The WRA has a new Addendum C — Commission Transparency. It is designed for use with listing contracts, buyer agency agreements, the tenant representation agreement and potentially other agency agreements. Taking a quick look at the form, available in Transactions (zipForm edition) and in the WRA PDF forms library subscription service, the focus of the form is on commissions. There is language in bold talking about there being no standard market commission rate and that commissions vary by firm and may be negotiable. Fair enough — so far, so good.

But at the beginning of the addendum, there are lots of blank lines with references to different agreements and different parties. That is a little unusual because agents customarily use a specific addendum in conjunction with a specific offer. This addendum is formatted so it may be used with a group of different forms. Therefore, the addendum includes references to sellers, buyers, tenants, owners and clients, making this new form a “one size fits (almost) all” agency agreement addendum. 

So how should licensees be using this form? What should they be telling clients?

Using the addendum requires everyone to visualize the modifications as if somebody took a pen and wrote in additional language in the agency agreements. The easiest way to explain this may be to take a couple of WB forms and walk through the steps. First let’s look at the top section of Addendum C.

Addendum C, Lines 1-7

Lines 1-7 of Addendum C should be completed to identify the particular agency agreement and the party using that agreement:

• The title of the agency agreement goes on line 2, and the date of the agency agreement goes on line 3.
• On lines 4-5, the name of the party entering into the agency agreement is written in. 
• Lines 6-7 are filled in only if a specific property is involved in the agency agreement — for example, a listing contract with regard to a listed property. If there is a buyer agency agreement or tenant representation agreement regarding a specifically identified property, the property address also may be included on lines 6-7.  

Now that we have looked at the beginning lines of Addendum C, it is time to get out an agency agreement and lay it next to Addendum C and see how the addendum modifies the agency agreement. The first example is a residential listing contract.

WB-1 Residential Listing Contract — Exclusive Right to Sell (mandatory use date July 1, 2016)

Lines 1-7 of Addendum

To fill out lines 1-7 of Addendum C, “WB-1 Residential Offer Listing Contract — Exclusive Right to Sell” would be written in on line 2, and the date of the listing contract goes on line 3. The name of the seller or sellers goes on lines 4-5, and the address of the property is written in on lines 6-7.

Commission provisions

Looking at the commission provisions on the WB-1, lines 9-10 of Addendum C tell us that “Any Commission, Purchase Commission, or Lease Commission provision in the Agreement is modified to indicate, ‘The Party [i.e., Seller, Buyer, etc. as the case may be] and the Firm agree the Firm’s commission shall be ____.’” 

Looking at the WB-1, line 27 states: “COMMISSION. The Firm’s commission shall be _____.”

Per lines 9-10 of Addendum C, this is modified to say, “Seller and the Firm agree the Firm’s commission shall be ____.” Lines 27 and 28 are then completed on the WB-1 to state the commission as negotiated.  

The point being made here is that the commission is not a predetermined number or amount, but rather the commission has been agreed to by the firm and the seller together. To be blunt, there is not a commission percentage or amount being shoved down the seller’s throat, rather the seller and the firm are reaching a mutual agreement.

Compensation to Others

Next on lines 11-12 of Addendum C, it says Any Compensation to Others provision such as the one in the WB-1, is modified to add language explaining that Compensation to Others is commission offered to cooperating firms “working with buyers or tenants such as subagents and buyer’s firms.” That would mean the Compensation to Others provision on line 52 of the WB-1 is modified to say: “The Firm offers the following commission to cooperating firms working with buyers or tenants such as subagents and buyer’s firms.” This serves to explain to the seller who those cooperating firms might be.

Lines 13-17 of Addendum C say the following language is added immediately after the Compensation to Others provision:

“There is no standard market commission rate. Commissions and types of service may vary by firm and are negotiable based on the firm you hire. Compensation to others may be offered to firms acting as subagents and firms representing buyers as incentive to participate in the sale of firms’ listings through multiple listing services or in compensation agreements.” 

When looking at the WB-1, the listing is read to add that language at line 54 of the WB-1, after Compensation to Others on lines 52-53 of the WB-1. The blank line on lines 52-53 will be completed to indicate the amount of cooperative commission offered, and if there are any exceptions, they will be identified on line 53.   

Lines 21-23 of Addendum C do not apply to the listing contract because there is no PAYMENT BY OWNER OR OWNER’S AGENT in the listing contract.

Party initials

The seller or sellers should initial Addendum C. If the seller or sellers are individuals, as with any other addenda, the parties will initial on lines 25 and 27 and date the addendum. If the seller is an entity, line 29 will be completed to state the seller entity’s name, and the authorized representative will initial on behalf of the entity and date the addendum on line 30. 

Incorporate Addendum C

Finally, at lines 309-310 of the WB-1, the licensee will include “Addendum C — Commission Transparency” to incorporate the addendum by reference into the listing contract. 

Philosophy of Addendum C with sellers

The use of Addendum C with the listing contract is about having a conversation with the seller explaining there is no standard set commission rate and that commission may be negotiated based on the services offered. Regarding Compensation to Others, the added Addendum C language helps the seller more fully understand how the cooperative commission is offered to other firms via the MLS or other compensation agreements and who those other firms might be. 

Licensees should recognize the Compensation to Others provision in the WB-1 and the Addendum C commission language are consistent with Standard of Practice 1-12 in the REALTOR^® Code of Ethics. Standard of Practice 1-12 provides that when entering into listing contracts, a REALTOR^® must advise the seller-client about the REALTOR^®’s company policies regarding cooperation with other brokers and the amount of compensation that will be offered to subagents and buyer’s agents. The presumption is that sellers are entitled to know whether the compensation being offered will trigger the desired level of interest and market exposure.

When completing Compensation to Others provisions, prudent listing firms should disclose their MLS compensation splits, disclose if they have policy letter compensation agreements with any firms, and let the seller see a copy of the policy letters upon request. While these disclosures may be verbal under Standard of Practice 1-12, best practice dictates that they be written in the listing contract, a listing contract addendum or a separate memo to create a uniform procedure within a firm and thus document compliance.

Now that we have looked at a listing contract, it is time to get out a buyer agency agreement and lay it next to Addendum C and see how the addendum modifies the agency agreement. An example is the newest version of the buyer agency agreement.

WB-36 Buyer Agency Agreement, Mandatory Use Date September 1, 2023

Lines 1-7 of Addendum C

To fill out lines 1-7 of Addendum C, “WB-36 Buyer Agency Agreement” would be written in on line 2, and the date of the buyer agency agreement goes on line 3. The name of the buyer or buyers goes on lines 4-5. Although lines 6-7 generally apply to listing agreements, in the event the buyer agency agreement is for a specifically identified property, the property address may be written in on lines 6-7.

Commission provisions

The Commission section of the addendum will modify the Compensation section of the WB-36. Looking at the commission provisions on the WB-36, lines 9-10 of Addendum C tell us that “Any Commission, Purchase Commission, or Lease Commission provision in the Agreement is modified to indicate, ‘The Party [i.e., Seller, Buyer, etc. as the case may be] and the Firm agree the Firm’s commission shall be ____.’”

Looking at the WB-36, line 32 states: “COMMISSION. _____.” Explain to the buyer that lines 33-32 will be modified, per lines 9-10 of Addendum C, to say, “Buyer and the Firm agree the Firm’s commission shall be ________.” Lines 32 and 33 are then completed on the WB-36 to state the commission negotiated with the buyer client. 

This is intended to emphasize that commissions and compensation are agreed upon by the firm and the buyer together. There is not a commission percentage or amount being forced upon the buyer, rather the buyer and the firm are reaching a mutual agreement.

No Compensation to Others provision

Given there are no Compensation to Others provisions in the WB-36, the licensee should explain to the client that lines 11-17 of Addendum C are not applicable. This means lines 18-20 of the addendum do apply and become part of the buyer agency agreement. The following language is added at the conclusion of the Compensation section at line 51 of the WB-36: “There is no standard market commission rate. Commissions and types of service may vary by firm and are negotiable based on the firm you hire.” This explanatory language emphasizes there are no standard commissions in the industry. 

PAYMENT BY OWNER OR OWNER’S AGENT section

Lines 21-23 of Addendum C apply to the buyer agency agreement because there is a PAYMENT BY OWNER OR OWNER’S AGENT section in the WB-36. That provision is to be modified to explain that when the buyer’s firm seeks payment of commission from the owner’s agent, that means seeking payment from the “listing firm through the multiple listing service or compensation agreements.”

Party initials

The buyer or buyers should initial Addendum C. If the buyer or buyers are individuals, as with any other addenda, the parties will initial on lines 25 and 27 and date the addenda. If the buyer is an entity, line 29 will be completed to state the buyer entity’s name, and the authorized representative will initial on behalf of the entity and date the addendum on line 30. 

Incorporate Addendum C

Finally, at lines 279-280 of the WB-36, the licensee will include “Addendum C — Commission Transparency” to incorporate it by reference into the WB-36.

Philosophy of Addendum C with buyers

The use of Addendum C with the buyer agency agreement is about having a conversation with the buyer explaining there is no standard set commission rate, and that commission may be negotiated based on the services offered. Regarding the PAYMENT BY OWNER OR OWNER’S AGENT provision, the added Addendum C language helps the buyer more fully understand how the buyer’s firm might receive commission from others and thus reduce the amount the buyer-client might owe to the buyer’s firm.

Licensees should recognize the PAYMENT BY OWNER OR OWNER’S AGENT provision in the WB-36 and the Addendum C commission language are consistent with Standard of Practice 1-13 in the REALTOR^® Code of Ethics. Buyer’s agents, just like listing agents, are obligated to discuss commission and compensation with potential clients prior to entering into an agency agreement. 

Standard of Practice 1-13 requires a conversation with potential buyer-clients about the REALTOR^®’s company policies regarding cooperation, the amount of compensation to be paid by the client, and the potential for additional or offsetting compensation from other brokers, from the seller or landlord, or from other parties. To comply with the Code, a buyer’s agent should review and discuss the compensation provisions of the WB-36 Buyer Agency Agreement, explaining to the buyer about their obligation to pay the broker’s compensation unless it is offset by any amounts received from the seller or the listing firm. 

Addendum C is being released and its use is urged to help clients understand the commission transparency explanations highlighted therein. In the upcoming months, the WB agency agreements themselves may be modified by the DSPS to actually write in these changes. But the WRA believes these points are far too important to wait until whenever that may occur, as there is uncertainty as to the timing and the magnitude of the changes they will incorporate. Please conjure up your imagination and put a smile on your face and use Addendum C to make sure your clients understand the fine points of commissions.