One of the major factors that distinguishes real estate licensees from other types of professionals is the fact that the majority of real estate licensees are classified as independent contractors.¹ Although Alabama license law doesn’t require a written agreement outlining the relationship between a company and licensee, typically in the form of an independent contractor agreement, such an agreement helps ensure success for both the company and the individual. This article discusses the benefits of independent contractor agreements, as well as key provisions to be included in them to provide the utmost protection.

This article is for information only and does not constitute legal advice. If you need legal advice, please seek guidance from retained counsel.

Protections an Independent Contractor Agreement Offers

When a licensee first joins a company, an independent contractor agreement may feel unnecessary. A common feeling is, “We all trust each other, why do we need a contract to document that?” The answer is that an independent contractor agreement ultimately serves to protect that mutual trust by helping both parties know what to expect from the start. It reduces confusion by outlining the rights and responsibilities of both the licensee and the company. By providing both parties with a reference document regarding certain policies and procedures, it also lowers the risk of disputes. When terms are clearly spelled out up-front, everyone has greater peace of mind. Independent contractor agreements also serve the financial interest of both the licensee and company by helping ensure that licensees are treated as independent contractors, rather than employees, under state and federal law.

Expenses and Financial Responsibilities

An independent contractor agreement should clearly state who pays day-to-day business costs, such as MLS, association, and license fees, office supplies, marketing costs, and other routine expenses. It should explain whether the company will reimburse the licensee, and if so, when reimbursement will happen. For example, if a licensee is expected to buy signs, the agreement should say so. If the licensee will be reimbursed for the cost of the signs, the agreement should set a timeline for reimbursement. These provisions prevent arguments by making each party’s financial responsibilities obvious, which is particularly helpful when multiple licensees are sharing office resources.

Compensation and Benefits

Another critical provision to be included in independent contractor agreements is information about what the licensee will be paid (usually based on sales rather than hours worked). It is particularly helpful to spell out how compensation is calculated, including split percentages, fees, bonuses, and any other forms of payments or incentives. This helps the licensee know how pay works and what is included (or not included) in the arrangement and prevents misunderstandings and disputes. These provisions should also address whether the licensee will receive benefits through the company. Finally, the agreement should include a statement that the licensee is treated as an independent contractor, not an employee, for tax purposes.

Policies, Rules, and Departures

To heighten protection for both licensee and company, independent contractor agreements should cover company-specific rules and expectations, including office procedures, use of systems, branding, social media, and training requirements. If the company has an office manual, it should be given to the licensee at the time the independent contractor agreement is signed. At a minimum, Alabama license law requires that all licensees in a company receive a copy of the company’s Agency Disclosure Office Policy and sign the document.²

The question of what happens if a licensee voluntarily leaves the company for a new company is a common source of disputes that are preventable with a strong independent contractor agreement. For example: who keeps client lists, leads, or marketing materials? Does the licensee have the right to take active listings or buyers with them? How are payments for pending transactions handled? Alabama license law does not answer any of these questions, so it is critical that the independent contractor agreement addresses them.³

Finally, independent contractor agreements should clearly state circumstances which could result in termination, as well as the policies surrounding termination. Ultimately, these types of provisions help ensure that departures (voluntary or otherwise) are handled professionally, protecting both the licensee and the company.

Final Notes

A strong agreement shows that the licensee controls how and when work is performed. It may also include responsibility for insurance, confidentiality, and data protection. Documenting these points demonstrates that the licensee is an independent business, reduces the risk of liability for the company, and creates a professional framework for the licensee and company to thrive.

Additional Resources

• NAR’s Independent Contractor Status Frequently Asked Questions
• IRS: Independent contractor (self-employed) or employee?