License Types & Exemptions Flashcards
There are six license types in Arizona:
Real estate broker
Real estate salesperson
Cemetery broker
Cemetery salesperson
Membership camping broker
Membership camping salesperson
How many License Types?
Acts That Require a License
Generally, you must be actively licensed with the ADRE if you are performing (or offering to perform) real estate activities for another person and for compensation.
Another way to put it is if you are acting as a broker or a salesperson (of any type), you must have an active Arizona real estate license. Well, what does it mean to act as a broker or salesperson? It means to perform, or offer to perform:
Any act, in consideration or expectation of compensation, which is included in the definition of a real estate, cemetery, or membership camping broker. We will go through those definitions in just a minute, but this includes acts like selling a home, advertising a property, etc.
It does not matter whether the act is an incidental part of a transaction or the entire transaction.
Gotta Have a License
The license law states that it is unlawful for any person, corporation, partnership, or limited liability company (LLC) to perform any of the duties of a salesperson or broker (of any type) without having the relevant license.
In other words, in order to be a salesperson or broker, you gotta have the license. Makes sense!
Gotta Abide by License Law
Also, if you are licensed as a salesperson or broker, you are subject to the license law. Again, makes sense, right?
Now, let’s go through the six license types, starting with the real estate broker.
Notes
What does a broker do? (Notes)
Sells, exchanges, purchases, rents, or leases real estate, businesses, business opportunities, or timeshare interests.
Ditto for offering to do the above.
Ditto for negotiating, offering to negotiate, attempting to negotiate, or agreeing to negotiate.
Ditto for listing, offering to list, attempting to list, or agreeing to list.
Ditto for auctioning, offering to auction, attempting to auction, or agreeing to auction.
Buys, sells, offers to buy or sell, or otherwise deals in options on real estate, businesses and business opportunities, timeshare interests, or improvements to these things.
An “option to buy” contract is when a contract gives a buyer an option to buy a property at the end of a lease term.
Collects rent, offers to collect rent, attempts to collect rent, or agrees to collect rent for the use of real estate, businesses and business opportunities, or timeshare interests.
Advertises or presents themselves as being engaged in the business of buying, selling, exchanging, renting, or leasing real estate, businesses and business opportunities, or timeshare interests; or advertises or presents themselves as counseling or advising on those topics.
Assists or directs in the procuring of prospects, calculated to result in the sale, exchange, leasing, or rental of real estate, businesses and business opportunities, or timeshare interests.
Assists or directs in the negotiation of any transaction calculated or intended to result in the sale, exchange, leasing, or rental of real estate, businesses and business opportunities, or timeshare interests.
Negotiates or offers, attempts or agrees to negotiate a loan secured or to be secured by any mortgage or other encumbrance on or transfer of real estate, businesses and business opportunities, or timeshare interests, subject to certain provisions of license law. The loan must be incident to the sale. A mortgage broker does not need a real estate broker license.
Assists or offers to assist another in filing an application for lands owned by the state or federal government. This applies to purchasing, leasing, locating, or entering on.
Claims, demands, charges, receives, collects, or contracts for the collection of an advance fee in connection with any of the above, including:
Employment undertaken to promote the sale or lease of real property by advance fee listing
By furnishing rental information to a prospective tenant for a fee paid by the prospective tenant
By advertisement or by any other offering to sell, lease, exchange or rent real property or selling kits
This does not include the activities of any communications media of general circulation, coverage not primarily engaged in the advertisement of real estate, or any communications media activities that are specifically exempt.
Engages in any of the acts listed above for the sale or lease of other than real property if a real property sale or lease is a part of, contingent on, or ancillary to the transaction.
Performs any of the acts listed above as an employee of, or on behalf of, the owner of real estate, or interest in the real estate, or improvements affixed on the real estate, for compensation.
Acts as a business broker. A business broker means a real estate broker who acts as an intermediary or agent between sellers or buyers, or both, in the sale or purchase, or both, of businesses or business opportunities where a lease or sale of real property is either a direct or incidental part of the transaction.
Scenario: Bob the Broker
Are you curious about how these broker tasks look in action? Say no more. Let’s peer into Rosewood Realty, where Bob works as a broker.
Bob starts his day off by offering to list the house of Melody, a customer with whom he’s been emailing. She accepts the offer, they enter into a representation agreement, and he lists the house.
Bob then writes up some advertisements for Melody’s house. A few days after the ads are posted, offers start coming in. Melody decides to accept an offer, and Bob helps Melody negotiate the terms.
So, what tasks did Bob perform that require a brokers license?
✅ He offered to list a property.
✅ He actually listed the property.
✅ He wrote up advertisements for the house.
✅ He helped Melody negotiate the terms of a transaction.
Types of Brokers
Phew, that was a lot of information! But wait, there’s more. There are multiple types of brokers in Arizona.
Employing Broker
All brokerages in Arizona need an employing broker. The employing broker is licensed with the state and authorized to engage in real estate activities. The employing broker is usually not a person, but a business entity: a corporation, a partnership, or a limited liability company.
An employing broker can also be a sole proprietor, however. In that case, the employing broker is actually a person, and basically runs their business by themselves.
If the employing broker is a company, the company will hire a designated broker to act as the boss. In these cases, your license is held by the employing broker, but the designated broker is the one who supervises you.
Designated Broker
The designated broker is in charge of all real estate operations of a firm. They supervise everyone else: salespersons, associate brokers, and unlicensed assistants. There is only one designated broker per firm.
Once the employing broker’s license is in place, the company can then hire the designated broker to be in charge of everything.
Let’s say that in our example on the previous page, Bob the Broker supervised everyone else. Bob was the designated broker!
Associate Broker
An associate broker is a licensed broker. Unless otherwise specifically provided, an associate broker has the same license privileges as a salesperson.
A person might choose to become an associate broker to show that they have more experience and more training than a salesperson. However, they may not have any interest in becoming a designated broker.
Essentially, then, an associate broker has a broker’s license, but does not have broker responsibilities. Instead, like a salesperson, they work for and are supervised by the designated broker. Still, they are qualified to become a designated broker or managing broker, or to open a brokerage, at any time.
Delegated Associate Broker
A designated broker may choose to appoint a delegated associate broker, also known as the managing broker. This person assists the designated broker in their daily duties.
Visualize It
Here’s a quick and easy way to visualize our cast of characters.
A designated broker supervises unlicensed assistant, associate broker, and salesperson, & assists delegated associate broker.
Types of Brokers
Broker Terminology
Let’s pause for a moment and talk about some word usage issues.
How “Broker” Is Actually Used
You might hear someone say, “Phil is the broker at the firm.” When they say “the broker,” they mean “the designated broker.”
You might also hear someone say, “Phil is a broker at the firm.” They probably mean “associate broker.” A firm can have multiple associate brokers, but only one designated broker.
This fast and loose usage of “broker” can be a little unclear, but you can usually figure it out by context.
Broker vs. Brokerage
What’s the difference between “broker” and “brokerage”? Here’s a table to show the differences.
Broker & Brokerage Notes
Sole Proprietor
“Sole” means “one” or “only.” You can probably guess what this means, then – a sole proprietorship is basically a one-person business. They have complete control. The owner reports all profits and losses on their personal income taxes and thereby avoids “double taxation” (that is, getting taxed as an individual and as a business).
The owner of a sole proprietorship is personally liable for the profits, debts, and obligations of the business. Consequently, the owner’s personal assets are at risk in the event of business failure or debt.
Sole proprietorships are kind of like starter business forms. They don’t offer any protection, but they’re also really easy to set up and don’t require much paperwork beyond basic bookkeeping.
Remember that an employing broker who is a sole proprietor is actually a person, and basically runs their business by themselves.
Partnership
A partnership is similar to a sole proprietorship, but involves two or more individuals or entities. This business formation, too, helps avoid double-taxation issues.
In a partnership, two or more people enter into a for-profit enterprise and share the risks and rewards of the business.
The partnership can be general, limited, or a limited liability partnership (LLP).
Corporation
A corporation is a company or a group of people who are considered a single entity under the law. A corporation is considered a legal person, separate from the individual stockholders in the corporation.
A corporation is owned by shareholders, but management power belongs to the corporation’s board of directors. Shareholders, though, are not personally liable for the corporation’s debts.
Limited Liability Company (LLC)
A limited liability company is like the best parts of corporations and partnerships. It has limited liability, like a corporation, and no double taxation, like a partnership.
An LLC is either member controlled or manager controlled. Though the LLC structure protects members from personal liability for business debts, they can be held liable if another member does something illegal.
Back to the Employing Broker
Why are we reviewing these types of business organizations, again? It’s because these are the forms that the employing broker can take.
The Designated Broker’s Role
If the employing broker is, in fact, a business entity, there are special rules about the designated broker. The designated broker must be one of the following:
An officer of the corporation
A manager or member of the LLC
A partner of the partnership
Employing Broker Entities
Professional Corporations (PCs) This is like a regular corporation, but each officer, director, and shareholder must hold an active real estate license.
Professional Limited Liability Corporations (PLLCs)
This is like an LLC, except all members must hold active real estate licenses. However, they can hire unlicensed employees as long as those people are supervised by licensees, and don’t present themselves as holding licenses.
Relationship to Employing Brokers
Employing brokers are allowed to pay salespersons and associate brokers through PCs or PLLCs.
EXAMPLE
Ana Stevenson and Abby Thomas are associate brokers employed by Field Realty. They decide to join together into a PLLC: Stevenson and Thomas PLLC. Since they are a PLLC, they can’t get licensed as an employing broker. Instead, they need to stay where they are, at Field Realty, and work under that employing broker. All commissions, taxes, and business expenses go through the PLLC.
Designated Brokers
Designated brokers, like salespersons or associate brokers, can form a PC or PLLC. However, the designated broker needs to be the only member of that PC or PLLC.
Additional Licensed Entities
Okay, that’s our breakdown of a real estate broker. Let’s now move on to the next category.
According to the A.R.S., a real estate salesperson is
a natural person who acts on the person’s own behalf or through and on behalf of a professional limited liability company or a professional corporation engaged by or on behalf of a licensed real estate broker, or by or on behalf of a limited liability company, partnership or corporation that is licensed as a real estate broker, to perform any act or participate in any transaction in a manner included in the definition of real estate broker subject to section 32-2155.
Let’s translate, shall we? Basically, a real estate salesperson engages in the real estate activities put forth in the “definition of a broker” section. They perform these activities on behalf of the employing broker.
As we just discussed, a salesperson can be part of a PLLC or a PC, or work for an employing broker that is licensed as an LLC, partnership, or corporation.
Real Estate Salesperson
Comparison: Brokers and Salespersons
So, what are the differences between a broker and a salesperson? A broker has to have more experience than a salesperson and takes a different exam, as you will learn a little later. Because brokers have more experience than salespersons, they tend to get paid more.
However, an associate broker, like a salesperson, is supervised by the designated broker.
Notes: Exempt from Licensing
So far, this chapter has covered what people (and companies) need salesperson or brokers licenses in Arizona. Who doesn’t need a license? Get ready, because there are a bunch of exemptions.
The following are exempt from the licensing law:
A person or entity who transacts their own property without receiving special compensation. This includes people, corporations, partnerships, and LLCs that sell, exchange, purchase, rent, lease, manage, or pledge their own property.
For sale by owner is known as FSBO.
A person with power of attorney that is being used for a specific purpose in an isolated transaction and not as a method of conducting a real estate business.
Power of attorney is when one person is legally given the right to act for another. It’s often used when someone is ill, disabled, or unable to be present to sign a legal document.
An attorney in the course of their normal duties. This includes duties like reviewing contracts and not any act that would require a real estate license, such as selling someone’s home for them.
A person acting under a court order. For instance, a trustee in bankruptcy is appointed to represent a debtor’s estate in a bankruptcy proceeding. The trustee would make recommendations about the distributions of assets. This trustee in bankruptcy is acting under court order. Other examples of people acting under a court order might include guardians, executors, or administrators.
A trustee selling under a deed of trust. There is a power of sale clause in a deed of trust which allows the lender to foreclose (seize and sell) a property in case of a default. If this happens, the trustee can sell the property without needing a court order.
A trust company owned by a bank holding company regulated by the federal reserve board or a bank in exercising its fiduciary duties under the terms of a trust agreement to which real property is subject.
For instance, if a trustee sells property on someone else’s behalf because of how a trust is set up (i.e., a trustee sells a home on behalf of a minor because of the trust’s specifications), that trustee does not need a real estate license.
A residential leasing agent or on-site manager of residential rental properties. These conditions must apply:
They perform residential leasing activities at only one location.
They do not receive special compensation for preparing leasing/renewals/amendments, collecting security deposits or rent, showing residential units, executing lease agreements, or delivering notices on behalf of the owner.
A bonus does not count as special compensation as long as it is not received more than monthly and it is not more than half of the total compensation for that time period.
Any officer or employee of a governmental agency (who is not a contract or temporary employee of the agency) in the course of their normal duties.
A person who acts as a property manager for one nonresidential income property or for two or more contiguous nonresidential income properties that are under common ownership. The person must be employed by the owner or the owner’s licensed management agent.
Contiguous simply means next to each other.
An assistant who performs clerical tasks. These are known as “unlicensed assistants,” whom you will learn about in the next level. While they can do secretarial tasks like typing, filing, and answering the phone, they cannot do anything that requires a real estate license.
A telemarketer. This person is employed by the employing broker. Their telemarketing services are limited to soliciting interest in engaging the services of a licensee, or gathering demographic information.
Media personnel. They are primarily engaged in advertising real estate and perform no other acts requiring a real estate license. These conditions must apply:
They do not compile information about specific prospective purchasers or tenants. However, general information about prospective purchasers or tenants, such as demographic and marketing information, may be compiled.
They do not make representations to prospective real property sellers or landlords, or their representatives, concerning specific prospective purchasers or tenants.
The fee charged for advertising is based solely on the advertising services provided.
The advertisements provide for direct contact between the seller or landlord and the prospective buyers or tenants, or for contact through a licensed real estate broker or property management firm.
The media personnel may not act as intermediaries or assist in any intermediary action between prospective parties to a real estate transaction, except that additional information about advertised properties may be provided to prospects on request.
Nursing care property managers. A person who performs residential property management services or marketing and promotional services solely for nursing care institutions or pursuant to life care contracts does not need a real estate license.
A life care contract is a written agreement that sets forth care arrangements for an elderly person. It can be a personal care agreement (for instance, between the elderly person and a relative, where the relative cares for the elderly person in the elderly person’s home). It can also be an institutional care agreement (for instance, between the elderly person or their representative and an assisted living facility).
A person who offers to sell or lease property that constitutes a security if the person is a registered securities dealer or salesperson.
A security is a financial instrument that has monetary value and can be exchanged for assets of the same type.
A person who manages a hotel, motel, or recreational vehicle park.
A person who arranges occupancies of 31 days or fewer in a dwelling. This is done on behalf of another (i.e., the person works for the owner). It includes soliciting, arranging, or accepting reservations or money, or both.
An escrow agent, a title insurer, or a title insurance agent. This is in the course of their normal duties.
A corporation that, for no special compensation, transacts property that is incidental to the business of the corporation. This applies to when a company purchases, sells, exchanges, rents, leases, manages, or pledges its property.
A person who receives a finder’s fee. Essentially, this is a tenant who receives a rent reduction for referring another tenant to the property manager or owner. More on this in the next level!
Commissioner-Granted Exceptions
The Commissioner may grant an exemption to any corporation that applies for an exemption if:
It is a nonprofit corporation that provides project-based housing services. It must operate solely as a charitable organization.
Its only activities related to real estate involve ownership or management of residential property owned or controlled by the corporation.
What About Other States?
Each state has its own specific list of license-law exemptions. Still, it’s usually a good bet that anyone acting as a surrogate principal in a legal capacity, or government entities or officials conducting official acts, are going to be exempt from a state’s real estate license requirements.
