Achieving Autonomy in a License Portability Transaction
When an out-of-state licensee wants to broker outside of their home state of licensure, they usually want to maintain their usual way of doing things without too much friction from a broker of record. Giving up a certain level of autonomy in their transactions can feel limiting. At the same time, the broker of record must ensure that the out-of-state licensee is adhering to transaction state law. To close this gap, there are 3 primary things the broker of record and out-of-state licensee can do to ensure any transactional friction is kept to a minimum and that a smooth system is achieved to serve the client.
Co-Brokerage AgreementIn nearly every state where license portability is recognized, the out-of-state broker must enter into a written co-brokerage agreement with the broker of record. Where a written agreement is not explicitly required, it’s very much the prudent thing to do anyway. It explains the relationship, identifies how fees will be split, and makes it clear to the out-of-state broker which activities are permitted/prohibited. While permitted/prohibited activities vary depending on the state, the out-of-state broker may perform most, if not all, of the brokerage activities in the transaction state that would normally require a license. Client-Related Transaction FormsSome of these forms may include; listing agreement, buyer representation agreement, and/or agency disclosures.
Since the transaction involves the aspect of license portability, regulatory agencies often require that the forms contain certain elements and disclosures. For example, the out-of-state broker may need to disclose the fact that they're not a licensee in the transaction state, but that the broker of record IS a licensee in the transaction state, and that the broker of record is responsible for the out-of-state broker and that both are subject to compliance with the real estate licensing laws of the transaction state.
Or, the listing agreement may need to address how trust funds must be handled or how dual agency situations are handled and whether it’s even legal in the transaction state. Some states also require that certain client forms contain notices that all contracts must be construed under the laws of the transaction state and that the courts of the transaction state shall have jurisdiction over any disputes. These are all important issues that must be addressed in the relevant client-related forms to ensure regulatory compliance.
An experienced broker of record will use transaction-tested forms that the out-of-state broker can use (instead of generic forms that likely won't address various requirements). If the broker of record has a good system down (through the use of forms, checklists, and procedures), then their involvement in the transaction can be kept to a minimum. This allows the out-of-state broker to handle the transaction as they normally would, without constant interruption throughout the transaction process by the broker of record. This is obviously preferable for all parties to ensure smooth transactions and high close rates. Settlement-Related DocumentsBoth parties should keep a transaction file that, at minimum, contains the following documents: -Letters of intent-Purchase agreements & amendments-Disclosures (agency disclosures, property disclosures, etc.)-Notices (cyber fraud notice, statutorily-required notices, etc.)-Settlement statement (final version executed by seller and buyer)-Earnest money deposit receipt(s)
When the broker of record and the out-of-state licensee ensure that these 3 primary items are addressed, then the transaction will go much more smoothly, the out-of-state licensee will need less oversight, and the client will receive the highest level of service.
- Execute a written 'Co-Brokerage Agreement'
- Execute the proper 'Client-Related Transaction Forms'
- Ensure all required 'Settlement-Related Documents' are maintained
Co-Brokerage AgreementIn nearly every state where license portability is recognized, the out-of-state broker must enter into a written co-brokerage agreement with the broker of record. Where a written agreement is not explicitly required, it’s very much the prudent thing to do anyway. It explains the relationship, identifies how fees will be split, and makes it clear to the out-of-state broker which activities are permitted/prohibited. While permitted/prohibited activities vary depending on the state, the out-of-state broker may perform most, if not all, of the brokerage activities in the transaction state that would normally require a license. Client-Related Transaction FormsSome of these forms may include; listing agreement, buyer representation agreement, and/or agency disclosures.
Since the transaction involves the aspect of license portability, regulatory agencies often require that the forms contain certain elements and disclosures. For example, the out-of-state broker may need to disclose the fact that they're not a licensee in the transaction state, but that the broker of record IS a licensee in the transaction state, and that the broker of record is responsible for the out-of-state broker and that both are subject to compliance with the real estate licensing laws of the transaction state.
Or, the listing agreement may need to address how trust funds must be handled or how dual agency situations are handled and whether it’s even legal in the transaction state. Some states also require that certain client forms contain notices that all contracts must be construed under the laws of the transaction state and that the courts of the transaction state shall have jurisdiction over any disputes. These are all important issues that must be addressed in the relevant client-related forms to ensure regulatory compliance.
An experienced broker of record will use transaction-tested forms that the out-of-state broker can use (instead of generic forms that likely won't address various requirements). If the broker of record has a good system down (through the use of forms, checklists, and procedures), then their involvement in the transaction can be kept to a minimum. This allows the out-of-state broker to handle the transaction as they normally would, without constant interruption throughout the transaction process by the broker of record. This is obviously preferable for all parties to ensure smooth transactions and high close rates. Settlement-Related DocumentsBoth parties should keep a transaction file that, at minimum, contains the following documents: -Letters of intent-Purchase agreements & amendments-Disclosures (agency disclosures, property disclosures, etc.)-Notices (cyber fraud notice, statutorily-required notices, etc.)-Settlement statement (final version executed by seller and buyer)-Earnest money deposit receipt(s)
When the broker of record and the out-of-state licensee ensure that these 3 primary items are addressed, then the transaction will go much more smoothly, the out-of-state licensee will need less oversight, and the client will receive the highest level of service.
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