What is a CDA in real estate? Why does it matter?

Everyone knows that commission is a key motivator for real estate agents and brokers in the real estate industry. It drives their productivity and sustained growth. However, receiving the commission check does require that they complete a Commission Disbursement Authorization (CDA) form. In this article, we’ll explain what is a CDA in real estate and how to fill out a CDA form.

What is a CDA in real estate?

A CDA is a document in real estate transactions outlining how the commission from a property sale will be distributed. It authorizes the closing agent, an escrow company, an attorney, or a title company to disburse the real estate agent’s commission directly from the sale proceeds. This document ensures that all parties involved in the transaction — buyers, sellers, agents, and brokers — are clear about the distribution of the commission.

Why should I create a CDA, as an agent?

Managing commission-based payment plans usually involves a lot of paperwork, causing headaches for busy real estate professionals. Creating a CDA before closing and sending it to your closing company ensures quick processing of commission payments. Therefore, it keeps real estate agents happy. Additionally, a CDA allows agents to receive payments directly, bypassing the need for the commission to go through the brokerage first.

It ensures smooth operations and proper financial handling. That’s why, understanding what is a CDA in real estate and its role in transactions can help agents, brokers, and clients navigate the financial aspects of property deals more efficiently.

What is CDA’s role in real estate transactions?

• A CDA provides clear instructions on the distribution of commissions, ensuring that there is no confusion or disputes among the parties involved. It details the exact amounts to be paid to the agents and real estate brokers, making the process transparent and clear.
• By specifying the disbursement details, a CDA helps streamline the payment process. The closing agent or escrow company can efficiently distribute the funds as per the payment instructions, ensuring that agents and brokers receive their commissions promptly.
• The CDA serves as a legal document, ensuring that the commission distribution is in line with the agreement between the parties. This legal assurance helps protect the interests of the agents and brokers, reducing the risk of payment disputes.

What are the key elements of a CDA process?

A typical CDA includes the following information:

• Information about the property that’s selling, including the address and transaction date.
• Names and contact information and other details of the buyers, sellers, agents, and brokers involved in the transaction.
• Detailed breakdown of the agent commission, specifying the exact amounts to be paid.
• Signatures from the relevant parties, authorizing the closing agent or escrow company to disburse the commission as outlined.

How to prepare a CDA?

It’s difficult for a brokerage to monitor an agent who is an independent contractor. But with the commission disbursement authorization, they find it easier to do so. Under CDA, an agent must follow the procedure in order to be paid. Because of this, it’s usually, real estate brokerages or transaction coordinators who handle creating and finalizing CDAs. It helps that they have the legal and industry knowledge needed to ensure accuracy and compliance with standards in creating these forms.

Here are the steps to creating a commission disbursement:

• Gather all necessary information about the property sale, including the property address, buyer and seller information, contract acceptance date, gross commission, brokerage gross commission, sale price, and closing date.
• Calculate the commission amounts based on the agreed terms. Ensure that the distribution aligns with the brokerage agreements and any referral agreements in place.
• Enter the transaction details, parties involved, and commission breakdown into the CDA form. Double-check the information on the commission disbursement authorization form for accuracy to avoid any discrepancies.
• Have the relevant parties, including the agents, brokers, and closing agents, sign the CDA to authorize the commission disbursement.
• Submit the completed and signed CDA to the closing agent or escrow company handling the transaction.

Last thoughts

A CDA is a vital document in real estate transactions. It ensures clarity, transparency, and legal assurance in the distribution of real estate commissions. It outlines the exact amounts to pay and authorizes the closing agent to disburse the funds. Therefore, a CDA helps streamline the payment process. And, it protects the interests of agents and brokers. Understanding and properly handling a CDA can lead to smoother real estate transactions and more satisfied clients.

Written by Ramona Sinha. May 27, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.