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Part of a Team? Play by the Rules!

Being part of a team can offer opportunities and rewards but it’s also important for principal brokers, team leaders, and team members to understand and comply with legal requirements.  Read about five important rules that apply to teams.

Rule #1 – Supervision and Liability:   The principal broker is legally responsible to make sure that all affiliated licensees comply with state law.  The law requires a principal broker to “act in a supervisory capacity for every real estate transaction in which an affiliated licensee participates.”   No matter how many active teams and team leaders there are in an office, state law holds the principal broker ultimately responsible to make sure that consumers are protected.

Rule #2 – Deposits: All deposit checks must be paid to and held by the principal broker. State law does not recognize a team as a real estate brokerage, which means that it cannot transact business on its own.  Deposit checks cannot legally be made payable to teams or salespeople.

Rule #3 –  Commissions: Commissions must be paid by a principal broker to associated licensees. Since teams are not real estate brokerages, a principal broker cannot legally pay a team then have the team write commission checks to team members. The only exception is that a principal broker can pay a commission to the wholly owned corporation or LLC of an affiliated salesperson. If a team has its own compensation arrangement among team members, it must be approved by the principal broker because he or she is responsible for paying commissions.

Rule #4 –  Advertising:  All advertising, including signs, web sites, business cards, social media, print, video, radio, etc.  must include the name of the brokerage or principal broker under which the licensee is licensed to do business.  The name of a real estate licensee must be “in print smaller and less conspicuous than that of the brokerage” on advertising except for business cards.

Rule #5 –  Recordkeeping:   The principal broker is responsible for retaining records of transactions for a minimum of three years.  Teams may create files for transactions as long as the principal broker has oversight and secures the records.

The purpose of these and other Rhode Island laws is to protect consumers by making sure that principal brokers manage their offices.  So what can a team legally do?  To learn about best practices for teams, register for the C-RETS class on October 23rd and 24th

Questions about these rules?   Contact the RIAR Legal Department at 401-432-6945 or email monica@riliving.com.

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