License Law
Real Estate License Law Violations
License law violations can cost you your license, result in fines, and in serious cases lead to criminal prosecution. Understanding what constitutes a violation — and why — is an exam requirement and a career essential.
Common License Law Violations
Commingling — mixing client funds with personal or operating funds
Conversion — using client trust funds for personal purposes
Misrepresentation — making false or misleading statements about a property
Failure to disclose — concealing known material defects or conflicts of interest
Practicing without a license — conducting real estate activity requiring a license without having one
Unauthorized practice — a salesperson operating outside the supervision of a licensed broker
Kickbacks/undisclosed referral fees — accepting compensation not disclosed to all parties
Discrimination — violating the Fair Housing Act or state fair housing laws
False advertising — advertising property or services in a misleading way
Net listings — in states where they're prohibited, taking a listing that compensates the agent only above a specified price
Dual contracts — using two purchase contracts simultaneously with different prices for buyer and lender
Unlicensed assistants — allowing unlicensed individuals to perform activities requiring a license
Discipline Process and Penalties
When a complaint is filed with the state real estate commission, an investigation is opened. If a violation is found, discipline ranges from a reprimand or fine (minor violations) to license suspension or revocation (serious violations).
License revocation is typically reserved for the most serious violations: conversion of client funds, fraud, felony convictions, and repeated violations. Revoked licensees may reapply after a specified period, but approval is not guaranteed.
Criminal prosecution can accompany civil license discipline for fraud, conversion, or mortgage fraud. Real estate professionals can face both criminal charges AND license revocation for the same conduct.
License Violations FAQ
Is commingling always intentional?
No — commingling can be accidental (depositing a client check into the wrong account). But intent doesn't matter for license law purposes. Accidental commingling is still a violation and can result in discipline.
What is the difference between active and passive misrepresentation?
Active misrepresentation is a false statement. Passive misrepresentation (also called fraudulent concealment) is deliberately hiding known material facts. Both are violations; passive misrepresentation is harder to detect but equally serious.
Can a buyer's agent be disciplined for the seller's failure to disclose?
Generally no, if the agent didn't know about the defect. However, an agent who knew about a material defect and failed to disclose it — even if representing the buyer — may face discipline.
What is blockbusting?
Blockbusting (also called panic selling) is the illegal practice of inducing owners to sell by suggesting that the ethnic or racial composition of a neighborhood is changing in a way that will hurt property values. It violates both Fair Housing law and license law.