Making a License Inactive

Each renewal cycle, PAR sees an increase in calls from members who want to know what steps they need to take when they plan to leave the real estate profession. Let’s take a few minutes to cover some of the basics.

A Note on Terminology

There is no PALS status called “In Escrow.” Licensees who fail to renew their license at the end of a renewal cycle are deemed “Expired.” Licensees who take some affirmative step to disaffiliate from a broker (quit/transfer) — or who are involuntarily disaffiliated (fired) — are deemed to be “Inactive.” “In escrow” is a shortcut term that has developed over the years, but it really is just another word for inactive status. So everything below that says “make a license inactive” should be read the same as “put your license in escrow.” (Or to put that more plainly, please don’t call and say “I read about making my license inactive, but how do I put it in escrow.” Same thing.)

A PALS Disclaimer

There will be several mentions of steps that can be taken within PALS and other things that may have to happen outside of PALS. For ALL questions about the specifics of any license-related issues — what buttons to click or what email to query — please contact the Commission staff either via a PALS support ticket or by phone. PAR doesn’t control the PALS system and we cannot help with those details.

Salesperson/Associate Broker

“In the old days,” when a salesperson or associate broker was leaving a brokerage (whether voluntarily or involuntarily) the usual process was to physically mail the license back to the State Real Estate Commission. That’s no longer preferred — or even necessary.

When an agent leaves a brokerage they should be able to make their own license inactive within the PALS system (you can contact the state at the above links if you’re not sure how to do this within PALS). As of the publication date of this article, however, a broker is unable to make one of their agents licenses inactive in the system. A broker who wants one of their licensees to be deemed as inactive should contact the Commission for instructions on the appropriate way to submit that request via support ticket or email.

After the inactivation, a broker is still permitted to pay the now-inactive licensee any fees that may have been earned while they were licensed, but the independent contractor agreement between the broker and agent will determine whether and under what circumstances the broker may be required to pay those fees. It’s a good idea to discuss that when agents are newly hired so there is a clear understanding by both parties.

Broker

While we can’t get into all of the business details that have to be considered when a broker moves on, here are a few things to keep in mind.

First and foremost, understand the broker’s license type. A broker of record license (usually with an RM prefix) is held by a broker who operates a licensed brokerage (usually an RB prefix). A broker of record can leave and be replaced by another broker of record. But a broker sole proprietor license is one in which the broker and brokerage firm basically share a common license (usually an RB prefix). If a broker sole proprietor license moves to inactive they cannot be replaced — the office basically has to shut down and the agents transferred to a new office.

Next, have a clear plan as to whether you expect to shut down the brokerage or to replace a broker of record with a new one. If the goal is to continue operations with a new broker of record, you should have that person lined up in advance (or immediately after) and submit a change of broker application within PALS. If the new broker already has an active broker or associate broker license, their appointment will be valid as of the date the application is submitted. Remember there is no “grace period” for agents or the brokerage when a broker leaves; licensed activity should technically be suspended until the replacement broker is appointed.

If the goal is to shut down the brokerage, remember that a brokerage without an active broker cannot perform real estate services. This means that either someone will need to be in place as the broker of record until all the transactions and money issues are wrapped up, or any remaining transactions will have to be shifted to a different firm that agrees to complete them. Similarly, the brokerage will need to ensure that all escrowed funds have been accounted for by the time the brokerage shuts down. If a brokerage has unclaimed escrows, we advise consulting with local counsel to work on a resolution.

And finally, for instructions on exactly how to make a broker or brokerage license inactive, you’d want to contact the Commission via phone or support ticket.

Bonus Answers

A broker who makes their license inactive could choose to reactivate an earlier associate broker license if they want to continue practicing. Contact the state for specific instructions, but we have been told it can take several weeks for this process, so you may be unable to practice during this transitional period when you technically don’t have an active license at all.

And don’t forget that there may be various administrative or legal issues to be handled with a change of broker or business shutdown. For example, if there’s a business entity (corporation, LLC, etc.), there will be rules on how to transfer or dissolve that entity. You may need to put a new signature on escrow accounts, transfer access to brokerage PALS accounts (and other accounts) to a new broker and so on. We highly recommend using a qualified local attorney for these issues.