Insights into the Cooperating Broker Agreement: Essential Terms and Advantages

Defining the Cooperating Broker Agreement

Cooperating Broker Agreement Definition and Purpose
One of the most common forms of a broker’s sales representative that is used in today’s real estate business is the Cooperating Broker Agreement. The Cooperating Broker Agreement is the method by which a real estate broker finds out ahead of time what the terms and conditions are of splitting a commission with another real estate broker. A Cooperating Broker Agreement is usually a standard agreement that has been changed in so far as the percentage amount that the cooperating broker will be paid pursuant to the split.
In other words, the Cooperating Broker Agreement sets forth that the sales representative agrees to get the word out on a particular real estate listing and if a sale is made by someone that learned about the listing from a sales representative who has signed this agreement, the seller agrees to compensate the broker for their services via the payment of a percentage of the sales price of the land or home.
A Cooperating Broker Agreement, similar to a Joint Venture Agreement creates a bond of allegiance between the brokers. The difference between a Co-Broker Agreement, sometimes called a Co-Agency agreement, and a Joint Venture Agreement is the same as the difference between an oral contract and a written contract. The Co-Broker Agreement is a binding agreement (or if written a legally enforceable contract) without any further evidence being necessary. On the other hand , unless a Joint Venture Agreement has been executed and signed by a seller, it is likely that a Court will find no agreement existed.
Real estate brokers and sales people use a Co-Broker Agreement when they think they may have a buyer for a listing that another broker holds. Once the real estate broker (or salesman) identifies the property, a written Co-Broker Agreement may be executed by the selling broker and the selling agent. Alternatively, a real estate broker may want to put the new property listing into a computer system that links all of the real estate brokers in the area together and helps to insure that all real estate listings have been seen by every other real estate broker and salesman. To make sure that the splits between the brokers are agreed to in advance, a Co-Broker Agreement may be used to set forth what the percentage split will be.
The Co-Broker Agreement is generally done along with the sale agreement. A Co-Broker Agreement may also be created when one real estate broker and sales agent believe that they have a good chance of selling the land or home to one owner or tenant, but want to engage in a large advertising campaign to increase the possibility of selling the land or house to more than one party. Even if the property or land sold pursuant to this commercial real estate broker agreement, the first broker and selling agent will still get their percentage fee as if the land had been sold to only their buyer.

Key Terms of a Cooperating Broker Agreement

Generally, the Cooperating Broker Agreement will address the parties’ duties with respect to a particular transaction. As in any other context, there are a variety of provisions that should be included in the agreement, including, without limitation, the following:

Payment of Broker’s Commission – how it will be paid, to whom, and when?
Liability for Commission – does the sponsoring broker or the cooperating broker have any liability for its approved agent’s commission?
Compensation – what amount, future payments, and for what services?
Notice – how and when will each party provide notice to the other?
Termination – what are the specific circumstances under which the agreement will remain viable or terminate?
Modifications – who can make changes to the agreement?
Indemnification – is there any liability for breach of the agreement, and is any broker indemnified?
Entire Agreement – is the cooperating broker agreement the entire agreement between the parties regarding the matter?
Governing Law – what state’s law will govern the agreement?
Acknowledgements – does each party acknowledge that no promises have been made, other than the agreement, and what the obligations under the agreement entail?
Disclosures to Licensees – are all parties required to disclose the agreement upon request by the licensing authorities?
Dispute Resolution – what obligations do the brokerages have to resolve disputes, including mediation, arbitration, etc. prior to filing a lawsuit?

Ultimately, the number of provisions required in any Cooperating Broker Agreement (or lack thereof) depend on the particular circumstances, including nature and terms of the actual transaction.

Cooperating Broker Agreement Advantages

Both purchasers and sellers stand to benefit from using a cooperating broker agreement because it enables a party to a real estate transaction to avail themselves of the benefits of cooperating brokers certified by The Canadian Real Estate Association. It permits members of a real estate board to provide their clients the services offered by all members of both boards and enables them to do so at a reduced cost due to the economies of scale inherent in the overwhelming majority of the services provided by real estate professionals. The party who is the purchaser of real estate wants to purchase a home as expeditiously as possible and for the best price possible. The same can be said for a party who is the vendor in a real estate transaction. Ideally, the sale should occur without delay and each party should pay a minimal compensation to their respective brokerage firms who assist them with the transaction. A cooperating broker agreement will clarify for all parties to the transaction who is responsible to whom, and what services will be provided by each party to the transaction. The agreement will ensure that the services to be provided by the cooperating brokers to the client of either brokerage firm are clearly set out and understood. The primary benefit to the broker and the client is that the clients’ salesperson/representative shall recognize the cooperating brokers as being qualified and committed to providing them with a valuable service. Any questions or concerns arising regarding a real estate transaction involving a cooperating broker may be directed to either brokerage firm as the service provider.

Drafting a Cooperating Broker Agreement

When tasked with drafting a cooperating broker agreement, it is essential to address your specific needs and nuances of any particular deal. There is significant state-specific practice on what is legally required to be contained in these agreements. Below are some steps that should be taken when drafting or updating a cooperating broker agreement:

Seek the counsel of an attorney with experience in preparing these agreements. They may have a form that addresses the elements in such agreements. In many states, these forms are just a long form without many services defined. You may need to have your attorney cut and paste from several different agreements to create one that will do the job for your specific deal. For example, you may want to exclude certain services that a normal cooperating broker service may handle. Alternatively, you may want to specify exactly what services are to be performed. The negotiation of these agreements is very important to your rights and responsibilities.
When creating the terms of the agreement, be sure to determine what forms of compensation will be available to the cooperating broker. When using a residential real estate professional, you will likely be only working with real estate professionals who are licensed in your location. This license will usually allow for co-brokerage commissions, and other types of compensation.
Make sure to review whether the broker obtaining the agreement has an exclusive listing. If so, you may want to make sure that they are agreeing to pay you a fee for your services as opposed to splitting the fee with the broker they are paying (who has the exclusive). This can help you save an insane amount of money in hopes of getting an exclusive listing.
When dealing with a purchase and a sale agreement, you may want to get language in the agreement that addresses auction properties. If this is going to happen, you need to make sure that the auction house is aware of its obligations under the agreement.
If you are the buy-side broker for listed real estate, you will require a signature from your client for any changes in your contract with the listing broker. Make sure that there is language in the listing agreement that requires a signature from your buyer for any changes to be made to the listing agreement.
When working with a real property manager, typically only a licensed real property manager who has all of the correct licenses (as well as an auction license if they sell at auction) can sell real property. If this is the case, you will have to find a way to have the real property manager approach the seller and suggest that the seller hire the manager for an auction, if the manager is licensed to do this. Or you must figure out whether the manager wants to use a real estate broker if they do not have a license to auction real property. You do not want to be in the position of being the broker who handles all of the theoretical issues for the parties.
If you are going to list real property, make sure that the parties know that the brokers want the parties to list the real property. You want the parties to be compelled to sell the property to the brokers.
Near the end of the process, you will want to make sure that the parties have agreed on how the sale is going to occur. That is, have both of the parties (in writing) signed the same contracts. Also, you will want to make sure that all parties are aware of the timeline of when the sale will occur.
Finally, depending on the expected selling price of the real property, you may want to get your attorney to prepare the offer and acceptance.

In addition, you may want to contact a real estate auction company that has experience in dealing with your local market and is experienced in conducting online auctions. You want to double-check to see that the online auction site is compatible with what the seller wants to do. Ask about fees and other charges that may be imposed by the online auction site. If things are not clear, be sure to request that the broker provide you with copies of any forms that may be needed to make sure that you are able to sign up for online auction services.

Common Issues and Solutions

Navigating the process of agreeing upon a cooperating broker agreement can sometimes be complex and confusing for brokers. One of the common challenges faced is that communication can break down and each individual’s expectations can be misaligned. This is often due to the terms of the agreement not being discussed in detail or not being well understood by all parties involved. The best way to overcome this issue is always to ensure that all involved have a clear understanding of the terms of the agreement before closing the deal. For example , brokers can begin the process of negotiating a cooperative agreement by taking the time to find out whether all parties are comfortable with how the commission funds will be split. Be sure to ask questions to seek clarity and agreement amongst everyone involved. It may also help to bring up the discussion outside of a stress-filled closing situation and perhaps in advance of an upcoming deal. Brokers might also consider pushing for a standard cooperating broker agreement template to be developed amongst themselves to remove additional confusion. It is also important to ensure that a broker fully understands the terms of how drafting the cooperating broker agreement will be handled as sometimes it may be necessary to hire a real estate lawyer to draft the terms in detail.

Legal Considerations in a Cooperating Broker Agreement

The legal implications of a cooperating broker agreement can be significant for both parties, especially if you are the listing broker. As the listing broker, you want to make sure that you have an enforceable agreement with the cooperating broker. If an enforcement problem arises with such an agreement, the listing broker will not be entitled to compensation from the cooperating broker. Both brokers should make sure that the cooperating broker agreement is compliant with state and federal law. The cooperating broker does not want to face a penalty for engaging in a contractual relationship that runs afoul of local real estate laws. Ongoing regulation of real estate brokers may create new problems in the future that may not exist today. You should keep these issues in mind when your brokerage enters into a cooperating broker agreement.
A cooperating broker agreement is also a contract, and like all contracts, it can lead to a legal dispute. If the cooperating broker has received compensation from the listing broker, the listing broker may have difficulty getting reimbursed for that compensation. Like all disputes, the litigation strategy that the parties may choose to pursue can drive the specific legal issues that arise in a dispute about a cooperating broker agreement. While the broker may believe that the cooperating broker has violated the contract, the cooperating broker may argue that the listing broker has violated the contract. Similarly, while an unauthorized payment of commission may seem like a violation of a cooperation broker agreement, the cooperating broker may not consider the payment a violation of the agreement.

Cooperating Broker Agreement Examples

A common scenario in the world of residential real estate is that a client is outside the area, dislikes the realtor they have been working with and asks their favorite real estate attorney (who happens to also be a realtor) to help them sell their home or find a new one.
In these cases, it is always in the best interest of the attorney to enter into a cooperating broker agreement with the other realtor. Other rules and guidelines will apply for attorneys who do not actively engage in the practice of real estate, but for practicing attorneys, it is important to understand that the real estate commission is being earned, not being gifted. And, if the commission is not split, the attorney is engaged in the unauthorized practice of law.
From advice given to an attorney’s client, writing of a purchase and sale agreement to negotiate the points of difference, the attorney is providing the necessary services that need to be compensated. If the final price is a negotiated figure of over $500,000.00, the commission rate that is typical could be in the $20,000 – $30,000 range. In this type of case, those figures would easily exceed what the attorney billings could be if done on an hourly basis. Even if the commission is $10,000, the cooperating broker should be paid the same amount as the attorney.
The analysis that goes into the investment of time and resources , and the amount of skill needed to be competent in those tasks should be given weight when looking at how to fairly share that compensation.
The following are real world, specific examples where the attorney can reasonably, and ethically, expect to be compensated for cooperating with another broker.
The following scenarios are based on actual transactions: 1. An attorney represents buyers, and the other broker represents the seller. The commission amounts to $2,500 (tied for low). The organization is such that neither party could handle the transaction alone. The commissions are equally divided. In this case, neither party was "winning" out. 2. An attorney represents buyers, and the other broker represents the seller. The commission is $20,000 (tied for high), but the parties agree that the attorney’s services were no less valuable than the selling broker. The commission is equally divided. 3. An attorney assists a non-broker with a sale of property. Both parties agree that one-third of the commission would be reasonable and fair. 4. A commercial transaction where all parties cooperated, and the commission was allocated on a 50/50 basis. 5. Again, a successful commercial transaction where the firm received payment and the attorney obtained a successful referral fee.