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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 Legal Issuesfor Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
NATIONAL
ASSOCIATIONof
REALTORS®
REALTOR
Legal Issues for Teams
September 11, 2017
Being a Broker, Partnerships & Teams
Real estate teams are increasingly becoming a popular way for top producers to service many clients at
once. A team usually iscentered around a highly successful salesperson and the team operates within a
brokerage. 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 can appear to operate as a separate brokerage firm to consumers. While teams
may be profitable for the real estate brokerage, teams raise a number of legal issues for managing
brokers, ranging from license law issues to employment law. In this article,we willreview the legal issues
raised by teams and offer tools/ideas forbrokers to manage the risk.A checklist is also available to
brokers highlighting the legal issues raised by teams.
State License Law Issues
The most obvious area where teams need supervision and guidance from the managing broker isthe
state license law. The main regulatory focus on teams istheir advertising, with states regulating team
advertising either through the creation of team specific rules or by using existing advertising rules. Other
license law issues for teams include unlicensed assistants who may perform licensed duties and
compliance with agency disclosure. The payment of commissions is another area where brokers need to
monitor teams.
Resources
To read a survey of the various team statutes and regulations:
https://www.nar.realtor/being-a-realtor/partnerships-teams/real-estate-t...
The State Issues Tracker contains information about Agency:
https://www.nar.realtor/political-advocacy/state-issues-tracker
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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 LegalIssues for Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
A chart setting forth how states regulate unlicensed assistants:
https://www.nar.realtor/being-a-realtor/personal-assistants/state-statut...
A. Advertising Requirements
Team advertising is a focus for regulators because regulators believe that teams do not always identify
the brokerage that they are associated with and give consumers the impression that the team is a
brokerage firm.To address the issue, some states have used existing license laws to regulate teams, but
many states are now enhancing these laws to assure the broker's name is prominently displayed in all
advertisements. For four states - and Texas - all
example, Michigan, Nebraska, Tennessee, recently
issued rules that require licensee advertising to include the broker name. Likewise, the Rhode Island
Department of Business Regulation issued a notice reminding licensees that advertising must include the
broker name. Other rules will specify where and how the brokerage's information must be displayed inthe
ad, with some even specifying font sizes. Some states have also created rules for advertisements placed
on social media how the ad needs to linkthe brokerage's information. Since not following the advertising
rules willbe the easiest violation for regulators to discover, making sure teams within your brokerage
comply with state advertising regulations is an important contribution the broker can make to the team.
B. Team-Specific Regulations
Rather than simply adapt or modify existing laws to regulate teams, twelve states have created specific
requirements for teams. The laws vary- some regulate the team but others regulate
simply name, many
aspects of the team and address supervision of the teams.
Maryland was one of the firststates to regulate teams, and itremains one of the more comprehensive
regulations. The Maryland statute requires the brokerage to designate a team leader, and the team leader
must have certain qualifications. The leader then becomes responsible for supervising the team, in
addition to the supervision required by the managing broker, and the team leader must also maintain a list
of the team members. The statute requires that the name of the brokerage must be displayed in a
meaningful way in alladvertisements and requires that the team name cannot be made to sound like itis
estate" brokerage"
the brokerage by including terms like "real or "real estate in itsname.
Other states have different requirements. Oklahoma requires teams to register with the Oklahoma Real
Estate Commission. Ohio requires identification of allunlicensed persons whose names are included in
the advertisement. New York has promulgated a regulation that a team name must include the full
licensed name of the brokers, associate brokers, or real-estate salespersons who are on theteam, or,ifthe
names are not included, the team name must be followed immediately by the phrase "at/of [full
name of
broker/brokerage]."
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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 LegalIssues for Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
C. Unlicensed 8 Licensed Assistants
Another license law issue for teams is unlicensed assistants. While this issue is notunique to teams,
concerns have been raised about teams using unlicensed assistants. Brokers should make sure that
unlicensed assistants working with teams are not performing licensed services. Many states have defined
what functions an unlicensed assistant can perform either through the license law or through real estate
commission guidance. A table covering the rules and guidance is linked to above.
D. Agency Disclosure/Dual Agency
Agency is also an area of concern for teams. Teams are designed to share information and clients,but
brokers need to make sure that teams understand when to keep client information confidential. For
example, teams often share clients and so multiple team members may have confidential information
about a client.This can pose a problem when clients of the team interact with each other, such as one
client becoming interested in another client's property. This could be true even in a state that has
nonagency relationships, as disclosures may stillbe required when the firm is representing multiple
parties inthe transaction.
Brokers willneed to make sure the teams know when dual agency disclosures need to be made and also
that the salespeople understand the confidential information that can't be shared with the other clients.
Brokers could also consider restricting clients to a particular member of the team, in order to avoid
undisclosed dual agency allegations.
E. Commission Issues
Another issue that can arise between teams and the broker is commission splits.The license law requires
that allpayments must be paid to the managing broker but due to the confusion that teams can cause
over who isthe broker, there have been commission disputes between teams and the managing broker. As
with allother licensees, the commission splitsbetween the broker and team members should be
memorialized in writing and the broker should collect allcommissions paid to the team in order to assure
compliance with state licensing laws.
Employment Law
Real estate teams can also raise employment law issues, primarily inthe area of worker classification.
Real estate brokers need to assure that their salespeople who work in a team are treated like independent
contractors and not employees. Another issue for teams isthe payment of commissions to licensed
individuals who are not providing licensed services, such as an administrative assistant or transaction
manager.
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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 LegalIssues for Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
Resources
NAR Independent Contractor Status whitepaper:
https://www.nar.realtor/law-and-ethics/independent-contractor-status-in-real-estate-2015-white-paper
Independent Contractor FAQ:
https://www.nar.realtor/law-and-ethics/independent-contractor-status-frequently-asked-questions
Other Independent Contractor Resources:
"Ten Ways to Successfully Manage Your Independent Contractor Relationships":
https://www.nar.realtor/articles/ten-ways-to-successfully-manage-your-in...
Chart detailing various state labor laws approach to classifying real estate professionals:
https://www.nar.realtor/law-and-ethics/state-statutory-approaches-to-wor...
Key Provisions for Independent Contractor Agreements:
https://www.nar.realtor/sites/default/files/handouts-and-brochures/2016/...
A. Management of Team Members
A renewed focus on the independent contractor status of salespeople has emerged in recent years due to
litigation.While there has yet to be any unfavorable judicialprecedents, some brokerages have entered
into substantial settlements with salespeople who claimed they were improperly classified as independent
contractors instead of employees. The same issues that brokers face with their regular salespeople can
be exacerbated when the salespeople are working on a team.
While a broker has a duty to supervise the licensees in the brokerage for certain tasks, a team leader
usually has no such responsibility. 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.
Brokers willneed to educate team leaders about worker classification issues and the need to treat team
members as independent contractors. Ifthat 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.
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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 Legal Issuesfor Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
B. Classification of Team Members Who Aren't Performing Licensed Services
Another worker classification issue occurs when members of the team are paid by commission but are
not providing licensed services. For example, a team may have a licensee who is managing the team and
not interacting with clients. Or, the team may have a licensed assistant who is performing administrative
functions and not acting as a licensee.
Because these individuals are not providing licensed services, they should not be paid by collecting a
portion of the team's realestate commission payments. Additionally, these individuals would not qualify
for the IRS exemption for realestate licensees because the individuals are not providing licensed services,
posing employment tax issues for the brokerage. Instead, these individuals need to be classified as
employees by the broker. Louisiana has addressed this issue by prohibiting licensees who are part of a
team from receiving compensation from other team members.
Conclusion
Teams are an increasingly popular vehicle for top producers to share their clients and listings with other
salespeople. However, brokers need to be aware that teams pose both license law issues and
employment law issues. Brokers need to make sure the team leaders are aware of these issues and do
not run afoul the legal requirements. For more information, contact Finley Maxson, NAR Senior Counsel, at
fmaxson@realtors.org.
@nardotrealtor on
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FILED: WESTCHESTER COUNTY CLERK 07/14/2018 08:37 PM INDEX NO. 60767/2018
7/11/2018 Legal Issuesfor Teams| www.nar.realtor
NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 07/14/2018
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