Do You Need A License? Which One? Why?

5 Replies

This is a topic with many opinions, many are just wrong missing the underlying requirements for the different licensing issues related to real estate ventures.

Areas where licenses may be or are required include, but may not be limited to, real estate brokerage activities (the facilitation of sales and rentals as an agent), construction and intallation of equipment, financing activities, brokering notes and/or financial obligations, SEC issues with pooling funds, selling interests and dealing with other investors or giving financial advice; banking activities, closing transactions, providing title insurance, surveys and writing legal descriptions, the practice of law and drafting contracts for others, home inspections, appraisals, pest control treatments, maintenance plans, even a mowing service may require a license.

First consider why we have licensing issues in the United States, every state has varied requirements, but the underlying issue is pretty simple:

To protect the general welfare of the public from unqualified persons providing services or products that may consitute a danger to persons, property or financial interest of commerce.

There may be other definitions, but that pretty well states the underlying basis for any license. Yes, governments use the licensing issues as a revenue source and there is a cost to the administration of licensees, but it's not all about the money.

Without giving consideration to the purpose of requiring a license you may miss the intent of law makers in making licensing requirements. Much of what happens in our legal system is not only based on the written word of law but also the intent and applicability of law to some activity.

From what I read in forums, many give advice based solely on how they may read a regulation or leagl requirement without looking at the overall inetnt. Unless you are a law maker, an attorney or a regulator, you probably don't look at the public purpose considerations. Law enforcement will look to applying laws
to an activity for enforcement and judges, perhaps a jury, will make a determination of applicability.

With that in mind, let's consider issues in real estate investing.

I once had an attorney tell me I was acting in the unauthorized practice of law. It was in connection with, as I recall, the fiing of deeds. We looked at that, filling out a deed of trust where I was the Trustee, having a personal interest in connection with my lawful business avoided his initial claim. A license to practice law is not required to act as a Trustee, in my state, nor is it necessary to transport documents or present them for filing. Writing the note for myself was another issue which was quickly dropped. When he began on the angle of the public good and questioned my expertise, that was past just as quickly as I mentioned my past experience, abilities and training. He soon admitted that there was no standing for his initial claim, at least not one to persue, and that I could continue in my dealings.

My first impression was that he was trying to drum up business for himself or other attorneys. Turned out he was more concerned about the public being safeguarded and properly represented. He and I became friends and eventually worked together.

Taking a principal interest in a transaction, in doing business for yourself will keep you out of many license requirements, but not always.

In many investor transactions, especially where you have little or no interest in a property and are acting as a straw man, a middle man, you may likely need a license. When you facilitate transactions by and between others you will most likely be considered having an agency relationship. Having an agency relationship may not trigger the requirement for a license, but if a closely related activity requires a license, it may be on you to prove one is not specifically required. I suggest you look closely at the intent of the requirement and not try to dance around words or phrases used in the writing of the requirement.

Giving or selling contracts is not the practice of law, drafting contracts for others may well be. Advising the public on legal matters, say to the best way to hold title as a mass disimination, as we do here in the forums, is not an issue, advising a person as to a specific matter under given circumstances may well be.
The intent for attorneys to hold a license is not so much to protect people from bad advice in a public forum but more to the giving of specific advice under given circumstances as to legal issues. I'm not an attorney, there is a line not to cross.

Finding properties or notes for others can quickly put you in an activity as a real estate broker or mortgage broker where a license is required. Facilitating such transactions without a personal interest in or to the property or mortgage is exactly what brokers do.

Another issue is the business nature of your activities, are you in the business of doing this or that or are you truly investing for youself, is a question you need to address when figuring out if you need a license.

If your neighbor trips and falls and you render first aid and put a bandaid on their head, you are not considered practicing medicine. If you are in the business of putting bandaids on others, you need a license to practice medicine.

Chances are, from my readings of investors asking if any license is required, most do all they can to justify not getting a license. The main means of such justifications seems to come from devising a business activity that dances between the lines of the written rules, some may be allowed, many will eventually meet reality as a deal falls just outside that process and then it's too late.

Understand that you complinace with law is not based on the opinions or advice of any guru, any other person dealing in real estate, no other mortgage broker or Realtor, your complinace will be viewed by regulators, law enforcement, government agencies and courts. Asking if you need a professional license can easily be obtained, not by asking us, but by asking your attorney. If you can;t afford an attorney opinion, you can get free answers from your state regulatory agencies that govern the activties contemplated.

If you want to write legal descriptions, you need to inquire with the state agency overseeing engineering practices and the legal profession. If you want to save money and use strong chemicals for pest control of your rentals, contact the agriculture department for your license requirements. If you want to buy and sell notes, that is an issue of banking, SEC, state finance regulations as well as related issues, you can begin with the department of finance of your state.

Who, in their mind, especially those with limited funds, would want to go take classes, pay for schools, pay licensee fees and regitration fees, attend continuing education classes and take time to study and pass examinations? Who would want to do that....?

You don't just get a license for some aspect of RE to perform a function.

Most likely, if one has to ask, they have limited knowledge which means some education is probably in order for them to be turned out on the public. Look to the purpose of requiring a license again.

Your ability to function, to carry out business where a license is required or even close to being required, will be much better with it than without it.

In RE, professionalism is measured by your expertise and is shown by your accomplishments, your obtaining a license and even higher levels of professional recognition. Professionalism is not gained by the number of deals you have done, but by means by which you accomplished your deals. So, licensees have peers, those who hold nothing can't really show a level of competence and for new people to be accepted in an industry of professionals will certainly take longer.

There is no avoidance of liability in RE. You may not be liable, but claims can certainly be brought against you.

I recall my first court issue. The very first thing the judge asked me was had I filed with the Secretary of State, did I hold a license in good standing, did I have a business license with the city? I assure you, had any of those questions had been answered with "no", I would have been at a disadvantage in my case.

Perhaps you danced around the license issues and you feel, not having sought expert advice, that a license was not required for your dealings. I will assure you again if a judge believes that your activity is closely related to a regulated activity and that you operate in that manner to avoid the requirement, you're dead in the water representing yourself! Why? Because your proceeding was not prudent, because you just demonstrated the desire to operate under the radar of generally accepted requirements and in non compliance to the norm. In proving your case, you now have another hill to climb in gaining the confidence of that judge that you are in fact an honest and professional dealer. You will need to show your level of expertise in the matter and convince that judge that you have the same or more knowledge in the area as those expected to hold with a license.

If the law says you need a license to do xy&z, and you just do x and y along with some a, you're mostly doing what requires a license.

Do I need a license?

Really, we all know the answer those who ask this question want to hear. Consider what many other investors and dealers or brokers (not to mention the gurus) may have to gain in dealing with unaware. Consider if their answer is based on their justification to act without a licnese. But mostly, consider the reasons for having a license, demonstrating your understanding of the importance of protecting the public interests, the advantages of peer relationships, marketing and presenting yourself in a professional manner as well as making any judge smile upon you.

Good luck!

This should be required reading anytime the word 'License' is used in a forum post.

Great post. Getting my real estate license was well worth it just for access to the MLS not to mention providing another source of income. They are easy to get and not very expensive to maintain. Do one deal a year and it's paid for itself.

Thanks Chris, if the newbies search it might come up.

I'd say it has much to do with attitude. It's not that hard to do things right, in fact, often there is more brain damage involved trying to avoid requirements, even more if you get caught.

Tim, you're right, one deal to break even is not a bad price to pay.

I have gotten this your practicing law without a license once in a while from a lawyer. My response has always been if your not to busy chasing an ambulance today, why don't you check with a paralegal and have them tell you why you full of it. By the way how many times did you need to take the bar exam before you passed?

Some lawyers are like some doctors, they have very tall pedestals holding their thrones.

I came here just to research the topic of licensed vs unlicensed and after reading this thread I'm definitely going to take the licensed route. @Bill G. Thanks for sharing the knowledge!

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