5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

Real estate practice is built on the broker as the licensed firm and the salesperson as the broker's affiliated agent. On the national exam, the recurring theme is that a salesperson's license is held by, and their authority flows from, the supervising broker. Commissions are earned by the broker, and only the broker may pay a salesperson. A salesperson who accepts a fee directly from a buyer, seller, or another firm violates license law in nearly every jurisdiction.

The broker owes statutory and common-law duties to clients: the classic fiduciary duties are often memorized with the acronym OLD CAR — Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care/diligence.

Broker supervisory responsibilities

Brokers must supervise affiliated licensees, maintain transaction records, and keep client funds segregated. Earnest money and other client funds go into a trust (escrow) account, never the broker's operating account. Mixing the two is commingling; spending client funds for business use is conversion — a far more serious violation that often triggers license revocation.

• Deposit trust funds promptly (commonly within 1-3 business days of acceptance, per state rule).
• Reconcile the trust account monthly against the bank statement.
• Retain transaction and trust records for the statutory period (often 3-5 years).
• Never let a personal or business shortfall be covered by client money.

Brokerage agreements

A listing agreement creates agency between seller and broker; a buyer-representation agreement does the same for a buyer. The three classic listing types are tested constantly:

New Hampshire Rule Rea 404.04(f) expressly prohibits net listings. Listings must have a definite expiration date; an automatic-renewal or open-ended term is prohibited in many jurisdictions.

Compensation and procuring cause

Commissions are always negotiable and are never set by law, by an MLS, or by a board — fixing them is a federal antitrust violation (covered in 5.3). The amount is whatever the broker and principal agree to in writing.

When two brokers each claim to have earned a commission, the dispute turns on procuring cause: the broker whose continuous, unbroken efforts actually produced a ready, willing, and able buyer. A salesperson who shows a home once, then disappears for months while another agent negotiates the deal, is unlikely to be the procuring cause.

A ready, willing, and able buyer is one prepared and financially capable of buying on the seller's terms. Under an exclusive-right-to-sell listing, if the broker produces such a buyer and the seller refuses to sell, the commission is generally still earned.

Agency types and authority

The brokerage agreement also defines the scope of the broker's authority. A special agent is hired for one transaction (the typical listing broker) and has limited authority. A general agent can bind the principal across many matters (a property manager). A universal agent has broad power of attorney. Most real estate licensees are special agents — they may market and negotiate, but they cannot sign a binding sales contract on the principal's behalf unless separately authorized.

When agency ends, so does most authority. Agency terminates by completion of the purpose, expiration of the term, mutual agreement, revocation, renunciation, death, or destruction of the property. A few duties survive: confidentiality continues even after the relationship ends.

Worked commission math

Expect at least one split-and-commission calculation. Work from the top down.

Example: A home sells for $420,000 at a 6% total commission. The listing and selling brokerages split the commission 50/50. The selling salesperson keeps 60% of their brokerage's share. What does the selling salesperson earn?

• Total commission: $420,000 x 0.06 = $25,200
• Selling brokerage share: $25,200 x 0.50 = $12,600
• Salesperson share: $12,600 x 0.60 = $7,560

Reverse problems also appear: if a salesperson nets $7,560 on a 60% split of a 50% co-brokerage share at 6%, divide back up to recover the $420,000 sale price. Always confirm whether a percentage applies to the sale price, the total commission, or the brokerage's portion — mixing the base is the most common error.

Net-to-seller problems

A second common calculation is the net-to-seller (or seller's net) problem, where you solve for the listing price that leaves the seller a target amount after commission. The trap is dividing by the wrong figure: the commission is a percentage of the sale price, not of the net, so you cannot simply add the commission percentage to the net.

Example: A seller wants to net $200,000 after paying a 6% commission and $4,000 in closing costs. Find the minimum sale price.

• Add fixed costs to the desired net: $200,000 + $4,000 = $204,000.
• That $204,000 represents the portion left after commission, i.e., 100% minus 6% = 94% of the price.
• Sale price = $204,000 / 0.94 = $217,021 (round up to clear the net).

Verify: $217,021 x 0.06 = $13,021 commission; $217,021 - $13,021 - $4,000 = $200,000 net. Dividing by 0.94 (not multiplying by 1.06) is the tested skill.