Broker requirements collide in three directions: the law's, yours and theirs

Requirements around an intermediary run in three directions. There is what the law requires of them, which varies by state and is thinner than most people assume. There is what you should require of them before signing an engagement, which is where the real protection lies.

And there is what they will require of you, which surprises sellers who expected to be the customer. All three are set out below; the main page on intermediaries covers what they do and where their interests diverge from yours.

What to take away

What the law requires of them

Licensing. California is the clearest example. Its Real Estate Law, in the Business and Professions Code, treats selling a business for a fee as real estate brokerage, so the intermediary must hold a California real estate broker license issued by the California Department of Real Estate (DRE). Most states require no business-broker license at all. The DRE publishes a public license lookup you can search by the individual's name as well as the firm's, and every state that licenses keeps an equivalent register. Check it yourself; do not rely on a certificate on a wall.

Duties. Whether an intermediary owes you the duties of a fiduciary, or only the duties in the contract, depends on the jurisdiction and on the agreement. Where the state licenses the intermediary as a real estate broker, agency law adds fiduciary duties — loyalty, full disclosure, accounting for money — on top of the contract. Where it does not, the contract is usually the whole of it. Assume the contract governs unless your lawyer tells you otherwise, and read it that way. Where an intermediary acts for both buyer and seller, most regimes require disclosure and consent; require it in writing regardless of whether the law does.

Handling of money. If any deposit, escrow or client money passes through the intermediary, the rules on how it is held are a matter for the state and for your lawyer. Where the intermediary is a licensed real estate broker, state rules typically require client money to sit in a trust or escrow account separate from the firm's own funds. A cleaner answer is to require that no purchase money passes through the intermediary at all.

Deal-shape rules. Certain structures bring other bodies into play. A sale of shares rather than assets, a transaction involving many investors, or the involvement of a search fund can each raise questions about who may lawfully arrange it and be paid for arranging it. Sell stock to a group of investors and the deal moves closer to a securities offering, which brings federal securities law — the Securities Act of 1933 and the SEC — and its registration exemptions into scope. These are questions for your lawyer at the point the structure is chosen; the options are described on the deal structures page.

The general description of a business broker on Wikipedia is a reasonable orientation to the role. It says nothing about the rules in your state, which is the point: nothing general does.

What you should require of them

Before signing, require evidence, not assurance.

An intermediary who meets every requirement above is worth the fee. One who meets none is a listing with a phone number.

What they will require of you

Sellers who expected to be the customer are sometimes taken aback by how much an intermediary asks for. Most of it is reasonable.

Buyers face requirements too. An intermediary asks for a signed confidentiality agreement before releasing anything, for evidence of funds before a package, and for a written profile shown to the seller.

A buyer who resents these is filtered out, and the search guide explains why that filtering is in the buyer's interest as much as the seller's.

Where the requirements collide

Exclusivity is where the intermediary's requirement meets yours. They need it, and you need an exit if the engagement fails.

The answer: a term short enough to review, a termination clause with defined notice, and a tail covering only buyers on a written register delivered when the engagement ends. Require all three, or none protects you.

Two more collisions are easy to miss. The law's requirements collide with theirs over dual representation: most regimes require disclosure and written consent before an intermediary can act for both buyer and seller, so an intermediary who resists putting that in writing has answered a question you did not ask.

And the law's requirements collide with yours wherever the law is silent. In most states there is no license to check, which leaves the engagement letter as the only floor — and makes what you require before signing do more work than any statute.

Common questions