The RI REALTORS® Legal Hot Line has been receiving questions about net compensation and seller-paid closing costs. 

▪Net compensation:

If you want your compensation to be based on a net sale, make sure to define clearly in the purchase and sales agreement, buyer contract or listing contract how it will be calculated. 

What will be deducted from the gross to create net: concessions, repairs, prepaids, etc.?  

Will repairs be based only on negotiated repairs after inspections or repairs that the seller already planned to make, such as installing a new septic system.  Some people have claimed that attorney’s fees, taxes, and listing compensation should be deducted from the gross.   

List all deductions in the contract; otherwise, you can end up in a dispute and receive less (or more) compensation than you expected.

▪Seller-paid closing costs and co-broker compensation

If a seller is willing to pay for some of the buyer’s closing costs, make sure that the language in the purchase and sales agreement clearly lists what those are to avoid closing conflicts.    Listing allowable costs that the seller would pay, “including but not limited to” benefits a buyer but the language may be too open-ended for a seller.

There has been some confusion as to whether the closing costs paid by a seller can be used to supplement the compensation of a cooperating broker.  Compensation should be clearly listed as an allowable cost.   Also, keep in mind that the NAR settlement agreement prohibits open-ended compensation.  If a cooperating broker and buyer agree that the total compensation is x amount, the cooperating broker cannot charge a higher amount.

 REALTORS®:  For more information, please contact the RIAR Legal Department at 401-432-6945 or email [email protected].