Broker compensation amounts do not need to be disclosed to the other party to the transaction.  This concept is broadly recognized but a recent podcast published by the Arizona Department of Real Estate caused confusion among several members, prompting them to contact the Arizona REALTORS® for clarification.

A.A.C. R4-28-701 was slightly modified in conjunction with the Department’s recent update of the Arizona Administrative Code. However, the revision to the rule only moved up the timing of the disclosure as shown below [underline is new language, and strikethrough is removed language]:

R4-28-701. Compensation Sharing Disclosure
A real estate broker shall disclose to all the parties in a transaction, in writing at least three calendar days before closing, the name of each employing broker who represents a party to the transaction and who will receive compensation from the transaction.

In explaining the revision to the rule, the Department’s podcast cited the settlement statement as an example of a disclosure used to identify the employing brokers who represent and are being paid by the parties.  The illustration seemed to indicate that the specific amount of compensation earned by each employing broker needed to be disclosed to the other party (e.g., the listing broker would have to disclose their compensation amount to the buyer).  Such a disclosure has never previously been required and is not mandated by Arizona law.

The Arizona REALTORS® sought clarification, and the Department has confirmed that broker compensation amounts do not need to be disclosed to the other party.  Furthermore, since employing brokers who represent parties and earn compensation from the transaction are typically disclosed on the purchase contract, the earlier timing of the disclosure required by the new rule should not be an issue in most transactions.  However, if an employing broker represents and receives compensation from a party who is not identified in the purchase contract, disclosure must be made to all parties three (3) calendar days prior to the closing (e.g., co-listings).