At the Law Office of Eric T. Hartnett, we have represented California Realtors® in numerous commission disputes. These disputes occurred throughout the Bay Area, including San Mateo, Santa Clara, and Alameda counties.
Many times these disputes are centered around which agent should be considered a procuring cause for a purchase or sale. However, there are times when the dispute will arise based on a compensation agreement entered into by two agents. These agreements can be problematic depending upon various factors, including whether the agreement is in writing and is with the permission of the agents’ respective supervising broker. The problems arise because how a real estate agent can receive compensation is very tightly regulated by statute.
So, what could go wrong when two real estate salespersons agree to share a commission? This was the question before the California Court of Appeal in the case of Sanowicz v. Bacal. There, two real estate salespersons, Hillel Sanowicz (“Sanowicz”) and Ben Bacal (“Bacal”) allegedly entered into a commission sharing agreement.
Factual Scenario and Trial Court Decision
Initially, Sanowicz and Bacal hung their licenses with different brokers. The two developed a professional relationship which eventually resulted in a “joint venture” and an agreement to share commissions. Eventually, Sanowicz joined Bacal at Keller Williams (“KW”).
While at KW, Sanowicz met Joseph Lam, who was interested in selling his home in Los Angeles. Sanowicz introduced Mr. Lam to Bacal with the understanding and oral agreement that he would share in any eventual commission. The pair also executed a California Association of Realtors® (C.A.R.) Fee Agreement form to that effect. However, the agreement was not signed by a licensed broker.
Bacal then left KW for Sotheby’s International Realty, Inc. At Sotheby’s, Bacal successfully sold Mr. Lam’s property, netting Bacal a significant commission, which he did not share with Sanowicz. Sanowicz learned of the sale and sued for his portion of the commission.
Bacal asserted several defenses, including that the agreement was unenforceable and in violation of California Business and Professions code section 10137. The trial court agreed with Bacal’s defense and stated that “a licensed real estate salesperson cannot contract in his/her own name, nor accept compensation from a person other than the broker under whom he/she is licensed.” The decision was appealed.
The Appellate Court and the New Interpretation
The appellate court reversed the trial court’s decision based on a very close reading of the statute. Business and Professions Code section 10137 prohibits (1) a broker from sharing his commission with an unlicensed person, (2) an agent from accepting compensation from anyone other than the broker under whom he or she is licensed, (3) an agent being paid any part of a commission received “except through the broker under whom he or she is at the time licensed.” Section 10137 did not, however, completely prevent the two real estate salespersons from agreeing to share commissions.
The particular circumstance of this case, which the court held created a viable agreement, was the possibility that the brokers were aware of, and had agreed to, the arrangement. For example, if Sotheby’s had received the commission and transmitted Sanowicz’s portion to KW, and then KW forwarded that portion to Sanowicz, the transaction would have complied with the Code. In Sanowicz v. Bacal, the appellate court allowed the plaintiff to amend his complaint to make that allegation.
Ramifications to Brokers and Salespersons
This case recognizes that salespersons can enter into commission sharing agreements with other salespersons, as long you keep the supervising broker(s) involved. The transaction can only be valid if the commission payment is made “through the broker” (i.e. the supervising broker(s) receive the commission and split it pursuant to the agreement between the agents).
For real estate brokers, this case means you can quickly become embroiled in a dispute between two real estate agents. Depending on the allegations, this could lead to financial as well as disciplinary consequences. For example, disciplinary action would be possible since the Sanowicz v. Bacal case recognized that an oral contract between you and your agent for compensation (i.e. splitting the commission) can be enforced, even though such an agreement would be a violation of Bureau of Real Estate regulations. If your agent claims an oral agreement with you in the agent’s efforts to collect the commission, the agent would be also claiming you failed to follow your statutory obligations. You should consider creating a clear, written set of guidelines for real estate agent commission sharing agreements (e.g. be in writing and be signed by both the agent and the supervising broker). Alternatively, a policy that totally prohibits such agreements might be appropriate.
If you have any question about commission disputes, or any other real estate-related issue, please contact us at 408-290-8228. We look forward to assisting you.
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