency, but with that idea, as stated, came the fear that listing brokers would see this as an opportunity not to share the commission paid by the seller to the listing broker, with the agent who was now acting as a disclosed fiduciary to the buyer.

So, the "Broker Compensation Clause" was created, first in the CAR Model rules, and then adopted by NAR as part of the?NAR Model Rules?around 1990.