Commissions

Q 1: Can I pay a referral fee to a broker licensed in another state?

A: Yes. Under ORC 4735.20, you are permitted to pay a referral to a licensed broker in another state.

Q 2: 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 out her commission check to her new broker?

A: No. This check can be paid directly to the salesperson.

Q 3: 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 4: 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 5: 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 6: As a REALTOR, am I required to offer compensation to a buyer broker?

A: No. How a REALTOR compensates other brokers is up to the individual REALTOR. Each listing broker should individually set their brokerage policy on the amount of compensation, if any, they will offer a buyer broker.

Q 7: If a buyer broker agreement provides for compensation to the buyer broker in an amount in excess of what the listing broker is offering to compensate a buyer broker, can the buyer include as a term of his offer to purchase that the seller pay a specific amount of the buyer broker fee?

A: Yes. The buyer can include a provision whereby the seller will compensate the buyer’s agent.

Q 8: Does procuring cause apply to buyer brokers?

A: Yes. NAR has made it clear that the concept of procuring cause does apply to buyer’s agents as well as to subagents.

Q 9: If a listing broker is offering compensation to buyer brokers but not to subagents, must you be a buyer broker in order to be paid by the listing broker?

A: Yes.

Q 10: Must buyer’s agents disclose to a FSBO at first contact that he/she will be seeking compensation from the seller?

A: Yes. Both Real Estate License Law and Standard of Practice 16-11 provides that a buyer’s agent must disclose to a FSBO that he represents the buyer and make any request for compensation from the seller at first contact.

Q 11: Can a buyer make a purchase contract contingent on the seller paying the buyer broker’s commission?

A: Yes. While Standard of Practice 16-16 prohibits a REALTOR from making an offer contingent on the listing broker paying a commission different than the amount indicated in the MLS, this section does not apply to negotiations between buyers and sellers. Therefore, a purchaser could negotiate for the seller to pay his broker’s fee just like he negotiates for payment of his closing costs.

Q 12: If the listing broker or seller is offering a bonus to the selling agent, am I required to tell the buyer this?

Answer: If you are acting as a buyer’s agent, your fiduciary duties would require you to disclose this to the buyer. Make sure you document your disclosure in your files. If you are acting as a subagent, you are not technically required to disclose an incentive that you are receiving from your own client, the seller, or the listing broker. Remember, any bonus that you receive must be made payable to your brokerage.

Q 13: Does the fact that a licensee is acting as a buyer’s agent or have a written buyer agency agreement 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 you are acting as a buyer’s broker or have a written contract with the buyer will not, by itself, automatically entitle you to the compensation offered to buyer brokers in the MLS. Instead, you will still have to show you were the procuring cause of the sale/lease.

Q 14: I have just taken a listing that I am planning to place in my local MLS. However, the seller does not want a particular brokerage to show his property and does not want me to offer compensation to this broker. Can I do this or would I be violating the Code of Ethics?

A: If you take this listing, you would be required to follow the seller’s instructions.
Article 17 of the NAR Code of Ethics provides that REALTORS must “cooperate” with other REALTORS, unless it is not in the best interests of the client. Certainly the fact that the seller (your client) does not want this other broker to be involved in the sale of his property would be sufficient to relieve you from your ethical obligation to cooperate with this other broker.

Your local MLS rules probably include the provision that is in the NAR Model MLS Rules that addresses how these kinds of situations are handled. This section provides that a listing broker must notify another broker by letter, prior to that broker producing an offer, if the compensation that is reflected in the MLS on this property is not being offered to him. In your situation, the letter should also specify that per the seller’s request, cooperation is also not being extended.

Q 15: There is a broker in my Local Board that offers a much lower “coop” fee than I and most other brokers in the Board offer on our listings. Can we notify this broker that we are only going to pay him the same amount that he pays us?

A: Both Federal and State Antitrust laws prohibit price fixing. This includes not only prohibiting you and your friends from setting what amount the public will be charged, but also what fee will be paid to cooperative brokers. These antitrust laws also prohibit boycotts–where two or more persons agree that they will not pay or will pay a lower amount to a competitor with whom they are displeased.

Because of these antitrust laws, you and the other brokers in your Board should not discuss how to respond to this other broker in your Board and in no way should enter into any type of agreements as to what you will all pay him. Instead, each broker in your Board must individually determine how much compensation they wish to offer this other broker.

If you individually decide that you wish to pay this other broker the amount that he pays you on his listings, you may do this. As described in the previous question, MLS rules specify that you can send another broker written notice that you are offering him a different amount on your listings than is reflected in the MLS. As long as you make this decision unilaterally and notify the broker in writing, you will not run afoul of the Antitrust laws, Code of Ethics, or MLS rules.

Q 16: I wrote an offer to purchase on behalf of a buyer on property that was listed with another broker. This offer was ultimately accepted. Now the listing broker has notified me that he had previously reduced his commission, and that the amount he is paying me is one percent less than what was included 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 this 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 17: I put a listing in the MLS offering X percent commission to buyers’ brokers. I have just received an offer to purchase from a buyers’ broker that includes a provision that makes the offer contingent on the sellers paying the buyers’ broker X1/2 percent of the purchase price. Isn’t that a violation of the Code of Ethics?

A: No. Standard of Practice 16-16 prohibits a REALTOR from using the terms of an offer to attempt to modify the listing broker’s offer of compensation. However, this Section does not prohibit a buyer from including in an offer to purchase, a provision that asks the seller to compensate the buyers’ broker. Because in your scenario, the contract is contingent on the seller, not the listing broker paying a higher amount than was offered by the listing broker, Section 16-16 is not violated.

Q 18: In the above question, would this mean the buyers’ broker would be paid twice–X percent from the listing broker and X1/2 percent from the seller?

A: It is probably only intended that the buyers’ broker will be paid the X1/2% from the seller. But to avoid any confusion this should be clarified in writing with the buyers’ broker.

Q 19: If the seller agrees to pay X1/2 percent to the buyer’s broker, does this mean that I have to reduce the total commission the seller agreed to pay me under the terms of the listing by X1/2 percent?

A: No, as the listing broker you are entitled to the full commission provided for in your listing agreement. Although the seller may place considerable pressure on you to reduce the listing commission if he is paying the buyers’ broker directly, you are not required to reduce your commission accordingly. However, you may choose to reduce the commission to maintain good will with the seller.

Q 20: A broker from another county has submitted an offer to purchase on property I have listed. This broker is not a member of my Local Board or MLS, but does belong to another Board. Do I have to pay this broker the amount I indicated in the MLS I would pay to cooperating brokers?

A: No. The offer of compensation you made in the MLS only applies to participants of that 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.