Recently, it has come to my attention that there is some confusion about the protocol when acting as a professional property manager. The purpose for this writing is to simply clarify the DRE rules for professional property managing in California.

Do landlords and property managers need real estate licenses?

A real estate license is normally required whenever a person manages the property of another for a fee. This includes, but is not limited to, negotiating leases, negotiating rental agreements, and collecting rent payments. Generally, all of the standard duties involved in “property management” require DRE licensing. Also, any fee that a salesperson collects for conducting activities that require DRE licensing must come from the salesperson’s employing broker.

Can a salesperson act as a “Property Manager” without the oversight of a broker?

A salesperson is never authorized to act in any professional capacity unless the salesperson’s actions are directly overseen by a licensed broker. According to the Cal. Bus. and Profs. Code, a salesperson cannot perform the services of a real estate agent unless the salesperson hangs his or her license with a broker and performs all actions that require licensing under that broker’s supervision. This does not merely mean that the salesperson must be affiliated with a broker. Rather, the broker must know of all of the real estate activities conducted by the salesperson.

Licensed agents get into trouble for conducting property management “on the side” while they pursue their general sales activities. While this is certainly permissible, the broker of record must actively be involved in the agent’s property management business in order for the agent to have the proper legal authority to act as a property manager. At a minimum, the broker should know of each payment collected by the agent and the broker should have the opportunity to oversee and direct the agent’s actions. If the agent fails to work with his or her broker, the agent may be disciplined by the DRE for acting without proper authority and the agent might be refused E&O coverage by his or her insurer.

This means that a licensed broker must oversee any and all of the following activities:

• The leasing of real property for business
• The soliciting of tenants to rent or lease
• Negotiations of the sale, exchange; or purchase of existing leases
• The collection of rent

It is not acceptable for a salesperson to conduct these activities outside of the supervision of his or her broker.

Exceptions

However, there are five notable exceptions to the licensing requirement. If any of these rules apply, then a DRE license is not required for property managing and the employing broker need not be involved. First, owners of property may always manage their own properties. Second, individual residents may manage the property so long as the property is their primary home. Third, persons empowered by a court order can manage the property. Fourth, an officer, partner, or duly empowered employee of a partnership or corporation can manage that entity’s property so long as the employee’s compensation is not adjusted as additional compensation for the management work. Finally, the unlicensed employee of a property management firm can manage property so long as the employee is supervised by a broker or salesperson with 2 or more years of experience.

Payment

Also, salespersons are never authorized to receive direct compensation from their clients when performing functions that require DRE licensing. Only a broker can collect direct compensation. Then, brokers are empowered to forward pay to salespersons. Therefore, any situation where a salesperson is taking a fee and directly pocketing it is probably an infringement of the DRE rules.

General issues

Most residential real estate brokerages are not set up to oversee property management activities. Instead, the average office focuses its systems on facilitating the buying and selling of property. As such, salesperson’s looking to get involved in property management should consult with their broker before collecting any property management fees or conducting any property management services. At a minimum, the agent should coordinate with the broker to determine how the broker will actively oversee operations and payment. Of course, a salesperson should never manage property outside of the brokerage’s knowledge and then directly pocket the pay.

In closing, property management is a popular business for licensee’s and a property manager is generally required to be licensed by the DRE if he or she will collect compensation for the service. However, like all licensee functions, property management activities are invalid and unlawful if conducted outside an employing broker’s supervision. Therefore, unless an exception applies, a licensed salesperson cannot conduct property management unless the salesperson has hung his or her license with a broker and the broker is somehow involved in the management.  If you are looking into starting a property management business, or if you are unsure about your status as a property manager, be sure to coordinate with your broker so that you do not jeopardize your license.