By: Blackwell M. Brogden, Jr.Chief Deputy Legal Counsel
Changing jobs in any profession can be an unpleasant experience. In the real estate business, this can be especially true when disputes arise over compensation after licensees leave firms with which they have been associated,
The Real Estate Commission frequently receives calls and complaints concerning compensation issues. However, the Commission is prohibited by law from setting compensation terms, or from arbitrating or resolving compensation disputes. Its role is limited to imposing disciplinary sanctions when it determines that real estate licensees have violated the Real Estate License Law or the Commission's rules in connection with a compensation dispute.
A review of some of the questions received by the Commission will illustrate the problems that can result from compensation disagreements between licensees.
Q. As a real estate broker affiliated with a firm, can I request my clients and closing attorneys to compensate me directly for my services rather than paying the firm?
A. Generally, because of its contract with the property owner or buyer, the firm providing brokerage services is entitled to payment at dosing. Therefore, compensation checks should be made payable to the firm (or the firm owner in the case of sole proprietorships). Although a broker may be paid directly, a broker who receives compensation and fails to turn it over to the firm with which he or she is associated may be in violation of the Real Estate License Law. Of course, a salesman can never be paid directly by a client or customer - only by the broker-in-charge of the office where the salesman works.
Q. May I arrange with the owner of the real estate firm with which I am associated for her to deduct and pay from my sales commissions certain business expenses that I incur?
A. Yes. Expenses such as trade association dues, errors and omissions insurance premiums, advertising bills and business card invoices may be allocated between you and your firm and paid directly from your commissions. However, without a written contract, disputes may arise about the allocation of these costs. Firms should also be aware that there have been cases where firm managers have been convicted of criminal offenses for using monies owed to their associates for unauthorized purposes.
Q. I have just terminated my association with a real estate firm. What happens to those pending transactions which I have been handling and will I be due any portion of the brokerage fee?
A. The fact that you procured a listing, buyer agency or management contract while associated with a firm does not entitle you to take the contract or client with you when you leave.
Likewise, you are not automatically entitled to compensation for services performed while you were associated with the firm: your compensation is based upon your agreement with the firm. VVhile a broker may negotiate with the firm to take business, a salesman may not take business unless he or she has a new broker-in-charge. In that case, the salesman's new broker-in-charge may negotiate with the former broker for the transfer of business. The unauthorized "taking of existing business" by either a broker or a salesman may violate both civil law and the Real Estate License Law.
If you do not have an agreement with the firm allowing you to take business with you when you leave, the firm must complete the services that you were providing to your clients -including arranging for closing services and attending the closing meeting. You may not actively participate in any pending transaction without the firm's approval (and the approval and supervision of your new broker-in-charge if you are a salesman).
Of course, even with the agreement of your former firm, your clients may choose not to transfer their business to your new company. Remember too that although your customers (with whom you and your firm have no agency agreements) are free to work with you or any other real estate agent, your former firm may have an employment contract or other agreement with you that prohibits you from taking the firm's customers with you when you leave.
Q. If the real estate firm with which I am affiliated owes me a commission but is unwilling to pay it, are there any "self-help" remedies available to me?
A. No. Even if you think you have a legitimate claim to compensation, you may not, for example, make unauthorized endorsements on checks or direct that payments be made directly to you rather than the Grin. Such conduct may result in criminal or other penalties. In addition, if you have a contractual obli gation to share commissions with the firm and you attempt to conceal or misrepresent any compensation that you have received, you risk violating the Real Estate License Law. Simi larly, if you are leaving a firm, and have a dispute with it ovei money due the firm ftom you the firm may not engage in tht "self-help" remedy of retaining your license certificate until yot have paid the disputed funds The license certificate belongs t( you and must be returned t( you by the firm when yot, leave.
Q. If my firm has gone out of business, may I have commissions paid directly to me and keep them?
A. Even if a firm has closed its doors, it is normally still entitled to the benefits of its contracts and the work it has performed. Commissions should therefore be paid to the firm or its principals for disbursement in accordance with the agreement between you and the firm. IF the firm is in the hands of a third party such as a bankruptcy trustee, receiver or personal representative, you should promptly seek legal assistance in filing a claim with the court handling the matter for any compensation due.
Q. What can I do to avoid compensation disputes with my firm?
A. At the outset of your association with a firm, enter into a written agreement with your employing firm that fully addresses all foreseeable issues that are in the real estate brokerage business such as allocation of expenses, method of computing monies earned or owed, timetable for payment, and payment of compensation for any transactions pending at the termination of your relationship. If you do not have a written contract with your firm addressing these issues and stating when and how much you will be compensated, your compensation is in the firm's discretion. This discretion should be exercised by the firm in a consistent and reasonable manner, but if you cannot reach a satisfactory agreement in the event of a dispute, these issues must be resolved in court. 0