5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

A broker holds the firm's license and is legally accountable for the conduct of every salesperson and associate broker affiliated with the brokerage. Salespersons cannot operate independently; they hang their license with a sponsoring broker and act in the broker's name.

The exam treats the broker as the supervising authority and the salesperson as the agent of the broker, not of the public directly. This supervisory relationship is the source of most license-law liability. When a salesperson mishandles trust funds or makes a misrepresentation, the broker can be disciplined for failure to supervise, even if the broker had no personal knowledge of the act.

Core Broker Responsibilities

Brokers carry duties that go beyond ordinary agency. Memorize these supervisory and custodial obligations:

• Supervision of all licensees, advertising, and transactions in the office
• Trust-fund custody — holding earnest money in a separate escrow/trust account (commingling and conversion are violations)
• Recordkeeping — retaining transaction files and disbursement records for the period set by state law (commonly 3 years)
• Disclosure compliance — ensuring agency, material-defect, and stigma disclosures are delivered on time
• Avoiding unauthorized practice of law (UPL) — licensees may fill in standard pre-printed forms but may not draft custom clauses or give legal advice

The UPL Trap

If a buyer asks a salesperson to "write in a special contingency that protects me legally," the correct exam answer is to refer the buyer to an attorney. Drafting original contract language, interpreting how a clause will hold up in court, or advising on the legal effect of a deed is the practice of law and is off-limits to licensees.

Brokerage (Listing) Agreements

A listing agreement is an employment contract between seller and broker. It must be in writing, name an expiration date, and describe the property and price. Three forms appear constantly on the exam, distinguished by who can earn the commission:

The exclusive right to sell gives the broker the strongest protection and is the default professional standard. A net listing — where the broker keeps everything above a stated net price to the seller — is regulated differently by jurisdiction because it invites a conflict of interest between the broker's profit and the seller's best price. Treat "net listing" as a red-flag answer.

Buyer Representation and the MLS

A buyer representation agreement establishes an express agency in which the broker owes fiduciary duties to the buyer and defines scope, term, geographic area, and compensation. Without one, a buyer may be treated as a customer rather than a client, which limits the duties owed.

The Multiple Listing Service (MLS) is a cooperative database where listing brokers market property and historically offered compensation to cooperating brokers. Following the 2024 NAR settlement reforms, offers of buyer-broker compensation are no longer published in the MLS, and buyers must sign a written representation agreement specifying compensation before touring homes. Expect questions framing compensation as negotiable and never set by the MLS.

Compensation and Procuring Cause

Commission is fully negotiable — a percentage of price, a flat fee, or an hourly/retainer arrangement. The seller is not obligated to pay a cooperating broker unless an agreement provides for it. Procuring cause is the broker whose unbroken efforts caused the buyer to purchase; in a commission dispute, the procuring-cause broker is entitled to the fee.

Worked Example — Commission Split

A home sells for $420,000 with a 6% total commission, split 50/50 between listing and selling brokerages. Each agent keeps 70% after a 30% brokerage retention.

• Total commission: 420,000 × 0.06 = $25,200
• Selling side: 25,200 × 0.50 = $12,600
• Selling agent's take: 12,600 × 0.70 = $8,820

Always work these in order: price × rate, then split, then agent share. Mixing the order is the most common math error on the exam.

Procuring Cause and Commission Disputes

Procuring cause is the agent whose efforts set in motion an unbroken chain of events that results in the sale. Commission disputes between two cooperating brokers are typically resolved by who was the procuring cause, not merely who showed the property first or last. An agent who introduces a buyer, then abandons the customer for weeks, may lose procuring-cause status to the agent who actually carried the deal to closing. The exam rewards the principle that a ready, willing, and able buyer at the seller's terms earns the commission even if the seller later refuses to close, because the broker has performed the contracted task.

Independent Contractor vs. Employee

Most salespersons work as independent contractors under their broker, not employees, which affects supervision and taxes. The IRS recognizes a real estate statutory nonemployee safe harbor when three tests are met: the person is licensed, substantially all pay is tied to sales output (not hours worked), and a written contract states the person is not an employee for tax purposes. Even as independent contractors, salespersons remain under the broker's license-law supervision — the broker is responsible for the salesperson's compliance, advertising, and trust-fund handling.

Do not confuse tax classification with supervisory responsibility: the broker supervises regardless of how the agent is paid.