Window to the Law: Team Legal Issues

This month’s Window to the Law features a discussion about the various legal risks that brokers may need to address when real estate teams are working within the brokerage.

More: Real Estate Topic: Partnerships & Teams

Window to the Law: Team Legal Issues: Transcript

Real estate teams are a popular way for top producers to service many clients at once. While teams can be a profitable for a brokerage, they also raise legal issues for the brokerage and in this edition of Window to the Law, we will highlight some legal issues that teams and their broker need to consider.

A typical team is centered around a highly successful salesperson and operates within a larger brokerage firm.  The team is comprised of two or more real estate salespeople who pool resources on marketing, administrative staff, and may offer specialists for various aspects of the real estate business. In some cases, a team may appear to consumers as its own brokerage firm.

A recent survey conducted by the California Association of REALTORS® and RealTrends found that the greatest benefit teams derive from their broker is legal and regulatory support. So this is an area where a broker can provide value to the team.  Most legal issues faced by teams fall into two categories: license law and employment law.

Team advertising is the top license law issue for teams and the main area of focus for regulators. States regulate team advertising either through the creation of team specific rules or by using existing advertising rules. A majority of states regulate team advertising through the use of existing advertising rules, but have updated those regulations in the last few years to make it clear where and how the broker’s name should be displayed in all advertising.

Rather than simply adapt or modify existing laws to regulate teams, twelve states have created specific requirements for teams.  The laws vary- some simply regulate the team name, but others regulate many aspects of the team and address supervision of the teams.  Maryland’s law was one of the first team regulations and is still one of the more comprehensive regulations, requiring the team leader to supervise the team members in addition to the managing broker.  Oklahoma requires the team to register with the state real estate commission.

Other license law issues for teams include unlicensed assistants who may be unlawfully performing licensed duties and compliance with agency disclosure, as team members share clients and so raise the possibility of undisclosed dual agency. It’s critical for team leaders and all salespeople to understand and abide by their state agency and disclosure laws. Regarding commissions, brokers should require written agreements regarding all commission payments and such agreements should include procedures that the team will follow when a commission dispute arises.

Employment law issues and worker classification is another area of concern. Salespeople working on a team must be treated like independent contractors and not employees.  In general, the difference between an employee and an independent contractor is amount of control the business exerts over the individual.  Since many teams usually focus on a top producer and most of the clients for the team will be clients of the top producer, the top producer may want to control or dictate how the salespeople interact with the clients.  Unlike a managing broker, team leaders do not have any statutory duty to supervise the salespeople except in a few states like Maryland.  The excessive control of the salespeople by the team leader as well as the lack of statutory duty to supervise poses the risk of a misclassification challenge from salespeople working in a team, claiming they are employees and not independent contractors.

Brokers should educate team leaders about worker classification issues and the need to treat team members as independent contractors.  If that is not how the team functions, the broker will need to consider making the licensees serving on the team into employees to avoid potential liability.

Another issue for teams is the payment of commissions to licensed individuals who are not providing licensed services.  For example, a team may have a licensee who is managing the team and not interacting with clients.  Because these individuals are not providing licensed services, they should not be paid by collecting a portion of the team’s real estate commission payments.   Additionally, these individuals may need to be classified as an employee, depending on the nature of their rule with the brokerage.

For more information, including a checklist for brokers highlighting team legal issues, check out the Team page on nar.realtor.  Thank you for watching this edition of Window to the Law.

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