|This article was published on: 07/01/2005|
LAW: License Portability
BY JAMES A. HOCHMAN
At one time, real estate brokerage was a local business. You obtained a license in your state and worked exclusively in a single market. You were protected under yourstate’s license law, and, if necessary, your broker could file suit in the state to collect a commission.
Times have changed. Commercial and even some residential markets have expanded. Your clients are often involved in multiple transactions in many states and want you to be active in all of them. The good news is that several states offer some form of license reciprocity to commercial practitioners. This usually requires you to hold a current license, pay a fee, and perhaps pass a state-specific test. However, you must still apply for and receive a reciprocal license, making it impractical for commercial practitioners who must execute multistate assignments quickly.
A much better answer for real estate practitioners is license portability. This lets you offer and perform real estate–licensed services as long as you work in cooperation and according to a written agreement with a local licensee. Portability also allows you to cooperate with out-of-state licensees (OSLs) on assignments in your state and to share fees with them without fear that such conduct will violate your state’s license law. Some state license portability laws open state boundaries only for commercial transactions. Others recognize cooperative transactions for both residential and commercial assignments. In recent years, more states have favored portability only for commercial deals.
Currently 22 states allow commercial practitioners to enter cooperative agreements, according to the most recent research available from the NATIONAL ASSOCIATION OF REALTORSŪ and CB Richard Ellis Inc. Approximately half of those states also extend portability to residential transactions. These states permit OSLs to cooperate with a local licensee under a written agreement, enter the state (both physically and electronically, such as by telephone, fax, and e-mail) to work on a transaction, and to advertise their services in that state. However, some of these states may also impose limitations on the OSL, so consult your legal counsel for more detail.
Another 24 jurisdictions (including the District of Columbia) are classified as physical-location (PL) states. In these states, you can work on a transaction as long as you remain physically in the state in which you are licensed. PL states prohibit you from visiting a property or negotiating a lease face-to-face in that state.
The remaining five states—categorized as turf states—will not let OSLs conduct business in their states. The only way to represent a client who’s interested in properties in these states is to refer the business to a local licensee. Failure to observe applicable license law could lead to a license law violation and discipline both in your home state and in the state where the property is located.
Portability in real life
Consider this hypothetical example that illustrates the limitations of current license portability. Assume a fast-food franchisor hires you to represent it in acquiring new sites in Alabama, California, Connecticut, Kentucky, and North Carolina. Under current state laws, you can’t handle the assignment in the same way in each state.
In Alabama (a cooperative state), you can book a plane ticket and start scouting sites along with your client as soon as you sign a written co-brokerage agreement with a local licensee and meet a few other simple requirements. When the deal closes, you share your fee with the local company as your negotiated agreement dictates.
In Connecticut you have similar flexibility, though you must show proof that you’re also licensed in your home state, and the written agreement with the Connecticut broker must state the share of compensation each party will receive. You must also keep all the escrowed funds in Connecticut. In addition, you will be more dependent on the skill of the local broker, since state law prohibits you from accompanying a prospective buyer to view the real estate.
North Carolina is even tougher. You must obtain a limited broker’s or salesperson’s license before you can enter the state and work on a transaction. And even with a limited license, you must work in cooperation with a local licensee. This approach is closer to license reciprocity than license portability.
In California, a PL state, you can’t enter the state to work on the transaction unless you hold a California real estate license. All the legwork, showings, and negotiations must be handled by a California licensee. All you can do is provide advice and input from home on what your client wants and what terms are acceptable.
But that’s still not as bad as Kentucky. In this turf state, you can’t even consult on your client’s behalf. You have to refer the entire transaction to a Kentucky licensee.
Working for portability
NAR and many state associations have been working to modify existing license laws and foster greater license portability. Several states that were at one time turf states have now become more liberal in letting OSLs handle local transactions.
In addition, state portability requirements are not always straightforward, so consult your attorney before undertaking a transaction in another state. Failure to observe applicable law could jeopardize your license and your right to collect a fee.
Hochman heads a law practice in west suburban Chicago specializing in real estate. While a senior vice president and regional counsel with CB Richard Ellis Inc., he drafted a model license portability statute that has been adopted by numerous state legislatures. You can reach him at email@example.com.
License portability by state