From whom does a licensee receive compensation in Tennessee?
Audio Lesson
Duration: 2:50
Question & Answer
Review the question and all answer choices
The buyer
Buyers may provide funds that ultimately compensate the brokerage, but compensation does not come directly from the buyer to the individual licensee. Funds flow through the principal broker who then distributes compensation according to their agreement with the licensee.
The seller
While sellers typically pay commission, the funds do not go directly to the individual licensee. The seller pays the brokerage, and the principal broker then distributes compensation to the licensees who worked on the transaction.
Themselves
Licensees cannot pay themselves directly as this would bypass the required supervision and accounting procedures established by the Tennessee Real Estate Commission. All compensation must flow through the principal broker.
The principal broker
Why is this correct?
In Tennessee, licensees must receive compensation through their principal broker because the broker holds the license and is legally responsible for all transactions and activities. This structure ensures proper supervision, accounting, and compliance with state regulations.
Deep Analysis
AI-powered in-depth explanation of this concept
Understanding compensation structures in real estate is fundamental to practicing legally and ethically. This question addresses a core concept in agency relationships - the flow of funds and the broker-licensee relationship. In Tennessee, as in most states, real estate licensees operate under the supervision of a principal broker who holds the actual license. Compensation flows through this hierarchical structure because the principal broker is legally responsible for all transactions and activities of their licensees. The question tests whether students understand this chain of responsibility and compensation. Many students incorrectly assume compensation comes directly from clients (buyers or sellers) or that licensees can pay themselves directly. This misconception can lead to serious legal violations including practicing without proper supervision or mishandling funds. The question is easy once you grasp this fundamental brokerage structure, but it's a concept that underpins many more complex real estate transactions and regulations.
Knowledge Background
Essential context and foundational knowledge
In Tennessee, real estate licensees work under the authority of a principal broker who holds the active license with the Tennessee Real Estate Commission. This broker-licensee relationship creates a legal and financial chain where all compensation must flow through the principal broker. This structure exists to ensure proper supervision, prevent unauthorized practice of real estate, and maintain accountability for commission handling. The principal broker is ultimately responsible for all activities of their licensees and must ensure compliance with state laws and regulations.
Think of the principal broker as a restaurant owner and the licensee as a server. The restaurant owner receives payment from customers, then pays the server according to their agreement. The server doesn't accept payment directly from customers.
Visualize the broker as the central hub with all compensation flowing through them, not directly from clients to individual licensees.
Remember: 'Broker in the middle' - compensation always flows through the principal broker who holds the license and bears ultimate responsibility.
Real World Application
How this concept applies in actual real estate practice
Sarah, a new licensee in Tennessee, helps a buyer purchase a home. The buyer offers $250,000 with a 3% commission to be split between buyer and seller agents. After closing, Sarah's principal broker receives $7,500 from the seller's side. The broker then pays Sarah $3,750 (her 50% split) minus her 20% broker commission. Sarah cannot collect directly from the buyer or seller, nor can she pay herself before the broker distributes funds according to their office policy and agreement.
More Practice of Real Estate Episodes
Continue learning with related audio lessons
Is commingling legal in Colorado?
2:25 • 0 plays
Maximum from Maryland Guarantee Fund per transaction is:
2:38 • 0 plays
In Colorado the amount a broker may charge for commission is:
2:36 • 0 plays
Montana has license reciprocity with:
2:33 • 0 plays
How long must real estate brokers keep records in Minnesota?
2:33 • 0 plays
Ready to Ace Your Real Estate Exam?
Access 2,499+ free podcast episodes covering all 11 exam topics.