A Brief Introduction of Co Broker Agreement?
A co broker agreement is an agreement between two brokers who work together on the sale or lease of a property. One broker represents the seller, and the other represents the buyer. The commission that the brokers earn through the sale or lease is mutually divided. The broker representing the seller gets the exclusive listing of the property from the seller, and the broker is responsible for bringing in potential buyers. This is a very convenient arrangement for both brokers and helps them complete the sale in a relatively less amount of time.
This agreement is known by multiple names, some of which include cooperative brokerage agreement, cooperating broker commission agreement, cooperating broker compensation agreement, and co broker commission agreement.
Who Takes the Co Broker Agreement?
A co broker agreement is entered between two brokers acting on opposite sides of the transaction. The broker representing the seller is known as the “listing broker,” and the broker representing the buyer is called the “buyer broker” or the “cooperating broker.” and an agreement between buyer and broker is called buyer broker agreement.
Purpose of the Co Broker Agreement
This agreement is quite popular as it is beneficial for all parties involved in the transaction. The purpose of this agreement is to lay down the individual duties and responsibilities of both the brokers. The agreement will also specify how the commission will be split between them. It is usually in the ratio of 50:50. It could also be any other ratio as mutually decided by the parties. Most of the disputes with respect to this arrangement are disputes about payment of a commission. That is why a written agreement becomes very important.
A broker to broker agreement is essential to capture the understanding between the parties and to make sure that the parties are aware of their respective obligations. In the absence of this contract, it becomes difficult to prove the existence of such an arrangement.
Contents of the Co Broker Agreement
Like any other agreement, this agreement must first identify both parties with their names, addresses, and contact details. The term of the agreement and the termination date must be mentioned. The agreement must then include a detailed address of the property whose sale or lease is the subject matter of the agreement. The ratio by which the commission will be divided between the listing broker and the cooperating broker must be clearly stated. This is crucial to avoid any potential dispute between the parties.
This agreement is a fairly simple one and does not have to be very lengthy. Apart from the aforementioned terms, the agreement must talk about how any potential disputes will be dealt with, and the circumstances in which the agreement may be terminated. The usual clauses on modification, jurisdiction, etc. must also be included as part of the contract.
How to Draft the Co Broker Agreement?
The following are the steps to follow while drafting this agreement:
- The two brokers may negotiate among themselves the various important aspects of the transaction.
- Once the negotiations are completed, and they have reached a consensus on all the key issues, they can put it down in writing.
- The agreement must contain all the clauses that are needed to capture the mutual understanding of the parties successfully.
- The agreement must be reviewed by both parties, and once they are satisfied with its contents, they must sign it.
- The negotiation strategy to follow is to make sure that both brokers are adequately compensated for the work done by them.
- This is why it is recommended to have a 50:50 commission split between them.
Benefits and Drawbacks of the Co Broker Agreement
The following are the benefits and drawbacks of this agreement in real estate transactions:
- When two brokers work together on a sale of a property, the property listing reaches the maximum number of people possible. Hence, it increases the chances of closing the sale quickly.
- This agreement is beneficial in providing evidence of the commission split ratio that has been mutually decided by the parties.
- The duties of each party will be clearly laid down in the agreement.
- The agreement will have a dispute resolution mechanism in place in case any dispute arises between the parties.
What Happens in Case of Violation?
The dispute resolution clause is one of the most indispensable clauses in any agreement. This provision will list out the steps to be taken when any term of the agreement has been breached or violated by either party. In these agreements, parties usually insert an arbitration or mediation clause to resolve any dispute. This is because parties prefer methods where the issue can be settled without approaching the courts. Instituting a case in court is a time-consuming process and can take up a huge amount of money. As a result, alternative methods(1), such as arbitration and mediation, are very popular.
The agreement should state how the arbitrators or mediators will be appointed and the venue where it will be conducted. These methods produce quick results that are satisfactory to both parties. Hence, it is always recommended to have such a clause in the agreement.
Many brokers choose to enter an agreement of this nature as it increases their odds of finding the correct buyer or lessee for the property. Having a written agreement in place reduces the risk of any miscommunication between the parties. This agreement can be very helpful to show the terms that the parties had mutually agreed to.