Notes from the Legal Hotline: March 2022

March 2, 2022

- By The MAR Legal Team

Q: If I select “Designated Agency” on the Massachusetts Mandatory Licensee-Consumer Relationship Disclosure, are there any other forms I need to provide my client to establish designated agency?

A: Yes, although selecting Designated Agency on the Relationship Disclosure is necessary to identify the agency capacity in which you are working, it does not establish the required consent to designated agency, nor does it provide notice that it is a designated transaction. Consent to designated agency may be established through an exclusive representation agreement, such as the MAR Exclusive Right to Sell Listing Agreement or Exclusive Buyer Agency Agreement, or through a standalone form, such as the MAR Consent to Designated Agency. When designated agency occurs in a transaction, meaning that licensees within the same brokerage are representing both sides of the transaction, notice must be provided to both the buyer(s) and the seller(s). Notice must be provided prior to the execution of the contract to purchase. Only when each of these steps has occurred is designated agency appropriate in a transaction.

As an important note, the steps to appropriately enter into dual agency mirror those of designated agency. The MAR forms library contains consent and notice forms for dual agency, as well.

Q: Is the listing broker required to provide the cooperating broker the commission check at the closing?

A: No, the Massachusetts laws and regulations are silent as to the timing payment is due to a cooperating broker. For those transactions that result from an MLS listing, the rules state that compensation is due to a cooperating broker who was the procuring cause of the transaction. Failure to compensate a cooperating broker may result in a complaint being filed with the local board and may even result in suspension from the service.[1] For transactions occurring outside of the MLS, compensation due to a cooperating broker is a matter of contract, which may specify the timing of payment.

While it is not uncommon for commission checks to be provided at closing, this should only be done with the understanding that the funds will not be deposited until the property is on record and the funds have cleared. A listing broker may also choose to wait until the property is recorded and funds have cleared prior to issuing any payments. In this later situation, the listing broker should take care to issue payment as soon as possible.

Cooperating commissions may be paid from either the escrow account or the brokerage’s operating account, however, no funds may be transferred from the escrow account prior to the transaction closing. As with any monies flowing into or out of the escrow account, all funds must be properly accounted for.

[1] The MLS PIN Rules & Regulations allow for a suspension from the service if a listing brokerage fails to pay the cooperating broker within five (5) days of a warning from the service.