When issued a real estate license, brokers and agents are legislated to act with honesty and in good faith. Further, they are to abide by real estate law and California Bureau of Real Estate (CalBRE) regulations. However, some fail to follow the duties imposed on them by their license, disrupting the mechanics of transaction and the oversight structure inherent to the profession.

The CalBRE now reports it has received a multitude of complaints regarding sales agents operating solo, without an employing broker.

For example, a licensee advisory released by CalBRE addresses sales agents who undertake real estate activities unlawfully by acting independent of an employing  broker. The agents’ marketing materials also are deceptive, describing them as “independent sales agents” – conduct which is a clear violation of CalBRE regulations and state law. [CalBRE Licensee Advisory, September 2015]

A positive takeaway from the CalBRE’s advisory? Real estate licensees are willing to file online complaints when other licensees violate real estate law and rules of conduct. This sort of internal policing is an encouraging trend as it creates a level playing field for all and keeps the public perception of real estate licensees positive. The CalBRE has thus far responded diligently by acting on complaints and enforcing disciplinary actions when necessary.

For licensees, take all this as a reminder to comply and demand compliance for the benefit of the real estate profession and clients alike.

As an agent of the agent, always and forever

All real estate sales agents who intend to be compensated for rendering real estate services in California are required to first be employed by a licensed broker. They may not act as independent agents – it is a legal impossibility. [Calif. Business and Professions Code §10132]

Remember: sales agents and brokers have different levels of education, different legal and social status, and different duties owed to the CalBRE. Brokers are authorized to deal directly with members of the public to solicit, agree to and render brokerage services for compensation, services called licensed activities. Conversely, sales agents are not authorized to do any of these things – they are limited to acting solely on behalf of their employing broker. As in a chain of command, agents answer to their broker, brokers answer to the CalBRE, and the CalBRE answers to the public. [Bus & P C §10131]

Licensed activities include negotiating the purchase, sale, exchange, lease/management or hypothecation of real estate. Several other categories of licensed brokerage activities exist, including facilitating trust deed sales, mobile home resales and business opportunities. All of these are activities requiring constant oversight and supervision by a licensed broker. [Bus & P C §10131]

A sales agent, when providing real estate brokerage services for a fee, is limited to the status of an employee acting on behalf of and dependent on their employing broker – an agent of the agent. A sales agent rendering real estate services may not independently contract in their own name or on behalf of anyone other than their employing broker. This is why an agent needs to hang their license under a broker in order to engage in any real estate-related activities in expectation of a fee. Further, an agent performing real estate services cannot be employed by any person who is a member of the public. [Bus & P C §10160]

Additionally, sales agents can only receive compensation – fees – for their real estate-related services from their broker. An agent providing real estate services may not receive compensation directly from anyone else, such as the:

  • seller;
  • buyer;
  • landlord;
  • another broker or agent; or
  • other provider of services in a transaction, like a:
    • lender;
    • title company; or
    • escrow.

Only the employing broker can receive the earned fee and pay the agreed-to split to their agent. [Bus & P C §10137]

As a duty owed to the CalBRE, brokers are responsible for all activities their agents carry out within the course and scope of their employment. Occasionally, brokers fail to exercise oversight and reasonable supervision of the conduct carried out by their sales agents and associate-brokers. Thus, on a complaint for failed supervision filed with the state, the failure places the employing broker’s license at risk of suspension or revocation by the CalBRE. [Gipson v. Davis Realty Company (1963) 215 CA2d 190; Bus & P C §10177(h)]

Independent contractor status does not an independent agent make

For the less than observant sales agent, confusion or assumptions exist due to terminology and myths when they enter into an independent contractor (IC) agreement with a broker. IC agreements are employment arrangements designed to allow the employing broker to avoid income tax withholding and employer contributions to unemployment insurance, social security and the like.  IC agreements in no way permit a sales agent to practice independently or exercise uncontrolled discretion in their handling of listings or negotiations of sales, leases or mortgages. [See RPI Form 506]

A licensed sales agent is always subject to supervision by their broker, whether employed under an IC agreement or a broker-agent employee employment agreement. Independent they are not. The employing broker is still mandated to actively manage their brokerage business and all employees. This CalBRE mandated supervision cannot be contracted away by use of an IC agreement (or office manager agreement).

Fundamentally, when a CalBRE-licensed agent intends to act and advertise as an “independent” or “freelance” licensee, they need to first obtain a broker license.

Related articles:
Brokerage Reminder: The agent of the agent – reasonable supervision required

Avoiding violations in marketing

To maintain the legal hierarchy structured for the real estate brokerage profession, sales agents and brokers need to ensure all agent activity is continually supervised by their broker. One component of these requirements is the manner in which sales agents brand themselves in their marketing material – their outward facing image to the public.

As of January 1, 2015, sales agents are permitted to use both fictitious business names and team names, subject to the following rules. A fictitious business name is a professional brand name used to conduct real estate activities (e.g. LOL Realty), also known as a D.B.A. (“doing business as…”). A team name is a brand name used by one or more sales agents. It will include the surname of at least one agent in combination with “group,” “team” or “associates” (e.g. Smith Group). [Bus & P C §§10159.5, 10159.7]

Sales agents may use fictitious business names and team names only with the authorization and oversight of their employing broker. [Bus & P C §§10159.5(b), 10159.7]

Use of either a fictitious business name or team name in marketing material requires the employing broker’s name and license number to be included in equal prominence to the name of the team or fictitious business. Further, the agent is also required to clearly display their own name and license number or, in the case of team names, the name and license number of at least one agent using the team name. [Bus & P C §§10159.5(d), 10159.6]

These requirements apply to all advertising and solicitation materials, including printed flyers, emails and “For Sale” signs. Inclusion of the broker’s identification ensures a sales agent’s marketing material does not improperly suggest the agent is practicing real estate independently and without the required supervision of their employing broker who has a duty to protect members of the public.

As a sales agent, you may make it easier by preparing marketing material from the perspective that it is presenting you and your broker – while the broker may function without an agent, the agent cannot function without their employing broker.

As a broker, you have a duty to the CalBRE to ensure your sales agents are complying with marketing guidelines. So, to avoid disciplinary action by the CalBRE, confirm the required identifying information is included in all agent advertisements and points of contact with the public.

Related articles:
Rules for fictitious business names and team names
Regulations for fictitious business names and team names under a responsible broker

Are you a sales agent who wants to improve your legal standing with your broker or truly work independently by upgrading to a broker license? first tuesday offers all the broker licensing courses you need to qualify for and pass the California state exam. Sign up for the courses here or call 951.781.7300.