10. C. Licensees and Responsibilities
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee.
If you perform services that can be controlled by an employer (what will be done and how it will be done), you are an employee.
90% of the income comes from salary or wages.
This applies even if you are given freedom of action.
What matters is that the employer has the legal right to control how the services are performed.
Your earnings as an employee may be subject to FICA (Social Security tax and Medicare) and income tax withholding.
You do not generally have to withhold or pay any taxes on payments to independent contractors.
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
Most real estate professionals operate their business as a sole proprietorship. This means that you are not someone’s employee, you haven’t formed a partnership with anyone, and you have not incorporated your business.
IRS Mandatory Terms for an Independent Contractor
- The individual must be a licensed real estate professional;
- 90% of their payments must be directly related to sales or other output, rather than the number of hours worked; and
- Their services must be performed under a written contract providing that they will not be treated as employees for federal tax purposes.
Licensed real estate agents are statutory nonemployees and are treated as self-employed for all Federal tax purposes, including income and employment taxes.
The independent contractor receives a “1099 misc” from his broker yearly with the amount of commission received from the broker.
It is illegal for a broker to supply health insurance or a retirement plan to an independent contractor.
Due diligence for real estate transactions
Due diligence means taking caution, performing calculations, reviewing documents, procuring insurance, walking the property, etc. — essentially doing your homework for the property.
Laws involving real estate due diligence vary from state to state. Your real estate agent should provide specific information about which legal issues pertain to you and your options if problems arise.
Common Due Diligence Items
- Study the Marketplace
- Visit the Property
- Hire a Building Inspector
- Check Zoning Laws
- Research the Title
- Access the Most Recent Land Survey
- Get an Appraisal
- Schedule an Environmental Assessment
- Figure Out Financing
- Investigate Title Insurance
A duty of an agent to maintain the trusted confidence and secrets of a principal. Neither agent nor non-agent transaction brokers may reveal anything that would weaken the principal’s or client’s position.
Confidentiality is best addressed in the Realtors® Code of Ethics:
Standard of Practice 1-9
The obligation of REALTORS® to preserve confidential information (as defined by state law) provided by their clients in the course of any agency relationship or non-agency relationship recognized by law continues after termination of agency relationships or any non-agency relationships recognized by law. REALTORS® shall not knowingly, during or following the termination of professional relationships with their clients:
- reveal confidential information of clients; or
- use confidential information of clients to the disadvantage of clients; or
- use confidential information of clients for the REALTOR®’s advantage or the advantage of third parties unless:
a) clients consent after full disclosure; or
b) REALTORS® are required by court order; or
c) it is the intention of a client to commit a crime, and the information is necessary to prevent the crime; or
d) it is necessary to defend a REALTOR® or the REALTOR®’s employees or associates against an accusation of wrongful conduct.
A licensed individual Broker has daily duties that include writing contracts and overseeing transactions for sales and purchasing activities on homes, land, and commercial properties.
A broker has attained a higher-level license than a real estate agent and can hire real estate agents to work as a team under their supervision.
A Broker is responsible for the direct supervision of a brokerage firm. A broker is responsible for the real estate activities of his salespeople.
A broker is not responsible for everything his salespeople do in their day-to-day lives.
Desk Cost: An office with a Desk Fee is most likely to be found in a 100% commission office.
Gross income minus all commissions.
(Basically, it’s what’s left over after the agents are paid.)
After finding the Company Dollar, then the bills are paid.
Examples are Century 21, Tarbell, Keller Williams, and Prudential. Members pay a percentage of their earnings to the franchise for the expertise and advertising, and branding.
Franchises like Century 21, Tarbell, and Prudential have Volume Advertising. It is an advantage.
It shall be the duty of the responsible broker to instruct the licensees licensed under that broker in the:
- fundamentals of real estate practice
- ethics of the profession and the Mississippi Real Estate License Law
- exercise supervision of their real estate activities for which a license is required
A real estate broker who operates under the supervision of a responsible broker must not at any time act independently as a broker.
A responsible broker must maintain an office and display the license therein. If the broker has more than one office, the broker shall show a branch office license in each branch office.
The broker is responsible for the real estate practices of those licensees.
Usually, a first year agent should not take a complicated listing . They should ask for help or refer it out to another salesperson to protect the public.
A first-year real estate agent should not take a complicated listing such as a 200-unit apartment complex.
Typically, unlicensed assistants MAY:
- Provide “general” information about listed properties such as location, availability, and address (without any solicitation on behalf of the assistant).
- Perform clerical duties, which may include answering the telephone and forwarding calls.
- Complete and submit listings and changes to a multiple listing service, type contract forms for approval by the licensee and the principal broker, pick-up and deliver paperwork to other brokers and salespersons, obtain status reports on a loan’s progress, assemble closing documents and obtain required public information from governmental entities.
Unlicensed Assistants can refer buyers and sellers to her/his broker. Think about it. They answer the phone and may greet people coming to their office.
A conveyancer is an attorney who assists buyers on how to take title. It is legal advice.
Should we take title as Joint Tenants, or Tenants in Common?
Errors and Omissions Insurance
E and O Insurance will not cover an agent who makes a deliberate falsehood or tries to deceive someone on purpose.
A broker gives every salesperson a 1099 misc so that the salespeople can pay their taxes. It includes the salesperson’s yearly income.
The most significant thing for a notary to do is make sure the person is who they say they are and that the signing is not under duress or undue influence. (Voluntary)
IRS Form 8300
File Form IRS 8300 for cash transfers of $10,000 or over.
The broker must deposit an earnest money deposit into his checking account even if he receives it over the weekend.
A good training program creates a high morale in the brokerage.
The death of an associated broker does not cancel a contract. Associated brokers are broker agents (subagents).
The death of the Responsible Broker kills the deal. Agents can die, and the agreement stills lives.
You are not a REALTOR (Trademarked) until you join the National Association of Realtors. It’s trademarked. The National Association of Realtors subscribes to a Code of Ethics. (Realtists are a parallel organization who also subscribes to a code of ethics.