License Reciprocity: Opening Doors, One State at a Time

Ohio becomes latest state to give commercial practitioners broader market reach.

May 1, 2002

Alex Russo has a message for commercial colleagues licensed outside of his state of Ohio: Your clients are welcome here and, just as important, so are you.

Russo’s message is music to the ears of practitioners who’ve tried to help their clients move into the state. In the past it was illegal for out-of-state licensees to do anything but refer business to Ohio practitioners. Coming into the state to set up showings, inspect property, or even work with an in-state licensee to consummate a deal constituted a license violation and forced out-of-state licensees to take their services underground if they were to service their clients.

Since April, that’s no longer been the case. And if commercial practitioners around the country have their way, it will no longer be the case in dozens of other states in which out-of-state licensees are asked to bring their clients to the party but to check themselves at the door. “Thanks to the efforts of so many professionals here, including the Ohio Association of REALTORS®, we’ve achieved a great victory, because our laws now reflect the realities of commercial real estate today,” says Russo, SIOR, an associate with Colliers International and president of the Cleveland Area Board of REALTORS®.

Although states don’t distinguish commercial licensees from residential, the new Ohio law and proposed changes in other states apply to commercial transactions only. But residential practitioners sometimes cross state lines, too, and the provisions could become a model for future changes that don’t distinguish by transaction type.

Movement to cooperate grows

Behind the drive to update license laws is the changing relationship between commercial practitioners and their clients. Corporations are expanding their reach at the same time they’re eliminating in-house real estate operations. Increasingly, they look to commercial practitioners to be the eyes and ears for their real estate operations, everywhere their expansion plans take them. “To be effective, you need legitimacy in more than one state,”says Hal Maxfield Sr., SIOR, broker-owner of Hal Maxfield Real Estate Inc., in Mansfield, Ohio.

In many states, that isn’t a problem. As of early this year, analysts classified 17 states as cooperative states, in which practitioners who are licensed and in good standing in one state can physically go into the other state to conduct commercial transactions. That’s not to say commercial practitioners doing business in cooperative states can come and go as they please. Generally, they must enter into a cooperation agreement with an in-state licensee and work through that person on matters involving the transaction.

The flexibility of out-of-state licensees is reduced in the 27 states that industry analysts call physical location states. In these states, an out-of-state licensee can do more than just refer a deal but can’t physically enter the state for the purpose of doing business. Requirements differ, but in general, these states permit out-of-state licensees to list and market in-state properties and handle other matters for a commission. However, physically entering the state for business, which practitioners say they must do to adequately list and market clients’ properties, constitutes a violation.

About a half dozen states, which industry analysts call turf states, put an outright ban on out-of-state licensees handling deals in their state. In turf states, out-of-state licensees can only refer a deal to an in-state licensee and collect a referral fee. Until April that group included Ohio.

Under its new law, Ohio is transformed from a turf state to a cooperative state. In taking advantage of the law, out-of-state licensees give jurisdiction to the Ohio Real Estate Commission to come after them if they violate license requirements while working on a deal. That’s a key provision, because it may mean cooperating in-state licensees aren’t responsible for violations committed by their partners. That protection is proving to be a stumbling block in North Carolina, a physical location state that the industry would like to see follow in Ohio’s footsteps. “There are concerns about the practicality of North Carolina officials crossing state lines to pursue an out-of-state licensee,” says an analyst familiar with the issue.

A real team effort

Practitioners in North Carolina and elsewhere remain optimistic. “It’s an education process,” says Peter Hanson, SIOR, chairman of NAI James E. Hanson Inc. in Hackensack, N.J., and chair of a REALTORS® Commercial Alliance Advisory Board reciprocity task force. The advisory board works with industry leaders to identify key issues and make recommendations to NAR. The board is distinct from the REALTORS® Commercial Alliance, which refers to all commercial members of NAR and its commercial affiliates.

REALTORS®’ allies on the matter include the advisory board, as well as NAR’s commercial affiliates, which played key roles in the Ohio victory. The Association of Real Estate License Law Officials also favors more seamless state borders.

“Everyone has really pulled together on this,” says Jim Hochman, senior vice president and regional counsel for Coldwell Banker Richard Ellis in Chicago. “The ultimate beneficiaries will be our clients.”

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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