What You Need to Know About Real Estate Compensation/Commission

• Broker non-payment of compensation If a broker fails to pay a real estate compensation to a salesperson, the salesperson must get a civil judgment against the broker. Before filing a lawsuit, the agent should check the independent contractor agreement, since it may require some other form of dispute resolution, such as arbitration or mediation.
• The Florida Real Estate Commission (FREC) will not force a broker to pay the compensation to the salesperson.
• However, if the broker does not satisfy that judgment in accordance with its terms, the salesperson can file a complaint with FREC against the broker for violating licensing law (Section 475.25 (1)(d), Florida Statutes).
• A licensed broker or sales associate who obtained a judgment against his real estate broker for an unpaid compensation may not make a claim for recovery from the Real Estate Recovery Fund if he/she acted as a single agent or transaction broker in the transaction that is the subject of the claim (Section 475.483 (2)(b), Florida Statutes).

Seller non-payment of compensation

• If a seller refuses to pay compensation as agreed upon, a sales associate or broker associate is not allowed to sue the seller. The associate’s broker must file the lawsuit. (Section 475.42(1)(d), Florida Statutes)
• Section 475.21(i) prohibits a licensee from placing a lien on a residential property unless the broker is expressly permitted by contractual agreement with the seller to do so, or is recording a civil judgment rendered by a Florida court. Therefore, if any agreement with the seller does not permit the broker to put a lien on the property, the broker must file a lawsuit against the seller and obtain a judgment, which the broker can then record. Due to the complexity of lien law and the potentially severe repercussions of incorrectly filing documents in the public record, we recommend a broker hire an attorney to assist them before filing any lien or similar document that could cloud title.

NOTE: The Commercial Real Estate Sales Commission Lien Act (found in sections 475.700 - 475.719, Florida Statutes) only applies where the property at issue meets the definition of "commercial real estate" as set forth in the act. This lien only attached to the owner’s net proceeds at closing, not the real property, and requires the broker to give mandatory disclosures described in the statutes.

Negotiable Compensation

Compensation is fully negotiable and not set by law. 

• A brokerage could choose to negotiate compensation with a seller based on a property’s location, unique characteristics or ability to sell. It is completely up to the parties.  
• A broker and a buyer or seller may agree to compensation based on a flat fee, a percentage of the sale or even a combination of the two. Whatever the arrangement the parties agree to it should be accurately reflected in the listing agreement or buyer broker agreement.

Compensation sharing and rebates

In general, a licensee may not share real estate compensation with an unlicensed person. (Section 475.25(1)(h), Florida Statutes)

However, there is an exception: You may rebate any portion of your compensation to a party to the transaction, as long as you make appropriate disclosures “to all interested parties.” This should include any person or entity involved in the deal. For example, the buyer’s lender would need to know about this rebate, as it could impact the lender’s loan calculations. (Rule 61J2-10.028(2), Florida Administrative Code)

Compensation and license status

If an agent is properly licensed during the entire time he/she worked on a listing, the broker can likely pay the compensation due under an independent contractor agreement – even if the agent’s license becomes inactive later.

Sales agreements and compensation

A majority of the Florida Realtors listing agreements contain a line that specifies that all rights and obligations under the agreement automatically extend through an actual closing. This means that even if the closing happens after the agreement terminates, the broker is entitled to compensation, as long as the parties went under contract while your listing was in effect. If your office uses its own agreements, check them carefully to make sure that they contain this beneficial line.

Broker, broker/sales associate relationships and listings

Not all independent contractor agreements between a broker and a sales associate or broker associate specify whether the associate will be paid compensation for work they did on a deal but that closed after the associate terminated their relationship with the broker.

If the two parties disagree on whether compensation is to be paid to the associate, and the independent contractor agreement doesn’t include this information, the associate must file a civil lawsuit against the broker.

In making a determination, the court may consider other evidence such as the broker’s office policy manual, verbal agreements about compensation between the broker and the associate, past business practices of the broker, as well as what is customary in the industry. 

Rentals and Compensation

Many agents handling rentals automatically withhold their amount of compensation from a tenant’s deposit money or advanced rent. Any agent considering doing this should do so with great caution as there are several things to consider. First, any fees that haven’t been earned under the lease are to be held in a separately designated escrow account. Any funds should come out of only the landlord’s earned money, which would likely be the first month’s rent, at the time the lease term commences.

There are also contractual issues at play: the tenant owes the landlord funds described in the lease, which may include a deposit and advance rent. The landlord owes the landlord’s broker the compensation described in the Exclusive Right to Lease Listing Agreement, and the tenant owes the tenant’s broker the compensation described in their buyer/tenant agreement. When brokers deduct their compensation, they’re typically taking a shortcut from the way the money should flow, based on intertwining contracts. Taking funds that haven’t been earned in accordance with the lease that should be held in escrow until earned can cause a litany of legal issues for the respective parties. As such, any agent who intends to collect compensation in this manner should obtain the landlord’s clear authorization to deduct compensation from the first month’s rent, and the parties should clearly authorize the tenant’s broker to deduct the amount described in the tenant’s agreement.in the. 

Direct Payment of Commissions

Sales associates and broker associates are only able to collect their compensation for real estate services through their broker, either directly/individually or through a PA, LLC or PLLC in their licensed name only. (see 475.161, Florida Statutes). However, in 1999, the Florida Real Estate Commission (FREC) stated in a Final Order (FREC DS-98-02) that a broker “may by written authorization request that a closing agent disburse commissions directly to its salespersons following the closing of the transaction.” FREC clearly outlines in this Final Order what must be provided in the written authorization: (a) identify the transaction; (b) state the name of the salesperson entitled to the commission; (c) specify the amount the salesperson should be paid; and (d) sign the authorization.