Co-Broker Agreements Explained
Co-broker agreements, also known as finder’s fee agreements, are educational contracts made among co-broking realtors that govern the compensation to be paid to the brokers and their respective agents. The purpose behind a co-broker agreement is to set forth in writing the terms under which a realtor agrees to receive a commission for the sale or purchase of real estate. A properly-crafted co-broker agreement will benefit both realtors by ensuring that each gets their respective share of the commission , regardless of whether they sell the property themselves or partner with another realtor.
Without a co-broker agreement, a broker who introduces the buyer/seller to a real estate deal may not get credit for introducing the deal, including a commission, if a realtor that the buyer/seller comes into contact with wins the deal. Mastering the art of drafting co-broker agreements is a must for any experienced realtor.
Components of a Co-Broker Agreement Template
When creating a co-broker agreement template, it is vital to include several essential components that will protect the interests of all parties involved. These elements typically include commission splits, client confidentiality, and procedures for handling disputes between brokers. Each component should be clearly defined and comprehensively detailed within the agreement to ensure all parties are fully aware of their rights and obligations.
Commission Splits
One of the most important sections of your co-broker agreement template will address how the total commission for a transaction will be divided between the brokers. Clearly outline how the split will be calculated and whether any conditions might affect the percentage for either or both parties, such as the level of service provided or additional performance criteria.
Client Confidentiality
Confidentiality requirements are another must-have in any co-broker agreement template. Confidential client information should be clearly defined and a strict understanding that no such information may be disclosed without the consent of the client. Additionally, a provision that limits the use of confidential information can protect the data from unauthorized use by either broker or their staff.
Handling Disagreements
Disputes between brokers can occur despite the best intentions, so have a solid plan to address any discord in your co-broker agreement template. Some common provisions might include mediation or arbitration for dispute resolution, a timeframe in which the dispute must be resolved, and an outline of the process to follow to seek a resolution.
Responsibilities and Duties
It is easy to abandon a co-broker agreement template without thoroughly detailing the responsibilities and duties of each broker. By outlining the roles, you can help ensure that all parties are working toward a single goal and that there is no confusion about who does what. Duties that may need clarification include marketing materials, showings, openness, and attendance at open houses.
Advantages of Using a Co-Broker Agreement Template
One of the major benefits to using a co-broker agreement template is the boost in professionalism. Not only is it a good idea for you and your co-brokers to immediately start treating each other with that professional respect, but acting in a similar professional manner for every deal helps ensure that your clients have a positive energy and experience regarding the transaction. It also helps reinforce positive thoughts about brokers and their relationships in the community.
Not only that, but using a co-broker agreement template for each and every deal helps keep things clear and organized. There are several ways to ensure that your co-broker agreement remains up to date with current code, state mandates, and any other laws and regulations. A revised and updated template is crucial in providing your clients with the best possible experience—all the while protecting your interests and liability during the real estate transaction process.
Finally, when you use a template for all your co-broker agreements, you make a strong case for your competence and expertise. You’re following a realistic and dependable work flow, establishing a more reputable name for yourself within the community. You will save time, eliminate risks, and stand out among other brokers by standardizing this aspect of your work.
Legal Aspects of Making a Co-Broker Agreement
Given the likelihood that a co-broker agreement will be binding on the parties, compliance with all state and federal regulatory issues is critical. There are several legal issues that must be considered when drafting a co-broker agreement.
Disclosure requirements
Different states impose varying disclosure requirements for the listing and sale of real estate, such as disclosures relating to the type of listing, agency relationships and property conditions. Some states impose broad disclosure requirements pursuant to state and local laws, including home rule ordinances, regarding the general condition of the facilities or land. From a practical perspective, all states require some disclosure to buyers at the time of the sale. The most well-known state mandated disclosure is the Real Estate Settlement Procedures Act (RESPA) which requires disclosure of the name of any provider who is paid a fee for services in a settlement transaction and where the money goes. If not sufficiently addressed, you or your agents could find yourself unintentionally violating state or federal disclosure laws.
Licensee compliance with state regulations
In most states, only licensed real estate brokers can offer compensation to other licensed brokers. In some states, unlicensed persons providing brokerage services are not authorized to compensate other licensees. Additionally, in some states, unlicensed clerks or administrative assistants helping a licensee are prohibited from contacting consumers, searching for available listings, or otherwise participating in real estate brokerage activity until the worker has also become a licensed real estate broker.
Advertising issues
Many state rules regulate advertising and marketing materials that could also affect a co-broker agreement. Most states specify advertising requirements – such as requiring equal prominence of the advertised broker’s name, or prohibiting advertising that implies that the advertisement will result in a transaction. RESPA similarly prohibits the use of advertising that directly or indirectly requires the recipient to use particular persons or a particular number of settlement services.
Antitrust issues
Real estate agents have faced lawsuits for alleged violations of antitrust laws. Antitrust actions can arise from price-fixing agreements, bid-rigging and other measures that serve to stifle competition. For example, price-fixing agreements among agents in which brokers agree with their competitors to set a commission rate for the split commission between the listing broker and the broker who finds the buyer can create liability under the Sherman Act. In response to these allegations, real estate associations have issued sets of rules and guidelines that set commission rates for cooperating brokers. Such attempts to set co-broker commission rates and/or fee schedules can create antitrust liability. If the co-broker agreement will be modified after execution, or later sold or assigned, the Uniform Commercial Code (UCC) applies. Although each state has its own version of the UCC, the specific provisions vary from state to state, including those relating to the rights of parties to assign and modify agreements. Review the Dentons’ Guide to Assignment and Delegation and Modification and Rescission of Contracts for more information.
Professional liability
Litigation often arises out of disputes over the existence of a co-broker relationship and claims for breach of fiduciary duty, violation of federal/state law, constructive trust, negligence, fraud/misrepresentation, interference with business relationship, fraud/concealment, fraud/constructive trust, misrepresentation, counterpart liabilities, vicarious liability, quantum meruit, unjust enrichment, breach of contract and unjust enrichment. A prudent practitioner will want to minimize these risks by reviewing the provisions of the co-broker agreement in accordance with the provisions of the local MLS rules and regulations and with relevant federal/state law. For example, an agent or broker seeking to enforce a co-broker agreement could face liability for fraud, breach of fiduciary duty, or other claims. On the other hand, even when there is no express language in the agreement addressing jurisdiction and venue, the reciprocal application of antitrust and other state laws could result in liability for an agent or broker who enters into a co-broker agreement in one state, but who conducts related activities in a state with different or more stringent legal requirements.
Modifying a Co-Broker Agreement Template
A co-broker agreement template can be altered to fit different objectives, buyer/seller profiles, and particular sensations in the marketplace. You can also make changes to fit your personal preferences and how you like to do business. There is no "one size" or "one way" to draft a co-broker agreement. You just don’t want to do anything that is inconsistent with the law, violates the California Association of Realtor’s listing agreements, or departs from industry best practices. Hopefully, our template will give you a leg up in creating the agreement that you will ultimately use when co-brokering.
Altering A Template
When you are altering or revising an existing template, you can follow these steps:
Pre-Populating with Particulars
A co-broker agreement template may include such items as the brokerage firm(s) name, broker logo, agent’s name, agent’s DRE license number, and sometimes even the client’s name (although I suggest you avoid this). Other specific or generic information about the particular transaction may be added such as:
Once these elements are in place , save the template as a new file ("Save As") or simply write over it, rather than deleting it. Then alter only those items that will necessarily change by inserting bracketed text. In addition to the items above, common items for alteration might include:
It is important to use the co-broker agreement template only as a starter and not to simply insert bracketed text into your pre-populated template. The use of bracketed text simply indicates the need for a specific value to be filled in. It does not provide a choice as to whether or not to include a provision. Only the portions in brackets require active participation.
Co-Broker Agreement Template Essentials
The California Association of Realtors forms have intentionally avoided bracketed text and instead use an asterisk (*) next to a provision to circumscribe it. This has its advantages in that you don’t have to waste space when they are not required and saves you ink to boot when printing. For purposes of this website we will continue with the use of the brackets in the examples since these have become more common on the internet.
Common Pitfalls in Co-Broker Agreements
Co-broker agreements, like all real estate contracts, are legally binding documents and should be scrupulously reviewed before use. Frequently, brokerage firms will find that their standard agreement has not been revised in years or even decades. In order to have enforceable co-broker agreements, it is crucial to stay up-to-date on the current legal requirements. Even small issues can have significant consequences down the road. Here is a list of common mistakes to avoid when drafting a co-broker agreement:
The owner of the property becomes a party to the co-broker agreement,
One of the brokers has a licensed salesperson acting at another company,
The state licensing laws applicable to jobs in question are not listed,
The agreement is set for an indefinite period,
The agreement does not contain minimum qualifications for the broker,
The agreement does not include an account of how commissions are to be paid,
There are no time limits for the presentation of bills and for making payments of commissions,
There are no time limits for presenting claims,
There are no requirements for the commencement or completion of the work and no binding deadlines for performance,
There are no grievance and/or arbitration provisions,
There are no provisions for attorneys’ fees and costs.
Tips for Choosing a Co-Broker Agreement Template
As with any contract, the source for your template of co-broker agreement is important. The best practice is to identify a reputable real estate association’s template, or an attorney’s template; steer clear of websites that offer a ‘freebie’ template. "Template" in this context is really a sample form document, which you will customize in most every case. Most title companies will have sample forms on their websites, these are acceptable, but may not have the language you prefer .
Real estate associations often have members who are attorneys, and their templates are usually safe to use. If there is an attorney on your listserv, send them an email requesting that they forward you a co-broker agreement, they will likely soon respond with a file.
Your go to for these types of documents should always be your managing broker or the rockstars you work with often, as they will have a template they rely on, and they are familiar with your market.
