BARRISTER'S BRIEFING: Show Me the Money: Earning Your Commission
Brian Levine | August 2019
“Show me the Money!” That is one of the most memorable sports movie quotes in history. I challenge anyone to say that they never heard it or that they haven’t said it themselves. Realtors should say, “Show me the commission!” The problem is, sometimes they’re entitled to it, other times they’re not. So, here’s a refresher of the ins and outs of making sure you’re shown the money.
The Multiple Listing Service (MLS)
The MLS is not only a repository for the orderly correlation and dissemination of listing information, it’s also a vehicle through which agents agree to compensation. All association listing brokers agree when they list a property to compensate any cooperating HGAR agent that produces a buyer ready, willing, and able to purchase, who, in fact, purchases (or leases) a property. That compensation is offered only to members of our association. Therefore, if a real estate agent is NOT a member of particular MLS, then there is no expectation that they are entitled to a commission. If an agent is not a part of the MLS, they must negotiate a commission with the listing broker prior to making an offer. In most instances, once an offer is made, the commission is locked in and cannot be changed.
If the listing is not on the MLS, for example, the property is posted on a different MLS, or it’s posted for rent/sale on a bulletin board, on social media, Facebook, Craigslist, LinkedIn, or other online or physical outlet, you should discuss cooperating compensation before you present an offer. Same goes for when you are working with a homeowner who is selling his/her property “For Sale by Owner.” Without that agreement, you may be working for free. In fact, when it comes to working with other Realtors, our Code of Ethics states that although there is a duty of cooperation between agents, there is no expectation of compensation.
Listing Agreements and Buyer Agreements
A listing agreement identifies the time in which a listing broker will be entitled to a commission if a property is sold (or leased). Once the agreement expires, so does the opportunity to earn a commission, but there is an exception. The Exclusive Right to Sell that is offered to members on the HGAR website has, in paragraph four, a clause that permits the listing broker to earn a commission after the expiration of the listing agreement (the clause is located in paragraph seven of the Exclusive Right to Rent). That paragraph states that if, after the listing agreement expires, the property is sold or transferred, becomes the subject of a contract of sale, or the owner reaches a verbal agreement regarding the material terms of the sale during the term of the contract or within a specified period of time agreed to and written into the contract by the parties, so long as the property is not relisted with another broker, the listing broker will still earn a commission if the transaction successfully concludes. What agents must remember is that a period of time (one day, one month, six months, a year, etc.) must be placed into that paragraph in order for it to be effective after the agreement expires.
Quite often, an unscrupulous homeowner will hold off on agreeing to sell a property to a buyer and wait for the listing agreement to expire. Then, after the agreement expires, they agree to sell the property to a buyer, depriving an agent of their hard-earned commission.
Buyer Agreements are a little more challenging. Although these agreements are not exceedingly popular in our region, they are becoming more and more in vogue; providing a buyer’s agent security in working with a buyer. These agreements between a buyer and an agent state that the buyer will pay the agent’s commission if the buyer purchases a property. This is REGARDLESS of whether the buyer works with the agent, another agent, or by themselves. This security permits the agent to scour all avenues of property marketing without worrying about negotiating a commission with each and every property owner or agent (who is not on our MLS). It also gives the agent security that the buyer will work exclusively with the agent; otherwise, if they work with another agent who becomes the procuring cause of the transaction, pursuant to the contract agreement, the buyer may still be required to pay the contracted agent a commission.
The understanding is that if the agent finds a property that is on the MLS, the agent will forego or offset the buyer’s promise to pay the commission for the cooperating commission offered by the listing broker on the MLS. It is important to note that pursuant to Article 7 of the Code of Ethics, “In a transaction, Realtors shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the Realtor’s client or clients.”
The final piece of the puzzle is most often the most complex—Procuring cause. Agents assert that they are owed a commission because they opened a door, or because they met the client first, or because they were at the closing table. This is not true. Procuring cause is the determining factor in deciding who earns a commission, particularly when there are two competing brokers seeking cooperating compensation.
Procuring cause is similar to proximate cause. This is defined as “the cause originating a series of events which, without break in their continuity, results in the accomplishment of the prime object.” In simplest terms, it’s the course of events that ultimately brings about the closing of the transaction. There is no black-and-white formula. Arbitration panels look at all the factors, which include, among other things: the course of events, the nature of the transaction, the terms of the listing agreement, roles and relationships of the parties and agents, when were contacts made, what was the conduct of the brokers and agents, continuity of activities (did the agent abandon the client, did the client feel estranged and move on to another agent), and the whole transaction in its entirety. It is only after looking at the entire transaction that a panel can determine who is entitled to a commission.
Realtors work very hard to say “show me the money.” Much of society thinks that Realtors just open doors and collect piles of cash. As we all know, this is far from the truth. The market is constrained and competition is fierce. Agents work extremely hard to make a living. Therefore, it is key to avoid the simplest of pitfalls that prevent Realtors from earning their commissions.
• Confirm cooperating compensation.
• Make sure you have fully executed contracts and agreements.
• Make sure all terms are filled in.
• Ensure that contracts are timely renewed.
• Keep close contact with your clients and work hard for them.
• And finally, in a “show me the money” metaphor, make sure you’re the player who carries the ball from the line of scrimmage all the way to the end zone to score a touchdown—your commission.