Part Two of Three: Offers of Compensation Are Still Acceptable

This article and frequently asked questions (FAQs) is the second of a three part series that will help guide REALTORS® through the evolving commission landscape.  In part one, Compensation is Separate from Representation, the article stated that there is nothing illegal, unethical, or improper for a seller’s agent to offer minimal compensation to cooperating buyers’ agents in an MLS for any particular property, with the seller’s informed consent.  The article then discussed a buyer agent’s legal obligations and options when confronted with such circumstance.  Today’s article will consider a seller agent’s legal obligations and options regarding cooperative compensation offered to buyer’s agents.  

In Arizona, a seller’s agent can only enforce their right to compensation by having a valid employment agreement with their client.  Ariz. Revised Statutes 32-2151.02. Pursuant to this statute, real estate employment agreements are subject to the following legal requirements (i) be written in clear and unambiguous language; (ii) fully set forth all material terms, including the terms of broker compensation; (iii) have a definitive duration or expiration date, showing dates of inception and expiration; and (iv) be signed by all parties to the agreement.  Therefore, employment agreements spell out all terms of the employment including the negotiated compensation for the seller’s agent and any compensation the agent may offer to a cooperating buyer’s agent.  Article 1, Code of Ethics requires all REALTORS® to treat all parties honestly and this duty applies when negotiating terms of an employment agreement.

An agent representing a seller owes a fiduciary duty to the seller to act in their client’s best interest.  Ariz. Admin. Rule R4-28-1101(A) and Article 1, Code of Ethics.  However, the fiduciary duty does not require the seller’s agent to change or renegotiate their employment agreement with the seller.  See generally Ariz. Admin. Rule R4-28-1101(D).

Frequently Asked Questions

Q1. Can seller agents continue to offer compensation to buyer agents in an MLS?

A1. Yes.  No court order and no pending settlement agreement prohibits offers of compensation to buyer agents in an MLS (the “Participation Rule”).  The trial court in the Burnett case has also preliminarily approved settlements with RE/MAX and Anywhere Real Estate, Inc., the terms of which allow those brokerages’ continued practice of offering buyer agents compensation.  Arizona REALTORS® will immediately notify its members if this changes.

Q2. What should seller agents advise their seller clients when discussing their employment contract and compensation? 

A2. Seller agents should discuss the amount of compensation to be paid by the seller to them, making it clear that the amount of compensation is negotiable. The amount of compensation set forth in the employment agreement should be documented only after a discussion with the seller has taken place and an agreement on compensation has been reached.  The seller agent should also discuss the seller’s various options for offering compensation to the buyer’s agent and why it may be advantageous to do so.  Again, seller agents should make it clear that there is no set or established amount of compensation to be offered to the buyer’s agent and it is therefore up to the seller to determine this amount.

Q3. Does this mean the seller’s agent is obligated to offer the amount of buyer’s agent compensation determined by the seller?

A3. Yes, if the agent accepts the employment of the seller.  Compensation is always negotiable and is agreed upon with the consent of the parties.

Q4. Should a seller’s agent insist that the seller allow a minimum offer of compensation to a buyer’s agent?

A4. In some instances, a seller’s agent may conclude that they are unable to effectively represent a seller and effectuate a sale of the property without a minimum offer of compensation to the buyer agent. Article 1, Code of Ethics requires all REALTORS® to treat all parties honestly.  If the seller’s agent honestly believes that this is the case, they are within their rights to decline the employment.

Q5. Is a seller obligated to allow their agent to offer compensation to a buyer’s agent that they feel is unwarranted?

A5. No.  Compensation is always negotiable and this decision belongs to the seller.

Q6. Can a seller’s agent offer minimal buyer agent compensation with the seller’s consent?

A6. Yes.  Compensation is always negotiable and is agreed upon with the consent of the parties.

Q7. Is a seller’s agent obligated to accept employment compensation in an amount that they do not agree to?

A7. No.  The Thirteenth Amendment to the U.S. Constitution protects people’s right to refuse to work unless the terms of employment are acceptable to them.

Q8. Can a seller’s agent request different compensation amounts based on whether the ultimate buyer is represented, unrepresented or subject to limited representation?

A8. Yes.  Compensation is always negotiable and can be variable with the consent of the parties.

Q9. Can a seller’s agent request the same compensation amount regardless of whether the ultimate buyer is represented, unrepresented, or subject to limited representation?

A9. Yes.  Compensation is always negotiable and agreed upon with the consent of the parties.  Best practice would be for the seller’s agent to explain to the seller why the same compensation amount would be justified.

Q10. If I am a seller’s agent and I’m communicating with an unrepresented buyer, how can I establish that I’m not representing the buyer?

A10. Best practice is for the seller’s agent to clearly communicate to the buyer in writing as soon as practicable that they do not represent the buyer.  The seller’s agent can also use the Real Estate Agency Disclosure and Election form to have the buyer acknowledge the fact that the agent only represents the seller. In the event that the parties execute an AAR Residential Resale Real Estate Purchase Contract, this fact can also be documented in Section 8r.  Finally, the seller’s agent should continually remind the buyer that they do not represent them and should document all communications stating so.

Aaron M. Green, Esq., a licensed Arizona attorney, is the General Counsel for the Arizona Association of REALTORS®.  This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.