2.4 Commission and Compensation Rules

Commissions Are Negotiable

Every real estate commission in Washington is negotiable. There is no standard, minimum, or maximum rate, and neither the DOL nor any association may set one. The contract between the principal and the firm defines the amount.

Antitrust warning: Brokers from competing firms agreeing on, or even discussing, a common commission rate is illegal price-fixing under the Sherman Act and Washington's Consumer Protection Act. Each firm sets its rate independently. This is a favorite trick on the national portion.

When a Commission Is Earned

The written agreement governs; a broker who produces a ready, willing, and able buyer may have earned the fee even if the seller backs out, depending on the contract language.

The Cardinal Payment Rule

A broker may receive compensation ONLY from their own firm. All money flows through the firm.

A broker may not accept payment directly from a buyer, seller, another firm, or another firm's broker. The firm is paid; the firm then pays its broker per their independent-contractor or employment agreement.

Commission Sharing, Referrals, and Disputes

Sharing with Cooperating Firms

A firm may split a commission with:

• Another Washington-licensed firm (the cooperating firm)
• An out-of-state firm properly licensed in its own state
• Its own affiliated brokers, per their agreement

The split flows firm-to-firm, then each firm pays its own broker — never firm-to-other-firm's-broker.

Referral and Finder's Fees

Paying an unlicensed person a fee for finding or referring a buyer or seller is unlicensed activity and is prohibited. A consumer giving an unsolicited gift to their own agent's firm is a different matter.

Commission Disputes Between Firms

If two firms dispute who earned the commission, the dispute does not delay closing. Escrow disburses according to the written instructions, and the firms resolve their disagreement separately — often through REALTOR association arbitration or litigation.

Earnest Money Disputes

Federal RESPA Overlay

The federal Real Estate Settlement Procedures Act (RESPA) also applies to most residential mortgage transactions:

• No kickbacks or referral fees for settlement-service referrals (Section 8)
• No unearned fees — payment must be for services actually performed
• Affiliated business arrangements must be disclosed in writing

Trap: "Net listings" (broker keeps everything above a set seller price) are strongly discouraged and create conflict-of-interest exposure in Washington.

Worked Scenario

A cooperating buyer's-side firm and the listing firm agree to split a 5% commission on a $500,000 sale, $12,500 to each firm. At closing, escrow pays the listing firm, which then pays the cooperating firm $12,500. Each firm separately pays its own broker per their independent-contractor agreement. The seller may not write a check straight to the buyer's broker, and the listing firm may not pay the cooperating broker directly — both would violate the cardinal payment rule.

Now a friend who is not licensed tips the broker about the seller and asks for $1,000 "for the lead." The broker must refuse — paying an unlicensed person a referral or finder's fee is prohibited unlicensed activity.

Quick Compensation Checklist

Trap: A broker may receive a referral fee from another firm, but never directly to the broker — it must pass through the broker's firm like any other compensation.

Procuring Cause

Disputes over who earned the commission usually turn on procuring cause — which broker set in motion an unbroken chain of events leading to the sale. Merely opening a door for a buyer is not enough; the broker must be the one whose efforts actually produced the ready, willing, and able buyer who closed. Washington REALTOR boards arbitrate these disputes; the DOL does not, because commission is a private contract matter, not a licensing violation.

Trap: A buyer who signs a nonexclusive buyer agreement may work with several firms; the firm that is the procuring cause of the purchase earns the fee. Under an exclusive agreement, the named firm is owed compensation even if another firm finds the home, depending on the contract terms.