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Best Practices for the Cooperating Compensation Agreement (Form 220)
Below is the latest guidance from the NC REALTORS® regarding the Cooperating Compensation Agreement. This also includes guidance they received from the NCREC, so it is definitely worth a read!
QUESTION: I keep hearing conflicting information about the Cooperating Compensation Agreement (Form 220). Can you take me through the best way to use this form?
ANSWER: Sure! Let’s walk through some of the most frequent questions on the Hotline and some common scenarios.
Does the buyer agent or the listing agent need to fill out Form 220?
Either one can fill out Form 220 and send it to the other.
Is Form 220 required?
No, it is not required. Form 220 is just a tool to help agents create a written confirmation of an agreement for cooperative compensation.
When should I check the “Seller” box in paragraph one of Form 220?
Whoever is paying the cooperative compensation should be checked in paragraph one. For example, if the seller has authorized cooperative compensation in a listing agreement, then the “Listing Firm” box should be checked in paragraph one. This is because the cooperative compensation will be paid from the proceeds the seller is paying to the listing firm. If the seller has not authorized cooperative compensation in the listing agreement, but later agrees to pay cooperative compensation directly to the buyer agent, then the “Seller” box should be checked. As a best practice, all parties should sign Form 220.
Should I have the seller sign Form 220 at the listing appointment?
Each firm may set its own policy on this issue. Some sellers may decide on an amount of cooperative compensation to offer regardless of the buyer’s offer terms, and other sellers may want to adjust cooperative compensation based on what the buyer’s offer says. Either way, it is a discussion to be had between the seller and the listing firm in which the listing firm puts the seller’s interests first, preferably prior to listing.
Can I attach Form 220 to a purchase contract as an addendum?
No, the License Law clearly prohibits agent compensation being attached to or otherwise included in a pre-printed purchase contract.
If the seller has authorized cooperative compensation, can I publish Form 220 on my firm’s website so buyer agents know what is being offered?
You can. Again, each firm can make its own policy on this issue. We have written that publishing a Form 220 that is already signed may have risks, explained below, and you should consult with an attorney.
What is the risk of publishing a Form 220 publicly that has already been signed?
The main risk is that a buyer may have multiple buyer agents who have non-exclusive agency agreements. Paragraph two of Form 220 states that the cooperative compensation is deemed earned when the buyer and seller sign a purchase contract. So, if a buyer with two buyer agents signs a purchase contract, and both buyer agents have obtained a pre-signed Form 220 from the listing firm’s website and signed it, two buyer agents may try to claim a fee. The easiest way to avoid this risk is to publish Form 220 without a signature from the seller or listing firm. However, listing firms are free to consult with their own legal counsel to find other ways to minimize this risk, regardless of whether the Form 220 is published with a signature or not.
When should I negotiate cooperative compensation?
If at all possible, cooperative compensation should be negotiated prior to the buyer’s offer. If a listing firm has not advertised an offer of cooperative compensation, buyer agents should contact the listing firm. The listing firm may request that the buyer agent at least communicate what the buyer’s proposed offer terms are so that the seller can make an informed decision as to cooperative compensation. A listing firm may also inquire what the buyer agent’s cooperative compensation request is, or what the buyer has agreed to pay. Buyer agents may then decide what information they are willing to share, if any, regarding their agreement for compensation with their client.
What if Form 220 is signed, but then the buyer and seller never go under contract? Does the listing firm have to pay?
No. paragraph two of Form 220 states that the cooperative compensation is only earned if the buyer and seller sign a purchase contract. If a purchase contract is never signed, then Form 220 will expire on the date that is indicated in paragraph three of Form 220. There is no rule regarding the date in paragraph three. It can be as long or as short as the parties wish. Form 220 is clear that as long as the fee is earned prior to the expiration date in paragraph three, the fee will continue to be earned even if the expiration date in paragraph three passes.
What if the listing firm will not communicate with me? How can I submit my buyer’s offer if my buyer needs help paying my compensation?
As we said in this Q&A, which was written after consulting with Regulatory Affairs at the Commission, you might consider, as a final resort, submitting your buyer’s offer to the listing agent along with a separate proposed Form 220. This means, for example, you could email your buyer’s offer to the listing agent in an email where an Offer to Purchase and Contract (Form 2-T) and Form 220 are both attached to the email but as separate documents. If the buyer directs you in writing, you may explain, in the email or other writing, that the buyer’s offer is contingent on the seller’s or listing agent’s separate agreement as to cooperative compensation. Agents are strongly recommended to consult with their BIC and legal counsel to make sure any such conditional language used in this scenario will be effective and achieves the intended result. As an additional safeguard, however, you may send the offer to the listing agent unsigned by the buyer.
What if I send my client’s conditional offer to the listing agent with a Form 220 attached as a separate document, and the seller only signs the purchase contract and sends it back?
If you are sending Form 2-T and Form 220 at the same time, you should consider sending the purchase contract to the listing agent unsigned by the buyer to reduce the risk of a seller claiming that a contract has been established when the offer was, in fact, conditional on an agreement for cooperative compensation. However, as we have said, you might consider working with legal counsel to develop a system to make sure that your client’s offer is contingent on cooperative compensation. Assuming that the contingency is well-presented to the listing agent after such legal consultation, a seller may have a hard time arguing that a contract has been established if they ignore the contingency.
Are there any plans to change the License Law and allow agent compensation to be part of a purchase contract?
No, not that we are aware of. Seller concessions will continue to be permitted as they always have, however.
How have you been using Form 220? Let us know in the comments or share with a colleage in an upcoming CE class!
Release Date: 8/8/2024
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