1.3 Arizona License Types and Broker Supervision

Arizona License Categories

Arizona issues both individual and entity licenses. Knowing what each can and cannot do is heavily tested.

Salesperson

A salesperson is licensed to list, show, negotiate, and write contracts — but only as an agent of a broker. A salesperson cannot: operate an independent brokerage, hold client trust money in their own account, accept compensation directly from the public, or supervise other licensees.

Associate broker vs. designated broker

This distinction is a favorite trap. An associate broker passed the broker exam and holds a broker license but chooses to work under another broker's supervision, so the associate broker is supervised just like a salesperson. The designated broker is the single broker who is named as legally responsible for the entity. An entity can employ many associate brokers but has exactly one designated broker.

Entity licenses

Designated Broker Responsibilities

The designated broker (DB) is personally on the hook for the brokerage. Core duties:

1. Supervise all affiliated licensees — salespersons and associate brokers
2. Maintain written supervisory policies covering activities, advertising, and transactions
3. Control trust accounts and reconcile them per ADRE rules
4. Review advertising and marketing so it is not false or misleading
5. Retain records for at least 5 years — transaction files, trust records, and employment records
6. Respond to ADRE audits and inquiries promptly

Key Point: A designated broker can be disciplined for an affiliated licensee's misconduct when it stems from inadequate supervision, even if the DB never personally touched the transaction. This is the heart of Arizona's supervision doctrine.

Supervision in Practice

Written policies

ADRE expects the designated broker to keep written policies covering:

• Supervision of all licensed activity and unlicensed assistants
• Trust-fund handling and earnest-money deposit timing
• Advertising standards (including team and social-media ads)
• Transaction review and file completeness
• Record retention of at least 5 years
• Compensation and commission-split arrangements

Broker liability

The DB is answerable for: acts of affiliated licensees within the scope of the license, trust-account integrity, adequacy of supervision, and timely complaint response. A DB who is "too busy" to supervise is still liable — ADRE rejects the defense that the broker delegated supervision informally.

Branch Offices

A brokerage operating from more than one location must:

1. Notify ADRE of each branch and its address
2. Ensure supervision at each branch by the DB or a designated branch manager
3. Keep records accessible for inspection

License Transfers (the gap rule)

When a salesperson moves to a new brokerage, sequence and timing matter:

The license itself stays valid, but it is inactive until the new employment is recorded. Acting during the gap is unlicensed activity.

Compensation Rules

In Arizona:

• A salesperson may be paid only by the employing broker — never directly by a buyer, seller, or another agent
• Commission splits between broker and salesperson are negotiable and set by their agreement
• Referral fees may go only to licensed parties, and any referral relationship affecting a client must be disclosed
• Paying or accepting a fee for referring real estate business to an unlicensed person is prohibited

Exam Tip: If a scenario shows a buyer writing a commission check directly to the salesperson, it is a violation. The check must run through the broker.

Unlicensed Assistants

A brokerage may employ unlicensed assistants, but the line they cannot cross is tested often. An unlicensed assistant may handle clerical and administrative tasks: scheduling, data entry, ordering signs, preparing mailings, and answering factual questions about office hours. They may not show property, hold open houses unattended, negotiate terms, quote prices to induce a sale, or discuss the merits of a listing in a way that requires a license. The designated broker is responsible for ensuring assistants stay within these limits; letting an unlicensed assistant perform licensed acts is a supervision violation.

Trust Funds and the Designated Broker

Because trust-account control is a DB duty, expect questions on earnest-money handling. Earnest money and other client funds must go into a trust (escrow) account, kept separate from the broker's operating funds. Commingling (mixing client money with broker money) and conversion (using client money for the broker's own purposes) are serious violations that can trigger revocation and Recovery Fund claims. The DB must reconcile the trust account regularly and keep the supporting records for at least five years.

In most Arizona residential sales, earnest money is actually deposited with a neutral title/escrow company, not the brokerage — but when a broker does hold funds, the trust-account rules apply in full.

Team Names and Advertising

Arizona requires that all advertising clearly identify the employing broker. A salesperson cannot advertise as if they were an independent firm. Team names must include the brokerage's name or otherwise make clear the team operates under the brokerage. The DB must review and approve advertising, which is why advertising review appears in the written-policy list above. A scenario showing a salesperson's solo "For Sale" sign with no broker identification is a violation.