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

Commission

Commission is a fee paid to agents and brokers upon a successful sale of a piece of property.

The Process of Earning Commission

Brokers get paid when they have fulfilled all of their contractual obligations and have successfully helped someone buy, sell, or lease a piece of property. Usually, the broker will be paid by the seller of the property, regardless of whether the broker is representing the seller or the buyer.

Broker Requirements

For brokers to earn their commission, they must legally fulfill three requirements. First, they must engage in honest and fair dealing, where they have accounted for all funds in the transaction. Second, they must practice reasonable care, so as not to compromise their client’s interests. Third, they must disclose anything required by their state (possibly including defects, fraud, etc.)

Contract Termination

Generally, a contract will end upon completing the terms of agreement, where the client is satisfied and the broker gets paid. But there are many reasons for which a contract can be terminated, some by agreement and some by law, as follows:

Death— In the case of death, either member of the agency agreement voids the contract with no fees to be paid (except that a broker can collect some costs for things such as advertising an estate).

Incompetence— In the case of declaration of incompetence, either member of the agency agreement voids the contract with no fees to be paid (except that a broker can collect some costs such as those for advertising an estate).

Bankruptcy— If either party declares bankruptcy, the agreement is voided, with no fees owed.

Property destruction— If the property being sold is destroyed, or significantly altered, then it will no longer be for sale and will void the contract.

Contract performance— When the agent has performed his or her duties under contract, and all has gone according to plan, the sale goes through and the agent is paid.

Contract expiration— Contracts have a duration written into them (typically 6 months), the expiry of which will terminate the contract and result in no fees being paid.

Mutual agreement— If both parties agree to end the contract early, then it will be voided with no fees to be paid (unless agreed upon in writing).

Broker resignation— f the contract allows, the broker may unilaterally resign from - or terminate - the contract. An agent resigning from the agency will have no effect on the contract because the contract belongs to the broker not the agent.

Discharge of broker— If the contract allows, the principal may unilaterally discharge—or fire—the broker and unilaterally terminate the contract. Contracts that allow the principal to discharge the broker may or may not require the broker to be paid for its services rendered.

State Laws

You will need to know your state’s licensing laws in detail in order to pass your exam. Regulations for your state should be accessible on your state’s real estate commissioner’s website. Pay special attention to the following categories since laws vary by state:

Terms Used

You would think that terms such as real estate and broker would have standard definitions across the U.S., but there are fine differences in things such as a broker’s defined function in different states. Be sure you know how your state defines these.

Agency Relationships

You’ve learned about the different kinds of agency relationships, but do you know which ones are allowed in your state? Some states totally disallow certain agency types and others allow them, with certain restrictions. You’ll need to know agency regulations where you live and work.

License Law Exemptions

Generally, other than the principal representing itself, an individual completing a real estate transaction must be licensed. Check your state guidelines for exemptions and exclusions to this rule. For instance: attorneys may be exempt from needing a real estate license in your state.

Law Administration

The people who can revoke a real estate license in your area may differ. Check to see how laws involving administration differ for your state, and how the law is governed and enforced.

Licensing Requirements

How many times per year is the Real Estate exam offered? What are the regulations and fees for the exam in your state? Check to see if you are allowed to obtain a Real Estate license in your state if you are a convicted felon.

Losing a License

There may be fines or fees, and possible time served in jail or prison, for violating license law. Check your state laws to see if violations are felonies or misdemeanors and what the possible punishments are for breaking the law.

If a complaint is filed against you, it would be good to know what your rights are. Additionally, check your local laws to see if you are able to re-apply for a real estate license if you have lost one due to a violation of license law.

The Revocation Process

See what the differences are in the process and timeline for having your Real Estate license revoked, including what fees and possible legal complications are involved.

Trust Money

A broker may be responsible for depositing all earnest money in an account. Check your local laws to see what a broker’s responsibility is regarding how money is handled and where it is allocated. Additionally, find out if a broker is allowed to put this money in an interest-earning account or not.

Nonresident Licenses

A non-resident may be able to use a real estate license from another state, or obtain a real estate license in any given state and do business there, even as a non-resident. Check local laws to see how residency is governed.

Real Estate Recovery Fund

Your state may or may not have a real estate recovery fund. It is important to know if yours does, and if so, what regulations involve you in the process.

Real Estate School Regulation

You may be required to have completed at least a certain number of classroom hours in real estate instruction before you are able to take your licensing exam. Additionally, you may be required to hold a high school or college degree. You may also be required to maintain a certain number of classroom hours in particular subject matter as continuing education after you have already passed your exam. Again, check local regulations.

Penalties

Fines and fees vary by state regarding violations of licensing law. These specifics may be on your exam so be aware of how your state differs. There may be fees for moving offices, late renewals on licenses, or a lost/stolen/damaged license.

Other State-Specific Provisions

It may be illegal in your state to use a seller’s power of attorney to circumvent license law. Also check local laws regarding net listings, to see if they are legal in your state.