7 Ways You Might Be Violating License Portability Laws
License portability laws can be incredibly helpful in allowing a real estate licensee to operate across state lines. Such laws allow an out-of-state licensee to work with a broker licensed in the transaction state (aka "Broker of Record"). This allows the out-of-state licensee to cast a much wider net in where they can help clients and foster new relationships. At the same time, it’s important to have the guidance of a trusted broker of record who understands license portability laws and the various nuances among them. If the parties are not careful, the out-of-state licensee may be in violation of the transaction state's licensing laws.
The following are a number of common violations committed by out-of-state licensees when operating in a state where they are unlicensed:
1) Not engaging a broker of record who is licensed in the transaction state.This is the most common violation. A broker of record ensures the out-of-state licensee is complying with transaction state laws. When an out-of-state licensee performs brokerage activities for properties located in a transaction state where they're not licensed, this is considered a crime in most states- ranging from a misdemeanor to a felony.
2) The broker of record and out-of-state broker do not use a written co-brokerage agreement.A written co-brokerage agreement is not only usually required by the various state regulatory agencies, its also just good business practice. It explains the relationship, identifies how fees will be split, and makes it clear to the out-of-state licensee which activities are permitted/prohibited.
3) Contacting, marketing, or otherwise engaging with prospective clients BEFORE the broker of record is engaged.This one is a common violation by out-of-state licensees. Until the out-of-state licensee engages a broker of record, the out-of-state licensee cannot even pick up the phone and discuss providing representation services for a property.
4) The out-of-state licensee executes a client-representation agreement with a client BEFORE a broker of record is engaged.The regulators view this activity by the out-of-state licensee as performing unlicensed activity in their state. In this case, the out-of-state licensee risks disciplinary action for the unlicensed activity.
5) The broker of record and the out-of-state licensee are not adhering to state licensing laws regarding license portability.Since every state has different requirements, its important to select a broker of record who understands the various license portability laws across the country. Skipping a required step can be costly. Regulatory fines typically range from $300-$10,000 depending on the nature of the violation.
6) The out-of-state broker is operating in states that do not allow license portability.Such states, sometimes referred to as "turf states," do not recognize license portability. If the out-of-state licensee is caught performing activities which would require a license in the transaction state, they could face disciplinary action.
7) The out-of-state broker is advertising improperly.The out-of-state broker is typically required to identify the broker of record in all advertising and marketing materials. To ensure proper disclosure, the broker of record and its license number should be displayed in close proximity to the out-of-state licensee and its license number. Additionally, it should be in the same font size, type, and color as the out-of-state licensee. To ensure compliance, the out-of-state licensee should not distribute advertising or marketing materials without the prior written approval of the broker of record.
2) The broker of record and out-of-state broker do not use a written co-brokerage agreement.A written co-brokerage agreement is not only usually required by the various state regulatory agencies, its also just good business practice. It explains the relationship, identifies how fees will be split, and makes it clear to the out-of-state licensee which activities are permitted/prohibited.
3) Contacting, marketing, or otherwise engaging with prospective clients BEFORE the broker of record is engaged.This one is a common violation by out-of-state licensees. Until the out-of-state licensee engages a broker of record, the out-of-state licensee cannot even pick up the phone and discuss providing representation services for a property.
4) The out-of-state licensee executes a client-representation agreement with a client BEFORE a broker of record is engaged.The regulators view this activity by the out-of-state licensee as performing unlicensed activity in their state. In this case, the out-of-state licensee risks disciplinary action for the unlicensed activity.
5) The broker of record and the out-of-state licensee are not adhering to state licensing laws regarding license portability.Since every state has different requirements, its important to select a broker of record who understands the various license portability laws across the country. Skipping a required step can be costly. Regulatory fines typically range from $300-$10,000 depending on the nature of the violation.
6) The out-of-state broker is operating in states that do not allow license portability.Such states, sometimes referred to as "turf states," do not recognize license portability. If the out-of-state licensee is caught performing activities which would require a license in the transaction state, they could face disciplinary action.
7) The out-of-state broker is advertising improperly.The out-of-state broker is typically required to identify the broker of record in all advertising and marketing materials. To ensure proper disclosure, the broker of record and its license number should be displayed in close proximity to the out-of-state licensee and its license number. Additionally, it should be in the same font size, type, and color as the out-of-state licensee. To ensure compliance, the out-of-state licensee should not distribute advertising or marketing materials without the prior written approval of the broker of record.
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