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Keys to avoiding a messy breakup

dear john

By Peg Ritenour, OAR Vice President of Legal Services/Administration

It is not uncommon for a real estate licensee to change brokerage firms during their career. Typically the move from one broker to another can be done smoothly and with a limited amount of disruption.

Unfortunately there are many instances when a salesperson’s departure from a company can result in ugly disputes and hard feelings between the agent and their broker. These disputes invariably center on outstanding commissions the agent claims they are owed and/or on amounts the broker claims the agent owes the firm. The saddest part of these disputes is that probably 90 percent of them could be avoided by a well-drafted independent contractor agreement between the broker and salesperson. Instead, these matters often result in unnecessary arbitration, lawsuits and complaints with the Division of Real Estate.

To avoid disputes regarding the matter of money, it is critical for brokers and salespersons to address this issue before the agent decides to leave. The best way to do this is to have a written independent contractor agreement signed at the time the agent affiliates with the brokerage.

That agreement should contain specific provisions as to what the parties rights and obligations will be when the agent terminates his/her association with the broker. The following are examples of some of the key points that should be addressed:

  • What will be the agent’s rights to commission upon termination? Will any right to commissions be forfeited? Will the agent only be paid in transactions that are actually in contract at the time he/she leaves the company?
  • Can the broker make deductions from an agent’s share of a commission for any monies that are owed to the brokerage for advances, overhead expenses, advertising, Board dues, legal fees, etc.? If so, it should be established whether such set-offs are limited to only expenses associated with the transaction for which the commission is owed, or whether any monies owed the broker can be deducted.
  • If the broker or another agent must perform services to complete the transaction after the agent leaves, can a deduction be made from the agent’s share for this reason? If so, how will that amount be determined?
  • Will the agent be paid a commission on any options to purchase that are exercised after the agent leaves the broker, or on any leases that are renewed following the agent’s termination?

These are just a few of the types of commission issues that can arise when an agent decides to terminate his/her relationship with a broker. By addressing these points at the onset of the relationship, the broker and salesperson will both have a clear understanding of how these issues will be handled when and if the time comes that the relationship is terminated.

More information on the various points that should be included in an independent contractor agreement can be found by clicking here to access OAR’s Legal White Paper on Independent Contractor.

Tags: legal