Unit 5

Question 1

What is the main difference between an employee and an independent contractor?

Answer 1

The main difference between the two is an issue of control, as established by income tax laws.

Question 2

What are the three common-law categories that determine the level of control an employer has?

Answer 2

Behavioral
Financial
Type of relationship

Question 3

What are the conditions of the IRS safe harbor test?

Answer 3

The person must be a properly licensed real estate agent.
Gross income from all output must be based on production and not on hours worked.
A written agreement must exist between the independent contractor and the broker stating that the contractor will not be treated as an employee for income tax purposes.

Question 4

Due to the potential for broker responsibility for a licensee’s actions, what do many brokers require their licensees to carry?

Answer 4

Automobile liability insurance in high amounts, naming the broker as an insured on the policy.
Errors and omissions insurance, covering the broker and salespersons for negligent acts.

Question 5

What are three important questions to ask when negotiating a contract?

Answer 5

What are the start-up costs?
Who pays the expenses?
What is the commission schedule?

Question 6

What are the consequences to the broker if an IRS audit reveals that a contractor is actually an employee?

Answer 6

The broker will be liable for state and federal unemployment insurance premiums, workers’ compensation, and disability insurance. The broker will also have to withhold federal and state taxes, including Social Security taxes. In addition, the broker could incur stiff tax penalties as a result of the incorrect classification.

Question 7

What five topics must be included in every written agreement with an employee or independent contractor?

Answer 7

Supervision
Duties
Compensation
Duration
Termination

Question 8

Why should an independent contractor keep expense records?

Answer 8

These records are particularly important as documentation for the licensee’s tax return. Also, depending on the written agreement the licensee has with the broker, they may need specific expense records and receipts for reimbursement of some of those expenses.

Question 9

What kind of training do new salespersons need?

Answer 9

Training in the management systems and philosophy of the brokerage company

Question 10

What kind of training is best for small firms?

Answer 10

One-on-one, on-the-job training

Question 11

What types of information might the policy manual contain about advertising?

Answer 11

Who writes the ads? Who places ads? Who pays for ads? What media is authorized for use in the brokerage? Is there training on telemarketing solicitation?

Question 12

What types of information might the policy manual contain about open houses?

Answer 12

What are the procedures for licensees holding open houses? What are the rules regarding open house signs and directional signs? What are the safety policies regarding how to keep the licensees safe and how to protect the homeowners’ possessions during an open house?

Question 13

How can a broker choose to pay their licensees?

Answer 13

The broker can choose to pay the salesperson a salary or a percentage share of the commission from the transaction.

Question 14

What is a 100 percent commission plan?

Answer 14

The agent pays a monthly fee to the company to cover the costs of things like office space, telephones, office equipment and supervision. In return, the agent receives 100% of the commission from any sales they negotiate.

Question 15

What is the compensation for a licensee who sells one of their own listings?

Answer 15

If a licensee lists and sells a property, they will receive a share of both the listing and selling side commissions.

Question 16

Jack sells one of his own $225,000 listings for $220,000. The commission is 7%. Jack has an 80% commission split with his broker. What is Jack’s share of the commission? What is his broker’s share?

Answer 16

Commission = $15,400 ($220,000 x .07)
Jack’s share = $12,320 ($15,400 x .80)
Broker’s share = $3,080 ($15,400 - $12,320)

Question 17

Under what type of compensation plan is the agent responsible for the costs of advertising and promotion?

Answer 17

100% plan

Question 18

Who is responsible to ensure that all agents in a brokerage are properly licensed?

Answer 18

The broker

Question 19

The policy and procedures manual should include

Answer 19

The firm’s commission policy.

Question 20

Agent Betty started with ABC Realty making a 1.5% commission on all listings sold. Within 6 months she will be eligible for a 2% commission. What type of program is Agent Betty on?

Answer 20

Graduated

Question 21

What is the term given to assigned office duty?

Answer 21

Floor Time

Question 22

Which of these statements is TRUE?
Salesperson Harry can solicit his own listings.
Salesperson Julie can receive her commission from the cooperating broker in her latest transaction.
Salespersons must perform all of their activities on behalf of their employing broker.
Broker Tom has only limited responsibility for the actions of his licensees.

Answer 22

Salespersons must perform all of their activities on behalf of their employing broker.

Question 23

If a licensee joins a company as an independent contractor, which of these will they probably have to pay for on their own?

Answer 23

Health insurance

Question 24

Agent Mary sold a listing for another brokerage. Agent Mary is entitled to a

Answer 24

Selling side commission.

Question 25

Gladys sells another broker’s $300,000 listing for $290,000 at a commission rate of 6%. She has a 60% commission split with her broker. If there is also a 50% brokerage split, what commission will Gladys receive?

Answer 25

$5,220

Question 26

Work agreements must be

Answer 26

Dated and signed by the parties.

Question 27

In a company’s policy and procedures manual, where would you find information regarding acceptable business standards and practices?

Answer 27

Code of Ethics

Question 28

Which of the following is NOT a responsibility that brokers have to their licensees?

Answer 28

Provide and pay for networking opportunities to allow licensee to make business contacts.

Question 29

Which of the following must a broker legally provide to an employee?

Answer 29

Unemployment insurance

Question 30

Agent Norm just started working for Sunshine Realty. He was required to pay an initial fee of $120 for training and $50 for business cards. The $170 is usually referred to as what?

Answer 30

Start-up Costs

Question 31

What is the payment program, when an agent starts out at a lower percentage payment but then graduates to higher percentage rates?

Answer 31

Graduated