5.1 Broker Responsibilities, Brokerage Agreements, and Compensation
Key Takeaways
- A salesperson works only under a sponsoring broker; all listings, escrow, and compensation flow through the broker, not the licensee personally.
- Listing agreements are employment contracts between seller and broker; the three core types are exclusive-right-to-sell, exclusive-agency, and open.
- Commission is fully negotiable by law; any rate, flat fee, or split is legal as long as it is set per transaction and never fixed among competing firms.
- Procuring cause, not who shows up at closing, generally determines which cooperating broker earns the selling-side fee.
- Brokers must supervise affiliated licensees, maintain trust accounts, and keep records for the period set by license law.
The broker as the legal center of the brokerage
Every salesperson licensee acts as an agent of a single sponsoring (employing) broker. The salesperson has no independent authority: listings belong to the broker, buyer-client funds are deposited in the broker's trust account, and commission is paid to the broker, who then pays the licensee per their written employment agreement. On the exam, any answer suggesting a salesperson can hold a client's earnest money personally, accept a fee directly from the seller, or take a listing in the salesperson's own name is wrong.
The broker owes the public and the firm's clients a supervisory duty. The broker must train affiliated licensees, review contracts, oversee advertising, reconcile the trust account, and keep transaction records. Failure to supervise is itself a disciplinable act even when the broker did not personally commit the underlying violation.
The three listing-agreement types
A listing agreement is an employment contract hiring the broker to market the property and produce a ready, willing, and able buyer. It is a personal-service contract, so it is not automatically assignable to another broker. The differences among the types come down to who can earn the commission.
| Type | Who may earn commission | Seller can sell themselves? |
|---|---|---|
| Exclusive-right-to-sell | Listing broker, no matter who finds the buyer | No — broker still paid |
| Exclusive-agency | Listing broker only if a broker finds the buyer | Yes — owner pays no fee |
| Open | Whichever broker procures the buyer | Yes — owner pays no fee |
The exclusive-right-to-sell listing is the most protective for the broker and the most common. With an open listing the seller may give the same listing to many brokers and owes a fee only to the one who actually produces the buyer. A net listing (broker keeps everything above a set seller price) is regulated differently by jurisdiction because it invites conflicts of interest.
Buyer-representation agreements and required terms
The buyer side mirrors the seller side. An exclusive buyer-agency agreement entitles the broker to a fee no matter who locates the property the buyer purchases; a non-exclusive (open) buyer agreement pays the broker only if the broker found the home. Every listing or buyer agreement should state a definite termination (expiration) date — an automatic, perpetual renewal clause is improper in most states. A listing also typically includes a protection (carryover) period: if the seller sells, after expiration, to a prospect the broker introduced during the term, the commission is still owed.
How commission is calculated, split, and disputed
Commission is always negotiable between client and broker; there is no standard or legal rate. Work the arithmetic carefully on exam questions.
- Sale price $360,000 at a 6% total fee: 0.06 × 360,000 = $21,600 total commission.
- Listing and selling brokers split 50/50: each brokerage receives $10,800.
- The selling salesperson's brokerage keeps 40% and pays the licensee 60%: 0.60 × 10,800 = $6,480 to that salesperson.
When two cooperating brokers both claim the selling-side fee, the procuring cause doctrine controls. Procuring cause is the broker whose uninterrupted efforts started the chain of events that led to the sale — not merely the agent who happened to open the door at closing or write the final offer. A buyer who abandons one agent, then buys months later with another after independent effort, can shift procuring cause. Such disputes between members of the same association are typically resolved through mandatory arbitration, not litigation, applying these chain-of-events factors rather than a simple 'who closed it' rule.
A property sells for $285,000 with a 7% total commission. The listing and selling sides split the fee equally, and the selling brokerage pays its salesperson 70% of the selling side. How much does that salesperson receive?
Under which listing type does the seller owe the broker a commission even if the seller personally finds the buyer with no broker involvement?
Termination, trust accounts, and the independent-contractor split
A listing agreement ends in several ways: performance (the property sells), expiration of the stated term, mutual agreement to cancel, or destruction of the property. Either party may also breach, exposing the breaching side to damages. Because the listing is a personal-service contract, the death or incapacity of either the broker or the seller terminates it — the listing does not pass to the broker's estate.
Money handling is a frequent source of discipline. Earnest money, security deposits, and other client funds must go into the broker's trust (escrow) account, kept separate from the broker's operating funds. Commingling (mixing client and business money) and conversion (using client money for the broker's own purposes) are serious violations. The broker — not the salesperson — is responsible for timely deposit, accurate records, and reconciliation.
Ready, willing, and able — when commission is earned
The classic rule is that a broker has earned the commission once they produce a buyer who is ready, willing, and able to purchase on the seller's stated terms — even if the seller then refuses to close. 'Able' means financially capable (qualified for financing or paying cash). In practice most modern listing agreements tie the fee to a completed closing, but exam questions still test the common-law standard: if a full-price offer meeting all listing terms is presented and the seller backs out, the commission is generally still owed.
Most affiliated licensees work as independent contractors rather than employees for tax purposes, which requires a written agreement, payment based on output (commission) not hours, and the licensee covering most expenses. Even so, the broker's license-law supervisory duty remains — independent-contractor status for the IRS does not relieve the broker of the duty to supervise the licensee's professional conduct.