Broker Commission Agreement

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Broker Commission Agreement

A Brief Introduction of Broker Commission Agreement?

Broker Commission Agreement is appointed for the sale or purchase of a particular property or certain goods. This agreement lays down the commission that will be payable to the broker if the transaction is completed successfully. This agreement is usually used in the field of real estate. However, a broker may be hired even for the sale of a business, and in such a case, the agreement is known as a business broker commission agreement.

Who Takes the Broker Commission Agreement

This agreement is entered between the broker who is responsible for the sale or purchase of a property and the party who wishes to sell or purchase such property.

Purpose of the Broker Commission Agreement

The purpose of this agreement is to lay down the role of the broker and the various obligations that he will have to fulfill. This agreement is needed to explain in detail the property or the products that the broker is responsible for selling or purchasing. If this is done by him in a successful manner, he is paid a certain commission according to the sale price or the purchase price. The agreement will mention all these details in writing to bring clarity to the transaction. When the agreement is created between a broker and a buyer looking to purchase property, it is termed as a buyer broker commission agreement.

An agreement may also be entered into between the broker of the seller and the broker of the buyer, and such an agreement is called a co-broker commission agreement. Sometimes, a cooperating broker finds a buyer for a property and gets in touch with the selling broker. The cooperating broker helps to facilitate the sale of the property and hence receives a commission from the selling broker. An agreement between them is known as cooperating broker commission agreementS.

Contents of the Broker Commission Agreement

This agreement must first identify both parties clearly with their names and contact details. The duration of the agreement and the reason for which it is being created must be mentioned. The contract should mention whether the party who is hiring the services of the broker is a buyer or a seller.

If the broker has been hired for conducting the sale or lease of a property, the location of the property must be written down in detail. This means a detailed address of the property must be included. The amount of commission that will be paid to the broker must be stated in the agreement. The manner in which such commission shall be calculated may also be set out.  The duties and responsibilities of both parties to the transaction should be laid down to make sure that the contract is performed by both of them. The circumstances in which the agreement may be terminated must also form a part of the contract.

How to Draft the Broker Commission Agreement

The following are the steps to follow while drafting this agreement:

  • The owner and the broker shall determine among themselves, the manner in which the broker shall perform his duties.
  • They shall decide the percentage of commission payable to the broker.
  • Once all the important terms have been decided, the agreement must be drafted in a clear, precise manner.
  • All the details that are essential to the transaction must be covered to avoid any confusion.
  • The agreement must then be signed by both parties.

Negotiation Strategy

  • The negotiations will mostly be focused on the commission that the party will have to pay to the broker.
  • The agreement should be negotiated in such a way that it will safeguard the rights of both parties.

Benefits and Drawbacks of the Broker Commission Agreement

The following are the benefits and drawbacks of this agreement:

  • This agreement is very useful in providing evidence that an arrangement of this nature was created by the parties.
  • It can help to prevent any misinterpretation of the terms of the agreement.
  • The broker will have certain contractual remedies in place in case the owner refuses to pay a commission to the broker.

What Happens in Case of Violation of the Broker Commission Agreement?

The agreement must have a clause that talks about the method by which any violation or breach of the agreement will be dealt with. In commission agreements or agreements related to real estate agreements, parties prefer to resolve their disputes through alternative methods of dispute resolution such as arbitration, negotiation or mediation(1). Arbitration is the most popular method amongst all of these. These methods yield quick results and ensure that the dispute is resolved in a manner that is suitable to both parties. Parties opt for such methods as there is a guarantee that the issue will be resolved in a time-bound manner. It is always a better option than instituting a suit in court.

In conclusion, this agreement is vital when a party decides to sell or purchase any property through a broker. A written agreement is needed to ensure that both parties are on the same page. If the parties enter into an oral agreement, there is a higher chance that a dispute may crop up between the parties(2). To avoid any such conflict, it is always recommended to create a foolproof contract.