Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What type of agreement is a commission agreement between a broker and a property owner?

1. Implied contract

2. Full agreement

3. Bilateral contract

4. Conditional agreement

The correct answer is: Bilateral contract

A commission agreement between a broker and a property owner is classified as a bilateral contract because it involves a mutual exchange of promises between two parties. In this context, the broker agrees to provide services to sell or lease the property, while the property owner promises to pay a specified commission upon successful completion of those services. In a bilateral contract, both parties have obligations: the seller is obligated to pay the commission, and the broker is obligated to act in good faith and perform the duties outlined in the agreement. This mutual exchange of obligations is what defines it as bilateral, differentiating it from other types of contracts such as unilateral contracts, where one party holds the obligation while the other does not. The other choices have specific meanings that do not apply to the commission agreement in this scenario. An implied contract involves assumptions made by the parties based on their conduct rather than explicit terms. A full agreement typically refers to a situation where all terms have been clearly and completely established, which is not the nature of a commission agreement. A conditional agreement entails actions that depend on specific conditions being met, which is not the case in a straightforward commission agreement between a broker and a property owner.