5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

The broker as principal

In a brokerage firm, the broker holds the brokerage relationship with the client. Affiliated salespersons (and associate brokers) work in the broker's name and under the broker's supervision. The client's contract is with the firm, not the individual agent. That is why a salesperson cannot be paid commission directly by a client or another firm; compensation flows through the employing broker.

A broker's core responsibilities include supervising licensees, maintaining trust (escrow) accounts, keeping transaction records, ensuring advertising identifies the firm, and answering for the brokerage's compliance. When a salesperson errs, the supervising broker can share liability.

Brokerage agreements (listing contracts)

A listing is an employment contract between seller and broker. It must usually be in writing, name the parties, describe the property, state the price and terms, set a definite expiration date, and state compensation. There are four classic types.

The exclusive right to sell is the most protective for the broker and the most common. An open listing is non-exclusive and the seller owes a commission only to the broker who actually procures the buyer. A net listing is heavily restricted because it tempts the broker to overstate the property's value and pocket the spread.

When is commission earned?

The traditional rule: the broker earns the commission when the broker produces a buyer who is ready, willing, and able to buy on the seller's stated terms, or on terms the seller accepts. Earning the commission does not always require closing. If a seller signs a contract and then defaults, the broker may still have earned the fee because performance was complete on the broker's side.

Procuring cause decides who gets paid when two brokers are involved. The procuring cause is the broker whose continuous, uninterrupted efforts set in motion the chain of events that led to the sale. A buyer who sees one agent's open house but completes the purchase only after a different agent's sustained negotiation can shift procuring cause.

• Commission rates are always negotiable between broker and client; there is no standard or legally fixed rate.
• A safety/protection clause lets the broker collect after expiration if a buyer the broker introduced during the term later buys, usually within a stated window.
• Compensation may be a percentage, flat fee, or hourly, as agreed in writing.

Worked commission split

A home sells for $420,000. The listing agreement states a 6% total commission, split 50/50 between listing and cooperating (selling) brokers. The listing salesperson keeps 60% of what the listing broker receives.

• Total commission: $420,000 x 0.06 = $25,200
• Listing broker's share: $25,200 x 0.50 = $12,600
• Listing salesperson's share: $12,600 x 0.60 = $7,560
• Listing broker keeps: $12,600 - $7,560 = $5,040

The cooperating broker's side mirrors the same arithmetic. On the exam, read carefully whether the split percentage applies to the total commission or to the broker's portion after the inter-broker split, because that ordering changes the answer.

Buyer-broker agreements

Buyer agency contracts parallel listing types: exclusive buyer agency (the buyer's broker is paid whenever the buyer buys any qualifying property), exclusive-agency buyer (buyer owes nothing if buyer finds the home alone), and open buyer agreements. As seller-offered cooperative compensation has become less automatic, buyer-broker agreements increasingly state exactly what the buyer's agent earns and who pays it, so a buyer's agent can be paid by the buyer directly if the seller offers little or nothing.

Trap: Students assume "exclusive" always means the broker is paid no matter what. Only exclusive right to sell (and exclusive buyer agency) guarantee payment regardless of who finds the deal; exclusive agency still lets the principal escape the fee by acting alone.

Independent contractor vs. employee and broker supervision

Most affiliated salespersons work as independent contractors, not employees, under a written agreement, but the supervising broker remains legally responsible for their licensed activity. The IRS recognizes a statutory non-employee category for real estate agents when three tests are met: the person is licensed, substantially all pay is tied to output (commissions) not hours, and a written contract states they are not an employee for tax purposes.

Regardless of tax status, the broker must supervise: review contracts and advertising, maintain trust accounts, keep transaction records, and answer for compliance. A broker who fails to supervise can be disciplined even if the salesperson committed the underlying error.

Trap: "Independent contractor" controls taxes, not liability. The supervising broker can still be vicariously liable to a wronged consumer for an affiliated agent's acts within the brokerage relationship.

Procuring cause and the protection clause, with numbers

Procuring cause decides which broker is paid when two are involved: the one whose continuous, unbroken effort started the chain of events leading to the sale. A buyer who attends Agent A's open house but only buys after Agent B's weeks of negotiation and an accepted offer usually makes Agent B the procuring cause.

A protection (safety) clause lets the listing broker collect after the listing expires if a buyer the broker introduced during the term buys within a stated tail period (often 60-180 days), unless the seller signs a new listing with another broker.

Worked split with cooperating broker: A home sells for $500,000 at a 6% total commission, split 50/50 between listing and selling sides. The selling salesperson is on a 70/30 split favoring the salesperson.

• Total commission: $500,000 × 0.06 = $30,000
• Selling side's share: $30,000 × 0.50 = $15,000
• Selling salesperson's cut: $15,000 × 0.70 = $10,500
• Selling broker keeps: $15,000 − $10,500 = $4,500

Read carefully whether a stated split applies to the total commission or only to one side's portion — that ordering is the most common math trap on commission questions.