5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

How Brokerage Is Organized

Almost every license law places the broker at the top of the supervisory pyramid. A salesperson or associate broker may only conduct licensed activity in the name of, and under the supervision of, an employing or sponsoring broker. All listing agreements, buyer agreements, and commission entitlements belong to the brokerage firm, not to the individual licensee. When a client pays compensation, it flows to the broker first, who then pays the affiliated licensee under their independent-contractor or employment agreement.

The broker's core duties are commonly summarized as the duty to supervise affiliated licensees, the duty to maintain a trust (escrow) account for client money, and the duty to keep transaction records, usually for three to five years. A common exam trap: a salesperson may NOT accept compensation directly from a client or from another brokerage. Compensation always routes through the employing broker.

Types of Brokerage Relationships

The relationship a brokerage owes a consumer is defined at the moment of agency creation. Memorize how each is created and what it produces.

A dual agent represents both sides in the same transaction. Because loyalty cannot be undivided, most states require written consent and restrict the agent from disclosing one party's confidential negotiating position to the other. A transaction broker owes honesty and accounting but no fiduciary loyalty. Watch for questions distinguishing fiduciary duties (loyalty, obedience, confidentiality) from statutory duties owed to all parties (honesty, fair dealing, disclosure of material facts).

Listing Agreements Compared

The listing agreement governs how the seller's brokerage earns its fee. The three classic forms differ in who can earn the commission.

• Exclusive right to sell: The listing broker earns the commission no matter who finds the buyer, even the seller. Best protection for the broker; the most common form.
• Exclusive agency: One broker is appointed, but the seller may sell on their own with no commission owed. The broker is cut out only by the seller's own efforts.
• Open listing: Non-exclusive; multiple brokers may be engaged, and only the one who is the procuring cause earns the fee. The seller owes nothing if they sell it themselves.

All listings should state a definite expiration date; an indefinite term is a license-law violation in most states. A net listing (broker keeps everything above a stated net to the seller) is prohibited or strongly discouraged because it invites conflicts of interest.

Compensation, Procuring Cause, and Worked Math

Real estate commissions are negotiable and never set by law or by an MLS. Stating that there is a standard or fixed rate is an antitrust violation. The fee is typically a percentage of the sale price, often split between the listing and selling sides, and then again between the broker and the affiliated agent.

Worked example. A home sells for $480,000 at a 6% total commission. The listing and selling brokerages split it 50/50, and each agent keeps 60% of their brokerage's share.

• Total commission: $480,000 x 0.06 = $28,800
• Each side's brokerage share: $28,800 / 2 = $14,400
• Selling agent's take: $14,400 x 0.60 = $8,640
• Selling broker retains: $14,400 x 0.40 = $5,760

Procuring cause is the agent whose continuous, uninterrupted efforts started the chain of events that led to the sale. A buyer who opens a door at an open house, then quietly closes with a different agent weeks later, can spawn a procuring-cause dispute resolved by arbitration, not by who wrote the final contract.

California Supervision and Trust-Fund Rules

California layers concrete supervision and trust-handling duties onto the national framework, and the DRE tests the numbers.

Broker Supervision and the Broker-Associate

Under Business and Professions Code 10159.2 and the Commissioner's Regulations, the responsible broker must exercise reasonable supervision over the activities of affiliated salespersons, including reviewing transaction documents, advertising, and trust-fund handling, and must keep a written supervision/office policy.

A licensed broker may choose to work under another broker as a broker-associate, but still cannot accept compensation from anyone except the broker under whom they are licensed. A salesperson who takes a check directly from a seller or a cooperating broker commits a violation regardless of who ultimately earned the fee.

California Trust-Fund Timelines

The DRE sets specific deadlines that are favorite test items. A broker who accepts trust funds (such as an earnest-money deposit) on behalf of another must place them into a neutral escrow, into the hands of the principal, or into a trust account no later than three business days after receipt, unless the buyer's written instructions direct the broker to hold an uncashed check until acceptance. Brokers must keep a columnar trust-fund record and reconcile it monthly; records are retained three years.

A Worked Three-Way Split

A $540,000 sale carries a 5.5% commission, split 50/50 between listing and selling brokerages; the listing salesperson is on a 70/30 split with her broker.

• Total commission = 5.5% x $540,000 = $29,700.
• Listing brokerage share = $29,700 / 2 = $14,850.
• Listing salesperson keeps 70% = 0.70 x $14,850 = $10,395.
• Broker retains 30% = $4,455.

Trap: The salesperson is paid by the broker, never directly by escrow or the client, and the broker must hold the salesperson's portion until the transaction closes. A distractor showing escrow cutting a check straight to the salesperson is wrong.