A listing broker didn’t tell their seller they received a finder’s fee from the buyer – but the fee didn’t impact the Realtor’s honest and ethical advice. Why is it an issue under the Code of Ethics if the finder’s fee was negotiated before taking the listing?

ORLANDO, Fla. – Dear Shannon: I’m a highly professional, well-respected commercial broker, and I negotiated a finder’s fee with a potential buyer to locate a small commercial property. The buyer had specific requirements and said they didn’t have room to compromise. We agreed the buyer would pay me a finder’s fee if I found their perfect property.

Weeks later, I took a great commercial listing that just so happened to meet almost all of the buyer’s specifications. I say almost all because the listed price was a little higher than the top end of the buyer’s price range.

I told the seller that, in my experienced professional opinion, the listed price was a little too much, and that the buyer’s offer, again in my educated experienced opinion, was a fair market price. A few days later, the seller agreed to the buyer’s price. The sale closed, and I collected a commission from the seller and a finder’s fee from the buyer.

Days later, though, the seller filed an ethics complaint against me for not disclosing the finder’s fee from the buyer. Standing before the professional standards hearing panel, I explained that I represented both buyer and seller faithfully; that I didn’t take the listing until after I agreed to help the buyer find a property; and that in my opinion, the property was overpriced and that the price the buyer paid was a fair market price. However, the panel decided that I violated the Code of Ethics.

I want to follow the Code and boost Realtor® professionalism, but I didn’t think this was a big deal. No harm no foul for the seller who got fair market price. How exactly is this unethical? – Frustrated

Dear Frustrated: Thank you for reaching out and for your efforts to elevate the professionalism in this industry. I don’t doubt that you represented both the buyer and seller to the best of your ability.

I hear your frustration, but you’re not accurate in your understanding of what the Code says about disclosing these types of compensation arrangements. It is a big deal, so let’s take a look at what the Code of Ethics says about your situation.

Article 7 states: “In a transaction, Realtors® shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the Realtor’s® client or clients. (Amended 1/93)

In your case, you negotiated a finder’s fee with the buyer and also compensation for the listing from the seller, but you didn’t tell the seller about your arrangement with the buyer – both parties in the same transaction. You defended that decision by saying that disclosure shouldn’t matter because:

  • You represented both of them faithfully
  • You took the listing after you secured a finder’s fee agreement with the buyer
  • The seller initially overpriced their listing
  • The seller ultimately sold the property for a fair market price

Notice the language of Article 7 doesn’t have exemptions. It doesn’t say Realtors don’t have to disclose as long as they provide exceptional service to both parties. It doesn’t say anything about an exception based on the timing of the compensation agreements. It doesn’t have anything about an excessive list price waiver. It doesn’t say you don’t have to disclose if neither party has been harmed.

The concept of “no harm no foul” doesn’t exist in Article 7. Realtors cannot accept compensation from more than one party without disclosing to all parties. Unfortunately, your understanding of the Code’s requirements is inaccurate.

Thank you for bringing this situation to light and please continue to focus on elevating the level of professionalism in our industry.

Inspired by Case #7-1: Acceptance of Compensation from Buyer and Seller. Other laws and rules may apply.

Shannon Allen is an attorney and Florida Realtors Director of Local Association Services
Note: Advice deemed accurate on date of publication

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