Commission sharing is central to the day to day practice of real estate in the existing real estate services market. Central to commission sharing are multiple listing services. That is the case because it is through the MLS that individual market participants share commissions. Commission sharing is a matter of contract. It has nothing to do with license status, which represented whom, procuring cause or anything else. Being the “procuring cause” is relevant only if you can point to a contract in which someone promises to pay you for being the procuring cause.
Listing brokers point to their listing agreement with the seller to establish the legal right to a commission upon procuring a buyer. A cooperating broker has no agreement with the seller. Typically, they have no agreement with the buyer. To collect a coop commission, the cooperating broker must be able to prove the existence of an agreement with the listing broker. No contract with the listing broker means no coop commission. This simple truth is often missed by agents.
The reason agents miss the importance of commission sharing agreements is that usually the agreement is handled automatically by the MLS. Every MLS has a provision in its membership rules that requires members to state as a sum certain the amount of money they will pay another MLS member in a coop transaction. This rule results in brokers who file a listing with the MLS making a unilateral offer of compensation to all other members of the MLS. The terms of that offer are stated in the MLS filing for the listing.
A unilateral offer is one that can be accepted only by performance. Most contracts, including contracts for the purchase and sale of real estate, are bilateral contracts. A bilateral contract is one in which the parties exchange promises for performance. I promise to pay you the listed price for your home if you promise to transfer title to me. That’s a bilateral offer. A unilateral offer contains only one promise. When it comes to commission sharing that promise is: I will pay you a specific percentage (or specific amount of money) if you procure a buyer for the listed property. A unilateral offer cannot be accepted by promising to find a buyer. Instead, the offer is accepted and becomes binding when the buyer is actually procured.
Although extremely efficient, there are a number of consequences to using unilateral offers through the MLS to create commission sharing agreements. The first is that the offer is only made to and enforceable by members of the MLS because the offer is made only to MLS members. For most of the history of real estate, this has not been a problem because real estate was broken up into many small isolated markets with little or no overlap. As market isolation has broken down, multiple listing services have consolidated to create larger cooperative real estate service markets. Today, there is talk of state-wide and even national multiple listing services. This talk is driven by the continued perceived need to facilitate cooperation through commission sharing.
There are, of course, tremendous counter pressures to MLS consolidation. Real estate is still mostly a local market business. Maine is the only state to create a state-wide MLS and even there the largest metro area continues to run its own MLS. In most states, the consolidation of multiple listing services has stalled at the regional or metro level. Yet, increasingly, agents are operating outside regional and metro boundaries. When they do, it is absolutely critical that a commission sharing agreement be separately negotiated.
Getting a signed written commission sharing agreement with the listing broker is always the safest way to proceed when operating outside your MLS. When it is not possible or practical in the circumstances to get a written agreement, entitlement to a coop commission can be evidenced by a confirming letter or e-mail. Before showing a listing not in your MLS, call the listing broker and discuss the coop commission. Always arrive at a specific percentage or dollar amount. Then, follow the telephone conversation with a letter or e-mail that memorializes the agreement you reached. Here is an example:
Dear Bill:
This is to follow up on our conversation today regarding your listing #____ at _________, [any street], [any city]. As we discussed and agreed, you will pay a coop commission of ____ % if my buyer purchases your listing. I look forward to working with you to complete a transaction that benefits both our clients. Please do not hesitate to call me if you have any questions or there is any change in the status of the listing.
If you end up writing and closing a deal on the property, your confirming letter will be sufficient to prevent any serious argument over the coop commission.