Brokerage Agreements, Compensation, and Settlement Review

Flashcards covering real estate brokerage agreements, agency relationships, types of listings, commission calculations, settlement procedures, and RESPA regulations.

How is a real estate broker generally defined?

One who is licensed to represent another person in a real estate transaction with the intent to receive compensation or valuable consideration.

What are the three specific contracts used by sellers, buyers, and landlords to secure brokerage services?

Sellers use a listing agreement, buyers use a buyer agency agreement (also called a buyer representation or buyer brokerage agreement), and landlords use a property management agreement.

What are the general requirements for brokerage agreements regarding signatures and duration?

They must be in writing, signed by all parties, and generally must include a specific termination date.

What is an exclusive right to sell listing agreement?

A bilateral contract giving the broker the exclusive right to represent the seller, where the broker is compensated regardless of who produces a purchaser.

How does an exclusive agency agreement differ from an exclusive right to sell?

Under an exclusive agency agreement, the listing broker is compensated only if they or someone other than the seller finds the buyer during the listing term.

What is an open listing?

A nonexclusive listing where a seller contracts with multiple brokers, and only the broker who procures a buyer earns a commission.

Why are net listings illegal or discouraged in many states?

They can lead to fraud charges if a licensee suggests a price below market value to increase their own commission, which consists of any amount above the seller's stipulated net.

What is the difference between an exclusive buyer agency agreement and an exclusive agency buyer agency agreement?

In an exclusive buyer agency agreement, the broker earns the fee even if the buyer finds the property themselves; in an exclusive agency buyer agency agreement, the broker earns the fee only if they find the suitable property.

What is a nonexclusive buyer agency agreement?

Also called an open buyer agency agreement, it allows a buyer to enter into multiple agreements and only owe commission to the broker who introduces them to the purchased property.

According to the IRS, what three criteria must a real estate salesperson meet to be treated as an independent contractor?

They must be actively licensed, compensated for results rather than hours worked, and have a written independent contractor agreement with their broker.

What regulates the setting of commission rates between brokers and clients?

Commission rates are negotiated; setting uniform rates is a violation of federal antitrust laws.

When is a broker considered to have earned a commission under most listing agreements?

Once a ready, willing, and able buyer has submitted an offer and the seller agrees to it, even if the sale never closes.

How is commission calculated if the commission rate and sales price are known?

$$Commission = Commission\,Rate \times Sales\,Price$$

How is the commission rate calculated if the commission and sales price are known?

$$Commission\,Rate = \frac{Commission}{Sales\,Price}$$

What is a broker protection clause (extender clause)?

A clause requiring a commission to be paid for a certain period if the property is sold after the brokerage agreement expires.

What are the two common ways a real estate closing can be held?

In escrow (handled by a neutral third party) or as a roundtable closing (with all parties present).

What is the purpose of a settlement statement?

It is a balance sheet that itemizes all expenses, costs, and charges paid by the buyer and seller to close the transaction.

In real estate settlement, what is the difference between a debit and a credit?

A debit is a sum of money owed or to be paid to another party; a credit is a sum of money already paid, paid by a third party, or to be reimbursed.

How is the loan amount treated on a buyer's settlement statement?

The loan amount is a credit to the buyer.

What is proration in the context of a real estate transaction?

The adjustment of expenses between the buyer and seller in proportion to their actual use of the item.

What is the difference between accrued and prepaid expenses?

Accrued expenses are costs incurred but not yet paid (e.g., ad valorem property tax); prepaid expenses are items the seller has already paid for but will not use (e.g., HOA fees).

What are the two common calendar bases used for calculating prorations?

A 360-day year (twelve $30$-day months) or a 365-day year.

What transactions are covered by the Real Estate Settlement Procedures Act (RESPA)?

The purchase of a one- to four-family house financed by a federally related mortgage loan.

What specific practices does RESPA prohibit?

Kickbacks, unearned fees, and requiring a home buyer to use a particular title insurance company as a condition of sale.

What is the timing requirement for the TRID Closing Disclosure under RESPA?

Lenders must ensure the borrower receives it at least three business days prior to closing.