Price fixing. When two or more brokers get together and agree to charge the same set commission percentage or fee for their services, this is called price fixing. Price fixing is against the law and leads to monopolies wherein competition is restricted. Antitrust laws encourage and protect competition and can impose criminal penalties on the price fixers. Each broker must establish his or her own commission rate separately from other brokers.
Sales associate contracting directly with principal. Sales associates work under the employment and supervision of a broker. They are prohibited from contracting directly with the principal or being paid directly by the principal. Any commission the sales associate receives must come directly from the employing broker based on the commission agreement the associate has with the broker and not directly from the principal.
Sales associate suing principal for commission. Because all contracts are between the principal and the broker, only the broker may sue a principal for unpaid commission. If the broker has been paid by the principal but does not pay the sales associate, the associate may sue the broker for the unpaid compensation but may not sue the principal directly.
Sharing a commission with an unlicensed person. Commissions are paid for services rendered in selling or purchasing property. Providing real estate services requires a real estate license. Therefore, only licensed real estate brokers and sales associates may provide such services. Consequently, sharing a commission with an unlicensed person is a violation of license law. The one exception allowed by the FREC is sharing the commission with a party to the transaction, such as the buyer or seller, as long as doing so is disclosed in writing to all parties to the transaction.
Paying an unlicensed person for performing real estate services. Again, providing real estate services requires a real estate license. Just as sharing a commission with an unlicensed person is prohibited, so is paying an unlicensed person to perform real estate services. Paying an unlicensed person for these services is a violation of license law.
Conditions. Under the Real Estate Settlement Procedures Act (RESPA), it is illegal for a real estate licensee to accept a kickback or rebate from any business providing a service used to close a real estate transaction, such as a surveyor, appraiser, property inspector, title company, mortgage lender, etc. A kickback may take the form of favors, advertising, money, gifts, or other items of value given to the licensee or broker in return for sending clients to the particular service provider.
The licensee may utilize these service providers and pay them for services they actually perform. However, the licensee must not accept anything in return from the service provider for utilizing a particular provider.
The licensee also may not give or accept any portion, split, or percentage of any fee the service provider is paid for the service. Brokers may have affiliated business arrangements with certain service providers but must be careful that the arrangement does not include any illegal kickback or rebate.
However, under certain conditions, kickbacks are legal:
- all parties to the transaction must be fully informed of the kickback
- the kickback must not be prohibited by any other law, such as RESPA
- a referral or finder’s fee (no more than $50) may be paid to a tenant in an apartment complex for introducing a prospective tenant to the property management company or the complex owner for the purpose of renting or leasing an apartment
- as mentioned above, sharing a commission with an unlicensed buyer or seller as a rebate is allowed as long as all parties to the transaction are informed in writing
- a broker licensed in Florida may pay a referral fee or share a commission with a broker licensed or registered in a foreign state as long as the foreign broker does not violate any Florida law
The main item of performance for the client is payment of compensation, if the agreement calls for it. A broker’s compensation is earned and payable when the broker has performed according to the agreement. The amount and structure of the compensation, potential disputes over who has earned compensation, and the client’s liability for multiple commissions are other matters that a listing agreement should address.
Disputes often arise as to whether an agent is owed a commission. Many such disputes involve open listings where numerous agents are working to find customers for the principal, and none has a clear claim on a commission. In other cases, a client may claim to have found the customer alone and therefore to have no responsibility for paying a commission. There are also situations where cooperating brokers and subagents working under an exclusive listing dispute about which one(s) deserve a share of the listing broker’s commission.
The concept that decides such disputes is that the party who was the “procuring cause” in finding the customer is entitled to the commission or commission share. The two principal determinants of procuring cause are:
- being first to find the customer
- being the one who induces the customer to complete the transaction
For example, Broker A and Broker B each have an open listing with a property owner. Broker A shows Joe the property on Monday. Broker B shows Joe the same property on Friday, and then Joe buys the property. Broker A will probably be deemed to be the procuring cause by virtue of having first introduced Joe to the property.