Better Questions = Better Answers

Some of the biggest agent-to-agent conversations in real estate right now are centered on questions of how a buyer broker might get paid in a transaction. And one of the most common PAR Legal Hotline issues is trying to help agents tease apart the strands of those conversations to figure out just exactly what questions are really being asked and how to correctly interpret the answers.  

But it doesn’t have to be this difficult. If buyer agents ask clearer, more direct and targeted questions, listing agents should be able to give clearer, more direct and targeted answers (and as an added bonus, fewer members will need to call the Legal Hotline or bother their brokers trying to figure it all out). 

Allow me to explain… 

There are three basic ways a buyer broker is likely to be paid for their services: (1) broker-to-broker cooperating broker compensation negotiated outside the Agreement of Sale; (2) a seller concession negotiated as part of the Agreement of Sale; or (3) directly from their buyer. Let’s focus on the first two, since those are the ones creating confusion between the agents right now.  

First, it’s important to understand that broker-to-broker cooperating compensation and seller concessions are different things that are negotiated differently. This isn’t the place for a full explanation of the difference, but it’s important to understand that, by definition, cooperating compensation is an agreement between brokers and seller concessions result in an agreement between the buyer and seller. Both are on the seller side of the transaction, but the money comes from different places in different ways, so you need to ask different questions to figure out which may be offered in a particular transaction (if either are even being offered up at all). 

Many of the problems we’re seeing start with buyer agents asking questions like: 

• “What’s my fee?” 
• “What’s your offer?” 
• “How much will I make?” 
• Sending a text that that reads “$?” (my personal favorite!) 

These questions are not clear on which type(s) of compensation you are asking about — they could be read either way, so they often lead to equally unclear answers like: 

• “My client told me not to tell you.”  
• “You’re not allowed to use Form CBC.” 
• “Just put it in the Agreement.” 
• “How much do you want.” 

Those answers might be valid for some interpretations of the initial questions, but totally inappropriate for other interpretations of the questions. Getting better questions will (hopefully) lead to clearer and more helpful answers.  

Better Questions: Cooperating Compensation 

Buyer agent: If you want to know about the possibility of broker-to-broker cooperating compensation, then ask the question, “Are you offering broker-to-broker cooperating compensation?” 

Seriously — write down that exact question and ask it with those words. 

Listing agent: If you’re using PAR’s listing contract, there are really only two viable answers to that question. (NOTE: Legal Hotline attorneys can only comment on the words in PAR’s standard forms, so that’s all that we will discuss in this article. If your brokerage uses different forms or different fee language, consult with your broker/manager about how to answer these compensation questions.) 

Option 1: No, the listing broker is not offering cooperating compensation. 

Option 2: Yes, the listing broker is offering cooperating compensation, and here’s the number that the listing contract says I’m authorized to offer you. 

To be clear, paragraph 6(A) of the PAR exclusive listing contract (Form XLS) says that the “Seller authorizes and instructs Broker to offer cooperating compensation in the amount of _____% or $___________ of/from the Purchase Price” to a cooperating broker. If the amount is filled in with a zero or left blank (and it defaults to zero), then there’s no cooperating compensation, and you answer with “no.” 

If there’s a number greater than zero filled in, then that’s the offer the listing broker has agreed to make to a buyer broker. It doesn’t say the listing broker can offer “up to” a certain amount, that they have the authority to vary the offer of compensation based on which agent makes the request or that they are to conform their initial offer of compensation to an amount equal to what the buyer agent says they’re willing to accept. The PAR listing contract says they are authorized to make an offer of compensation “in the amount of” the number that’s placed in the contract, and that’s it.  

Think of it like the list price of a property. Listing agents discuss and agree on a list price with the seller, and that is THE price at which the property is offered. Different buyers don’t get told different prices — the offer/list price is the same for everyone. A buyer isn’t obligated to purchase at that price, though — each buyer will attempt to negotiate a price that would work for them. Same with broker compensation. Nothing about the offer of compensation limits a buyer broker’s options. A buyer broker could try to negotiate more, or they might agree to negotiate less, but the initial offer of compensation from the listing broker should be a consistent amount to all buyer brokers based on this language. 

Finally, note that if the brokers do agree on cooperating compensation, it needs to be in writing and signed by the brokers to ensure that there’s actually a contract for that compensation. You can use PAR Form CBC for that purpose, or brokers may have developed their own forms for that purpose.  

Better Questions: Seller Concessions 

Buyer agent: If you’re asking about a potential seller concession, then ask the specific question, “Is the seller willing to consider negotiating a seller concession?”  
 
Write that one down too. 

Listing agent: This one is a bit more complicated, but there are still some pretty clear options. 

Option 1: No, my seller will not consider seller concessions in any circumstances. 

Option 2: Yes, and if that’s something that interests your buyer client, then ask for it in the Agreement of Sale and the seller will decide how to respond. 

Option 3: Yes, and … whatever information you may be authorized to share about a seller’s negotiation position (e.g., a maximum amount or certain conditions they’d want met before negotiating). 

To understand which of those answers works for your transaction, look to paragraph 7 of Form XLS. (Again, we’re only discussing this in terms of PAR’s standard forms.) 

The default in paragraph 7(A) is that the seller is willing to consider negotiating concessions in general. If there are any limitations on that (e.g., if the seller is refusing all concessions or wants to put conditions on them), then make sure those terms are written in. 

Next, look to paragraph 7(B), which authorized the listing agent to “advertise or otherwise inform potential buyers and their brokers about Seller’s willingness to negotiate seller concessions” via any “method of marketing or communication authorized” by the contract. Once you know the seller’s intent, any limitations on what and how you share can go here. For example, if the seller is willing to negotiate but doesn’t want to telegraph in advance how much they might be willing to give as a concession, it would be a good idea to write in language that says something like “listing agent not authorized to discuss the amount of concessions with buyer agent.” That way there’s no confusion at all about how to answer these questions.  

Better Questions: Client discussion

If you haven’t figured this out yet, before the buyer agent can ask a question or the listing agent can answer it, both agents need to have clear and detailed discussions with the clients to be sure you know what parameters you’re working within. Explain the different compensation models. Explain your own brokerage policy/preferences and how those might affect a transaction. Discuss how different business models of brokers on the other side of the transaction might affect the types of compensation options that might be on the table. And so on. If everyone just puts those options out there with clear, direct questions and statements at each stage, the communication will be far more effective for all.  

For more resources on settlement-related changes and standard forms updates, see PAR’s resource page.