Commissions and fees: negotiability, written agreements, and fee sharing

Agree on compensation

Real estate commissions are negotiable. No law sets a commission rate, and a rate is not customary by law. A broker and client may negotiate a percentage, a flat fee, or another lawful arrangement. A brokerage may independently decide what compensation it will accept; competing brokerages may not agree to fix their charges. The Sherman Act prohibits agreements restraining interstate trade.

Put the employment agreement in writing

In California, an agreement employing an agent to buy or sell real property for compensation must be in writing and signed by the party to be charged or that party's authorized agent. Agree on the services, compensation amount or calculation, who owes it, and the conditions under which it is earned and payable. A conversation about a fee is not a substitute for the required signed writing. An agency disclosure identifies duties and relationships; it does not by itself establish a compensation agreement.

Follow the compensation route

California Business and Professions Code section 10137 requires a salesperson to accept compensation for licensed activity through the broker under whom the salesperson is licensed. A client or another brokerage should not pay that salesperson directly. Licensees may agree to share compensation, but a salesperson's payment to another licensee must go through the responsible broker. A broker may compensate another licensed broker, including a broker of another state as section 10137 permits. That payment permission does not itself authorize an out-of-state broker to practice in California.

A broker may not pay an unlicensed person for acts requiring a real estate license. Calling that payment a referral fee or bonus does not change the acts performed. Distinguish licensed brokerage work from clerical work that does not require a license. Under section 10136, a person suing in California for compensation for licensed acts must allege and prove the required licensure when the cause of action arose.

Distinguish earned compensation from advance fees

Under California section 10146, an advance fee collected by a broker is trust money, not the broker's own money upon receipt. It goes into a trust account, with withdrawals and verified accountings governed by that section. A negotiated fee does not erase trust duties. Special transaction rules can add restrictions, so these basic compensation rules are not permission for every possible fee arrangement.