1.3 License Types and Broker Supervision
Key Takeaways
- California salespersons may act only under an employing broker; they cannot operate independently or accept compensation directly from a principal.
- Brokers may operate as sole proprietors, partnerships, LLCs, or corporations; a corporation must name a licensed officer as the designated broker-officer.
- Every broker must have a written agreement with each salesperson defining duties, supervision, and compensation, retained for three years.
- The responsible broker is vicariously liable for licensed acts of salespersons and can be disciplined for failure to supervise.
- Branch offices need a separate branch office license, and team names must include the responsible broker's identity and license number in advertising.
License Types and Operating Structures
California issues two real estate licenses, broker and salesperson, but a broker can hold that license in several capacities.
| Capacity | Authority | Supervision status |
|---|---|---|
| Salesperson | May act only for one employing broker | Always supervised; cannot operate alone |
| Broker (sole) | May operate independently and employ others | Supervises salespersons and broker-associates |
| Broker-associate | Holds a broker license but works under another broker | Subject to the employing broker |
| Designated officer | Broker-officer of a licensed corporation | Supervises all corporate licensed activity |
Business entities
A broker may do business as a sole proprietor, a partnership (at least one general partner must hold a broker license), an LLC, or a corporation. A corporate real estate license requires at least one officer to be a licensed broker, called the designated officer or broker-officer; that person is personally responsible for supervising the corporation's real estate activities. The business name (DBA / fictitious business name) must be approved by the DRE.
Exam trap: A salesperson never holds the brokerage license, never opens an independent office, and may not be paid a commission directly by a buyer or seller. All compensation for the salesperson's licensed acts flows through the employing broker. A buyer who tries to pay the salesperson directly is a classic wrong-answer scenario.
Broker Supervision Duties
The responsible broker owes affirmative supervision duties under B&P Code Section 10159.2 and Commissioner's Regulation 2725.
Written agreement (required). Every broker must have a written agreement with each salesperson and broker-associate, signed by both, covering material aspects of the relationship: duties, supervision, compensation split, and termination. The broker must keep a copy for three years after termination.
Reasonable supervision policies must address:
- Review and oversight of transactions, contracts, and documents
- Handling and accounting of trust funds
- Advertising and marketing review before publication
- Compliance with fair housing and consumer-protection law
- Familiarizing salespersons with the requirements of federal and state law
Vicarious liability. The broker is responsible for the licensed acts of salespersons performed within the scope of the agency. A broker can be disciplined for failure to supervise even if unaware of the misconduct, when the misconduct resulted from inadequate supervision. This is why the exam answer to "who is responsible for the salesperson's actions" is almost always the supervising broker.
Branch offices and teams
| Topic | Rule |
|---|---|
| Branch office | Requires a separate branch office license for each additional location; the broker designates a licensed manager |
| Team name | Must be used under the responsible broker; advertising must include the responsible broker's name and DRE license number |
| Misleading names | A team name may not imply it is a separate brokerage (no standalone use of "Realty" or "Real Estate Co.") |
Worked scenario
A salesperson runs a Facebook ad using only a catchy team name with no broker identity. This violates DRE advertising rules and exposes both the salesperson and the responsible broker to discipline, because all first-point-of-contact advertising must disclose the responsible broker and the salesperson's license number.
Recordkeeping, License Display, and Permitted Acts
Supervision also has concrete documentary requirements the exam tests.
Record retention. A broker must retain transaction records, including listings, deposit receipts, canceled checks, and trust-account records, for three years from the closing date or, if there is no closing, from the listing date. These records must be available for DRE audit. Salespersons do not personally hold the brokerage's records; the broker is the custodian.
License display and possession. The broker's license is kept at the main office. Branch licenses are kept at each branch. Salesperson licenses are delivered to and held by the employing broker, not posted by the salesperson. When a salesperson leaves, the broker must return the license and notify the DRE.
What a salesperson may and may not do
| Permitted under broker supervision | Prohibited to a salesperson |
|---|---|
| List property for sale or lease | Operating an independent brokerage |
| Solicit buyers, sellers, landlords, tenants | Accepting a commission directly from a principal |
| Present and negotiate offers and counteroffers | Holding the brokerage trust account in their own name |
| Open escrow if the broker authorizes it | Hiring or supervising other salespersons as the responsible party |
| Conduct open houses and prepare CMAs | Advertising without the responsible broker's identity |
Compensation flow and a worked example
All commission for a salesperson's licensed acts must pass through the employing broker, who then pays the salesperson per their written agreement. A salesperson may, however, pay a referral fee to another licensee only through their own broker; an unlicensed person generally cannot be paid a referral fee for licensed acts.
Example: A salesperson closes a $600,000 sale at a 3% side, or $18,000. The escrow company pays the broker, not the salesperson. If the written agreement gives the salesperson a 70% split, the broker keeps $5,400 and pays the salesperson $12,600. If a buyer tried to hand the $18,000 directly to the salesperson, that would violate California law, because compensation for licensed acts must route through the broker.
Which statement about a California real estate salesperson is correct?
A salesperson commits a trust-fund violation that the broker never knew about. Under California's supervision rules, who can the DRE discipline?