Co-brokering means two brokers work one note sale and share the pay. One has the relationship with the note holder and the other has the buyers. It works when the roles, the split and the disclosure are agreed in writing first.
The practice has a mixed reputation. Done well, it gets a holder to buyers their own contact could not reach. Done badly, it puts a line of middlemen between the holder and the money. Below is how it works, where it goes wrong and what belongs in the agreement.
Why two brokers end up on one deal
Brokering a note takes two different assets. One is a holder who wants to sell. The other is a set of buyers who will price the note properly, together with the experience to carry a file through their checks, and few people start out with both.
A new broker, or a professional such as an attorney or real estate agent who happens to know a holder, has the first. An established broker has the second, and co-brokering joins them. Experienced brokers share deals too, when a note falls outside one broker’s own buyers, as a business note or a note on commercial property might.
Who does what
| Originating broker | Placing broker | |
|---|---|---|
| Brings | The note holder and the note | The buyers and the pricing |
| Main work | Gathering facts and documents, keeping the holder informed | Packaging, shopping the note, managing the buyer’s checks |
| Speaks to the holder | Yes, as the main contact | By agreement |
| Speaks to the buyers | By agreement | Always |
| Paid | A share at closing | A share at closing |
The names vary, and you will also hear referring broker and master broker. The division of work matters more than the labels.
A note sale has one pool of pay: the gap between what the buyer pays and what the holder receives, after closing costs. Co-brokers divide that pool between them. A sound arrangement fixes the total first, as if one broker were doing the deal, and then splits it.
The alternative is each broker adding a cut on top of the other’s, and then the holder’s price drops with every added name. As an example with round figures, a total of $4,000 divided evenly gives each broker $2,000 and costs the holder $4,000. Two brokers who each add $4,000 cost the holder $8,000 for the same sale. The figures are there to show the sum and are not typical of anything.
How the pool is split is for the two brokers to settle, and it should follow the work. Someone who makes an introduction and steps away has done less than someone who collects every document and takes the holder through to closing. We quote no usual split, since each deal is negotiated and no reliable source of figures exists.
What can go wrong
The chain
Broker A passes the note to broker B, who passes it to broker C, who knows a buyer. Nobody in the middle has spoken to the holder or seen a document, and each expects to be paid. By the time a price travels back down the line it has been trimmed three times, and the facts have been retold as often.
A buyer has good reason to decline a note that arrives this way, because the information is second-hand and the holder cannot be reached to confirm it. The cure is a limit of two brokers, at least one of them in direct contact with the holder.
The holder does not know who is involved
A holder who shared documents with one person may be surprised to find them with three. Those documents contain private details about the holder and the payer, so the holder should be told who will see the file and why before it is sent.
Stale or changed facts
The balance is given as of last spring, or a late payment goes unmentioned. Every handover is a chance for a detail to be dropped, which is why the placing broker should work from the documents themselves and never from a summary of them.
Going around
One broker contacts the other’s holder or buyer directly and cuts them out. Fear of this makes brokers secretive, and secrecy is what makes co-brokered deals slow. A written agreement handles it better than withholding names does.
Competing submissions
Two brokers each send the same note to the same buyer, who sees it twice with slightly different figures and trusts neither version.
Licensing applies to each broker separately
Sharing a deal does not share a license. Each person paid on a transaction has to be allowed to receive that pay under the rules that apply to them, and whether a referral fee is treated differently from a brokering fee depends on the state and on what the person did. Read what to check in your state and confirm with an attorney.
What a co-broker agreement should cover
Put it in writing before the note goes to any buyer, and have an attorney review the form you use, because whether and how brokers may share pay can depend on state rules.
- Who does what. Who collects documents, who talks to the holder, who talks to buyers.
- The total pay and the split. How it is calculated and when it is paid.
- Disclosure to the holder. That the holder will be told both brokers are involved and what the total pay is.
- Non-circumvention. Neither broker deals with the other’s contact on this note without them, for a stated period.
- Confidentiality. How the holder’s and payer’s information is handled and who may receive it.
- Exclusivity. Whether the placing broker is the only one shopping the note, and for how long.
- What happens if the deal dies. And what happens if it revives later with the same buyer.
- Who pays third-party costs if any arise before closing.
Payment should come through the closing, from the title or escrow company to each broker named, so that neither depends on the other to forward a share. If you are about to share a deal, settle the roles and the pay today, in an email if nothing more formal is ready, and leave the rest for the attorney’s draft. Once it is signed the work itself begins with packaging the note for buyers, and the terms both brokers will use with the holder are in the note basics guide.
What the note holder should see
To the holder, a co-brokered deal should look like any other sale, with the one difference that they know two people are being paid. That means a single point of contact who can answer questions, the offers that came back from buyers, and a clear statement of what the buyer is paying and what everyone in the middle earns.
If you are a holder and suspect your note is being passed around, ask who the buyer is and how many people stand between you and them, since every broker’s pay comes out of the gap between the buyer’s price and yours. You are also free to get a price that has not travelled down a chain: send the note’s details straight to us, and compare what comes back with the figure you were given.
Related questions
Does co-brokering lower the price the note holder gets?
It should not. The brokers are meant to divide one pool of pay between them. If each adds a cut of their own, the holder's price falls, which is why the holder should ask what everyone in the middle earns.
What is a non-circumvention clause?
It is a promise that neither broker will go around the other to deal directly with their contact on that note, for a period the agreement states. An attorney should check that the wording is enforceable where you work.
Can I co-broker a note if I am not licensed?
That depends on your state, the kind of note and what you do to earn your share. Being one of two brokers does not change which rules apply to you. Confirm with an attorney before you agree to be paid.