Several years ago, real estate agents noted the benefits of working in teams. They are able to collaborate, accept more business than they could solo, avoid single-agent dual agency situations (i.e., the same agent representing a buyer and seller), as well as take vacations and personal time by having a partner or team member cover for them. Teams can range from a partnership of two to more than 100 agents. Unfortunately, at times team members may leave the team. When this occurs, it can be similar to a “divorce.”
Team divorces can be extremely expensive, take an emotional toll, and generally impact the agents’ productivity and ability to conduct business. It also can affect them financially if they are put in a position of negotiating settlements, allocating clients, etc. The following discusses recommendations for avoiding a team divorce.
The following are examples of team divorces that have gone wrong:
- Team of Two Agents. One agent leaves and wants part of a commission for every property the agent has worked on with her partner. She filed suit against the partner and the broker. Because the broker paid the commission to one agent, the broker was forced to litigate the case. The commission was more than $49,000, but the complaining agent spent more than $250,000 on attorney’s fees. The case subsequently settled with a compromise of the commission, but the court denied an award of the agent’s attorney’s fees. Therefore, the agent spent more than six times on the attorney’s fees what she received in the settlement.
- Agents Divorce and One Files an Arbitration Claim before the Association. At issue were three commissions. The Association denied the complaining agent’s complaint, finding the agreement to be inherently unfair and that the agent did not undertake her proportionate share of the work. After losing, her attorney’s fee bill was in excess of $25,000.
It is imperative that when a team is formed a written team agreement is executed. The California Association of Realtors offers a basic team agreement, which can be a starting point for most teams. However, for more complex teams with more detailed or sophisticated arrangements, each team member/leader should consult with their own attorney to prepare an appropriate team agreement. Team members need to negotiate and draft their own agreement as it is outside the broker’s responsibility to do this for agents.
Important terms in a team agreement include the following:
- Identity of the team members and their respective responsibilities.
- How compensation is handled (who receives what compensation and how).
- How expenses are handled.
- How administrative assistants or transaction coordinators are addressed.
- What occurs in the event of a separation or divorce.
In considering termination provisions, agents should note the following:
- California encourages the right to work. As a result, non-competition clauses are generally unenforceable or severely limited. Therefore, agents cannot prohibit their team numbers from working in the real estate industry or in the geographical location where they are working.
- Future compensation arrangements need to be specific with a time limitation. For example, an agent cannot require their team member to pay them a percentage of any commission relating to any client who had worked with a team member forever with no ending date.
- Agents cannot prohibit clients from working with whomever they wish. If a client wishes to work with Agent 1, Agent 2 or a team leader cannot prohibit that.
PRACTICE TIPS:
- If a team or partnership is formed between agents, it is imperative that they have a properly drafted team agreement. It is worth the investment to retain an attorney to prepare one.
- That agreement should cover basic terms such as identifying the partners, responsibilities, handling compensation and expenses, and what happens in the event of a separation.
- Agents need to avoid unenforceable provisions such as no time limitations, prohibiting clients from working with whomever they wish, and non-competition provisions.
- If a team dissolves, it is recommended that the team agreement require that team members proceed to mediation before the local Association or California Association of Realtors. It is further recommended that brokers hold any commissions in dispute until the agents reach resolution.
- Attached is a helpful advisory from the California Department of Real Estate regarding team names.