Certain activities involving real estate DO require a license. The question is what activities performed by whom. In order to determine when and for whom a license is required, we turn to state statutory law. Because I only practice law in Indiana, I’ll use Indiana’s statutory scheme as an example. Research the statutory law in your state for specifics. Indiana Code Title 25-34.1 contains the real estate licensing provisions, which are repeated in the Indiana Administrative Code at Title 876, Articles 1 through 4. In reading the statute, we start with some definitions:
- “Real estate” means any right, title or interest in real property.
- “Broker” means a person who, for consideration, sells, buys, trades, exchanges, options, leases, rents, manages, lists, or appraises real estate or negotiates or offers to perform any of those acts.
- “Salesperson” means an individual, other than a broker, who, for consideration and in association with or under the auspices of a broker, sells, buys, trades, exchanges, options, leases, rents, manages, or lists real estate or negotiates or offers to perform any of those acts.
“License” means a broker or salesperson license issued under this article which is not expired, suspended or revoked.
“Licensee” means a person who holds a license issued under this article. The term does not include a person who holds a real estate appraiser license or certificate issued under the real estate appraiser licensure and certification program established under IC 25-34.1-3-8.
There are also definitions for “broker-salesperson” and “principal broker,” but this article does not concern those matters. Nor can I fully explain the difference between a “salesperson” and a “broker” in this article.
The statute, in relevant parts, states that “no person shall, for consideration, sell, buy, trade, exchange, option, lease, rent, manage, list, or appraise real estate or negotiate or offer to perform any of those acts in Indiana or with respect to real estate situated in Indiana, without a license.” Importantly, this language tracks the definitions of a “broker” and “salesperson,” which was a key factor in a case discussed below in this article.
There are exceptions to this general licensing requirement. The statute DOES NOT apply to the following:
1. acts of an attorney which constitute the practice of law;
2. performance by a public official of acts authorized by law;
3. acts of a receiver, executor, administrator, commissioner, trustee, or guardian, respecting real estate owned or leased by the person represented, performed pursuant to court order or a will;
4. rental, for periods of less than thirty (30) days, of rooms, lodging, or other accommodations, by any commercial hotel, motel, tourist facility, or similar establishment which regularly furnishes such accommodations for consideration;
5. rental of residential apartment units by an individual employed or supervised by a licensed broker;
6. rental of apartment units which are owned and managed by a person whose only activities regulated by this article are in relation to a maximum of twelve (12) apartment units which are located on a single parcel of real estate or on contiguous parcels of real estate;
7. referral of real estate business by a broker, salesperson, or referral company which is licensed under the laws of another state, to or from brokers and salespersons licensed by this state;
8. acts performed by a person in relation to real estate owned by that person unless that person is licensed under this article, in which case the article does apply to him;
9. acts performed by a regular, full-time, salaried employee of a person in relation to real estate owned or leased by that person unless the employee is licensed under this article, in which case the article does apply to him;
10. conduct of a sale at public auction by a licensed auctioneer pursuant to Indiana law;
11. sale, lease, or other transfer of interests in cemetery lots; and
12. acts of a broker or salesperson, who is licensed under the laws of another state, which are performed pursuant to, and under restrictions provided by, written permission that is granted by the commission in its sole discretion, except that such a person shall comply with the requirements of another section of this statute.
There are probably dozens of you reading this article who are in violation of this statute. I have little doubt of that, as I have witnessed, at REIA meetings, REIA members offering deals or services without a license. Most people just do not fully appreciate the scope of this statute, or they try to justify why they do not need a license in their real estate dealings. Unless you clearly satisfy one of the twelve exceptions I have listed above, you need a license to engage in real estate transactions on behalf of others. Period. You can rationalize all day and all night, but no wish, hope or prayer will change this statute or your duty to obey the law. Remember, you joined a REIA to learn how properly to operate your real estate investment business. You also pledged (if your REIA has a Professional Housing Provider program), when you joined a REIA, to be a good citizen and to act ethically in your real estate dealings. So, if you need a license, please go get it.
As always, Good luck and Happy Real Estate Investing.