Key Takeaways
- Commission rates are negotiable; there are no fixed or standard rates in New Jersey
- Salespersons can only receive compensation from their sponsoring broker
- Referral fees can only be paid to licensed individuals with proper disclosure
- Net listings are not prohibited but are discouraged and create liability
- Commission disputes do not prevent closings from occurring
Commission and Compensation in New Jersey
Understanding how real estate commissions work in New Jersey is essential for license law compliance.
Commission Basics
Negotiability
All real estate commissions are fully negotiable.
| There is NO: | Explanation |
|---|---|
| Standard rate | Rates vary by market and negotiation |
| Minimum commission | Any amount can be agreed upon |
| Maximum commission | No legal cap on commissions |
| Fixed percentage | Each transaction is negotiated |
Antitrust Warning: Discussing or agreeing on commission rates with competing brokers is illegal price-fixing and violates federal antitrust laws.
When Commission is Earned
A broker typically earns a commission when they produce a buyer who is:
| Element | Description |
|---|---|
| Ready | Prepared to enter into a contract |
| Willing | Wants to purchase on agreed terms |
| Able | Has financial capacity to close |
The specific terms are defined by the listing agreement.
Payment of Compensation
Commission Flow
| From | To | Permitted? |
|---|---|---|
| Client | Sponsoring Broker | Yes |
| Broker | Salesperson | Yes |
| Client | Salesperson directly | NO |
| Cooperating Broker | Sponsoring Broker | Yes |
| Cooperating Broker | Salesperson directly | NO |
The Cardinal Rule
Salespersons can ONLY receive compensation from their sponsoring broker.
This means a salesperson cannot:
- Accept payment directly from a client
- Accept payment from another broker
- Accept payment from a cooperating broker
- Accept gifts that could be considered compensation
Referral Fees
Permitted Referral Fees
Referral fees are allowed between:
- New Jersey licensed brokers
- Out-of-state brokers (licensed in their state)
- Licensees within the same brokerage
Prohibited Referral Fees
Referral fees cannot be paid to:
- Unlicensed individuals
- Expired license holders
- Individuals for "finder's fees"
Disclosure Requirements
All referral fees must be:
- Disclosed to all parties
- In writing
- Paid through proper channels
Special Commission Arrangements
Net Listings
| Aspect | Detail |
|---|---|
| Definition | Seller gets fixed amount, broker keeps excess |
| Legal in NJ? | Not prohibited but discouraged |
| Risks | High liability for broker |
| Recommendation | Avoid or use with extreme caution |
Commission from Both Parties
A broker may receive commission from both parties only if:
- Full disclosure is made to both parties
- Written consent is obtained
- All parties understand the arrangement
Commission Disputes
Between Brokers
If two brokers dispute who earned a commission:
- Dispute does NOT delay closing
- Brokers resolve separately
- May use arbitration or litigation
- Does not affect buyer or seller
Earnest Money Disputes
When parties dispute earnest money:
- Broker holds funds until resolved
- May file interpleader with court
- Cannot disburse without agreement or court order
Broker Compensation Arrangements
| Arrangement | Description |
|---|---|
| Commission split | Percentage of total commission |
| Flat fee | Fixed amount per transaction |
| Salary | Regular payment regardless of transactions |
| Bonus | Additional payment for performance |
| Team arrangements | Splits within teams |
In New Jersey, a salesperson may receive commission from:
Are commission rates set by law or regulation in New Jersey?
Can a New Jersey broker pay a referral fee to an unlicensed person?