Many Teams, One License Law
by Jeffrey T. Baker, Illinois REALTORS® Associate General Counsel & Director of Legal Services
Teams continue to expand both in size and creativity. But as their popularity surges it is important to remember that there is only one license law, which applies to all licensees, whether a team is involved or not. For issues such as agency, advertising, and employment law, it is easy to forget that the creation of teams does not change the rules. Teams after all, can create new situations where the applicability of the same rules becomes confusing. A review of the rules in the context of teams will help to illustrate this.
What is a team?
It is perhaps most important to remember that no matter how a brokerage structures its compensation or business modeling, a team is always, only a functional unit within a brokerage. Teams are not separate legal entities – they are not incorporated and critically, they are not themselves licensed. Instead, teams are similar to divisions within a company.
The formation of a team within a brokerage does not change how the license law applies to the brokerage or the team members. For example, prior to a team’s formation, a brokerage company is a licensed sponsoring broker with a managing broker and one or more sponsored licensees, all of whom are subject to all of the provisions of the license law. The creation of a team essentially groups certain of the sponsored licensee’s together for internal or marketing purposes but does not change the overall structure of a sponsoring brokerage company, with a managing broker and one or more sponsored licensees. As we like to say: nothing changes. The rules are the same both before and after the creation of the team.
Agency issues raised by teams
While the law does not change (and there is no specific part of the license law that pertains to teams), the formation of a team can create legal situations that companies are not used to dealing with. One of those issues is dual agency.
Illinois may be unique in that our license act creates a presumption of “designated agency.” This means that while a seller or buyer is legally and technically hiring the brokerage company, that client’s agent is the individual broker with whom they’re working (i.e., their designated agent). Generally speaking, dual agency arises when a single broker is the designated agent for both the buyer and the seller in the same transaction. When this occurs, license law requires that dual agency be disclosed; both the buyer and the seller must consent to the agency in writing both before and at the time of contracting. The license law’s requirements can have further impact on brokers that practice disclosed dual agency, particularly with regard to the obligation to keep all client information confidential. This duty, in the context of dual agency, significantly changes the broker’s role in the transaction, restricting the broker from providing counseling or advice to their clients.
The most common team format is a team leader who acts as a seller’s agent and then other team members that act as buyers’ agents. If the team regularly shares information on the clients it is representing or if the team holds itself out to the public as a singular unit (in other words: you hire one of us, you get us all), then it could be presumed that there is always dual agency when dealing with team members. This would require the entire team or multiple members anyway to be listed on the listing or buyer’s representation agreements.
However, if the team operates in such a way as to protect the confidential information of its clients and segregates the activity of the seller’s agent and the buyers’ agents, then dual agency may be avoidable. Of course, this may be easier said than done. In order to avoid the restrictions of dual agency, the brokerage company should take necessary steps to keep both physical information and electronic data secure and inaccessible by opposing parties. Moreover, the company will need to take into consideration the manner in which the team is marketed so that it does not inadvertently create the impression that when hiring a team member, a client has actually hired the entire team to work on their behalf.
It is easy to see now that the rules for dual agency in Illinois do not change simply because a company now has a team within it. The same requirements for confidentiality, disclosure and consent apply whether licensees within a company decide to band together under a team name or not.
Marketing the team
It is not difficult these day to find billboards, print advertisements or social media posts marketing local real estate teams. Again, as can be seen above as it relates to dual agency, it is important to remember that just because a company has formed a real estate team, does not mean the rules have changed. One of the most common mistakes that teams and their brokerages make when marketing their team is in the display of the team name.
Both Illinois license law and the REALTOR® Code of Ethics require that a company’s name be displayed completely in advertising. In the case of a franchisee, the franchise affiliation must also be included in all advertising. License law also provides that advertising must not be misleading. A team within a brokerage must comply with each of these rules just as the team’s sponsoring brokerage is required to do. Often, some teams will completely omit the name of the sponsoring broker from their advertising, whereas in other cases, team names are used that imply the team itself is a separate or its own brokerage company. Advertising on social media, which is structured to favor brevity, presents a particularly difficult forum for licensees to insure compliance with the marketing rules.
Another rule that does not change in the presence of a team is the requirement that assumed names be properly registered. The regulations accompanying the license law in Illinois require that any business that desires to operate under any name other than the name appearing on its license, must file the necessary forms with the Secretary of State (in the case of business entities) or the county clerk in each county where it operates (in the case of sole proprietors). This means that brokerage companies cannot treat their team names as assumed names (and use them instead of their brokerage company name) unless they have complied with the requisite filing requirements. In the case of franchises, the franchise affiliation will always be required even if the assumed name is properly registered. It is also important to remember that assumed names belong only to the sponsoring brokers that register them, even if the name includes the name of an individual sponsored licensee.
Just like the agency rules above, the rules for advertising remain the same whether a team is involved or not. Teams can be incredibly useful business tools for brokerage companies but they can also create situations that some companies are not typically used to dealing with, like being sure to correctly display the sponsoring broker’s name with the team name in advertising.
By now it should be clear that it does not matter what issues teams may present, the license law rules do not change. This includes issues related to employment and independent contractor status. Traditionally in Illinois, sponsored licensees are generally treated as independent contractors of their sponsoring brokers. The creation of a team within the company should not change that status. Because teams are not themselves distinct legal entities, they cannot have employees.
While unlicensed personal assistants will almost always be employees of a brokerage company, the company must always weigh the pros and cons of making licensed personal assistants employees. It is not uncommon for teams to contain at least one licensed or unlicensed personal assistant thus you can see how the same analysis and rules would be used for companies with teams and those without. It is possible that an unlicensed personal assistant could be an employee of a team member, but again, the rules with regard to the treatment of employees (for tax purposes, withholdings, benefits, etc.) apply to whomever the employer is, whether a brokerage or an individual licensee.
Teams that function independently within their brokerage company offer a tempting opportunity to believe that different rules apply to those working within or for the team. However, the decision of whether a licensee is going to be an employee or independent contractor remains the same.
Only one license law
Because of the rapid growth of the use of teams and their naturally compartmentalized structure, it has been easy for many in the industry to confuse how our license law applies to them. However, as can be seen above, there is only one license law no matter how many variations on business structures that practitioners may try to implement. As companies continue to grow, teams are an obvious tool that can be used to create efficiencies and scale for their growth. It is critical though that as their use increases, companies keep in mind that teams are internal organizational mechanisms and not distinct businesses that trigger independent or new rules.
More on teams:
- Q. If a team operates within a real estate brokerage company, are all team members automatically considered dual agents? (What Is a Team? While not defined within the Act, for discussion purposes, a “team” is a functional unit operating within a real estate brokerage office comprised of one or more real estate licensees and one or more administrative personnel.)
A. The answer to this question will depend largely upon how the team operates and how it holds itself out to the public. The key questions will center on the protection of opposing parties’ confidential information. The basic premise under RELA is the presumption of designated agency; meaning that, although the brokerage relationship is with the company, the broker with whom the client works is the presumed legal agent for the client. The designated agent owes the client all the statutory duties contained in Section 15-15 of RELA, chief among them the duty of confidentiality. Now, how can these concepts be applied within a team?
- Does the team operate in a manner that can protect the confidential information of opposing parties? If so, teams might be able to function without disclosed dual agency in every situation. Consider the example where the team leader is the listing agent representing the seller, shielding herself from buyers’ information. Conversely, the buyer agent team members protect the buyers’ confidential information from the listing agent. The team operates somewhat like a “shop within a shop” as far as locking physical files and creating password or other “locking mechanisms” to electronic files. Note this is all accomplished without creating a separate legal entity. The team is a functional unit and not a separate legal entity.
- On the other hand, if team members function together and each has access to all files related to the team’s clients, disclosed dual agency and informed consent is a must. The team members have greatly limited their roles. They can provide information to their clients, but they are prohibited from “counseling” their clients, i.e. by helping the seller decide what price or terms he should accept, or helping a buyer formulate the actual offer amount.
- Analyze how the team holds itself out to the public. If the team implies “all for one,” there is an implication that information is shared among team members, thus necessitating consent for dual agency. If a client does not consent to dual agency and needs more assistance than a dual agent can provide, the client must be referred outside the team.
- If your team does not want to operate largely within the limits of disclosed dual agency, then it should make sure the representations to the public don’t imply that a consumer is hiring the entire team and make sure clients of different team members know that the client’s confidential information is protected from the other side.