Brokerage Responsibility and Agency Management Study Guide for the Real Estate License Exam

General Information

On your exam, you will need to know how brokers and salespeople work together, split and share responsibilities, and get paid. While your state’s laws may vary somewhat, these relationships remain the same throughout the USA.

Parties and Duties

In any real estate transaction, there are delegated parties who hold certain responsibilities, which are legally referred to as duties. The parties will be representing differing interests in a property.

Principal

The principal can either be the buyer or the seller of a piece of property. Principals are not legally obligated to hire a real estate agent to represent them, but usually, they do, in order to obtain the professional expertise that an agent can provide.

Agent

An agent is responsible for representing a principal when buying or selling a piece of property. The agent takes on a fiduciary role, meaning that legally and ethically they must protect the principal’s interests above all other interests—including the agent’s owner interests—for the duration of their relationship.

Other Job Terms

A real estate broker is a licensed person who fulfills a certain list of duties (such as presenting an offer as soon as possible, negotiating sales, leases and exchanges,) which vary by state. A salesperson can perform these same activities, generally on behalf of a client, but only under the supervision of a broker.

Agency Contracts

A real estate agency must have agency contracts, which are legally binding documents that list what properties are for sale or lease and which agents are allowed to sell or lease them. These contracts are called listings, and an agent who signs a listing receives specific rights and limitations in representing that property.

Open Listing

In this listing, a seller does not sign any exclusive contracts with real estate agents or brokers. This means that any agent or broker is allowed to represent that property and will take a pre-agreed upon commission when the property does sell.

Exclusive Agency

In this listing, a seller hires one broker to exclusively represent the sale of their property. If the owner sells the property without the help of that broker, no fees are owed to the broker.

Exclusive-Right-to-Sell

In this listing, a seller hires exclusively one broker to represent the sale of their property. While the owner retains the rights to sell the property without the help of that broker, they will owe a fee to that broker, regardless of who makes the sale.

Option Listing

An option listing gives a prospective buyer—including the listing agent or broker—the option but not the obligation to purchase the property within a specific time period at a predetermined price. When an option is agreed to between buyer and seller the property must be removed from the market.

Net Listing

In this listing, the owner sets a price for his or her property and a broker sets a higher price, keeping the difference as the sales commission. Net listings are illegal in most states due to the inherent conflict of interest. In states where it is legal, the agent must make clear in writing what their maximum earnings will be before the sale occurs.

Agency Relationship

When representing a buyer or seller, landlord or tenant, real estate agents and brokers take on a fiduciary role. This means they legally and ethically must protect the principal’s interests above all other interests for the duration of their relationship, including their own interests. Here are the most common types of relationships between the principal and an agent or broker.

Traditional Agency

Traditional agency is when an agent represents the seller and not the buyer. In this case, the seller is the principal (client) and the buyer is the customer. This is the most common arrangement for agency representation.

Buyer Agency

Buyer agency is when an agent represents the buyer instead of the seller. In this case, the buyer is the principal (client) and the seller is the customer. The existence and legality of buyer agency varies from state to state, so check your local laws.

Agency Disclosure

A broker or agent must clearly identify whose interests they will be representing for the duration of an agency contract. This will be put in writing so that it is legally binding.

Specific Relationships

There are numerous types of relationships that a buyer or seller may have with an agent. This is a list of them and what they signify.

Single Agency

When an agent represents either the buyer or the seller of a piece of property, this is called single agency. In this case, the buyer or seller will be the client of that agent, and the person who is not the client is the third party, who the agent does not represent.

Dual Agency

When an agent represents both the buyer and the seller, this is called dual agency. As long as the agent discloses to all parties that the agent is representing both sides and receives informed written consent from all parties, then dual agency is legal in most states. Check your local laws.

Transaction Brokerage

When a buyer or seller does not wish to engage with an agent for the sale of a property, they can acquire transaction brokerage. A transaction broker acts as a neutral third party and helps both buyer and seller complete the sale and purchase. Rather than paying a percentage of sales a fee to an agent, the buyer or seller of a property will pay a flat fee for this service.

No Brokerage

When a seller of a piece of property represents the property themselves, they opt for no brokerage. While this will save them from paying a listing broker fee upon sale of the property, the buyer’s agent may still request a sales commission from the seller.

Buyer Brokerage

Buyer brokerage is when a buyer enlists the exclusive services of a real estate agent to represent the buyer only. Normally, under a buyer brokerage agreement, the real estate agent can not act as a dual agent or sell a property that the agent has listed to the buyer the agent is representing.