Practically Speaking

Q. What happens to compensation on pending business when an agent changes brokers? A. That depends on the terms of the independent contractor agreement and the policy of the broker/brokerage on compensation when an agent leaves the company. The agent should and legally can be paid by the broker who sponsored the agent at the time the transaction went pending. Q. What happens to compensation on pending business if an agent places his license on inactive status with the

Texas Real Estate Commission (TREC)? A. A person with an inactive license at TREC cannot perform brokerage activities. However, if the person went inactive after a transaction was pending and another agent with an active license agrees to work with the client to close the pending transaction, a commission or a referral fee can be paid to the inactive license holder.

What the Law Says

The Real Estate Licensing Act §1101.351 requires that a person be licensed to perform brokerage activity and that a sales agent may not engage in brokerage activity unless sponsored by and acting for a licensed broker. TREC Rule §535.3 expands on the statute, stating a sales agent may not receive a commission or other valuable consideration without the written consent of the agent’s sponsoring broker or the broker who sponsored the agent when the agent became entitled

Ralph Jinko was a sales agent with Equinox Properties. Jane Pear was the broker when the home Ralph sold to his brotherin-law went under contract. Ralph changed brokerage firms after the loan was approved but before closing. At closing, Jane called Ralph’s new broker, John Medico, and said she will send him Ralph’s check. John told Jane it would be a much cleaner paper trail if Jane would just pay Ralph under

A broker should have an independent contractor agreement with all sponsored agents and associated brokers. The agreement should make clear how compensation will be handled on pending transactions when an agent leaves the brokerage or places his license on inactive status. An independent contractor agreement is a contract between the broker and the sponsored agent or associated broker. As with any contract,

Q. What is the standard commission for a residential listing? A. There is no standard commission. Your broker may set policy for what you will charge and what services you will provide for each seller you may represent. Remember that to the commission or valuable consideration. TREC Rule §535.147 makes it clear that a broker or agent may not share a commission with any person who engages in brokerage activity and is not actively licensed as a broker or agent. TREC has interpreted these rules over the years to allow commission to be paid to an agent who earned the commission when the agent did have an active license but subsequently went inactive.

the terms of this agreement will control payment of commission. An alternative would be to have this information spelled out in the broker’s policy, which every associated person can access when needed. It is also a best practice to have agents and associated brokers sign an agreement acknowledging and agreeing to follow the broker’s policies.

any discussion with other agents or brokers or on your social media about builder’s commission offerings or broker offerings of a certain set commission rate will run afoul of the federal Sherman Anti-Trust Act of 1980.

For Example

whatever policy and/or agreement she had with Ralph when he worked for her. Jane insisted she could no longer pay Ralph because she did not hold his license. If the agreement Jane had with Ralph defined when commission was earned by Ralph and it was “earned” before he left Jane’s brokerage, then Jane is not violating any laws by paying Ralph the commission on that transaction directly.

Best Practice

Bonus Question

Nothing in this publication should be construed as legal advice for a particular situation. For specific advice, consult an attorney. Lewis (kerri@2oldchicks.com) is a member of the State Bar of Texas and former general counsel for the Texas Real Estate Commission (TREC). Wukasch (avis@2oldchicks.com) is a broker and former TREC chair.

“John Allen's excellent explanation of the fundamental role of private property rights in providing wealth, harmony, and freedom deserves a wide audience.” —Armen Alchian