BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
PROBATE COMMISSIONS
Q: I am the listing agent on a probate sale subject to court confirmation. We accepted an offer and set the court date. At the court hearing, there was an overbid and a different buyer represented by an agent was the successful bidder. Now I find out that my “listing commission” will be split with the broker that had the bid we took to court while the successful bidder’s broker gets the selling end of the commission, plus the full amount of the commission attributable to the overbid amount. Can this be right? Can I do it differently next time?
A: Yes and yes.
The Probate Code provides that, unless otherwise agreed, the commission in an overbid situation will be split just as you described.
A. GENERAL RULES OF PROBATE COMMISSIONS: The court can determine what is a reasonable commission but will usually allow the maximum percentage established by local court rules, which is often 5% of the sale price; but check local Probate Court Rules. However, the commission may not exceed the amount provided for in the listing contract (Probate Code § 10161(c)).
The estate becomes liable for the listing broker‘s commission only after an actual sale is made, the sale is confirmed by the court unless the sale is conducted under IAEA, and the “sale is consummated.” (Cal. Prob. Code § 10160.)
In a court overbid situation, if broker A is the listing agent, and Broker B represents the buyer whose contract is brought to court for confirmation, and Broker C represents the successful bidder in the court confirmation process, then, UNLESS THERE IS AN AGREEMENT TO THE CONTRARY, the commission is split:
1. 50% of the listing commission to Broker A
2. 50% of the listing commission to Broker B; and
3. The full amount of the selling commission plus 100% of the amount of the commission attributable to the amount of the overbid goes to Broker C.
B. PROBATE LISTING BROKER PROTECTING THE RIGHT TO THE FULL LISTING COMMISSION: So the above scenario will play out unless the listing broker and the broker representing the buyer whose contract is taken to court for confirmation reach an agreement to split commissions otherwise. This can be an oral agreement, but that should never be relied upon because of the difficulty of proof.
The court must honor an agreement between brokers concerning the division of a commission and the MLS is such an agreement to split the commission.
As listing agent, you can protect your full commission by “otherwise agreeing” with the broker whose offer is taken to court for confirmation. This is done in the offer of compensation in the MLS. In the confidential remarks for brokers in the MLS, state: “No compensation shall be paid except to successful bidder’s broker.”
Be sure you confirm that the agent who brings the buyer’s offer to be taken to court saw the MLS offer of compensation prior to bringing the offer. If not, apprise that broker of your MLS offer prior to their presentation of the offer.
Most probate court judges will accept this as their authority to award the full listing commission to the listing agent, and the full selling commission plus the commission attributable to the amount of the overbid to the broker representing the successful bidder. (Local probate court rules vary by county. It would be wise to ask the attorney for the estate what the probate practice in your county might be in this regard.)
But, is this fair to the agent/broker who brought the original offer? This is the same result as in any other transaction where the agent’s client doesn’t get the property. The agent presumably still has the client to work with on other properties.
C. CAR MODEL MLS RULES: For estate sale or probate listings, the compensation offered through the MLS shall be considered an agreement as referred to in California Probate Code Section 10165 and will therefore supersede any commission splits provided by statute when there is no agreement. (Cal. Model MLS Rule § 7.15).
D. REAL ESTATE AGENT BUYING AS A PRINCIPAL: The estate is not liable for any commission where the listing broker or agent is directly or indirectly the purchaser of the estate property, nor where the selling broker or agent has “any interest in the purchaser” or is the purchaser. (Cal. Prob. Code § 10160.5).
PRACTICE TIPS:
1. As listing agent, in the confidential remarks for brokers in the MLS, state: “No compensation shall be paid except to successful bidder’s broker.”
2. The C.A.R. legal article titled California Probate Code Commission Schedule is a chart that specifies the amount of commission a broker is entitled to whether the property is exclusively or not exclusively listed, and when confirmed to the original bidder, or confirmed to an overbidder. The chart also specifies a broker's amount of commission in the event of a successful bid or overbid as obtained by the estate‘s personal representative.
3. Be aware that the court is prohibited from paying a commission to real estate brokers buying for their own account. Consider having a broker represent you on the purchase.
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.