PRINCIPLES OF REAL ESTATE BROKERAGE
REAL ESTATE BROKERAGE
It is the act or practice of negotiating or offering to
negotiate the sale, purchase, lease, exchange or
mortgage of a real estate property on behalf of
another for or in expectation of a fee or
commission.
I. DEFINITIONS
A. REAL ESTATE BROKER - Any person,
partnership or corporation who, on behalf of a
principal or other persons, and for compensation
or any valuable consideration, performs any or all
of the following acts: sells, buys, leases,
mortgages and exchanges real estate or interests
therein.
B. REAL ESTATE SALESMAN - Any natural
person who is regularly employed by a real estate
broker to perform, on his behalf, any or all of the
functions of a real estate broker for a fee,
compensation or any other valuable
consideration.
C. REAL ESTATE BROKERAGE - The act, practice
or calling whereby a natural or juridical person, on
behalf of another and for a compensation or any
valuable consideration, performs any or all of the
following acts: sells, buys, leases, mortgages and
exchanges real estate or interests therein.
D. REALTOR - A licensed real estate broker who
is a regular member in good standing of an estate
board which is duly affiliated with the Philippine
Association of REALTORS® Boards, Inc. (PAREB)
E. REAL ESTATE DEALER - Any person, natural or
juridical, who is engaged in the trade of selling,
buying, or leasing his own real properties or
interests therein, using his own funds and with the
purpose of realizing profit.
F. REAL ESTATE- A term, which is synonymous to
REAL PROPERTY, which refers to the land, all the
buildings and improvements thereon, and also all
the rights, interests and obligations therein.
II. DISTINCTIONS
A. REAL ESTATE BROKER FROM A REAL
ESTATE DEALER
1. As to nature of functions
a) A real estate broker performs his acts on behalf
of another while a real estate dealer performs the
same acts on his own behalf.
b) A real estate broker is an agent while a real
estate dealer is a principal.
2. As to income
A real estate broker receives a fee for his services
while a real estate dealer enjoys a gain or profit in
his transactions.
3. As to license
A real estate broker is required to secure a license
from the Bureau of Trade Regulation and
Consumer Protection (BTRCP) which a real estate
dealer is not.
B. REAL ESTATE BROKER FROM REAL ESTATE
SALESMAN
1. A partnership or a corporation may be licensed
as a broker while only a natural person may be
licensed as a salesman.
2. For licensing purposes, a broker is required to
pass a written examination while a salesman is not
so required...
2. A broker is required to file a bond while a
salesman is not, as he deemed covered by the
bond of his broker-employer. (Exception: P.D. 957)
3. A broker is an independent entity subject only
to government regulations while a salesman does
not have such independence. A salesman has to
work under a broker and acts only on behalf of
his employer. The principal assumes no direct
liability for the actions of the salesman.
C. REAL ESTATE AS PROFESSION FROM REAL
ESTATE AS BUSINESS
1. Real Estate as a profession refers to the
rendition of service by a practitioner, for and on
behalf of another, to sell, lease, mortgage,
exchange, appraise, advice on real estate matters,
for a fee or other valuable consideration. The
practitioner does not have any proprietary
interest on the real property involved, neither E. Highest qualities of salesmanship
does he use his own funds in the process."
V. RELATIONSHIP BETWEEN PRINCIPAL AND
2. Real Estate as a business refers to the trade of BROKER
buying, selling, leasing, financing, developing real
A. Rights of the parties
properties by a real estate dealer with the use of
his own funds and with a primary view of making 1. Principal
profit in the process.
a) To have full knowledge of all facts and
III. ESSENTIAL ELEMENTS OF BROKERAGE circumstances affecting the transaction; b) Unless
it is an exclusive right to sell contract, the
A. Employment of the broker as an agent - A
principal has the right to negotiate and close the
broker acts on behalf of his principal without
deal himself without being under any obligation
being entitled to the possession of the property
to pay commission to the broker;
which is the subject of the transaction.
c) In the case of an open listing, the principal has
B. Functions to be performed by the broker must
the right to employ other brokers;
be specific.
d) To accept the offer he deems best suited to his
C. Services rendered - The broker must be the
needs.
procuring cause and instrumental in effecting the
meeting of the minds of the parties in the 2. Broker
transaction during the period of
a) To receive compensation for services rendered;
agency.
b) To be informed of facts concerning the
D. The services rendered by the broker are for a property listed with him; c) To be given ample
fee, commission or any other valuable time to complete the negotiations;
consideration.
d) To be treated in good faith by the principal.
IV. ESSENTIAL ATTRIBUTES OF A REAL ESTATE
B. Duties and responsibilities of the parties
BROKER
1. Principal
A. Honesty and Integrity
a) To duly compensate the broker for his services;
B. Familiarity with the localities where the broker
expects to operate or specialize in, and with the b) To give the broker a reasonable period of time
property he undertakes to sell. within which to perform his duties. The principal
cannot revoke with impunity the broker's
C. Working knowledge of:
authority when the broker's negotiations are
1. Land economics already approaching success, so as to deprive the
agent of his commission.
2. Real estate market
To act in good faith;
3. Legal provisions affecting real estate
d) To reimburse the broker for expenses incurred
4. Reading ordinary maps and plans
at the request of the principal and which are
5. Financing practices in real estate transactions beyond the ordinary expenses of the broker in his
regular duties;
6. Basic features of land and building construction
e) To indemnify the broker for any damages he
7. Working knowledge of government offices
may suffer through no fault of his own in the
concerned in real estate
lawful performance of the principal's instructions.
D. Tact and diplomacy
2. Broker
a) To be absolutely loyal to the principal;
b) To employ skill and care in the performance of
his duties. The broker must be
the procuring cause of the sale;
c) To inform the principal of all facts relevant to
the transaction;
d) To account for all the money entrusted to him;
e) To protect the interests of his principal;
f) To act within the scope of authority given to
him by the principal; g) To carry out all the duties
he is expected to perform.
C. Liabilities of the parties
1. Principal
Liable for all the acts of his agents which are
executed within the scope of his authority. The
mismanagement of the principal's business by the
agent does not relieve the principal from liability
to third persons in the absence of any limitation
upon the principal's liability as may be expressed
in the written contract.
2. Broker
Liable for any violation of the provisions of the
law on Agency and non- performance of the
duties prescribed in the agency contract.
VI. BROKER'S COMMISSION
A. When Broker is entitled to commission -
1. For a broker to be entitled to commission, he
must find a buyer who will actually buy the
property on the terms and conditions imposed
and/or accepted by the owner.
2. The broker is entitled to commission if the sale
is made to a buyer procured by his sub-agent or
cooperating broker.
3. If the sale made to a buyer has been referred to
the broker by the owner, the broker is entitled to
commission for services rendered.
4. Where there is no mention of the commission
due to the broker and his services were engaged
and subsequently a sale is made to buyer
procured by the broker, the rate of commission
may be determined by established business
practice on the premise that the broker is deemed
to be in business and expects to be compensated
for services rendered.
5. Where the property sold by the owner directly
to a buyer who has earlier been registered in
writing by the broker during the continuance of
the agency contract contains a holdover clause.
B. When Commission is Lie
1. In real estate transactions, commission is due
upon the perfection of the contract, that is, when
acceptance in writing is made by the
owner/offeree, with or without the formal
execution of a deed. The usual conditions which
the broker must show are:
a) That his services were contracted by the person
from whom he seeks payment, b) That his effort is
the procuring cause of the sale;
c) That his effort is responsible for bringing about
the deal under the terms and conditions of his
principal;
d) That he was able to find a buyer who is ready,
willing and able;
e) That the transaction is a completed one, that is,
an offer in writing is accepted by the
owner/offeree;
f) That he acted in good faith;
C. Who Pays the Commission
1. Generally, the owner/seller who contracted the
service of the broker in promoting the sale of his
property is bound for payment of commission.
2. Where the services of the broker are engaged
by the buyer for the former to look for and
negotiate the purchase of a particular property,
the buyer pays the commission.
VII. PITFALLS IN BROKERAGE
A 1. After the broker has worked on putting
together the papers, data, and other
presentations including stirring up interest in the
property, the owner finds fault with certain
conditions in the brokerage agreement because:
a) the owner says new values unfolded by the
broker on the property and decides not to sell y
b) with the new perspective on the property
discovered by the broker, the owner has found a
"direct buyer."
c) after the preparation for listing is completed in
excellent presentation with the facilities of a well-
established broker, the owner finds another agent
who will naturally be able to handle the sales
negotiations for less commission.
2. After the broker has listed and worked on
prospective buyers, the owner connives with one
of them to effect a "direct sale" and thereby
eliminates the broker by:
a) waiting for the expiry date of the agency; and if
b) effecting the sale after the original period of
agency to a relative or "dummy" of a buyer whose
name was duly reported by the broker to the
owner.
3. After consummating the sale it is found out
that there are previous legal attachments or liens
on the proceeds of the sale effected before the
broker could collect his commission. Moreover, he
is under obligation to pay or has in fact paid the
share of cooperating brokers and/or salesman in
addition to the usual and other expenses and
advances.
4. After the broker has worked on the property or
found a buyer, it turned out that there were
undisclosed defects by squatters or burdened
with some physical encumbrances.
5. Effect on the Broker
a) Loss of investment in the prospective
transaction by way of expenses;
b) Loss of expected income;
c) Waste of time;
d) Loss of prestige in attending in the brokerage
business and profession.
B. On the part of the Client or Dealer
1. There are times whom representations on the
property conditions of the transactions or the
negotiations by the agent are incomplete,
inaccurate or incorrect. This usually happens when
the agent turns out to the unlicensed or only on
the basis or "paper qualifications". Sometimes the
agent is an inexperienced amateur with
inadequate or totally without the necessary
knowledge and training. There is also a situation
wherein service facilities, office or place or
business is lacking. In view of these pitfalls, an
investment made by or transaction ma le in behalf
of dealer in such cases may result in:
a) the property acquired being not as valuable as
the purchaser was led to believe;
b) There were disclosed or owner's rights,
contractor's liens, inadequately explained liens or
encumbrances and co-owner's rights, tenants or
occupant’s rights, etc. which resulted in costly
delays, including litigations.
2. Properties sold by the dealer who invited all
agents on Open (no exclusive) listings or so-called
"First Come First Served" basis, are covered with
conflicting claims on commission by two or more
agents who "contracted" the buyer.
3. Sudden changes in economic conditions, shifts
in development trends adversely affect use,
income or value of some properties the dealer has
invested in.
4. Sudden changes in government policy
particularly as to community development and
financing adversely affect real estate dealer's
investment and investment purposes.
AGENCY AND REAL ESTATE BROKERAGE
AGENCY, defined - it is a contract wherein a
person binds himself to render some service or to
do something in representation of or on behalf of
another, with the consent or authority of the latter.