Compensation problems are resolved by contract. Although not widely understood, to be entitled to a commission it is not enough to have a real estate license, be an agent of one of the parties, or even to be the procuring cause of the sale. Commissions are due only if there is an enforceable agreement to pay a commission. Listing agreements serve that purpose on the listing side. Ordinarily, the listing broker’s unilateral offer of compensation in the MLS serves the same purpose on the selling side.
In FSBO, and some MLS Only or Limited Service situations (those where no compensation is offered and the listing broker has instructed cooperating brokers to negotiate the commission with the seller), there is no pre-existing agreement to pay a commission. The problem can only be solved by getting the seller to agree to pay a commission before proceeding with the transaction. One-party listings were developed as a way to get the seller to agree to pay a commission.
Because license law allows the seller to pay a commission to an agent representing only the buyer, there is no reason to get a “listing” just to create a commission contract. A simple compensation contract can accomplish the same thing without creating a dual agency situation. Care must be taken, however, when forming such a compensation contract to avoid any chance of an unintended agency claim.
The best way to avoid an unintended agency claim when asking a seller for a compensation contract is to include a Ano agency relationship clause right in the contract. Such a clause spells out plainly the lack of an agency relationship between the agent and the seller. It will also warn the seller that actions taken by the agent that may appear to benefit the seller are being done exclusively for the benefit of the buyer. It is also a good idea to warn the seller that anything they say to the agent will be disclosed to the buyer.
Many companies have developed their own compensation contracts. In many states, the state association publishes such forms. Here in Oregon, there is no published compensation contract. The Oregon Association of REALTORS®has, however, developed a sample compensation contract with a no agency clause. Click here for a copy of the sample contract.
It can be tempting for agents to try to solve the compensation issue in their buyer’s offer. This is an exceedingly bad idea. Agents are not a party to the sale agreement. This causes agents to state their desired commission in terms of a contingency to their client’s offer to purchase. That, in turn, creates a conflict of interest because the seller may reject the buyer’s offer based on the commission issue and not the merits of the offer itself. Unless this potential outcome is fully disclosed to the buyer, and they agree to take the risk, making your own commission a contingency of an offer can violate agency duties and real estate license law. It is for this reason that negotiating a compensation agreement, with a clause to deal with unintended agency, is the best way to deal with unrepresented sellers.
Even if the listing broker is willing to pay a coop commission, the problem of unintended agency still exists if the agent must deal directly with a party they do not represent. For instance, in a Limited Service Listing where the listing broker offers a coop commission there is still a chance the seller will come to regard the buyer’s agent as their own agent. The only difference is there is no compensation contract with the seller in which to insert a single agency relationship clause.
If there is no compensation agreement between agent and seller, the best way to get single agency relationship language in front of the seller is through an addendum to the buyer’s offer. In this case there is no risk of harming the buyer’s interest because nothing is being asked of the seller. The seller is simply being advised about the actual agency relationships that exist in the transaction. That is, that the agent will represent only one party in the transaction. Think of a single party addendum as a beefed-up final agency acknowledgment.
As with compensation agreements, many companies have developed their own “no agency relationship” addendums. Such addendums are not yet in wide use in Oregon or other states. The Oregon Association of REALTORS® has, however, developed a sample single party addendum clause. Click here for a sample of the addendum.
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