The best practice for a buyer's agent is to work under a written exclusive representation agreement. In most cases a buyer's agent is compensated at closing out of the proceeds of the transaction, rather than by direct payment from the buyer. The following two Case Interpretations of the NAR Code of Ethics illustrate the importance of carefully structuring the method of payment.

Case #16-16: Buyer Agents Demand that Listing Agent Reduce Commission (Adopted as Case #21-17 April, 1990. Transferred to Article 16 November, 1994 as Case #16-11. Renumbered November, 2001.)

REALTORŪ B contacted REALTORŪ A, the listing broker, and notified her that he was a buyers agent and was interested in showing one of her listings to his client, a prospective purchaser. REALTORŪ A made an appointment for REALTORŪ B and his client to view the property. Shortly thereafter, REALTORŪ B presented REALTORŪ A with a signed offer to purchase from his client which was contingent on REALTORŪ As willingness to reduce her commission by the amount she had offered through the MLS to subagents and on the sellers willingness to compensate the buyer for the commission the buyer owed to REALTORŪ B, his agent. REALTORŪ A presented the offer to her client, the seller, explaining that she would not agree to reduce the previously agreed commission as specified in their listing contract.

REALTORŪ A then filed a complaint with the local Board charging REALTORŪ B with violating Article 16 as interpreted by Standard of Practice 16-16. In her complaint, REALTORŪ A stated that REALTORŪ B had interfered in her agency relationship with the seller by encouraging the buyer to condition acceptance of his offer on the renegotiation of REALTORŪ As commission arrangement with her client, the seller.

REALTORŪ B defended his action arguing that REALTORŪ As refusal to reduce her commission by an amount equal to what she had offered other brokers for subagency services would have placed the seller in the position of having to pay an excessive amount of commission if he had accepted the offer agreeing to contribute to the buyer brokers compensation. In addition, REALTORŪ B felt that it was his duty to his client to get the best price for the property by encouraging the buyer to reduce the costs of sale wherever practical. The Hearing Panel concluded that REALTORŪ Bs actions to encourage his buyer-client to pressure the seller to try to modify the listing agreement with REALTORŪ A was an unwarranted interference in their contractual relationship.

The Hearing Panel noted that Article 16, as interpreted by Standard of Practice 16-16, required REALTORŪ B to determine, prior to presenting an offer to REALTORŪ A and her seller-client, whether REALTORŪ A was willing to contribute to REALTORŪ Bs commission, either directly or by reducing the commission as agreed to in the listing contract and, if so, the terms and amount of such contributions. It was the decision of the Hearing Panel that REALTORŪ B had violated Article 16.

Case #16-17: Buyer Conditions Purchase Offer on Sellers Agreement to Pay Buyer Agents Fee (Adopted as Case #21-18 April, 1990. Transferred to Article 16 November, 1994 as Case #16-12. Renumbered November, 2001.)

REALTORŪ A filed a listed property with his local MLS offering to pay a fee for subagency services. REALTORŪ B called REALTORŪ A, identified himself as a buyers agent, and asked if REALTORŪ A would arrange a showing of the property to his client and himself. REALTORŪ A agreed. The following day, REALTORŪ B presented REALTORŪ A with an offer to purchase that was contingent on the sellers agreement to pay REALTORŪ Bs commission. The seller accepted the offer and the sale closed shortly afterward.

REALTORŪ A then filed a complaint against REALTORŪ B citing Article 16 of the Code of Ethics as interpreted by Standard of Practice 16-16. He stated that REALTORŪ B had interfered in REALTORŪ As relationship with his seller-client by attempting to negotiate a separate commission agreement with the seller. REALTORŪ B responded that since the request that the seller pay his commission was made by REALTORŪ Bs client, the buyer, directly of the seller and not of the listing broker, no violation of the Code of Ethics had occurred.

In their decision, the Hearing Panel noted that if REALTORŪ B, or if his client at REALTORŪ Bs urging, had demanded that a portion of REALTORŪ As commission be paid to REALTORŪ B, there would have been a valid basis for REALTORŪ As position. Since the request for payment of REALTORŪ Bs fee was made directly to the seller, REALTORŪ B was not in violation of Article 16.