Source: Tennessee REATORS® Legal Counsel
In a court case heard in Knoxville this spring*, an individual had put contracts on properties and then advertised those properties that they had not closed on yet for sale with a disclaimer that they were not a licensed real estate agent. The trial court and appellate court held this activity violated the Real Estate Brokers Licensing Act. The appeals court found that selling property that you do not own in exchange for valuable consideration requires a brokers’ license in Tennessee. This case may have a large impact on the concept of “wholesaling” in Tennessee and can be read to state selling equitable interest in real property requires a real estate license.
Among other case highlights:
The Defendants argued that the trial court had erred in finding that they violated the Brokers Act. The appeals court disagreed and affirmed the trial court’s conclusion that the Defendants violated the Brokers Act. As a result, it also agreed that the Defendants are barred from asserting any claim for compensation against the Plaintiffs.
“The Tennessee Real Estate Broker License Act of 1973 is designed to protect the public from
irresponsible or unscrupulous persons dealing in real estate.” Bus. Brokerage Centre v. Dixon, 874
S.W.2d 1, 3 (Tenn. 1994) (citing Prowell v. Parks, 767 S.W.2d 633, 634 (Tenn. 1989)). The Act
states that individuals must obtain a real estate broker’s license before acting as a real estate broker.
Tenn. Code Ann. § 62-13-301; Bus. Brokerage Centre, 874 S.W.2d at 3. “[F]ailure to obtain a
broker's license before engaging in acts defined as ‘brokering’ is punishable as a Class B
misdemeanor.” Bus. Brokerage Centre, 874 S.W.2d at 3 (citing Tenn. Code Ann. § 62-13-110(a)(1));
see also Tenn. Code Ann. § 62-13-103(b) (stating that “a single such act by a person required to be
licensed under this chapter and not so licensed constitutes a violation of this chapter”). However, the
licensing requirement under the Act does not apply to the owner of the subject real estate. See
Tenn. Code Ann. § 62-13-104(a)(1)(A). Any unlicensed party that “violat[es] the provisions of the Act
is prohibited from bringing an action to recover ‘compensation for any act done or service rendered.’ ” Burks v. Elevation Outdoor Advert., LLC, 220 S.W.3d 478, 484 (Tenn. Ct. App. 2006) (quoting
Tenn. Code Ann. § 62-13-105).
Under the Brokers Act, “broker” is defined as a person “who, for a fee, commission, finders fee or
any other valuable consideration or with the intent or expectation of receiving a fee … or any other
valuable consideration from another, solicits, negotiates or attempts to solicit or negotiate the listing,
sale, purchase, exchange, lease or option to buy [or] sell” real estate. Tenn. Code Ann. § 62-13-
102(4)(A). Stated differently, a “broker” is a person “who receive[s] or expect[s] to receive some form
of consideration from another for their efforts in soliciting or negotiating the listing, sale, or purchase
of real estate.” Bowden Bldg. Corp. v. Tenn. Real Estate Comm'n, 15 S.W.3d 434, 440, 440 n.6
(Tenn. Ct. App. 1999) noting that “persons” includes individuals, corporations, partnerships, and
associations). A person can act as a broker by directly or indirectly dealing in real estate. See Tenn.
Code Ann. § 62-13-103(a); Bus. Brokerage Centre, 874 S.W.2d at 3.
*Court of Appeals of Tennessee in Knoxville, Toryiana Louisa SOTO, et al. v. PRESIDENTIAL PROPERTIES, LLC, et al. (2021 WL 1626275)