A brokerage business may take many forms. It may be a sole proprietorship (a single-owner company), a corporation, or a partnership. The office may be independent or part of a regional or national franchise. The business may consist of a single office or multiple branches. The brokerage office may be located in a downtown high rise, a suburban shopping center, or the sponsoring broker’s home. A typical real estate brokerage may specialize in one kind of transaction or service, or it may offer a variety of services.
No matter what form it takes, a real estate brokerage has the same demands, expenses, and rewards as any other small business. A real estate broker faces many of the same challenges as an entrepreneur in any other industry. In addition to mastering the complexities of real estate transactions, the real estate broker must be able to handle the day-to-day details of running a business and to set effective policies for every aspect of the brokerage operation. This includes maintaining space and equipment, hiring employees and real estate licensees, determining compensation, directing staff and sales activities, and implementing procedures to follow in carrying out agency duties. Each state’s real estate license laws and regulations establish the business activities and methods of doing business that are permitted.
Virtual Brokerage Offices
A virtual brokerage office offers the same capacity of the traditional brick and mortar office. Because of access to the internet and mobile-friendly devices and available apps, license agents can conduct a transaction from anywhere that the agent or consumer is located. An agent or client does not need to come into the office to conduct their business.
In Illinois, every real estate office must have a sponsoring broker or designated managing broker of record, neither of which is required to be the owner of the business. After April 30, 2012, all licensees acting as a designated managing broker or self-sponsored broker must have a managing broker’s license or acquire one within 90 days after being named designated managing broker.
The Act creates a new classification of managing broker. A “designated managing broker” is a managing broker appointed by the sponsoring broker who has supervisory responsibilities for licensees in one or multiple offices. 225 ILCS 454 Section 1-10
The sponsoring broker is responsible for supervising all designated managing brokers, shall name a designated managing broker for each office, and notify the Department of all designated managing brokers and the office(s) they manage. 225 ILCS 454 Section 5-45(b)
Designated managing broker’s responsibilities include:
In addition, designated managing brokers shall directly handle all earnest money, escrows, contract negotiations, and advertisements for broker who have not completed the 45-hour post-license education. 225 ILCS 454 Section 10-55(b)
A designated managing broker may be disciplined for failure to provide a written company policy or perform any of the duties set forth in Section 10-55. 225 ILCS 454 Section 20-20(a)(46)
Sponsoring brokers
By Section 1450.100 definition, the sponsoring broker is the entity holding the company real estate license, whether the entity is an individual who operates as a sole proprietorship, partnership, limited liability company, corporation or registered limited liability partnership.
Likewise, the sponsoring broker may assign escrow account bookkeeping duties to a qualified company employee or independent contractor and may delegate authorized individuals to sign on behalf of the sponsoring broker. The sponsoring broker may authorize company personnel to sign contracts entered into by the sponsoring broker according to the sponsoring broker’s company policy. Even though the sponsoring broker may delegate authority, ultimately, the sponsoring broker is responsible for all activities.
Designated Managing Broker Responsibility and Supervision
A designated managing broker shall be responsible for the supervision of all licensees associated with a designated managing broker’s office. A designated managing broker’s responsibilities include implementation of company policies, the training of licensees and other employees on the company’s policies as well as on relevant provisions of this Act, and providing assistance to all licensees in real estate transactions. The designated managing broker shall be responsible for, and shall supervise, all special accounts of the company.
A designated managing broker’s responsibilities shall further include directly handling all earnest money, escrows, and contract negotiations for all transactions where the designated agent for the transaction has not completed his or her 45 hours of post-license education, as well as the approval of all advertisements involving a licensee who has not completed his or her 45 hours of post-license education. Licensees that have not completed their 45 hours of post-license education shall have no authority to bind the sponsoring broker.
Designated Managing brokers
A designated managing broker has taken additional courses and received a managing broker license. A sponsoring broker may also be the designated managing broker of an office or may appoint a managing broker to serve as the designated managing broker of several offices, or different designated managing brokers may be responsible for an individual office as long as it is for the same sponsoring broker. In any event, the designated managing broker is responsible for the supervision of all real estate activities performed by affiliated licensees.
Additionally, each designated managing broker:
Sponsored licensees
Article 5, Section 5-26 of the Real Estate License Act of 2000, states that “no new salesperson licenses shall be issued after April 30, 2011, and all existing salesperson licenses shall terminate on May 1, 2012.” After April 30, 2012, only two types of licenses will be issued: broker and managing broker. Both brokers and managing brokers can work under the supervision of a sponsoring broker. A sponsoring broker may assign supervisory responsibilities to a designated managing broker.
Independent contractor versus employee Every sponsoring broker who hires licensees or has an independent contractor relationship with a licensee must have a written employment agreement with each licensee. The agreement defines the employment or independent contractor relationship, including supervision, duties, compensation, and termination. The employment agreement must be dated and signed by both parties. Termination is not intended to indicate that a specific termination date is required but rather allows for negotiation as to the term of the employment agreement. An executed copy of the employment agreement must be provided to the sponsored licensees.
Independent Contractors:
Employees:
A sponsoring broker’s relationship with a sponsored licensee who is an independent contractor is very different.
A licensee must meet three specific criteria set out by the IRS in the Internal Revenue Code to be treated as an independent contractor for federal tax purposes, the following criteria must be met:
An employment agreement between the sponsoring broker and designated managing broker is also required even if the designated managing broker is the sole owner in the sponsoring brokerage (regardless of the business type: LLC, LLP, and so on).
A sponsoring broker’s relationship with a licensee who is an independent contractor can be very different from the relationship with an employee. As the name implies, independent contractors usually have a more flexible work schedule than that of employees. A broker may determine what the independent contractors do (especially because the contractors represent the broker as the broker’s agents) but cannot dictate how they do it. As such, a company can expect independent contractors to comply with its policies and procedures. An independent contractor’s income is typically commission-based. Independent contractors are responsible for paying their own income taxes and Social Security taxes.
Teams of Brokers
Illinois real estate laws do not currently define the concept of a team, although the laws that define activities that require a real estate license in Illinois apply to them.
A licensed team member must have a written employment contract/independent contractor agreement with the sponsoring broker.
Teams
Team – now defined team as any two or more licensees who work together to provide real estate brokerage services, represents themselves to the public as being a part of a team or group, are identified by a team name that is different than their sponsoring broker’s name, and together are supervised by the same Designated Managing Broker and sponsored by the same Sponsoring Broker. “Team” does not mean a separate organized, incorporated or legal entity.
Team advertising applies to all forms of advertising including all social media.
List of words NOT ALLOWED to identify a team:
If ad content or team name includes the word “team” after verboten words, the team should be allowed.
Unlicensed team members are regular employees. Either the sponsoring broker or a licensed team member might compensate them. The sponsoring broker will want to ensure that proper withholding requirements are met if a team member is compensating the regular employee.
Similarly, the use of an unlicensed personal assistant, whether or not a member of a team, must comply with the laws that determine who is an independent contractor. By definition, the unlicensed personal assistant does not meet the safe harbor provisions of an independent contractor and would likely need to be paid as a regular employee.
Designated Managing Broker Responsibilities
The designated managing broker has supervisory responsibilities for all licensees in one or, in the case of a multi-office company, more than one office appointed by the sponsoring broker. Sometimes, in the case of a sole proprietorship, the designated managing broker and the sponsoring broker are one and the same. If they are not the same, the sponsoring broker can delegate the issuance of license to the designated managing broker.
Maintenance of licenses
Sponsoring brokers are required to notify IDFPR in writing of the names and license numbers of all designated managing brokers employed by the sponsoring broker and the office or branch offices for which each designated managing broker is responsible. The designated managing broker must have a current active managing broker’s license.
Unexpected loss of designated managing broker
If a sponsoring and/or designated managing broker dies or a designated managing broker leaves a branch office unexpectedly, a request may be made to IDFPR within 15 days of this development to grant an extension for continued office operations. The extension may be granted for up to 60 days. In the case of an owner’s death, a representative of the estate could operate the office for up to 60 days. In most cases of loss of a sponsoring broker or designated managing broker, a licensed designated managing broker assumes the management of the office.
Death of self-sponsored broker
IDFPR will honor the order of a court of competent jurisdiction appointing a legal representative for the sole purpose of closing out the affairs of a deceased or disabled broker who was a sole proprietor. The court order is honored until the real estate brokerage operation is closed but does not allow the brokerage to actively engage in the brokerage business.
Change of business address
All designated managing brokers must notify IDFPR on business letterhead of any change of business address for any of the offices they manage within 24 hours of any change. Change of address filing is required for all offices and branch offices.
Advertising
Effective May 1, 2012, all designated managing broker licensees who are named as designated managing brokers with the Division must indicate this status on all advertising that includes their name. Those who hold the managing broker license, but are not named as designated managing broker with the Division, are not required to include their names. All licensees who have a managing broker’s license may indicate that they are managing brokers on all advertisements.
Supervision
The Designated Managing Broker supervises all brokers and also unlicensed personal assistants working in those offices managed by the designated managing broker. These supervisory duties include the following:
The sponsoring broker is ultimately responsible for the actions of all sponsored licensees including those of designated managing brokers as well as proper maintenance of escrow funds.
