In the United States, the relationship was originally established by reference to the English common law of agency , with the broker having a fiduciary relationship with his or her clients. A real estate broker typically receives a payment called a commission for successfully matching a seller's real estate with a buyer such that a sale can be made.
This commission can be divided up with other participating real estate brokers or agents when applicable. An estate agent , which is a term used in the United Kingdom , is a person or business entity whose business is to market real estate on behalf of clients. There are significant differences between the actions, powers, obligations and liabilities of brokers and estate agents in each country.
Other countries take markedly different approaches to the marketing and selling of real property. In the United States, however, real estate brokers and their salespersons who assist owners in marketing, selling, or leasing properties are commonly called "listing brokers" and "listing agents.
Other brokers and agents may focus on representing buyers or tenants. However, licensing as a broker or salesperson authorizes the licensee to represent parties on either side of a transaction. The choice of which side to represent is a business decision for the licensee. Each state has its own laws defining the types of relationships that can exist between clients and real estate licensees, and the duties of real estate licensees to clients and members of the public.
These rules differ substantially from state to state, for example, on subjects that include required documentation, agency relationships, inspections, disclosures, continuing education, and other subjects.
When acting as a buyer's agent , brokers and salespersons assist buyers by helping them purchase property for the lowest available price under the best terms. The real estate broker owes fiduciary duties to whomever that broker services as a client. The broker must ensure to negotiate in the best interest of the client, and at all times keep the client buyer aware of any new information that can help make a solid decision. It is important to have a clear agreement between the broker and the client, for the protection of both of them.
These agreements should and in many U. If the parties only have an oral agreement, it is more likely for a dispute to arise concerning the services the broker or agent is supposed to provide, whether the broker can enforce the parties' compensation agreement, the duration of the relationship, whether the relationship is "exclusive," and other issues.
Enforceability of oral agreements, what kinds of agreements are required to be in writing, and other important issues vary from state to state. If the broker is helping both the buyer and the seller, this is referred to as a "dual agency". Traditionally, the broker represents the seller, and his fiduciary duty is to the seller. If the broker suggests to the buyer that he will help the buyer negotiate the best price, the broker is practicing "undisclosed dual agency," which is unethical and illegal in all states.
A real estate broker owes his client fiduciary duties, which include care, confidentiality, loyalty, obedience, accounting, and disclosure. To protect his license to practice, a real estate broker owes his customer fair and honest dealing and must request that both parties seller and buyer sign a dual agency agreement.
In most jurisdictions in the United States , a person must have a license before they may receive remuneration for services rendered as a real estate broker.
Unlicensed activity is illegal, but buyers and sellers acting as principals in the sale or purchase of real estate are usually not required to be licensed. In some states, lawyers are authorized to handle real estate sales for compensation without being licensed as brokers or agents.
Before the Multiple Listing Service MLS was introduced in , when brokers and their licensees only represented sellers, the term "real estate salesperson" may have been more appropriate than it is today, given the various ways that brokers and licensees now help buyers through the process rather than merely "selling" them a property.
Legally, however, the term "salesperson" is still used in many states to describe a real estate licensee. To become licensed, most states require that an applicant take a minimum number of classroom hours before taking the state licensing exam. Such education is often provided by real estate firms or by education companies, either of which are typically licensed to teach such courses within their respective states.
The courses are designed to prepare the new licensee primarily for the legal aspects of the practice of real estate and to pass the state licensing exam. Once licensed, the licensee in most states is initially designated a salesperson and must work under a broker's license. Some other states have recently eliminated the salesperson's license and instead all licensees in those states automatically earn their broker's license.
A salesperson must place their license under a managing broker. Typically there may be multiple licensees holding broker's licenses within a firm but only one broker or the firm itself, is the managing or principal broker and that individual or firm is then legally responsible for all licenses held under their license. The term agent is not to be confused with salesperson or broker. An agent is simply a licensee that has entered into an agent relationship with a client.
A broker can also be an agent for a client. It is commonly the firm that has the actual legal relationship with the client through one of their sales staff, be they salespersons or brokers.
In all states, the real estate licensee must disclose to prospective buyers and sellers the nature of their relationship  within the transaction and with the parties. In the United States, there are commonly two levels of real estate professionals licensed by the individual states but not by the federal government:. To obtain a real estate license, the candidate must take specific coursework between 40 and hours and pass a state exam on real estate law and practice. To work, salespersons must be associated with and act under the authority of a real estate broker.
In Delaware, for example, the licensing course requires the candidate to take 99 classroom hours in order to qualify to sit for the state and national examination. In Ohio, a license candidate must complete hours of classroom education. Each successive year thereafter, the license holder must participate in continuing education in order to remain abreast of state and national changes.
Many states also have reciprocal agreements with other states, allowing a licensed individual from a qualified state to take the second state's exam without completing the course requirements or, in some cases, take only a state law exam. In addition, some states allow college graduates to apply for a broker's license without years of experience. College graduates fall into this category once they have completed the state-required courses as well. California allows licensed attorneys to become brokers upon passing the broker exam without having to take the requisite courses required of an agent.
Commonly more course work and a broker's state exam on real estate law must be passed. Becoming a branch office manager may or may not require a broker's license. Some states allow licensed attorneys to become real estate brokers without taking any exam. In some states, there are no "salespeople" as all licensees are brokers. Agency relationships in residential real estate transactions involve the legal representation by a real estate broker on behalf of a real estate company of the principal, whether that person s is a buyer or a seller.
The broker and his licensed real estate salespersons salesmen or brokers then become the agents of the principal. Some state Real Estate Commissions - notably Florida's  after and extended in and Colorado's  after with changes in - created the option of having no agency or fiduciary relationship between brokers and sellers or buyers.
Having no more than a facilitator relationship, transaction brokers assist buyers, sellers, or both during the transaction without representing the interests of either party who may then be regarded as customers. The result was that in , Florida created a system where the default brokerage relationship had "all licensees In the case of both Florida  and Colorado,  dual agency and sub-agency where both listing and selling agents represent the seller no longer exist.
The most recent development in the practice of real estate is "designated agency"  which was created to permit individual licensees within the same firm, designated by the principal broker, to act as agents for individual buyers and sellers within the same transaction. In theory therefore, two agents within the same firm act in strict fiduciary roles for their respective clients.
Some states have adopted this practice into their state laws and others have decided this function is inherently problematic, just as was dual agency. The practice was invented and promoted by larger firms to make it possible in theory to handle the entire transaction in house without creating a conflict of interest within the firm. Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.
Many states no longer allow dual agency. Instead, "transaction brokerage" provides the buyer and seller with a limited form of representation but without any fiduciary obligations see Florida law.
Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency , and many states require written Disclosures to be signed by all parties outlining the duties and obligations. Real Estate Services are also called trading services  by some jurisdictions. Since each province's and state's laws may differ, it is generally advised that prospective sellers or buyers consult a licensed real estate professional.
These services are also changing as a variety of real estate trends transform the industry. Upon signing a listing contract with the seller wishing to sell the real estate, the brokerage attempts to earn a commission by finding a buyer for the sellers' property for the highest possible price on the best terms for the seller. In Canada, most provinces' laws require the real estate agent to forward all written offers to the seller for consideration or review.
To help accomplish the goal of finding buyers, a real estate agency commonly does the following: The broker is given the exclusive right to market the property and represents the seller exclusively. This is referred to as seller agency. However, the brokerage also offers to cooperate with other brokers and agrees to allow them to show the property to prospective buyers and offers a share of the total real estate commission.
Exclusive agency allows only the broker the right to sell the property, and no offer of compensation is ever made to another broker. In this case, the property will never be entered into an MLS. Naturally, this limits the exposure of the property to only one agency. The property is available for sale by any real estate professional who can advertise, show, or negotiate the sale. Real estate companies will typically require that a written agreement for an open listing be signed by the seller to ensure payment of a commission if a sale takes place.
Although there can be other ways of doing business, a real estate brokerage usually earns its commission after the real estate broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's real estate is then listed for sale. In most of North America, a listing agreement or contract between broker and seller must include the following:.
Property listings at an agreed-upon net price that the seller wishes to receive with any excess going to the broker as commission. In consideration of the brokerage successfully finding a buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually the payment of a commission to the brokerage is contingent upon finding a buyer for the real estate, the successful negotiation of a purchase contract between the buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller.
In North America, commissions on real estate transactions are negotiable and new services in real estate trends have created ways to negotiate rates. Local real estate sales activity usually dictates the amount of agreed commission. Real estate commission is typically paid by the seller at the closing of the transaction as detailed in the listing agreement. Real estate brokers who work with lenders may not receive any compensation from the lender for referring a residential client to a specific lender.
All lender compensation to a broker must be disclosed to all parties. A commission may also be paid during negotiation of contract base on seller and agent.
With the seller's permission, a lock-box is placed on homes that are occupied, and after arranging an appointment with the homeowner, agents can show the home to prospective buyers. When a property is vacant, a lock-box will generally be placed on the front door.
The listing broker helps arrange showings of the property by various real estate agents from all companies associated with the MLS.More...