When you go to work as an affiliate of a real estate firm, AMP does not use the term -agent-. AMP utilizes the term -operative.- You will be an operative of the managing broker for the firm. All real estate activities must be carried out in the name of the firm and the managing broker. The reason for this is that the managing broker is responsible for your actions.
Internal Revenue Service Code
According to the in-house IRS code, you will be deemed an independent contractor. To attain this independent contractor status you must meet three requirements:
Trust (Escrow) Accounts
Money of clients that is handled by the real estate firm must be put into a client trust account. This would include earnest money checks and security deposits of tenants under property management. This trust account is also known on the AMP exam as an escrow account or an impound account. State regulations require these trust accounts to be established to hold client money only.
If a firm or managing broker puts any other form of compensation into the client-s trust account, it is known as co-mingling. If a managing broker spends client money from the client account to pay for business expenses this is known as embezzlement and embezzlement is illegal.
Complete and Accurate Records
All business transactions of the managing broker and firm must be kept on file for a State prescribed period of time. For the State of Washington it is three years. Any prescribed client paperwork that the managing broker handles must be kept on file. This can include purchase and sale agreements, deeds, title searches, title insurance policies, homeowner-s insurance policies, surveys, inspection certificates, appraisals, and warranties or guarantees of heating, electrical, or plumbing services.
Real Estate Regulatory Agencies
The State has specific requirements that need to be maintained. These requirements must be available during normal business hours for State inspection on a walk-in basis. They include:
Your Firm's Policies and Procedures
A firm should establish its policies and procedures to provide a clear understanding of the relationship between sales associates and the managing broker. This is commonly referred to as the -rules of the game-. The object is to resolve many controversies and problems before they arise. It is also to provide a framework and atmosphere in which people can work together and succeed.
Each firm should have a procedures manual that outlines the standards of conduct regarding practicing real estate, advertising and promotion, compensation, cooperative sales with outside brokers, escrow procedures, for duty, interoffice exchange of clients, open houses, screening prospects, signs, and termination of an associate.
There will be disputes that arise between an agent and the firm or between two affiliated agents within the office. Most disputes involve commission splits and should be resolved as quickly as possible. A fast way to handle a dispute is to review the agent-s employment agreement with the firm.
When neither of these areas are effective then the local Board of Realtors will often times handle arbitration cases and mediate between its members. If there is a dispute between real estate firms settlement can certainly be accomplished through the court system.
When principles cannot agree on parts of a transaction, they will turn to their agents for knowledge and expertise. The principal should use their agents every step of the way to avoid ambiguities and misunderstandings.
Market Trends and Financing
Real estate professionals should be aware of national and international economic factors that affect the real estate market. Agents should keep tabs on the Federal Reserve regarding the lowering or raising of the discount rate that impacts the buyer's qualifications.
Many agents specialize in specific niches of the industry such as first-time homebuyers, new homes, senior housing, and specific neighborhoods. When specializing in a neighborhood it is important for the agent to be aware of the school system, shopping, types of industry in the area, recreation, houses of worship, and transportation as well as many other pertinent aspects that define the area.
Even though agents are not lenders they should know the basic loan qualification requirements of lenders in the area and advise buyers to become pre-qualified and obtain their free annual credit report.
Training by Your Firm
One of the main advantages of going to work with an established firm is the real estate training that they provide. There can be formal classroom instruction, on-the-job training, as well as the weekly sales meetings. The success of a real estate firm depends on the skill and knowledge of its sales force. The minimum amount of training that a firm should provide would include the following:
Salesmanship - How to prospect for sellers and buyers, handling an open house, how to utilize lock box keys, proper use of yard signage, making a listing presentation, and developing a contact data base.
Customer Support - Developing communications skills with clients and customers, follow through and follow up procedures, telephone communication, negotiating contracts for your client, showing properties, and writing an offer.
Law of Agency - Understanding State regulatory laws, ethical standards of practice, proper completion of listings/ sales/purchase (sales contract) agreements, and creating a competitive market analysis.
Managing Broker SupervisionIt is the responsibility of the managing broker to supervise all licensees under his/her control. This also includes all sales staff employees. They should all be familiar with Federal, state, and local fair housing laws, as well as regulatory conduct of their licensees.
Some managing brokers hire professionals to review listing and sales contracts drawn by their affiliate licensee's. Remember, the managing broker is still totally responsible. The managing broker must make sure the agency disclosure forms and property disclosure forms are handled properly with the public. The managing broker's license may be suspended or revoked because of an agent-s illegal or inappropriate actions.
If the managing broker loses his/her license, all of the licensee's affiliated with that managing broker are immediately suspended. The licensee's would need to associate themselves with another managing broker to retain their license.
In addition improper actions on the part of a broker or managing broker they may be disciplinary action by the real estate division, as well as civil action (court action) by the injured client or customer.
Commission from Real Estate SalesCommissions within the real estate profession are negotiated. If the firms and/or licensees try to fix commissions it is considered anti-trust activity by the Federal government and State government. It doesn't matter whether the firm is a franchise or a local firm.
When commission is paid by the managing broker to a cooperating managing broker that sold the property, all commission checks are made out to the managing brokers. The managing brokers, in turn, will then pay the affiliated broker his/her share of commission. The broker can only receive commission from the firm or managing broker he/she is affiliated with.
Distribution of CommissionsAll commissions to affiliated brokers must be paid by the managing broker. If a client wishes to pay a bonus to the broker, the client must send the bonus payable to the managing broker. The managing broker can then pay the bonus to the affiliated broker.
Seller Agency Relationship - A listing agreement should state that the seller is responsible for the payment of commission regardless of where any payments for proceeds are paid due to the sale. Some States have laws under which the managing broker may place a lien on property for payment of commission. This is known as the managing broker lien law.
Buyer Agency Relationship - When establishing a buyer agency relationship by contract, it should state who is responsible for paying a commission to the buyer's agent. Typically, the seller ends up paying all the commission that is due to buyer-s agent. However, if the seller is a For Sale by Owner (F.S.B.O.), the seller will not be paying a commission. Under the buyer-s agreement the buyer would then have to pay a commission to the buyer's agent.
Commission Eligibility - To earn a commission an agent must be licensed at the time of transaction, have an employment contract with their principal (listing agreement or buyers agent agreement), and be the procuring cause of the sale.
Office Accounting ProcedureBusiness Account - Trust/escrow accounts are only allowed to have client money within them. Therefore, the firm and managing broker-s funds shall be placed in a business account. The commissions that are paid from the sales by affiliates are placed into the business account. The firm-s expenses are paid from the business account. Expenses would include rent, staff salaries and benefits, telephone, equipment rental, and advertising.
Property Management - For firms involved in managing client properties, each owner client will need to have their own -operating funds- for managing their property. The managing broker/property manager will need available cash to maintain and repair the owner's property as well as run credit checks and screen prospected tenants.
Monthly Reports - The managing broker must provide an owner with a monthly statement showing the receipt and disbursement of funds involved with his/her property. Since these funds are client funds, the managing broker/property manager must have a client/escrow account handling the owner-s funds and expenses. These property management trust accounts are subject to the same State regulations in that the regulatory authority can come in and check these accounts on a walk-in basis. Mismanagement of client/escrow accounts can cause disciplinary action on the part of the real estate division.
IRS Form 8300Federal Government - The acceptance of cash payments in excess of $10,000 is subject to the Patriot Act of the Federal government. Utilization of high amounts of cash on the part of the public are an alert for criminal and terrorist activities. Therefore, the Federal government requires the utilization of IRS Form 8300 for receiving cash of $10,000 or more. The $10,000 figure is considered related even if they occur over more than a 24 hour period. If the recipient knows of a series of payments in excess of $10,000, Form 8300 must be filled out, sent to the IRS, and kept for five years
Identity - Form 8300 requires the identity of the individual or individuals from whom the cash was received. It must also include the person on whose behalf the transaction was conducted, a description of the transaction, and the business that receive the cash. The form must be filed with the IRS by the 15th day after the date the cash was received. If the 15th day is on the weekend or holiday it must be filed on the next business day.
Penalties - If Form 8300 is not filed properly penalties can be imposed for:
Maximum Penalty - $250,000 for individuals and $500,000 for corporations or both. In addition, imprisonment for up to five years is possible.
The study of system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.