Who’s Legally Responsible for Real Estate Teams?

Brokers have to answer for how teams at their company operate. Know how to set up teams in a way that avoids potential legal problems.

Brokers are charged with overseeing the real estate teams at their company, including ensuring that team members abide by state licensing laws, employment laws and business entity operations. But there are three areas of team oversight that can be legally tricky: branding, classification and compensation.

“Team leads are understandably excited about the new business venture but shouldn’t overlook the importance of setting up the team properly,” says Matt Troiani, senior counsel and director of legal affairs at the National Association of REALTORS®, in the latest Window to the Law video. Troiani highlights a few issues to consider:

  1. Watch naming policies. Some states require teams to register if they are advertising or doing business under a different name than their license or brokerage, Troiani says. “The NAR Code of Ethics and most state laws require teams to conspicuously display the real estate brokerage’s name in any team advertisement,” he says. “Several states require specific agency disclosures when two team members represent different parties in the same transaction. Many states also require specific client disclosures when services are provided by an unlicensed team member.”
  2. Have a team agreement in place. The agreement should address issues like compensation, who owns the team name and client lists, what happens when a team member leaves or the team dissolves, and how revenue and expenses will be divided. “Brokers should have a copy of the team agreement and require that all team members adhere to brokerage policies,” Troiani says.
  3. Classify correctly. Brokers and team leaders also must follow employment and work classification laws. For example, salespeople on a team are usually treated as independent contractors or employees—consistent with the brokerage policy. “Misclassification could subject the brokerage and the team to statutory fines, tax penalties and withholding, and payment of a minimum wage,” Troiani says. (Exceptions can be made for unlicensed team members.)