What You Need to Know About Real Estate Commissions
Broker non-payment of commissions
- If a broker fails to pay a real estate commission 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 commission 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 commission 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 commissions
- If a seller refuses to pay a commission, 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)
- A broker cannot place 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.
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.
Commissions are completely negotiable.
- A brokerage could choose to charge a higher commission than it normally charges for a property that’s particularly hard to sell due to its location or other unique characteristic.
- A listing broker and a seller may agree on a flat fee commission, a commission based on a percentage of the sale or even a combination of the two.
There is no law entitling a cooperating broker to half of the commission received by a listing broker, even if that cooperating broker procures a buyer.
Commission 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 commission 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
Commission 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 commission due under an independent contractor agreement – even if the agent’s license becomes inactive later.
Sales agreements and commissions
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 a commission 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 a commission 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 commissions between the broker and the associate, past business practices of the broker, as well as what is customary in the industry.
Commissions and rentals
Many agents handling rentals automatically withhold their amount of commission 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 commission described in the exclusive right to lease (listing) agreement, and the landlord’s broker owes the tenant’s broker the offer of compensation described in the MLS. When brokers deduct their commission, 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 a commission in this manner should obtain the landlord’s clear authorization to deduct commission from the first month’s rent, and the parties (or possibly the landlord’s broker) should clearly authorize the tenant’s broker to deduct the amount described in the offer of compensation.
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.