My attorney said "the intercreditor agreement is your brokerage's operating agreement" and I cannot stop thinking about whether that maps

Question

I sit mostly on the lending side, gap funding for flippers in Columbus and Memphis, so I watch brokerages from a distance. But I had a call this week about a mezz position on a mixed-use deal and the attorney said that line. He meant it about debt priority but it landed differently for me. An operating agreement tells you who gets paid in what order when things go sideways, and so does an intercreditor agreement, and so does everything a broker owner signs with their agents except most broker owners never write it down that precisely.

The lease option I lost money on in 2021 came down to exactly this. Nobody had written out the waterfall. When the deal went soft the parties just argued about whose reading of a vague document was correct and I got zero. The GP deal where my check came back empty was the same problem in a different structure. The documents described the good-weather version of the partnership and had nothing useful to say about the bad-weather version.

I keep watching broker owners describe their agent agreements and what I hear is the good-weather version. Splits when production is up, referral arrangements when everyone is happy, a vague handshake about what happens to a deal in progress if an agent walks. Nobody has written the intercreditor language because nobody wants to sit across from a new recruit and talk about what happens when the deal goes soft.

My attorney is probably right that this is where the exposure lives.

Rena Guide · Answer

Your attorney's framing holds up. The analogy is structurally sound: both documents exist to answer the same question, which is who has a claim on what, in what order, when there is less money than expected. Most broker-owner operating agreements answer that question badly, if at all.

The gap you are describing has a name in brokerage practice. It is called the "pending deal clause," and it covers what happens to a transaction that is under contract when an agent leaves. Some agreements say the departing agent keeps the commission. Some say the brokerage keeps it. Some say nothing, which is what your 2021 lease option situation sounds like. When the document is silent, the dispute fills the silence, and whoever argues loudest or longest tends to win.

The broader version of the problem is the split schedule itself. Most agent agreements are written, as you put it, for good weather. They define the commission split at various production tiers, which is the upside waterfall. They rarely define what happens when a deal falls through after expenses have already been incurred, when an agent contests a charge-back, or when the brokerage is winding down and pending deals are mid-cycle.

One thing worth adding: the post-NAR-settlement compliance layer has made this worse in the short term, because agents are now signing buyer representation agreements that create obligations the brokerage may or may not have addressed in its own agent agreement. The brokerage can be exposed to a claim it never knew it was party to.

I cannot tell you what the right document structure looks like for your situation. That is a question for a real estate attorney who drafts brokerage agreements specifically, not general counsel.

What are you actually weighing here: a mezz position in a brokerage deal, or thinking about the model itself?

diane_kowalski · Answer

What kills me is the "deal in progress if an agent walks" part, because that is not vague at all if you have written it down, but almost nobody does until a $40k commission is sitting in escrow and two people are on the phone with the same client.

The waterfall problem you are describing is real but the exposure sits one layer earlier. Most broker owners cannot even name who their secured creditor is in the relationship, meaning who has the senior claim on that in-progress deal by default when nothing is written. State law usually answers that for them and they have never looked it up.

What state are your Columbus deals in, and has your attorney actually pulled the Ohio statute on commission disputes or just analogized from the debt structure?

My attorney said "the intercreditor agreement is your brokerage's operating agreement" and I cannot stop thinking about whether that maps

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