Commission on the Contract?

by | Feb 10, 2021

You’ve found the perfect home for your clients. The negotiations on your Buyers offer have run their course. A deal seems oh so close, but the Buyer and Seller are standing firm and a thousand-dollar difference is all that’s standing in the way. You talk to the Sellers agent about how to get this deal done and you both decide to reduce your commission. So the Sellers Agent writes up the commission reduction on a Counter Offer … WAIT – STOP RIGHT THERE!

Commission should never appear on the Contract, Counter Offer, Addendum, BINSR, etc.  To do so is not only improper but also invalid.  Let’s take a look at why.

Commission starts as an agreement between the seller and the listing brokerage. The commission for the listing broker and cooperating broker is determined via the Listing Agreement.

The listing broker/brokerage then offers any cooperating broker (the brokerage of a buyer’s agent) a ‘co-op fee’ via the MLS. To be clear, this is a promise or guarantee from the listing broker to pay the cooperating broker the amount specified in the Co-Op field in the MLS. Notice that this agreement for compensation no longer involves the Seller, it’s broker to broker now.

It’s important to point out here that commission is always paid directly to the Broker – not the Agent.  A.R.S. § 32-2155(A) requires a licensee to receive commissions only from their broker and also requires a broker to pay commissions only to real estate licensees.  Therefore, the only person that can agree to a commission reduction is a Broker, and it must be in writing.  This is where the Commission Reduction form in Dotloop comes into play.

The proper way to do a commission reduction is to use the Commission Reduction form to reduce your commission, clarify who the reduction should benefit (buyer or seller), and then have the broker (Kim Clifton in our case) sign the Commission Reduction form.

Now that we have an understanding of how commission works, we can see why an agreement between a Buyer and Seller to modify commission would not be valid. Neither buyer nor seller has any say over commission at the point of contract. Likewise, an agreement between agents would not be valid either. Only the brokers can agree to reduce commission, and this is done via a Commission Reduction form.