2.4 Commission and Compensation Rules

Commissions Are Negotiable

New Jersey sets no standard commission rate. Every fee is a private contract term negotiated between the broker and the client. The exam tests this directly: there is no minimum, no maximum, and no board-set percentage.

Antitrust warning: Two competing brokers who agree to charge "the going 5%" commit illegal price-fixing under the federal Sherman Act and New Jersey antitrust law. Brokers must set fees independently. This issue gained prominence after the 2024 Sitzer/Burnett (NAR) settlement reshaped how cooperative compensation is offered and disclosed.

When a Commission Is Earned

Under the common-law rule, a broker earns a commission by producing a buyer who is ready, willing, and able:

The listing agreement controls the precise trigger — many specify commission is due on a fully executed contract or at closing.

The Source-of-Payment Rule

New Jersey's cardinal compensation rule: a salesperson may be paid only by their own sponsoring broker. All money flows through the broker first.

A salesperson therefore cannot accept a check from a seller, a buyer, or another brokerage — even a thank-you payment that functions as compensation. The seller's check goes to the listing broker, who then pays the salesperson under their independent-contractor or employment agreement.

The policy reason is supervision and accountability: the broker of record is legally responsible for every salesperson's conduct and for all funds in the transaction, so all compensation must pass through the broker's hands. This rule survives a change of affiliation — if a salesperson earns a commission while sponsored by Broker A but the deal closes after moving to Broker B, the money is still owed through Broker A, the sponsoring broker at the time the work was done.

A salesperson who tries to collect a commission directly, or who sues a client for a fee in their own name, has no standing; only a broker can bring a suit to recover an earned commission, and even then only with a written agreement signed by the party to be charged.

Referral Fees

Referral fees — a share of commission paid for sending business — are lawful only between licensed brokers, and the payment still flows broker-to-broker.

Paying an unlicensed person for a referral is treated as unlawfully sharing a commission. The narrow exception is a modest, non-recurring gift to a past client who refers a friend, but a structured fee paid for steering business to the brokerage requires a license. All referral arrangements should be disclosed and documented.

Net Listings

A net listing lets the seller set a fixed net amount and the broker keep everything above it as the fee.

N.J.A.C. 11:5-6.2(f) expressly bars a licensee from entering into a net-listing contract, so this is a prohibited arrangement rather than merely a best-practice warning.

Disputed Funds and Commission Disputes

Two dispute scenarios recur on the exam:

• Commission disputes between brokers (who procured the buyer) do not delay the closing. The buyer and seller close; the brokers resolve their fee fight separately through arbitration or litigation.
• Disputed escrow/earnest money: the broker must hold the funds until the parties agree in writing or a court orders disbursement. The broker may not unilaterally pick a side, and may file an interpleader action to let a court decide.

Worked example: a buyer and seller both claim a $15,000 deposit after a deal collapses. The listing broker cannot release it to either party on demand; the funds stay in the trust account, and if the parties cannot agree the broker interpleads the money to the court — protecting the broker from liability for paying the wrong person.

When Is a Commission Earned?

Under New Jersey law a broker generally earns a commission when they produce a buyer who is ready, willing, and able to purchase on the seller's terms, or when the seller accepts an offer, depending on the listing language. The commission is typically paid at closing, but the earning event and the payment event can differ.

The Seller-Cancels Trap

If a broker produces a ready, willing, and able buyer at the full listing price and terms, and the seller then refuses to sell, the broker may still have earned the commission even though no closing occurred. The seller's voluntary refusal does not erase a commission the broker has already earned under the listing.

Written Agreement Requirement

Because a listing is the broker's employment contract, a commission claim is far stronger when the listing is in writing and signed. New Jersey's License Act and the statute of frauds push brokers toward written listings with a definite expiration date.

Worked Scenario: Procuring Cause

Broker A shows a buyer a home but does nothing further; weeks later Broker B works extensively with the same buyer, writes the offer, and the buyer closes. Even though Broker A introduced the property, Broker B is the procuring cause because B's unbroken efforts produced the sale. Procuring-cause disputes like this are resolved between the brokers (often by Realtor-association arbitration) and never delay the buyer and seller's closing.