Quick Guide to Real Estate Brokerage Business Regulations in Florida

Artistic illustration of Florida real estate rules

This article provides a quick overview of the laws and regulations that govern the conduct of real estate brokerage businesses in Florida.

Types of business entities that may register as a brokerage

Sole proprietorships
General partnerships
Limited partnerships
Corporations (both for-profit and not-for-profit corporations may be brokerages)
Limited liability companies (LLCs)
Limited liability partnerships (LLPs)

Sales associates are prohibited from being an officer or director in a real estate brokerage corporation, or a general partner in a brokerage limited partnership. Only licensed real estate brokers can hold such positions.

F.S. 475.15 Registration and licensing of general partners, members, officers, and directors of a brokerage

Types of business entities that may NOT register as a brokerage

Corporation soles (a type of religious organization)
Single-transaction joint ventures
Business trusts
Cooperative associations

Trade names

An individual broker, partnership, or corporation may use a trade name (fictitious name). However, sales associates may not use trade names. For example, if Greg Watson works for Sunshine Realty, he cannot register his license as “Watson Realty”. He can only use his legal name, Greg Watson.

However, the Florida Department of State and FREC may approve an LLC, PLLC, or professional corporation (PC) entity for a real estate agent. For example, Greg Watson might get approval to use the name “Greg Watson LLC”.

Broker and branch offices

Every real estate broker who is in the business of brokerage (as opposed to acting in a broker associate role) must have at least one office. Each branch office must be registered with the DBPR and must consist of at least one enclosed room in a building of stationary construction (e.g. not an RV) where real estate transactions may be conducted in privacy. A broker can have more than one office, but each office must be registered with the DBPR and meet the requirements just mentioned.

A broker is allowed to have a branch office in his or her home so long as zoning laws permit.

If a branch office is moved, a new registration is necessary, and the broker must notify FREC of the change of address within 10 business days of the move.

A sales associate or broker associate may NOT work form an office of his or her own.

On or near every broker’s office, there must be an obvious and easy to read sign with the business or trade name along with at least one broker’s name and the words “Licensed Real Estate Broker”. The names of other brokers, sales associates, and brokers associates can be listed below, but are not required to be listed. If they are listed however, then each name must be listed next to the license they hold (e.g. “Sharon Williams, Licensed Sales Associate”).

NOTE: A temporary shelter in a subdivision being sold by a broker is only for the protection of salespersons and customers. Transactions must not be closed in a temporary shelter, nor salespersons permanently assigned to such a shelter. If a temporary shelter satisfies those conditions, then it does not need to be registered as a branch office.

Broker advertising rules

Real estate ads include letterhead stationary, flyers, door hangers, business cards, yard signs, billboards, newspaper and magazine ads, radio and TV ads, internet ads, promotional materials, giveaway items, and any other materials used to attract or retain brokerage business.

Ads cannot be fraudulent, false, deceptive, or misleading. The first offense penalty for false advertising is a fine of $250 to $1,000 and a 30- to 90-day license suspension. The second offense penalty is a fine of $1,000 to $5,000 and either a 90-day license suspension or a license revocation.
A broker cannot use the logo of a professional organization (such as that of the National Association of REALTORS) unless he or she is currently a member of that organization.
All real estate advertisements must include the licensed name of the brokerage firm. Using an ad that does not contain the licensed name of the brokerage is called “blind advertising”. If a blind ad is placed by any employee or contractor (including a sales associate) working on behalf of the broker, the broker will be held responsible.
When a licensee (broker or sales associate)’s name appears in an ad, the licensee’s last name must match how it is registered with the FREC. For example, a sales associate registered as “Alice Jill Gray” may advertise as “A. J. Gray, Licensed Sales Associate, Florida Sky Real Estate” but not as “A. G., Licensed Sales Associate”.
Sales associates may NOT advertise or conduct business in their own name. Sales associates and broker associates may place ads as part of their duties under their broker, but they must always list the broker’s name and the brokerage’s trade name.
Internet ads must place the brokerage firm name adjacent to, immediately above, or immediately below the point of contact information. Point of contact information refers to any means by which the brokerage firm may be contacted (e.g. mailing address, physical street address, email address, telephone number, or fax number).

Things NOT required:

FREC does NOT require that a brokerage firm’s phone number or address be included in ads. In fact, brokerages are not even required to have a phone number.

Relevant laws & regulations:

Rental advertising rules

Before a broker offers to find rental property for a tenant in exchange for a fee, the broker must first provide the DBPR with a copy of the contract it will be using 30 days before it begins providing the rental search service.

Additionally, Florida law requires that the contract disclose to potential renters that:

If the tenant is unable to find a suitable rental property, they can provide notice to the broker within 30 days of signing the search contract and will be entitled to a 75% refund of the fee paid.
If the broker or a sales associate materially misrepresents the rental property as being what the prospective tenant seeks, the prospective tenant is entitled to a 100% refund of the fee they paid (but again only if a demand for such refund is made within 30 days of when the fee was paid).

Advertising erroneous rental information (e.g. stating the wrong square footage of a warehouse, omitting that there is a requirement for first and last month’s rent and a damage deposit, etc) is grounds for license suspension or revocation by FREC. Such actions may also be rental violations which are first-degree misdemeanors punishable by up to 1 year of imprisonment and/or a fine of up to $1,000.

Fla. Admin. Code 61J2-10.030 Rental information

Escrow rules

Earnest money deposits must be held by an escrow agent. An escrow agent may be a broker or a third party escrow service provider such as an attorney or title company.

If a broker acts as escrow agent, then the broker must maintain a separate commercial bank, credit union, or other depository institution account for escrow funds. Escrow funds must not be commingled with funds in the broker’s other accounts. If a brokerage maintains an escrow account, the broker must complete a monthly reconciliation statement. An accountant can prepare the statement, but the broker must still review, sign and date the statement. Ultimately, the broker is responsible for the funds in escrow.

If a sales associate collects escrow funds, the associate must deliver the funds to their broker no later than the end of the next business day. For example, if the sales associate receives earnest money on Tuesday, the associate must deliver those funds by the end of Wednesday. If the associate received the earnest money on Saturday and Monday was a legal holiday, then the associate must deliver those funds by the end of Tuesday.

A broker must deposit earnest money “immediately” with an escrow agent or into an escrow funds account. The legal definition of “immediately” is no later than the end of the third business day following receipt. For example, if the broker receives an earnest money deposit from a sales associate on Tuesday (as in the example above), the broker would need to deposit the money by the end of Friday.

If a broker acts as escrow agent and the escrow account is interest-bearing, the broker must obtain written authorization from all parties in order to take a distribution of interest.

Escrow Disputes

If a dispute arises between buyer and seller as to who is entitled to disbursement of escrow funds, then the the process for dispute resolution will depend on whether the escrowed funds are held by the broker or a third-party escrow service.

If the funds are held by a third-party escrow service, then the escrow service must notify the broker. FREC does not get involved in such instances, and the disputing parties will likely need to go to court or agree to a legal settlement with attorneys.

However, if the escrow funds are held by a broker, then the broker must determine whether or not there is a good-faith doubt. A good-faith doubt is when it is not clear which party should receive the escrowed funds. For example, if the broker holds the funds for a sale that falls through, the contract does not state in writing what happens to escrowed funds if the contract becomes void, and both buyer and seller demand the money placed in escrow, then the broker has a good-faith doubt. If this happens, the broker must notify FREC in writing within 15 business days.

There are 4 settlement procedures that a broker can use to settle conflicting demands or a “good-faith doubt” over escrow funds. One of the 4 procedures must be instituted within 30 days of the broker receiving the conflicting demands. The 4 procedures are:

Mediation. If all parties concerned give written permission, then the dispute can be mediated by an independent third party who helps them negotiate an agreement. If an agreement cannot be reached within 90 days of the last demand for funds, the broker must use of one of the other 3 procedures to settle the dispute.
Arbitration. If both disputing parties agree, they can present their cases to an independent third party who will make a legally binding decision.
Escrow Disbursement Order. The broker may ask FREC to issue an Escrow Disbursement Order (EDO). In this procedure, FREC decides who is entitled to the funds. This procedure can only be used if the disputed escrow amount is $50,000 or less.
Litigation. The dispute is resolved in a court of law. If the broker has no claim to the funds, or has given up all claims, then the broker can use a civil law procedure known as an “interpleader action” to deposit the funds with the court registry and compel the disputing parties to resolve their situation in court. At that point, the broker is no longer involved in the case.

In all disputed escrow cases, FREC must be notified within 15 business days of any settlement that took place or if the matter was referred to litigation.

Two exceptions to the above dispute resolution requirements exist:

If the buyer of a residential condominium unit delivers to a licensee written notice of the buyer’s intent to cancel the contract for sale and purchase, as authorized by F.S. Chapter 718, then the above procedures do not apply.
If the buyer of real property in good faith fails to satisfy the terms in the financing clause of a contract for sale and purchase, then the licensee may return the escrowed funds to the buyer without notifying the FREC or initiating any of the procedures.

Related laws and regulations:

Fla. Admin. Code 61J2-10.032 Notice requirements

Representations during property transfers

Brokers and sales associates must NOT:

Render an opinion that the title to any property sold is good or merchantable, except when that opinion is correctly based on a current opinion of a licensed attorney. If asked, a licensee must advise a prospective purchaser to consult an attorney on the merchantability of the title and/or to obtain title insurance.
Exaggerate the value of a property by over-selling a particular aspect of it with grandiose statements.
Misrepresent the value of a property to make a buyer think it is worth more than it really is or that the property is “a steal” or “a bargain”. Such misrepresentations constitute fraud, breach of contract, or breach of trust, depending on the situation. Fraud requires intent and action on the part of the licensee (i.e. saying things they know are not true) and damage to the party who relied on the misrepresentations. Damages might include costs to repair defects that were misrepresented, a reduction of the property value, costs to repair or replace defects in the property, and attorney fees.
Draw up contracts other than the contracts specified in the Florida Statutes. To create other contracts may be construed as the unauthorized practice of law.
Provide legal advice.
Dissuade a seller or buyer form consulting an attorney about a transaction.

Brokers and sales associates MAY:

Offer a representation of value that can be confirmed to a prospective buyer who they are showing a property. For example, “this school district was in Florida’s top ten last year” or “this roof was replaced 2 years ago”. However, the licensee must not exaggerate the value of a property by over-selling a particular aspect of it with grandiose statements.
Draw up contracts specified in the Florida Statutes as able to be drawn up by real estate licensees.

Brokers and sales associates MUST:

Advise a prospective purchaser to consult an attorney on the merchantability of title or to obtain title insurance.

Commissions

A sales associate can only work for one broker at a time and can never collect commission directly from a customer or principal. Commissions are paid to the broker, and the broker pays the sales associate or associate broker. FREC has agreed that a broker associate or sales associate may receive his or her portion of the commission at a closing if the broker gives written permission. Such permission must be granted on a case-by-case basis rather than as a default policy. The reason it is not standard for an associate to collect a commission at closing is because the broker frequently doesn’t collect commission until after closing, which means the broker would be loaning the associate money in anticipation of collecting the commission. If there is a problem collecting a commission from a principal, the broker must deal with the principal. Sales associates and broker associates are not permitted to sue a principal over a commission under Florida law.

Kickbacks

Real estate licensees may not receive kickbacks of rebates from mortgage or title companies in exchange for closing a property with their company. Most other kickbacks are also illegal. However, kickbacks are allowed in limited situations where two conditions are met:

All parties to the transaction are fully informed of the kickback, and
It is not prohibited by other law, such as the federal Real Estate Settlement Procedures Act (RESPA).

RESPA requires that anyone receiving a fee for services connected with certain residential transactions must have actually performed those services.

Additionally, sharing of brokerage commission with the buyer or seller of real estate is legal so long as the arrangement has been fully disclosed to all parties involved.

Confidentiality

When a sales associate leaves a brokerage, that associate is obligated to maintain confidentiality regarding their knowledge of deals between the broker and all principals during the associate’s time at the brokerage.

Additionally, it is a breach of trust for a sales associate to copy records from one broker to bring to a new broker when switching employment, even if the sales associate is the one who created those records. That means, for example, a sales associate who created a list of buyers at one broker cannot take that list to a new broker. In fact, the physical removal of records (even records created by the same sales associate who takes them) from a broker’s office constitutes theft, and brokers must report such crimes to FREC.

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