By Jones Osborn II

In today's mobile world, and especially with the availability of information over the Internet, out-of-state investors, developers, and users of real property are increasingly crossing state lines to purchase or sell Arizona real estate. This frequently raises questions about the permissible activities of the brokers involved in these transactions when some or all of them are licensed in states other than Arizona.

Arizona Statutes. Fortunately, Arizona law clearly sets forth the rules which govern such situations. The operative principles are as follows:

First, the general rule is that a person not licensed in Arizona cannot engage in any activity in Arizona that requires a license, even if that person is licensed in another state. For example, an unlicensed person may not accept a listing for Arizona real property, take prospective purchasers to inspect an Arizona property, place his or her signs on an Arizona property, or advertise or offer an Arizona property for sale in Arizona. There are some limited exceptions to this general rule, which are discussed below.

Second, the statute expressly authorizes an Arizona broker to pay compensation to and to receive compensation from a broker licensed in another state. Therefore, an Arizona broker may pay a referral fee to an out-of-state broker for referring a prospect who purchases or sells Arizona real estate, or may receive a fee for referring a prospect to the out-of-state broker. However, if the activities go beyond the simple payment of a referral fee or the split of a commission, the two brokers are required to enter into a written cooperation agreement before undertaking any activity otherwise requiring an Arizona license. The cooperation agreement must include the following terms:

(a) A list of the activities that are to be conducted by the out-of-state broker.

(b) A statement that the out-of-state broker agrees to comply with the laws and regulations of the State of Arizona, and to submit to the jurisdiction of the Arizona Department of Real Estate.

(c) A statement that the Arizona broker accepts responsibility for the acts of the out-of-state broker.

Third, regardless of what the cooperation agreement provides, the statutes require that all negotiations in Arizona or with people who own property in Arizona must be conducted through the Arizona broker, and that all funds handled by either broker must be handled in the manner required by Arizona law. In addition, the out-of-state broker may not take listings on Arizona property, market Arizona real property in Arizona, or use the cooperation agreement as a means of selling Arizona real estate to an Arizona resident. Although a cooperation agreement does allow a limited amount of participation by the out-of-state broker, is not a blanket license for an out-of-state broker to set up a real estate brokerage business in Arizona.

Advertising. The Arizona statutes expressly prohibit out-of-state brokers from using the Internet to offer real estate brokerage services in Arizona. In addition, the statutes also prohibit an out-of-state broker from advertising (in Arizona) Arizona real estate for sale or lease. As a practical matter such laws may be difficult to enforce against a broker physically located in another state. Nevertheless, it is the law.

Conclusion. Although Arizona law allows Arizona brokers to split commissions with out-of-state brokers, any brokerage activity taking place within the State of Arizona requires a cooperation agreement between the Arizona and out-of-state brokers. Even then, the activities of the out-of-state broker are quite limited and a licensed Arizona broker will have to remain closely involved in the transaction.

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