dept of real estate california

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					Chapter 1 The Business of Real Estate California Department of Real Estate Issues real estate licenses Regulates qualifications for licenses based on the Real Estate Law [part of the Business and Professions Code] Conducts license examinations Headed by Real Estate Commissioner Has power to discipline real estate licensees Brings actions against unlicensed persons Issues public reports on new subdivisions DRE Website: www.dre.ca.gov Real Estate License Requirement License required to represent someone in a real estate transaction for compensation Examples: Selling, buying, exchanging real property Soliciting buyers or sellers or obtaining listings for the sale, purchase, or exchange of real property Leasing real property Soliciting, negotiating, or buying or selling loans secured by real property Exceptions to Licensing Requirement Persons dealing with their own property individuals partners dealing with the partnership’s property employees of corporation dealing with the corporation’s property Attorney rendering services for client Resident apartment managers (only for renting apartments in complex) Employees of banks, savings banks, credit unions, and insurance companies (only for loans made by their employers) Mortgage loan brokers licensed by the Department of Corporations (only for loans) Penalties for Unlicensed Persons Penalties imposed on unlicensed person: Cannot file court action to collect compensation Criminal penalties of up to $20,000 fine, 6 months jail, or both Change from $10,000 effective January 1, 2009 Brokers cannot compensate unlicensed persons or salespersons not employed by the broker. Penalties: Fines Loss of license Activities by Unlicensed Employees (Assistants) Activities that can be performed by an unlicensed employee of a real estate broker under the control, direction and supervision of the broker: Assisting with an open house (handing out written information, placing signs, greeting the public) Preparing a comparative market analysis Providing written information about loan terms, conditions or qualification requirements Arranging appointments with non-principals (appraisers, inspectors, etc.) Meeting non-principals at the property Preparing advertising Preparing, delivering, or picking up documents Types of Real Estate Licenses Real Estate Broker Real Estate Salesperson 522,000+ licensees as of May, 2009 Approximately 29% Brokers Approximately 71% Salespersons

Broker/Salesperson Relationship Only brokers can contract with principals Salespersons must work under the supervision of a broker Brokers must supervise salespersons who work for the broker Broker must have a written agreement with each salesperson who works for the broker must cover supervision, compensation, and duties example: text pages 7-9 Salespersons can receive compensation only from their broker Typical Real Estate Salesperson Compensation A real estate salesperson is typically paid a portion of the commission that the salesperson’s broker earns from the salesperson’s efforts Example 1: Broker agrees to pay a % of the commission earned by the broker from a listing agreement with a seller signed-up by the salesperson Example 2: Broker agrees to pay a % of the commission earned by the broker when the broker earns a commission split with a listing broker because the salesperson located the buyer for the listed property More on the Broker-Salesperson Relationship Real estate broker must keep the salesperson’s license in the broker’s office Broker must return license to salesperson within 3 days after employment is terminated Salesperson must be treated as an employee of the broker for DRE supervision purposes Salesperson is usually treated as an independent contractor for purposes of: Income tax withholding Social security and Medicare taxes Unemployment insurance Salesperson License Requirements An applicant for a real estate salesperson license must: be at least 18 years old be a legal U.S. Resident be honest and truthful application can be denied for conviction of crime substantially related to qualifications meet the education requirement apply for and pass salesperson exam complete a license application Salesperson Education Requirements To apply for the exam after 10/1/07, an applicant must provide evidence of passing: Real estate principles Real estate practice, and One elective course from the following list: real estate appraisal, real estate finance, real estate economics, property management, legal aspects of real estate, business law, escrow, mortgage loan brokering, computer applications in real estate, common interest developments (homeowner association management), real estate office administration Salesperson Examination Current Fee: $60 Time allowed: 3 hours, 15 minutes 150 multiple choice questions Passing rate: 70% (105 correct) Calculators permitted, except: no printing capacity no alphabetic keyboard no cell phone calculators

Items Not Permitted at Exam Not permitted in the examination room: backpacks, briefcases, suitcases, food, drink, study materials, portable computers, PDAs (personal digital assistants), or programmable calculators Cell phones: Cannot be used during the examination Must be turned off and placed out of sight once you enter the exam room Salesperson License Application After passing the exam, DRE will send a license application to the applicant Applicant must return completed application and return it with: the license fee (currently $245) proof of legal residence a live scan request (fingerprint request) first get fingerprinted at a participating live scan service provider (separate fee) a list of live scan service providers is available from a link on the DRE website Combination Application Applicant can file a combination exam/license application Must pay both fees (license fee not refundable) Must submit all license documents (proof of legal residence, live scan request, evidence of education requirements) Broker’s License Requirements At least 18 years old Legal U.S. Resident Apply for and pass brokers exam Meet education requirement (8 courses) Meet experience requirement Complete license application Pay fee (currently $300) Provide proof of legal residency Fingerprints and fingerprint processing fee Broker Education Requirements Five Required Courses real estate practice, real estate appraisal, real estate finance, legal aspects of real estate, either real estate economics or general accounting Three Elective Courses from the following real estate principles, advanced real estate appraisal, advanced real estate finance, advanced legal aspects of real estate, business law, real estate office administration, escrow, mortgage loan brokering, computer applications in real estate, or common interest developments Brokers License: Experience Requirement Two years full-time real estate sales experience or its equivalent Full time - 40 hours per week Part-time experience credited pro rata No credit for less than 10 hours per week Exceptions to experience requirement: Four year degree: no experience required As interpreted by DRE, degrees can be in any major Technically, requires “specialization” in real estate Broker’s Examination Fee: $95 Time allowed: 5 hours (2 sessions) 200 multiple choice questions Passing rate: 75% (150 correct) Calculators permitted, except: no printing capacity, no alphabetic keyboard, no cell phone calculators

License Renewals Brokers and Salespersons both must renew their licenses every 4 years Current license renewal fees: Salesperson: $245 Broker: $300 Must meet continuing education requirement Continuing Education: Salespersons First Renewal Licensed on or after 10/1/07: 45 clock hours of CE required 3 hours each on ethics, agency, trust fund handling, fair housing 3 hours in risk management 18 hours consumer protection 18 hours consumer protection or consumer service Continuing Education: Brokers First Time Renewal 45 clock hours of CE required 3 hours each ethics, agency, trust fund handling, fair housing (12 hours total) 3 hours in risk management 18 hours consumer protection 18 hours in either consumer protection or consumer service Continuing Education: Broker and Salesperson Subsequent Renewals 45 clock hours of CE required Either: a 6 hour course that includes ethics, agency, trust fund handling, fair housing, or 3 hours each in ethics, agency, trust fund handling, fair housing 3 hours in risk management 18 hours consumer protection Balance of 45 hours in either consumer protection or consumer service Other License Activities Real estate licensees can represent others for compensation in transactions involving: Used mobile homes (manufactured housing) Real estate loans Minerals, oil, and gas Business opportunities Business Opportunities Defined: The sale or lease of the business and goodwill of an existing business enterprise or opportunity Examples of business opportunities: Retail stores Restaurants and bars Manufacturing facilities Automobile service business Printing shops Business Opportunity Transactions The business may include: Personal property inventory, equipment, trade fixtures, accounts receivable Assignment of a lease Real property Goodwill value of expected continued patronage by the customers of the business

Business Opportunity Sales • Sales prices often determined by review of financial statements for business – income statement – shows profit and loss for a specified period of time (for example, 1 year) – balance sheet – shows assets, liabilities, and owner’s equity at a specified point in time • Value may be based on asset value, a multiple of the business net income, or both • Business sales may have two escrows – one for transfer of personal property, one for real property • Bulk sale – a sale of more than ½ of the business inventory and equipment – Business must give bulk sales notice to creditors before completing the sale – Notice is recorded, published in newspaper, and mailed to county tax collector Real Estate Violations: Acts Performed as a Licensee Misrepresentation False Promise Undisclosed Dual Agent also called “divided agency” Commingling Mixing trust funds with other funds Definite Termination Date Secret Profit Conversion Real Estate Violations: Other Conduct Obtaining license by fraud Conviction of crime involving moral turpitude examples: fraud, embezzlement Negligence or incompetence Failure by broker to supervise licensees Other dishonest conduct Discipline of Real Estate Licensees If a licensee violates the Real Estate Law, the Real Estate Commissioner has power to: Suspend the license Revoke the license impose fines up to $10,000 DRE Investigation and Adjudication DRE may investigate licensees based on written complaints or on its own If investigation determines possible violations, DRE starts formal hearing DRE files an Accusation if they believe there are grounds for suspending or revoking a license Case heard by Administrative Law Judge Evidence and testimony presented ALJ makes proposed decision Commissioner accepts or rejects decision and determines penalty Real Estate Recovery Fund A portion of license fees are deposited into the Real Estate Recovery Fund Persons damaged by fraud, misrepresentation or conversion by a real estate licensee can apply for payments from the recovery fund Requirements to receive payment from fund: Sue licensee in court and get judgment Make a good faith attempt to collect judgment Limits on recovery: $50,000 per transaction $250,000 against one licensee Note: change text on page 28

Real Estate Trade Organizations National Association of Realtors® Only members can call themselves Realtors® Realtor® and the block R logo are registered trademarks of the National Association of Realtors ® National Association of Real Estate Brokers Only members can call themselves Realtists ® Trade Organization Membership Members agree to comply with codes of ethics Membership benefits: Publications and forms Education Legal updates Lobbying efforts Group benefit plans (health insurance, etc.) Group discounts