New broker-associate reporting hits January 1, 2018

Beginning January 1, 2018, California Bureau of Real Estate (CalBRE)-licensed real estate brokers are required to notify CalBRE in writing when they:

  • enter into an agreement employing another broker who will act in the capacity of a salesperson, called a broker-associate; and
  • terminate the employment of a broker-associate. [Calif. Business and Professions Code §10161.8(a)-(b)]

Broker-associates’ affiliations will be made public on the CalBRE Public License Information website beginning January 1, 2018. [Bus & P C §10032]

The employing broker, called the responsible broker, has a duty to supervise all licensed activities undertaken by salespersons and broker-associates under their employment, and may be held accountable for failure to fulfill this duty. [Bus & P C §§10159.7, 10177(h)]

A responsible broker or broker-associate can be either a corporation or an individual, so long as they maintain an active license (i.e., have a main office address on file with CalBRE). [Bus & P C §10162(a)]

For instance, a broker who only holds a broker-officer license, but not a separate individual broker license, may not be employed as a broker-associate as an individual — they may only be employed as a broker-associate under their corporation broker-officer license.

Written notice and when to file

To notify CalBRE of broker-associate employment, a responsible broker needs to fill out and mail in CalBRE Form RE 215. Electronic filing is currently not permitted. [See RE Form 215]

Responsible brokers who entered into employment agreements with broker-associates prior to January 1, 2018 need to file an RE 215 for every broker-associate currently employed. These retroactive reports can be filed prior to January 1, 2018, though the information will not appear on the CalBRE Public License Information page until January 1, 2018. For retroactive reporting, responsible brokers need to use the date of the broker-associate’s written employment agreement as the date of employment.

Willful failure to file is considered a misdemeanor violation of the Real Estate Law, and exposes the responsible broker to fines, disciplinary action and/or imprisonment. [Bus & P C §10185]

Practical broker-associate employment

When a responsible broker hires a broker-associate, they may arrange the broker-associate’s employment with either:

  • an employee agreement, under which the responsible broker is required to withhold and pay payroll taxes on behalf of the broker-associate [See RPI Form 505 §3.10]; or
  • an independent contractor agreement, under which the broker-associate is responsible for their own income tax “withholdings” and payments (the more common arrangement). [See RPI Form 506 §3.10]

Regardless of employment arrangement, broker-associates must be covered under their responsible broker’s workers’ compensation insurance policy. [Calif. Labor Code §§3200 et seq.]

Further, common sense dictates the responsible broker cover the broker-associate under their errors and omissions (E&O) insurance, require the broker-associate to name the responsible broker as an additional insured on their auto insurance policy and otherwise mitigate the risk imposed by the broker-employment, just as they do for any salesperson’s employment.

For broker-associates, advertisements for services they will render while under a responsible broker’s employment also need to identify the responsible broker by name, license number or both. [Bus & P C §10140.6(b)]

Related article:

Updated CalBRE licensee identification requirements on signs and advertising

First-point-of-contact materials (such as business cards, stationery and websites) do not need to identify the responsible broker. [Calif. Bureau of Real Estate Regulations. §2773]

How many responsible brokers is too many?

Neither state law nor CalBRE regulations prohibit a broker-associate from being employed by more than one responsible broker, or working on their own behalf in addition to working under a responsible broker. When a broker-associate is employed by more than one responsible broker, each responsible broker has a separate duty to file an RE 215 to report the employment to CalBRE.

However, multiple employer arrangements may be restricted by the terms of employment agreements between the broker-associate and their prospective responsible brokers. An up-front disclosure of intentions and pre-existing arrangements needs to take place before a broker-associate enters into any employment agreements.

In some cases, multiple arrangements make sense — say, for a broker-associate who makes real estate deals under one broker, but arranges mortgages under another.

However, the more arrangements in place, the greater the chance of complications. For example, a broker who practices on their own accord “on the side” in addition to their work for an employing broker needs to be able to wholly separate their independent efforts from those of their employer. This means separating their own insurance, advertising materials, client base, employees, etc., from those of their employing broker. And in all cases, the client must be provided with disclosures and forms which are explicit about who is representing them — whether the broker is working independently, or as a broker-associate on the responsible broker’s behalf. [See RPI Form 305, 102, 103]

Branch offices

Consider a responsible broker who enters into a written employment agreement with a broker-associate after January 1, 2018. The broker-associate plans on performing real estate activities from their existing place of business, a different location than the address of the responsible broker. Here, the responsible broker is required to notify the CalBRE of the new broker-associate’s location as a branch office. [See RE 203]

Later, the broker-associate begins splitting time between their existing place of business and the responsible broker’s main office. Is the broker-associate required to designate the responsible broker’s main office as a branch of the broker-associate’s practice?

No! Since the broker-associate is employed by the broker in the capacity of a salesperson, CalBRE regulations allow them to perform licensed duties at any location where their responsible broker is authorized to transact real estate business. [CalBRE Regs. §2728.5]

The impact of public disclosure

We note one potential drawback: making broker-associate affiliations public means responsible brokers who are members of the real estate trade union might be seeing additional notices regarding union fees due for those broker-associates who haven’t yet joined.

Still, on balance, the transparency is a good thing. first tuesday has long been a proponent of public disclosure of broker-associate affiliation. It’s good public policy for consumers to be able to verify the employment of the CalBRE licensees they hire, and to know who is accountable for actions undertaken by those licensees. For licensees, it provides an added layer of trustworthiness to be able to reference a public website where affiliation can be confirmed.

The public affiliation also compels brokers to be more transparent and thorough about employment arrangements (no more “it’s just a desk fee” arguments), another measure of consumer protection.

For more information about the requirements, visit the CalBRE’s FAQ on broker-associate reporting here.