5.1 Broker Responsibilities, Brokerage Agreements, and Compensation
Key Takeaways
- The broker holds the license under which all affiliated salespersons operate; the salesperson works for and is paid by the broker, never directly by the client.
- Listing agreements are employment contracts between seller and broker; exclusive-right-to-sell pays the broker regardless of who finds the buyer.
- A ready, willing, and able buyer who meets the seller's terms earns the broker the commission even if the seller backs out.
- Commission is always negotiable; suggesting a 'standard' or 'going rate' is a price-fixing risk.
- Trust/escrow funds must be deposited promptly and never commingled with the broker's operating account.
5.1 Broker Responsibilities, Brokerage Agreements, and Compensation
Every real estate transaction is anchored to a broker. The broker holds the firm license, supervises affiliated salespersons, maintains trust accounts, and is ultimately responsible for compliance. A salesperson (associate licensee) may only conduct brokerage activity on behalf of the sponsoring broker.
A critical exam fact: the client hires the brokerage, not the individual agent. The salesperson is paid by the broker, never directly by the buyer or seller. A buyer writing a commission check straight to a salesperson violates license law in every state.
Broker supervisory duties
Brokers carry non-delegable responsibilities:
- Supervision of all affiliated licensees and unlicensed assistants.
- Trust-fund handling: deposit earnest money and client funds into a separate escrow/trust account, promptly (often within 1-3 business days, varies by state), and never commingle with operating funds or convert to personal use.
- Record retention: keep transaction files and account ledgers, commonly 3-5 years.
- Advertising control: all ads must identify the brokerage; salespersons cannot advertise under their own name alone (blind ads are prohibited).
Commingling and conversion are among the fastest routes to license revocation, so they are heavily tested.
The four listing agreements
A listing agreement is an employment contract in which the seller hires the broker to market the property. The type controls who gets paid.
| Listing type | Who may sell | Broker paid if owner sells? |
|---|---|---|
| Exclusive right to sell | Only the listing broker markets | Yes - broker paid no matter who finds buyer |
| Exclusive agency | One broker, but owner reserves right to sell | No - owner owes nothing if owner finds buyer |
| Open listing | Any number of brokers | Only the procuring broker is paid |
| Net listing | Seller sets net amount, broker keeps overage | Prohibited for a Utah licensee under R162-2f-401b(h) |
Utah Rule R162-2f-401b(h) prohibits an individual licensee from taking a net listing. Memorize that exclusive-right-to-sell is the most protective for the broker.
Under an exclusive-agency listing, the seller personally finds a buyer without any help from the listing broker. What does the seller owe the broker?
When commission is earned
The traditional rule: a broker earns commission by producing a buyer who is ready, willing, and able to purchase on the seller's stated terms. Once such a buyer makes a conforming offer, the commission is generally earned even if the seller refuses to close. If the buyer defaults, the broker typically is not owed.
Procuring cause decides which broker is paid when several were involved. It is the agent whose continuous, unbroken efforts set in motion the chain of events leading to the sale. A buyer who saw an open house, then bought through a different agent weeks later after independent negotiations, may break the chain - the second agent could be procuring cause.
Commission math
Commission is a percentage of the sale price, always negotiable. Work it in layers: total commission, then the listing-side/selling-side split, then the broker/salesperson split.
Worked example. A home sells for $420,000 at a 6% total commission, split 50/50 between the listing brokerage and the cooperating (buyer's) brokerage. The listing salesperson keeps 60% of her brokerage's share.
- Total commission: 6% x $420,000 = $25,200.
- Listing brokerage share: 50% x $25,200 = $12,600.
- Listing salesperson: 60% x $12,600 = $7,560.
- Listing broker retains: $12,600 - $7,560 = $5,040.
Reverse problems are common: if a salesperson on a 70% split netted $6,300, her brokerage's share was $6,300 / 0.70 = $9,000.
Common traps
- Trap: assuming the buyer pays the salesperson. The broker is the principal in compensation; only the broker can pay a licensee, and only the broker's own affiliated agents.
- Trap: treating commission as set by law or a board. It is always negotiable per transaction; fixed 'standard' rates are antitrust violations (see 5.3).
- Trap: thinking commission is owed only at closing. With a ready/willing/able buyer on the seller's terms, the broker can earn it even if the seller walks.
- Trap: confusing exclusive agency with exclusive right to sell. Only the latter pays the broker when the owner sells personally.
A property sells for $315,000 with a 7% commission. The listing and selling brokerages split it 50/50. The selling salesperson is on a 65% split with her broker. How much does the selling salesperson earn?
Broker Supervision and the Procuring Cause Doctrine
A principal (managing) broker is legally responsible for supervising affiliated licensees, maintaining trust accounts, retaining records, and ensuring advertising and contracts comply with law. Salespersons work for and under the broker and may be paid only by their own broker, never directly by a buyer, seller, or another firm - a recurring exam fact.
Procuring cause decides which broker earns the commission when more than one is involved. The procuring cause is the agent whose unbroken efforts actually produced the ready, willing, and able buyer who closed. Merely showing a property first does not guarantee the commission if another agent's continuous work led to the sale.
Worked Example: Commission Split Down the Chain
A home sells for $480,000 at a total commission of 6%, split 50/50 between the listing and selling brokerages. The selling salesperson keeps 70% of the selling brokerage's share after a flat $300 transaction fee.
- Total commission = 6% x $480,000 = $28,800.
- Selling brokerage share = 50% = $14,400.
- Less the $300 fee = $14,100; salesperson's 70% = 0.70 x $14,100 = $9,870.
The selling brokerage retains $14,400 - $9,870 = $4,530 (including the $300 fee). The exam wants you to apply each percentage in sequence and to remember that the salesperson is paid through the brokerage, not directly by the closing agent.