A Brief Introduction of Commission Split Agreement?
This agreement is an agreement through which two or more parties agree to split the commission earned by them in a particular transaction. There can be various types of such split fee agreements depending on the parties that are involved. Such agreements are mostly used in the field of real estate when commission is split between the broker and the real estate agent for the sale or purchase of a particular property. This type of agreement is known as a broker agent commission split agreement.
A real estate agent is not allowed to work directly with a client and must always work under a broker. The commission is paid by the client directly to the broker, who then splits it with the agent. This is why an agreement of this nature becomes crucial. A similar agreement may also be used in insurance transactions and is known as an insurance agent commission split agreement.
Who takes the Commission Split Agreement
This agreement is entered between the broker who is responsible for the sale or purchase of a property and the agent who is responsible for finding suitable buyers or sellers for it.
Purpose of the Commission Split Agreement
The purpose of this agreement is to give effect to the intention of the parties and lay down the method and ratio by which they agree to split the commission earned by them. A question may arise as to how do real estate teams split commission? There are multiple methods and models available for the splitting of commission, and the parties may select the model most suited to them. This will also depend on whether the agent is a salaried employee of the broker or an independent contractor.
The commission split will also depend on the brokerage firm for which the agent is working. One of the most popular brokerages is RE/MAX. In the Remax commission split, the agent gets up to 95% of the commission. Another brokerage is eXp Realty. The agents at eXp Realty receive the exp realty commission split at a ratio of 80:20. There are other commission split structures also available at every brokerage firm, and the agent can choose any suitable one among them.
This agreement is extremely important, and in the event that the parties do not enter this agreement, they will not have any evidence of the ratio at which they have agreed to split the commission between themselves.
Contents of the Commission Split Agreement
This agreement must first identify the parties in question with their names and contact information. It will then state in what capacity the agent has been hired by the broker or the brokerage firm. This can be on a salary basis, salary plus commission basis, or only on a commission basis (in the case of a freelance agent). The commission split ratio that has been decided upon must be clearly mentioned in the contract. It should lay down what the duties and responsibilities of each party will be.
The agreement must also mention the term during which it will be in force and the territory in which it will be enforceable.
How to Draft the Commission Split Agreement
The following are the steps to follow while drafting a split commission agreement:
- The parties will first have to determine the manner in which the commission will be split among themselves.
- All the details that are important to the transaction must be laid down in writing.
- The parties must make sure that their rights are protected under the agreement.
- The agreement must finally be signed by all the involved parties.
Negotiation Strategy
- In a contract of this nature, the negotiation between the broker and the agent will revolve around the splitting of commission. Most brokerages have different commission structures that can be chosen by the agent based on his convenience.
- The agreement should be equally balanced between both parties.
[ Also Read: Commission Agreement ]
Benefits and Drawbacks of the Commission Split Agreement
The following are the benefits and drawbacks of an agreement:
- This agreement serves as proof of the commission split ratio that has been decided upon by the parties.
- It prevents any miscommunication between them.
- The agreement can be used as evidence in case any dispute crops up between the parties at any stage in the future.
What Happens in Case of Violation of the Commission Split Agreement?
In an agreement of this nature, parties usually prefer inserting a mandatory arbitration clause. This requires the parties to submit any dispute that has arisen between them to an arbitration tribunal. It is an easier and quicker process as compared to instituting a suit in court. The arbitration tribunal will attempt to solve the dispute in a manner that is satisfactory to both parties. The parties can also choose to conduct negotiations among themselves to settle the dispute(1).
If the parties cannot reach an amicable solution through arbitration, they can approach the courts for a suitable remedy.
In conclusion, this agreement is created whenever a commission is to be split between two or more parties. It is extremely necessary to lend transparency to the entire transaction and to make sure that the parties have reached a consensus on all the integral aspects. A written agreement is always needed to prevent disputes and to resolve any that arise(2).