Kovats Real Estate School Practice Test

Which party has the authority to dictate the terms of commission payment between a salesperson and a broker?

1. The real estate commission

2. The client

3. The employing broker

4. The salesperson

The correct answer is: The employing broker

The employing broker has the authority to dictate the terms of commission payment between a salesperson and a broker because they are responsible for overseeing the salesperson's activities and ensuring compliance with the relevant laws and regulations. In a typical real estate transaction, the commission structure is established by the broker, who then shares a portion of that commission with the salesperson. The broker’s role includes negotiating commission agreements with salespersons based on the brokerage's policies, market conditions, and the specific arrangement made with each salesperson. Furthermore, the employing broker must comply with state laws governing real estate transactions, which often entail maintaining written agreements regarding commission rates. This hierarchical relationship ensures that the broker, who has a fiduciary relationship with the client, can manage commission distributions effectively while also incentivizing salespersons. Other parties, such as the client or the salesperson, do not have the authority to set these payment terms in the same way. The client typically agrees to the total commission rate offered by the broker but does not dictate the internal arrangements between broker and salesperson. Similarly, while a salesperson may negotiate certain aspects of their compensation, the ultimate authority for establishing the commission rate and structure lies with the employing broker.