Broker Cooperation Agreements
The Legal Advisor
January 25, 2016
Michael Denious
Stoops, Denious, Wilson & Murray, PLC
This article explores what are referred to as “Broker Cooperation Agreements” under A.R.S. § 32-2163. In most cases it is necessary for a person to be actively licensed as a real estate broker or salesperson in the State of Arizona in order to receive a commission or co-broke arising out of an Arizona real estate transaction. An exception applies where an Arizona broker pays a cooperating commission or “co-broke” to a broker licensed in a neighboring state, California being a noteworthy example.
This exception is provided under A.R.S. § 32-2163, which states that notwithstanding the normal prohibition against paying or sharing compensation with unlicensed individuals, a “licensed broker in this state may pay compensation to and receive compensation from a broker lawfully operating in another state.” A.R.S. § 32-2163(A). The reference to “lawfully operating” in another state is construed to mean that so long as the person receiving the compensation is acting within the scope of the applicable licensing laws in the state where that person operates, the person may lawfully receive the compensation even though the person is not licensed within the State of Arizona.
This exception, however, has its limits. The statute clarifies that an out-of-state broker is not permitted to “conduct activity in this state [Arizona]” that would require a license. A.R.S. § 32-2163(B). A notable example of activity that would require an Arizona license would include website advertising of Arizona real property: “the offering of real estate brokerage services . . . for compensation or any other thing of value pertaining to real property located in this state through an internet website constitutes activity that requires a broker’s license issued by the department.” A.R.S. § 32-2163(C)(2). [1] 1
Where an out-of-state broker seeks to conduct activities that would (otherwise) require an Arizona license, and receive commissions or “co-brokes” from Arizona brokers, a “broker cooperation agreement” should be utilized. The provisions of A.R.S. § 32-2163 were amended a few years ago to provide for such “broker cooperation agreements,” which may be entered subject to certain requirements. Among those requirements, such a “broker cooperation agreement” must provide the following terms:
- A list of the real estate activities to be conducted by the out-of-state broker;
- An agreement by the out-of-state broker to fully comply with the laws of the State of Arizona and to submit to the regulatory jurisdiction of the Arizona Department of Real Estate; and
- An agreement by the Arizona broker to accept responsibility for the acts of the out-of-state broker.
Further, the out-of-state broker’s activities must be limited in many respects. For example, the out-of-state broker should not conduct negotiations in Arizona or with owners of Arizona property; the statute requires that “all negotiations in this state or with people who own property in this state are conducted with the licensed broker in this state.” A.R.S. § 32-2163(C)(2). The out-of-state broker also should not place any signs on Arizona property. Such acts should be done only by the Arizona broker.
Obviously, in the event an out-of-state broker seeks to conduct limited activities in the State of Arizona pursuant to a broker cooperation agreement, that broker should familiarize itself with all the statutory and regulatory requirements that apply to Arizona real estate agents under the provisions of Title 32 of the Arizona Revised Statutes, and Chapter 28 of the Arizona Administrative Code (aka the Commissioner’s Rules). Likewise, before an Arizona broker commits to entering into a broker cooperation agreement, that Arizona broker should recognize that he will be called to task for any transgressions of the out-of-state broker in violation of Arizona laws; with the recognition that the Arizona broker will probably be held to carry the same liability for that out-of-state broker’s acts as if the out-of-state broker were employed and licensed under the Arizona broker. Considering this last point, the Arizona broker should confirm whether the broker’s errors and omissions insurance will cover the Arizona broker for any liability arising out of the out-of-state broker’s actions or omissions.
Assuming the Arizona broker and out-of-state broker are able to deal with and address these issues, there remains the question as to the form of the agreement. While the statutory provisions do not specify a particular format of such an agreement, the agreement must comply with the requirements for specifying the out-of-state broker’s obligation to comply with Arizona statutes, the Arizona broker’s obligation to be responsible for the out-of-state broker’s activities, and a specific description of the activities to be conducted by the out-of-state broker within the State of Arizona. I have posted a sample “form” Broker Cooperation Agreement in a prior article on this issue, and am happy to provide same free of charge in response to any email requests.
1 In fact, the Arizona Department of Real Estate frequently reviews websites that post feature Arizona real property for sale, lease, or exchange; which in some cases lead to further inquiries by the Department.