Which represents lawful brokerage firm practice?
Audio Lesson
Duration: 2:33
Question & Answer
Review the question and all answer choices
Keeping $250 of firm money in client trust account
Removing earned commission after 60 days
Removing earned commission after 60 days violates California's prompt payment requirements. Commissions must be paid promptly upon collection, not held arbitrarily. This creates unnecessary risk to the agent's compensation and potential liability for the brokerage firm.
Supervising independent contractor licensees as employees
Supervising independent contractors as employees misclassifies their status, violating labor laws and potentially exposing the firm to penalties, back taxes, and liability. Independent contractors have specific legal status that differs from employees.
Steering
Steering is illegal under fair housing laws as it involves directing buyers or renters to or from certain neighborhoods based on protected characteristics. This constitutes discrimination and violates California's Unruh Civil Rights Act.
Deep Analysis
AI-powered in-depth explanation of this concept
Understanding lawful brokerage firm practices is fundamental to real estate licensing as it forms the ethical and legal foundation of the profession. This question tests knowledge of California's real estate regulations, specifically focusing on trust account handling, commission timing, independent contractor supervision, and fair housing principles. The correct answer involves trust account procedures, which are strictly regulated to protect client funds. When analyzing each option, we must consider California's Bureau of Real Estate (BRE) requirements. Option A is lawful as it represents proper handling of trust funds. Option B violates commission payment timing rules. Option C misclassifies independent contractors, which has significant legal implications. Option D constitutes illegal steering, a fair housing violation. This question challenges students to distinguish between permissible and impermissible brokerage practices while understanding the regulatory framework that governs them.
Knowledge Background
Essential context and foundational knowledge
Real estate brokerages must maintain strict financial controls to protect client funds. In California, the Bureau of Real Estate requires brokerages to maintain trust accounts for holding client money, such as deposits and earnest money. These accounts must be separate from the firm's operating funds and follow specific handling procedures. Brokerages can lawfully retain a portion of firm money in the trust account for operational expenses as long as it complies with regulations. This practice ensures proper financial management while maintaining transparency and protection for clients.
F.I.R.M. Funds - Keep client money separate, Immediate - Pay commissions promptly, Respect - Classify workers correctly, Moral - Avoid steering practices
Remember F.I.R.M. when evaluating brokerage practices. Each letter represents a key principle: proper Funds handling, Immediate commission payment, proper worker Respect (classification), and Moral business practices.
When questions ask about 'lawful brokerage practice,' immediately consider trust account rules, fair housing requirements, and proper classification of workers. Trust accounts are often the most regulated aspect of brokerage operations.
Real World Application
How this concept applies in actual real estate practice
Imagine a new agent receives a $1,000 earnest money deposit from a buyer. The broker places this in the trust account as required. Later, the agent earns a $5,000 commission on the transaction. The broker may legally retain $250 from the commission as a split, keeping the $250 in the trust account while paying the agent $4,750 promptly. The broker cannot wait 60 days to pay the agent, cannot classify the agent as an employee to avoid payroll taxes, and cannot steer buyers away from certain neighborhoods based on demographics.
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