Need a realtors license if you do 5 or more deals?

Question

This has been coming up more and more as I continue my wholesale journey. I heard from my appraiser today that in michigan you need a realtor license if you sell more than 5 homes in a month. I asked where she heard about that and said it was on the michigan realtor website reqs or something. I never found it. Does anyone know anything about this, or is it more fluff that realtors are throwing out there?

Steve Babiak · Answer

Maybe they hire a licensed real estate salesperson to handle their transactions?

Account Closed · Answer

The appraiser was correct. You must have a real estate broker’s license in Michigan if you engage in certain activities—including selling your own real estate as an investor.

Neither real estate law nor occupational law in Michigan contain such a provision but the rules promulgated by the Director of the Michigan Department of Licensing and regulatory affairs do. It’s important to remember that a lot of what we must follow as investors, etc. is not specifically spelled out in the law but in the rules created with the authority of the law. Most laws are very general. The specifics of what it really means and how it will be enforced is contained in the rules. This goes for Federal law as well.

Here is the Rule specific to this topic in Michigan:

R 339.22319 Licensure required for owner of real estate engaging in sale as principal vocation; acts constituting principal vocation; sale of real estate owned by broker or associate broker; licensee to reveal ownership or interest when selling property licensee owns or has interest in.

Rule 319. (1) Licensure as a real estate broker is required of an owner of real estate who engages in the sale of real estate as a principal vocation, unless the owner engages the services of a real estate broker. Acts constituting a principal vocation include any of the following:

(a) Engaging in more than 5 real estate sales in any 12-month period.

(b) Holding one's self out to the public as being principally engaged in the sale of real estate.

(c) Devoting over 50% of one's working time, or more than 15 hours per week in any 6-month period, to the sale of real estate.

Clearly, based upon this rule, everyone doing real estate investment must be a broker. (And, don’t forget, if you’re doing more than three seller financed deals per year, you must also be a licensed mortgage loan originator or use one under Federal rules.)

I would highly recommend getting your license. The education you’ll get from the pre-licensure class is invaluable and may keep you out of hot water. You don't know what you don't know and every state has different laws, regulations and rules. I’d also recommend you join a local real estate investor club and/or rental property owners association. They will have the information you need on this topic and provide an opportunity for you to network with those in the business in your state and area.

You might ask: Who and the heck cares and how would they find out? If you’re not doing a lot of deals per year, you might fly below the radar, but I’m not advocating that. But, if you’re doing a lot of deals or if a buyer becomes unhappy or takes you to court over a deal they are not happy with, you could end up in a lot of trouble—not only through fines for violation of the law but you could be required to make your buyer whole since the deal may be deemed illegitimate. In other words you could go from rich to poor in one quick hurry.

I strongly recommend every investor consult an experienced real estate attorney to get proper guidance on what licenses they need to do the types of deals they are contemplating.  Happy investing!

Account Closed · Answer

Hmm, I'm resisting saying what I think about appraisers giving sales and licensing advice.  And then suggesting that you look on a realtor website?

Always ask (like you did) people spouting this kind of information for the relevant law or code.  If it's actually law, your state's RE department can confirm this.

Account Closed · Answer

Oh...and for those that like to read the source.  Here's a link to the state's webpage on this topic:

http://w3.lara.state.mi.us/orr/Files%5CAdminCode%5C1444_2014-112LR_AdminCode.pdf

Account Closed · Answer

Michael:  MAR doesn't make law.  They are not who you want to confirm this.  Your Dept. of RE makes has a website too.  One that isn't funded by the MAR. :)  All realtor boards are essentially PACs.  Steer clear of them for definitive info about how sellers should have to become licensed.  Just the way I view things......

Cheng Vang · Answer

Bill Gulley Awesome stuff! I have yet to touch bases on entity basics and critical technicalities so thanks for alluding such matters. Certainly, forming multiple entities would not be a good idea than; I guess this is a case of my creativity going beyond the law, unintentionally of course. ^_^

Bill Gulley · Answer

I don't think having multiple entities doing deals will get you passed that....

I'm guessing that in the general description of the statute it will define "person" and it generally includes an individual, corporation, entities, etc. It will also show exceptions if any, like municipalities, regulated institutions, etc. (although banks are required to list or use a broker/attorney in public sales).

Next, I'd think they would look to the principal of the entities selling as well. It would certainly appear that the multi-entity was used to circumvent the law...they don't like that...

This also brings up another issue that in many states, any entity that sells, rents, advertises, etc. RE requires a license and many mean all officers and directors/members must hold a license and that really gets to be a pain!

I think it is just safer to sell what you can and then list the rest, after you sell your 5 you should be able to pay a commission on the rest...

Cheng Vang · Answer

It’s Michigan’s. If you follow the link provided by Mark Yuschak, I linked it for you Mark - here Michael, to the state’s site; look on the right hand column (Quick links) and download the pdf (Real Estate Law & Rules – November 2011). The pdf, as its name implies, seems to be a set of the ABC’s on real estate legalities there in Michigan and may be of some use in figuring out other questions you may have in regards to rei and the law. Additionally, the rule I pointed out, in my previous post, can be found on page 73; this way you can verify this excerpt of the law for yourself and see that your appraiser wasn’t pulling complete crap out from thin air. So, I suppose you could give some props to your appraiser. :p

Does this rule apply to assignments? The only advice I can give to you on this question Michael is to seek a competent, legal attorney in your state and bring it up with him/her.

Personally, though, I think that such a rule still applies to you even if you assign…but HEY! What would I know I’m just a fellow BPer so any one please feel free to chime in on what you think. :)

How do people get away with it? Hmmm…all I can think of is:

1. Having a licensee in your team, as Steve Babiak pointed out
2. Forming multiple entities and having each one capped at doing five deals per year
3. No one cares to report and/or enforce the rule since there are no harmful cases to date?

Michael Lerch · Answer

Cheng Vang Is this from your state or michigan? If from Michigan I wonder how people get away with flipping 10+ homes a month around here. It seems according to this if you breathe and think about selling 5 or more homes in a 12 month period you need a license *laughs*

Does this apply to assignments as well, or is that the loophole?

crazy stuff, but I'll do what I got to do. also I'm going to do my own due diligence as well, but if you know off the top of your head that would be great.

Cheng Vang · Answer

Such a law exists in my state and it appears to me that a similar provision of the law applies to Michigan as well. So, rest asured your appraiser isn't feeding you complete fluff.

Here's what you're looking for - R 339.22319 rule 319 1(a) Article 25 of P.A. 299 of 1980 as amended:

R 339.22319 Licensure required for owner of real estate engaging
in sale as principal vocation; acts constituting principal vocation;
sale of real estate owned by broker or associate broker; licensee to
reveal ownership or interest when selling property licensee owns or
has interest in.

Rule 319. (1) Licensure as a real estate broker is required of an
owner of real estate who engages in the sale of real estate as a principal
vocation, unless the owner engages the services of a real estate broker.
Acts constituting a principal vocation include any of the following:
(a) Engaging in more than 5 real estate sales in any 12-month period.
(b) Holding one’s self out to the public as being principally engaged in
the sale of real estate.
(c) Devoting over 50% of one’s working time, or more than 15 hours
per week in any 6-month period, to the sale of real estate.
(2) A sale of real estate by a real estate salesperson, other than his or
her principal residence, shall be deemed to be done as a principal
vocation of the salesperson and the sale shall be through a licensed
broker.
(3) Sales of real estate owned by, or under option to, a broker or
associate broker are subject to the provisions of the code and these
rules.
(4) In selling property owned by a licensee or in which a licensee has
any interest, the licensee shall reveal the facts of his or her ownership or
interest and his or her licensure to the purchaser, in writing, before the
offer to purchase is signed. Satisfactory written proof of this disclosure
shall be provided by the licensee upon request by the department.

Need a realtors license if you do 5 or more deals?

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