Imbalanced commission splits

Key Takeaways

• A lopsided split is not automatically unlawful. What creates antitrust exposure is an agreement among competing firms about what splits will be offered.
• RCW 19.86.030 declares every contract, combination, or conspiracy in restraint of trade unlawful, and it applies to real estate firms in Washington.
• Compensation offered to the firm representing the other party must be disclosed in writing before the principal signs an offer, under RCW 18.86.030(1)(g).
• A broker may not pay any part of a commission to anyone except through the firm's designated broker, under RCW 18.85.301(3).

What It Means

An imbalanced commission split is a one sided division of a shared commission between the two firms in a transaction. Standing alone, a lopsided number is a business decision. Firms compete on what they charge a seller and on what they offer the firm that brings the buyer, and one firm may offer less than another. The antitrust problem starts when the number stops being an independent decision.

Licensing courses group imbalanced splits with price fixing and boycotts as the three antitrust patterns brokers run into, and all three share one ingredient: agreement with a competitor. Two brokerages that settle on a standard cooperating offer have fixed a price, whatever they call it. Two brokerages that agree to squeeze a third firm's split until it gives up on their market have run a boycott through the split.

The exploitive version carries ordinary business risk as well. A Commission Split that a cooperating firm cannot work with can cost the seller showings, which is a poor outcome for the person paying for exposure. Both risks are why Antitrust Laws show up in a license course at all.

How It Works in Washington

Washington polices this with its own antitrust statute, not only the federal one. RCW 19.86.030 states that every contract, combination, in the form of trust or otherwise, or conspiracy in restraint of trade or commerce is unlawful, and RCW 19.86.020 adds that unfair methods of competition and unfair or deceptive acts or practices are unlawful. That language mirrors section 1 of the federal Sherman Act. Under RCW 19.86.090, a person injured in business or property by a violation may sue for actual damages, costs, and a reasonable attorney fee, and the court may in its discretion increase the award up to three times the actual damages. The Consumer Protection Act is the chapter those sections live in.

License law fills in the rest. RCW 18.86.030(1)(g) requires a broker to disclose in writing, before the principal signs an offer, any terms of compensation offered by a party or a real estate firm to a real estate firm representing another party, so the split is documented rather than assumed. Written compensation terms are covered in Washington's agency law, your complete guide to written services agreements. RCW 18.85.301 controls the payment path: a firm or licensee may not pay any part of a commission to a person performing brokerage services who is not licensed somewhere, a firm may not pay a broker who is not licensed to that firm, and a broker may not pay any part of a commission to anyone except through the firm's Designated Broker. Being a party to a conspiracy or collusion that another person lawfully relies on is separately a ground for discipline under RCW 18.85.361(3), one of the grounds surveyed in Navigating Washington State real estate license laws.

Example

Greg Sandoval is the designated broker at Palouse Realty in Spokane, and Marisol Vega runs Cedar Row Real Estate two miles away. Over coffee they agree that neither firm will offer a cooperating firm more than 1 percent on any listing under $500,000. Three weeks later Palouse takes a listing at $480,000 with the seller paying Palouse 3 percent, or $14,400. Cedar Row brings the buyer and is offered 1 percent, $4,800, leaving Palouse $9,600.

The $4,800 is not what makes this unlawful. Palouse could have set that figure alone and defended it as its own pricing. The violation is the coffee shop agreement, because RCW 19.86.030 reaches a contract, combination, or conspiracy in restraint of trade, and two competing firms capping what they will pay cooperating firms is exactly that. Nothing was signed and no client complained. Neither fact helps them.

Common Mistakes and Exam Traps

• A low cooperating offer by itself is not an antitrust violation. The offense is the agreement with a competitor, not the size of the number.
• Antitrust exposure does not require a signed document. RCW 19.86.030 reaches a contract, combination, or conspiracy, so an understanding reached in conversation counts.
• One firm deciding on its own not to work with another firm is a business decision. Two firms agreeing to do it together is a conspiracy under RCW 19.86.030.
• Commission rates and splits are negotiated transaction by transaction, not set by a schedule, and a licensee may decline a listing when the compensation is not worth the work.