Real estate brokerage teams are clearly here to stay. Some are big. Some are smaller. They are different things to different companies. No matter how many teammates, or what size the team is, to the extent that they contain licensees, they must comply with the Illinois Real Estate License Act (Act) and the Illinois Real Estate License Act Rules (Rules).
There are some overarching principles under the Act and Rules that apply to all teams. First, all licensed team members are subject to the same regulation of their brokerage practices as other licensees. In other words, the concept of designated or legal agency applies to licensees on a team. Next, no licensee can work for more than one sponsoring brokerage company at any one time. You can find this in Section 10-20(a) of the Act.
Bearing these important principles in mind, let’s examine what teams are and to some extent, what they are not.
Teams are not (or at least should not be) separate entities. They are a functional unit or an artificial construct within a sponsoring brokerage company. The best available analogy is that the team might operate within a company like a division. As such, there is no separate or formal legal entity.* This allows the licensed team members to be sponsored by the same brokerage company as their teammates. If there is a separate entity operating as a team, this entity would need its own brokerage company license and its own named managing broker.
The bottom line is that formation of a team changes NOTHING about the company, the company managing broker’s oversight responsibilities under the Act, or how the company or brokers are paid compensation.
*This is not to be confused with a licensee’s ability to form a one-owner entity for the purpose of receiving that licensee’s real estate brokerage compensation from the sponsoring brokerage company. See Section 10-20(e) of the Act.
Brokerage companies need to consider the unique employment issues that arise with teams being functional units within their companies. It is easy, especially in larger brokerages, to want to associate certain individuals with just the team and not the overall brokerage company. But, it is important to note that everyone from the team leader to the licensed personal assistant (LPA) working on team administrative functions is either an independent contractor or an employee of the sponsoring brokerage company. No licensed person is an employee or contractor of the team. In addition, the Act requires that the sponsoring brokerage company have a written independent contractor or employment agreement with every licensee it sponsors, including the LPA.
One small exception to the general rule is where a licensee hires an unlicensed personal assistant (UPA). UPAs are not licensed and therefore not covered by the Act. A UPA could be an employee of the assisted licensee as opposed to the brokerage company. However, the brokerage wants to make sure the assisted licensee is properly compensating the UPA, who will almost certainly be an employee and subject to all of the common employee tax withholdings. IF the UPA is an employee of the assisted licensee, the brokerage company should take care not to use the UPA as an employee of the larger company. This could raise employment and tax concerns for the company.
The Act presumes the licensee working with a client to be the legal agent for that client, thus owing the statute’s “fiduciary-like” duties to the client, even though the brokerage relationship is with the sponsoring company. What are the rules when the parties are represented by brokers who are members of the same team? In order to answer this question, there must be more information as to how the team operates.
One key question to ask is whether and how opposing parties’ confidential information is handled within the team. Is confidential information protected or is it not?
If not, then any time teammates represent opposing parties in a transaction, the team members must act as disclosed dual agents so that they are bound to protect each party’s confidential information. The team members have vastly limited their role in this scenario. They become less counselor for the clients and more an administrative middle person.
Remember that disclosed dual agency requires disclosure and informed written consent. The parties need to consent to the concept of dual agency by signing the “long form” that describes the do’s and don’ts of a dual agent before the agent(s) act as such, then confirm the consent no later than the time of signing the purchase or lease contract.
If there is a system for protecting opposing parties’ confidential information within the team, then the team could operate under the presumed designated agency theory. An example would be the team comprised of “big lister” and buyer brokers. The “big lister” might protect seller’s information from the buyer brokers, while the buyer brokers would protect their respective buyers’ confidential information from “big lister” and other buyer brokers. There must be methods in place to protect physical and electronic files containing clients’ confidential information.
Another question related to agency and marketing is whether team advertising materials imply “all for one.” If so, this cuts toward dual agency and limiting the role between team members and clients of the team.
Marketing or Advertising Issues
For more on marketing, remember the Act, the Rules and the REALTOR® Code of Ethics all apply to marketing the team. Marketing must be true and not misleading. The sponsoring brokerage company name must appear in a readily apparent manner. Simply put, the ad piece, wherever this appears, must include the company name with any franchise affiliation, and not just the team name. When consumers look at, read, view or hear the ad, they should not only know the team name but also the sponsoring company.
The team name itself must not be misleading. For instance, the use of Baker Realty as a team name is facially deceptive as it does not convey the idea of a team or group, but a separate and free-standing company. If the piece contains both The Baker Team and ABC Realty, Inc. positioned somewhere, the ad would be compliant.
In the unlikely event a sponsoring brokerage company does wish to allow the team to advertise in its own name, that sponsoring brokerage company (and NOT the team leader) might register the team name to be used in lieu of the sponsoring brokerage company name. This will not work in the case of a franchise.
Finally, in most situations, where the team name and the sponsoring company properly appear in the materials together, there is no requirement to separately register the team name.