Revised Form 220 – Frequent Questions Answered

QUESTION: I understand that the revised version of Standard Form 220, now called the “Cooperating Compensation Agreement,” can be used to create an agreement entitling buyer agents to a fee. However, I am confused about who should initiate the agreement, whether it can be included in a listing agent’s advertising, when a buyer agent should deliver it to the listing agent, and who needs to sign the form. Can you answer all these questions?

ANSWER: In the past, a contract between a listing firm and a selling firm was created by an offer of compensation made in the MLS, and acceptance of that offer by the selling firm being the procuring cause of a successful transaction. Since offers of compensation will no longer be permitted in MLS listings, buyer agents wanting to receive cooperating compensation will need to enter into a new form of compensation agreement. Form 220 was revised in order to provide a mechanism for creating that contract.

Firms listing properties for sale may wish to avoid fielding inquiries from multiple buyer agents about whether cooperative compensation is being offered on their listings and, if so, the amount of that compensation. A permissible way of doing so is advertising the amount of cooperative compensation on the listing firm’s website. While there is no need for that website to include a link to partially completed Form 220 (for example identifying the seller, the property address and the fee being offered), that practice would also be permissible. Listing agents choosing to do this should not have any such forms pre-signed by the seller or by the listing firm.

Buyer agents seeking cooperative compensation are strongly encouraged to have a signed compensation agreement in place before submitting an offer on behalf of their buyer clients. While submission of a Form 220 contemporaneously with an offer is permissible, that practice is risky. We have previously written that if the buyer directs the buyer agent in writing to make their offer contingent on the execution of a cooperative compensation agreement, the buyer agent may explain that fact to the listing agent in an email attaching both an offer and a Form 220. If that circumstance should arise, buyer agents are strongly encouraged to consult with legal counsel to make sure that any conditional language in their email will be effective and achieve the intended result.

Form 220 can be signed by either the listing firm or the seller, but not both. Paragraph 1 is where the agreed-upon amount of the compensation is set forth along with which party is paying that compensation. If the seller has authorized the listing firm to offer cooperative compensation, the box for Listing Firm should be checked. Conversely, if the seller has not authorized the listing firm to offer cooperative compensation, but later agrees to offer compensation to the selling firm, the box for Seller should be checked. In those transactions where the payment of a portion of the cooperative compensation is agreed to by both the listing firm and the seller, two Form 220s should be executed.

As a reminder, the North Carolina Real Estate Commission has a rule (58A.0112(b)) prohibiting pre-printed contracts from containing any provision concerning the payment of a commission or compensation. Therefore, if Standard Form 2-T is used to make an offer, Form 220 may not be attached to that offer or referenced in Form 2-T in any way.

If the seller has authorized the listing firm to offer cooperative compensation, and Form 220 is used to confirm a compensation agreement between the listing firm and the selling firm, it does not have to be signed by the seller as the seller is not a party to the agreement. Page 2 of Form 220 has a place for buyers to sign with the following notation: “Buyer signs to acknowledge receipt of this form and consent to the fee arrangement herein only.” Buyer agents are reminded that Real Estate Commission rule 58A.0109(c) requires real estate agents to disclose the receipt or expectation of receiving any compensation. Having buyers sign a Form 220 is one way to prove compliance with this rule.

Finally, paragraph 3 has a blank line for agents to insert a termination date of the agreement. We recommend that the date inserted be 1-2 months after the settlement date that the buyer intends to propose in any offer made for the subject property.

Release Date: 07/18/2024