The salary structure for real estate agents is unique. After all, everything in real estate is negotiable, from the commission split with your brokerage to the commission rate the client pays for services. It’s little wonder that real estate commission disputes sometimes occur among agents or between agents and their brokerages.
Are you currently experiencing a real estate commission dispute? Here are some actionable insights and strategies for resolving commission disputes effectively. But first, let’s look at common causes of commission disputes.
Related Article: Real Estate Agent Commission: How Your Real Estate Agent Gets Paid
Common Causes of Commission Disputes
What causes commission disputes between real estate agents and their brokerages? Here are some of the most common causes – and examples of each.
Related Article: Choosing a Real Estate Brokerage: What Every Agent Needs to Know
1. Miscommunication
Differences in expectations are at the heart of many commission disputes.
Here’s an example of how miscommunication could cause a dispute between an agent and their brokerage.
An agent worked under the assumption that all sales involving first-time homebuyers would qualify for an additional 0.5% commission bonus based on a conversation with the brokerage’s managing broker. However, the brokerage had intended this bonus to apply only to transactions that closed within a specific time frame. This detail was not communicated to the agent, who was disappointed when they didn’t receive the additional 0.5% from a recent sale.
2. Contractual ambiguities
Contracts between agents and brokerages must be crystal clear – as do contracts for the purchase of a property. Here’s what can happen when a new agent doesn’t understand the complexities of their contract with the brokerage.
A brand-new agent focusing on residential real estate signs a contract with a brokerage for a 70/30 split. However, after closing a commercial property sale, the agent discovers they only received 60% of the commission. The agent assumed the split applied to every type of transaction. However, the brokerage has a different commission split policy for commercial properties, which wasn’t outlined in the agent’s contract.
3. Disputes over performance
Some brokerages have performance benchmarks that must be met before an agent can earn a commission. Here’s an example of how a dispute over an agent’s performance may cause commission conflict.
An agent was working on a high-value property sale but was removed from the listing by the brokerage just before closing. The brokerage claimed the agent had not met specific performance benchmarks, which they believed justified reassigning the sale.
4. Brokerage policy changes
Sudden changes in commission structures or policies can lead to conflicts.
A brokerage changed its commission structure from a flat fee to a tiered system based on the number of transactions an agent closes each quarter. The leadership emailed agents to inform them about the new policy.
These are just a few examples of issues that may occur between a brokerage and its agents.
Legal Framework Governing Commission Disputes
Fortunately, there is a legal framework governing real estate commissions. Your real estate pre-licensing courses will teach you about these state-specific laws and regulations.
Generally, these laws dictate the conditions under which commissions are earned and paid, often emphasizing the need for clear, written agreements to avoid misunderstandings.
You’ll find that many brokerage agreements include clauses for mediation or arbitration as a first step in resolving disputes. Additionally, real estate boards may offer dispute resolution services.
Strategies for Preventing Commission Disputes
Disputes are stressful and waste everyone’s time. Here are some strategies for avoiding problems with your brokerage company.
1. Insist on clear communication
If you don’t understand contract terms or brokerage policies, ask for a clear written explanation. This will ensure that both parties understand and agree upon all terms.
2. Insist on a detailed contract
Ensure all commission-related details are explicitly stated in the contract between the agent and the brokerage.
3. Document everything
You may not anticipate a dispute with your brokerage, but it is best practice to keep thorough records of all communications and agreements related to commissions.
Finally, if you have a leadership position within the brokerage, encourage regular policy reviews to help prevent misunderstandings.
Steps to Take When a Dispute Arises
We’ve discussed common disputes between agents and brokerages and strategies for preventing them. Now, we’ll discuss what to do when a dispute arises.
Step 1: Calmly present the information related to your dispute to your immediate superior.
Some people find it hard to remain calm if they feel mistreated at work. However, in most cases, it’s best to approach work-related disputes calmly. Send a polite message to your immediate superior. The problem may have been a simple oversight that can be easily corrected.
Step 2: Review your contract.
If the communication with your superior doesn’t yield results, review your contract for clarity on disputed points.
Step 3: Seek mediation.
If your contract review shows that you have a valid argument regarding your commission dispute, seek mediation. Many brokerage agreements include clauses for mediation or arbitration with a neutral third party. Additionally, real estate boards may offer dispute resolution services.
Talk with an attorney if you feel that the situation is serious enough to warrant legal action.
A clear understanding of real estate contract law and state-specific regulations is critical for agents.
For quality real estate pre-licensing, continuing education, and broker courses, turn to Colibri Real Estate School. Colibri Real Estate (formerly Real Estate Express) offers flexible learning options without compromising quality.
To become a better negotiator, consider enrolling in the Real Estate Negotiation Institute by Colibri Real Estate. We offer two certifications: Certified Negotiation Expert (CNE) and Certified Buyer Agent Expert (CBAE). Since 2006, RENI has helped over 70,000 agents improve their negotiation skills.
Click here to see what our RENI course completers say about this real estate negotiation training and to learn about the two certification options.
Key Takeaways
- Miscommunication, contractual ambiguities, performance-related issues, and sudden brokerage policy changes are common triggers for commission disputes between real estate agents and brokerages.
- It is crucial to ensure that all commission-related terms are clearly communicated and explicitly stated in contracts. Misunderstandings often arise when expectations are not clearly defined.
- State-specific laws and regulations govern real estate commissions. Many brokerage agreements include mediation or arbitration clauses, offering a structured approach to resolving conflicts without resorting to litigation.
- Agents should insist on clear communication, detailed contracts, and thorough documentation of all agreements. Regular policy reviews within brokerages can also help prevent misunderstandings and potential conflicts.
