Is the real estate sales commission provision in your standard property management contract illegal?

D.C. property managers cannot charge a real estate sales commission.

Here is a scenario I’ve seen a half-dozen or so times. A homeowner hires a professional property manager to rent out the owner’s house after a move out-of-state. The management contract contains fairly standard language stating that if the Owner sells the property to a tenant, the Property Manager is entitled to a sales commission as the procuring source. The owner at some point decides to sell, hires an agent, and either via TOPA or directly, the tenant purchases.

Now, the owner’s agent and the P.M. both want the seller’s share of the commission. What happens?

In the cases I’ve handled, the answer was quite simple. Under D.C. Law, unless the Property Manager is a licensed Real Estate Broker it is illegal for him to collect a commission. Bottom line, the Owner told the PM to pound sand, and unless he wanted to invite licensure problems and a serious lawsuit, the PM had to walk off, with his tail tucked between his legs, and worse yet, no money.

D.C. Code Section 47-2853 et. seq. makes it clear that only licensed brokers may be paid a real estate sales commission. For some property management companies, this is a non-issue, since they are owned and operated by a licensed broker. Real Estate Brokers can lawfully perform property management functions. However, companies run by a licensed property manager cannot perform brokerage functions, or receive commissions.

If you are an owner concerned about multiple commission claims; or a property manager looking for a lawful way to be fairly compensated for your time, there are legal options.  I offer free case evaluations for both PM’s and owners, so please feel to contact me, or use the scheduling tool on my website to set up an appointment at a time that is convenient for you.