The listing broker and seller must first determine if the listing broker will share compensation with a buyer’s broker that procures a buyer. Paragraph 5A should be used to indicate the broker’s fee that will include a total amount for the listing broker and the buyer’s broker. Paragraph 5B should be used if the seller will only pay a broker’s fee that will be retained by the listing broker and no portion will be shared. Both 5A and 5B include blank lines to allow the broker’s fee to be expressed as a percent of the sales price or a flat fee. Only one line should be filled in. The other space will be left blank. Both 5A and 5B also include a blank line for alternative broker fee structures like an hourly rate.
How do I complete the Broker’s Fee paragraphs 5A or 5B on the updated Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101)?
What’s the primary difference between broker compensation under Paragraph 5A and 5B in the listing agreement?
By using Paragraph 5A of the listing agreement, the seller agrees to compensate the listing broker and the buyer’s broker, while Paragraph 5B only includes compensation for the listing broker.
Under Paragraph 5A, the seller agrees to pay the listing broker a total negotiated fee that includes compensation for both the listing broker and the buyer’s broker. From that total amount, the listing broker agrees to pay the buyer’s broker. The listing broker and seller negotiate the amount to be paid to a buyer’s broker when they sign the listing agreement. Once signed, it becomes a binding obligation on the listing broker to pay that amount to the buyer’s broker that procures the buyer. The listing broker should disclose the amount of compensation being offered to prospective buyers and their agents. When using Paragraph 5A for broker compensation, the listing broker is automatically authorized to advertise buyer’s broker compensation under Paragraph 5A(3). Remember, NAR policy prohibits offers of compensation on an MLS but offers of compensation can be made outside of an MLS.
When a buyer is ready to submit an offer, the listing broker can execute the Compensation Agreement Between Brokers (TXR 2402) with the buyer’s broker for the amount agreed to under Paragraph 5A(2) in the listing agreement. The listing broker would have to go back to the seller and get the seller to amend the listing agreement to change that amount.
Under Paragraph 5B, the seller is only paying an amount for the listing broker’s fee. Under this paragraph, the seller can then negotiate with a buyer for payment of the buyer’s broker fees when offers are submitted. If the seller wants to advertise that the seller is willing to contribute to buyer’s expenses (seller concessions), the listing broker would need to obtain the seller’s authorization by checking the appropriate box in the Note below 5B.
If the listing broker is not offering compensation to the buyer’s brokers, it's very likely that buyers will request the seller to pay buyer’s expenses or buyer’s broker’s fees with their offer. An offer may contain an amount in Paragraph 12A(1)(a) of the sales contract for the seller to pay “buyer’s expenses.” The amount in this paragraph is not paid to buyer’s broker’s fees. Or an offer may have the Addendum Regarding Brokers’ Fees (TXR 2406) attached for seller to pay an amount specifically towards buyer’s broker compensation.
As the listing broker, can I publicly advertise buyer’s broker compensation and seller concessions?
Yes, if the seller authorizes the listing broker to disclose such information. The listing broker is automatically authorized to disclose and advertise the amount of available buyer’s broker compensation that will be paid by the listing broker when using Paragraph 5A of the listing agreement. This authorization is found in Paragraph 5A(3). There is no checkbox or additional authorization needed.
However, the seller must separately authorize the listing broker to disclose that the seller is open to paying concessions under the sales contract. The listing broker can obtain the seller’s authorization by checking the appropriate box in the Note under Paragraph 5B. Where permitted, the listing broker can disclose this information on an MLS.
For example, an MLS may have “yes” or “no” checkboxes for seller concessions. Some MLSs may also allow brokers to insert a specific amount of seller concessions. The listing broker would need to get additional authorization from the seller to disclose a specific amount. The listing broker can obtain the necessary authorization to disclose a specific amount by using the Seller’s Authorization to Disclose and Advertise Certain Information (TXR 1412).
Where can we add a dual or variable rate compensation arrangement in the Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101)?
A dual or variable rate compensation arrangement is when the listing broker charges the seller a certain fee if the listing broker’s firm is the procuring cause of transaction and a different fee if the sale results through the efforts of the seller or a buyer’s broker. The blank lines under Paragraph 5A(1)(b) or 5B(1)(b) can be used to add terms regarding dual or variable rate compensation arrangements.
Note: Standard of Practice 3-4 of the Code of Ethics requires REALTORS® to disclose such arrangements to potential cooperating brokers as soon as practical. However, under the recent NAR policy changes, MLSs are required to remove fields regarding compensation, including dual or variable rate arrangements, from the MLS platform. REALTORS® must still disclose such arrangements off the MLS.
What does “RESERVED” mean in Paragraph 8 of the Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101)?
When this form was updated, Paragraph 8 was deleted. Instead of changing all the paragraph numbers, the form reserves Paragraph 8 for future use. Currently, nothing goes in Paragraph 8.