BROKER

BROKER

An individual or firm employed by others to plan and organize sales or negotiate contracts for a commission.

A broker’s function is to arrange contracts for property in which he or she has no personal
interest, possession, or concern. The broker is an intermediary or negotiator in the contracting of any type of bargain, acting as an agent for parties who wish to buy or sell stocks, bonds, real or PERSONAL PROPERTY, commodities, or services.
Rules applicable to agency are generally relevant to most transactions involving brokers. The client is considered the principal and the broker acts as the client’s agent. An agent’s powers generally extend beyond those of a broker. A distinguishing feature between an agent and a broker is that a broker acts as a middleperson. When a broker arranges a sale, he or she is an agent of both parties.
In order to determine whether or not an
individual is acting as a broker in a transaction,
the type of services that are performed must be
examined.
Types of Brokers
There are several kinds of brokers, each of
whom deals in specific types of transactions.
A bill-and-note broker negotiates the buying
and selling of bills of exchange and promissory
notes.
A commercial or merchandise broker is an
individual who works with buyers and sellers by
negotiating between them in the buying and
selling of goods, without having personal custody
of the property.He or she offers services on
a commission basis to manufacturers as a sales
representative for their product. Such a broker
has no control or possession of the product that
is sent directly to the buyer; he or she merely acts
as a middleperson in all transactions.
An insurance broker acts as an intermediary
between the insurer and the insured and is distinguishable
from an insurance agent. While an
insurance agent is employed by, and represents,
a particular insurance company, an insurance
broker is a representative of the insured only. An
insurance agent is bound by company rules and
responsibilities, whereas an insurance broker’s
only duty is to aid a client. He or she owes no
obligation to any company.
Real estate brokers or agents are hired to
transact the buying and selling, lease, or rental of
real property on a commission basis. They can
also be involved with the purchase and sale of
lands, and the acquisition of mortgages for others.
They may also counsel and advise people
who wish to buy or sell real estate.
Stockbrokers buy and sell shares in corporations
and deal in corporation stock and in other
SECURITIES. A stockbroker’s functions are generally
broader than those of other brokers. As
more than a mere negotiator, he or she makes a
purchase in his or her own name and ordinarily
pays the purchase price. A stockbroker is often
responsible for the possession of the securities
with which he or she deals. Conversely, an ordinary
broker neither has title to, nor possession
of, property that is being purchased or sold. As
stockbrokers serve in a greater capacity, their
responsibilities also extend beyond those of
ordinary brokers.
Regulation and Conduct of Business
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.
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.
Future Roles of Brokers
Technology affected the roles of practically
all types of brokers. Probably the most significant
developments have been related to communications,
as new technologies have allowed
brokers to communicate with their clients in a
variety of means, thus enhancing the ability of
the brokers to serve their clients’ interests. Some
changes were different methods in day-to-day
communications, such as the common use of EMAIL
and fax machines. The rise in INTERNET
usage in the 1990s also caused a number of
changes, as registered brokers began to serve as
online customer service representatives for
prospective buyers. Economic problems in the
early 2000s slowed the development of the role
of the broker, but as new technologies continue
to develop, the role of the broker was expected
to continue to evolve.
FURTHER READINGS
Hazen, Thomas Lee. 2003. Broker-Dealer Regulation in a
Nutshell. St. Paul,Minn.:West.
Waller, Mark L. 1999. Selecting and Working with a Broker.
College Station: Texas Agricultural Extension Center.
CROSS-REFERENCES
Contracts; Fraud; Insured; Insurer; License; Principal; Securities.