Legally speaking: How to pay commissions correctly
On January 31, 2017
By Peg Ritenour, OAR Vice President of Legal Services/Administration
Ohio Revised Code Section 4735.21 provides that any money connected with a real estate transaction must be collected in the name of and with the consent of the broker. This includes deposits, commissions, rent payments, and any other payments or fees. Below are a few recent questions received on the Legal Assistance Hotline that involve this section of the license law.
Q: My agent leased property last year and I agreed to allow the owner to pay the commission to my brokerage in installments. I just received the owner’s latest payment and for some reason he made the check payable to the agent instead of the brokerage. The agent did not instruct him to do this and had no idea that this had been done. Can I just have the agent endorse the check over to the brokerage or do I need to return it to the owner and have him issue a new check made payable to the brokerage?
A: Although it is preferable to have a new check issued, the Division of Real Estate and Professional Licensing will allow the agent to endorse the check to the brokerage in this situation. However, should this happen more than once, the Division will certainly scrutinize this situation. Therefore, the owner should be notified in writing that all future checks must be made payable to the brokerage and any checks that are made out to the agent will have to be re-issued.
Q: As a broker can I instruct the title company to issue two checks at closing for the commission owed my brokerage — one to my agent for the portion of the commission I owe her under our commission agreement and one to the brokerage for its portion of the commission?
A: No. Based upon Section 4735.21 it is the position of the Division of Real Estate that agents cannot be paid directly by the title company, even with the broker’s consent. Instead the title company must issue payment for the entire commission owed to your brokerage and then you must issue payment to your agent pursuant to your commission arrangement.
Q: I would like to compensate another agent in my brokerage who helped me with a pending transaction issue while I was out of town. Can I just pay the agent directly from my commission or does it need to come from the broker?
A: According to the Division, any compensation paid to an agent in connection with a real estate transaction must come from the broker. Therefore you will need to instruct your broker to pay part of your commission to this other agent.
Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.
Tags: legal, Legally Speaking