BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
HANDLING AGENT COMMISSION DISPUTES
With the current challenging real estate market, Broker Risk Management (“BRM”) has observed an increase in disputes between agents regarding commissions. These commission disputes primarily arise out of teams or partnerships. Some disputes are arising out of referral fee agreements. This tip addresses concerns and provides recommendations for avoiding these disputes.
Teams and partnerships between agents have a number of benefits. Agents can handle more clients effectively, agents can take time off, and agents can also specialize (e.g., representing a buyer or a seller), depending on the agent’s preferences and skills. However, if the team or the partnership terminates, commission disputes, as well as other disputes, can arise.
It is imperative that if agents are working together, whether as a partnership or a team, they have an appropriate team agreement drafted. The preparation of a team agreement is not the responsibility of the broker; the preparation of a proper team agreement is the responsibility of the agents. California Association of Realtors has a team agreement form (TEAM). However, that form is essentially a template and in many instances, depending on the specific agreements between the agents, it will need to be modified. If a team or partnership is unique or has additional terms other than offered in the TEAM agreement, agents are strongly advised to retain counsel to assist them in drafting the agreement. The cost savings regarding avoiding future disputes far outweighs the attorney’s fees affiliated with drafting an appropriate and clear team or partnership agreement.
With regard to referral fees, agents can use the CAR Referral Fee Agreement (RFA) or BRM’s referral agreement. It is important that agents be clear regarding the terms of the referral. For example, specifically identifying clients, properties, terms, and any other agreed-upon conditions. Many times, agents leave an agreement vague which leads to disputes in the future regarding whether the referral fee is earned or paid. With regard to referral fees, also note that the clients (buyer and/or seller) must approve the payment of the referral fee in the CAR Realtor Acknowledgement and Disclosure (RAD) or other writing.
If a dispute arises out of a commission, brokers will retain the disputed portion of that commission until the following: 1. a written agreement is executed between the agents specifically setting forth instructions for distribution of the commission; 2. a court order is provided to the broker directing the payment of the commission; or 3. the agents proceed to an arbitration panel before the local Association or CAR and an order is issued and finalized (all appeals are exhausted or waived). (Note that some Associations will decline to handle disputes between agents in the same brokerage, so another dispute resolution forum will be required to be used.)
If a commission dispute arises between agents, it is recommended that the agents work together to resolve their dispute. If the dispute cannot be resolved, agents should proceed to mediation and possibly arbitration before their local Association or CAR. Alternatively, although much more expensive, agents can resort to litigation.
As indicated, while the agents are disputing the commission and mediation, arbitration and/or litigation is proceeding, the broker will hold the commissions until the issues are resolved.
As indicated, the key to avoiding these disputes is having clear and concise agreements from the outset of the agent relationship, whether a team, partnership, or referral fee arrangement. Disputes can be expensive and stressful. Commission disputes can also negatively impact agents’ productivity given that it is a distraction and significant expense.
PRACTICE TIPS:
- If agents are entering into a partnership or team, it is recommended that agents start with CAR’s TEAM agreement. If the agreement does not cover all the terms between the agents, agents should retain an employment law attorney to assist them in drafting a clear and concise agreement.
- Agents entering into referral fee agreements should ensure the referral fee agreement is clear, concise, and does not have ambiguities. Agents should doublecheck the length of the agreement, and whether parties and properties are specifically identified. Remember, referrals between brokerages are always broker-to-broker, and must be signed by both brokers.
- Agents are reminded that drafting proper agreements between agents in the same brokerage is their responsibility and not the responsibility of their broker.
- If a commission dispute arises, it is recommended that the agents work toward resolution in good faith to limit and avoid future attorney’s fees and extended disputes. If the dispute is between agents in different brokerages, both brokers must be involved in resolving the dispute.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry but rather are intended to suggest good risk management practice.