5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

Broker Responsibilities and Supervision

A real estate broker holds the license under which all affiliated licensees operate. A salesperson (and in many states an associate broker) must be sponsored by, and work under the supervision of, a single broker. The broker is legally responsible for the acts of affiliated licensees performed within the scope of the brokerage.

The single most tested compensation rule on the national exam: a salesperson may only be paid by their own sponsoring broker. A salesperson cannot accept a commission directly from a seller, buyer, or another broker. Commission flows seller to listing broker, listing broker to the salesperson.

Listing Agreement Types

The broker's authority to market a property comes from a listing agreement, an employment contract between seller and broker. The three core types differ in who can earn the commission:

The exclusive right-to-sell gives the broker the strongest protection: the broker earns the commission no matter who finds the buyer during the listing term, even the owner. The exclusive agency listing reserves the owner's right to sell themselves commission-free. An open listing is non-exclusive and may be given to many brokers at once.

Buyer-Broker Agreements

On the buyer side, a buyer-broker agreement establishes agency between a buyer and broker. Like listings, they range from open (buyer may use multiple brokers) to exclusive buyer agency (buyer commits to one broker, who is owed compensation on any purchase during the term). With buyer agency now standard practice, exam questions test that the buyer's broker represents the buyer's interests and that compensation is negotiated and disclosed in writing, not assumed to come automatically from the listing-side split.

Net Listings and Conflicts

In a net listing, the seller sets a net amount they must receive, and the broker keeps everything above that figure as commission. This is conflict-prone wherever used because the seller does not share in the upside and the broker may exploit superior market-value information or obscure the resulting fee. Treat net listings as a trap answer: when an exam describes a broker keeping all proceeds over a fixed seller figure, the correct concern is the conflict of interest.

How Commission Is Earned

Commission is fully negotiable between broker and client. It is never fixed by statute, the commission, or a real estate board; any agreement among brokers to set a standard rate is illegal price-fixing (covered in 5.3). A broker traditionally earns commission by producing a ready, willing, and able buyer who agrees to the seller's terms, even if the seller later refuses to close.

Worked example: a home sells for $420,000 at a 6% total commission. The listing and selling brokerages split 50/50, and each brokerage pays its salesperson 60% of the brokerage's share.

• Total commission: $420,000 x 0.06 = $25,200
• Each brokerage: $25,200 / 2 = $12,600
• Selling salesperson: $12,600 x 0.60 = $7,560
• Selling brokerage keeps: $12,600 - $7,560 = $5,040

Procuring Cause and Safety Clauses

When two brokers each claim a commission, procuring cause decides: the broker whose continuous, unbroken efforts actually caused the buyer to purchase earns the fee. A broker who merely opened a door once, then dropped out, is usually not the procuring cause.

A protection (safety) clause in a listing extends the broker's commission rights for a set period after expiration if the property sells to a buyer the broker introduced during the term. This prevents a seller from waiting out the listing to dodge the commission. Note the limit: the buyer must have been introduced by that broker during the active listing period, and many clauses are void if the seller relists with another broker.

How Listings Terminate

Expect questions on when a listing ends. A listing terminates by performance (the deal closes), expiration of the stated term, mutual agreement, revocation by either party (which may create liability for damages), or by operation of law such as the death or incapacity of either the broker or the seller, or the destruction of the property.

Because a listing is a personal-services contract with the named broker, the broker's death ends it; it does not pass to the brokerage automatically. A salesperson leaving the firm does not terminate the listing, which belongs to the broker, not the agent. Every state requires listings to have a definite expiration date; a listing that automatically renews indefinitely is prohibited and is a frequent trap answer.

Commission Computation Drills

Expect at least one multi-step math item. Work outward from the sale price. Example: a $525,000 sale with a 7% commission, split 60% to the listing side and 40% to the selling side; the listing brokerage pays its agent 50%.

• Total commission: $525,000 x 0.07 = $36,750
• Listing side: $36,750 x 0.60 = $22,050
• Selling side: $36,750 x 0.40 = $14,700
• Listing agent's share: $22,050 x 0.50 = $11,025

Watch the trap where a problem gives the agent's split first; always compute the total commission, then the brokerage's portion, then the agent's percentage of that portion, never the agent's percentage of the full commission.