Brokerage Responsibility and Agency Management Study Guide for the Real Estate License Exam
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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. Previously, the owner retained the rights to sell the property without the help of that broker, but they would still owe a fee to that broker, regardless of who made the sale. However, due to the August 2024 changes made by the National Association of Realtors (NAR), it is crucial that commission terms are clearly outlined in buyer representation agreements, as buyers may now be directly responsible for paying their agents.
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. With the latest NAR guidelines, buyers are now required to sign a representation agreement with their agent before touring homes. This agreement will outline the agent’s compensation and ensure that both parties are aware of their obligations, further reinforcing the agent’s fiduciary duty to act in the principal’s best interest.
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. As of August 2024, buyers must sign a legally binding representation agreement before any property tours can occur. This agreement specifies the commission arrangement, which the buyer may be responsible for paying directly, reinforcing the exclusivity of the buyer-agent relationship and clarifying compensation structures.
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