The Spectrum of Unlicensed Brokers Helping You to Buy and Sell Real Estate

Section 1446 of the Louisiana Real Estate License Law holds that unlicensed individuals cannot receive any payment in commission or as compensation for Real Estate related work. If adjudicated, the punishment for such crimes include a maximum fine of five thousand dollars by the Louisiana Real Estate Commission (LREC) and/or 2 years prison time. 

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Section 1446 of the Louisiana Real Estate License Law holds that unlicensed individuals cannot receive any payment in commission or as compensation for Real Estate related work. If adjudicated, the punishment for such crimes include a maximum fine of five thousand dollars by the Louisiana Real Estate Commission (LREC) and/or 2 years prison time. 

NEW ORLEANS, LOUISIANA August 1, 2019--The expansion of the real estate industry globally is accompanied by an increased need for meticulous observation of the parties involved in real estate transactions. This is necessary for the preservation of business ethics, which are meant to protect the public and individuals involved in a real estate transaction from encountering unqualified or unethical practitioners in the field. 

One provision meant to upkeep the professionalism and integrity in the real estate industry is the necessity of a real estate license to participate in or perform a real estate transaction. In the State of Louisiana, this provision can be found in the Louisiana Real Estate License Law under Section 1446, titled “Compensation; Independent Contractor Status of Salespersons and Brokers”. The Louisiana Real Estate Commission (“LREC”) was created as a governing body that enforces the Louisiana Real Estate License Law and Commission Rules and Regulations.

Section 1446 of the Louisiana Real Estate License Law reads that 

“No payment of a commission or compensation shall be made by any licensee or registrant to any person who has not first secured a license or registration under the provisions of this Chapter.” 

This is to say that no portion of the profits from a real estate sale can be given to an unlicensed individual, and a licensed individual who is aware of an individual’s lack of a license is not permitted to pay or promise payment to that unlicensed individual for any real estate related work.

In the case of a violation of the Louisiana Real Estate License Law and Commission Rules and Regulations, the LREC is only permitted to investigate if the violation is brought to the organization’s attention via a formal complaint or when the organization is prompted to act by their Executive Director or Commission. However, this format for the investigative process leaves a window for many unresolved violations due to the difficulty in obtaining evidence of the crime. 

The first step of the investigative process is to contact the person who filed a formal complaint and request that they personally investigate, obtain, and provide substantial evidence for their claims. If the LREC determines that the evidence is insufficient, the investigation ends, presumably prematurely in many cases.

Because of lack of evidence, only 2 of a possible 24 cases managed to reach the point of penalty. This fact acts as a deterrent for potential complaint filers, who know that the investigative process is dependent on their ability to generate evidence, which is rarely enough to move forward with the investigation even in the unlikely chance that it can be generated. 

The low probability of punishment also further encourages the continuation of the unethical practice on a large scale, further increasing the difficulty in reporting, as it becomes a normalized practice. This allows some real estate professionals to freely act against the law for better results while others fall behind in the name of remaining within the decency of real estate regulations. 

One example of a legal but arguably unethical real estate sales practice not requiring a real estate license is the practice of “wholesaling”, a real estate activity often promoted in “get-rich quick” seminars. In wholesaling, the “agent” (for lack of a better term) “buys” a “contract to buy” from the seller at a predetermined price and predetermined duration. Wholesalers usually already have developers and contractors in line waiting for a deal to go up for sale at a price under market rate. The unethical nature of this action usually manifests in the profit that the wholesaler pre-negotiates with sellers who are usually not only unaware of the true value of their property but also unaware that licensed representation is available and that even ethically-bound representation is available through licensed agents who also subscribe to a Code of Ethics via a local association of Realtors.

Whereas the total number of licensed real estate agents who are also Realtors in the Greater New Orleans area exceeds 6,000 who mostly focus on Residential transactions, the real estate industry is even more competitive for Commercial Realtors.

However, according to the LREC, of the possible 24 cases of a licensing violation observed, none involved Commercial Real Estate. For the purpose of this press release, Commercial Realtors were sent an anonymous survey enquiring whether they had witnessed someone pay a fee to an unlicensed agent or whether they themselves had ever paid an unlicensed individual for real estate related services. 

Though most responded that they had never witnessed or done such a thing, one of the 11 Realtors who responded admitted to witnessing a cooperating commission or a referral fee paid to an unlicensed individual. However, It is clear that, even when the responder can remain anonymous, there is some reluctance to discuss the issue truthfully, due to the fear of being implicated in a crime. 

Another responder exemplified the caution most likely taken by all of the responders by replying 

“Why risk your carrier? Absolutely no way! Why ask a question like this? Agents know better[,] especially a commercial agent[.]” 

This statement implies that the responder believes that Commercial Realtors act more within real estate ethics than Residential Realtors and licensed agents.

However, the situation is not so simple for Commercial real estate agents that are Business Brokers. It is in the best interest of every Business Broker to have a real estate license if they intend to compete with other Business Brokers. In some situations, a securities license may be needed as well.

The LREC does not require any other certification for the sale of a business nor is it required for Business Brokers to be a member of a Realtor Association or Business Broker Association having similar Code of Ethics. Despite Business Brokers having the option to become a Certified Business Intermediary (CBI), which is referred to as 

“an experienced business broker who is committed to the highest level of professional development the industry has to offer” 

on the International Business Brokers Association (IBBA) website, many still choose not to have a designation or certification. 

This is partly because an additional certification, such as a  CBI, is only required by 14 states in the USA. There are only 3 Business Brokers in Louisiana with a CBI out of 8 total (only 1 within 50 miles of New Orleans), according to IBBA data, which includes information on more than 500 CBI’s out of 1,300 members worldwide as of today. 

However, when the sale of a business involves the sale or lease of real estate and when the sale is an asset sale of one or more unique whole or parts of assets (but excluding the formal entity owning them and any known or unknown liabilities), then Louisiana State Law requires the involved Business Broker to have a real estate license.

It is common in the practice of business sales for real estate to accompany a business (either as the sale or lease of real estate), but the business and the real estate are not interchangeable. Both can be sold independently from the other. This spawns concerns about the rules and regulations for referrals, licensing, and commission as they relate to Business Brokers.

As for a securities license, the Securities and Exchange Commission (“SEC”) and the SEC of each state does not require a securities license for exempt M&A transactions. A securities sale is not an asset sale but instead a stock sale, which includes all assets and liabilities, including real estate, through the purchase of membership interest in the entity that owns it all.

When the sale of a business - involving real estate or not - is structured to sell as a percentage of membership interest, one or more types of securities licenses are usually required. According to BrokerCheck (, there are more than 5,000 brokers and investment advisors with one or more securities licenses in the State of Louisiana. Just under 5,000 are brokers, more than 3,000 are investment advisors, and just under 3,000 are both. None have been barred. There are only 5 investment banks in the Greater New Orleans area.

However, according to the “Faith Colish” SEC No Action Letter issued January 31st, 2014, Business Brokers are exempt from needing a securities license under strict conditions.

One core condition of this exemption is that the listing may not be publicly offered. Another core condition is that more than 25% of the entity must be sold, and the buyer must also have more than 25% control. Finally, buyers must be “accredited” and or “sophisticated”.

Without meeting these and other conditions, then publicly selling less than 25% of a company to a passive investor or group of passive investors possibly also recruited by the broker would require a M&A broker to have a securities license such as the Series 62, 63, 66, 79, and 82. Interestingly, for real estate syndications (i.e., multiple real estate properties packaged into one partnership entity), the Series 22 or 39 must used, and a real estate license is not sufficient.

Considered practically, in either the (a) public real estate asset sales or (b) private securities transactions of stock or membership interest to accredited or sophisticated investors, a referral fee should be able to be paid to an unlicensed individual for the sale of a business so long as the payment is not generated from the portion of the commission earned from the sale of the accompanying real estate in a real estate transaction and so long as the referring party is also acting within the same guidelines of the “Faith Colish” SEC exemption in a securities transaction. 

The IBBA database only has 8 business brokers total on record for the State of Louisiana, making the issue seem minor. Further, as mentioned earlier, zero brokers registered with FINRA have been barred in Louisiana.

Until clarification is made by the LREC, SEC, and other bodies monitoring business sales for other states, this unique situation that only Business Brokers encounter about the boundaries regarding referral payments and business sales will remain unclear. 

About LREC

The Louisiana Real Estate Commission, formerly named the State Board of Real Estate, was created to “regulate the mode and manner of conducting the affairs and business of real estate.” The LREC serves as an overseeing body for real estate activity, investigating practices used to determine whether real estate transactions are being conducted legally within the boundaries of the Louisiana Real Estate License Law and Commission Rules and Regulations. It seeks to keep the business of real estate ethical as it expands within the state of Louisiana. For more information, visit

About IBBA

Formed in 1983, the International Business Brokers Association (IBBA) is non-profit association reserved for “people and firms engaged in business brokerage and mergers and acquisitions.” Members of the association can use it to network and cooperate with other professionals in their field. The IBBA also conducts educational services for members, including the accompanying education to be awarded the Certified Business Intermediary (CBI) certification. The IBBA is part of the International Association of Business Intermediaries, Inc. (IABI), a Texas non profit organization. For more information, visit

For more information or if you are another Commercial REALTOR with an idea for a press release, reach out to:

Tiannah Steele
Public Relations Intern
KW Commercial
(757) 230-7224
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