A Real Estate Agent Independent Contractor Agreement is a written legal arrangement that outlines the contractual relationship, responsibilities, and benefits between a real estate company or brokerage firm and a real estate agent.
Therefore, the parties involved in an independent contractor agreement for real estate agents are:
- The real estate company/broker
- Real estate agent/sales associate/salesperson
A written real estate independent contractor agreement helps to spell out each party’s legal relationship, expectations, and responsibility. This helps to prevent unnecessary arguments concerning the terms of engagement.
For the sales agent, a written agreement will protect their business interests outside of the current brokerage company.
This type of agreement is unique because it is not an employer-employee relationship despite the fact that the real estate agent will most likely be using the office space and tools of the real estate company.
The agent is rather hired as an independent contractor. Consequently, he has the liberty to conduct his work without the real estate company’s control but is subject to the terms of the agreement between both parties.
Key Promises of a Real Estate Agent Independent Contractor Agreement
A typical real estate agent independent contractor agreement in the real estate industry will often include obligations and rewards.
- License: Although the requirements to become a real estate agent or brokerage firm often vary by state, both parties to a real estate independent contractor agreement usually warrant that they are licensed to carry out their roles.
- The legal status of the parties: A vital element of an independent contractor agreement is the inclusion of the clause that clearly spells out the legal relationship between both parties as between “hirer” and “independent contractor” and not that of an “employee”. This distinction carries enormous implications as it exempts both parties from standard expectations in an employee arrangement.
- Commissions and expenses: The agreement will also detail the percentage of sales commissions earned by either party. It will also contain provisions on handling the running expenses involved in the arrangement, e.g., stationery, office space, etc.
- Fines and fees: This clause outlines the penalties for defaults in either meeting targets within the required time or breaching other non-terminal terms of the agreement.
- Termination of the agreement: Also referred to as an exit clause, this contains provisions on how either the parties or other circumstances can give rise to a termination of the contract.
Essential Procedural Considerations
Before 2020, it was difficult for a real estate company to hire a sales agent or associate as an independent contractor. The implication was that most real estate agents had to be hired as employees and must be given the labor law benefits of an employee and comply with IRS requirements.
However, with the new legal amendments in place, real estate brokerage firms can hire agents as independent contractors.
This means that:
- Agents would be paid based on sales completed (wage per sale).
- Real estate companies could benefit from IRS exemptions arising from the classification of agents as independent contractors.
- Agents could run their services as a professional business and have more control over their input, methods, and output.
Value of License for a Real Estate Salesperson
The procedures for getting a real estate agent’s license in any state help a salesperson to learn the legal and tax pitfalls in the state’s laws. Real estate agency extends beyond securing house deals as agents must be able to advise appropriately on the legal and tax implications of a deal to avoid lawsuits and administrative sanctions.
A real estate agent needs to build their portfolio and reputation within the industry to leverage more favorable independent contractor agreements or to be able to move on almost seamlessly if the arrangement is terminated. For example, you could maintain a personal website, blog, or social media handles to promote your brand.
Wage Per Sale
The ideal situation is that income or commissions for a real estate agent under an independent contractor agreement should be based on the sales made. However, if a sales associate is paid based on the hours worked or some other salary, the relationship will fit in more as an employer-employee relationship.
When wages are based on the hours completed or on a monthly basis, the real estate company may control how those hours are utilized by the sales associate. Where there is some form of compensation for hours worked, it should be less than the total wages paid for sales made in an accounting period.
This implies that real estate agents ought to keep detailed accounting records to keep tabs on the nature of their relationship with the real estate broker.
The ideal deal between a broker and agent should entail commission-based deals and refund of occasional expenses.
Things to Look for When Signing the Agreement
An agreement form may either be filed online, downloaded to be filled, or in some cases, to be edited to fit the context between the salesperson and the real estate company.
Filling an independent contractor agreement can be super-easy by following the steps below:
The official date of the agreement
This indicates when the agreement will take effect. The first statement in the form provides for the exact date both parties intend for the arrangement to have a binding effect.
Details of the hired agent and hiring agency
Next is the agent’s name and residential address and the name of the real estate company, and the address of its principal place of business. These are identified as “The Parties” to the agreement.
Agent’s qualification, expectations, and obligations
Each state has minimum requirements for a real estate agent to practice. Your qualifications should be well outlined, alongside your responsibilities and compensation or commissions. This clause will also contain an express provision that establishes the relationship between the agent and the brokerage company as that of an independent contractor.
Fees and expenses
This section details how your fees will be paid and which party will be responsible for bearing the burden of the different categories of expenses or reimbursement. This part will often include the other roles of the real estate company under the agreement, asides from payment of commissions.
This section reserves the right of both parties, allowing them to terminate the contract before the due date so long as the terminating party issues a notice of this intent a certain number of days ahead of the actual termination. This clause also details the terms of re-payment in case of early termination.
Mailing address, fax, and telephone of both parties
Insert the specific contact details of both parties to show how valid notices can be given to each party under the agreement.
State name and corresponding state law
The next step is to fill in the state where this agreement will be operative according to the defined laws.
Specific addition of any legal terms
Special clauses can be inserted here, such as the mode of termination by either party, penalties on default, or procedures to be taken before completing a deal.
Signatures of both parties
This section is where both parties will legally execute this form by affixing their signatures. The hired agent will be signing personally, and an authorized representative of the brokerage firm or real estate company will sign on behalf of the company.
Copies of the agreement will then be made available to each party for their records.
Use a Real Estate Agent Independent Contractor Agreement Template
An independent contractor agreement template is an organized or preset form that real estate agents can adapt to fit their legal relationship with a real estate company. A template is often more beneficial than drafting a fresh agreement where the relationship is not too complex.
The advantages of using an online template are that:
- It is already fitted with the legal language to protect the interest of the real estate salesperson in a simple contract situation
- It is faster to complete
- It is cheaper to get
- It prevents the users from making unnecessary mistakes
- It is easily adaptable
- There are different downloadable versions
Find tips below on how to fill an online template:
- Get all the information required under the elements in an independent contractor agreement ready before starting the process
- Check out the preview to know if there is any other information you may need or if there is anything to modify in the template
- Initiate the process and fill in the details carefully
- Review all the answers provided to questions required to complete the template
- Download the required versions of the document
Following are some free downloadable templates for you:
Real estate agents who are confident in their creativity and ability to close large real estate deals prefer to work as independent contractors with real estate brokerage firms. The reason is not far-fetched. This kind of relationship promises a potential of ‘hitting it big and making a large income from the commissions previously agreed with the broker than the ‘stable income’ an agent-employee would get on a monthly basis.
It is also profitable for real estate brokers because they keep a lean staff payroll and take advantage of IRS exemptions.
A written independent contractor agreement is a milestone step in establishing in clear terms the conditions of such a relationship and limiting the control of the supervisor from the real estate company over your methods and time. You are now your own boss with the strength of a bigger backup brand, an office space, and the tools necessary to seal the deal.
Frequently Asked Questions
Is a real estate agent eligible for workers’ compensation and other employee benefits under an independent contractor agreement?
Unless there is an element in the actual working relationship between the real estate agent and the brokerage company to suggest that the agent is treated as an employee, an agent under an independent contractor agreement is not entitled to workers’ compensation and other employee benefits.