Chapters 13 & 14: Brokerage
Real Estate Principles: A Value Approach
Ling and Archer
Outline
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Brokerage functions
Agency relationship
RE sale
The economic functions of
brokerage
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Bring buyers and sellers together.
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In real estate needs.
Physically.
Emotionally.
Collect commission for a
successful transaction.
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Usually, percentage of price.
What a broker can add:
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Prices and terms in current market.
Marketing approaches that work.
Legal obligations of buyers and sellers.
Properties in market.
Potential customers and their needs.
Procedures and requirements of
transaction.
Law of agency
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RE brokers and salespersons (agents)
operate under the law of agency.
Under the Law of agency:
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The agents must look out for the best interests
of the principal.
Agents have a fiduciary relationship with their
principals. Duties: disclosure (open and
honest); confidentiality; accounting (keep the
principals informed); obedience to legal and
ethical limits; loyalty; skill and care.
Principals need to be open, honest, and fair.
Brokers vs. salespersons
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RE Broker: an agent who can operate
his/her own brokerage agency.
RE salesperson: an agent who must work
for a broker. This license is earlier to obtain
than broker.
They must be licensed by states to provide
RE estate transaction services for others:
buying, auctioning, renting, selling,
appraising, leasing, exchanging.
Usual requirements for licensing
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Minimum age (18 for both broker and salesperson
in VT), high school diploma (not this in VT), good
reputation.
Pre-licensing education requirement (40 hours in
VT from many providers, e.g., Brokers Institute,
South Burlington).
Pass state licensing exam.
Minimum experience (2 years and 8 transactions for
broker’s license).
The licensing administration authority in VT is:
http://vtprofessionals.org/opr1/real_estate/
Listing contract
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An agency relationship is created between a
seller and a broker (not just with a
salesperson) when both parties agree to a
listing contract.
A contract for services, not for real estate.
Frequently involves subagency through a
multiple listing service (MLS).
Brokers have access to each other’s listings
in a MLS. Thus, all other members are a
member’s subagents.
Buyer agency agreement
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In a buyer agency agreement, a broker
agrees to use his/her best efforts to find
properties meeting the requirements of the
buyer.
Increasingly between buyers and brokers.
When a buyer agent is a member of MLS
and use the MLS to identify a property, the
agent is also a subagent of the listing
(seller) agent. This is a dual agency in
which the buyer agent represents both the
buyer and the seller. Conflict of interests?
Commission splitting
Sale of Property
$100,000
Commission
6.0%
$6,000
Listing Broker Firm
50% of Commission
$3,000
Listing Salesperson
50% of Firm’s Commission*
$1,500
Selling Broker Firm
50% of Commission
$3,000
Selling Salesperson
50% of Firm’s Commission*
$1,500
*These Percentages can vary from 50 percent to 90 percent depending on such factors as the length
of time the sales person has been with the firm and whether he or she is an officer of the firm.
Internet marketing
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Residential
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www.realtor.com
Commercial
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www.costar.com
RE sales: 2-step process
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1. Once the buyer and the seller identify
each other, they first reach an agreement on
the contract for sale.
Contract for sale is the most important
document in RE sales: it specifies the rights
and the type of deed to be delivered by the
seller and, in return, the purchase price.
2. Sometime later, the 2 parties complete
the sale at a meeting called the closing.
Contract for sale
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Determines price and terms of the
transaction.
Defines property interest being conveyed.
Determines the grantee.
Determines other conditions of the
transaction:
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Financing.
Date of occupancy.
Any repairs or other conditions of the sale.
Handling of funds
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Broker normally handles funds for a
transaction.
Broker must put deposits in escrow.
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Escrow account: an account holding
funds dedicated for a particular purpose.
Must be with insured institution or title
company.
At closing, money is disbursed in
accordance with a closing statement.