Defining the Divorced Commission: A short-hand term for understanding alternative real estate compensation models . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I just spent a very informative hour on the phone with Jeff Brown, and I want to summarize what I took away from our conversation.

First, Jeff has a very different understanding of the term “co-broke” compared to the way it is used in Arizona. When we went to essentially 100% buyer-brokerage for residential real estate, we kept the term “co-broke” to mean the compensation that would be paid to the buyer’s broker — even though the buyer’s broker is never a sub-agent of the listing broker or the seller and represents only the buyer.

Jeff writes explicit contract language to make pellucid his exclusive buyer’s agency and is also taking his compensation from the buyer. What the listing agent chooses to do about the portion of the sales commission set aside for any cooperating broker is between the listing agent and the seller.

I would describe that as an instance of what I want to call Divorced Commissions. The lingering idea of subordination — seller oversees listing broker who oversees cooperating broker — is completely eliminated, at least from the buyer’s side of the ledger. The buyer contracts for and compensates his own representative.

Similarly, writing the listing agreement to concede any shared sales commission directly to the buyer effects the same sort of divorce. We are doing this with one listing right now, and I gather that Ardell has just done something similar.

This again is a form of Divorced Commissions. Even though in this instance any buyer’s agent’s commission is originating in the listing agreement, neither the lister nor the seller are attempting to use these funds to advance the seller’s interests at the expense of the buyer’s.

Nota bene: The original purpose of encapsulating the cooperating broker’s commission within the listing broker’s commission was to align everyone’s interests with the seller’s interests and against the buyer’s interests. The cooperating broker working with the buyer was compensated for introducing the buyer to the seller and for actively working against the buyer’s interests in the seller’s behalf.

You might argue that, at least in Arizona, where sub-agency is no longer practiced for residential real estate, the “co-broke” in the listing agreement is vestigial and essentially harmless. I disagree, and this is why I keep hammering away on these points.

Mark Nadel’s proposal, which we have discussed at some length, is a third form of the Divorced Commission. His way is the least practical of the three, for now, but his way is at least envisionable as a matter of policy, where Jeff, Ardell and I are engaged in matters of peculiar practice — solitary instances contrary to the overwhelming norm.

But let’s leave all three particular ways of doing this and simply consider the Divorced Commission in the abstract.

Why would we want such a thing?

From my point of view, there are three crippling defects in the traditional real estate industry:

1. The rigidity of the commission structure
2. The exclusivity of MLS systems
3. The dysfunctional management structure of the broker/salesperson employment model

Of these, two are a direct consequence of the traditional practice of encapsulating the buyer’s agent’s compensation within the listing agent’s commission.

Do you see why? The practice the NAR calls “cooperation” is actually a metaphor for a graduated hostility. Because there are two “sides” built into the listing commission, the short-term pecuniary self-interest of the listing broker is to keep both “sides” to himself. The idea of procuring cause is a way of inducing “cooperation” by delimiting and circumscribing what we might describe as the leonine avarice of the listing broker.

But in a condition of Divorced Commissions, the listing agent never has access to more than one side of the transaction (except in a disclosed dual agency). The buyer chooses his own representation, and compensates his agent from his own side of the ledger. The issue of procuring cause has become moot.

Moreover, an unrepresented seller has no need to worry about compensating the agent of a represented buyer. In the same way, an unrepresented buyer isn’t compelled to compensate the listing agent for advice and counsel he does not receive.

The actual purpose of MLS exclusivity is protection of the doctrine of procuring cause. When we can achieve a state of universally Divorced Commissions, we no longer have any need to exclude unrepresented sellers. The business model would have to change to accommodate them, and there are other practical details — all of them trivial — to be worked out. But, since there would be no offer of compensation to the buyer’s agent in the listing, there would be no need to distinguish represented from unrepresented listings.

Divorcing the Commissions is a very potent reform. This one change might be enough to turn the practice of personal service real estate into a true, modern business…

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