The Farm and Ranch Contract has two sections related to fees: a Ratification of Fee and an Agreement for Payment of Brokers’ Fees. When should each be used?

A listing broker who has already agreed to pay a commission to a cooperating broker—in the MLS, for example—should fill out the Ratification of Fee box. As in other TREC contracts, this simply authorizes the escrow agent to pay the cooperating broker from the listing broker’s fee at closing.

The seller and buyer should not sign the Agreement for Payment of Brokers’ Fees if the listing broker has already agreed to pay the cooperating broker’s commission elsewhere—this could bind the seller or buyer to pay additional amounts to the listing broker or the cooperating broker they didn’t intend.  The revised Farm and Ranch Contract, which takes effect January 1, 2016, now includes this instruction at the bottom of Page 9.

However, a seller and buyer could sign the Agreement for Payment of Brokers’ Fees if the listing broker hasn’t offered to pay a commission, like if the property wasn’t listed in the MLS. Note that the agreement states either the seller or the buyer will pay the brokers.

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?

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?

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.

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?

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?

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.

Can I collect a fee from the seller and the buyer in the same transaction?

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. 

How do agency relationships relate to procuring cause?

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.

What is the proper forum for procuring cause disputes?

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.

How is procuring cause defined?

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.

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?

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.

How do I conduct a referral to another agent?

Generally speaking, there will need to be a referral agreement between the brokers. It is best to get this agreement in writing. Your broker may have a form to use in such circumstances. If not, your broker can draft a simple agreement to be signed by the parties. An agent may sign the agreement on behalf of their broker only when authorized by their broker to do so.

I have a buyer's representation agreement with my client and we have a contract to purchase a home pending for closing at the title company. I just received a surprise letter from a relocation company informing me that I must pay them a referral fee and that I should not discuss this fee payment with my client. What should I do?

You should discuss this issue with your client. The relocation company's instruction is inappropriate. Your fiduciary responsibility to your client requires that you inform him of everything you know about the transaction unless it is otherwise privileged information you are not permitted to tell him. No such privilege exists relative to this instruction from the relocation company.

Should I handle the referral any differently if I'm making a referral to a commercial broker?

A referral to a commercial agent or broker is not fundamentally different than a residential referral. You should perform your due diligence to ensure the commercial agent has the proper experience to serve the client's interests.

An unlicensed person referred business to me. Can I pay him a fee in return?

You may give an unlicensed person a non-cash gift worth $50 or less in exchange for a referral and not violate The Real Estate License Act (TRELA) or Texas Real Estate Commission rules. According to TRELA, if a referral is made with the expectation of receiving valuable consideration, the person making the referral must be licensed under the act. Under Section 535.20 of TREC rules, gifts of merchandise having a value of $50 or less do not count as valuable consideration.

A bank gift card that can be converted to cash or credit or any amount of cash or credit toward rent owed are not allowed to be used as gifts to an unlicensed person in exchange for a referral, according to TREC.

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?

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.

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?

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.

Why does this practice not constitute payment of an illegal kickback and therefore violate RESPA?

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?

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.

I started working with a client before learning she was locked with an affinity group or relocation company. Do I have to pay a referral fee to the relocation company?

No. If you do not have an agreement with the affinity group or relocation company, there is no legal obligation to pay the referral fee. However, this may put your client in a difficult position because in most of these relationships the employee will lose her benefits if she does not follow the rules. If you insist on not paying a referral fee, the client will have to pay more to work with you because of the loss of benefits. Many real estate agents have adopted a policy to ask potential clients up front if they have any agreements with other service providers to avoid surprises later.

Worldwide ERC offers resources outlining procedures to facilitate dispute resolution relating to after-the-fact referral fees. Find these resources at worldwideerc.org/interchange.

Are there antitrust implications to this practice?

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.

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?

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.

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?

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.

Can a Sales Agent Negotiate Commission Directly With a Client?

No. Commission negotiations should only occur with a broker’s knowledge and consent.

If a commission negotiation comes up between a sales agent and her client, she should tell the client that all negotiations are subject to her broker’s approval.

In addition, the Real Estate License Act says a sales agent may only accept compensation for a real estate transaction from her sponsoring broker or a broker who previously sponsored her at the time she earned the compensation. This would preclude a sales agent from negotiating directly with a client without the broker’s knowledge and consent if those negotiations are to receive compensation without her broker’s involvement.