Broker

The business or occupation of a broker may be regulated by the state under its POLICE POWER. A MUNICIPAL CORPORATION has the power to regulate brokers who function within its boundaries if authority to do so is granted by the state.

In order for a broker to engage in business, he or she is generally required to acquire a license and pay a fee. Brokers who conduct business without a license can be fined by state licensing authorities. In some states it is illegal for any person other than a licensed broker to be paid for services concerning real estate transactions.

Laws exist that impose a license tax on brokers. Within the meaning of such laws, any individual who regularly works as a middleperson or negotiates business transactions for the benefit of others is ordinarily considered a broker. It has been held by a federal court that a statute requiring brokers to obtain a license was only applicable to those people regularly employed as brokers. An individual only casually involved in brokerage through the arrangement of only a few sales would not be considered to be engaged in the business of brokerage.

Revocation of License The state's concerns regarding brokers extend beyond initial licensing to the establishment of conditions for the maintenance of a license. The state may provide for the revocation or suspension of brokers' licenses for reasonable grounds.

The power to revoke a license may be vested in a specially designated commission that exists primarily to hear complaints about the fraudulent practices of brokers. Such proceedings are ordinarily informal, and technical court rules generally are not observed.

During a hearing, the commission is presented with evidence relating to the broker's conduct and must consider whether such conduct warrants denial of the privilege to engage freely in business.

Grounds for revocation of a license are generally based upon FRAUD, dishonesty, incompetence, or bad faith in dealing with the public. A real estate broker's license may be revoked or suspended because of MISREPRESENTATION used to effect a purchase or sale. Generally, the conduct of a broker in negotiating a real estate transaction on behalf of his or her principal is subject to strict fraud and deceit standards, equal to those imposed on his or her principal. It has been held by some courts that the failure of a broker to disclose material facts within his or her knowledge will create liability. Within the meaning of fraud is the pretense of knowledge on the part of the broker while executing a real estate transaction where no knowledge actually exists—for example, while selling a house a broker states that there are no concealed defects in the house, although he or she does not actually know if such defects exist.

A real estate broker's license may be suspended or revoked if duties are performed unlawfully. In addition, a broker's license can be revoked or suspended if a broker is guilty of RACIAL DISCRIMINATION in the selling and leasing of property.

Stockbrokers may be liable for various unethical activities, such as churning, which is the unnecessary trading of stocks to gain additional commissions. A CONSUMER PROTECTION organization, the Securities Investor Protection Corporation (SIPC), has been established by Congress to aid customers of securities concerns that go out of business.

Bonds State regulations usually require that brokers, especially those engaged in the real estate business, deliver a bond to insure faithful performance of their duties. The liability of the surety guaranteeing such a bond extends only to transactions that arise during the normal course of the broker's business and that are intended to be included in the bond.

Commissions A broker is ordinarily compensated for services by the payment of a commission, based upon a portion of the value of the property in a particular transaction.

Generally, a commission is earned when negotiations between a buyer and seller are completed, and an agreement is reached. It is customary for a broker to deduct and reserve the amount of commission from funds obtained by him or her for a client. The ordinary basis for the calculation of a percentage commission is the total sale price of whatever is sold.

In order for a broker to be entitled to a commission, a sale must be completed for which the broker has been employed.

The broker's right to a commission is not dependent upon the finalization of the transaction unless otherwise agreed upon by the broker and by his or her client.

The compensation of a broker is based upon procurement of a client who is willing and able to purchase. The specific terms of the transaction must be satisfactory to the broker's client.

A broker, such as this man buying and selling stocks on the New York Stock Exchange trading floor, acts as an intermediary in the contracting of any type of bargain.
AP/WIDE WORLD PHOTOS

Of paramount importance is the prospective buyer's ability to provide the required funds at the suitable time. A broker who has properly performed his or her duties should not be denied a commission due to a failure by the parties to consummate the deal.

In the absence of any agreement to be employed by a client, a broker is not to be compensated for voluntary services. Similarly, compensation is not due a broker when a sale is made by an owner after the broker-client relationship has been terminated. A common type of termination is the expiration of a real estate listing. This rule against the payment of a commission is absolute—regardless of whether or not the sale is made to an individual whom the broker initially produced—provided the broker was given ample opportunity to complete the transaction and failed to do so. Once a broker has earned his or her commission, a client may not terminate the relationship and complete the transaction himself or herself in order to avoid paying the broker.

Any fraudulent misrepresentations or evidence of bad faith on the part of the broker will defeat his or her right to a commission. Mere NEGLIGENCE in the execution of duties, in the absence of bad faith, does not automatically defeat a broker's right to compensation.