1) What “illegal commission deduction” usually means

In Philippine real estate transactions, a broker’s compensation is generally a professional/brokerage fee (commission) based on agreement. A “commission deduction” becomes legally problematic when a broker:

withholds or deducts money from sale proceeds, down payments, reservation fees, or client funds without authority,
collects compensation that was not agreed upon (hidden charges, “processing fees,” “facilitation fees,” “brokerage” billed to the wrong party),
collects from both buyer and seller without full disclosure and consent, or
handles client money in a way that amounts to misappropriation (e.g., keeping earnest/reservation money or down payment, refusing to account, refusing to remit).

The key legal lens is simple: Was the broker authorized—clearly and provably—to receive and keep that amount, from that payer, for that purpose? If not, the “deduction” can expose the broker (and sometimes others involved) to civil, criminal, and administrative liability.

2) Legal framework (Philippine context)

A. Civil law (contracts, obligations, agency)

Most broker-client relationships are treated as contracts and often functionally as agency or a brokerage agreement. Under Civil Code principles:

A broker/agent must act within authority,
must render an accounting, and
must deliver/turn over to the principal what the agent received by virtue of the agency, unless the agent is entitled to retain a clearly agreed amount.

If the broker received money “for the seller” or “for the transaction” and then kept part without authority, that is typically framed as breach of contract/agency, unjust enrichment, and damages, and can also be the factual base for criminal charges depending on intent and circumstances.

B. Professional regulation: Real Estate Service Act (RESA)

The Real Estate Service Act (RA 9646) regulates real estate brokers and salespersons. It establishes licensure and professional standards and provides administrative and criminal sanctions for improper practice.

Key practical effects relevant to “illegal deductions”:

Only properly licensed/registered professionals may lawfully practice and represent themselves as such.
Misconduct can lead to PRC/Professional Regulatory Board of Real Estate Service administrative discipline (suspension/revocation, etc.).
Salespersons generally operate under a licensed broker; compensation structures must comply with the law and professional rules.

C. Criminal law (when deductions become crimes)

If a broker receives money in trust (earnest money, reservation fee, down payment, proceeds) and then misappropriates it or refuses to return/remit despite demand, the facts may fit estafa (deceit/abuse of confidence) or related offenses depending on how the money was received, documented, and used.

3) When a broker’s commission is lawful—and when it is “earned”

There is no single universal commission rate in Philippine law. Commission is governed primarily by agreement, industry practice, and proof that the broker did the work that entitles them to the fee.

A. Typical lawful bases for commission

A broker may lawfully collect a commission when:

there is a clear commission agreement (listing agreement, authority to sell, brokerage contract, written engagement, or provable oral agreement), and
the broker performed the agreed service (often “procuring a buyer” or “successfully closing”), and
the conditions for payment (e.g., upon signing, upon down payment, upon full payment, upon deed of sale) are satisfied.

B. Commission disputes: “procuring cause” and transaction outcome

Common legal friction points:

The broker claims commission even if the sale did not close.
The principal claims the broker was not the “procuring cause,” or the buyer was found independently.
The broker insists on being paid despite failure caused by the broker’s own fault or misrepresentation.

Because outcomes depend heavily on contract wording and proof, a broker’s right to some compensation may be argued under contract or quantum meruit (reasonable value of service) only when justified by facts—but that does not automatically justify deducting client funds without authority.

4) The line between a “commission” and an “illegal deduction”

A “commission deduction” is most often illegal when it has any of these defects:

No agreement (or unclear agreement) authorizing the charge
Wrong payer (charging buyer when contract/practice says seller pays, or vice versa, without disclosure)
Wrong source of funds (deducting from money the broker is holding for someone else)
Wrong timing (taking commission before it is due under the contract)
No accounting / no documentation (refusal to issue proper receipts, refusal to provide breakdowns)
Deceit / pressure tactics (misrepresenting that the charge is required by law, government, registry, BIR, bank, etc.)
Conflict of interest / double-dipping (collecting from both sides without informed consent)

5) Common scenarios of illegal commission deductions (and why they are risky)

Scenario 1: Broker deducts commission from reservation fee / earnest money without authority

Pattern: Buyer pays a reservation/earnest amount to “secure” the property. Broker keeps part (or all) claiming it is commission.

Legal risk: Reservation/earnest money is typically treated as transaction money, not automatically broker income. If the broker was merely receiving the money for the seller/developer/transaction and retained it without authority, it can be:

breach of agency/contract,
unjust enrichment,
and potentially estafa if the money was received in trust and misappropriated.

Scenario 2: Broker receives down payment meant for seller and “nets out” commission

Pattern: Buyer pays down payment to broker; broker remits “net of commission” to seller without seller’s express authority.

Legal risk: Even if the seller owes commission, the broker generally cannot self-help by withholding someone else’s money unless explicitly authorized (and the timing/amount matches the agreement). Without clear authority, it is vulnerable to claims of unauthorized retention.

Scenario 3: Hidden “processing,” “documentation,” “facilitation,” or “bank charge” that is actually commission

Pattern: Broker charges extra fees not disclosed upfront, sometimes claiming “standard,” “required,” or “for approval.”

Legal risk: Misrepresenting fees can be fraud-like conduct. Even if the broker is entitled to a commission, relabeling it to avoid negotiation/disclosure or to charge the other party can create civil and administrative liability and can become criminal if coupled with deceit and taking money by false pretenses.

Scenario 4: Broker collects from both buyer and seller (dual compensation) without disclosure and written consent

Pattern: Seller pays a commission; broker also charges buyer a “service fee” without telling seller (or vice versa).

Legal risk: This is a classic conflict-of-interest situation. Without full disclosure and consent, it can be treated as bad faith and professional misconduct. It may also support civil claims (refund, damages), and administrative sanctions under professional regulation/ethics.

Scenario 5: Broker refuses to return money after the deal collapses

Pattern: Transaction fails (loan denied, title problem, seller backs out, buyer withdraws). Broker keeps reservation/down payment claiming “commission” or “forfeiture.”

Legal risk: Forfeiture rules depend on contract terms and the nature of the payment (earnest money vs. option money vs. reservation fee). A broker cannot unilaterally declare forfeiture for their own benefit unless the parties agreed. Retention despite demand can trigger civil liability and, in trust-based situations, possible estafa allegations.

Scenario 6: Broker is unlicensed (or uses an unlicensed “agent”) but collects “commission”

Pattern: Person acts as broker without PRC license, or salesperson collects directly as if broker.

Legal risk: Illegal practice under RESA can apply. Payments made to an unlicensed practitioner can also raise issues in enforceability and can strengthen claims for refund and sanctions.

Scenario 7: Broker “deducts” from a salesperson’s commission in a way that violates agreements or labor standards

If the issue is internal (broker vs. salesperson), the legality depends on:

the contract between broker and salesperson,
RESA/PRC rules on supervision and practice,
and, where an employment relationship exists, labor standards on deductions and wage protection (fact-dependent). This is distinct from client-facing commission issues but can still be actionable if deductions are unauthorized or deceptive.

6) What documents control legality (and what absence of documents implies)

A. Strong documents that legitimize commission and deductions

Exclusive/Non-exclusive Listing Agreement / Authority to Sell
Brokerage Service Agreement
Contract to Sell/Deed of Sale clauses identifying who pays broker and when
Written authority allowing broker to receive payments and specifying whether broker may deduct commission from specific funds
Official receipts / acknowledgment receipts with correct payor/payee, purpose, and amounts

B. Red flags (high risk of illegality)

No written authority to receive money, yet broker collects large sums
Receipts issued in a personal name without clarity of capacity
“Cash only,” no OR, no paper trail
Refusal to provide breakdowns and accounting
Claims like “required by law” without basis
Charging “brokerage fee” to both sides secretly
Asking you to sign blank or incomplete forms

Absence of documentation does not automatically mean the broker is wrong (oral contracts can exist), but it dramatically increases litigation risk and weakens claims of lawful deduction.

7) Liability exposures for illegal commission deductions

A. Civil liability

Possible civil claims/remedies include:

Refund/return of money unlawfully withheld
Accounting (detailed statement of receipts and disbursements)
Damages (actual, moral, exemplary in appropriate cases)
Interest and costs
Rescission/cancellation of certain arrangements, depending on contract and facts

Civil actions often hinge on proof that the broker:

received money for a specific purpose,
lacked authority to retain it,
refused to return/remit after demand,
and caused measurable loss.

B. Criminal liability (fact-sensitive)

Where elements are present (receipt in trust, misappropriation, deceit), the situation may be prosecuted as estafa or related offenses. Whether a case is criminal or purely civil depends on:

how the money was received (trust vs. payment),
what was represented,
the presence of demand and refusal,
and evidence of intent to defraud or convert.

C. Administrative/professional liability (PRC/Board)

For licensed brokers, misconduct can lead to:

reprimand, suspension, revocation, and other sanctions under PRC/Board processes
discipline for unethical conduct, misrepresentation, incompetence, or violations of professional standards

Unlicensed practice can also be reported and prosecuted under RESA.

8) Practical steps for an aggrieved buyer/seller (legal process in the Philippines)

Step 1: Secure evidence immediately

Gather and preserve:

Receipts (OR/Acknowledgment), deposit slips, bank transfers, e-wallet records
Screenshots of chats, emails, texts where fees were demanded or justified
Copies of listing agreements, authority to sell, CTS, offers to buy, deeds
Proof of broker’s identity and PRC license number (if claimed)
Witness statements (people present during payment/negotiation)

Step 2: Make a written demand and request accounting

A formal demand letter (even a concise one) should:

identify the transaction,
state amounts paid and dates,
demand return/remittance of specific amounts and a full accounting,
set a clear deadline,
request written explanation of the legal basis for deductions.

Written demand matters because refusal after demand can strengthen civil claims and may be relevant in criminal evaluation.

Step 3: Choose the appropriate forum(s)

You can pursue remedies in parallel when appropriate:

PRC/Professional Regulatory Board complaint Best for: licensed broker misconduct, unethical practice, misrepresentation, charging unauthorized fees, double compensation without consent.
Criminal complaint (police/prosecutor’s office) Best for: clear misappropriation, deceit, refusal to return money received in trust, falsified documents/receipts, coordinated scams.
Civil action for refund/damages/accounting
- Small Claims may be available depending on the amount and nature of claim (no lawyers required in small claims proceedings; procedural rules apply).
- Regular civil action if complex issues or higher amounts.
Barangay conciliation (Katarungang Pambarangay) Often required for certain civil disputes between individuals residing in the same city/municipality, subject to exceptions. Useful for quick settlement attempts and documentation of refusal.
If the transaction involves a developer/subdivision/condominium sale Regulatory complaints may be appropriate depending on the dispute’s nature (especially if money was collected as part of project selling and there are violations tied to the regulated sale).

Step 4: Avoid self-help that creates liability

Do not threaten, harass, publicly shame, or forcibly recover property/money. Keep communications formal and evidence-based.

9) Defenses brokers commonly raise—and how they are assessed

Brokers often argue:

“It was agreed verbally.” → assessed by messages, witnesses, course of dealing, receipts, and conduct.
“It’s industry standard.” → practice does not override the need for consent/authority, especially for withholding client funds.
“I was entitled to commission because I produced the buyer.” → entitlement does not automatically authorize unilateral deduction from funds held in trust.
“The buyer/seller backed out, so I keep it.” → forfeiture depends on contract terms and the nature of payment; broker keeping it for themselves is highly contestable without express stipulation.

10) Prevention: clauses and practices that reduce commission disputes

A clean commission setup typically includes:

Who pays the broker (seller, buyer, both with disclosure)
Commission rate or fixed fee
When earned (e.g., upon signing CTS, upon deed of sale, upon full payment)
When payable (timing can differ from “earned”)
Authority to receive funds (if broker is allowed to receive reservation/down payment)
Whether broker may deduct from specific funds (and limits)
Refund/forfeiture rules if transaction fails (and who receives forfeiture, if any)
Receipting and accounting obligations
Disclosure of dual agency and compensation sources

The safest default is: client funds go to the principal or a designated escrow/official receiving channel; broker commission is paid as a separate, clearly invoiced item, unless there is unmistakable written authorization to do otherwise.

11) Key takeaways

A broker’s commission in the Philippines is primarily contract-based, but professional conduct is regulated.
A commission becomes an “illegal deduction” when it is unauthorized, undisclosed, taken from the wrong funds, taken at the wrong time, or obtained through misrepresentation.
Unilateral withholding from money received for a client—especially after demand for return/remittance—can escalate from a civil dispute into criminal exposure and PRC administrative discipline, depending on facts and proof.