Do Property Managers Need a License?
The question of whether property managers need a license is common — and important. In most states, providing property management services for a fee requires either a real estate license or a specific property management license. Unfortunately, many individuals begin managing properties without understanding the licensing laws that govern their activities.
Anyone considering a career in property management or starting a property management company must understand that real estate licensing requirements vary by state. However, because the majority of states (approximately 88%) mandate licensing for property managers handling properties on behalf of others, it is generally safe to assume that licensure will be necessary. Researching state-specific requirements is critical before engaging in property management services.
Legal Disclaimer
Nothing provided here constitutes legal advice. Regulations differ by state, and individuals should consult an attorney or review local laws before offering property management services professionally.
Key Definitions
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Brokerage: A licensed real estate or property management company authorized to provide real estate services.
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Designated Broker: The individual legally responsible for overseeing operations within a licensed brokerage, often referred to by various titles such as Managing Broker or Principal Broker.
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Licensee: Anyone holding a real estate license, whether as a salesperson, associate broker, or broker.
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Unlicensed Person: An individual involved in property management activities without holding a valid real estate license.
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Real Estate Commission: A state agency that regulates and oversees licensees to protect public interests.
Where Unlicensed Activity Becomes a Problem
Managing a property as a favor typically does not require a license. However, when compensation is involved — whether through commissions, fees, or any form of payment — most states require the individual managing the property to be properly licensed.
For instance, if a homeowner asks a relative to manage a rental property without offering any payment, licensure is not usually necessary. However, if that relative is compensated, even informally, it likely constitutes a violation of licensing laws unless they are a licensed real estate professional.
The Basic Test for Licensing Requirements
Determining whether a license is needed can often be simplified with a basic test:
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If the individual is a direct, salaried employee of the property owner (receiving a W-2 wage and having taxes withheld), licensing is generally not required.
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If compensation is provided through commissions, bonuses, rent discounts, or anything other than formal wages, a real estate license is likely required.
This distinction explains why onsite apartment managers often do not need a license—they are typically W-2 employees of the property owner.
Differences Between Property Owner Employees and Third-Party Managers
A property owner hiring their own employees to manage a property assumes the associated risks. However, when hiring a third-party management company, the expectation is that the property manager possesses professional knowledge and adheres to regulatory standards. To protect property owners from inexperienced or negligent third parties, many states require that third-party property managers hold a real estate license.
The reasoning is similar to licensing requirements for general contractors. States regulate general contractors to ensure they meet certain safety and competency standards, protecting the public. Similarly, property managers hold fiduciary responsibilities to act in their clients’ best interests, creating an additional layer of legal and ethical obligations that necessitate regulation and licensing.
