The comm'l. classroom: Co-brokerage agreements

This column is offered to help educate agents new to commercial and investment brokerage and serve as a review of basics for existing practitioners. Considerable real estate brokerage business is done with one firm representing the selling or landlord side of the transaction and another firm representing the buyer or tenant side. This necessitates a written co-brokerage agreement between the brokers involved. The agreement identifies the property and the "rules" under which the listing is shared: including commission rates, commission splits, registration of customers and other conditions. The listing broker is cooperating with another broker who has a customer for the property. In this case the other broker may be acting as a sub-agent of the listing broker, both working on behalf of the property owner. Or the other broker may be representing the buyer/tenant, having a written buyer or tenant representation agreement with their client; and bound to do what is in their client's best interest. At the start of this relationship between the brokers, the respective relationships with clients or customers must be clearly defined. State laws vary regarding agency disclosure, be sure to check your state regulations. Generally the listing broker creates the co-brokerage agreement. Some brokers have it signed before releasing any information to the buyer/tenants broker. Other firms do not execute the agreement until an offer is presented. Some firms do not use a written co-broke agreement, which is actually not in the best interest of either brokerage. A very important point when co-broking is contained in the National Association of Realtors (NAR) Code of Ethics: Article 3-1: "Realtors, acting as exclusive agents or brokers of sellers/landlords, establish the terms and conditions of offers to cooperate. Unless expressly indicated in offers to cooperate, cooperating brokers may not assume that the offer of cooperation includes an offer of compensation. Terms of compensation, if any, shall be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation." Dealing with a "Realtor" or not, this is an issue - do not assume the listing broker will pay you. What if...no compensation is offered? The compensation offered is ridiculously low or unacceptable. You may need to act as a buyer broker or tenant representative for your client on this property; with the client agreeing to pay you your fee. Remember all commission rates are negotiable. When you belong to a Multiple Listing Service (MLS) often the cooperating brokerage rules are established and compensation to other MLS brokers is disclosed. But many commercial firms are not realtors and do not belong to a MLS. If a non MLS broker has the listing, you need to determine what your compensation for cooperation will be and get it in writing. This may be easy if they provide a co-broke agreement with fee splitting information. If the listing broker does not provide an immediate agreement or does not use any agreement, determine your fee and create a simple co-broke acknowledgement letter. Stating, you agree to cooperate with ___ brokerage, on their exclusive listing at ___. With the understanding that your firm, ___ will be paid a fee of ___, if you bring forth a ready, willing and able buyer or tenant. Ask the listing broker to sign the document acknowledging the agreement. However be aware, some co-brokerage agreements can be convoluted and may contain a lot of conditions. Before you sign any forms or even create the referenced simple acknowledgement letter, check with your broker; such forms may also need legal review. Never introduce a client or customer to a property until a brokerage agreement or acknowledgement is signed. Edward Smith, Jr., CREI, ITI, CIC, GREEN, MICP, CNE is a commercial real estate consultant, instructor and broker at Smith Commercial Real Estate, Cambridge, N.Y.