Commissions Agency Law and Ethics

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Remember that these classes are not giving you legal advice!  Every transaction, property, client whether it is the buyer or seller is different and all parties are advised to contact legal counsel to address any individual questions they may have.

Commissions

In order to receive a commission, you have to have an agreement in writing with the seller through the listing agreement which will include the  signature of the seller, along with your signature, a description of the property, terms of the seller and agents obligations, a start and expiration date and terms on what the commission will be if there is a successful close to  be paid under a brokerage.

You are only required to have one owner sign a listing agreement. If you are at a listing appointment and only one of the sellers is present it would be in your best interest to get the other owner’s signatures.

If you are the selling agent/buyer’s agent you would have an agreement with your buyer by using the Buyer Broker Employment Agreement. If agreed to in writing, you would be assured of a certain commission by the buyer even if the seller’s  agent was offering you less than agreed upon with your buyer. A commission is earned when a transaction closes and is also paid at that time unless other terms of the agreement state otherwise.

Some agents who bring a ready, willing and able buyer that  offer to purchase the property at the listing price and with the terms specified by the seller may cause the seller to owe that listing agent a commission regardless of whether the seller sells or refuses to sell.

Quick Quiz

Fill in the Blank:
If you are the selling agent/buyer’s agent you would have an with your buyer by using the Buyer Broker Agreement.

There have been many court cases where the listing agent was not owed a commission even though a ready, willing and able buyer was brought due to the fact that the sale was  entered with an inspection or finance contingency.

Bass Investment Co v. Banner Realty Inc. 103 ARIZ. 75, 436 P.2d 894 (1968)

In other cases if contingencies are waived then a commission may be due even if the sale did not go through. The seller is bound to pay  the listing agent a commission if a sale occurs or the buyer waives any contingencies that are material to the transaction even if the sale does not close.

®The ARMLS Listing Agreement 6(f) states:

After expiration of this listing, the same commission, as appropriate, shall be payable if a sale, rental, exchange or option is made by owner to any person to whom the premises has been shown or with whom owner or any broker has negotiated concerning the premises during the term of this linting, (1) within ____ days after expiration of this Listing, unless the premises has been listed on an exclusive basis with another broker, or (2) during the pendency, including the closing, of any purchase contract or escrow relating to the premises that was executed or opened during the term of this listing.

Why would this be in the agreement? If a seller sees that a buyer is very interested but thinks that they can sell behind the listing agent and buyer agents backs, the seller and buyer would have to wait until the 30, 60, 90 days or more after termination or expiration of the listing agreement due to the  “tail” clause to sell or possibly be taken to court.

The agents commission would have been $1800.00 if a sale had closed with the agents in place. How much would it cost to take this seller and buyer to court. Do you think that agents have the time or the finances to go after that amount? Most do not.

Ask your broker what their policy is on the Buyer Broker Employment agreement. This is a great form to use to be guaranteed a commission of what you agreed to with the buyer. Say that the listing is offering less than you agreed to receive from your buyer on the Buyer Broker Employment agreement. Your buyer would be obligated to make the difference of what the listing agent is short per your agreement with the buyer  at close of escrow. The same is essential for the requirements: An agreement in writing to include the  signatures and dates at the time of agreement is completed by the buyer(s) and buyer’s agent. A time frame to include the commencement and the termination and any other terms that you would negotiate with your buyer.

How about if you represent both the seller and the buyer?

Article 1 of the Code of Ethics Standard of Practice

(SOP) 1-5:

Realtors may represent the seller / landlord and buyer / tenant in the same transaction only after full disclosure and informed consent of both parties (get in writing!). Although it can be done, representing both sides could cost you more than the commission should a problem arise.

(SOP) 1-9:

Realtors obligation to preserve confidential information obtained during their relationship. Agent shall not knowingly during or following the termination of professional relationships with their clients:

Reveal confidential information of clients;

Use such information to the clients disadvantage;

Use such information for Realtors or third parties advantage UNLESS:

Client consents (after full disclosure).
Court order.
Criminal activity.
Defend against malpractice claim.

Article 3

Realtors® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees or to otherwise compensate another broker.

Example: Lucy listed property for $500,000 with a 3% / 3% commission split. Sam delivered an offer to Lucy however, before she accepted it she stated that the Seller had changed their minds and only willing to pay 5% commission so the commission would be 2.5% / 2.5%. Problem? For whom?

SOP 3-2 – To be effective, any change in compensation offered for cooperative services must be communicated to the other Realtor prior to the time that Realtor submits an offer to purchase/lease the property.

Lucy would have to pay the agent what she has offered in the listing.

Quick Quiz

Fill in the Blank:
Realtors® shall with other brokers except when cooperation is not in the client’s interest.

What is the Code of Ethics?

IN 2013 the National Association of Realtors® celebrated the 100th anniversary of the Realtors® Code of Ethics. The code spells out the professional responsibilities and expectations of NAR’s 1 million Realtor® members to their clients, customers, fellow Realtor’s® and the general public. “Through the Code of Ethics, Realtor’s® are providing consumers with a promise to protect and promote their best interests throughout the entire home buying, selling or investing process.”

All Realtor’s® must take comprehensive training on the Code of Ethics, which has been amended 37 times and is considered a living document that protects sellers, buyers, landlords, tenants and others who place their trust in Realtor’s®. It has been required that you take this once every Quadrennial time period that was set by NAR. In 2016 Members will be required to take this course every 2 years instead of every 4 years. There are many classes that add this part of your training into other courses. Know that  not all real estate licensees are Realtors®. Agents that are in the commercial industry may not be a member.

Quick Quiz

Fill in the Blank:
All Realtor’s® must take training on the Code of Ethics, which has been amended 37 times and is considered a living document that protects sellers, buyers, landlords, tenants and others who place their in Realtor’s®.

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