Compensation and the end of an agency

Real estate compensation is negotiable. There is no statewide standard commission percentage established by DRE, a multiple listing service, or a local association. A brokerage may establish its own independently determined prices, and a client may negotiate or choose another provider. Competitors may not agree among themselves to fix prices or boycott alternative fee models.

A commission can be a percentage, fixed amount, or another lawful arrangement. The agreement should identify the services, the amount or method of calculation, the event that earns the fee, and when payment is due. Never infer these terms solely from a customary practice or from what another transaction paid.

The source of payment does not determine agency. A seller may agree to contribute to the buyer's brokerage expense while that brokerage represents only the buyer. Likewise, a referral arrangement between brokers does not itself establish that the referring broker represents every party in the ultimate transaction.

Some brokerage agreements make production of a buyer ready, willing, and able to purchase on authorized terms the earning event. Others make completion of specified conditions or closing important to the right to payment. Read the actual contract. "The transaction did not close" is not enough by itself to decide every commission dispute.

A ready buyer is prepared to proceed; a willing buyer accepts the required terms; an able buyer has the financial capacity to perform. Someone who loves the property but cannot obtain required financing may not satisfy the ability component. A buyer who offers the asking price with materially different contingencies has not necessarily accepted all the seller's authorized terms.

The seller's prevention of a transaction can affect liability under the agreement. If the broker satisfies the agreed earning conditions and the seller refuses to perform, a fee may remain payable even without a completed sale. If the agreement expressly conditions payment on a closing that never occurs, different analysis may follow. Avoid answering from a slogan when the question gives contract language.

Procuring cause describes the effective cause producing the transaction. It can become important in open listings or competing broker claims. First introduction alone is not necessarily conclusive; an uninterrupted chain of effective activity, abandonment, intervening events, and contractual provisions may matter.

An exclusive right to sell changes the analysis because the agreement generally provides for compensation if the property sells during the term even when the owner finds the buyer, subject to the contract's stated exceptions. An exclusive agency generally preserves the owner's ability to sell without owing that listing compensation when the owner independently produces the buyer. An open listing ordinarily rewards the broker who earns compensation under its terms, commonly by procuring the purchaser.

A protection or safety clause can preserve a compensation claim for specified buyers after expiration if its conditions are met. It is not an automatic extension of every listing. Timely identification of protected prospects, a stated protection period, and exceptions for a subsequent exclusive listing may be important. Read the clause instead of assuming any former inquiry creates a perpetual fee.

A California salesperson receives compensation for licensed activity through the responsible broker under whom the activity was performed. The salesperson should not accept a direct side payment from the buyer, seller, lender, or another broker for that licensed work. Internal commission splits are governed by the salesperson-broker agreement and applicable law.

Changing brokerages does not automatically transfer ownership of an existing listing or a right to bypass the former responsible broker for work performed under that broker. The responsible brokers must address existing transactions, files, client relationships, and compensation through proper procedures. The client's interests and accurate communications remain central during the transition.

Payments to unlicensed persons require attention to what the person actually did. Compensation for an introduction is not a blanket license to pay an unlicensed person for negotiation or other activities requiring a license. Federal law also restricts referral fees and unearned fee splits involving settlement services in covered mortgage transactions. Calling a prohibited referral payment a marketing expense does not change its substance.

Suppose a listing contract provides a fictional negotiated fee of 2% of a $700,000 sale price. The fee is $14,000. If the brokerage's separate compensation agreement allocates 65% of that fee to its salesperson, the salesperson's gross share is $9,100 and the brokerage retains $4,900 before other agreed adjustments.

Keep the calculation's bases separate. The salesperson's 65% applies to the $14,000 fee, not to the sale price. Do not invent a buyer-broker split when the problem does not state one. A seller concession, a referral fee, and a brokerage's internal salesperson split are distinct arrangements that may use different calculation bases.

Agency can end through completion of its purpose, expiration of its agreed term, mutual agreement, the principal's revocation, or the agent's renunciation. Death, incapacity in circumstances governed by law, destruction of the subject matter, or an event making performance unlawful can also affect or terminate authority. Special rules apply to powers of attorney and agencies coupled with an interest.

The principal generally has the power to revoke an ordinary agency, but may lack the contractual right to do so without consequences. Ending authority does not necessarily eliminate a previously earned fee or damages for breaching an employment agreement. Similarly, an agent who withdraws improperly may face consequences even though the agent is no longer authorized to act.

An expected commission is not the property interest necessary to create an agency coupled with an interest. Otherwise every compensated listing could be labeled irrevocable. The exception concerns a legally sufficient interest in the subject matter and should not be casually inferred from the agent's investment of time or advertising money.

When representation ends, the agent should stop acting without authority, account for entrusted money and property, return or handle records appropriately, and protect information that remains confidential. A pending offer or approaching deadline may require careful transition and communication so that ending the relationship does not itself create avoidable harm.

Private termination and third-party protection are separate tests. Civil Code section 2356(a) ordinarily ends authority on the principal's revocation, death, or incapacity, unless the power is coupled with an interest. Under section 2356(b), however, a bona fide transaction with the agent by a person without actual knowledge of that event binds the principal or successors despite that termination.

This protection is not permission for a former agent who knows of revocation to continue acting. Section 2355 separately addresses expiration, extinction of the subject, and the agent's death, renunciation, or incapacity as ending the agency as to persons with notice. Keep the termination event, the recipient's knowledge, and surviving contract claims distinct.

Seller Taylor cancels a listing a week before expiration after the broker has performed the contract's stated fee-earning conditions. The broker cannot continue advertising as Taylor's authorized agent merely because compensation is disputed. Taylor's cancellation also does not, by itself, prove that no commission is owed.

Resolve authority first, then contractual compensation. Apply the agreement's earning conditions, identify the proper recipient of payment, and keep any surviving confidentiality and accounting duties in view. A terminated agency and an unpaid contractual obligation can exist at the same time.