The client of the employing broker
Brokers are in a distinctly different managerial category from sales agents. Brokers are authorized to offer, contract for and render brokerage services to members of the public for compensation, called licensed activities. Sales agents, who include salespersons and broker associates employed by the broker, are not. [Calif. Business and Professions Code §10131]
A sales agent, when providing real estate services, is always limited to the status of an agent who is working on behalf of and dependent on their employing broker. An agent rendering real estate services cannot independently contract in their own name or on behalf of anyone other than their employing broker. Thus, an agent performing real estate services cannot be employed by any person who is a member of the public. [Bus & P C §10160]
Only when acting as a representative — an agent — of their broker may the sales agent perform brokerage services. Only a broker is authorized to independently contract for and provide services to others, called clients. [Grand v. Griesinger (1958) 160 CA2d 397]
Further, a sales agent can only receive compensation — fees — for their real estate related services from their employing broker. An agent providing real estate services cannot receive compensation directly from anyone else, e.g., the seller or buyer, another broker or agent, or another provider of services in a transaction. [Bus & P C §10137]
Thus, it is brokers who are the agents employed by members of the public to act on their behalf. A broker’s sales agents are agents of the agent. Sales agents render services on behalf of the broker’s clients, and do so as their broker’s representative. [Calif. Civil Code §2079.13(b)]
As a result, brokers are responsible for all the activities of their agents performed within the course and scope of their employment with the broker. [Gipson v. Davis Realty Company (1963) 215 CA2d 190]
In turn, a broker who employs a sales agent to act on their behalf is to continuously exercise reasonable supervision over their agent’s activities. The broker who does not actively supervise their agents subjects their license to California Bureau of Real Estate (CalBRE) review on a complaint by another licensee or member of the public. [Bus & P C §10177(h)]
Related articles:
Brokerage Reminder: Keeping offers a secret is a BRE violation
Supervisory obligation
The employing broker’s responsibility to the public includes:
- on-the-job training for the agent in the procedures and practice of real estate; and
- continuous policing by the broker of the agent’s compliance with the duties owed to buyers and sellers.
The sales agent’s duties owed to the broker’s clients and others in a transaction are equivalent to the duties owed to clients by the employing broker. [CC §2079.13(b)]
The duties a broker owes to the various parties in a transaction which are imposed on the sales agent include:
- the utmost care, integrity, honesty and loyalty in dealings with a client; and
- the use of skill, care, honesty, fair dealing and good faith in dealings with all parties to a transaction in the disclosure of information which affects the value and desirability of the property involved. [CC §2079.16]
An employing broker ensures their agents diligently comply with the duties owed to clients and others by establishing office policies, procedures, rules and systems relating to:
- soliciting and obtaining buyer and seller listings;
- negotiating real estate transactions of all types;
- the documentation arising out of licensed activities which might affect the rights and obligations of any party, such as agreements, disclosures, reports and authorizations prepared or received by the agent;
- the filing, maintenance and storage of all documents affecting the rights of the parties;
- the handling and safekeeping of trust funds received by the agent for deposit, retention or transmission to others;
- advertisements, such as flyers, brochures, press releases, multiple listing service (MLS) postings, etc.;
- agent compliance with all federal and state laws relating to unlawful discrimination; and
- the receipt of regular periodic reports from agents on their performance of activities within the course and scope of their employment. [California Bureau of Real Estate Regulations §2725]
An employing broker implements the need for supervision by developing a business model. With it, the broker establishes the means and manner by which listings are produced and serviced, and how purchase agreements, leases or mortgages are negotiated and dealt with by their agents. The development of a business plan logically starts with an analysis of the conduct required of an agent based on established categories of administrative and licensed activities.
Categories of administrative and licensed activities include:
- administrative rules, covering a description of the general business operations of the brokerage office, such as office routines, phone management, sign usage, budgetary allocations for agent-support activities (advertising, farming, etc.), agent interviews, goal setting and daily work schedules;
- procedural rules, encompassing the means and methods to be used by agents to obtain measurable results (listings, sales, leases, mortgages, etc.);
- substantive rules, focusing on the documentation needed when producing listings, negotiating sales, leases or mortgages and fulfilling the duties owed by the broker to clients and others;
- compliance checks, consisting of periodic (weekly) and event-driven reports (a listing or sale) to be prepared by the agent, and the review of files and performance schedules by the broker, office manager or assistants, such as listing or transaction coordinators; and
- supervisory oversight, an ongoing and continuous process of updating agents and managing their activities which fall within the course and scope of their employment.
The deceptive “independent contractor” title
Brokers typically negotiate fee sharing arrangements with agents they employ using an independent contractor (IC) agreement to document the employment. Alternatively, brokers may choose other pay and tax withholding arrangements documented by an employee agreement form. Either way, they are CalBRE compliant. The basic difference is an IC agreement, in contrast with an employee agreement form, is used to avoid income tax withholding and employer contributions by real estate brokers. [See RPI Forms 505 and 506]
Regardless of the labels given to these agent employment agreements, an agent is always an employee under California’s labor law. Thus, the broker is liable as an employer for their agent’s wrongful conduct. An agent may not permissibly act independently of the broker just because they enter into an IC agreement. More particularly, the broker employing agents using an IC agreement still owes a duty of supervision to the CalBRE (as well as a mandated worker’s compensation policy). [See RPI Form 506]
Related articles:
The agent’s employment agreement – essential for an employing broker
Brokerage Reminder: Workers’ comp insurance coverage for the broker’s agents
Both types of employment agreements include a provision calling for the agent to deliver to the broker a binder for liability insurance on the agent’s car naming the broker as an insured party. Employment agreements also require all documents and funds received on listings and sales to be entered into and taken in the name of the broker, and all advertising and business cards to identify the agent as acting for the broker as an associate licensee.
Further, the agent is subject to supervision by their broker since employing brokers are mandated to actively manage their brokerage business. This CalBRE mandated supervision cannot be contracted away by an IC agreement. Thus, a broker may not permit their agents to have total discretion in their handling of listings or negotiating sales, leases or mortgages.
