Seeing Double? Get Your Forms Checked 

There is still some ongoing confusion about how to use PAR standard forms to express the difference between broker-to-broker cooperating broker compensation and seller concessions that are used to pay a buyer’s broker fee. There shouldn’t be — here’s a good primer on discussing them — but there is. 

As a result of this confusion, the Legal Hotline is fielding a fair number of calls from agents and brokers who find themselves in a bind because one of the agents (or sometimes both of them) didn’t quite get it right and they end up with what appears to be a double fee in the forms. Here are two common scenarios and some suggestions on working your way out of them.  

Scenario #1: Doubling up the buyer broker 

The listing broker and buyer broker signed an agreement for cooperating broker compensation of five donuts, which is the maximum that the buyer broker can accept. But then they also put five donuts in the seller concession paragraph 3(A) of the Agreement of Sale because they thought that was a place to restate what was in the cooperating broker compensation form (It. Is. Not.). 

Is the buyer broker now entitled to both fees — five donuts paid through the listing broker as cooperating broker compensation AND five more donuts paid directly by the seller? 

Technically, that’s what the relevant documents say. But this likely isn’t what the brokers or parties actually wanted, so hopefully this will get fixed before anyone overpays or over-collects. In fact, the key is to fix it right from the start so it doesn’t become a problem at or near the closing table. 

Since cooperating compensation is, by rule, supposed to be ascertained and negotiated prior to the submission of an offer through a buyer broker (see Standards of Practice 3-1 and 16-16), the brokers should know what they’ve agreed to before they see whether a seller concession is part of an offer. If either broker sees a number greater than zero as cooperating compensation AND a number greater than zero as a seller concession for a brokerage fee, those brokers need to have a conversation and figure out if the numbers are actually supposed to be cumulative (two donuts over here and three donuts over there equal five donuts in total), or if they were accidentally repeated and one of them needs to be deleted.  

Note that I purposefully used the word “broker.”  Given the settlement-related risks if a broker were to regularly accept more than the amount in their buyer agency contract, and the transactional risks that could come from clients going after brokers if settlements are delayed because of easy paperwork errors, brokers and managers should be actively involved in reviewing transaction files for this specific issue as a backstop for their agents. We’ve yet to hear of an agent or party who resisted making that sort of obvious correction right at the start of the transaction, but we’ve heard of some tense closings as brokers, clients, title companies and lenders have to navigate unwinding contract terms at closing. 

Scenario #2: Doubling up the listing broker 

Using PAR’s listing contract (Form XLS), the listing broker and seller agreed to a total broker’s fee of 12 donuts, and that listing broker was “authorized and instructed” to offer six of those donuts as cooperating compensation to a buyer broker. The buyer broker has a brokerage policy to not accept cooperating compensation, so that offer of compensation was refused and the buyer broker was paid in some other way (which isn’t important to this scenario). Does the listing broker now get to keep the entire 12 donut listing fee, even though they didn’t actually pay six donuts to the buyer broker?  

Just like the first answer, it depends on the intent of the parties just as much as the language of the form. According to the terms of the listing contract, the “broker’s fee” is a set amount, and if there will be any cooperating broker compensation it will be paid out of the total broker’s fee. If it turns out that the listing broker ends up paying 6.5 donuts, then they’d only net 5.5 donuts as their fee for listing the property. If they end up paying zero donuts, then — at least in theory — the listing broker would net 12 donuts as their fee for listing the property. But again, if that’s not really the intent of the parties (seller and listing broker), it may be necessary and appropriate to amend to listing contract to reflect the intent of the parties. 

Given that most markets seem to be seeing a mix of buyer brokers accepting and declining cooperating compensation, it is a good idea for listing brokers to discuss this potential outcome with sellers when signing a listing contract — don’t wait until the situation arises. The two main choices are either that the contract stays the same and the listing broker keeps the entire fee, or the seller and listing broker agree to a one-time reduction in the listing fee to account for some or all of the fee that’s not going to be paid as cooperating compensation in this specific transaction. PAR has no position on what this outcome should be (we deliberately didn’t include a default renegotiation clause in the contract), and we cannot provide specific contractual language to brokers who may want to amend their listing contracts — so we also encourage brokers to speak with brokerage counsel about how they’d intend to handle these situations and work up some language with counsel to serve as a starting point for any negotiated changes.