Commission Sharing Agreements

Real estate agents who work under the same brokerage often enter into agreements to share their commissions on transactions they work on as a team. The idea of joint effort and commission sharing is appealing, however, the commission sharing agreement between the agents must be done properly. Last year, the California Court of Appeals decided a case that gives guidance on one of the significant issues that comes up during commission sharing agreements between agents.

Sanowicz v. Bacal

Two SoCal agents decided to work together on a commission sharing basis. Sanowicz left his broker and joined Bacal at Keller Williams, and the two entered into written and oral agreements to share commissions. Later, Bacal left to work for another broker (Sothebys), and closed a $14 million property that both had worked on previously. Sanowicz learned about this transaction and filed suit to recover his half of the commission. Sanowicz alleged that Bacal left Keller Williams to consummate the sale without his knowledge, and he should be entitled to his portion of the commission pursuant to a signed California Association of Realtors Referral Agreement which required the agents to share equally all commissions earned within a two year term.

The Courts Decision

Bacal filed demurrer with his principal argument being that the agreements between him and Sanowicz were invalid. He claimed they violated Business and Professions Code 10137, which provides that it is unlawful for real estate agents to accept commissions from any person other than their broker. The trial court bought Bacal’s argument and sustained the demurrer without leave to amend.

Sanowicz appealed and argued that the commission sharing agreement between him and Bacal was entered into at the time they worked for the same broker. The Appellate Court sided with Sanowicz and stated that there was nothing in the statute that made sharing agreements illegal or that required brokers to be part of such agreements. “What the legislature limited was the manner of the payment requiring that any such payments must be through the broker under whom he or she is at the time licensed per B&P 10137.” The agent owed a share of the commission may sue the other agent to recover the agreed portion which had already been paid through the broker. The trial court’s order was subsequently overturned.

Business and Professions Code 10137

This case does not affect situations where agents working for different brokers are sharing commissions. It only addresses situations where real estate agents pursue commission according to commission sharing agreements made while all were at the same brokerage. Ultimately, B&P 10137 is unchanged and makes it clear that “[n]o real estate salesperson shall be employed by or accept compensation from any person other than the broker under whom he or she is at the time licensed.” If you agree with another agent who works for a common broker to share commissions, you can do that, however, the commission must initially be paid to the broker and it is best practice to have it paid directly to each agent from there. Furthermore, while oral contracts of this sort may be enforceable, they should always be in writing to eliminate risk of dispute.