Legal Question in Real Estate Law in California
A real estate agent (A) showed us a house we liked, but would not negotiate his commission. We went to another agent (B) and made an offer on the same house. Now agent (A) says he is entitled to his half of the commission.
We told Agent (A) during our first meeting that we were not in any rush and that we wanted to negotiate his commission when the time came to make an offer. When he showed us a house we liked, we wanted to make an offer, but told him that we now wanted to settle the negotiation of the commission before making the offer, which he refused to do. We told him we would go find another agent to work with and that we would not be working with him in the future. We found an agent who was willing to work with us and made an offer on the house (which was rejected). Agent (A) went to the seller's broker and said that he was entitled to his commission if we end up purchasing the house, since he showed us the house first.
Since we have no written agreement with agent (A) and had told him that we wanted to negotiate the commission BEFORE he showed us the house in question, is he entitled to the buyer's side commission? If so, why? If we do end up purchasing the house are we obligated to Agent (A) in any way? What about Agent (B) who actually makes the successful offer, he gets nothing? Ultimately, do we have to use Agent (A) to buy the house in question whether we want to work with him or not?
2 Answers from Attorneys
You are up to no good. My big question to you is why were you so intent on stiffing agent A out of a commission?
First of all, a commission is usually set forth in a listing agreement between the seller and the seller's broker. The buyer's broker is entitled to a commission if there is a cooperation agreement between the buyer's broker and the seller's broker. The cooperation agreement is not between you and Agent A, it is between Agent A and the listing broker. If there is no cooperation agreement, then the buyer's broker does not get a share of the commission realized from the sale. (Colbaugh v. Hartline (4th Dist. 1994) 29 Cal.App.4th 1516, 1523.)
If there is a cooperation agreement between Agent A and the listing broker, then Agent A is entitled to a portion (usually half of the 6% commission) received by the listing broker, if that broker was the procuring cause of a purchase and sale.
When you posted before, you stated that you wanted your buyer's broker to lower his commission? Why? It wouldn't increase any money in your pocket, it would simply increase the amount of money in the listing broker's pocket.
Looks to me as though you were hoping Agent A would share his portion of the commission with you, as some kind of an outside-of-escrow rebate?
There would be nothing illegal, per se, under state law, about a buyer's broker sharing his portion of his commission with the buyer. While it is unlawful for an unlicensed person to share a commission for services requiring a real-estate license, the principals are not covered by this prohibition because they are the served, not the servers. Williams v. Kinsey (1946) 74 Cal.App.2d 583.
Under RESPA, such kickbacks are technically prohibited, since RESPA prohibits anyone from earning compensation without providing a service, but since the overall purpose of RESPA is to reduce transaction costs to buyers and sellers, it is doubtful that a kickback to a buyer comes within the intent of the prohibition; sources such as Miller & Starr indicate that a prosecution would be very unlikely.
So, as I understand it, you were trying to make a side deal, which would have been legal, but the other party refused to make the deal. Consequently, the other party is now entitled to keep his entire share of the commission, if any, as earned under his existing agreements with the other broker.
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