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This Old House - Do-it-Yourself

Who Will Settle Money Disputes Between Agents?

Written by Posted On Monday, 18 August 2014 18:06

Occasionally, disputes about money arise between real estate agents. An agreement to split the commission on a listing; a share-the-buyer arrangement on an open house; a listing referral that becomes a new claim when the sellers turn into buyers; etc. etc. The list of possibilities goes on.

Moreover, it is entirely predictable that more of these disputes will arise as the number of teams and various joint enterprises grows and grows.

Frequently, commission sharing and payment agreements between agents are set forth in writing. All too often, they are not. But, even if inter-agent payment agreements are written out, and written well, it is no guarantee that they will be honored. Questions of interpretation can always arise; and, occasionally, even if everyone agrees on meaning, someone may just renege.

When such disputes arise, who is to settle them?

No doubt the first and most natural response is to say, "The broker will have to decide." This, in general, is not something that brokers want to hear. For the most part, brokers see playing the role of arbitrator between disputing agents (including non-monetary disputes) as a no-win situation. One of your agents is going to be mad at you. Maybe both. Who needs that?

As a result, it is not uncommon for brokers to have a written non-arbitration policy with respect to agent money disputes. "If two (or more) of you have a dispute about money matters, don't come to us/me. We will not settle it. Work it out yourselves."

If the broker won't resolve such issues, where can an agent turn? For REALTORS®, the local association arbitration process seems a natural option to choose. But, unfortunately perhaps, this is not available. Article 17 of the Code of Ethics says that, "In the event of contractual disputes…between REALTORS®(principals) associated with different firms..." they shall mediate, or, failing that, "...submit the dispute to arbitration in accordance with the policies of the Board..."

But, this applies to disputes between different firms. It does not apply to disputes among members of the same firm. The Code does not require, nor do I know of any association that would provide, arbitration for members of the same firm.

What next? One or both of the disputing agents may believe it is appropriate, perhaps even necessary, to seek redress in the civil courts. But this is no slam dunk either.

California Business and Professions Code §10137 says that, "No real estate salesperson shall be employed by or accept compensation from any person other than the broker under whom he or she is at the time licensed." Also, "It is unlawful for any licensed real estate salesperson to pay any compensation for performing any of the acts with the scope of this chapter to any real estate licensee except through the broker under whom he or she is at the time licensed." These provisions are similar to the laws of many states. Agents cannot pay other agents for real estate services. Only brokers can pay agents -- their own agents -- for real estate services; and agents can only accept such payments from their brokers.

A court is likely to say, "There is no dispute here that we can resolve. We cannot require Agent A to pay Agent B, nor vice versa. Either option would violate existing law. Nor can we require the Broker to pay a certain amount to one and another amount to the other, if the Broker was not, in the first place, a party to an agreement to do so."

Agent-to-agent monetary disputes have been around for a long time. Many of them get worked out. Others don't. It is quite likely that more such disputes will arise as team and associations form and eventually disband. Real estate agents who enter into such agreements would be well-advised to be sure that their agreement also contains a dispute-resolution provision. For example, agents could agree, within the contract, that any dispute would be resolved by arbitration (though not by arbitration through a local Realtor®association). There is plenty of precedent for contracts, even real estate purchase contracts, to contain such provisions. Moreover, like the California purchase contract, the agreement could also contain a provision requiring mediation before the arbitration.

Of course the dispute resolution provision could become a subject of dispute as well. But that's a problem for another day.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of Ethics at Work and Real Estate the Ethical Way. A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at scbhunt@aol.com.

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