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Real Estate Salesperson Exam (National Portion): Brokerage Agreements and Risk Management Concepts

Importance ★★★★☆ · 70% (estimate)

Overview

This chapter covers how brokerages work day to day: the types of listing agreements, handling other people's money, staying within the license, and federal rules that create risk for licensees.

Under an exclusive right-to-sell listing, the broker is paid if the property sells during the term, no matter who finds the buyer. Under an exclusive agency listing, the owner may sell alone without paying. An open listing pays only the broker who brings the buyer, and a net listing creates a conflict of interest and is banned or limited in many states. Earnest money goes into the broker's escrow or trust account; mixing it with personal funds is commingling.

Licensees must not give legal advice or draft legal documents. Federal antitrust law bars competing brokers from fixing commission rates, allocating markets, or boycotting a competitor. Before cold calling, check the Do Not Call lists. A broker may be liable for a salesperson's acts within the scope of the work, so supervision and E&O insurance matter. For federal tax purposes, a licensed salesperson is a statutory nonemployee when substantially all pay is based on sales, not hours, and a written contract says they will not be treated as an employee for federal taxes.

Key concepts

  • Exclusive right-to-sell

    A listing in which the broker earns a commission if the property sells during the term, whoever finds the buyer.

    Memory tipMost common listing

  • Exclusive agency

    A listing with one broker in which the owner keeps the right to sell alone without paying a commission.

    Memory tipOwner sells alone = no commission

  • Net listing

    A listing in which the broker keeps everything above the seller's stated net amount; a conflict of interest.

    Memory tipOften illegal

  • Commingling

    Mixing money that belongs to others with the licensee's own funds.

    Memory tipSpending it = conversion

  • Price fixing

    Competing brokers agreeing on commission rates, a violation of federal antitrust law.

    Memory tipCommissions are always negotiable.

  • Vicarious liability

    A broker's responsibility for the acts of licensees done within the scope of their work.

    Memory tipWhy brokers supervise

Often tested

  • Refer legal questions to an attorney to avoid the unauthorized practice of law.
  • E&O insurance covers negligent mistakes, not intentional fraud.
  • Check the Do Not Call lists before cold calling.

3 sample questions

Verified practice questions from this unit.

Practice questionReviewedReal Estate Practice › Brokerage Agreements and Risk Management★★★★☆

Question 1. Which listing gives the broker a commission no matter who sells the property, even the owner?

  1. ① Exclusive right-to-sell listing
  2. ② Net listing
  3. ③ Exclusive agency listing
  4. ④ Open listing
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ① Exclusive right-to-sell listing

Key point: Exclusive right-to-sell = commission whoever sells

In an exclusive right-to-sell listing, the broker earns the commission if the property sells during the term, even if the owner finds the buyer. It is the most common listing type.

Wrong choices

  • Exclusive agency listing: Under exclusive agency, the owner owes no commission if the owner sells it alone.
  • Open listing: An open listing pays only the broker who brings the buyer.
  • Net listing: A net listing describes how the commission is figured, not who earns it.
Practice questionReviewedReal Estate Practice › Brokerage Agreements and Risk Management★★★★☆

Question 2. A licensee deposits a buyer's earnest money check in the licensee's personal checking account. This is called:

  1. ① Commingling
  2. ② Conversion
  3. ③ Steering
  4. ④ Puffing
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ① Commingling

Key point: Mixing client funds with own funds = commingling

Commingling is mixing money that belongs to others with the licensee's own money. Earnest money must go into the broker's escrow (trust) account as state law requires. Spending it is conversion, which is even more serious.

Wrong choices

  • Conversion: Conversion is using the client's money for personal purposes; this question describes mixing.
  • Steering: Steering is a fair housing violation.
  • Puffing: Puffing is exaggerated sales talk.
Practice questionReviewedReal Estate Practice › Brokerage Agreements and Risk Management★★★★☆

Question 3. Two competing brokerages in a town agree to charge the same commission rate. This is a violation of:

  1. ① Fair housing laws
  2. ② The Statute of Frauds
  3. ③ Antitrust laws (price fixing)
  4. ④ RESPA
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ③ Antitrust laws (price fixing)

Key point: Competing brokers agreeing on rates = price fixing

Under federal antitrust law (Sherman Act), competing brokers may not agree on commission rates (price fixing), divide markets (market allocation), or agree to boycott another broker (group boycott). Commissions are always negotiable between broker and client.

Wrong choices

  • Fair housing laws: Fair housing laws concern discrimination.
  • RESPA: RESPA concerns settlement services and kickbacks.
  • The Statute of Frauds: The Statute of Frauds requires certain contracts to be in writing.
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