Legally speaking: Protecting your commission with written agreements
On July 20, 2015
By Lorie Garland, OAR Assistant Vice President of Legal Services
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 explores options to protect payment of a commission…
Q: I have buyers who would like to buy a home in a specific neighborhood. On a social media site I posted that I represent buyers looking for a home in that neighborhood and requested that any homeowners interested in selling contact me. One homeowner responded to my post indicating she was not interested in listing her home but that I could show it. The showing went well and I told the homeowner that my buyers were very interested and that I would be writing an offer in the next few days. I wrote the offer and set a time with the seller to present it. Before presenting the offer I again explained to the seller that I represent the buyers only and I provided the Agency Disclosure Statement confirming this agency relationship. I presented the offer which included a provision stating the amount of my buyer broker fee and that the seller would pay that fee at closing. The seller requested some time to review the offer and discuss it with a friend. Two days later I received a call from an agent stating that she would be representing the seller and gave me a counter offer which included a reduction in my fee. The offer was accepted and the transaction closed. Per the seller’s instructions the listing was never entered into the MLS. In the future, what can I do to protect my commission and prevent a buyer and seller agreed upon commission reduction?
A: The best way to protect your commission is to have a written commission agreement with a party to the transaction. In a sale transaction this would be the buyer, seller or maybe both.
First consider the buyer. When you established your relationship with the buyer you could have requested the buyer enter into an exclusive buyer broker agreement. This agreement would obligate the buyer to work through you in purchasing a home for the time period specified in the agreement. The agreement should also address your fee and who will pay it. It is common in exclusive buyer broker agreements to include a provision stating that an attempt will be made to obtain payment of the buyer broker fee from the seller or listing broker but if all or part of the fee cannot be obtained, the buyer is obligated to pay the balance of the fee.
When dealing with a FSBO, the buyer can include in the offer that the seller will pay the buyer broker fee. If the seller counters removing the provision to pay the buyer broker fee (or reduces the fee as occurred above) and the buyer accepts the counter, the buyer would be obligated to pay the buyer broker fee (or balance thereof) as agreed to in the exclusive buyer broker agreement.
Another option is a commission agreement with the unrepresented seller. Who pays a broker’s fee does not determine agency. A buyer broker can have a commission agreement with a FSBO. The commission agreement should state that the buyer broker represents the buyer, the seller is unrepresented, the amount of the buyer broker fee and that the seller agrees to pay the buyer broker fee at closing. The commission agreement could be provided to the seller at the showing.
If dealing with a seller who would enter into a listing (i.e., a one-party listing), listing the property would be an option but would require the agent to be a dual agent. Dual agency is permissible with the consent of both parties.
In the above scenario, there was not a commission agreement with the buyer or the seller. Relying on the offer subjected the buyer broker to a buyer and seller negotiated commission reduction. The last minute listing broker made no offer of compensation to the buyer broker. This eliminated the buyer broker’s ability to pursue a commission from the listing broker. Buyer brokers can prevent commission reductions with written commission agreements.
Tags: legal, Legally Speaking