Real Estate
Trainers, Inc.

The owner of a real estate business needs to find ways to maximize the income coming into the business and minimize the expenses paid by that business. The income to the business might come in the form of real estate commissions, property management fees, loan fees, escrow fees, or any number of other sources.

The California Real Estate Law, first enacted in 1917, regulates the activities of the real estate profession by requiring those engaged in it to hold a license. The basic purpose of the law is to prevent fraud. The law is found in the Business and Professions Code of the State of California. It requires that anyone doing any real estate act for another for compensation must be licensed. The law considers the following to be real estate acts:

• Selling, buying, soliciting purchasers or buyers for, soliciting or obtaining listings of, or negotiating the purchase, sale, or exchange of real property or a business opportunity.
• Leasing, renting, collecting rents (managing property), or negotiating the sale, purchase or exchange of leases on real property or a business opportunity.
• Assisting in filing the application for the purchase or lease of, or locating, government-owned land.
• Soliciting borrowers or lenders, or negotiating loans on real property or a business opportunity.
• Selling, buying, or exchanging a real property sales contract or a promissory note secured by real property or a business opportunity.
• Collecting payments on, or performing services related to, real property sales contracts or notes secured by real property liens.
• Charging an advance fee in connection with the promotion, sale, or lease of real property, or a loan on real property or a business opportunity.
• Issuing, selling, listing, or soliciting buyers or sellers, or negotiating the purchase, sale or exchange of a real estate syndicate security.

Owner Exemptions

It should be emphasized that the real estate law requiring real estate licenses specifically applies to those who "engage in real estate related activities for another for compensation" (emphasis added). Consider the implications of these italicized words:

• A person who owns a property, such as a residence, could sell that property personally without any need for a real estate license.
• A subdivider could sell all of the homes in a subdivision personally (or through the officers of the corporation) without any need for a real estate license. There is a common misconception that there is some maximum number of properties above which a person needs to be licensed, but this is not the case.
• On the other hand, suppose that a subdivider were to hire someone else to sell the homes in the new subdivision. This person would be performing a real estate related activity for another person (the subdivider or developer) presumably for compensation, and would therefore need to be licensed. Consequently most developers will either set up their own licensed real estate brokerage operation or hire some licensed real estate broker to sell the properties.

Other Exemptions

The California Real Estate Law contains some other specific exclusions from the requirement to hold a real estate license. These include exclusions for attorneys-in-fact, attorneys-at-law, trustees, clerical employees of real estate brokers, real estate appraisers, and resident property managers.

An attorney-in-fact does not need to be licensed. An attorney-in-fact is a person who has received a "power of attorney" from someone else. This power of attorney is a document which authorizes the attorney-in-fact to sign the principal's name to contracts. An attorney-in-fact can act in real estate transactions for the principal, provided that the power of attorney is in writing and has been recorded in the county where the property is located. In effect, a document signed by an attorney-in-fact is as effective as a document signed by the principal.

There are limits on this power of attorney as it relates to real estate transactions, however. An attorney-in-fact cannot give the property away, or sell or mortgage the property to himself or herself, even at fair market value. This provision is intended to avoid the clear conflict of interest that such transactions would represent.

An attorney at law whose real estate actions relate to his or her practice as a lawyer would not need a real estate license. For example, an attorney might be appointed as trustee of a trust. This attorney could sell property for the trust without any need for a license. It is important to note, however, that if an attorney performs the functions of a broker, the attorney would need to be licensed. If, for example, an attorney solicited listing contracts in hopes of receiving commissions, the attorney would need to have a real estate license.

A trustee selling a property under a trust deed would not need to have a real estate license. This trustee would be considered to be a principal in the transaction, since the trustee is the holder of legal title to the property. (The functions of a trustee under a trust deed will be discussed in more detail later in this course.)

A clerical employee of a real estate broker need not be licensed when performing strictly clerical duties. A broker's secretary, for instance, might be involved in producing mass mailings and preparing contracts (at the broker's direction) and would not need to be licensed. There is an exception to this exception, however. Hostesses in model homes, or handymen in subdivisions who hand out price brochures and direct people to model homes must have a license because they are quoting prices and showing properties.

Real estate appraisers do not need a real estate license. Since 1992, however, people who perform appraisals for federally-related lenders must have a separate real estate appraisal license or certification. In California, these licenses or certifications are issued by the Office of Real Estate Appraisers, not directly by the Department of Real Estate.

A resident property manager would not need to be licensed. A property manager who does not reside on the premises, and who does not own the property, would need to be licensed. Accordingly, a person or company that advertises that it would manage property for the public would need to be licensed, since this implies the ability to manage many different properties in many different locations.

Broker’s Licenses

California Real Estate Law provides for two levels of real estate licenses: real estate broker and real estate salesperson. The broker's license is the higher license, in that a salesperson must work for some real estate broker.

In order to obtain a broker's license, an applicant must pass an extensive state examination. Before taking this examination, the applicant must meet both of the following requirements:

(1) The applicant must complete eight college-level real estate classes (see below); and

(2) The applicant must have either:

(a) a four-year college degree; or

(b) two years full-time real estate sales experience.

A practicing lawyer would be exempt from these rules. A law school graduate would be required to take only two courses, finance and appraisal.

The first requirement is that the applicant must take at least eight college-level real estate classes. These courses must meet a 45-hour clock or classroom hour requirement, which is the equivalent of a three semester-unit college class. Of these eight courses, there are five required courses:

(1) Real Estate Practice;

(2) Legal Aspects of Real Estate;

(3) Real Estate Finance;

(4) Real Estate Appraisal; and

(5) Real Estate Economics or Accounting.

The remaining three courses (of the eight) can be selected from the following:

• Real Estate Principles;

• Business Law;

• Property Management;

• Real Estate Office Administration;

• Escrows;

• Mortgage Loan Brokering and Lending;

• Advanced Legal Aspects of Real Estate;

• Advanced Real Estate Finance;

• Advanced Real Estate Appraisal.

It should be noted that if a person took both the Real Estate Economics and the Real Estate Accounting (from the list of five required courses), then the person would only need to take two of the elective courses to complete the eight courses.

With respect to the experience requirement, it is not enough that a person has had a salesperson's license for two years. The applicant would be required to get a signed certification from his or her employing broker verifying the experience of the applicant. This certification must be made using the Employment Verification Form provided by the Department of Real Estate.

A broker's license can be issued to either a person or a corporation. When a broker's license is issued to a corporation, an individual broker (or one who qualifies for a broker's license) must be listed as the broker of record for this corporation.

Why Get A Broker’s License?

It is possible that there are as many reasons for getting a broker's license as there are real estate brokers. The more common reasons include:

• A desire to own and operate an independent business venture;

• A desire for higher commission splits; and

• A desire for the prestige that the higher license might confer.

Real estate salespersons who are contemplating getting a broker's license should be clear about their objectives and the obstacles that they face. First, it should be noted that not everyone who gets a brokers license intends to function as an independent broker or as the broker-owner of a real estate office. Many real estate brokers will offer a higher commission split to those salespeople who get their broker's license. These salespeople are then often entitled to show the title "Broker Associate" on their business cards.

One of the classic decisions that any sales organization faces is when it comes time to hire a new sales manager. It is often tempting to take the organization's best salesperson and promote him or her to sales manager. Sometimes this works very well. Sometimes this is a disaster. The reason is that management skills and sales skills are not the same thing. The ability to meet and exceed sales goals on a personal level may or may not translate into the ability to transfer these sales skills to other people. In fact, sometimes the best managers of salespeople were not necessarily the best salespeople personally.

A salesperson who is considering getting a broker's license is faced with a similar circumstance. The fact that a salesperson has enjoyed a successful career so far in personal sales may or may not indicate that it is time to get a broker's license and open his or her own real estate office. There is much more to owning a real estate office than just getting a broker's license. There are immense regulatory requirements, such as establishing and maintaining trust fund accounts, preparing policy manuals, and establishing supervisory procedures. Then there are other considerations, such as obtaining office space, establishing recruiting and training programs, hiring the appropriate support staff, perhaps obtaining a franchise agreement, and all of the other factors that go into starting a new business venture.

A salesperson who likes the challenge of recruiting, training and managing other people might do well to establish an independent office. A salesperson who primarily likes to sell, and has been successful at it, might find it more financially rewarding to stay in sales. It is not at all uncommon for a real estate office to have one or more salespeople who actually earn more than the broker-owner of that office.

Continuing Education Requirements

Anyone with a real estate license, whether a broker's license or a salesperson's license, should be aware that they will be engaged in various studies related to real estate throughout their entire career. The mere fact that a person has obtained a license does not mean that their days of study are over. There are continuing education requirements which must be met for each license term, which is four years for either license.

Before a broker's or salesperson's license can be renewed, the licensee must provide proof to the California Department of Real Estate that the licensee has met the continuing education requirements. These requirements include the provision that during each four year term, the licensee must take at least 45 hours of approved continuing education courses. Included in this 45 hours of courses must be:

• Courses covering ethics, fair housing, trust funds, and the law of agency. In the initial renewal, each of these courses must be at least three hours in length. Subsequent renewals can include one course which gives an overview and review of all four topics.

• There must be at least 15 hours of courses covering consumer protection.

In order to obtain a real estate salesperson's license, a person must first take a 45 hour course in Real Estate Principles. This course must be approved by the California Department of Real Estate. Then the person must pass a salesperson's examination. Passing this examination does not make the person licensed, however. The person must then apply for the license within one year of passing the examination. The license is not active unless the person works for some licensed real estate broker.

Once a person obtains the salesperson's license, the person has eighteen months to complete two college level real estate classes, which must be at least 45 hours in length, and must be approved by the Department of Real Estate. These courses can be chosen from the following topics:

• Real Estate Practice

• Real Estate Law

• Property Management

• Real Estate Finance

• Real Estate Economics

• Legal Aspects of Real Estate

• Real Estate Office Administration

• General Accounting

• Mortgage Loan Brokering and Lending

• Business Law, or

• Accounting.

In many cases, the licensee may have already taken one or more of these courses in college, prior to obtaining the license. If this is the case, the applicant can send a photocopy of their college transcripts with their application for the examination and obtain credit for having already taken those courses. (It does not matter how long ago they were taken prior to obtaining the license.) If the applicant has already taken both courses, they will be issued a full four year license.

If the applicant has not taken both courses prior to obtaining the license, the initial license will be issued for the four year term, but will automatically be suspended if the licensee does not provide proof of completing the courses within this eighteen month period. Once the proof is submitted to the Department of Real Estate, the license will then be valid for the full four year term.

At the time of the licensee's first renewal, the licensee will be required to take four courses, each three hours in length, covering:

• The Law of Agency

• Ethics

• Fair Housing, and

• Trust Funds.

In subsequent renewals, the salesperson has the same 45 hour continuing education requirement as does a real estate broker. These courses can be taken by correspondence or by live class.

Employment Contracts

A real estate salesperson's license is not active unless that salesperson is working for some licensed real estate broker. The salesperson's license must physically hang on the wall of the main office of the employing real estate broker. There must be a written contract between the salesperson and the broker.