Best of the Hotline - Excused from Paying a Co-Op Fee?

October 2009

By James L. Goldsmith, Esq.

Facts: A property listed in the association's MLS offers to pay a commission to a buyer agent who produces a ready, willing and able buyer. A buyer's agent, not affiliated with the listing office, locates such a buyer who submits an acceptable offer. Sometime after a loan commitment is issued, but before settlement, the seller seeks to terminate the agreement. Perhaps the seller has developed an illness or is confronting some situation that has caused this change of heart; regardless, the termination is not permitted by any provision of the contract. Fortunately for the seller, the buyer is not interested in pursuing litigation and is satisfied when the seller returns the deposit and reimburses buyer's inspection and other costs.

Q: The buyer agent feels that a co-op commission has been earned. After all, the agent produced a ready, willing and able buyer at list price or a price agreed to by seller. The listing agent is also justified in seeking payment of its full commission from the seller. Because of a longstanding personal relationship, however, the listing broker is pleased to excuse the seller from payment of the commission. Does the listing broker, who will not be paid, owe the co-op fee to buyer agent?

A: Yes. Let's make that a qualified "Yes". If this were a real case, the answer would have to be determined by a properly empanelled arbitration hearing panel. If I were to serve on that panel, however, this buyer agent would be entitled to the full amount of compensation offered by the listing broker.

A factor for consideration by hearing panels asked to arbitrate disputes is whether the listing broker has been paid. The Code of Ethics and Arbitration Manual published by the National Association of REALTORS® provide that a "listing broker's obligation to compensate a cooperating broker who was the procuring cause of sale may be excused if it is determined through arbitration that, through no fault of the listing broker and in the exercise of good faith and reasonable care, it was impossible or financially unfeasible for the listing broker to collect a commission pursuant to the listing agreement." It would seen that it was neither "impossible" or "financially unfeasible" for the listing broker to collect. Rather, the listing broker chose not to collect the fee in deference to a longstanding personal relationship. That a listing broker does not want to ruffle feathers by seeking to collect a fee from a friend is not a sufficient basis for failing to pay a cooperating buyer agent who produced the buyer.

Mr. Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. He may be reached at