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Co-Brokerage Commissions: Sorting Out Who Gets What

Co-Brokerage Commissions: Sorting Out Who Gets What
by Hanon W. Russell, CCIM, JD

In most states, the laws describing when real estate agents are entitled to commissions are straightforward and clear. Typically, certain provisions of the commission agreement must be in writing. These usually include the listing's start date, end date, and, of course, the amount of compensation. Because of statutes that have a direct bearing on the commission claim, sorting out who gets what is not necessarily that difficult.

It is a different matter, however, with co-brokerage claims—and cooperating agents may be the norm rather than the exception in commercial transactions. In addition, as many experienced commercial agents already realize, the cooperating or referring broker not only may have much less knowledge and skill in the commercial real estate brokerage area, but also may contribute significantly less to the successful closing of the deal. When that happens, the more experienced broker may feel—with some justification—that it is not equitable to split the commissions 50-50.

Many such disputes are resolved internally by hearings held under the auspices of local boards. However, several years ago, the Florida courts had the opportunity to rule on some of these issues in the case of Monopoly Realty, Inc., v. World Business Brokers, Inc., 562 So. 2d 387 (Fla. 1990).

In this case, a real estate agent, Monopoly Realty, Inc., appealed a final judgment from the trial court in a contract action that awarded World Business Brokers, Inc., 50 percent of a real estate commission that Monopoly Realty had earned. The case had an interesting additional twist: It is not clear from the facts of the case presented by the Florida court that either party actually had a listing authorizing it to offer the property for sale.

Both Monopoly Realty and World Business Brokers were experienced real estate brokers. At some point, World Business Brokers became aware of commercial property that was for sale and contacted Monopoly Realty with this information. This was not a listing that World Business Brokers had; it may have been nothing more than a for-sale-by-owner situation. (The court's decision is silent about this aspect of the case.)

However, as a result of subsequent written communications, Monopoly Realty and World Business Brokers signed a co-brokerage agreement concerning the sale of the property. The short, written understanding stated that World Business Brokers would receive half of any commission that Monopoly Realty earned from the sale of the real estate in question. As the only consideration for the agreement, World Business Brokers provided Monopoly Realty with information that the property was for sale.

This apparently was the extent to which World Business Brokers was involved in the transaction. Monopoly Realty performed all typical commercial agent duties without any additional assistance from World Business Brokers. Further, at some point, after the understanding between the two agents but before the actual sale of the property, Monopoly Realty attempted to rescind the agreement, pointing out that World Business Brokers was not doing any work to bring about a sale. Monopoly Realty eventually sold the property and received a real estate commission.

Monopoly Realty sought to avoid sharing the commission with World Business Brokers, claiming that World Business Brokers had not assisted in the sale and did not even have a listing of the property. Monopoly Realty also pointed to the correspondence it had sent to the World Business Brokers in which it attempted to rescind the contract.

However, the trial court found that the contract between Monopoly Realty and World Business Brokers, albeit a "bad deal" for Monopoly Realty, was binding on and enforceable by all parties. It further found that the co-brokerage agreement was supported by appropriate consideration (the information that the property was for sale) and could not have been canceled by Monopoly Realty after the receipt of the information. The trial court held that World Business Brokers had performed its obligation under the terms of the contract and the contract was, therefore, enforceable.

The court noted that the agreement was in writing and seemed to reflect the entire understanding between the two agents. It went on to say that "when parties deliberately put their engagement into writing, in such terms as impart a legal obligation without any uncertainty as to the object or extent of their engagement, it is as between them, conclusively presumed that the whole engagement and the extent and manner of their undertaking is contained in the writing...No other language is admissible to show what they meant or intended..."

Nothing in the agreement imposed a duty on World Business Brokers to have a listing or affirmatively perform any act. Once World Business Brokers provided the information that the property was for sale, it had complied with the terms of the companies' particular agreement. The parties then were bound by their contract.

Many might think that the court's decision is too inflexible, applying a strict constructionist approach to contract interpretation and ignoring the reality of co-brokerage agreements—namely that there is an implication that each side would pull its own weight. By rejecting that implication, the court left the parties with the agreement they had struck, warts and all.

Complex commercial real estate transactions may require an experienced real estate broker to expend time and effort to bring about a sale. If a cooperating broker is involved, the rules of the co-brokerage should be clear from the start. Although it may be stating the obvious, take the time to reduce to writing anything that is expected to be part of a co-broker agreement when you agree to share a commission with another agent. In the event of a dispute, a court may not read implied terms into it.

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Hanon W. Russell, CCIM, JD, is a partner in the firm of Cantor, Floman, Russell, Gross, Kelly, & Amendola, P.C., located in Orange, Connecticut. Russell can be reached by phone at (203) 795-1211 or by e-mail at hwr@chesscafe.com.

The discussion of legal issues involved in this column is for informational purposes only. Results may vary depending on state laws and particular facts.

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