Things to Consider When a Licensee Changes Companies

As you know, Alabama law requires real estate salespersons to be licensed under a qualifying broker. This means that most real estate companies have one or more salespersons, with each salesperson operating under a qualifying broker. At times, salespersons change companies and qualifying brokers. Below are some issues to consider before and after a salesperson transfers.

NOTE: This article is intended for informational purposes only and does not constitute legal advice. If legal advice is needed, please consult an attorney.

When a Licensee Leaves the Company

One of the most common questions when a licensee leaves a company is how to handle existing listings, buyers, and pending sales. There is no Alabama real estate license law or REALTOR® requirement speaking to this. Instead, the terms of your independent contractor agreement or office policy should outline what to do. Some considerations:

Compensation Owed – Your independent contractor agreement or office policy should address whether a licensee who leaves the company is entitled to any compensation. Preferably, it should specifically address listings, buyers, and pending sales, including any requirements to be entitled to compensation.
- How To Pay Compensation – Alabama license law only allows salespeople and associate brokers to receive payments from their qualifying broker. So, when a licensee changes companies and is owed money from their former company, they must be paid by their current qualifying broker. As such, the new and old qualifying brokers should work out how the transferring licensee will receive any compensation owed.
Induce Me Not - A word of warning related to transfers of existing clients: both Alabama license law and the REALTOR® Code of Ethics place limitations on transferring licensees attempting to transfer clients/ customers with them. Specifically, Alabama license law prohibits licensees from inducing a party to a contract to terminate the contract and enter a new contract, where the new contract personally benefits the licensee (Alabama Code § 34-27-36(a)(13)). The REALTOR® Code of Ethics Standard of Practice 16-20 also prohibits REALTORS® from inducing a client to cancel an exclusive contractual agreement between the client and the REALTOR’s® existing or prior firm.
Record Maintenance – Documents required to be maintained by the qualifying broker should be kept by the qualifying broker. Under Alabama license law and accompanying regulations, qualifying brokers must maintain certain records for three years. Records to be kept include “all contracts, leases, listings and other records pertinent to real estate transactions . . .” Other pertinent records include, but are not limited to, estimated closing statements, records related to trust funds, and a copy of RECAD disclosures. (Ala. Code § 34-36(a)(31); Ala. Code § 34-27-36(a)(8(c); Ala. Admin. R. 790-x-3-.04; Ala. Admin. R. 790-X-3-.09)

When a Licensee Joins the Company

Independent Contractor Agreement – As noted above, most of the rules about a licensee leaving a company depend what your independent contractor agreement or office policy says. It is important to have a comprehensive independent contractor agreement and to review it in detail with all licensees as part of the onboarding process.
Agency Disclosure Office Policy– License law requires brokers to adopt a written office policy about the types of brokerage service arrangements that the company engages in (called an Agency Disclosure Office Policy). Qualifying brokers must provide his/her licensees with a copy of the policy and explain the policy to all licensees on a yearly basis. If a new licensee joins the company, this disclosure must be provided and signed. (Ala. Code § 34-27-83)
Business License - Because salespersons fall under the business license of the real estate company, the business license of the new or old real estate company should not be impacted when a salesperson changes brokers. However, if the business license fee is based on the business’s income, a new salesperson may impact the business license fee by increasing the income.