Legal FAQs for REALTORS®
A buyer and a seller agree that the seller will pay for the survey under Paragraph 6C(1) of the TREC contract. They also agree that the seller will pay up to $2,000 of the buyer's expenses under Paragraph 12A(1)(b). Does the cost of the survey fall within that $2,000, or will the seller pay the cost of the survey in addition to the $2,000? (updated Aug. 22, 2014)
Checking Paragraph 6C(1) makes the survey a seller’s expense—not a buyer’s expense—so the seller will pay for the survey in addition to up to $2,000 in buyer’s expenses.
If the seller wants to limit his contribution to the buyer’s survey costs, the most direct approach is to check Paragraph 6C(2) and include the amount the seller wants to contribute in Paragraph 12A(1)(b).
A mortgage broker has offered to send me clients interested in buying property and wants me to pay her a referral fee. She does not have a real estate license. Can I do it? (March 19, 2014)
No. Under the provisions of the Real Estate License Act, she must be licensed to receive valuable consideration for referring prospects for the purchase or sale of real estate. Since she is not licensed, you cannot share fees with her or pay her any kind of referral fee. However, TREC rules do not prohibit you from giving her a gift of merchandise having a value of no more than $50. This type of gift would not subject either of you to violations of the act or the commission's rules.
Can payments (referral fees) be made to non-real estate licensees? (updated Jan. 1, 2002)
No. Texas laws also prohibit the payment of referral fees to non-licensees for brokerage services.
Several weeks after listing a seller's home, he and I agreed to terminate our relationship. We both signed a Termination of Listing form (TAR 1410) with the seller agreeing to pay me $400 for the services I rendered to the date of termination. The seller keeps saying he will send me a check for the $400, but he still hasn't. I recently learned that he is selling his home through another listing broker and the closing will take place next week. Should I send a letter to the title company demanding that they withhold my $400 from the seller's proceeds? (Updated July 23, 2014)
No. There is no statute that authorizes you to place a lien upon an owner's home to protect your right to a negotiated fee for termination of a listing. And if you attempt to have the title company refuse to complete the closing of the sale to secure your fee, you could find yourself at risk of disciplinary action by the Texas Real Estate Commission.
A better course of action is to continue to discuss this matter with your former client. You can also ask the seller's current broker to help resolve this issue. If those efforts are unsuccessful, your remedy lies in filing suit to collect your $400.
I represent a buyer interested in purchasing a property that is not listed with a broker. The buyer wants me to approach the seller and make an offer. He also wants me to seek my compensation from the seller. How can I secure payment of my commission? (Updated June 19, 2015)
Look at TAR 2401 Registration Agreement Between Broker and Owner. This form allows a broker to register the buyer with the seller, and if the buyer purchases the property, the seller will pay the broker. If the seller refuses to enter into an agreement under TAR 2401 (or a similar agreement), the broker should inform the buyer and seek further instructions. It may become necessary for the buyer to pay the broker directly, but seek certain concessions for the buyer in the contract.
Why does this practice not constitute payment of an illegal kickback and therefore violate RESPA? (updated Jan. 1, 2002)
The Department of Housing and Urban Development (HUD), in its regulatory comments on proposed RESPA regulations in 1996, stated that it was not taking a position at that time on referral fees in affinity and relocation relationships. Ironically, the practice would violate RESPA if there was any common ownership between affiliated entities in what most of us still call "controlled business arrangements." As we all know, there are strong political lobby interests, including NAR, on the side of limiting the reach of RESPA. In the association's view, RESPA could easily be interpreted to prohibit the common practice of paying referral fees as part of an affinity group or due to a referral from a relocation company.
Is there any limit to what a relocation company can charge as a referral fee? (updated Jan. 1, 2002)
Legally, the answer is no. While the current level of fee ranges from 35%-45%, in some markets the fee is at 50%. In Mobility Magazine several months ago, an executive from a relocation company predicted that relocation companies would own real estate companies in the near future. Since his statement, one major relocation company announced it was going to invest $200 million to buy dominant real estate companies in major markets across the U.S. The only limit is market-driven, not legal.
How do agency relationships relate to procuring cause? (updated Jan. 1, 2002)
A cooperating broker's agency relationship to the buyer is not determinative of procuring cause. However, the timing of the cooperating broker's disclosure of agency status may affect his right to a commission. For example, if a buyer decides at the last minute that he wants representation by a buyer's agent, even though the original broker disclosed his subagent status early in the relationship, the series of events leading to the sale probably have not been broken by any action or inaction on the part of the original broker. The original broker would be the procuring cause of the sale. On the other hand, if the subagent fails to disclose her status until the buyer seeks information about the property's market value, and the buyer feels compelled to obtain the information from another broker, the subagent's failure to explain the agency status at the outset may be the event that causes the buyer to find another broker. The second broker would be the procuring cause of the sale.
Do I still have to pay a referral fee if I have been working with a client and find out after the fact that the client is locked with an affinity group or relocation company? (updated Jan. 1, 2002)
Practically speaking, the answer is yes because in most of these relationships the client (employee) will lose their benefits if they do not follow the rules. If you insist on not paying a referral fee, the client will have to pay more to work with you due to the loss of their benefits. Many real estate agents have adopted a policy to ask the potential client right up front to avoid surprises later. The Employee Relocation Council (ERC) http://www.erc.org/ has adopted procedures to facilitate the resolution of disputes regarding after-the-fact referral fees.
What is the proper forum for procuring cause disputes? (updated May 14, 2009)
Procuring-cause disputes between REALTORS® are usually settled in arbitration proceedings because of the mandatory-arbitration provision found in Article 17 of the Code of Ethics. Article 17 provides that contractual disputes between REALTORS® associated with different firms must be submitted to arbitration rather than resorting to litigation. To sue another REALTOR® for a commission in such cases and then to refuse to withdraw from or to dismiss the suit upon demand by the other party is a refusal to arbitrate under Standard of Practice 17-1. This would be a violation of the Code of Ethics. However, litigation is not a violation of Article 17 if all parties to a dispute waive their right to arbitrate. Remembered that the broker (REALTOR® principal in arbitration cases) is a necessary party to any arbitration or litigation.
Are there antitrust implications to this practice? (updated Jan. 1, 2002)
Yes. On the one side is the restraint-of-trade concern with the affinity group or relocation company controlling the stream of buyers and sellers. As much as 25% of today’s real estate market involves an affinity group or relocation company referral, and the percentage will only go up. On the other side, real estate companies competing with each other in a particular marketplace cannot get together to fight the relocation companies by refusing to participate in the referral fee scheme or they risk violating antitrust laws. This whole question remains largely unanswered since there are no definitive court decisions which would give us needed guidance.
How is procuring cause defined? (updated April 28, 2009)
NAR defines procuring cause as "the uninterrupted series of causal events which results in the successful transaction." Commission conflicts must be evaluated based upon all the relevant facts and circumstances leading up to a sale. Rules of thumb and other predetermined ideas must be disregarded.
Although NAR provides an extensive list of specific factors to be considered in procuring cause disputes, most cases will turn to the following factors:
-Who first introduced the buyer to the property, and how was the introduction made?
-Was the series of events starting with the original introduction of the buyer to the property and ending with the sale hindered or interrupted in any way?
-If there was an interruption or break in the original series of events, how was it caused and by whom?
-Did the action or inaction of the original broker cause the buyer to seek the services of the second broker?
-Did the second broker unnecessarily intervene or intrude into an existing relationship between the buyer and the original broker?
The reason for the entry of the second broker into the transaction always should be examined closely. For example, if the original broker did not call the buyer for three weeks after a showing, the hearing panel might decide that he abandoned the buyer and paved the way for the entry of the second broker. If, on the other hand, the buyer looked at a home with the original broker and the next day wrote an offer through his cousin, the second broker, then the second broker may be seen to have intervened unnecessarily in the transaction.
A cooperating broker wrote an amount of compensation in the broker-information section on page 9 of the residential contract that's different than the compensation amount I, as the listing broker, offered in the MLS. When I called the matter to her attention, she said that she has always been paid that amount and would neither change the amount nor alter her practice. Can she do that? (updated November 11, 2016)
No. According to MLS rules, listing brokers must specify the compensation being offered to cooperating MLS participants. These offers are unconditional unilateral offers. The unilateral offer becomes an enforceable agreement between the brokers when a seller and a buyer execute a purchase contract and the cooperating broker is the procuring cause of that sale. Although the brokers can mutually agree to modify the cooperating compensation, neither broker can unilaterally change the compensation as stated in the MLS.
In addition, Standard of Practice 16-16 under Article 16 of the REALTOR® Code of Ethics states that a REALTOR® acting as a buyer's representative may not use the terms of an offer to attempt to modify the listing broker’s offer of compensation or make the submission of an offer contingent on the listing broker agreeing to modify the compensation.
I saw a listing in the MLS that offered compensation for cooperating brokers of that MLS. The listing broker wrote in the agent remarks that the compensation offered would be reduced if the contract closed after a certain date. Does this violate MLS rules? (Updated April 11, 2016)
Yes. MLS policy and rules require that a listing broker specify on each listing what compensation is offered to other MLS participants for their services in the sale of that listing. Such offers must be unconditional except that entitlement to compensation is determined by the cooperating broker’s performance as the procuring cause of the sale. The offer you described appears to be conditional and therefore prohibited by the MLS policy and rules.
Can I collect a fee from the seller and the buyer in the same transaction? (updated March 19, 2014)
Yes, but the Real Estate License Act states that, as a licensee, you may only receive compensation from more than one party if you have the full knowledge and consent of all parties. It's also a good idea for you to get the necessary consents in writing.
In addition to the legal requirement, Article 7 of the REALTOR® Code of Ethics states that "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." However, the legal requirement puts a greater obligation on you than the REALTOR® Code of Ethics because it requires the consent of all parties and not just the consent of the REALTOR®'s client.
My buyer visited a property without me where the listing broker showed the property to my buyer. The next morning, the buyer had me write an offer for the property. When I presented the offer to the listing broker, he said that I wasn’t entitled to a commission because he was the one who showed the property to my buyer. Is the listing broker correct? (updated October 2, 2015)
The answer to this question hinges on who is the procuring cause of the sale, and it will be up to an arbitration panel to make the final determination if there is a procuring cause dispute.
Procuring cause is defined as the uninterrupted series of causal events which results in the successful transaction—a sale that closes. NAR provides an extensive list of specific factors an arbitration panel should consider in such disputes. Here are a few of those factors:
-The nature and status of the transaction
-The nature, status, and terms of the listing agreement or offer to compensate
-The roles and relationships of the parties
-The initial contact with the purchaser: Who first introduced the buyer to the property?
-The conduct of the broker or agent
-Continuity and breaks in continuity
-The conduct of the buyer
-The conduct of the seller
In the question above, the listing broker showed the property. However, an arbitration panel will consider numerous factors, like those listed above, to determine procuring cause of the sale.
A licensed real estate broker in Oklahoma wants me to pay her a referral fee for sending me a seller who’s selling his property in Texas. Can I pay this out-of-state broker a referral fee? (Updated March 4, 2015)
Yes. Section 535.131 of TREC rules permits a licensed Texas real estate broker to cooperate with and share commissions with brokers licensed in other states; however, all negotiations within Texas must be handled by Texas licensees.
I listed a rental property in the MLS and offered compensation to other MLS participants. Another broker who is an MLS participant saw my listing and submitted her client’s lease application to me. After the landlord accepted her client’s application and executed the lease, the broker told me I must sign the Agreement Between Brokers for Residential Leases. Do I have to sign the agreement? (updated October 13, 2015)
No. An offer of compensation in the MLS becomes enforceable when the cooperating broker is the procuring cause. No other agreement is necessary.
Some brokers find the Agreement Between Brokers for Residential Leases (TAR 2002) beneficial, since it specifies a time frame for payment, and covers compensation for lease renewals and sales. Still, an agreement between brokers is not required to enforce the offer of compensation specified in the MLS.
My seller just entered into a contract with a buyer whose broker doesn’t participate in my MLS. The buyer’s broker says I must pay him the compensation I offered with my MLS listing when the sale closes. Is that true? (updated November 9, 2015)
No. A listing broker’s offer of compensation in the MLS only applies to other MLS participants and cannot be enforced by a nonparticipant. You and the nonparticipating broker can negotiate other compensation using the Registration Agreement Between Brokers (TAR 2402) form.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
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