Key Takeaways
- All commissions in Colorado are negotiable - no fixed rates
- Brokers can only receive compensation through their employing broker
- Commission does not determine agency - a buyer's agent can be paid from listing side
- Referral fees to unlicensed persons are prohibited (limited exceptions)
- All compensation arrangements must be disclosed in writing
Commission and Compensation in Colorado
Understanding how real estate commissions work in Colorado is essential for license law compliance.
Commission Basics
Negotiability
All real estate commissions in Colorado are fully negotiable. There is no:
- Standard commission rate
- Minimum commission
- Maximum commission
- Rate set by the Real Estate Commission
Antitrust Warning: Discussing or agreeing on commission rates with competing brokerages is illegal price-fixing and can result in severe penalties.
Commission Does NOT Determine Agency
Critical Concept: Who pays the commission does NOT determine who the broker represents.
| Scenario | Agency Relationship |
|---|---|
| Buyer's agent paid from listing | Still buyer's agent |
| Seller pays buyer's broker | Buyer's agent still represents buyer |
| Commission split through MLS | Does not change representation |
A buyer's agent can receive compensation from:
- The buyer directly
- The listing broker (cooperative compensation)
- The seller through the listing agreement
- Any combination thereof
Flow of Compensation
Standard Commission Flow
| From | To | Permitted? |
|---|---|---|
| Client | Employing Broker | Yes |
| Employing Broker | Broker (licensee) | Yes |
| Client | Broker directly | NO |
| Cooperating Employing Broker | Employing Broker | Yes |
| Cooperating Broker | Broker directly | NO |
The Cardinal Rule
Brokers can ONLY receive compensation through their employing broker.
A broker cannot:
- Accept payment directly from a client
- Accept payment from another brokerage
- Accept payment from another brokerage's broker
Compensation Disclosure Requirements
Written Disclosure
Colorado requires compensation arrangements to be disclosed in writing:
| Document | Disclosure Required |
|---|---|
| Listing Agreement | Seller's commission obligation |
| Buyer Agency Agreement | Buyer's compensation responsibility |
| Contract to Buy/Sell | Commission references |
| Closing Disclosure | All compensation paid |
Cooperative Compensation
When a listing broker offers compensation to buyer's brokers:
- Must be clearly stated in listing agreement
- Often communicated through MLS
- Can be flat fee or percentage
- Is negotiable
Referral Fees
Permitted Referrals
- Broker to broker (licensed parties)
- For referring clients who complete transactions
- Must be disclosed to all parties
- Must go through employing brokers
Prohibited Referrals
- Paying unlicensed persons for referrals
- Kickbacks to service providers
- Undisclosed compensation arrangements
Exception: Limited gifts to past clients may be permissible but should be disclosed.
Disputes and Collection
Commission Disputes
If brokers dispute commission:
- Does NOT delay closing
- Resolved separately from transaction
- May require mediation or arbitration
- Can be litigated if necessary
Earning Commission
A broker typically earns commission when:
- Procuring cause - Broker was the effective cause of the sale
- Terms met - Buyer meets contract terms OR seller accepts
- Per contract - As specified in listing/buyer agency agreement
When Commission May NOT Be Earned
| Situation | Commission Status |
|---|---|
| Transaction fails due to broker error | May forfeit |
| Seller backs out without cause | May still be owed |
| Buyer cannot perform | Depends on contract terms |
| Deal falls through due to unrelated third party | Depends on listing agreement |
A buyer's agent receives compensation from the listing broker. Who does the buyer's agent represent?
A Colorado broker may receive compensation from:
Which statement about Colorado real estate commissions is TRUE?