Question: When is it permissible for a broker licensed by the California Department of Real Estate (DRE) to receive a fee from conducting or assisting in a transaction for an out-of-state property?

Answer: This depends on the state in which the property is located.

Real estate and licensing law — and thus the broker’s right to collect a fee — differs from state to state. In order to represent a buyer or seller in an interstate transaction, and obtain a fee in return, a California broker enters into two separate contracts:

  • a listing agreement with their buyer or seller; and
  • a cooperation agreement with a broker licensed in the state where the property is located. [See RPI Forms 102; 103; 105]

Out-of-state brokerage activity stays out-of-state

Consider a broker licensed only in California. Their client is moving to a nearby state and contacts the broker to help them locate their next home. How does the California broker assist their client, obtain a fee and follow real estate laws in the state where they are not licensed?

A California broker avoids transgressing the licensing laws of another state when:

  • all brokerage activities are conducted by phone, direct mail, email or fax from California, the state of the broker license [Consul LTD. v. Solide Enterprises, Inc. (9th Cir. 1986) 802 F2d 1143];
  • the listing and purchase agreements are negotiated, prepared and handled in the state of the broker license [Gold v. Wolpert (7th Cir. 1989) 876 F2d 1327];
  • all brokerage activities and negotiations are completed in the state issuing the broker license and these facts are known to the client when the property is located in a different state [Coldwell Banker & Company v. Karlock (7th Cir. 1982) 686 F2d 596]; and
  • the broker limits their out-of-state activity to no more than their property inspection and information gathering. [Coldwell, supra]

However, a California broker who sues in another state to collect their fee will be denied recovery by the out-of-state court when they conduct brokerage activities while physically present in that state, such as:

  • showing the property to prospective buyers without being accompanied by a broker licensed in that state [Harrison & Bates, Inc. v. LSR Corp. (1989) 385 SE2d 624];
  • negotiating on behalf of the buyer or seller located in that state [Paulson v. Shapiro (7th Cir. 1973) 490 F2d 1; Fields v. McNab (1984) 70 OrApp. 154]; or
  • negotiating, preparing, signing or delivering the listing or purchase agreements in that state. [Baron & Company, Inc. v. Bank of New Jersey (1981) 504 F.Supp 1199]

Thus, California brokers soliciting and negotiating a transaction across state lines are to:

  • physically stay in California, with the exception of property inspections while accompanied by an out-of-state broker;
  • conduct all negotiations from California by phone, email, direct mail or fax;
  • include a California choice-of-law provision in all fee provisions in purchase agreements [See first tuesday Forms 102 §4.8 and 103 §3.4];
  • prepare and send all documents from California;
  • require the principals to directly pay them their share of the fee through escrow, not through the out-of-state broker (unless otherwise required by their cooperation statutes); and
  • sue to collect any earned and unpaid fee in a California court.

California brokers who negotiate to receive a fee from an out-of-state broker for an out-of-state deal are best served by confirming with the out-of-state real estate agency whether they may:

  • be paid a share of any fee collected by the out-of-state broker; or
  • travel into the other state to conduct activities such as inspecting, gathering data, showing the property or preparing documents.

Different states, different laws

When a California broker is assisting a client to purchase property outside the state, the rules that govern that transaction depend on the state in which the property is located.

For example, Nevada permits interstate cooperation, but requires out-of-state brokers who wish to conduct Nevada brokerage activity on behalf of California buyers to first obtain a certificate of cooperation from Nevada’s Real Estate Commissioner. [Nev. Rev. Stat. §645.605; Nev. Adm. Code §645.185]

California brokers who acquire a Nevada certificate of cooperation must work under the supervision of a Nevada broker. Under Nevada’s collaboration statutes, the Nevada broker is to be in charge of the interstate transaction at all times, including:

  • accompanying the California broker and the California client to view the property;
  • negotiating transactions with Nevada buyers;
  • co-signing all documents dealing with the Nevada property transaction in cooperation with the California broker; and
  • handling, accounting for and keeping records of all fees received in the cooperative transaction. [Nev. Adm. Code §645.185]

Further, to buy, sell or lease Washington real estate, a California broker may either:

  • cooperate with a Washington broker; or
  • obtain a Washington broker license. [Washington Administrative Code §308-124A-720]

To show properties, conduct negotiations or perform other real estate activities within Washington, a California broker is required to first obtain a Washington broker license. Washington has education and exam requirements. A California license allows brokers to bypass Washington’s education requirements, but still requires them to pass Washington’s state licensing exam. [WAC §308-124A-720]

A California broker who cooperates with a Washington broker rather than obtaining a Washington real estate license may not perform any real estate activities within the state of Washington. Instead, the California broker relies on the Washington broker to conduct all real estate activities in Washington. The California broker then shares in a portion of the fees received by the Washington broker. [Revised Code of Washington §18.85.301]

Editor’s note — Brokers involved in interstate real estate transactions are best served by including a choice-of-law provision in their listing and purchase agreements with their clients (be they buyers, sellers, landlords, tenants, borrowers or lenders). A California choice-of-law provision mandates that disputes arising from the brokerage fee arrangements are to be decided based on California law, even if litigated in federal or out-of-state courts. [See RPI Forms 102 §4.8 and 103 §3.4]