Paying brokerage commissions at closing
QUESTION: In the Real Estate Commission’s May 2016 Real Estate Bulletin, there’s a short article on page 13 entitled “Brokers: Do Not Require Closing Attorneys to Disburse Commissions.” The article seems to imply that listing agents should not be asking closing attorneys to make disbursements of any part of the listing agent’s fee to cooperating brokers. For many years, closing attorneys have written checks out of the closing proceeds to the listing firm and the selling firm. Are we supposed to stop doing that now?
ANSWER: No. We have discussed the matter with legal staff at the Real Estate Commission. The Commission does not have an issue with the historical manner in which commissions have been disbursed. However, the Commission does have an issue with brokers demanding that the closing attorney further split up the commission between the listing and cooperating firms and their individual agents. As stated in the Bulletin article, this practice puts the closing attorney in potential jeopardy of paying an unlicensed firm or agent, which is a criminal act, or improperly dividing a fee due to incomplete or inaccurate information.
According to the Commission’s legal staff, “[p]ayroll or accounts payable is not the settlement agent’s job. The settlement agent is authorized to pay the listing commission from the seller’s proceeds to the listing company pursuant to the listing agreement. Historically, the listing company instructs or authorizes the closing attorney/settlement agent to pay the selling company’s share of the full commission to the selling company because the seller has authorized a co-broke situation. Thus, closing attorneys usually write one check to the listing company and another check to the selling company, if any. It is then up to each company to pay its affiliated agents whatever split may be due the agent under the employment agreement with the company and to issue a Form 1099 to each agent.”
It is anticipated that further guidance on this subject will be available in a future Bulletin article and/or next year’s annual Update program.
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