Broker Responsibilities and Brokerage Agreements

Real estate practice is built on brokerage relationships, ethical conduct, and clear agreements. This section covers broker responsibilities, listing agreements, buyer representation, and property management basics.

Responsibilities of a Broker

A broker is responsible for supervising agents and ensuring compliance with real estate laws and regulations. Key responsibilities include:

• Practicing within scope of expertise
• Ensuring proper disclosures
• Safeguarding client funds
• Supervising advertising and marketing
• Preventing unauthorized practice of law

Unauthorized practice of law (UPL) occurs when an agent gives legal advice or drafts legal documents beyond the standard forms authorized by the state.

Exam Tip: Agents can explain contract terms but cannot interpret law or give legal advice.

Brokerage Agreements Overview

Brokerage agreements define the relationship between the broker and the principal (seller, buyer, landlord, or tenant). They clarify duties, compensation, and term.

Common agreement types include:

• Listing agreements (seller representation)
• Buyer representation agreements
• Property management agreements

Listing Agreement Types

Table: Listing Agreement Types

The most common listing agreement is exclusive right-to-sell.

Multiple Listing Service (MLS)

The MLS is a cooperative database where brokers share listings and offer compensation to cooperating brokers. The MLS increases exposure and supports accurate market data.

Buyer Representation Agreements

Buyer representation agreements define how a broker represents a buyer. They outline:

• Scope of services
• Duration and geographic area
• Compensation method
• Termination conditions

These agreements reduce confusion and clarify fiduciary duties.

Property Management Agreements

Property management agreements cover leasing and ongoing property operations. Common responsibilities include:

• Accounting for funds and security deposits
• Property maintenance and repairs
• Leasing and tenant screening
• Rent collection and record keeping

Property managers must follow fair housing laws and state trust account rules.

Termination of Agreements

Brokerage agreements typically end by:

• Expiration of the term
• Performance (sale or lease completed)
• Mutual agreement
• Revocation by the principal
• Renunciation by the broker
• Death or incapacity of a party

Services, Fees, and Compensation

Compensation is negotiable and can be paid by the seller, buyer, or both. It may be:

• A percentage of the sale price
• A flat fee
• Hourly or retainer-based

Antitrust laws prohibit brokers from setting standard commission rates across the market.

Applied Scenario: Choosing a Listing Agreement

A seller wants full broker marketing but also wants to sell on their own. The broker explains that an exclusive agency listing allows the seller to sell without paying commission, but it provides less certainty for the broker. The seller chooses an exclusive right-to-sell to maximize broker effort and marketing.

Summary

Brokers supervise agents and handle client funds. Listing agreements define how a broker is paid and who can sell. Buyer representation and property management agreements clarify duties and reduce disputes.

Scope of Expertise and Referral Obligations

Brokers should work only in areas where they are competent. If a client needs advice outside the broker's expertise, the broker should refer the client to a qualified professional. Examples include:

• Legal questions -> attorney
• Tax issues -> CPA or tax advisor
• Structural concerns -> licensed contractor or engineer

This reduces risk and protects the client.

Compensation and Procuring Cause

In many disputes, the question is which broker was the procuring cause of the sale. Procuring cause is the broker whose efforts resulted in the completed transaction. MLS rules and listing agreements often define how compensation is shared.

Property Management: Trust Accounts

Property managers must handle client funds with strict care. Common rules include:

• Separate trust accounts for client funds
• Accurate records and monthly reconciliation
• No commingling of funds

Failure to comply can lead to license discipline or civil liability.

Exam Application Check

If a question asks who can draft legal documents, the answer is the attorney. Agents should only fill in approved forms.

Brokerage Relationships in Practice

Brokerage agreements should clearly define the scope of representation and how compensation is handled. This reduces disputes and ensures compliance with agency disclosure rules. Many brokerages now require buyer representation agreements to clarify duties and avoid implied agency relationships.

Commission Sharing and Cooperation

Cooperating brokers split compensation according to the MLS offer or separate agreements. The buyer does not pay the commission directly unless a buyer agreement specifies it. This is why clear compensation disclosures are important.

Exam Application Check

If a question asks who supervises escrow handling and advertising compliance, the answer is the broker.

Practical Brokerage Pitfalls

Common practice issues include:

• Failing to document agency relationships in writing
• Misleading advertising or omissions
• Handling trust funds improperly
• Providing legal advice beyond the license scope

Agents should use state-approved forms and involve attorneys when legal interpretation is required.

Exam Application Check

• If the broker earns commission no matter who sells, it is exclusive right-to-sell.
• If the seller can sell without commission, it is exclusive agency.
• If multiple brokers compete and only the procuring broker is paid, it is open listing.