Q: Is it legal for real estate agents to work as property managers without their broker’s knowledge?

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Q: Is it legal for real estate agents to work as property managers without their broker’s knowledge?

A Florida real estate sales associate, working for a broker, is performing property management duties without her broker’s knowledge, for which she collects payment directly. She uses the local multiple listing service to secure tenants and then takes over as a “personal or asset manager.” She is not doing this under another property management company, but personally. Is this legal? Would it be legal if she started a company to do this, with or without a real estate broker? Could she legally simultaneously work for her current broker?

– Jacksonville, Florida

answer-icon-masterWhen it comes to real estate, we immediately distrust any activity that has to be kept secret from an agent’s managing broker.

There are good reasons for this. The managing broker is responsible for everything that happens and fails to happen under their license. The managing broker is responsible for mentoring and training their agents and ensuring they act in accordance with applicable laws, regulations, and ethics codes. And finally, the managing broker maintains an errors and omissions insurance policy that not only protects the brokerage, but also protects the agent and their clients!

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Whenever an agent takes an action without the knowledge of or permission from their managing broker, the brokers’ errors and omissions insurance policy may not apply and therefore might not protect the agent or their clients.

This is assuming good faith on the part of everyone involved. But if the agent in question is keeping their property management activities a secret from their managing broker, then an assumption of “good faith,” while not something to be ruled out, has to be viewed with a bit of a jaundiced eye.

Meanwhile, suppose the agent accidentally makes a mistake, like losing a deposit money order. Litigation ensues. Does she have her own errors and omissions insurance policy or anything to ensure her clients – both the landlord and the tenant – are protected? Maybe, maybe not. We don’t know for sure. If she were acting under the supervision and direction of a licensed managing broker, we would know.

There’s also the matter of how she is getting access to the multiple listing service. Is she using her broker’s account to access the MLS? And then run business away from her broker’s business while keeping her side business a secret from her broker?

Anyway you slice it, this is a problematic arrangement.

Now, onto the specific question: Is this real estate sales associate’s activity legal? For the answer, we turn to Section 475.01 of Florida law. It walks you through what activities you need a license to engage in:

“’Broker’ means a person who, for another, and for a compensation or valuable consideration directly or indirectly paid or promised, expressly or impliedly, or with an intent to collect or receive a compensation or valuable consideration therefor, appraises, auctions, sells, exchanges, buys, rents, or offers, attempts or agrees to appraise, auction, or negotiate the sale, exchange, purchase, or rental of business enterprises or business opportunities or any real property or any interest in or concerning the same.

Furthermore …

“Or who takes any part in the procuring of sellers, purchasers, lessors, or lessees of business enterprises or business opportunities or the real property of another, or leases, or interest therein, including mineral rights, or who directs or assists in the procuring of prospects or in the negotiation or closing of any transaction which does, or is calculated to, result in a sale, exchange, or leasing thereof, and who receives, expects, or is promised any compensation or valuable consideration, directly or indirectly therefor; and all persons who advertise rental property information or lists [emphasis added].”

So the definition of broker activities for which a brokerage license is required in Florida is pretty broad. Agents can do all these things, provided they are under the supervision of a licensed broker.

However, the section below carves out a number of exemptions to the brokerage requirement. Paragraph 2 provides an exemption for someone acting as an employee of a property owner to engage in these activities. But the exemption doesn’t apply if the compensation arrangement is transactional in nature.

She may find refuge in Para. 4 of 475.11, which reads: “Any salaried employee of an owner, or of a registered broker for an owner, of an apartment community who works in an onsite rental office of the apartment community in a leasing capacity.”

But then, of course, she’d have to be a) a salaried employee, and b) working in an onsite rental office of the apartment community in a leasing capacity.

Paragraph 13 also exempts “Any property management firm or any owner of an apartment complex for the act of paying a finder’s fee or referral fee to an unlicensed person who is a tenant in such apartment complex provided the value of the fee does not exceed $50 per transaction.”

But it goes on to state: “Nothing in this subsection authorizes an unlicensed person to advertise or otherwise promote the person’s services in procuring or assisting in procuring prospective lessees or tenants of apartment units. For purposes of this subsection, “finder’s fee” or “referral fee” means a fee paid, credit towards rent, or some other thing of value provided to a person for introducing or arranging an introduction between parties to a transaction involving the rental or lease of an apartment unit. It is a violation of s. 475.25(1)(h) and punishable under s. 475.42 for a property management firm or any owner of an apartment complex to pay a finder’s fee or a referral fee to an unlicensed person unless expressly authorized by this subsection.”

While there is possibly room for very limited engagement as a property manager on salary with a very narrow scope of activities (say, focused on maintenance and upkeep of property and not involved in leasing or renting activities), and absent the supervision of a broker, it’s a potentially messy situation we wouldn’t advise any agent to get involved in.

Here’s another issue I’d be concerned about: Is she doing this personally, as a sole proprietor? Or has she set up a corporation or LLC to handle this business? If she hasn’t set up such an entity, and she makes a mistake and is sued, everything she owns, and everything any partners own, is fair game for marauding trial lawyers. Her liability is not limited to the assets she has invested in her business. Everything she has, and everything she will ever have, is potentially at risk, and subject to judgments, liens and the like if she loses a lawsuit. This is especially risky if she does not have her own errors and omissions or liability insurance.

All of this reinforces this rule of thumb: If you feel you need to keep it a secret from your broker, it’s probably not a good idea.

To make her property management operations legal if she started her own company, she would first need to get a broker’s license. But it doesn’t have to be her license, personally. If she chooses, she can hire someone with a broker’s license to handle the supervisory tasks outlined in Section 475. The business owner and the licensed broker don’t have to be the same person. But it’s usually a good idea, where practicable, so if the in-house broker leaves the business she doesn’t have to shut down operations while she scrambles to hire another one!

Author Bio
Writing about personal finance and investments since 1999, 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.
Jason Van Steenwy, published in Annuity Selling Guide and Bankrate.com

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