In 2015, Fortune ranked the Atlanta-Sandy Springs-Marietta metropolitan area fifth on a predicted list of the country’s hottest real estate markets in 2016.[1] With so many transactions occurring within Atlanta’s metropolitan area, individuals and businesses, not otherwise operating in the real estate sphere, may, by chance, find themselves in the middle of a real estate transaction.
Having brought two parties together, these individuals and businesses may find it only natural to negotiate for a commission, referral fee or other compensation contingent upon the success of the transaction. However, without a Broker’s license, an individual or business looking to receive any such compensation from the transaction may be guilty of a crime[2] and also subject to penalties and fines.[3]
Below are common questions asked about broker activity during real estate transactions in Georgia:
#1: What constitutes a Broker under Georgia law?
The Official Code of Georgia, Section 43-40-1(2)(A) defines a “Broker” as any person, who, “for a fee, commission or any other valuable consideration, or with the expectation of receiving the same from another . . . assists in procuring prospects for the listing, sale, purchase, renting, lease, or option for any real estate . . .”[4]
#2: What activities require a Broker license?
Under Georgia law, any person who (i) intends or is promised to receive “any valuable consideration” and (ii) offers, agrees or actually negotiates or attempts to negotiate, or assists in procuring prospects, for the listing, sale, purchase, exchange, renting, lease, or option for any real estate or improvements thereon, must be a licensed Broker. The Georgia Code also lists a number of other activities that can only be performed by a licensed Broker if offered or performed with the intent of or upon the promise of receiving commission.[5]
#3: What penalties/fines could an individual face by acting as a Broker without a license?
An individual who acts as a Broker without a license from the State of Georgia can be charged with a misdemeanor.[6] The Commission can impose a fine not to exceed $1,000 for each violation of the statute, with each day that a person practices in violation of Georgia law constituting a separate violation.[7] Other violations include: (a) acting for more than one party in a real estate transaction, (b) making any substantial misrepresentation, or (c) attempting to perform any act authorized by law to be performed only by a Broker. The Commission can also issue a cease and desist order against the violator.[8]
The Attorney General also has the right to bring an action to enjoin such illegal conduct in the Superior Court.[9]
#4: What rights would an individual forfeit by acting as a Broker without a license?
Under Section 43-40-24 of the Georgia Code, anyone who performs any of the acts of a licensed “Broker” listed in Chapter 43 of the statute without a license is prohibited from bringing an action in a court of law to collect compensation for the services rendered.[10] In Amend v. 485 Properties, LLC, the 11th Circuit Court of Appeals held that “any person who negotiates or assists in procuring prospects for renting or leasing for any real estate or holds himself out as a referral agent for doing so, must obtain a license with the Georgia Real Estate Commission . . . [a] person cannot maintain an action for compensation for services without alleging and proving ‘that he was a licensed broker in Georgia at the time the alleged cause of action arose.’”[11]
Similarly, an unlicensed individual acting as a licensed Broker would not have any rights to lien the subject property under the Broker’s lien law. This is relevant with respect to an individual’s ability to enforce the payment of the referral fee if a dispute arises.
#5: Who can be a Broker in Georgia?
Under Section 43-40-8(c) of the Georgia Code, a person can be a licensed Broker if they “(1) have attained the age of 21 years; (2) are a resident of the state of Georgia; (3) are a high school graduate or the holder of an equivalency; and have complied fully with the requirements of subsection (b) of Code Section 43-40-15 regarding any criminal convictions; (4) have maintained a license in active status for at least three of the five years immediately preceding the filing of an application to become a broker; (5) furnish evidence of completion of 60 instructional hours in a broker’s course of study approved by the commission; and (6) stand and pass a real estate examination administered by or approved by the commission covering generally the matters confronting real estate brokers after completing the requirements of paragraph (5) of this subsection and after maintaining a license in active status for at least three of the five years immediately preceding such examination.”[12]
#6: What is the intended purpose of the Georgia laws regarding Brokers?
Like many other professions that require a license to practice, Georgia implemented the laws surrounding Broker licensure to prevent people from falling victim to harmful business practices.[13] The Georgia Real Estate Commission (“the Commission”) was created by the state legislature as a way of monitoring the brokers and enforcing licensure requirements.[14] In 1929, the Georgia Supreme Court discussed the reasoning behind the laws and creation of the Commission in the case Padgett v. Silver Lake Park Corp.[15] The Court explained that:
“the legislature intended . . . to create a Georgia real estate commission which would investigate each and every person applying for a license as a corporation or individual as a real estate broker or salesman, and look into the fitness . . . in respect to his character, reputation, and experience, in order to ascertain whether or not from such investigation the applicant is of good character, competent, and trustworthy, and if so, to grant him a license . . . [or if finding] to the contrary . . . deny such person a license . . . that being so, it cannot be held that these acts were intended to raise revenue merely for support of the government.”[16]
Since then, “the Court has repeatedly emphasized the statute’s purpose to ‘provide public protection through the regulation of the activities of the brokers.’”[17]
If you have brought together a real estate buyer and seller, or landlord and tenant, or have been involved in contract negotiations involving real estate, and expect to receive any form of compensation (no matter how it is labeled), you must be a licensed Realtor. Anything less, you may find yourself with an unenforceable claim or agreement or, much worse, guilty of a crime.
If you’re uncertain whether an arrangement you may have meets the criteria for unlicensed broker activity, please contact Lawrence Kasmen (lkasmen@bfvlaw.com) or Ruari O’Sullivan (rosullivan@bfvlaw.com) in Berman Fink Van Horn’s real estate transactions department for guidance.
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