The sponsoring broker’s compensation is specified in the contract with the client.
The amount of a broker’s commission is negotiable in every case. Even subtle attempts to impose uniform commission rates are clearly a violation of antitrust laws. A sponsoring broker, however, may set the minimum commission rate acceptable for his own company.
Commissions
Only a licensed managing or sponsoring broker may collect a commission in Illinois.
The managing or sponsoring broker then may share it with any licensees who are directly involved in or responsible for a given transaction.
To collect a commission on a real estate transaction, the agent must have been “hired” by way of an agreement in which the principal (seller or buyer) agreed to pay a specified commission for services.
The percentage of sales price or dollar amount of commission must have been expressed clearly in the agreement.
If another real estate office “brought in” the buyer, the concept of cooperative commission allows the seller broker to pay the buyer broker the amount of cooperative commission advertised in advance on the multiple listing service (MLS) listing.
This commission check is issued by the listing broker’s office to his own office and also to the buyer broker’s office.
Checks then are cut by each of these sponsoring brokers to any respective salespersons (or other brokers working within the firm) who were directly involved in the transaction.
A commission is usually considered earned when the work for which the real estate broker was hired has been accomplished – seller and buyer have signed a sales contract.
Although commissions are earned when the sales contract is signed, they are usually paid at closing.
Most sales commissions are payable when the sale is consummated by delivery of the seller’s deed. This provision is generally included in the listing agreement. When the sales or listing agreement specifies no time for the payment of the broker’s commission, the commission is usually earned when:
- a completed sales contract has been executed by a ready, willing, and able buyer,
- the contract has been accepted and executed by the seller, and
- copies of the contract are in possession by all parties.
To be entitled to a sales commission, an individual
- must be a licensed real estate broker,
- the procuring cause of the sale, and
- employed by the buyer or the seller under a valid contract.
To be considered the procuring cause of a sale, the broker must have started or caused a chain of events that resulted in the sale.
A broker who causes or completes such an action without a contract or without having been promised payment is a volunteer and may not legally claim compensation.
A ready, willing, and able buyer is one who :
- is prepared to buy on the seller’s terms
- ready to take positive steps toward consummation of the transaction.
Once a seller accepts an offer from a ready, willing, and able buyer, the real estate broker is entitled to a commission.
If the buyer or seller breach the contract, the real estate broker may still be entitled to a commission:
- if the seller had a change of mind and refused to sell,
- has a spouse who refused to sign the deed,
- had a title with uncorrected defects,
- committed fraud with respect to the transaction,
- was unable to deliver possession within a reasonable time,
- insisted on terms not in the listing (e.g., the right to restrict the use of the property),
- had a mutual agreement with the buyer to cancel the transaction.
In Illinois, the closing of the sale is the usual proof in a court of law that the broker has produced a buyer and earned a commission.
Sales Force Compensation
The amount of compensation a licensee receives from a sale is set by mutual agreement between the affiliated licensees and their sponsoring brokers. This compensation agreement is included in the employment agreement. Some sponsoring brokers require that licensees pay all or part of the expenses of advertising listed properties; this may be subtracted from commissions by agreement or be billed separately to the licensee.
In many states, including Illinois, it is illegal for a sponsoring broker to pay a commission to anyone other than:
- a licensees under that same sponsoring broker; or
- another firm’s sponsoring broker (cooperative commission) who then pays his own sponsored licensees involved.
Fees, commissions, or other compensation cannot be paid to unlicensed persons for services that legally require a real estate license. “Other compensation” includes certain items of personal property, such as a new television, or other premiums, such as vacations, given to non-licensed persons to perhaps acquire names of “leads.” This is not to be confused with referral fees paid between managing or sponsoring brokers for “leads,” which are legal as long as the individuals are licensed.
Sponsoring brokers may pay their sponsored licensees their commissions directly.
Under the Act, a licensee may form a solely owned corporation for the purpose of receiving compensation. That one-shareholder corporation cannot be licensed by the IDFPR. However, the licensee must file a copy of the certificate of incorporation issued by the Secretary of State with IDFPR. The corporation can receive compensation earned by that licensee only, both from real estate and non-real estate related activities. The corporation cannot be licensed and cannot be used by the licensee to perform real estate activities, sponsor or employ other licensees, or advertise itself to the public in the corporation’s name.
Commissions and disclosures The sponsoring broker’s compensation and policy with cooperating brokers who represent other parties in a transaction must always be disclosed. If there is compensation from two parties to a transaction from both the buyer and the seller that needs to be disclosed in writing as well.
If a licensee refers the client to another source for services related to the transaction and the licensee has an interest greater than 1 percent in that source, it must be disclosed. In addition, a licensee must disclose to a client all sources of compensation related to the transaction received by the licensee from a third party.
Commission Structures
Commission “splits” earned by sponsored licensees vary. Some firms have adopted a 100 percent commission plan. Sponsored licensees in these offices pay a monthly service charge or desk fee to their sponsoring brokers to cover the costs of office space, telephones, and supervision in return for keeping 100 percent of the commissions from the sales they negotiate. The 100 percent commission sponsored licensee pays all of his own expenses.
Other companies offer graduated commission splits based on a sponsored licensee’s achieving specified production goals. No matter how the licensee’s compensation package is structured, only the sponsoring broker can pay it.
In cooperating transactions (usually stated as “co-op: X% on the MLS sheet), the commission is paid by the sponsoring broker of the “seller side” to the sponsoring broker of the “buyer side”.
If a sponsored licensee had earned a commission but his employment had been terminated prior to the payment of the commission, the former sponsoring broker may pay the commission directly to the former associate, even if that former associate has a new sponsoring broker.
