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Wisconsin REALTORS® Association Page 1 Legal Update, November 2018

Within Wisconsin, REALTORS® may ﬁnd themselves working with

brokers who are participants in other MLS systems, working with non-

REALTORS® who are not MLS participants, working in locations where

there is no MLS or engaging in commercial transactions which are

typically not entered in the MLS.

In each of these situations, an offer of cooperation and compensation,

standard of performance for earning the commission, and other

accompanying procedures and mechanisms are missing outside of the

MLS safety net: a built-in mechanism offering cooperation, a set formula

for offering compensation to subagents and buyers' ﬁrms as a percentage

of the purchase price, and procuring cause as the standard of performance.

Outside of the MLS, there are no automatic offers of cooperation and

compensation — brokers must make an offer to the cooperating brokers

who, by their words or deeds, may accept that offer and create an agreement

for cooperation and compensation. Procuring cause does not determine

who gets paid unless the brokers have speciﬁcally agreed procuring cause

determines who is paid commission. In short, unless the brokers have a

standing policy letter agreement or a compensation agreement for that

transaction, there is no compensation agreement and the listing ﬁrm has

no obligation to pay the cooperating ﬁrm.

Similarly, there is no standing framework establishing the terms and

conditions of referral agreements. A real estate licensee normally expects

to receive a fee after the licensee refers his or her client or customer

to another real estate licensee and the latter completes a transaction

involving the referred party regardless of whether that latter licensee is in

the same state or a different one. The referring licensee typically receives

a share of the commission or fee earned by the licensee to whom the

referral was made as a referral fee.

Licensees must establish the terms and conditions for the payment of a

fee in exchange for the referral of a client or customer. While many referral

agreements are verbal, it is far better to have a written agreement rather

than discover there was no mutual understanding about the size or timing

of the fee payment.

This Legal Update discusses the agreements necessary for establishing

a licensee’s right to be paid referral fees and the right to receive

commissions in non-MLS transactions. The discussion begins with

referral agreements, including a referral agreement drafting checklist and

a new WRA Referral Agreement. Next is an overview of the MLS system

of cooperation and compensation, which illustrates the elements needed

in compensation agreements when a transaction is not governed by the

MLS. A checklist for drafting a non-MLS compensation agreement and a

new WRA Compensation Agreement form also are included.

Referral Agreement Requirements

Referrals are considered common practice and are typically based

upon an explicit agreement between the referring and receiving brokerage

ﬁrms. A referral agreement names the client or customer being referred

and spells out the referring broker's entitlement to a referral fee in the

event of a sale, lease, exchange or other successful transaction. Referral

arrangements seem to work on a relatively trouble-free, self-executing

basis, though sometimes interstate referral fee collections can be difﬁcult.

In Wisconsin, referral agreements are largely governed by two statutes:

Wis. Stat. § 452.19 and § 452.14(3). Section 452.19 limits the payment

of referral fees to persons licensed or registered in Wisconsin to practice

real estate, or persons regularly and lawfully engaged in real estate

brokerage in another state or country. Referral fees may be paid to

other Wisconsin licensees as long as that person's license is active and

regardless of whether the person holds a salesperson's license. The fact

that the person is not currently associated with a ﬁrm is not relevant.

Under § 452.14(3)(f), any referral fee being paid to an agent

associated with a ﬁrm in connection with a real estate transaction

may be received by the agent only from the ﬁrm. A licensee with a

NOVEMBER 2018, 18.11

Compensation and Referral

Agreements

IN THIS ISSUE

Referral Agreement Requirements

WRA Referral Agreement Form

MLS Compensation

Compensation Agreements

WRA Compensation Agreement Form

Wisconsin REALTORS® Association Page 2 Legal Update, November 2018

salesperson’s license, however, can make a referral and directly receive

a referral fee even if the licensee is not associated with a ﬁrm. A non-

afﬁliated licensee with a broker’s license also can make a referral and

directly receive a referral fee.

Although it is tempting to want to create an agent-to-agent referral

agreement, one agent directly paying another a referral fee runs counter

to license law when the agent making the referral and receiving the

fee is associated with a ﬁrm. As is often the case, it may be helpful to

“follow the money.” Who can pay a referral fee and who can receive a

referral fee? While the only limitation on who can pay a referral fee is

“a licensee,” the rules vary depending upon who makes the referral and

receives the fee.

Real estate licensees

Under Wisconsin law, only a real estate licensee can receive a referral

fee. Wis. Stat. § 452.19 addresses fees and commissions and provides

in subsection (1):

Wis. Stat. § 452.19 limits the payment of referral fees, ﬁnders’ fees

and commission splits to Wisconsin real estate licensees and persons

regularly and lawfully engaged in real estate brokerage in another

state. “Person” refers to both individuals and entities per Wis. Stat.

§ 990.01(26). Thus, a referral fee may be paid to an individual with a

broker’s or salesperson’s license or a licensed broker entity under Wis.

Stat. § 452.19.

Agent associated with a ﬁrm makes the referral

Wis. Stat. § 452.14(3)(f) states:

Stating the same principle in reverse, Wis. Stat. § 452.19(2)

proclaims:

Thus, if the person making the referral is an agent associated with

a ﬁrm, Wis. Stat. § 452.14(3)(f) requires that any referral fee be paid

to the agent’s ﬁrm. It is a license law violation for that agent to accept

the referral fee from anyone other than the agent’s ﬁrm. This is true

regardless of whether the agent has a salesperson's or a broker’s license –

what is determinative is that the agent is associated with a ﬁrm.

Agent not associated with a ﬁrm makes the referral

A licensee with a Wisconsin salesperson’s or a broker’s license,

however, can make a referral and directly receive a referral fee if the

licensee is not associated with a ﬁrm. Wis. Stat. § 452.19(1) only

requires that the referral fee be paid to one licensed under chapter 452

of the statutes or another state.

Thus, Wisconsin licensees may pay referral fees to other Wisconsin

licensees as long as that person's license is current and valid. It is

prudent practice to ask for a copy of an agent's license or verify the

agent’s license status before entering into an agreement for a paid

referral. The agent must have a valid, current license — in Wisconsin he

or she must complete the continuing education requirements and pay

the renewal fee each biennium to keep his or her real estate license

current. Wisconsin real estate licenses may be conﬁrmed using the

Department of Safety and Professional Services Licensee Lookup at

https://app.wi.gov/licensesearch.

It is not necessary that the agent be a local REALTOR® Board or WRA

member.

Out-of-State Broker

Wisconsin law contemplates referral arrangements being made with

licensees in other states and in other countries. Wis. Stat. § 452.19

 REALTOR® Practice Tip

Wisconsin law prohibits real estate licensees from paying

referral fees or ﬁnders' fees to unlicensed individuals. Under

Wis. Stat. § 452.19, a real estate licensee cannot compensate

non-licensees for referring prospective buyers or sellers to the

licensee. The licensee cannot give the person a gift in exchange

for the referral. Whether the gift is cash or another item of value,

it is considered compensation and violates Wisconsin law.

 REALTOR® Practice Tip

An agent making a referral should include his or her ﬁrm in

the referral agreement because the referral fee will have to be

paid to the referring agent’s ﬁrm before it can be paid to the

agent, subject to whatever independent contractor agreement

provisions, ofﬁce policies, or other arrangements or deductions

might apply within that ﬁrm.

 REALTOR® Practice Tip

Based upon Real Estate Examining Board policy, the payment of

the referral may only be made to an active licensee. Therefore,

it may be wise to condition the agreement to pay the referral

fee upon the referring agent’s license being active both when

entering into the referral agreement and at the time of payment.

Before paying the referral fee, it is prudent to again verify that

the person holds an active license and thus is eligible to receive

the referral fee.

No licensee may pay a fee or a commission or any part thereof for

performing any act speciﬁed in this chapter or as compensation

for a referral or as a ﬁnder's fee to any person who is not licensed

under this chapter or who is not regularly and lawfully engaged in

the real estate brokerage business in another state, a territory or

possession of the United States, or a foreign country.

If a licensee is associated with a ﬁrm, all fees or commissions

and any part thereof for performing any act speciﬁed in this

chapter and all compensation for a referral or as a ﬁnder's fee

shall be paid to the ﬁrm.

The board may revoke, suspend, or limit the license of any

licensee, or reprimand the licensee, if it ﬁnds that the licensee

has done any of the following: ….

(f) Accepted from any person except the ﬁrm with which the

licensee is associated, if the licensee is associated with a ﬁrm,

a commission or valuable consideration for the performance

of any act speciﬁed in this chapter or as compensation for

referring a person to another licensee or to any other person

in connection with a transaction.

Wisconsin REALTORS® Association Page 3 Legal Update, November 2018

provides that “No licensed broker may pay a fee . . . as compensation for

a referral . . . to any person . . . who is not regularly and lawfully engaged

in the real estate brokerage business in another state, a territory or

possession of the United States or a foreign country.”

With respect to agents from other states or countries who send referrals

and wish to be paid, they must be regularly and lawfully engaged in real

estate brokerage. This means that they must hold whatever credential

is necessary and meet any other applicable standards that are required

in that state or country to lawfully engage in real estate practice. They

must also regularly engage in real estate brokerage. This would seem to

rule out persons with credentials who actually work in other ﬁelds and

may rule out part time agents, depending upon what is judged to be

"regular" within that jurisdiction.

This might also go in the opposite direction. A Wisconsin broker can

refer a party and receive a referral fee from a broker from another state

or country. That broker ideally should conﬁrm that payment of a referral

fee to an out of state licensee is permitted under that state’s law.

Company policy

Firms should consider establishing a company policy requiring written

referral agreements and licensure conﬁrmation as early as possible

with regard to any licensee who will be paid a referral fee. The ﬁrm

may set standards as to any forms that should be used and whether

agreements may be entered into by agents alone or whether the ﬁrm

is the contracting party. Company policy should also address whether

referrals and fees are personal to agents, business income for the ﬁrm,

or both. Perhaps referrals of friends and family members may be treated

as personal referrals and referrals involving contacts made from real

estate practice on behalf of the ﬁrm are company referrals. It would be

helpful to clarify what happens to a referral fee paid to the ﬁrm in terms

of what, if any, portion will, in turn, be paid to the agent and whether the

ﬁrm retains any portion thereof.

Checklist for Referral Agreements

A member received a referral from an Illinois broker and agreed to pay

a fee if the buyer purchased a property. What the Wisconsin broker did

not realize was that the Illinois broker had referred the buyer to three

local agents. When the deal closed two of the agents were disputing the

selling side and the Illinois broker was demanding fees from both. This

scenario illustrates what may occur when brokers do not follow the basic

pointers for brokers entering into referral agreements.

Members may use the new WRA Referral Agreement or another form

or enlist the assistance of their company attorney to develop a referral

agreement format appropriate to the company’s marketplace and

transactions.

The following points may need to be addressed in a referral agreement,

depending upon the individual circumstances:

1. The full names and contact information for the referred parties.

2. The full names of the referring and receiving agents and

companies.

3. Company addresses and contact information.

4. The state of licensure and license number of the referring agents.

The receiving agent should either require written conﬁrmation

that the referring agent holds an active real estate license and/

or should seek written conﬁrmation of an active license from the

appropriate state real estate commission.

5. Whether the referral originated with the other agent or the

company. To put it another way, if the referring agent goes to

another company before the referral fee is paid, does the fee

follow the agent or stay with the company? This may depend

upon the referring agent’s company policy – are referrals personal

to the agents in that company or are they considered part of the

company’s business.

6. Whether the referral is exclusive to the receiving company or being

made to multiple companies. If that is the case, specify how to

determine which receiving agents/companies are responsible for

paying the referral fee.

7. A clear and precise statement of the basis for computing the

fee. For example, if the fee will be based on a percentage of

commissions actually collected, specify if this is the gross

commission received by the receiving company or the net

commission received by the receiving agent. Business practices

vary from market to market, so it is necessary to spell out exactly

how the fee will be determined.

8. Who is responsible to pay the fee and exactly to whom the fee

should be paid. Is it the agent or the ﬁrm? This needs to be

stated.

9. Performance standard that must be met before the fee is earned.

For example, the fee may be due if there is an accepted offer

that closes. It should also be stated if there are any restrictions

or limitations with respect to types of properties or transactions,

geographic areas, etc.

10. Agreement term — how long is the referral agreement good for?

If the referred party buys or leases a property with the receiving

agent ten years after the referral was made, is the fee still due?

WRA Referral Agreement Form

The new WRA Referral Agreement is structured to be used as an

agreement between two ﬁrms both in Wisconsin or when the ﬁrm

making the referral is in another state or country. It also has a separate

section for those referrals made by a Wisconsin licensee not associated

with a ﬁrm. The WRA Referral Agreement is available in zipForm. See

a sample copy of the WRA Referral Agreement at www.wra.org/WRA-

ReferralAgreement/Sample.

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 REALTOR® Practice Tip

Before entering into a contract to pay an out-of-state real estate

broker a referral fee, a Wisconsin broker should obtain evidence

or documentation that the broker requesting the referral fee is

regularly and lawfully engaged in real estate brokerage in the

other state to comply with Wis. Stat. § 452.19.

 REALTOR® Practice Tip

It is prudent practice when entering into a written referral

agreement to assure the terms and conditions of the referral are

documented and clearly understood.

Wisconsin REALTORS® Association Page 4 Legal Update, November 2018

Section I, Firm to Firm Referral

Lines 1-10 identify the client, customer or other party being referred

and describe the property or transaction of interest.

Lines 11-31 begin with a check box on line 11 signaling an agreement

between two ﬁrms. The Sending Firm is identiﬁed on lines 12-20, and

lines 18-19 ask for the Sending Firm’s license and tax identiﬁcation

information in preparation for the possible payment of the referral fee to

this ﬁrm. The Receiving Firm is identiﬁed on lines 21-27.

The Referral Agreement Terms on lines 29-30 state, “The undersigned

agree the Sending Firm is referring the Referred Party to the Receiving

Firm. The Receiving Firm will pay the Referral Fee to the Sending Firm

on the terms and conditions stated in Section III of this Agreement.”

Line 31 includes a blank line where the ﬁrms can indicate who will pay

the Referral Fee, whether that be the Receiving Firm or a speciﬁc agent

within that ﬁrm who has that obligation.

Section II, Wisconsin Agent Not Associated with Firm

Section II begins with a check box on line 32 to indicate the

Agreement is being used for a situation where there is a Wisconsin agent

not associated with a ﬁrm making the referral and hopefully receiving

the referral fee. The Sending Agent is identiﬁed on lines 33-40, and

lines 39-40 ask for the agent’s license and Social Security numbers in

preparation for payment of the referral fee. The ﬁrm receiving the referral

is identiﬁed on lines 41-47.

The Referral Agreement Terms on lines 48-51 state, “The undersigned

agree the Sending Agent is referring the Referred Party to the Receiving

Firm. The Receiving Firm will pay the Referral Fee to the Sending Agent

on the terms and conditions stated in Section III of this Agreement.”

Line 51 includes a blank line where it can be indicated who will pay

the Referral Fee, whether that be the Receiving Firm or a speciﬁc agent

within that ﬁrm who has that obligation.

Section III, Referral Agreement Terms and Conditions

Section III of the Agreement gives the Referral Agreement Terms and

Conditions on lines 52-78. Lines 52-57 address the referral fee so that

parties to the Agreement can state the amount of the fee, if applicable,

or indicate how the referral fee will be computed. Any percentage

used in the formula should be stated. Often this may be a percentage

of commission, but the trick is to specify what commission. Is the

percentage applied to a net or gross commission, is the commission

to be the full commission or the list side or the sell side, or perhaps the

percentage is applied to the buyer’s broker’s fee? The percentage might

also be applied to the purchase price, list price, lease commission or

some other amount. The parties must be sure they have deﬁned this

precisely and given an exact formula or explanation for computing the

referral fee so they are on the same page and disputes can be avoided

later on.

The standard of performance is stated on lines 58-61 so it is clear

when the referral fee is earned, for instance, when the Referred Party

is in a transaction that closes or when the Receiving Firm receives

commission in the transaction involving the Referred Party. Lines 62-63

give the deadline for payment of the referral fee. Lines 64-66 indicate

the Sending Firm or Agent must have a real estate license that is valid

and current both when the agreement is entered into and at the time of

payment, as is required by Wisconsin law and REEB policy for the receipt

of a referral fee.

Lines 67-68 indicate whether the Referral Agreement is exclusive

or whether the same referral was made to other ﬁrms as well. The

Agreement Term is stated on lines 69-71, stating an end date but

allowing for the possibility of an extension by written mutual agreement

of the parties. Additional terms and conditions may be stated on lines

72-78 and an attachment may be added via line 79. The signature lines

follow on lines 80-83.

Legal Hotline Questions & Answers

The following questions were asked of the Legal Hotline regarding

referral agreements.

An attorney from Illinois has a client who is interested in property

in Wisconsin. Broker X would be the selling broker in the transaction.

The attorney requested a referral fee. Is this legal?

Wis. Stat. § 452.19 limits the payment of referral fees, ﬁnders’ fees

and commission splits to persons licensed or registered in Wisconsin

to practice real estate, or persons regularly and lawfully engaged in

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Wisconsin REALTORS® Association Page 5 Legal Update, November 2018

real estate brokerage in another state. This would exclude the attorney

unless he has the credentials necessary under Illinois law to practice

real estate and regularly engages in real estate brokerage. This likely

would not be the case if his primary occupation were his law practice.

A licensee is considering retiring. Can she continue to receive

referral fees as long as she is licensed even if she is not with the

company?

Yes, a licensee not associated with a ﬁrm may make a referral and

directly receive a fee. Wis. Stat. § 452.19 limits the payment of referral

fees, ﬁnders’ fees and commission splits to Wisconsin real estate

licensees and persons regularly and lawfully engaged in real estate

brokerage in another state. The referral fee may be paid to a person with

either a broker or salesperson license. It is not necessary that a licensee

be currently associated with a ﬁrm to receive a referral fee.

A real estate licensee gave names to a builder/broker and the

builder/broker was planning on paying a referral fee to the licensee.

Now the builder/broker is concerned about whether it is legal for him

to pay referral fees for building prospect names?

Under Wis. Stat. § 452.19, licensees may pay referral fees only to

other licensees. Since both the builder and the licensee hold real estate

licenses, there is nothing to stop the builder from paying the licensee

the referral fee.

If the builder did not hold a real estate license, he could still pay the

referral fee to the licensee. It is only real estate licensees who cannot

pay non-licensees under § 452.19 – the statute does not apply to non-

licensees who pay referral fees.

A few agents in a ﬁrm want to partially retire, but are looking for

a way to continue working with past clients by making referrals. The

retiring agents would like to keep their licenses under the ﬁrm but not

pay the fees, etc., associated with the franchise. Can the ﬁrm start

a separate LLC for agents who wish to retire and hold their license

under that LLC for referrals to agents in the ﬁrm? The franchisor has

agreed that the option is available.

The broker may consider creating a Limited Function Referral Ofﬁce

(LFRO). The REALTOR® dues formula provides that each Designated

REALTOR® is responsible for dues for each licensee afﬁliated with the

broker. One exception to the dues formula is if the Designated REALTOR®

has an LFRO. An LFRO is a separate legal entity for credentialed

licensees who do only referrals. The entity is created and engages

exclusively in soliciting and or referring clients and customers and the

agents are not engaged in listing, selling, leasing, managing, counseling

or appraising real property. There would be no trust account because

brokerage services are not provided.

An LFRO is not required in Wisconsin for an agent to receive a referral

fee. Wis. Stat. § 452.19 permits a broker to pay referral fees and ﬁnders'

fees to other Wisconsin licensees as long as that person's license is

active and regardless of whether the person holds a salesperson's

license or an inactive license rather than a broker's license. The fact

that the person is not currently associated with a ﬁrm is not relevant.

MLS Compensation

A critical part of every real estate transaction is establishing a

REALTOR®’s right to be paid a commission if the REALTOR® successfully

assists the party in obtaining the desired buyer, tenant or property.

Compensation in real estate transactions may be established by the

multiple listing service (MLS), by standing policy letters between ﬁrms,

by compensation agreements pertaining to single transactions or a

combination of these.

Often compensation is understood solely in terms of an MLS. The MLS

contract for compensation between the listing ﬁrm and the cooperating

ﬁrm is unilateral in nature. The listing ﬁrm determines the terms and

conditions of the compensation offered to potential cooperating ﬁrms.

There is no contract formed between the listing ﬁrm and the potential

cooperating ﬁrms until the listing ﬁrm’s offer of compensation is accepted

by the cooperating ﬁrm. Acceptance occurs through performance by the

cooperating ﬁrm, that is, their efforts to ﬁnd a party for a successful

transaction.

MLS Cooperation

In listing a property with the MLS of a Board of REALTORS®, the listing

ﬁrm makes a blanket unilateral offer of cooperation and compensation

to other MLS Participants. All MLS participants are potential cooperating

ﬁrms. The listing ﬁrm speciﬁes on each listing whether cooperation and

compensation are offered to subagents or buyers' ﬁrms or both. The

offer to compensate is accepted by a ﬁrm that becomes procuring

cause of the sale or lease.

MLS Policy

Multiple Listing Policy Statement 7.23, Information Specifying the

Compensation on Each Listing Filed with a Multiple Listing Service of an

Association of REALTORS®, Handbook on Multiple Listing Policy (2018)

provides that (revision and amendment dates omitted):

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In ﬁling property with the multiple listing service, participants

make blanket unilateral offers of compensation to the other

MLS participants and shall therefore specify on each listing ﬁled

with the service the compensation being offered by the listing

broker to the other MLS participants. This is necessary because

cooperating participants have the right to know what their

compensation will be prior to commencing their efforts to sell.

The listing broker retains the right to determine the amount of

compensation offered to subagents, buyer agents, or to brokers

acting in other agency or nonagency capacities, which may be

the same or different.

This shall not preclude the listing broker from offering any MLS

participant compensation other than the compensation indicated

on his listings as published by the MLS, provided the listing broker

informs the other broker in writing in advance of their submitting

an offer to purchase and provided that the modiﬁcation in the

speciﬁed compensation is not the result of any agreement among

all or any other participants in the service. Any superseding offer

of compensation must be expressed as either a percentage of

the gross sales price or as a ﬂat dollar amount.

While offers of compensation made by listing brokers to

cooperating brokers through MLS are unconditional (except

where MLS rules create speciﬁc exceptions as speciﬁed

elsewhere in this policy statement), a listing broker’s obligation to

compensate a cooperating broker who was the procuring cause

of sale (or lease) may be excused if it is determined through

arbitration that, through no fault of the listing broker and in the

exercise of good faith and reasonable care, it was impossible or

ﬁnancially unfeasible for the listing broker to collect a commission

pursuant to the listing agreement. In such instances, entitlement

Wisconsin REALTORS® Association Page 6 Legal Update, November 2018

Code of Ethics

Article 3 of the Code of Ethics establishes the principal of cooperation,

which is the bedrock of relationships between REALTORS®: “REALTORS®

shall cooperate with other brokers except when cooperation is not in

the client’s best interest. The obligation to cooperate does not include

the obligation to share commissions, fees, or to otherwise compensate

another broker. (Amended 1/95)”

The Code of Ethics Standard of Practice 3-1 indicates that while

cooperation may often be offered, a REALTOR® cannot assume that this

automatically includes an offer of compensation:

Compensation Agreements

Standing bilateral policy letters are often used to create long-term

cooperation and compensation agreements, while other compensation

agreements generally are used for a single transaction. The new WRA

Compensation Agreement form is structured to be a single transaction

compensation agreement although it could be modiﬁed to have a

broader application if desired.

A broker’s compensation agreement may be used in many different

situations:

• It may be used in commercial transactions where the properties are

not listed in any MLS or similar service establishing cooperation and

compensation. Commercial ﬁrms sometimes proceed based on a

handshake or an assumed understanding of commission, but the best

protection is to have a written compensation agreement stating the

commission percentage/amount and what must be done to earn it.

• When the property is located in a geographic area not within the

jurisdiction of an MLS, a compensation agreement will be desirable.

Without the MLS ﬁrms have to create their own agreements regarding

cooperation, what the commission will be and how it is earned. There

is no automatic “safety net” establishing those elements.

• Where one of the ﬁrms is not an MLS participant, a written

compensation agreement is ideal for ﬁlling in the blanks for the non-

MLS ﬁrm. The offer of cooperation and compensation in the MLS is

made only to other MLS participants, so if the cooperating ﬁrm is

not an MLS participant then a separate written agreement regarding

commission and performance standards is needed. That agreement

may, if desired, replicate what was offered in the MLS and offer the

same terms to the non-MLS participant.

• Where the MLS offer of compensation has been rejected because the

ﬁrms want to negotiate compensation different than what is in the MLS,

a written compensation agreement ﬁlls in the gap. If the cooperating

ﬁrm is rejecting the compensation offered by the listing ﬁrm, that is

best communicated directly between the two brokers. Sometimes

there is a tendency to recite this fact in an offer, which certainly serves

to notify the parties, but the offer is a contract between the buyer

and the seller, so a communication between brokers is better made

directly between them in an email or other written correspondence. It

may be advisable to afﬁrmatively state that the agreed commission or

fee is in place of, and not in addition to, any compensation offered in

the MLS or elsewhere.

With respect to a compensation agreement, the only necessary

parties are the listing ﬁrm and the cooperating ﬁrm. The seller and the

buyer might, however, acknowledge this agreement for the purpose of

consenting to a buyer’s broker receipt of compensation from someone

other than the client if that consent has not already been given elsewhere.

This is necessary for compliance with Wis. Admin. Code § REEB 24.05(1).

A broker’s compensation agreement should indicate that the listing

ﬁrm is offering cooperation and compensation, and that the cooperating

ﬁrm is accepting this offer. The agreement may also indicate whether

cooperation is extended via a subagency relationship or buyer brokerage.

Members may wish to enlist the assistance of their company attorney

to develop a compensation agreement format appropriate to the ﬁrm’s

marketplace and transactions. A compensation agreement should:

1. Describe or identify the property,

2. Name the parties,

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question to be determined by an arbitration hearing panel based

on all relevant facts and circumstances including, but not limited

to, why it was impossible or ﬁnancially unfeasible for the listing

broker to collect some or all of the commission established in

the listing agreement; at what point in the transaction did the

listing broker know (or should have known) that some or all of

the commission established in the listing agreement might not

be paid; and how promptly had the listing broker communicated

to cooperating brokers that the commission established in the

listing agreement might not be paid.

The multiple listing service shall not have a rule requiring

the listing broker to disclose the amount of total negotiated

commission in his listing contract, and the multiple listing

service shall not publish the total negotiated commission on a

listing which has been submitted to the MLS by a participant.

The multiple listing service shall not disclose in any way the total

commission negotiated between the seller and the listing broker.

Note 1: The compensation speciﬁed on listings ﬁled with the

multiple listing service by the participants of the service shall be

expressed as a percentage of the gross sales price or as a deﬁnite

dollar amount. Multiple listing services may, as a matter of local

discretion, allow participants to offer cooperative compensation

as a percentage of the net sales price, with net sales price deﬁned

as the gross sales price minus buyer upgrades (new construction)

and seller concessions (as deﬁned by the MLS unless otherwise

deﬁned by state law or regulation). The essential and appropriate

requirement by a multiple listing service is that the information

to be published shall clearly inform the participants as to the

compensation they will receive in cooperative transactions unless

advised otherwise by the listing broker in writing in advance of

their submitting an offer to purchase.

Multiple listing services shall not publish listings that do not

include an offer of compensation expressed as a percentage

of the gross selling price or as a deﬁnite dollar amount, nor

shall they include general invitations by listing brokers to

other participants to discuss terms and conditions of possible

cooperative relationships.

REALTORS®, acting as exclusive agents or brokers of sellers/

landlords, establish the terms and conditions of offers to

cooperate. Unless expressly indicated in offers to cooperate,

cooperating brokers may not assume that the offer of cooperation

includes an offer of compensation. Terms of compensation, if any,

shall be ascertained by cooperating brokers before beginning

efforts to accept the offer of cooperation. (Amended 1/99)

EDITORIAL STAFF

Author

Debbi Conrad

Production

Emily Zampardi

ASSOCIATION MANAGEMENT

Chairman

Jean Stefaniak

President & CEO

Michael Theo, CAE

CONTACT INFORMATION

Wisconsin REALTORS® Association

4801 Forest Run Road, Suite 201

Madison, WI 53704

608-241-2047

800-279-1972

LEGAL HOTLINE

Ph: 608-242-2296

Fax: 608-242-2279

Web: www.wra.org

The information contained herein is believed

accurate as of November 1, 2018. The information

is of a general nature and should not be considered

by any member or subscriber as advice on a

particular fact situation. Members should contact

the WRA Legal Hotline with speciﬁc questions or for

current developments.

Reproduction, use or inclusion of this material in other

publications, products, services or websites is not

permitted without prior written permission from the

WRA or its Legal Department.

This Legal Update and other Updates beginning

with 94.01 are available to members online at

www.wra.org/LegalUpdates.

A Legal Update subscription is included with

member dues. Members are alerted via email

when a new issue is available online.

The nonmember subscription rate for the Legal

Update is $75. A subscription includes 12

monthly issues.

Contact the Wisconsin REALTORS® Association

to subscribe:

4801 Forest Run Road,

Madison, WI 53704-7337

608-241-2047

800-279-1972

www.wra.org

Wisconsin REALTORS® Association Page 7 Legal Update, November 2018

3. Name the brokers,

4. Identify agency relationship —

subagency, buyer brokerage or other

relationship,

5. Offer and acceptance of cooperation,

6. State the amount of the commission or

fee to be paid by the listing ﬁrm to the

cooperating ﬁrm in clear, speciﬁc terms,

7. Indicate when compensation shall be

paid, and

8. State what must be done to earn

compensation — the standard of

performance.

WRA Compensation

Agreement Form

The new WRA Compensation Agreement

is structured to be used as a compensation

agreement between two ﬁrms with regard to a

particular property and transaction identiﬁed

in the Agreement. The WRA Compensation

Agreement is available in zipForm. See a sample

copy of the WRA Compensation Agreement at

www.wra.org/WRA-CompensationAgreement/

Sample.

The Agreement starts out by identifying the

property and the parties in the transaction

at lines 1-8. The listing agent and ﬁrm are

identiﬁed and contact information is given on

lines 9-15; the cooperating agent and ﬁrm are

identiﬁed and contact information is given on

lines 16-22.

The cooperation and compensation agreement

terms are on lines 26-31. The cooperating ﬁrm’s

agency relationship with the listing ﬁrm and the

form of cooperation is indicated on lines 26-27

in a “strike and complete as applicable” format.

The cooperating ﬁrm may be a subagent of the

listing ﬁrm, a buyer's ﬁrm or possibly have some

other relationship written into the blank line, as

the case may be.

Lines 28-31 describe how the compensation

will be calculated. This may be a ﬂat fee, a

percentage of the gross or net purchase price,

or any other amount the parties agree on. The

key is that the amounts, percentages, formulas,

etc., are stated clearly and precisely to avoid

any confusion or disagreement at closing.

Lines 32-34 delineate the standard of

performance, in other words, what has to have

been done in order for the Cooperating Firm

to earn and become entitled to the described

compensation. The ﬁrms may agree the

standard is procuring cause or may establish

another benchmark such as closing, the Listing

Firm’s receipt of commission from the seller, etc.

Line 35 gives the deadline for payment of the

described compensation to the Cooperating

Firm. The Agreement Term is stated on line

36, stating an end date. Additional terms and

conditions may be stated on lines 37-43, and

an attachment may be added via line 44. The

signature lines follow on lines 45-48.

Legal Hotline Question &

Answer

The following question was recently asked

of the Legal Hotline regarding a broker’s

entitlement to compensation:

Can a non-MLS member who is also not a

REALTOR® member be paid a commission?

The agent has a residential listing, and a

broker submitted an offer and he is not a

member of the WRA or the MLS.

Wis. Stat. § 452.19 limits the payment of

referral fees, ﬁnders’ fees and commission

splits to Wisconsin real estate licensees and

persons regularly and lawfully engaged in real

estate brokerage in another state. An individual

with a broker's license may provide brokerage

services and be paid a commission even if the

licensee is not a REALTOR® or a participant in

the same MLS as the listing ﬁrm.

Before offering to pay a commission, the

agent may refer to company policy to determine

how to negotiate and document the payment

of commission. For instance, ﬁrm policy may

require veriﬁcation that the person holds a

current license and thus is eligible to receive

commission. Wisconsin real estate licenses may

be conﬁrmed using the DSPS Licensee Lookup

at app.wi.gov/licensesearch. Firm policy may

also require a written compensation agreement

including the standard of performance that

must be met to earn the offered commission.

P3P7

 REALTOR® Practice Tip

A cooperating ﬁrm should always attempt

to enter into a compensation agreement

before submitting any offers to purchase

or leases to the listing ﬁrm. The listing

ﬁrm may lose incentive to agree to

the cooperating ﬁrm’s compensation

proposal once the listing ﬁrm has an offer

in hand.

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