Limited Activities Available to Unaffiliated Brokers

What activities can a full broker engage in if the broker leaves a brokerage firm office and chooses to work alone from home without being designated as a broker-in-charge? The short answer is: very few. Assuming the license is active, permissible activities are limited primarily to:

  • receiving referral fees from another broker or brokerage company,
  • selling, buying or leasing property for himself or herself,
  • representing someone as a buyer or tenant broker so long as the broker did not actively solicit the business.  This most often occurs when the buyer/tenant is a relative or friend.

Pursuant to Commission Rule A.0110(a), a broker who chooses to function as a sole proprietor, but wishes to avoid acting as a broker-in-charge cannot:

  • solicit business. advertise or otherwise promote his/her services,
  • list properties (which inherently requires promotion),
  • have other licensees affiliated with the broker’s sole proprietorship,
  • be responsible for holding any monies that must be deposited into a trust account.

Note that only sole proprietorships qualify for this exemption: a broker who chooses to receive income from referrals through his or her one-person licensed limited liability company or corporation must still have a broker-in-charge.

A broker-in-charge or affiliated full broker who leaves a firm to set up a sole proprietorship, for example by working from home in his or her own name, should notify the Commission in writing upon the  severance of the affiliation.  Such a broker may remain on active status at his or her home address without a broker-in-charge so long as the broker timely renews his or her license prior to June 30 and completes 8 hours of continuing education (including the mandatory Update course) by June 10 each year.  On the other hand, provisional brokers must always have a broker-in-charge in order to be on active status — timely license renewal and continuing education is not sufficient so long as the license remains provisional. This means that a provisional broker cannot work from home as a sole proprietor.

Consider the following scenarios for an unaffiliated full broker with an active license but no broker-in-charge:

A)  The broker is asked by her sister to list her sister’s house for sale.  Typically, brokers find it necessary to advertise whenever they represent a property owner, in order to attract a buyer or tenant.  As a listing agent, the broker also may be called upon to hold any earnest money deposit. Thus, to take this listing, the broker must do any one of the following:

declare herself broker-in-charge of her sole proprietorship; or

create an entity, obtain a firm license and be broker-in-charge of her entity; or

refer the listing to another company and receive a referral fee; or

affiliate with a company/office if the broker wished to actively participate as an agent in the transaction.

B)  The broker wants to represent herself in purchasing property and receive a portion of the commission.  In this case, the broker does not need to have an active license to request and receive consideration because she is a party in the transaction (in this case, the buyer). As a party in the transaction, the buyer/broker is not engaged in brokerage, because she is not representing others. As such, she does not need a license to be paid.  It is up to the listing company to decide whether it will share compensation with this buyer.

A common activity of brokers on active status who are not affiliated with an office and who choose not to declare themselves broker-in-charge is to refer parties to other licensees in exchange for a referral fee.  As always, the broker making the referral must disclose to the prospect that the broker will earn a fee for the referral. It is recommended when negotiating referral fees that brokers put the terms of the referral agreement in writing. And, if the broker promotes his or her services as a referral agent by handing out business cards or maintaining a website soliciting consumers, then he or she must be a broker-in-charge.

On rare occasions, an unaffiliated non-BIC on active status acting as a sole proprietor may also act as a buyer agent.  This is permissible IF the buyer client was not solicited in any way by the broker, and the broker does not handle any trust money in the transaction. Typically, the buyer will be a family member or friend who knows the broker has a license and who initiates contact with the broker.  In this case, the broker is rendering brokerage services and must comply with all Real Estate License Law and Commission rules including maintaining transaction files, making appropriate agency disclosure and having a written agency agreement.

Practicing as a sole proprietor can sometimes be a challenge.  But, a full broker (whose license is not provisional) does not have to affiliate with another broker to maintain his or her license on active status. The broker must simply timely renew the license and complete eight hours of CE each year (the Update course and an elective). So long as the broker remains a sole proprietor, the broker may engage only in the limited activity outlined above without being a broker-in-charge. Understand as well that this limited exception only applies to sole proprietorships, and not to any entity.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.