Agency Law & Real Estate License Law

Brokerage, Broker, and Salesperson

A real estate brokerage business is one which, in an agency relationship and for compensation, sells, leases, or solicits buyers, sellers, tenants, or lessors for real estate owned by others. A real estate brokerage business may be a sole proprietorship (owned and operated by an individual). a corporation, or a partnership. With a few exceptions (see below), anyone who performs any of these brokerage-related activities must be licensed as either a broker or a salesperson.

A real estate broker is one who is licensed to independently operate a real estate brokerage business. A real estate salesperson performs brokerage functions, but must be employed by a licensed broker and may not operate independently. A real estate broker is not required to operate independently; a broker licensee may be employed by another broker just as a salesperson licensee would. A licensed salesperson may not operate or manage a brokerage business, may not hold or control a majority of the stock in a corporation brokerage. A corporation brokerage must be operated by a licensed broker, who is called the broker – officer. In a brokerage partnership, all partners must be licensed brokers.

A licensed salesperson may not operate independently and may not be an owner (full or part) of a real estate brokerage business. The supervisory responsibility of the broker is a serious matter because the broker is liable for anything and everything the salesperson does in the course of the brokerage business. In fact, all agency contracts negotiated by a salesperson are actually contracts between the seller (or buyer) and the broker, and not just between the salesperson and the principal.

A salesperson may not receive any form of compensation for brokerage-related activity except directly from his/her employing broker. The salesperson’s employment agreement with the broker must be in writing. However, the manner in which the salesperson is paid (salary, commission, and how much) is subject to negotiation between the salesperson and broker. These rules also apply to a broker licensee who is employed by another broker.

In any brokerage business, the licenses of all licensees (brokers and salespersons) associated with the business must be available to the public for inspection. They don’t have to be posted in public view, but they have to be readily available upon request.

Real estate brokers also may deal in businesses as well as real estate. For example, a building that houses a shoe store is real estate (building and land) and the business that occupies the real estate is the the shoe retailing business. Business brokerage is called business opportunity brokerage.

Exemption from Licensing

Some people who perform what seems to be real estate brokerage activity do not have to be licensed. The main ones include:

• Anyone buying or selling his or her own real estate
• An attorney-at-law, in the course of his or her duties to clients.
• Anyone who has a properly executed power of attorney allowing him or her to act for a party to a transaction.
• A trustee selling under a deed of trust.
• Anyone acting under an order of any court.
• A trustee, or receiver, in bankruptcy.
• An officer of a corporation performing such functions for the corporation without receiving special compensation (that is, a commission) for doing so.

Other exemptions from licensure include resident managers of apartment buildings and complexes or their employees; short-term (vacation) rental agents; employees of certain lending institutions; employees of real estate brokers for specific, limited functions; lenders making loans guaranteed or insured by an agency of the federal government; certain agricultural associations; licensed personal property brokers; cemetery authorities; certain collectors of payments for lenders or on notes for owners in connection with loans secured directly or collaterally by liens on real property, provided such collectors annually meet exemption criteria; and clerical help.

Obtaining A Real Estate License

Education and experience are necessary to qualify to take the licensing examination, licensing requirements vary by country and state. Examining authorities must make sure that successful licensing applicants have studied the laws and customs of the real estate business and know enough about it to be worthy of public trust. The penalty for acting as a broker or salesperson without a license or holding oneself out by advertising as a broker or salesperson is a fine of up to $10,000 or six months in jail or both. A corporation may be fined up to $50,000.

Even after the license is received, and the education requirements for initial licensure have been met, the law and Claim Farmland Realty requires licensees to receive continuing education.

Record Keeping

Brokers must keep records of all business for at least three years after the business is concluded. For all real estate transactions, this means keeping records for three years after escrow settlement. For trust accounts it means that records of each transaction must be kept for three years after the transaction is concluded. Salesperson’s contracts, notifications, business bank statements, other employee records, etc. must be kept for 3 years as well.

Violations of License Law

It is possible to lose your license, the most common violations of license law are mentioned below. Note that a licensee may appeal any adverse decision by the commissioner to the court system.

MISREPRESENTATION AND FRAUD

All of these practices are misrepresentation or fraud.

• False advertising
• Intentionally misleading someone
• Acting for more than one party to a transaction without the knowledge of all parties.
• Using a trademark or other identifying insignia of a firm or organization (such as the Association of REALTORS) of which one is not a member.
• Salesperson’s pretending to be a broker or to be employed by a broker not his own.
• Not identifying oneself as a licensee in any transaction in which one is also a party.
• Taking kickbacks, referral fees, commissions, placement fees, and so on in association with one’s duties from person who are not one’s principal, and without the principal’s knowledge.
• Guaranteeing future profits
• Offering property on terms other than those authorized by the principal.
• Pretending to represent a principal by whom one is not actually employed
• Failing to identify the broker in all advertising

IMPROPER BUSINESS PRACTICE

• Failing to submit all offers to the principal.
• Attempting to thwart another broker’s exclusive listing.
• Inducing someone to break a contract.
• Failing to put an expiration date in a listing.
• Putting one’s sign on a property without the owner’s permission.
• Failing to post a required bond; failing to keep the bond up to date.
• Blockbusting
• Discrimination

FAILURE TO IMPART REQUIRED INFORMATION

• Failure to leave copies of contracts with all parties involved.
• Failure to deliver a closing statement to all parties entitled to one (if broker is also settlement agent).
• Failure to inform some or all parties of closing costs.

IMPROPER HANDLING OR PAYMENT OF COMMISSIONS

• Paying a commission to an unlicensed person.
• Paying a commission to a licensed not in one’s employ.
• Salesperson’s receiving a commission from anyone other than her employing broker.

AGENCY DISCLOSURE

• Failing to disclose to prospective buyers that broker is agent of the seller.
• Failing to disclose buyer-broker agency to seller or seller’s broker (including when to do so).

OTHER

• Being convicted of certain crimes (felonies, some misdemeanors involving misrepresentation):
• Violating any part of the license law.
• Making false statements on the license application.
• Showing any evidence of “incompetence,” “unworthiness,” “poor character,” and so on.