In this edition of Legal Notes from the MAR Hotline, they are addressing when a broker is required to provide a commission check, and what to do if / when discover your seller has an existing exclusive right to sell agreement.
Q: I have an Exclusive Right to Sell but another Broker just listed the property in the MLS. What do I do?
A. An Exclusive Right to Sell Listing Agreement is a bilateral contract between the seller of the property and the listing broker. One party may not unilaterally change the terms of the contract or “cancel” the contract. A seller who enters into a subsequent listing contract with a second brokerage is in breach of the original contract and may be obligated to compensate both listing brokers according to the terms of the contract.
When approached by a prospective client, a REALTOR® has an affirmative obligation under Article 16 of the Code of Ethics to make reasonable efforts to determine that the client is not subject to an exclusive agreement for the same type of real estate service. Failure to ask a prospect whether they have an exclusive listing agreement with another broker may subject a REALTOR® to an Ethics complaint.
In a situation where a listing goes live in the MLS despite being subject to a previously executed listing agreement, the REALTOR® may first want to engage in conversations with the second broker and the seller to try to reach an amicable resolution of the situation. If this is unsuccessful, the first broker may contact the MLS to make them aware of the conflict and/or file an Ethics complaint with their local REALTOR® association. Additionally, the initial broker may seek compensation according to the terms of the listing agreement once the property has closed.
Q. Is a Broker required to provide a commission check for a cooperating broker at the closing?
A. Once a transaction has closed, a cooperating broker is due a commission as agreed upon, either through mutual participation in the MLS or agreement of the brokers. Massachusetts laws and regulations, as well as the MLS rules and regulations, are silent as to when the payment is due to the cooperating broker.
Some brokers may elect to provide commission checks at the time of closing, but many others may choose to wait until the transaction is on record before issuing any payments to a cooperating broker. Ultimately, it is best to issue payment as soon as possible after the transaction is on record and the funds have cleared. While it is permissible to provide a commission check at closing, it is not required as the funds are not available for deposit at the time the check is given.
A subsidiary question to the timing of cooperating broker compensation is: from what account may compensation be paid? Payment may be made either directly from the escrow account or transferred to the operating account and paid from there. Funds drawn from a broker’s escrow account must be properly accounted for and may only be disbursed once the transaction has closed or there is a mutual release or court order.