The Less Common Commission Agreements
How do you get paid? While most transactions involve one of two commission agreements – the exclusive right of sale (or exclusive right to lease) listing agreements and the offer of compensation in the Multiple Listing Service (MLS) – you have other options.
ORLANDO, Fla. – You’re working diligently with a buyer. You locate a For Sale by Owner (FSBO) property that squarely fits your buyer’s requirements. Without an offer of compensation in the MLS, how are you planning to negotiate commission from the seller, buyer, or both? Are there any forms to help you? While the answer to the first question is completely up to you, the answer to the second question is yes!
The two most common commission agreements members encounter are the exclusive right of sale (or exclusive right to lease) listing agreements, and the offer of compensation in the Multiple Listing Service (MLS). However, Florida Realtors® offers a few other forms for situations when these aren’t an option.
Let’s look at a few of the options available to you when the exclusive right of sale listing agreement and offer of compensation in the MLS aren’t available.
Commission Agreement (CA)
This form is designed to be between a brokerage firm and either a seller or landlord (owner). The key terms are the name of a prospect, a commission amount, and a deadline for the owner and prospect to sign a contract or lease (180 days if left blank). There are a few additional details, but this short one-page commission agreement is straightforward. It can be used for both residential and commercial sales or leases any time an owner agrees to compensate a brokerage company for procuring a prospect.
Exclusive Buyer Broker Agreement (EBBA)
This form obligates a buyer to use a specific real estate company for a set time. It has quite a few things in common with exclusive right of sale listing agreements, including the following terms, which, although not identical, are very similar in each agreement:
- It creates an exclusive relationship.
- It has a beginning and end date.
- It obligates the buyer to pay commission.
- It generally describes the deal the buyer is looking for.
- It provides a specific list of ways the buyer must cooperate with the brokerage firm.
- There is a protection period if either type of agreement is terminated before the original expiration date.
There are also a few differences:
- If the brokerage firm collects commission from another source, such as an offer of compensation, it will be credited towards the amount the buyer otherwise owes. For example, if the offer of compensation the brokerage firm collects is identical to the amount in the EBBA, the buyer wouldn’t owe any commission.
- There’s an option for the buyer to pay a retainer up front.
- Unlike the listing agreement, which requires the broker’s permission to terminate the agreement, the EBBA has a method for the buyer to terminate regardless of whether the broker agrees to the termination or not.
Showing Agreement (SA)
This one-page agreement (second page contains signature lines) is also between a buyer and brokerage firm but is less burdensome on a buyer than the EBBA. The key terms are a list of properties the broker showed to a buyer, commission amount, and a deadline for the buyer to use the brokerage firm’s services to negotiate for any of the listed properties. It’s similar to the commission agreement but is written from a buyer’s perspective instead of a seller’s.
Why is there an “other” category? Because sometimes you’ll encounter buyers and sellers who don’t want to sign a formal legal document but are okay with the idea of compensating you for your services. In those situations, it’s worth remembering that an email agreement – or even a verbal agreement (if that’s all you can get) – are still contracts that can often be enforced in a court of law. They will be missing several little details the lawyers who drafted the agreements we just reviewed added to protect the brokerage firm. It’s also possible that some legal formalities or other issues could get overlooked when you create a DIY agreement. That said, informal agreements can still be enforceable contracts.
And, of course, if your company has specific needs or desires, it can be a great idea to have a lawyer create a form tailored to your business. They can also modify the Florida Realtors forms to address specific concerns, whenever the broker deems it appropriate.
Joel Maxson is Associate General Counsel for Florida Realtors
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