When Must You Disclose License Status When You’re an Investor in a Real Estate Transaction?

When Must You Disclose License Status When You’re an Investor in a Real Estate Transaction?

It depends on if you are a “Realtor®” or not.  To correctly answer this question, this distinction must be made clear.  Not all licensees are Realtors® however all Realtors® must be licensees.  Licensees get the Realtor® designation when they choose to become a member of the Board of Realtors, in this state it is The California Association of Realtors, (CAR).  A licensee under Cal BRE is not required to disclose his licensure that he is a licensee when acting as a principal in a transaction unless, he is claiming a commission.

California real estate law does not specifically mandate you to disclose license status.  In fact you are not required to disclose that you are a licensee when acting as a principal.  However, you must disclose your license status when employed by a buyer or seller and you expect to earn a fee for your services.  If you are acting as an agent then you are controlled by the law, if you are acting solely as a principal then you are not under the licensure law since you have not created an agency relationship.

Where people get confused is when they try to make the Board of Realtor’s Code of Ethics, the law.  The California Association of Realtors and the National Association of Realtors are just a trade associations that a licensee chooses to join.  In order to call yourself a Realtor® you must agree to the Code of Ethics.  According to CAR as a matter of good faith, Realtors® must disclose that they are licensed even if they are acting solely as a principal in a transaction.  The argument for this is that since you are an expert in the transaction, it is good faith to let everyone know that you know more than them.  Well, everybody knows that not all Realtors® are experienced at what they practice and not all of them have any knowledge of creative real estate investing.  So that code of ethics rule doesn’t make any sense.

I think what’s more important here is about the liability it could create for the investor-licensee.  To disclose your license status in a principal situation could open you up to more liability and create confusion.  For example, someone could say that because you disclosed that you are in fact licensed, that they didn’t know as much as you do and they relied on your expertise to make their decisions.  Why create that liability and risk if you are just working only for yourself and not in an agency capacity?  It’s a bad idea to disclose period. 

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