So You Want to Start Doing Property Management?

The PAR Legal Hotline regularly gets questions from members who want to add property management services to their business. Let’s look at some of the common issues that you’d need to think about before you make that move.

I’m a salesperson and I want to start doing property management…

Not so fast. A salesperson is required to get consent from the broker to do property management within the brokerage. Why? First, the Real Estate Licensing and Registration Act requires the broker to supervise and oversee all real estate activities within the brokerage. More specifically, Section 287 of the regulations states that “a salesperson may assist in property management if the salesperson’s work is supervised and controlled by the employing broker.” There’s actually a higher standard for property management than for sales.

What if I just do property management on the side then?

No. Property management is licensed real estate activity, and a salesperson can only practice real estate through a broker. Before you say “but there are [fill in a number here] unlicensed property managers in my town,” know that the State Real Estate Commission regularly sanctions unlicensed property management firms – including at least one fairly recent case in which the sanction was against a broker who was running an unlicensed management business on the side.

Could I do sales with my current brokerage and then do property management with another brokerage?

No. While a broker of record can be affiliated with multiple brokerages at the same time, a salesperson or associate broker can only be affiliated with one brokerage at a time. If you want to be involved in multiple types of services, they all have to be with the same brokerage.

I‘m a broker who is thinking about expanding into property management. Do I need a separate license for property management?

Pennsylvania doesn’t have different real estate licenses for sub-specialties like property management or commercial practice – one license allows the licensee access to the entire spectrum of licensed services. Which is a long way to say that there is no such thing as a separate property management license, although some brokers choose to offer different specialties through separate brokerages as a business decision (see below for more information).

Can a broker just start offering property management services through their current brokerage?

Yes. But…

Since there are not different licenses for sub-specialties, a broker is free to offer any combination of licensed services through a single brokerage entity – sales, rentals, property management, commercial, etc.

But there are a few things to consider with this approach:

• Check with your errors and omissions insurance carrier about whether these additional services would be covered under your current policy. Many policies have exclusions for property management, so you may need to purchase new coverage riders (if they’re available at all).
• Brokers are ultimately responsible for all activities in their brokerage, so be sure you feel comfortable that you’re competent to manage those activities.
• Remember that a brokerage must advertise under its licensed name (singular!) so you can’t make up new names for new lines of business (e.g., if the firm name is XYZ Realty you can’t start advertising as XYZ Management.)
• And of course, check with your accountant/attorney to be sure that all the appropriate financial, legal and policy/procedure steps have been taken to facilitate this business structure.

Can a broker open a new firm just to do property management?

Yes. But…

An individual can own multiple brokerages, and a broker of record can be affiliated with different brokerages, so it is not uncommon to start a new business to offer a different line of services. As far as the State Real Estate Commission is concerned, it’s simply a new brokerage, so you will go through the same process as your current brokerage. This means the same paperwork, same fees, same inspection requirements, etc.

But there are a few things to consider with this approach:

• Check with your errors and omissions insurance carrier about how to cover this new entity, and ensure that the activities in the new firm stay within those limits.
• Brokers are ultimately responsible for all activities in their brokerage(s), so if you will be managing both, make sure you feel competent to do so. It’s also possible to own the brokerage but hire a broker of record with more specialized experience if that seems appropriate.
• Since this is a separate firm, it needs to operate separately. While it’s generally fine to share an office address, and even back-office services, the licensees affiliated with each firm can only work for the firm they hang their license with. For example, an agent with XYZ Realty can’t help out with some showings for XYZ Management. An agent with XYZ Management can’t take a listing for a friend and slip it into the MLS under XYZ Realty.
• And of course, check with your accountant/attorney to be sure that all the appropriate financial, legal and policy/procedure steps have been taken to facilitate this business structure.

Bonus Question: Who can sign stuff?

Section 281 of the regulations states that a “salesperson may not independently negotiate the terms of a lease nor execute a lease on behalf of the lessor.” To comply with this, the PAR Residential Lease (Form RL) specifically states in the signature block that if a representative of the brokerage signs it would be either the broker or an authorized associate broker. The same language is in the Property Management Agreement (Form PMA). Brokers have been sanctioned for practices allowing agents to negotiate/sign leases on behalf of landlords.