# How do you set up a broker fee agreement?
Put eleven clauses in writing before you introduce anyone: parties, scope, fee and base, earned and payable dates, term, tail, expenses, exit, law, signature.
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You set up a broker fee agreement by putting eleven points in writing and having the person who will owe the fee sign them before you make the first introduction: the parties, the scope and exclusivity, the fee and the base it is calculated on, when the fee is earned, when it is payable, the term, the tail period, the registered prospects, expenses, termination, and the governing law and signature. Each clause closes one specific argument about whether, how much and when you are paid.
The document goes by many names: listing agreement, engagement letter, mandate, commission agreement, finder's agreement, central agency agreement. The clauses are the same under every label, because the disputes are the same in every industry: who was supposed to pay, on what amount, and at what moment.
Contract law and licensing rules differ by country, by state and by sector, so treat what follows as general information to take to your own lawyer, not as legal advice.
$52,500gap between the narrowest and the widest definition of the fee base on the same sale, at the same 5% rate
$128,600payable to the broker at closing in the worked example, after the retainer credit and with expenses
$28,000difference between a flat 5% and a tiered scale on $2.9 million of fixed consideration
Illustrative worked example detailed below: a business sold for $2.4 million in cash, a $500,000 seller note and an earnout of up to $300,000, with $250,000 of debt assumed by the buyer.
## What is a broker fee agreement, and does it have to be in writing?
A broker fee agreement is the contract in which a client promises to pay a broker a defined fee if a defined transaction happens, and in several jurisdictions that promise can only be enforced if it is in writing. The written form is therefore the first decision, and in some places it is not a decision at all.
In New York, the General Obligations Law lists, among the agreements that are void unless they are in writing, a contract to pay compensation for services rendered in negotiating a loan, the purchase, sale, exchange, renting or leasing of real estate, or the purchase or sale of a business opportunity or a business. The statute says that negotiating includes procuring an introduction to a party to the transaction, so a pure introducer is covered. It carves out auctioneers, attorneys and licensed real estate brokers and salespersons.
In California, the Civil Code makes invalid, unless written and signed by the party to be charged, an agreement employing an agent or broker for a commission to buy or sell real estate, to lease it for more than one year, or to find a buyer, seller, lessee or lessor. Here the real estate broker is the one caught by the rule.
In the United Kingdom, the Estate Agents (Provision of Information) Regulations 1991, made under the Estate Agents Act 1979, require an estate agent to give the client the information about remuneration in writing, before the client is committed to any liability towards the agent.
An oral fee arrangement may therefore be enforceable in your sector and jurisdiction, or void from the first day, and a signed document removes the question. It does not remove the licensing one: in regulated sectors such as real estate, securities and insurance, the right to claim a commission commonly depends on holding the licence the activity requires, under rules specific to each regulator.
## Which clauses does a broker fee agreement need?
A broker fee agreement needs eleven clauses, and each one answers a question that a court, an arbitrator or simply the client's finance director will ask if the fee is contested. The table gives them in the order they usually appear in the document.
| Clause | What it settles | What it prevents |
| --- | --- | --- |
| Parties | Who owes the fee, who is owed it, who has authority to sign | A fee claimed from an entity that never signed |
| Scope and exclusivity | Which transaction is covered, and whether the client may use others | A deal restructured so that it falls outside the wording |
| Fee and fee base | The rate or scale, any minimum or retainer, and the amounts the rate applies to | A rate applied to cash only when the price was mostly deferred |
| When earned | The event that creates the right to the fee | A fee lost because the client walked away from a ready deal |
| When payable | The date and source of payment, and for deferred amounts | A fee earned on paper and collected a year later |
| Term | Start date, end date, renewal | An engagement that never expires or ends without notice |
| Tail period | The months after expiry during which the fee stays due | A client who waits for the end date, then closes |
| Registered prospects | The named counterparties the tail applies to | An argument over who introduced whom |
| Expenses | What is reimbursed, with what cap and approval | Costs absorbed by the broker on a deal that fails |
| Termination | How either side exits, and which clauses survive | A tail that disappears with the agreement |
| Governing law and signature | Which law and forum apply, who signs and how | A dispute fought in the wrong place over an unsigned draft |
## Who are the parties, and how do you define scope and exclusivity?
The parties clause names the legal entity that owes the fee and the one that receives it, and the scope clause defines the transaction so broadly that a change of structure does not take the deal outside the agreement.
Start with names. Use the full registered name of the client entity and the capacity of the person signing: the agreement binds only the party that signed it. If the asset is held by a company but you are dealing with its shareholder, decide which of them owes the fee and consider having both sign.
Then say who pays. If the fee is to be paid by a party who does not sign your agreement (a seller paying a buyer's broker, for instance), you need that party's written undertaking or a clause in the main contract that you can rely on. Your client's promise that someone else will pay is not that undertaking.
A narrow scope ("the sale of the shares of the company") invites a restructuring: the buyer takes the assets instead of the shares, or leases the vessel with an option to buy, or invests for a minority stake first. A workable definition names the asset or business and then covers any sale, merger, lease, licence, investment, joint venture or other transfer of all or part of it, in one or several steps, to any buyer or its affiliates.
Exclusivity comes in three grades, and the vocabulary matters because the same words mean different things in different markets:
- Open or non-exclusive: the client may appoint several brokers and owes a fee only to the one whose buyer closes.
- Exclusive agency: you are the only broker, but the client owes nothing if the client finds the buyer alone.
- Exclusive right to sell: you are paid whoever finds the buyer during the term, the client included.
The United Kingdom regulations quoted above show how seriously the distinction is taken. An estate agent who uses the terms "sole agency" or "sole selling rights" must give the client a prescribed written explanation of each one, displayed prominently and clearly. Under that wording, sole selling rights make the client liable for remuneration if contracts are exchanged during the period even when the buyer was found by another agent or by the client. Whatever your market, write out what your exclusivity means in a full sentence, and add that every enquiry the client receives during the term is referred to you.
## How do you define the fee and the base it is calculated on?
The fee clause states a rate, a flat amount or a scale, and the base clause lists exactly which amounts that rate applies to; of the two, the base is the one that most often decides how much you are paid.
The rate is the easy part. It can be a single percentage, a flat sum, or a tiered scale. The best-known scale in business sales is the Lehman scale, which M&A reference works describe as 5% on the first $1 million of value, 4% on the second, 3% on the third, 2% on the fourth and 1% on everything above $4 million, with a "double Lehman" variant running from 10% down to 2%. The same works note that most engagements add a non-refundable work fee and a minimum fee. The agreement must say whether the retainer is credited against the success fee or kept in addition to it; retainers and success fees each have their own mechanics, which are not repeated here.
The base is where agreements fail. "5% of the purchase price" sounds complete until the price arrives in four pieces: cash at closing, a note the seller carries, an earnout that depends on future results, and debt the buyer takes over. Each piece is either inside the base or outside it.
Take one sale and several ways of writing the base, all at 5%. The buyer pays $2,400,000 in cash at closing, signs a $500,000 seller note, agrees an earnout of up to $300,000, and assumes $250,000 of equipment debt.
The same 5% on different definitions of the fee baseFee in USD on one illustrative business sale
Illustrative figures. Bases: $2,400,000; $2,900,000; $3,200,000; $3,450,000. The earnout line assumes the full $300,000 is paid.
The widest definition pays 43.75% more than the narrowest, on a deal where nobody changed the rate. Neither definition is the correct one. What matters is that the document picks one and lists every component by name, including shares or other non-cash consideration and how they are valued, and says whether taxes such as VAT or sales tax sit inside the base and whether the fee is quoted exclusive of tax.
## When is the fee earned, and when is it payable?
The fee is earned at the event the agreement names as creating the right to it, and it is payable on the date and from the source the agreement names for the money to move; the two are separate clauses and should never be merged into one sentence.
Earned answers "do I have a right to this fee?". Payable answers "when can I demand the cash?".
| Earning event | What it means | Who carries the risk of a failed closing |
| --- | --- | --- |
| Introduction of a ready, willing and able buyer | Earned when a qualified buyer accepts the client's terms | The client |
| Signing of a binding contract | Earned at signature, even if completion follows later | Shared: lost only if nothing is signed |
| Closing or completion | Earned when the transaction completes and the price is paid | The broker |
| Receipt of funds by the client | Earned as and when each payment arrives | The broker, payment by payment |
The first line is the most favourable to the broker. The United Kingdom regulations treat "ready, willing and able purchaser" as a term that must be explained to the client in prescribed words: the client must pay if such a purchaser is introduced, even if the client then withdraws and contracts are never exchanged.
Many fee agreements take closing as the earning event, then add a protection for the case where the deal fails because of the client: if the client refuses to complete a signed contract, or withdraws the asset after accepting an offer, the fee, or a stated part of it, is due anyway.
The payable clause then gives four things: the date (at closing, or within a stated number of days of the invoice), the source (out of the proceeds, by instruction to the closing agent, escrow agent or lawyer handling the funds), the treatment of deferred consideration (fee on notes and earnouts paid at closing on the face amount, or as each amount is received), and what happens when payment is late (interest at a stated rate, where the law allows it).
## How long should the term run, and what do the tail and the registered prospects add?
The term fixes the dates between which you are engaged, the tail period keeps the fee due for a stated time after those dates, and the registered prospects are the named counterparties the tail applies to. The three clauses only work together.
The term needs a start date, an end date and a rule for renewal. Choose a length that matches the real sales cycle of the asset: a term shorter than the time a buyer needs to complete due diligence guarantees that closings will fall after expiry.
That is the reason for the tail. The clause says the fee stays payable if, within a set number of months after the agreement ends, the client closes with a party you introduced or negotiated with during the term. How long it should run and how it is enforced are a subject of their own.
The registered prospects list is what turns the tail from a principle into evidence. Send the client, during the term and again within a few days of expiry, a dated list of the parties you introduced, and keep proof that it was received. Define a prospect so that it includes the named party's affiliates. The other protections, such as non-circumvention undertakings, belong to the wider subject of protecting a commission legally.
## Who pays expenses, and how can either side terminate?
Expenses are reimbursed only if the agreement says so, and termination ends your duty to work without ending the fees already earned or protected by the tail, provided the agreement says that as well.
On expenses, list the categories (travel, data room, advertising, surveys or valuations), set a cap with written approval above a single-item threshold, and state that reimbursement is due whether or not a transaction closes.
On termination, deal with four points:
- Notice. Either party may terminate on a stated number of days' written notice.
- Cause. Define it: material breach not remedied within a stated period, insolvency, loss of a required licence.
- Survival. Name the clauses that outlive termination: fees earned, the tail, expenses incurred, confidentiality, governing law.
- Fees after early termination. If the client ends an exclusive agreement early without cause, say whether the tail runs from the termination date and whether the retainer for the remaining period is still due.
## Which governing law, dispute forum and signature rules apply?
The governing law clause chooses the legal system that will interpret the agreement, the forum clause chooses where a dispute is heard, and the signature block decides whether there is an agreement at all.
A choice of law does not let you escape licensing rules that apply where the asset or the client is located, which is why cross-border mandates need local advice on both ends.
Choose one forum: the courts of a named place, or arbitration under named rules with a named seat, with mediation first if you wish.
Then the signatures. Where statutes require a writing signed by the party to be charged, the signature that matters is the client's. Many jurisdictions accept electronic signatures for commercial contracts, with exceptions that vary, so confirm that the method you use is valid for this type of agreement where it will be enforced. Add an entire-agreement clause and a rule that amendments must be in writing and signed.
## What does a broker fee agreement template look like?
A broker fee agreement template is a short document of eighteen headed clauses, and the outline below shows the structure with the decisions each clause forces. It is an illustration to adapt with a lawyer in the jurisdiction concerned. It is not a form to sign as written, and it is not legal advice.
1. Parties. Full legal names and registration details; capacity and authority of each signatory.
2. Appointment and scope. Definition of "transaction" covering any transfer, in whole or in part, in one or several steps.
3. Exclusivity. The grade, in full words; referral of inbound enquiries.
4. Broker's services. What the broker will do, and what is excluded (legal, tax and valuation advice unless stated).
5. Fee. Rate, flat amount or scale; minimum fee; retainer, with the sentence saying whether it is credited against the success fee.
6. Fee base. Definition of "transaction value" listing each component; taxes inside or outside.
7. When earned. The earning event; the fee due if the client fails to complete a signed contract or withdraws after acceptance.
8. When payable. Date; payment out of proceeds; timing of the fee on deferred and contingent amounts; late-payment interest where permitted.
9. Term. Start date, end date, renewal rule.
10. Tail period and registered prospects. Length of the tail; definition of prospect; delivery of the dated list.
11. Expenses. Categories, cap, approval threshold, reimbursement whether or not a transaction closes.
12. Client's undertakings. Accurate information, cooperation, dealing with prospects only through the broker.
13. Fee sharing. Whether the broker may share the fee with co-brokers or referrers, and that the client owes one fee only.
14. Termination. Notice, cause, clauses that survive, fees after early termination.
15. Confidentiality. Scope and duration, in both directions.
16. Governing law and disputes. One law, one forum, optional mediation first.
17. General. Entire agreement, amendments in writing, notices, assignment.
18. Signatures. Name, title and date for each party; schedule of registered prospects attached.
## How does the fee compute on a real deal?
On the illustrative sale used above, with a base defined as fixed consideration at closing plus contingent payments as received, the broker's fee is $145,000 earned at closing and $9,000 more when the earnout pays, for $154,000 in total. The figures are invented for the example.
The assumptions: a 5% fee; a base made of cash and the seller note at face value at closing, plus 5% of each earnout payment when the seller receives it; assumed debt excluded; a $20,000 retainer already paid and credited against the success fee; expenses reimbursed up to a $5,000 cap, with $3,600 actually spent. The buyer pays $2,400,000 in cash and signs a $500,000 note. A year later the earnout pays $180,000 of its $300,000 maximum.
| Line | Calculation | Amount |
| --- | --- | --- |
| Fee earned at closing | 5% of $2,900,000 | $145,000 |
| Retainer credit | Paid at signing | −$20,000 |
| Fee payable at closing | $145,000 − $20,000 | $125,000 |
| Expenses | Actual, under the $5,000 cap | $3,600 |
| **Paid from proceeds at closing** | $125,000 + $3,600 | **$128,600** |
| Fee on the earnout | 5% of $180,000 | $9,000 |
| **Total fees, retainer included** | $145,000 + $9,000 | **$154,000** |
Each line comes straight from a clause. The retainer reduces the closing payment only because the agreement says it is credited; kept in addition, the fees would total $174,000. The note is charged at face value at closing; under a clause paying the fee "as received", $25,000 of the fee would arrive over the life of the note and carry the buyer's credit risk. And the earnout fee is $9,000, not the $15,000 a full earnout would have produced, because the base follows what the seller actually collects.
A tiered scale changes the picture again. The Lehman scale applied to the same $2,900,000 gives $50,000 on the first million, $40,000 on the second and $27,000 on the remaining $900,000, or $117,000: an effective rate of about 4.03%, and $28,000 less than the flat 5%.
## What if the fee is shared with a co-broker or a referrer?
A fee shared with a co-broker or a referrer needs its own written split, agreed before closing, and the client's fee agreement should say that the client owes one fee and that the broker may share it. The internal percentages belong in a separate co-brokerage or referral agreement, which is a subject in itself.
Suppose the $125,000 payable at closing is shared 70/30 with the broker who brought the buyer: $87,500 and $37,500. The whole amount can go to one broker, who then pays the other, or a payment instruction can send each share to its owner directly.
Shaka is one way to do that when the fee is paid onchain. It is a payment router: each party's share is set as a percentage and can be signed by each recipient before the client pays, the client pays once, and every party is paid their share at the same moment, in one final transaction. It routes the payment and never holds the funds, and a deal has at most 20 recipients. It divides a payment that the agreement already defines; it does not replace the agreement, and it is not an escrow service.
## How do you put the agreement in place, step by step?
You put a broker fee agreement in place in six steps, from identifying the payer to registering prospects, and the order matters because each step fixes something the next one relies on.
From first conversation to a signed, working agreementThe sequence before and during the mandate
Identify who pays and who signsConfirm the legal entity that will owe the fee and the signatory's authority. Check whether your sector or jurisdiction requires a written agreement or a licence to claim the fee.
Start from the right formUse your industry's standard form where one exists, or your lawyer's engagement letter, and note which of the eleven clauses it leaves silent.
Agree the fee on a worked structureCompute the fee with the client on a realistic deal, deferred and contingent payments included, and write the base so that it reproduces that computation.
Fix the two datesWrite the earning event and the payment date as separate clauses, including the case where the client fails to complete.
Sign before any introductionHave the client sign and date the agreement, keep a countersigned copy, and only then share names, documents or meetings.
Register prospects as you goSend a dated list of the parties introduced during the term, and the final list within days of expiry or termination.
Then keep the file: the signed agreement, each prospect list with proof of delivery, the fee computation shown to the client, and the payment instruction.