Legally speaking: Common commission issues
On September 29, 2014
By Peg Ritenour, OAR Vice President of Legal Services/Administration
The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves the most common questions involving commission issues…
Q : An agent transferred her license from my company to another brokerage. A transaction on which she was the listing agent just closed. Do I have to make her commission check payable to her new broker?
A: No. This check can be paid directly to the salesperson.
Q: One of my salespersons has asked that I return her license to the Division of Real Estate. She has a contract pending that will close after her license is returned. Can I pay her a commission on this transaction after I return her license?
A: Yes. Because she was licensed at the time the commission was earned (when the purchase contract was written) you may legally pay her.
Q: Can a seller or a listing broker offer to pay a bonus to any agent who sells the property?
A: Salespersons can only collect compensation in the name of the broker with whom they are licensed. Therefore, any bonus has to be paid to the selling agent’s broker. It is then up to the broker to pay their sales agent.
Q: If I show a property, am I automatically considered to be the procuring cause and therefore entitled to the selling portion of the commission?
A: Not necessarily. There are no set rules that provide that a REALTOR is automatically the procuring cause merely because they showed the property. Instead, procuring cause is based upon the entire course of events that led up to the procurement of a ready, willing and able buyer.
Q: Does the fact that an agent has a written buyer agency agreement with a buyer automatically entitle the licensee to the compensation offered in MLS?
A: No. Under the NAR arbitration guidelines, entitlement to compensation offered in the MLS is determined by whether a broker can show he was the procuring cause of the sale or lease. NAR’s position is that agency relationships are not synonymous with compensation; instead they are separate issues. Thus, the fact that an agent has a written contract with the buyer will not, by itself, automatically entitle that agent to the compensation offered to buyer brokers in the MLS. Instead, that agent must still demonstrate that he/she was the procuring cause of the sale/lease.
Q: After my buyer’s offer was accepted, the listing broker notified me that he reduced his commission, and that the amount he is paying me is one percent less than what was indicated in the MLS. Can he do this?
A: Standard of Practice 3-2 provides that REALTORS must notify other REALTORS of any change in the offer of compensation before an offer to purchase is produced. If the listing broker did not notify you of the reduced commission until after you had submitted an offer to purchase, he has not complied with this Section. If he does not pay you the amount stated in the MLS, you can file for arbitration at your Local Board of REALTORS and you can file an ethics complaint as well.
Q: A broker from another Board submitted an offer to purchase on my listing. This broker is not a member of my MLS. Do I have to pay this broker the amount I indicated in the MLS I would pay to cooperating brokers?
A: The offer of compensation you made in the MLS only applies to participants of your MLS. Since the broker who submitted this offer is not a participant in your Board’s MLS, this offer of compensation in the MLS does not apply to him. Instead, this is an issue you and this other broker should have discussed in the beginning of your relationship.
Q: Can I rebate part of my commission to the buyer or seller, or is that splitting a fee with an unlicensed person?
A: Although Ohio license law does prohibit splitting commissions or paying fees to an unlicensed person, the Ohio Division of Real Estate does not consider the rebating of a commission to a party of the transaction to constitute such an illegal payment. This is because the buyer or seller was not engaging in conduct that requires a real estate license. Therefore, such a rebate would be permissible. However, if this rebate were offered to induce the buyer or seller to enter into a purchase contract, this rebate would be considered to be an inducement that must be disclosed in the purchase contract.
Want more information on these topics? Check out these other legal resources on ohiorealtors.org:
- Compensation, Commissions, Fees
- Inducements, Referral Fees and Gifts
- Procuring Cause: White Paper & OAR Buzz video
Tags: legal, Legally Speaking