5.1 Broker Responsibilities, Brokerage Agreements, and Compensation

The Broker's Core Duties

A real estate broker sits at the center of every transaction and carries supervisory liability for the licensees working under that brokerage. The broker must keep the firm's practice within the bounds of its competence, ensure required disclosures reach the parties, safeguard money belonging to others, oversee advertising, and stop salespersons from drifting into the unauthorized practice of law.

These obligations sit on top of the fiduciary duties owed to the client - commonly summarized as OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care.

Unauthorized Practice of Law (UPL)

A licensee may fill in blanks on a state-approved form and explain how a clause operates in plain terms. The licensee may NOT draft custom legal language, interpret how a statute applies to a client's situation, or predict the legal consequences of a deed or contract. Crossing that line is the unauthorized practice of law and exposes both agent and broker to discipline.

The safe referral rule: legal questions go to an attorney, tax questions to a CPA, and structural questions to an engineer or licensed contractor.

A practical test for the exam: if the answer requires applying a statute or case law to a specific set of facts, it is legal advice. If it merely describes what a standard, pre-printed clause does, it is permitted information.

Listing Agreements

A listing agreement is an employment contract between an owner and a broker for seller representation. There are four classic forms. Memorize the trade-off each makes between owner flexibility and the broker's certainty of payment.

The word exclusive controls how many brokers can be hired, not whether the owner is excluded from selling - that is the common trap.

Net Listing Worked Example

A seller signs a net listing demanding $300,000 "in pocket." The broker sells at $345,000. After a $5,000 closing-cost credit, the broker keeps $345,000 - $300,000 - $5,000 = $40,000 as compensation.

The danger is obvious: the seller's return is capped while the broker retains the entire upside above the fixed net. West Virginia Code §30-40-19(a)(40) makes taking this arrangement a ground for discipline. On the exam, "broker keeps everything above the seller's net" always flags a conflict of interest.

Buyer Representation and Property Management Agreements

A buyer representation agreement establishes express agency with a purchaser. It states the scope of services, the geographic area, the term, the compensation source, and termination conditions. Without it, an agent who works closely with a buyer can create an unintended implied agency.

A property management agreement authorizes the broker to lease, collect rent, screen tenants, maintain the premises, and account for funds. Managers must hold security deposits and rents in a separate trust account, reconcile monthly, and follow fair housing law in tenant selection. Commingling client funds with operating money is a leading cause of license revocation.

Compensation and Procuring Cause

Commission is always negotiable between client and broker - there is no legal or customary rate, and treating any number as standard risks an antitrust claim. A typical residential commission of 5% to 6% of the sale price is split between listing and selling sides per the MLS offer of cooperation.

Worked split: a home sells for $400,000 at a 6% total commission = $24,000. If the listing and selling sides split 50/50, each brokerage earns $12,000 before any internal agent split.

When two brokers claim the same fee, the deciding test is procuring cause - the broker whose continuous, unbroken efforts actually produced the buyer who closed. A broker who merely opened the door but then abandoned the buyer typically loses to the broker who carried the deal to closing.

A broken chain defeats a claim: if the buyer cut off contact with the first agent for weeks, then independently found a second agent who wrote and closed the offer, the second agent is usually the procuring cause. Disputes between MLS members are settled through board arbitration rather than the courts.

Employee vs. Independent Contractor and Trust-Fund Handling

Most salespersons affiliate with a broker as independent contractors, not employees, under a written agreement and the IRS qualified-real-estate-agent test (license held, pay tied to output not hours, written contract stating IC status). The broker still supervises licensed activity even though the agent controls their own schedule. An employee model gives the broker more control but adds payroll-tax and benefit obligations.

Brokers must handle other people's money with care. Earnest money and security deposits go into a designated trust or escrow account, separate from the broker's operating funds. Two prohibited acts recur on the exam: commingling (mixing client funds with business funds) and conversion (using client funds for the broker's own purposes). Conversion is the more serious — it is theft and a common ground for revocation.

A Procuring-Cause Worked Scenario

Two brokers claim one commission. Broker A showed a buyer the home in March, then the buyer went silent for six weeks and stopped returning calls. In May the buyer found Broker B, who re-showed the property, negotiated repairs, and closed the sale.

The deciding question is whose continuous, uninterrupted effort produced the ready, willing, and able buyer who closed. Broker A's chain broke during the six-week silence; Broker B carried the deal from renewed interest through closing. Broker B is the procuring cause and earns the fee. Had Broker A stayed in continuous contact and merely handed off paperwork, the result could flip. Such disputes between MLS members are resolved by board arbitration, not the courts.