Brokerage

Keep your real estate broker license safe by avoiding ‘rent-a-broker’ scenarios

How engaging in this potentially risky business could result in fines or worse

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A somewhat murky area of the real estate business is the idea of the “rent-a-broker.” In many cases, when independent agents leave a large brokerage to begin their own business or property management company, they are required to affiliate with someone else with a broker license who is considered to be in control of the organization. That is, unless they want to gain that certification on their own.

Obtaining a broker license requires more than double the education level of an agent in some instances — for example, 180 hours of broker-specific education compared with 60 hours of classes for a real estate agent license, in addition to having 36 months out of the previous 48 months of working experience as a real estate agent, which is in accordance with Virginia law. State-by-state requirements vary.

Because of this, many smaller property management companies will hire a broker rather than go through the training of obtaining a license. While this can be straightforward and entirely legal, it could teeter over the edge and put the broker in hot water if regulations aren’t properly met.

What is a rent-a-broker?

When a property management company is in need of a broker to obtain a real estate brokerage license, the situation can go one of two ways. If the company is trying to make an arrangement in which the broker doesn’t have responsibilities or is not required to come into the office, this is an unethical situation and can lead to disciplinary actions, such as loss of license or costly fines.

There are a number of risks of the rent-a-broker situation that could lead to disciplinary actions. A risky situation could unfold when a broker is reported to have excessive numbers of licensed corporations, fictitious business names, the same number of fictitious business names as salespersons, the same number of branch offices as salespersons, minimal license history with large offices or multiple branches or geographical distance between offices, according to the California Association of Realtors.

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Additionally, if a broker is unaware of business finances or has no access to the trust account, trust account records or even the office, that’s a problem. Legal action can be taken if the broker has no or very little say in the business as a whole and does not supervise the staff of real estate agents. Whether a complaint is filed or a random audit takes place, these stipulations can be detrimental to a real estate business.

A legal situation

In order to avoid hefty fines and other potential legal actions, a broker must comply with state and national laws. For example, the Division of Real Estate and Professional Licensing in Ohio states that in order to follow regulations a broker must do the following:

  • Oversee all operations of the brokerage, including advertising, the trust account, record keeping and other office management tasks.
  • Supervise all staff and agents, ensuring that commission payments are made on time and accurately, and maintaining real estate agents who are functioning with proper licensing.
  • Review all licenses and agreements, as well as develop the agency’s policies, rules and regulations.

Be sure to review your state’s policy on broker requirements and duties in order to avoid any potential repercussions of a “rent-a-broker” situation.

Editor’s note: This article has been updated to clarify education requirements for brokers vs. agents.

Email Kimberly Manning.