In any given transaction, there are several different agreements that affect broker compensation. Such compensation can be addressed in the following types of agreements:

  • Client representation agreements, such as listing and buyer/tenant representation
  • A cooperative compensation (commission) agreement between the brokers
  • A commission registration agreement between a broker and party to the transaction.

Various members-only forms protect a broker’s commission.

General guidelines for representation agreements

There are no “standard” commissions in real estate brokerage. Antitrust laws forbid brokers of different firms from joining together to fix commissions at a set price. Brokers and their clients are free to negotiate commission amounts.

Although written agreements are not legally required to establish an agency relationship, there are good reasons for having listing and buyer/tenant representation agreements in writing:

  • Multiple listing service (MLS) rules require brokers to have written authorization from the seller to submit a property to the MLS.
  • Under The Real Estate License
Act, brokers cannot enforce 
their right to collect a commission from a party to the transaction unless there is a signed, 
written agreement.
  • Article 16 of the Code of Ethics prohibits other REALTORS® from interfering with exclusive representation between brokers and their clients, and written representation agreements establish that exclusive relationship.
  • Article 9 of the Code of Ethics requires REALTORS® to assure whenever possible that agreements are in writing.

Whose representation agreement is it?

Texas Real Estate Commission rules require listing and representation agreements for real estate brokerage services to be in the name of the broker. Even though brokers can authorize their sponsored agents to execute representation agreements, the client and the compensation from a transaction belong to the broker.

Sponsored agents and associated brokers should have a written agreement with the broker that expresses how the broker’s commission will be shared with the sponsored agent. The Texas REALTORS® Independent Contractor Agreement (TXR 2301) may be used for this purpose. This agreement also provides that an agent is entitled to a commission if the commission was earned prior to termination of the sponsorship. Depending on the terms in the Independent Contractor Agreement, the agent’s share of the commission may be reduced or eliminated when an agent leaves the brokerage before the transaction is completed.

Broker compensation in 
the listing agreement

A listing agreement provides that the listing broker will market the seller’s property and the seller will compensate the broker if the broker, either on her own or with the help of a cooperating broker, sells the property. Texas REALTORS® offers several listing agreements, the most common being the Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101).

The residential listing agreement allows the broker’s compensation to be expressed as a percentage of the sales price or another amount the broker and seller agree on. Under the agreement, a broker is entitled to the compensation when the fee is both earned and payable.

The broker’s fee is earned when one of three things happens:

  • The seller sells the property.
  • A ready, willing, and able 
buyer is procured.
  • The seller breaches the 
listing agreement.

The broker’s fee will be payable when one of four events happens:

  • The sale of the property has 
closed and funded.
  • The seller refuses to sell the property after the broker’s 
fee has been earned.
  • The seller breaches the listing agreement.
  • At any other time according to the terms of the listing agreement.

The Residential Real Estate Listing Agreement, Exclusive Right to Sell also contains a protection period. During this period, a broker may be entitled to compensation after the listing agreement ends if the broker notifies the seller of prospective buyers whose attention was called to the property during the listing agreement period. If the seller agrees to sell the property during the protection period to one of these prospects, the broker, upon closing of the sale, will be entitled to the compensation he would have received if the listing agreement were still in effect. The protection period doesn’t apply if the seller enters into a subsequent exclusive listing agreement with another REALTOR® and must pay the other REALTOR® for the sale of the property.

Broker compensation in the buyer/tenant representation agreement

A buyer/tenant representation agreement provides that the broker will assist the buyer or tenant in locating a property to purchase or lease and the buyer will compensate the broker if the buyer purchases or leases a property.

The Texas REALTORS® Residential Buyer/Tenant Representation Agreement (TXR 1501) allows the broker’s compensation to be expressed as a percentage of the sales or lease price. The broker will first attempt to get her compensation from the seller/landlord or the listing broker. If the seller/landlord or listing broker fails or refuses to pay, the buyer/tenant is responsible for payment.

Under the Residential Buyer/Tenant Representation Agreement, a broker is entitled to the compensation when the fee is both earned and payable. The broker’s fee is earned when:

  • The buyer/tenant enters into a contract to buy or lease property in an agreed market area, or
  • The buyer/tenant breaches 
the buyer/tenant representation agreement.

The broker’s fee is payable when:

  • The transaction closes
  • The buyer/tenant breaches the sales or lease contract, or
  • The buyer/tenant breaches 
the buyer/tenant representation agreement.

Termination of representation and your commission

If the broker and seller agree to end a listing agreement early, they can use Texas REALTORS® Termination of Listing (TXR 1410). As part of the agreement to terminate, the parties can also agree to an amount of compensation the broker will receive. The original broker compensation in the listing agreement, including compensation under the protection period, would not apply once the Termination of Listing is executed.
If the broker and buyer/tenant sign the Termination of Buyer/Tenant Representation Agreement (TXR 1503), only the fees agreed upon in the termination would apply. The protection period would also not apply.

Broker compensation and the 
One to Four Family Residential Contract (Resale)

An agreement for broker compensation is not part of the One to Four Family Residential Contract (Resale) (TXR 1601). But what about the Broker Information page (page 9)? Filling in the blank line for the commission authorizes and directs the escrow agent to pay the cooperating broker that amount out of the listing broker’s commission and does not by itself create a binding agreement between the brokers. The brokers should have a separate cooperative compensation agreement. If there is a conflict between the amount written on page 9 and the separate compensation agreement, the separate compensation agreement would control over the amount written on page 9.

Other compensation agreements

Compensation agreements outline a broker’s entitlement to compensation.
The most common type of compensation agreement is when property is listed in the MLS. Under MLS rules and policies, a listing broker is providing a unilateral offer of compensation to a cooperating broker. A cooperating broker’s performance as procuring cause is the acceptance of that offer. No separate written agreement is required.

For transactions that do not involve MLS compensation, Texas REALTORS® offers several forms for brokers to use.

  • The Registration Agreement Between Brokers (TXR 2402) is an agreement between a listing broker and cooperating broker that can be used to establish the amount a listing broker will pay the cooperating broker when the property is not listed in the MLS or the cooperating broker is not a participant of the MLS in which the property is listed.
  • Agreement Between Brokers for Residential Lease (TXR 2002) is also an agreement between a listing broker and cooperating broker that can be used to establish the amount the listing broker will pay the cooperating broker when the property for lease is not listed in the MLS or if the cooperating broker is not a participant of the MLS in which the property is listed.
  • The Registration Agreement Between Broker and Owner (TXR 2401) is an agreement between a broker and the owner of the property. It’s a versatile form that can be used when the broker represents either the owner or the buyer. It’s especially useful in a for-sale-by-owner transaction where the unrepresented owner agrees to compensate the buyer’s broker.

Have more questions about commission agreements? Call the Texas REALTORS® Legal Hotline at 800-873-9155 Monday through Friday from 9 a.m. to 4 p.m. The hotline is included in your dues as a benefit exclusively for members of Texas REALTORS®.