Rationale for Licensing

Does the public have a vested interest in seeing that real estate
salespersons and brokers have the qualifications of honesty,
truthfulness, good reputation, and real estate knowledge before
they are allowed to negotiate real estate transactions on behalf of
others?

It was this concern that brought about real estate licensing laws as
we know them today.

Until 1917, no state required real estate agents to be licensed.
Anyone who wanted to be an agent could simply hang up an
agent’s sign.
Licensee

A person who, for compensation or promise of
compensation, lists or offers to list, sells or offers to sell,
buy or offers to buy, negotiates or offers to negotiate
either directly or indirectly for the purpose of bringing
about a sale, purchase or option to purchase, exchange,
auction, lease, or rental of real estate, or any interest in
real estate

Is required to hold a valid real estate license.
More on Licensees

Some states also require real estate licenses for persons
offering their services such as appraisers, property
managers, mortgage bankers, apartment locators, or rent
collectors.

Exemptions: property owners dealing with their own
property, attorneys conducting real estate transactions as
part of their duties as an attorney for a client, other trustees
or executors acting on behalf of an estate, etc.
License Types

Real Estate Broker


Real Estate Salesperson


A person or legal entity licensed to act independently in
conducting real estate brokerage business.
A person employed by a broker to list, negotiate, sell, or
lease real property for others.
Real Estate Sales Associate

Either a salesperson or broker employed by a broker. This
is an employment arrangement but not a licensing
category.
Qualifications for Licensing

Examination

Education

Continuing Education
Licensing Procedure

Application with fee

Character references (loyalty, honest, truthfulness)

Examination date will be set by the state real estate
commission. Frequency of exams varies by state.

If applicant passes the exam, pays license fee and license is
mailed to applicant. Upon receipt the applicant can begin
operating as a salesperson or broker.
Nonresident Licensing

In general, a person must be licensed in the state in which he
negotiates. A sale can be brokered in another state as long
as the negotiations are done in the state in which the
salesperson/broker is licensed.

Non-resident license - a license given by some states to outof-state brokers, particularly when the broker is located
close to the state line.

License reciprocity - one state honors another state’s license
(full and partial).
Nonresident Licensing

Notice of consent - when a broker operates outside of his
home state, he must file notice with the secretary of state.
This permits the secretary of state to receive legal
summonses on behalf of the nonresident broker.

Moving to another state? Most states will give credit for the
education and licensing time in another state when you go
to move and start up a real estate business in a new resident
state.
Licensing the Business Firm

A broker can operate as a sole proprietorship under his
name or a fictitious business name. A broker can also
operate in partnership with other brokers or as a
corporation. If operating as a corporation, its CEO or
President or some other designated officer must act as the
licensed broker responsible for managing the firm.

A broker who expands by opening branch offices must have
a licensed broker managing each branch location.
Minimum Service
Requirements
Minimum Service
Requirements

According to the Department of Justice, there are 21 states
with minimum service requirements.


States with non-waivable MSRs: Alabama, Illinois, Indiana,
Iowa, Missouri, District of Columbia, Kansas, Texas, Utah,
Idaho, Oregon, Washington, West Virginia
States with waivable MSRs: Delaware, Florida, Nevada, New
Mexico, Ohio, Pennsylvania, Tennessee, Wisconsin
Minimum Service
Requirements
Accept delivery/present offers
Answer questions
Assist communications/negotiations
Provide access to listed properties
Accept deposits
Promote best interests of client
Disclose all adverse material facts
Use reasonable skill/care/good faith
Provide advice to client
Continuous good faith effort to find buyer
unless otherwise agreed
Present written contract with all terms
and condiitons
AL
X
X
DC
X
IA
X
X
X
X
X
ID
X
X
X
X
X
X
IL
X
X
X
IN
X
X
X
KS
X
X
X
X
X
X
MO
X
X
X
OR
X
TX
X
X
UT
X
X
X
WA
X
WV
X
X
X
X
X
X
X
X
X
X
Minimum Service
Requirements

Goodwin, Johnson, Zumpano (Journal of Real Estate Finance
and Economics, 2010) looks at the effect of discount brokerage
in a sample of over 11,700 properties between January 1,
2006 and July 20, 2007 in Montgomery, Alabama.

The study found that sellers using discount brokers had a
trade-off between a 2% higher sales price and a 20.5% longer
time on market. Using a discount broker also lowered the
probability of finding a match between a buyer and seller in
a given marketing period.
REALTOR®

Registered trade name

Member of NAR and not synonymous with real estate agent
Agency Relationships

Principal – the person who authorizes another to work for
them

Agent – the person empowered to act by and on behalf of
the principal
Three Levels of Agency
1. Universal Agency – the principal gives the agent legal
authority to transact matters of all types on the principal’s
behalf
2. General Agency – the agent is given the power to bind the
principal in a particular trade business
3. Special Agency – empowers the agent to perform a particular
act or transaction
Broker’s Obligations to the
Principal
1. Faithful Performance
2. Loyalty to the Principal
3. Protecting the Principal’s Interest
4. Reasonable Care
5. Accounting for Funds Received
6. Commingling
Problems of Dual Agency

Cooperating Broker – In approximately 70% of sales made
through the MLS, the broker who lists the property for sale
is not the same broker who locates the buyer (the
cooperating broker). Who is the cooperating broker an
agent of?



Middleman Principle – the cooperating broker is neither an
agent to the buyer or the seller
Dual Agency – when a single broker represents both the buyer
and seller, dual agency is established. In 17 states, the broker
is legally prohibited from being an agent for either party.
Disclosure Statements!
Multiple Listing Service

A database of local homes for sale along with details about
the property, selling price, and broker’s commission

Only member brokers can access the database
Listing Contracts

Real estate Listing – a contract where a broker is employed to find
a buyer or tenant

Elements of a Listing Contract


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Parties involved in transaction (principal and agent)
Description of property
Price and terms of financing the transaction
Broker’s obligations and authority
Seller’s obligations
Compensation for broker
Terms for cooperation with other brokers
Specification of the brokerage arrangement
Conditions for termination
Types of Listings

Exclusive Right to Sell

Exclusive Agency

Open Listing

Net Listing

Advance Fee Listing

Advance Cost Listing
Buyer’s Broker

Buyers may want to hire their own broker to assist them in
their search and purchasing process.

Exclusive Authority to Purchase

Brokerage commission is typically split in half between the
listing broker and the buyer’s broker
Completion of the Contract

Procuring Cause – A selling broker can expect a commission
if the actions of the broker caused the seller to find a “ready,
willing, and able buyer”



Ready to buy at the seller’s price and terms
Has the financial capacity to purchase
Terminating a contract – contracts can only be terminated
prior to the ending date if by mutual agreement or if the
broker is said to have abandoned the client
Bargain Brokers

Flat Fee Brokers – Payment is a fixed dollar amount rather
than a percent of sales price. Usually provide a lesser menu
of services than a traditional full service broker.

Discount Broker – A full service broker who works for a
lower commission rate.

Variable Rate Broker – The listing broker may charge a
lower rate for services but still offers a full 3% to the full
service buyer broker.