Question: I am an agent with substantial market share in our community. I attribute my success to a very high profile and effective marketing program. I was approached by an out-of-area agent from another Brokerage who just took a listing in my market area. Impressed with my marketing program, that agent wants me to market his listing in my area to get maximum exposure for his listing. In return, he is offering me a generous referral fee agreement. This seems like a good financial arrangement for me; but my Broker has concerns about agency issues. How safe is it to proceed with this proposal?
Answer: Your Broker is right to have concerns.
In order for you, or any licensee with your Brokerage (whether Salesperson or Broker-Associate), to market another Broker’s listing under your Brokerage’s name, your Brokerage would need the written permission of both the Seller’s Broker and the Seller, not just the Agent who took the listing.
Prior to this request, it is a relatively safe bet that the Seller has granted exclusive rights to do the marketing to that other Brokerage; and those exclusive rights are not assignable by the other Broker. That is why you need the express, written authorization of the two parties to that Listing Agreement to allow your Brokerage to commence any marketing efforts.
I. AGENCY ISSUES: Please note that once that written marketing authorization is obtained from the Seller and the Seller’s Broker, you and your Brokerage will become a fiduciary to that Seller for all purposes, including dual agency if you or any licensee in your Brokerage represents a buyer for that Property.
In the absence of a detailed agreement clearly limiting your duties regarding the preparation and dissemination of marketing material (which may be difficult to structure), as a fiduciary, you would have ALL of the duties of a Listing Agent including, but not limited to, making sure the TDS is fully completed, preparing an AVID, etc.
It is theoretically possible to limit your duties by contract, but such an agreement between your Brokerage on one hand and the Seller and Listing Broker on the other would have to specifically recite that, in consideration for a lesser amount of compensation, your Brokerage will not be obligated to do certain things, such as being involved in representing that Seller once a buyer and their agent have been introduced to the Listing Agent. The Seller would have to be advised to have any such limited marketing agreement reviewed and approved by their own attorney. To our knowledge, no such template agreement exists and would have to be drafted by an attorney for one of the Parties.
Even if a limited marketing agreement could be created and was fully signed by all relevant Parties, there is still no assurance that a court would uphold it (courts do not look favorably upon a fiduciary attempting to reduce their obligations to a principal); and the likelihood that it would be upheld will decrease rapidly depending upon what interactions you ultimately have with the Seller and/or possible buyers.
II. POTENTIAL LEGAL LIABILITY: If there is a claim from a Buyer alleging an error or omission, you, the Agent who contacted you, and both Brokerages will be named regardless of who made the mistake. Even if your Brokerage is later found to have no liability, defending such cases is expensive in terms of legal fees and costs which are not recoverable; thus, these types of claims usually end by paying a negotiated settlement amount to avoid the greater expense of a trial.
III. CO-LISTING: In view of these legal realities, the simplest approach would be to have both Brokerages named in the Listing Agreement, and then enter into a separate Co-Listing Agreement (a sample of which follows on Pages 3 and 4 of this Tip) with the other Brokerage outlining the duties and compensation as between both offices. However, even with this Agreement, you would still be required to perform all of the fiduciary duties of the Listing Agent; and the same would be true of the Agent from the other Brokerage.
NOTE: For additional information on issues related to one Broker’s licensee holding open houses, or serving as a licensed assistant or transaction coordinator, for another Broker, see Weekly Practice Tip: “Utilizing the Services of Another Broker’s Agent” (06/07/19)
PRACTICE TIPS:
- It’s not a “Referral Agreement” if the Agent/Brokerage receiving the “referral compensation” actually engages in DRE license activity, such as marketing real property for sale; engaging in any license activity creates fiduciary duties to the Party on whose behalf those services are being rendered.
- No Agent should agree to provide marketing services, nor any other services for which a DRE license is required, without the express written approval of their Broker or Manager and the client who is to receive the benefit of those services.
- Any such arrangements should not be undertaken lightly because they: (a) will involve complicated agency issues which must be carefully thought out and documented in writing; and, (b) could create potential legal liabilities and expense.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is 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. 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 practices.
© Copyright Broker Risk Management 2020 08/21/20
FORM FOLLOWS:
CO-LISTING AGREEMENT
This is a Co-Listing Agreement (“this Agreement”) by and between ______________________,
(“Broker 1”), and _________________________________ (“Broker 2”) (Broker 1 and Broker 2 are collectively referred to, at times, as the “Brokers”) to co-list that real property and the improvements thereon located at: ____________________________________________ (the “Property”). The agency duties of Broker 1 shall be performed by ____________________ (“Sales Associate 1”) and the agency duties of Broker 2 shall be performed by _______________________ (“Sales Associate 2”). Sales Associate 1 and Sales Associate 2 are, at times,collectively referred to as Sales Associates.
- Brokers have entered, or intend to enter, into a mutually-acceptable Listing Agreement with all owners of the Property (collectively referred to as the “Seller”), as co-listing Brokers, and agree to the following terms with respect to that Listing Agreement. This Agreement shall be in effect for the period of time agreed upon as the term of the Listing Agreement, including any extension thereof.
- Brokers agree that the listing portion of the commission shall be split between them as follows:
A. In the event that a buyer is procured by an outside brokerage, or by another agent affiliated with one of the Brokers, then the listing commission shall be split:
___% for Broker 1 and
___% for Broker 2.
Other: __________________________________________________________________
B. In the event that a buyer is procured by one of the above-identified Sales Associates or the Sales Associate’s Broker, then that Broker shall serve as a disclosed dual agent but, for purposes of communications, that Sales Associate shall work with the buyer, and the other above-identified Sales Associate shall work with the Seller in the transaction. The Broker working with the buyer in this situation shall be entitled to receive the full selling side of the commission, and the listing commission shall be split:
__________% for Broker exclusively representing the Seller; and
__________% for Broker representing the buyer and the Seller.
- Marketing expenses for the property shall be split 50-50 between Brokers except as follows: ___________
- Signage on the Property shall specify: ________________________________________ and the signage shall be displayed on □ a single post or □ on two separate posts.
- In the event the local MLS only allows for one listing broker to be shown, the MLS listing for this Property shall be shown as follows: _______________________________________________
- Open houses and property showings shall be handled as per agreement between the above-identified Sales Associates and as approved by the Seller. If the Sales Associates are unable to agree, then they shall alternate open houses each week and property showings each day of showings.
- Other Terms and Conditions: ____________
- In the event of a dispute arising out of or related to this Agreement, the Brokers agree to first attempt a resolution of this matter through informal mediation. If mediation is unsuccessful, the Brokers agree to arbitrate the matter through the local Association of REALTORS® (“AOR”) or, if the Brokers are members of different Associations of REALTORS®, through Inter-Board (“IB”) Arbitration, in accordance with the AOR or IB arbitration rules. In any such dispute, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs.
(Insert Broker 1 Name) (Insert Broker 2 Name)
By: ___________________________ By: ____________________________
Date: ________________________ Date: __________________________
(Insert Sales Associate 1 Name) (Insert Sales Associate 2 Name)
_____________________________ _______________________________
Date: ________________________ Date: __________________________