In the Philippine real estate industry, the relationship between a property owner (seller) and a real estate broker is governed by a combination of the Civil Code of the Philippines, the Real Estate Service Act (RESA) or Republic Act No. 9646, and established jurisprudence. Understanding the "Standard Rules" is essential for ensuring that brokers are fairly compensated and sellers are protected from unwarranted claims.
1. The Legal Basis of the Brokerage Relationship
A real estate broker acts as an agent. Under Article 1868 of the Civil Code, a contract of agency is created when a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.
While an oral agreement can technically create an agency, the Statute of Frauds and professional standards under RESA strongly necessitate a written Authority to Sell (ATS). This document serves as the "law between the parties" regarding the commission rate and the conditions for payment.
2. The "Procuring Cause" Doctrine
The most critical standard in Philippine law for determining a broker's right to a commission is whether the broker was the procuring cause of the sale.
- Definition: To be the procuring cause, the broker’s efforts must be the foundation upon which the negotiations are structured and the source from which the eventual sale originates.
- The Test: It is not enough to simply "introduce" a buyer. The broker must show a continuous task of bringing the parties to an agreement. However, if the broker was the one who found the buyer and initiated the chain of events, they may still be entitled to a commission even if the final sale was closed by the owner or another broker (Prats vs. Court of Appeals).
3. Entitlement to Commission: The Essential Elements
For a broker to legally demand a commission, the following conditions must generally be met:
- Valid License: Under R.A. 9646, only licensed Real Estate Brokers are entitled to receive commissions. Unlicensed individuals (colorum) cannot legally sue for the recovery of a professional fee.
- Authority to Sell: The broker must have a valid, unexpired mandate from the owner.
- Consummation of the Sale: Usually, the commission is earned when the broker produces a buyer who is Ready, Willing, and Able to purchase on the seller’s terms.
4. Standard Commission Rates and Calculations
In the Philippines, there is no fixed law setting a specific percentage for commissions; it is a matter of private agreement. However, industry standards are well-established:
| Property Type | Standard Commission Rate |
|---|---|
| Residential (Resale) | 3% to 5% of the Gross Selling Price |
| Commercial/Industrial | 5% of the Gross Selling Price |
| Project Selling (Developers) | 3% to 10% (depending on the developer's tier) |
Note on VAT: If the broker is VAT-registered, the 12% Value Added Tax is typically added on top of the commission, or handled as per the ATS agreement. The seller is also required to withhold a Creditable Withholding Tax (CWT)—usually 10% or 15%—and provide the broker with Form 2307.
5. When is the Commission Paid?
The timing of payment is a frequent point of contention. Standard practice follows these milestones:
- Earnest Money: Some brokers negotiate a portion of the commission upon the payment of earnest money, though this is rare.
- Full Payment/Closing: The most common rule is that the commission is paid pro-rata based on the cash received. If the buyer pays in full, the broker receives the full commission.
- Installment Sales: In "Contract to Sell" scenarios involving installments, the broker usually receives their commission proportionally as the seller receives the down payment and subsequent monthly amortizations.
6. The "Holdover Clause" (Protection Period)
Most Authority to Sell agreements include a Holdover Clause (typically 6 months to 1 year). This rule states that if the property is sold to a buyer whom the broker registered/introduced during their active listing period, the broker is still entitled to the commission even if the ATS has already expired. This prevents "sidestepping" where a seller waits for the contract to lapse to deal directly with the broker's lead.
7. Multiple Brokers and "Split" Commissions
- Non-Exclusive Listings: The seller can hire multiple brokers. The commission goes to the broker who is the procuring cause.
- Co-Brokering: If a listing broker (representing the seller) and a lead broker (representing the buyer) work together, the commission is typically split 50/50, though other ratios can be agreed upon.
8. Relevant Jurisprudence
In the landmark case of Manotok Brothers, Inc. vs. Court of Appeals, the Supreme Court clarified that a broker is entitled to a commission if they are the "efficient procuring cause" of the sale, even if the sale happened after the authority expired, provided the broker's efforts were the reason the buyer and seller eventually met and closed the deal.