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This article has been submitted for publication, October, 2004.  


To Be a Licensee or Not to Be a Licensee, That is the Question  

Must you be a licensed real estate Agent to be a real estate investor?  Must you be a Licensee if you are a wholesaler?  Must you be a Licensee if you “wholesale” options or other interests in real estate? 

The average real estate investor probably feels comfortable in answering the questions above with a “no” and going on about their investing activities.  But the answer may not be “no” and the questions are not useless banter for the idle mind.  This author has investor clients that have been approached by investigators with the Georgia Real Estate Commission with allegations of violations of Georgia ’s real estate license law. 

In one such in instance an investigator posed as a newbie investor and called a wholesaler that deals in options, among other investments.  The wholesaler asked a series of pertinent questions, advised that he felt he could secure an option on suitable property, and would charge a modest fee for assigning the option.  The assignment fee was to be less than $5,000.00, payable at closing.  The “investor” agreed.  The wholesaler secured an option on an appropriate piece of property and then went to a meeting with his erstwhile “investor”.  At the meeting the “investor” revealed that he was a Georgia Real Estate Commission investigator and pulled out a “Consent Cease & Desist Order” for the wholesaler to sign.  Believing he had no option the wholesaler signed the Cease and Desist Order and has been forced to change his business model substantially.  Click through to see a redacted version of the Consent Cease & Desist Order.

It appears that the Georgia Real Estate Commission has begun to engage in enforcement activity that may be a surprise to many real estate investors.  This enforcement activity appears to be a new effort on the part of the Commission.  The legal questions that arise in this atmosphere are many and varied.  Below we will attempt to address some of those questions. 

The analysis begins with understanding the basic framework of real estate license law, set forth in Official Code of Georgia Annotated (“O.C.G.A.”) 43-40-1 et. seq.  Generally the law allows only real estate Brokers to earn a real estate commission.  O.C.G.A. 43-40-30.  Real estate Agents are legally allowed to share a portion of a real estate commission with their Broker.  In this article when we refer to Brokers and Agents together we will call them Licensees.  The practice of real estate is defined in terms of the types of conduct that are allowed only to Licensees and is set forth as follows. 

“(2) "Broker" means any person who, for another, and who, for a fee, commission, or any other valuable consideration or with the intent or expectation of receiving the same from another:

      (A) 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 of the improvements thereon;

      (B) Holds himself or herself out as a referral Agent for the purpose of securing prospects for the listing, sale, purchase, exchange, renting, lease, or option for any real estate;

      (C) Collects rents, assessments, or other trust funds or attempts to collect rents, assessments, or other trust funds;

      (D) Is employed by or on behalf of the owner or owners of lots, time-share intervals, or other parcels of real estate at a salary, fee, commission, or any other valuable consideration to sell such real estate or any part thereof in lots or parcels or intervals or other disposition thereof;

      (E) Engages in the business of charging an advance fee or contracting for collecting of a fee, other than an advertising fee, in connection with any contract whereby he or she undertakes primarily to promote the sale of real estate either through its listing in a publication issued primarily for such purpose, or for referral of information concerning such real estate to Brokers, or both;

      (F) Auctions or offers or attempts or agrees to auction real estate;

      (G) Buys or offers to buy, sells or offers to sell, or otherwise deals in options to buy real estate;

      (H) Performs property management services or community association management services;

      (I) Provides or attempts to provide to any party to a real estate transaction consulting services designed to assist the party in the negotiations or procurement of prospects for the listing, sale, purchase, exchange, renting, lease, or option for any real estate or the improvements thereon; or

      (J) Advertises or holds himself or herself out as engaged in any of the foregoing.” (emphasis supplied).  O.C.G.A. 43-40-1. 

Generally the law of the State of Georgia defines the acts that require a real estate license very broadly.  There is some relief in O.C.G.A. 43-40-29 in terms of exceptions for attorneys, trustees, property managers, and the like, but those exceptions will be narrowly construed.  

The part of the above quoted provision that appears to have tripped up one options wholesaler is underlined above.  Basically if you offer to acquire or arrange the acquisition of property “for another” and “for a fee” you are engaging in activity that requires you to be a Licensee.  However, if buying an option and then assigning it is activity for which you must be a real estate Licensee then cannot the same be said for contracting to purchase the property and assigning your position to another investor?  Does not the Georgia Real Estate Commission’s position on this issue implicate any investor that is a wholesaler? 

The are no clear answers to these questions but the analysis lies in an exploration of the “for another” and “for a fee” language.  It would seem if you sign a contract to purchase real estate or an option to purchase property with the intent to close and then change your mind and assign your position to another you have not run afoul of Georgia real estate license law because you entered into the contract for yourself not “for another”.  Even if you then assign your interest in the contract to another, you have assigned the contract to which you are a party for the benefit of yourself.  The question then becomes what if you enter into the contract or option with the intention of assigning and not closing in your own name? 

Many of the Georgia cases interpreting the Georgia real estate license law basically hold that if you are not a Licensee your lawsuit for a real estate commission will fail despite the agreement between the parties.  On the other hand the Barnes et. v. Didschuneit, 94 Ga. App. 661 (1956) case held that a person that was a part owner of property could earn a portion of the proceeds of the sale without being a Licensee even if the other owner of the property provided all the money to acquire the property.  There are relatively few cases interpreting Georgia ’s real estate license law in this area.  It cannot even be said definitively that a wholesaler that intends to take title to property, and later changes his mind and flips his position, will be exempt from the prying eyes of the Georgia Real Estate Commission.  What is known is that if the Commission has evidence that the wholesaler’s intention was not to close but was to convey its position, the Commission may take the position that the wholesaler is practicing real estate without a license and seek sanctions.  Furthermore, the response that the wholesaler acquired the contract or option in the wholesaler’s name, in other words, not “for another” but for the wholesaler, may be an insufficient defense if the Commission has evidence that the wholesaler intended to convey its position without closing in its own name. 

The stakes here are significant, $1,000.00 per day fines and the like.  What can be done by the wholesaler or even the infrequent investor that occasionally flips a position in a property to a fellow investor?  First, be careful who you are dealing with, learn about them, perhaps even have them sign a non-disclosure agreement, an application, or some other clever document.  Second, even if it is your practice, do not casually reveal that it is common for you to flip your position to other investors.  Third, do not attempt to structure a deal for another, in other words, put your name or the name of your company down as the buyer and have the person to whom you sell the property assume your purchase obligation.  Fourth, close on at least some portion of the positions you acquire so as to leave a paper trail regarding your intent.  Fifth, consider taking an interest in the property at least for a time, perhaps with a mandatory buy out after some period.  Sixth, and last, but certainly not least, become an Agent.  The author has successfully been a Licensee and an investor simultaneously for three and one half years.  Becoming an Agent not only keeps you on the right side of the law but it opens up new research and business tools, costs far less than you may think, does not cause substantial impairment to your ability to enter into transactions, and will educate you and make you a better, more knowledgeable investor. 

About the Author

David J. Reed is in the private practice of law in Atlanta .  He specializes in real estate litigation, is a licensed real estate Broker, an active real estate investor, and a licensed pilot.  For inquiries see davidjreed.com. 



Send mail to davidjreed@davidjreed.com with questions or comments about this web site.
Last modified: December 05, 2006