Termination Date on the Cooperative Compensation Agreement (Form 220)

QUESTION: I have been sending out the Cooperative Compensation Agreement (Form 220) to agents who have an interested buyer for my listings. Recently, one of my sellers asked that we reduce the cooperative compensation he authorized me to offer selling agents as provided in the signed listing agreement. Unfortunately, some of the forms I sent out with the old compensation amount didn’t have a termination date or had a termination date of 30 days from the date a purchase agreement is signed. What can I do to advise agents of the change in cooperative compensation, and what termination date should brokers put in Form 220?

ANSWER: It is very important to set a specific termination date for Form 220 offers of cooperative compensation. We previously discussed the ethical limitations for making amendments to cooperative compensation here. In situations where no written offer to purchase the property has been received, a listing agent may change the compensation offered by notifying all brokers with whom the listing agent previously shared Form 220 and advising that all prior offers of cooperative compensation are rescinded. An agent could also offer to provide a new Cooperative Compensation Agreement if these same buyer agents have a buyer interested in making an offer to purchase. This would legally withdraw all prior offers of compensation, and the forms already sent out could no longer be accepted by a buyer’s agent’s signature.

By inserting a specific date in Paragraph 3 of Form 220, agents will know when the forms already shared would no longer be binding if accepted by a buyer’s agent. Additionally, a termination date that is only a month or two after the date Form 220 is shared will not only protect agents when changing cooperative compensation offered, but also limit the time in which buyers and their agents can delay making an offer to purchase.

Note, Paragraph 3 remains enforceable once the buyer and seller sign a purchase agreement. Paragraph 3 specifically notes that Form 220 terminates at the earlier of closing or the date entered in the blank; however, the form goes on to clarify that once the fee is earned, the agreement does not terminate on the date entered in Paragraph 3. Paragraph 2 states that the fee is earned at the time the buyer and seller sign a written contract for the sale of the property. Therefore, a short period set in Paragraph 3 of Form 220 does not limit its enforceability if the parties enter into a purchase agreement prior to the inserted termination date.

Release Date: 11/21/2024