I am a Licensed Real Estate Associate at a major S. California Brokerage. As a Principal OWNER of a Property Management Company in California and having an independent BROKER manage the day to day affairs of the company, can I as the licensed associate of another brokerage access all my clients’ properties (Owners of tenant occupied properties, tenants of the properties, owners of CID units) for mainstream Selling and Buying of Real Estate without any “Tie-In Legislation” or lawsuits arising from my relationship as the principal owner of said Management Company?
– Irvine, California
This looks like a conversation you should be having with your boss at the California brokerage where you are a licensed real estate associate.
Yes, you do have the licenses required to conduct business, when it comes to handling the mainstream buying and selling of real estate – even when these properties happen to be within your management portfolio at your property management company.
And yes, you are acting in compliance with California law by having an independent broker (with the appropriate brokers’ license) manage the day-to-day activities of the property management firm that you own.
Taken in isolation, each of these activities is hunky-dory.
The problem could arise if the broker where you work as an associate believes that there is a conflict of interest between your simultaneous activities. This is especially true if you wind up conducting outside sales activities at your brokers’ office, or using your brokers’ email, computers, broker-provided cell phone, etc.
Can I guarantee that your broker won’t let you go because of a perceived conflict of interest if he or she gets wind that you’re engaged personally in outside activities? No. Similarly, can I guarantee that you won’t get sued if something should arise? No. People sue over perceived conflicts of interest all the time, even assuming the best of motives and model conduct on the part of the defendant.
Lastly, even if you think you have your managing broker’s ok to do these things yourself, there’s the issue of liability. If you are engaged personally in buying or selling businesses apart from your management company’s supervising broker, whose errors and omissions policy is on the hook for a claim that might arise?
Your brokerage firm’s policy and your management company’s policy may end up pointing the finger at each other, and your own protection could be in doubt. It could be that if you change your business model to include transactions and not just property management, you could wind up not being covered at all if you are not careful.
So, the bottom line is this: If I’m in your shoes, I would not make such a move without the express blessing of the brokerage firm where you currently hang your license, and I would also conduct all sales through that brokerage company, under their license, fully disclosing your relationship with any buyer or seller who has a previous relationship with your property management company.
Fully integrate these transactions with your current brokerage firm’s business systems, so that they fall fully under your current brokerage company’s errors and omissions insurance and other liability insurance coverages, which also protect both you and your client.
In theory, you could run them through your property management firm’s broker’s license, but in practice I don’t think you can sustain enough separation between your current activities in the brokerage where you’re hanging your license.
Further, sales transactions might not be that brokers’ core competency, and they may not have the E&O coverage set up to account for such transactions.
I am not aware of any California law that expressly forbids these transactions, provided you are an agent working under a broker’s license. But the potential for conflict of interest and for liability confusion at best seems significant. I would definitely have a California licensed attorney in my pocket, if I were in your shoes, and seek an attorney’s advice before doing anything.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.