This is a continuation of the multi-part article series, introduced last month in the magazine, updating you on the changes being made to Wisconsin Statute Chapter 452.
In the last several years, we have been working with real estate firms, their agents, the Department of Safety and Professional Services (DSPS) legal counsel and the Real Estate Examining Board on issues surrounding the business entity licensing and independent practice by those associated with a firm who also have a broker’s license. The changes made in the law clarify the legal gray areas the DSPS has struggled with for years.
This article specifically discusses the changes made in Chapter 452 that address the modernization of the licensing of business entities and independent practice. Admittedly, this discussion is far into the weeds, and I recognize that this may take some time to wrap your mind around. Just like the sequel to Alice’s Adventures in Wonderland, it may feel as though you can only understand the complexities of license business entities by holding it up to a mirror. To assist you in understanding this topic, we will begin with a breakdown.
Individuals and/or business entities may obtain a real estate license. Why someone chooses to obtain a specific real estate license largely depends on the business model and decisions influenced by legal and accounting experts consulting the individual as to their real estate business.
The real estate players
The DSPS categorizes real estate licenses by codes. Your individual license incorporates those numbers. For instance, a Real Estate Business Entity is referred to as a “(91),” an individual broker license as a “(90)” and a salesperson license as a “(94).”
Clarifications of the bill
1. A licensed business entity may have another licensed business entity associated under it.
For a variety of reasons, Wisconsin REALTORS® last year were repeatedly asking the Legal Hotline if one license business entity could “hold” the license of another licensed business entity.
Example: The Lamont Real Estate Group LLC, which is a licensed business entity, may have The Land Group, which is also a licensed business entity, associated with The Lamont Real Estate Group LLC. This scenario may exist for a number of reasons. For example, The Land Group may have been licensed because the individual associated with The Land Group is a broker, and his attorney and/or CPA encouraged him to have a licensed business entity for liability and tax purposes.
As long as The Lamont Real Estate Group LLC is okay with allowing The Land Group to be associated with The Lamont Real Estate Group LLC, the law will clearly allow a licensed business entity to have one or more licensed business entities associated with its licensed business entity.
2. A licensed broker may be a business representative for more than one licensed business entity and may provide brokerage services for each licensed business entity.
Each licensed business entity must have at least one licensed broker to act as a business representative for the licensed business entity. While a licensed business entity may have more than one business representative for the licensed business entity, at least one of the business representatives must be a licensed broker. If a licensed broker is going to act as a business representative for more than one licensed business entity, then the broker must have expressed written consent of each licensed business entity to act as a business representative for each.
The law maintains a salesperson is not permitted to have a business entity license unless the salesperson can get a licensed broker to act as the business representative for the business entity. Keep in mind that a licensed business entity may delegate a licensed broker as a supervising broker. Therefore, if the salesperson did have a licensed broker who agreed to act as the business representative for the licensed business entity, the licensed broker also takes the responsibility for the acts of the licensed business entity.
Example: Tom Moore, a licensed broker is a business representative for The Lamont Real Estate Group LLC, which is a licensed business entity. Tom Moore is also the business representative for The Land Group, which is also a licensed business entity. Tom Moore may provide brokerage services for both The Lamont Real Estate Group and The Land Group as long as both businesses have given Tom written consent.
A number of people have more than one niche business in the real estate market, and many prefer to have each of those specialty businesses separately licensed, but the same licensed broker is the business representative for each. This clarification in law allows such a business model with certain elements being met.
3. A licensed broker associated with a firm may also practice real estate outside of the firm in limited circumstances.
This bill largely codifies Wisconsin Administrative Code Chapter REEB 17, which addresses a variety of issues, including independent practice by licensed brokers. The law now more clearly states that a broker who is associated with a firm may engage in independent real estate practice in his or her own name or under a licensed business entity.
If a broker associated with a firm would like to participate independently from the firm, there are a few considerations that must be met:
- The broker must obtain written approval from each firm the broker is associated with.
- The broker must avoid conflict of interest with each firm the broker is associated with.
- If the firm allows the broker to practice independently, the broker must notify the DSPS of the name under which the broker will be engaging in independent practice.
The bill clarifies that a licensed salesperson may not be permitted to participate in independent practice.
Example: Tom Moore is a licensed broker associated with The Lamont Real Estate Group LLC, which is a licensed business entity. Tom Moore approached his supervising broker at The Lamont Real Estate Group LLC about opening up his own property management company. The Lamont Real Estate Group LLC does not provide property management services and gave Tom written permission to practice independently as a property management company. Tom will decide if he is going to act under this own name or if he will act under a newly created licensed business entity. This scenario could get more complicated if Tom is also a business representative for The Lamont Real Estate Group LLC. And for these reasons, the law will now recognize all of these unique situations.
For some of you, this discussion may not have a lot of relevance; for others, this discussion may create great interest in understanding more. Look for more information in upcoming WRA Legal Updates.
We will continue to update you on other changes made to Chapter 452 in future magazine articles. Hopefully future 452 discussions will not make you feel as though you have climbed into Alice’s Adventures in Wonderland.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.