Key Takeaways
- Commissions in Pennsylvania are fully negotiable between parties
- Salespersons and associate brokers can only receive compensation from their employing broker
- Referral fees to unlicensed persons are prohibited
- Brokers must disclose compensation arrangements and affiliated business relationships
- Commission disputes do not prevent closings from occurring
Commission and Compensation in Pennsylvania
Understanding how real estate compensation works in Pennsylvania is essential for compliance.
Commission Basics
Negotiability
All commissions are negotiable. Pennsylvania law does not set:
- Minimum commission rates
- Maximum commission rates
- Standard commission percentages
Each broker sets their own rates, and clients can negotiate.
Antitrust Warning: Discussing or agreeing on commission rates with competing brokers is illegal price-fixing.
When Commission is Earned
A broker typically earns commission when they produce a buyer who is:
- Ready - Prepared to buy
- Willing - Wants to buy on seller's terms
- Able - Has financial capacity
However, the listing agreement defines exactly when and how commission is earned.
Payment of Compensation
Flow of Commission
Compensation must flow through proper channels:
| From | To | Permitted? |
|---|---|---|
| Client | Employing Broker | Yes |
| Broker | Salesperson | Yes |
| Client | Salesperson directly | NO |
| Cooperating Broker | Employing Broker | Yes |
| Cooperating Broker | Salesperson directly | NO |
The Key Rule
Salespersons and associate brokers may only receive compensation from their employing broker.
A salesperson cannot:
- Accept payment directly from clients
- Accept payment from other brokers
- Accept referral fees directly
- Receive compensation from outside the brokerage
Referral Fees
Permitted Referrals
- Broker to broker (licensed parties)
- Must be disclosed to clients
- For legitimate referral of business
Prohibited Referrals
- Payments to unlicensed persons for referrals
- Undisclosed compensation arrangements
- Kickbacks for referrals to service providers
Exception: Nominal gifts to clients for referrals may be permissible if properly disclosed.
Affiliated Business Arrangements
Pennsylvania requires disclosure of affiliated business arrangements:
| Requirement | Action |
|---|---|
| What to disclose | Relationship between broker and other service providers |
| When to disclose | At time of referral |
| Format | Written disclosure |
| Consumer choice | Consumer may choose other providers |
Examples of Affiliated Businesses
- Title companies owned by brokerage
- Mortgage companies with broker ownership
- Home warranty companies with referral fees
- Insurance providers with relationships
Commission Disputes
Between Brokers
If brokers dispute who earned a commission:
- The dispute does NOT delay closing
- Parties resolve separately
- May require arbitration or litigation
Procuring Cause
Procuring cause determines who earned the commission:
- The broker whose efforts resulted in the sale
- The continuous chain of events leading to sale
- Not necessarily the first broker to show the property
Compensation Disclosure
What Must Be Disclosed
| Disclosure | When |
|---|---|
| Agency relationship | At initial interview |
| Affiliated businesses | At time of referral |
| Commission arrangements | As required by agreement |
Advertising Compensation
When advertising:
- Cannot promise specific results
- Cannot guarantee savings
- Must be truthful about services
A Pennsylvania real estate salesperson may receive compensation from:
What must a Pennsylvania broker disclose regarding affiliated businesses?