The Commission Disbursement Authorization (CDA) is a foundational document in real estate transactions, serving as the official instruction for the distribution of commissions. This authorization ensures that all parties involved in a sale, from the agents to the brokerage, are paid accurately and promptly at closing. The CDA maintains transparency and compliance in the financial aspects of a transaction, providing a clear roadmap for where the total commission funds must be directed. It is the formal mechanism that aligns commission agreements with the final settlement, preventing disputes and keeping the transaction on schedule.
Defining the Commission Disbursement Authorization
The CDA is a written instruction generated by the brokerage and sent to the closing agent, typically the title company, escrow company, or closing attorney. This document explicitly details how the total commission earned from the sale is to be split and disbursed among all entitled recipients. It lists the gross commission amount, any fees deducted by the brokerage, and the specific net amounts due to each agent involved.
The authorization acts as a mandate to the closing agent, confirming the internal agreement between the brokerage and its affiliated agents. Without this formal instruction, the closing agent cannot legally release the commission funds directly from the closing proceeds to the individual agents. The CDA authorizes the payment structure, ensuring the final disbursement adheres to the pre-existing commission agreements.
The Function of the CDA in Closing
The primary function of the CDA is to direct the flow of commission funds from the closing table to the appropriate parties. During the closing, the total commission is part of the seller’s closing costs and is paid into the escrow or title account. The CDA then serves as the authoritative guide for the title company or escrow agent, instructing them to allocate those funds according to the brokerage’s specifications.
The document ensures that various recipients, including the listing agent, the buyer’s agent, any co-brokers, referral partners, and the brokerage itself, receive their correct portions. By submitting the CDA, the brokerage delegates the task of splitting the commission to the closing agent, which streamlines the payment process. This system ensures compliance with state regulations and pre-negotiated commission agreements.
The Step-by-Step CDA Process
The process of generating a CDA typically begins shortly after the sales contract has been executed and all contingencies have been removed. Administrative staff or a transaction coordinator at the brokerage are usually responsible for preparing the document. They gather all necessary details, including the property address, the total commission amount, and the commission split structure for all agents involved.
Once drafted, the CDA is reviewed and formally approved by the principal broker or an authorized manager to ensure its accuracy and compliance. The finalized and signed authorization is then submitted to the title or escrow company well in advance of the scheduled closing date. The closing agent uses the CDA to calculate the commission section of the final settlement statement, such as the Closing Disclosure, allowing the title company to finalize the distribution of funds directly from the closing proceeds on the day the transaction closes.
Cash Flow and Funding Benefits for Agents
The existence of a formal, executed CDA provides financial advantages for real estate professionals by improving their cash flow management. Because the CDA guarantees a specific commission amount is due from an imminent closing, it serves as a form of collateral. This makes it possible for agents and brokerages to utilize commission advance services, also known as commission factoring.
Commission advance companies offer agents a portion of their expected commission funds before the official closing date in exchange for a small fee or interest rate. The CDA authorizes the advance company to collect the full commission directly from the closing agent when the sale funds. This mechanism allows agents to access their earned income weeks or months earlier, which is beneficial for managing business expenses and personal finances.
Alternative Meanings of CDA
While the term CDA predominantly refers to the Commission Disbursement Authorization in the context of real estate transactions, readers may encounter the acronym with other meanings.
Collateral Desktop Analysis
In the broader real estate and finance sectors, CDA can also stand for Collateral Desktop Analysis. This is an investment property appraisal review performed for lenders, serving as an additional layer of due diligence on a property’s valuation.
Community Development Authority
The acronym is also used to refer to various governmental or municipal bodies, such as a Community Development Authority. These local or regional organizations typically focus on social development, urban planning, or financing public infrastructure projects through special assessment districts.
Although these other meanings exist, the transactional document instructing commission payment remains the primary definition for professionals and parties involved in a real estate sale.