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Washington Real Estate Fundamentals

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					       Washington
Real Estate Fundamentals



     Lesson 17:
 Real Estate Careers
 and the Real Estate
    License Law
                 Introduction
 Topics to be covered:
   real estate as a career
   administration of license law
   when license is required, types of licenses,
    application and exam process, and expiration and
    renewal
   regulation of business practices and relationships
   disciplinary action
   antitrust laws
       Real Estate as a Career

 Most real estate agents are independent
 contractors, who essentially run their own
 business.
   Agents need to have some financial
    planning, marketing, accounting, and
    technology skills, in addition to real estate
    skills.
   They must also choose their brokerage firm
    carefully.
       Real Estate as a Career

 There are many different types of real estate
 companies to choose from:
   a sole proprietorship or a large, national
    company
   one that offers comprehensive services or
    is highly specialized
   an independent office or a franchise
    operation
       Real Estate as a Career

 Does the company provide support to its
 agents?
     Training and supervision
     Facilities and infrastructure
     Compensation and membership fees
     Marketing and promotion
       Real Estate as a Career

 Agents may join one or more professional
 associations:
   some offer special training and/or
    certifications
   some have adopted special codes of ethics
    to guide members in their dealings with the
    public and other professionals.
       Real Estate as a Career

 A licensee may choose a real-estate related
 career instead of selling real estate.
   Other related fields include property
    management, title insurance, loan
    origination, escrow, appraisal, and home
    inspection. (Special laws apply to each.)
Administration of License Law

 License law protects members of public in
 real estate transactions
   regulates real estate agents’
    professional activities
   establishes disciplinary procedures

 Law administered by Real Estate Division
 of Washington State Department of
 Licensing.
  Administration of License Law
                The Director
 Director of Department of Licensing appointed
 by governor. Authorized to:
   grant and deny licenses
   issue rules and regulations
   enforce license law
   hold disciplinary hearings on license law
    violations
  Administration of License Law
         Real Estate Commission
 Six commissioners, each appointed by
  Governor to serve six-year term on part-time
  basis.

 Generally must be licensed real estate agents
  with at least five years of experience in real
  estate sales or property management.
  Administration of License Law
         Real Estate Commission
 Must have at least two from east of
 Cascades, and at least two from west of
 Cascades.

 Commission’s duties:
   advising Director
   approving license law regulations
   preparing and administering examinations
   holding educational conferences
  Administration of License Law
              Attorney General
 Gives Director legal advice concerning license
  law.
 Attorney General also represents Director in
  any legal proceedings involving Real Estate
  Division.
        Real Estate Licenses
 Licensees must:
   know when real estate license is required
   understand differences between various
    types of licenses and requirements for each
   be familiar with application and examination
    process
   be familiar with rules regarding license
    expiration and renewal
     When License is Required

 Unlawful to perform real estate brokerage
 services without appropriate license.

 Selling real estate without an appropriate
 license is a gross misdemeanor.
     When License is Required

 License law defines “real estate brokerage
 services” as any of the following:
   selling, buying, listing, leasing, optioning or
    exchanging real estate or business
    opportunity
   negotiating purchase, sale, exchange,
    lease, or rental of real estate or a business
    opportunity
     When License is Required

 “Brokerage services (cont.):
   issuing broker’s price opinion (property
    valuation or CMA)
   advertising oneself to be engaged in real
    estate brokerage activities
   collecting, holding, or disbursing funds
    related to real property transactions
   performing property management services
     When License is Required
 Under the license law, a real estate broker is
 a natural person who acts on behalf of (and
 under the supervision of) a real estate firm.

 Both the real estate firm and the individual
 reale state agent must be licensed.

 Agents must comply with license law
 requirements even when performing
 brokerage services for themselves.
     When License is Required

 License law covers business opportunities:
 the acquisition of a business, when real estate
 is involved
        Licensing Exemptions

 Exceptions to licensing requirement include:
   person buying/leasing or disposing of
    property for himself or on behalf of a group
    to which he belongs
   attorney in fact acting without compensation
   attorney at law, in performance of lawyer
    duties
     Licensing Exemptions

 a trustee selling property pursuant to power
  of sale clause in deed of trust
 secretary, assistant, bookkeeper,
  accountant, or other real estate firm staff
  performing clerical duties
 government employee involved in acquiring
  property
      Licensing Exemptions

 CPAs and investment counselors who do
  not promote the sale of a specific property
 title companies, escrow companies,
  financial institutions, or other entities acting
  as escrow agents
 owners/managers of rental storage facility
  (when renting storage units in facility)
        Licensing Exemptions

 Also includes any person acting under court
 order, such as:
   receiver
   trustee in bankruptcy
   executor
   probate administrator
   guardian
      Licensing Exemptions
  Unlicensed assistant exemption
 The Real Estate Commission has issued
  detailed guidelines describing activities that
  unlicensed assistants working for real
  estate licensees can and can’t perform.

 The guidelines are available at the
  Department of Licensing website.
     Licensing Exemptions
        Out-of-state licensees
 Real estate agent licensed in another state
  may handle commercial transactions in
  Washington without a Washington real
  estate license.
    Must have a written agreement with
     licensed Washington real estate firm.
    Must give Washington firm copy of his
     license and give consent to service.
         Real Estate Licenses
              Types of licenses
 Three different types of real estate licenses in
  Washington:
   firm license
   managing broker’s license
   broker’s license
          Types of Licenses
               Firm license
 Real estate firm license: Washington
 requires every brokerage firm to be licensed.
   A firm is a a business entity, such as a
    corporation or partnership, that conducts
    real estate activities.
   To be licensed a firm must name a
    designated broker to act on behalf of the
    firm.
               Firm License
             Designated broker
 A firm’s designated broker must have a
  managing broker’s license.
 The firm’s designated broker has ultimate
  responsibility for all firm’s legal duties.
     The designated broker may delegate
     some duties to other managing
     brokers in the firm, through a written
     delegation agreement.
               Firm License
        Ownership of agreements
 All real estate agreements, including listing
  agreements, buyer representation
  agreements, and property management
  agreements are the property of the firm.

 Managing brokers and brokers may be
  compensated only by their designated broker,
  acting on behalf of the firm.
               Firm License
             Affiliated licensees
 A licensed firm is authorized to hire individual
  real estate licensees to perform brokerage
  services under the firm’s authority.

 The firm’s licensees are often referred to as
  “affiliated licensees”
    includes individuals licensed as brokers or
     managing brokers
          Types of Licenses
        Managing broker license
 Managing broker license issued only to an
 individual (not a business).

 Managing broker may be authorized to:
   serve as firm’s designated broker (through
    special endorsement process)
   act as branch manager
   manage other licensees
   perform traditional brokerage services
             Types of Licenses
                 Broker license
 Broker license only issued to an individual.


 Broker must be affiliated with, and work under the
  supervision of a licensed firm (and its designated
  broker).
    broker can only be affiliated with one firm

 A broker with less than 2 years’ experience will be
  subject to a heightened level of supervision.
               Summary
Real Estate as a Career and Real Estate
               Licensing
       Real estate career
       License law
       Real Estate Commission
       Real estate firm license
       Designated broker
       Affiliated licensee
       Managing broker license
       Broker license
 Individual Real Estate Licenses
               Qualifications
 To obtain a broker’s or managing broker’s
  license an individual must pass an exam.

 And before applying to take the license exam,
  applicant must meet age and educational
  requirements.

 An applicant for a managing broker’s license
 must also meet experience requirements.
              Qualifications
        Managing broker’s license
 Applicant for managing broker’s license
   must satisfy five requirements:
  1. must be at least 18 years old
  2. must have high school diploma or
     equivalency certificate
  3. must have at least three years of
     experience within last five years as full-
     time real estate broker
    Managing Broker’s License
            Experience required
 Work as broker considered full-time if:
   at least 40 hours/week in licensed activities
   licensed activities were major source of
    income during three-year period

   Education or other work experience
    sometimes may be substituted for broker’s
    experience.
  Managing Broker’s License
            Requirements
4. Must have successfully completed 90
  clock hours of approved real estate courses
  within last three years, including:
one 30-hour course in advanced real estate
 law
one 30-hour course in brokerage management
one 30-hour course in business management
  Managing Broker’s License
             Requirements
 Applicant can’t re-use courses he was
  required to take for other reasons (like
  continuing education requirement).
 Director may waive 90-hour course
  requirement if applicant has completed
  equivalent educational course work in
  college, university, or other degree-granting
  institution.

5. Must pass managing broker’s examination
             Qualifications
             Broker’s license
 Requirements for broker’s license applicant:
  1. be at least 18 years old
  2. have a high school diploma or equivalent
  3. have successfully completed 60 clock
     hours in real estate fundamentals and 30
     clock hours in real estate practices
  4. pass broker’s examination
              Qualifications
              Broker’s license
 Both prelicense courses must be completed
 within two years of applying for license exam.

 Director may waive 90 clock-hour requirement
 if applicant has completed equivalent
 educational coursework elsewhere.

 Broker’s license can only be issued to natural
 person, not to corporation.
         Real Estate Licenses
           Exam and application
 All applicants must make reservation to take
  exam at least one day in advance
    no “walk-in” exams
    applicant who misses exam will forfeit exam
     fee (must pay new fee to reschedule exam)
         Real Estate Licenses
           Exam and application
 Applicants must bring candidate examination
 document, signed and stamped by the school
 where she completed coursework.

 Applicants must also bring valid government-
 issued photo-bearing identification.
        Exam and Application
             Passing the exam
 The managing broker’s exam and broker’s
  exam both have two sections:
   1. national portion—covering general real
     estate practices, and
   2. state portion—covering Washington
     license law.

 State portion of managing broker’s exam also
 includes questions on closing process.
         Exam and Application
              Passing the exam
 To pass broker’s exam, applicant must score
  at least 70 on each portion of exam.

 To pass managing broker’s exam, applicant
  must score at least 75 on each portion.

 So it’s possible to pass national portion, but
  fail state portion—or vice versa.
         Exam and Application
              Passing the exam
 Applicant who fails exam may pay fee again
  and retake it.
 If applicant passes one portion but fails other,
  passing score is valid for six months.
    If applicant retakes and passes other
     portion within six months, she can then
     apply for license.
        Exam and Application
            Out-of-state licensee
 Licensee from another jurisdiction is
  automatically eligible to take Washington
  state portion of exam.
 If proper documentation of licensure is
  submitted, the other requirements (education,
  experience, and passage of national portion
  of exam) are waived.
        Exam and Application
           Applying for a license
 Exam results are valid for one year
   if applicant doesn’t become licensed within
    one year after exam date, she will have to
    pass exam again in order to obtain license

 Individuals applying for a broker’s license
 must submit fingerprint identification as part of
 the application; fingerprinting is also required
 every six years for all licensees
        Exam and Application
           Applying for a license
 Application for broker’s or managing broker’s
  license must be signed by the designated
  broker for the firm that applicant will be
  working for
    it’s necessary to have job lined up before
     submitting application
    branch manager may sign for designated
     broker, on firm’s behalf
 All license fees are placed in Real Estate
  Commission Account in state treasury.
        Applying for a License
               Interim license
 Broker license applicant may start working
  once she mails or hand delivers completed
  application form (signed by designated
  broker) and license fee to Department of
  Licensing
    form serves as interim license for up to 45
     days after postmark or hand delivery date
    no interim licenses for managing broker
     applicants
         Real Estate Licenses
     License expiration and renewal
 License issued to individual licensee expires
 two years after issuance.
   To renew, licensee must submit renewal
    application and pay renewal fee.
   License must be renewed every two years
    on same date, or licensee will pay penalty.
         Real Estate Licenses
     License expiration and renewal

 Real estate firm licenses must also be
 renewed every two years, but renewal date is
 date tied to firm’s registration or certificate
 authority filed with the Secretary of State.
 License Expiration and Renewal
   Continuing education requirement
 For a standard renewal, licensee must
 complete 30 hours of approved courses,
 including a three hour “core” course on
 current issues in real estate

 Courses used to meet pre-licensure
 requirements can’t be used to meet
 continuing education requirement
 License Expiration and Renewal
   Continuing education requirement
 To renew a license for the first time, a broker
  must complete:
   30 clock hours in advanced real estate
    practices
   30 clock hours in real estate law
   30 elective clock hours, including a core
    course
 License Expiration and Renewal
      Late renewal and cancellation
 If licensee misses renewal deadline, license
 expires
   can renew after deadline but penalty is
    charged

 If license not renewed within one year after
 expiration, it is canceled
   after cancellation, former licensee must
    apply to have license reinstated, not just
    renewed
       License Reinstatement

 License can be reinstated within two years
 after cancellation if former licensee:
   pays all back renewal fees, plus renewal
    penalties
   pays reinstatement fee
   completes 60 clock hours of approved real
    estate courses, including 30-hour real
    estate law course, within one year before
    applying for reinstatement
       License Reinstatement

 Once two years have passed since
 cancellation, license can’t be reinstated
 without fulfilling all initial licensing
 requirements again:
   must pass exam again
   may also have to re-take pre-licensing
    courses, if it’s been more than five years
    since he took them
       License Reinstatement

 Former licensee might choose to start over
 again even if less than two years have
 elapsed since his license was canceled
   may cost less than paying back renewal
    fees and penalties
          Real Estate Licenses
               Inactive licenses
 Under certain circumstances, license is
  temporarily returned to Director and made
  inactive.

 Licensee with inactive license may not
  engage in any activities requiring license.

 But still subject to disciplinary action for any
  license law violations.
            Inactive Licenses
                   Renewal
 Inactive license must be renewed on renewal
 date—same as active license
   will be canceled if not renewed within one
    year of renewal date

 While license is inactive, licensee need not
 fulfill education requirements for renewal.
            Inactive Licenses
                    Renewal
 But if license has been inactive for more than
  three years, licensee must take an approved
  30 clock hour course to reactivate it.



 Cannot reactivate license if disciplinary
  proceedings involving license are in progress.
         Real Estate Licenses
  Change in mailing address or name
 Licensees must notify Department of
  Licensing of any changes in mailing address.

 Director must also be notified if licensee
  changes legal name for any reason
    if licensee marries with no name change,
     no notification required
     Summary
License requirements
  Qualifications
  Interim license
  Renewal
  Cancellation
  Reinstatement
  Inactive license
Regulation of Business Practices
           Agency relationships
 Washington law regulates real estate agency
 relationships by determining:
   when and how agency relationship is
    formed
   licensee’s duties towards clients and
    customers
   when agency relationship terminates
   liability for harm while acting as an agent
 Forming Agency Relationships
 Agency relationship generally formed when
  licensee performs any real estate brokerage
  services for prospect, unless written
  agreement to contrary.
 Example: seller’s agent forms agency
  relationship with client when listing
  agreement is signed
    but under agency law, licensee working
     with buyer usually will be agent of that
     buyer
 Forming Agency Relationships
 If seller’s agent and buyer’s agent in same
 transaction are employed by same
 brokerage firm, firm is dual agent.

 Dual agency is unlawful without the written
 consent of both parties.
 Forming Agency Relationships
 Agency relationships not affected by
 payment of compensation.

 Buyer’s agent may receive compensation
 from seller without agency relationship being
 created.
        Agency Relationships
         Duties owed to any party
 Under Washington’s real estate agency law,
 licensee owes certain duties to any party to
 real estate transaction.

 Duties apply whether licensee is buyer’s
 agent, seller’s agent, dual agent, or a
 nonagent.
        Agency Relationships
        Duties owed to any party
 Licensee must:
   exercise reasonable skill and care
   deal honestly and in good faith
   present all written communications to and
    from either party in a timely manner
     Agency Relationships
      Duties owed to any party
 disclose all material facts that are not
  readily apparent to a party
 account for money or property received
  from or on behalf of either party
 provide a pamphlet on real estate agency
  law to all parties
        Agency Relationships
         Duties owed to any party
 Licensee must also disclose in writing to all
 parties whether licensee represents buyer,
 seller, both, or neither
   disclosure must occur before party signs
    offer
   may be either separate paragraph entitled
    “Agency Disclosure” in purchase and sale
    agreement, or separate document entitled
    “Agency Disclosure”
        Agency Relationships
        Duties owed to any party
 Licensee doesn’t owe anyone any duty of
 independent:
   inspection of property
   investigation of either party’s financial
    condition
   verification of accuracy of any statement
    believed to be reliable
         Agency Relationships
            Duties owed to client
 Licensee also owes certain duties only to
  party (principal) she represents.
 Licensee must:
    be loyal to client, taking no action
     detrimental to his interest
    disclose any conflicts of interest
      Agency Relationships
         Duties owed to client
 advise client to seek expert advice on
  matters outside licensee’s knowledge
 refrain from disclosing confidential
  information from or about client
 make good faith and continuous effort to
  complete transaction
        Agency Relationships
            Duties owed to client
 A dual agent will owe these duties to both
 parties.

 Key exception: since agent cannot be
 completely loyal to both parties, he must
 instead refrain from taking action that is
 detrimental to either party’s interest.
         Agency Relationships
                 Termination
    Termination occurs one of four ways:
     full performance by the licensee
     expiration of the agreed-upon term
     termination by mutual agreement
     termination by unilateral action
         Agency Relationships
                  Termination
   Licensee owes agency duties until agency
    relationship terminates.

   But note that duties of confidentiality and
    accounting do not expire upon end of
    agency relationship.
        Agency Relationships
             Vicarious liability
 Under Washington real estate agency law,
 principal (client) generally not vicariously
 liable for harm caused by agent’s act or
 omission.
         Agency Relationships
              Vicarious liability
 Exceptions: buyer or seller will be liable for
  harm caused by her agent if she:
   1. participated in or authorized wrongful act,
      or
   2. benefited from act and court determines
      claimant would be unable to enforce
      judgment against agent.
       Agency Relationships
           Imputed knowledge
 Sometimes law assumes that one person has
 knowledge of facts known by someone under
 their control—whether that person has actual
 knowledge of the facts or not.
        Agency Relationships
            Imputed knowledge
 In Washington, legal theory of imputed
 knowledge generally does not apply to real
 estate agency relationships.

 Buyer or seller not assumed to have imputed
 knowledge of facts known by his agent,
 unless otherwise agreed in writing.
Regulation of Business Practices
         Licensee responsibilities
 Just as agency law regulates licensee’s
 relationships with buyers and sellers, license
 law regulates the firm’s designated broker’s
 relationship with affiliated licensees, and all
 licensee duties to the firm.

 Under license law, the designated broker is
 always responsible for supervising work of all
 affiliated licensees.
       Licensee Responsibilities
               Branch offices
 Branch manager shares responsibility for
 supervising licensees working in branch
 office.

 But designated broker also remains
 responsible for supervising them, and is also
 responsible for supervising branch manager.
       Licensee Responsibilities
            Failure to supervise
 A designated broker who fails to supervise all
 affiliated licensees may be subject to
 disciplinary action if licensee violates license
 law.

 Special supervision requirements apply to
 brokers with less than two years of real estate
 experience.
       Licensee Responsibilities
               Fee brokerage
 Fee brokerage: Arrangement where licensed
 designated broker allows person to run
 brokerage under his name, but doesn’t
 participate in business
   fee brokerage is illegal; designated broker
    can’t avoid responsibilities through contract
    with another person
        Licensee Responsibilities
         Termination of affiliation
 Broker or managing broker only allowed to
 work under designated broker’s supervision.

 Affiliation may be terminated by either party at
 any time, after which designated broker must
 surrender affiliated licensee’s license to
 Director immediately.
       Licensee Responsibilities
         Termination of affiliation
 To surrender license, designated broker signs
 it, and either designated broker or affiliated
 licensee mails or hand delivers it to
 Department of Licensing.

 Affiliation formally terminated as of postmark
 date or hand delivery date.
       Licensee Responsibilities
         Termination of affiliation
 Designated broker must surrender affiliated
  licensee’s license promptly, to allow licensee
  to work for someone else.
 Designated broker may not place any
  conditions on license surrender.
 Failing to surrender license promptly and
  unconditionally is grounds for disciplinary
  action.
        Licensee Responsibilities
         Termination of affiliation
 License is inactive while in Director’s custody:
   reactivated only when licensee finds new
    firm and asks Director to reissue license
   in meantime, licensee not allowed to
    engage in any activities requiring license
        Licensee Responsibilities
          Termination of affiliation
 If designated broker terminates affiliation
  because licensee engaged in unlawful
  conduct, designated broker must submit
  written statement to Director.

 If license of affiliated licensee has been lost,
  designated broker and licensee must submit a
  letter of release to the Department.
           Summary
Regulation of Business Practices

     Agency relationship
     Dual agency
     Vicarious liability
     Imputed knowledge
     Licensee responsibilities
     Fee broker
     Termination of affiliation
Regulation of Business Practices
            Office requirements
 Every brokerage firm licensed in Washington
 must have an office or records repository in
 the state that is open to Department of
 Licensing.
           Office Requirements
               Display of licenses
 Licenses of the firm and all affiliated licensees must
  be prominently displayed at the address appearing
  on the license.

 If brokerage has branch offices, both firm’s and
  designated broker’s licenses should be displayed at
  main office.

 Licenses of affiliated licensees should be displayed
  at office where they work.
         Office Requirements
            Change of location
 If firm’s location changes, designated broker
 must send Director a change of address
 application and fee.

 Designated broker must also surrender
 license and those of all affiliated licensees,
 and pay a fee
   Department will issue new licenses for new
    address
          Office Requirements
                 Branch offices
 Each branch office must be licensed and have a
  licensed branch manager
    branch office must have duplicate of firm license
    branch managers must have a managing broker’s
     license
    no limit on number of branch offices

 Branch may operate under same name as firm or
  under different name, if licensed under assumed
  name with the state.
         Office Requirements
               Branch offices

 Separate license not required for branch
 office when all sales activity is related only to
 particular subdivision or tract, and the branch
 office is within 35 miles of licensed office.
         Office Requirements
      Two businesses in one office
 Firm may run another business out of same
 office as brokerage, as long as other business
 is compatible (escrow, appraisal, etc.).

 Brokerage business must be carried out
 separate and apart from other business, with
 completely separate records.
         Office Requirements
           Dual-state licensees
 Real estate licensees who are actively
 licensed in another state (as well as
 Washington), and have an office in that state,
 aren’t required to have an office in
 Washington, too.
         Office Requirements
           Dual-state licensees
 But dual-state licensees must maintain a trust
 account in Washington depository (such as a
 bank located in Washington)
   Licensee must keep records pertaining to
    Washington transactions at a registered
    location in state
         Office Requirements
           Dual-state licensees
 Dual-state licensee must give parties involved
 in transaction access to records for that
 transaction.

 Dual-state licensee’s license should be
 displayed in same place that records are kept.
Regulation of Business Practices
                  Advertising
 License law regulates real estate advertising
  to protect consumers from misleading or
  confusing ads.

 All advertising must be truthful.
                Advertising
                  Blind ads
 Ads placed by licensee must include name of
 brokerage firm, as it appears on license
   ad without firm’s name is called blind ad:
    illegal

 Exception to rule against blind ads: licensee
 advertising property she owns need not state
 firm’s name in ad
   but ad must disclose that seller (or landlord)
    is real estate licensee
               Advertising
                Franchising
 When brokerage is operating under name of
 franchise service (such as one of national
 brokerage company), all signs and ads must
 include firm’s name as licensed, in addition to
 franchise name.
               Advertising
              Assumed names
 A firm can do business under different name
 than licensed name, if Director grants written
 permission:
   can’t be used to mislead or defraud
    public—name shouldn’t give impression
    that firm is public group, research group, or
    nonprofit organization
   name can’t be deceptively similar to that of
    another licensee
               Advertising
       Advertising and the Internet
 Licensees should always fully disclose
 licensee status in all Internet communications
 by including the following information:
   firm’s name, city and state in which firm is
    located, and states in which firm is licensed
   licensee’s name, name of licensee’s firm,
    city and state in which licensee’s office is
    located, and states in which licensee holds
    real estate license
               Advertising
       Advertising and the Internet
 Email, web sites, banner ads, and other
 Internet communications should include this
 info, or have a link sending user directly to
 web page containing information.
                Advertising
       Advertising and the Internet
 Suggestions for proper use of Internet:
   listings posted on web site should be
    removed in timely manner when expired
   if listings posted on third-party site, licensee
    should notify publisher in writing of any
    change in listing’s status and/or correct
    inaccurate information
             Advertising
     Advertising and the Internet
 licensees should not advertise listings of
  other licensees without written permission
 licensees should not use names of
  competitors in web site metatags in order to
  increase traffic to web site (may be
  considered trademark infringement)
 licensees should periodically review their
  sites to ensure information is current and
  not misleading
Regulation of Business Practices
               Trust accounts
 License law regulates trust account
 maintenance; designated broker has ultimate
 responsibility for firm’s trust funds.

 Real estate agents routinely handle trust
 funds on behalf of clients—especially earnest
 money deposits, tenant security deposits, and
 collected rents.
Regulation of Business Practices
              Trust accounts
 In Washington, brokerage firms must maintain
 trust accounts to keep trust funds separated
 from firm’s own money:
   trust accounts must be in recognized
    financial institution in Washington

 Accounts should be opened in firm’s name
 (as it appears on license) and specifically
 designated as trust accounts.
Regulation of Business Practices
                Trust accounts
 Only trust funds may be maintained in trust
  account:
    no licensee should put any of his own
     money into trust account, even to pay bank
     charges or to keep the account open

 Illegally mixing trust funds with firm or
  personal funds is called commingling.
             Trust Accounts
           Deadline for deposit
 Trust funds given to designated broker or
 affiliated licensee should take form of check
 made out to firm, as licensed.

 Funds generally must be deposited in trust
 account no later than first business day after
 receipt.
   Few exceptions to rule—discussed later.
             Trust Accounts
         Interest-bearing accounts
 Firm’s trust account must be interest-bearing
 (except for property management account).

 Must also be demand account, so designated
 broker can make immediate withdrawals.
             Trust Accounts
           Firm’s pooled account
 Firm’s designated broker must put all deposits
  of $10,000 or less into pooled interest-bearing
  account.
 Most firms have individual trust accounts for
  particular transactions, plus pooled trust
  account.
 Interest on pooled account paid to state
  Treasurer: 75% goes to Housing Trust Fund,
  and 25% goes to Real Estate Education
  Account.
            Trust Accounts
          Deposits over $10,000
 For deposits over $10,000, designated broker
 must explain in writing that money can be
 placed in pooled account (interest paid to
 state) or in separate trust account
   client decides how funds will be handled
   designated broker needs written consent of
    parties to put deposit of over $10,000 into
    pooled account
           Trust Accounts
   Property management exception
 Property management trust funds—no
 matter what amount—don’t have to be
 placed in pooled account.

 Property management account also isn’t
 required to be interest-bearing—but may be,
 if management agreement provides, and if
 certain rules are followed.
            Trust Accounts
                 Procedures
 Designated broker must follow procedures for
 handling trust funds set forth in Director’s
 regulations, or else submit alternative system
 to Department for approval:
   system must provide audit trail for all funds
    received and disbursed for each client
   may be either manual or computerized
             Trust Accounts
      Trust account disbursements
 Trust funds generally should remain in trust
 account until sale closes or condition in
 purchase and sale agreement has been
 fulfilled.

 But designated broker is also permitted to
 disburse funds from account prior to closing
 when:
          Trust Accounts
   Trust account disbursements
1. all parties have given written consent to
   disbursement,
2. transaction fails to close, and purchase
   agreement calls for disbursement without
   release in case of failure to close, or
3. funds disbursed to closing agent, so
   that checks will clear by closing date.
           Trust Accounts
   Trust account disbursements
 Designated broker never allowed to pay
  business expenses directly out of trust
  account, even if client owes firm money.
 Funds must first be transferred from trust
  account to firm’s general account before
  designated broker can use them.
            Trust Accounts
           Paying commissions
 When transaction closes, designated broker
 can collect firm’s commission and pay
 commissions owed to cooperating firms
 directly from trust account
   designated broker should write a separate
    check for each commission
             Trust Accounts
            Paying commissions
 But designated broker can’t pay her affiliated
 licensee’s share of commission directly out of
 trust account:
   must first transfer money from trust account
    to general account, and then write check on
    that account
Regulation of Business Practices
                  Records

 Under license law, firm’s designated broker
 must keep records for every transaction for
 at least three years after closing (or if
 transaction fails to close, for three years
 after it terminates).

 Should keep records until statute of
 limitations for any possible claims against
 firm and affiliated licensees has run out.
 For each transaction, designated broker must
 have transaction folder with documents
 relevant to transaction, such as:
   correspondence
   listing agreement
   purchase and sale agreement
   lease/rental agreement
   any modifications or addendums to
    agreements
   settlement statement
      Trust Account Records
 Firm’s designated broker must also keep
 detailed trust account records, including:
   receipts
   check register
   deposit slips
   ledger summarizing all receipts and
    disbursements for each transaction
   reconciled bank statements
   canceled checks, and so on
      Trust Account Records
 Records for recent transactions must be kept
 at firm’s main office or other licensed
 location. Records for transactions closed for
 more than a year may be stored at one
 central location, located in Washington.

 Records must be made available to auditors
 from Department of Licensing, and
 designated broker must provide copies to
 Director upon request.
Regulation of Business Practices
               Commissions
 To sue for commission, licensee must have
 been licensed at time he performed (or
 offered to perform) service for which license is
 required:
   applies to lawsuits filed by one licensee
    against another, as well as lawsuits filed
    against client
              Commissions
           Commission sharing
 A firm may share commission with any firm
 licensed in U.S. or Canada
   includes licensed manufactured home
    dealer in transaction that involved
    purchase/lease of land

 Firm may also pay compensation to its own
 affiliated licensees
   but can’t pay licensee affiliated with another
    brokerage firm
              Commissions
           Commission sharing
 Affiliated licensee can only accept
 compensation from his own brokerage firm
   not from any other firm, client, or affiliated
    licensee

 Commission split between agents working for
 same firm must be handled by designated
 broker
   agents can’t just divide money between
    themselves
Regulation of Business Practices
       Handling sales transactions
 Licensee required by license law to:
   present all written communications to
    parties (including offers and counteroffers)
   provide all parties with copies of documents
   handle earnest money appropriately
   perform acts required by purchase and sale
    agreement expeditiously
   make sure parties receive settlement
    statements
    Handling Sales Transactions
        Present all communications
 If buyer makes written offer, licensee must
  present it to seller.

 It isn’t up to licensee to reject offer that seems
  unacceptable.
   Handling Sales Transactions
              Provide copies
 When clients or customers sign any
 document, it’s licensee’s responsibility to
 provide each signing party with copy:
   licensee should give buyer copy of offer as
    soon as buyer signs it, before it’s presented
    to seller
   seller indicates acceptance of offer by
    signing same form buyer signed
   Handling Sales Transactions
               Provide copies
 Once seller signs offer, licensee must give
 copy to seller and promptly deliver copy to
 buyer:
   this communicates seller’s acceptance to
    buyer, creating binding contract

 Each licensee involved in transaction must
 keep copy of purchase and sale agreement in
 her transaction folder.
   Handling Sales Transactions
               Earnest money
 Trust funds usually must be placed in trust
 account within one banking day
   license law makes exception for buyer’s
    earnest money deposit, if stipulated

 If purchase and sale agreement directs
 earnest money check to be held for certain
 amount of time or until specific event occurs,
 designated broker must follow those
 instructions.
   Handling Sales Transactions
               Earnest money
 If contract provides for someone other than
 designated broker to hold check until closing,
 licensee must give check over to that party
 within one banking day of receiving it.

 In transactions involving more than one firm,
 firm for licensee who first receives check from
 buyer is responsible for handling deposit
 properly.
   Handling Sales Transactions
               Earnest money
 If buyer’s earnest money deposit is not in form
 equivalent to cash, that must be disclosed to
 seller when offer is presented
   must also be expressly stated in purchase
    and sale agreement
   Handling Sales Transactions
        Expeditious performance
 Sometimes purchase and sale agreement
 specifies that certain acts are to be performed
 by a licensee involved in transaction.
   License law requires licensee to perform
    any such obligation as expeditiously as
    possible.
   Intentional or negligent delay may be
    grounds for disciplinary action.
   Handling Sales Transactions
          Settlement statement
 Licensee must ensure each party receives
 detailed settlement statement at closing
   even if closing is handled by someone else

 When closing will be handled by agent who is
 already representing one party in transaction,
 agent should be named as closing agent
   real estate agent can’t charge separate fee
    for closing services unless she is licensed
    escrow agent
Property Management Documents
 Brokerage firm acting as property manager
 must have written management agreement with
 owner that includes:
   property manager’s compensation
   type of property to be managed
   number of units or square footage
   manager’s authority to collect and disburse
    money
   when summary statements must be given to
    property owner
 Summary statement: Brief report on
 property’s financial status during a period
 of time

 Copies of summary statements and
 property management agreement must be
 kept in firm’s records.
   If managed property is rented,
    leases/rental agreements must be in
    writing and included in firm’s records.
 With owner’s consent, firm may provide
 other services, such as maintenance
 services, for property it is managing:
   firm must disclose to owner in writing
    that it has interest in firm providing
    additional service
   must also disclose fees charged

 Property managers should keep copies of
 these types of disclosures.
     Antidiscrimination Laws

 Federal Fair Housing Act and Washington
  Law Against Discrimination prohibit real
  estate agents from engaging in
  discriminatory conduct.

 Violation of either law is also violation of
  license law.
  License law prohibits licensees
   from discriminating based on:
   race                 familial status
   color                age
   creed                national origin
   sex                  presence of any
   marital status        sensory, mental, or
                          physical handicap
License law also specifically prohibits
discrimination in hiring practices or sales activity
on basis of race, color, creed, or national origin.
 Following actions are violation of license law:
   refusing to communicate offers for
    discriminatory reasons
   refusing to negotiate for discriminatory
    reasons
   discriminating in terms or conditions of sale
    or rental
   using discriminatory advertising
   representing that property isn’t available for
    purchase or lease when it is available
   blockbusting
           Summary
Brokerage Offices, Trust Accounts,
  Recordkeeping, and Handling
          Transactions
         Blind ad
         Trust account
         Trust funds
         Commingling
         Transaction folder
         Summary statement
          Disciplinary Action

 When licensee violates any provisions of
 license law, he is subject to disciplinary action
 by Director of Department of Licensing.

 Director authorized to impose variety of
 sanctions, including suspending or revoking
 license.
           Disciplinary Action
      Grounds for disciplinary action
 State statutes contain lists of specific
  behaviors considered grounds for disciplinary
  action.
    Uniform Regulation of Business Practices
     Act (URBPA)
    Real estate license law
 Licensee subject to disciplinary action even
  when selling own property, or buying property
  for himself.
 First basis for disciplinary action is
  unprofessional conduct, defined by URBPA
  as including any of these 15 behaviors:
   (1) Commission of any act involving moral
      turpitude, dishonesty, or corruption relating
      to real estate activities, regardless of
      whether act constitutes crime.
   (2) Misrepresentation or concealment of
      material fact in obtaining or reinstating
      license.
   (3) False, deceptive, or misleading
      advertising.
(4) Incompetence, negligence, or malpractice
   that harms or may harm a consumer.
(5) Having any business or professional
   license suspended, revoked, or restricted
   by any government entity.
(6) Failure to cooperate with Director of
   Department of Licensing in course of
   investigation, audit, or inspection.
(7) Failure to comply with order issued by
   Director.
(8) Violating any license law provision or rule
   made by Director.
(9) Aiding or abetting unlicensed person to
   perform real estate activities requiring
   license.
(10) Practice or operation of business or
   profession beyond scope of practice or
   operation as defined by law.
(11) Any type of misrepresentation in conduct
   of real estate activities.
(12) Failure to adequately supervise or
   oversee staff, whether employees or
   independent contractors, to extent that
   consumers may be harmed or damaged.
(13) Conviction of any gross misdemeanor or
  felony relating to real estate activities.
(14) Interference with investigation or
  disciplinary action by willfully
  misrepresenting facts, or by threatening,
  harassing, or bribing customers or
  witnesses to prevent them from
  providing evidence.
(15) Engaging in unlicensed real estate
  activities.
 Activities listed in real estate license law as
  grounds for disciplinary action (RCW
  18.85.23):
    Being convicted of forgery, embezzlement,
     extortion, fraud, or similar offenses.
    Making or authorizing statements that
     licensee knew (or could have known by the
     exercise of reasonable care) were false.
    Converting (misappropriating) trust funds to
     licensee’s own use.
 Failing to disclose information or to
  produce records for inspection upon
  request by Director.
 Selling real estate according to plan that
  endangers public interest, after Director
  has objected in writing.
 Accepting money from more than one
  party in a transaction without first
  disclosing this to all interested parties in
  writing.
 Accepting profit on expenditures made for
  principal without disclosing it to principal.
 Accepting compensation for appraisal
  contingent on reporting predetermined
  value.
 Issuing appraisal for property in which
  licensee has interest without disclosing that
  interest in appraisal report.
 Falsely claiming to be member of state or
  national real estate association.
 Directing client or customer to lending
  institution or escrow company in
  expectation of kickback or rebate, without
  disclosing that expectation to party
  represented.

 Buying, selling, or leasing property (directly
  or through a third party) without disclosing
  that licensee holds real estate license.

 Any conduct in a real estate transaction
  which demonstrates bad faith, dishonesty,
  untrustworthiness, or incompetency.
 Director also has power to suspend license of
 any licensee:
   who has been reported for nonpayment or
    default on educational loan or service-
    conditional scholarship, or
   who has been certified by DSHS as not in
    compliance with support order or residential
    or visitation order.

 Reinstatement is automatic upon repayment
 of delinquency or compliance with the order.
           Disciplinary Action
          Disciplinary procedures
 Constitutional right to due process of law
 applies to disciplinary action under license law
   license law’s disciplinary procedures give
    licensee opportunity to present defense
    against charges
           Disciplinary Action
           Statement of charges
 When Director decides it’s likely that license
 law violation has occurred, statement of
 charges will be drawn up and served on
 licensee
   licensee is also given notice that he may
    request hearing to contest charges
           Disciplinary Action
            Request for hearing
 Licensee must file request for hearing within
  20 days after receiving statement of charges.

 If licensee fails to request hearing, licensee
  will be considered in default and Director may
  enter decision based on facts available at that
  time.
           Disciplinary Action
                   Hearings
 After licensee requests hearing, Director will
 set time for it:
   must take place as soon as convenient, but
    at least 30 days after statement of charges
    was served on licensee
   only exception: if Director issued a
    summary (immediate) suspension or
    restriction, hearing may be held earlier
          Disciplinary Action
                  Hearings
 Hearing ordinarily conducted by
 administrative law judge:
   licensee and Department of Licensing can
    be represented by attorneys
   as in a trial, licensee and Department have
    opportunity to present evidence and to call
    and cross-examine witnesses
   court reporter makes transcript of hearing
          Disciplinary Action
                  Hearings
 Accusation must be proved by preponderance
 of evidence for sanctions to be imposed.

 Otherwise, case is dismissed.


 Department may appeal dismissal.
       Disciplinary Procedures
        Brief adjudicative hearing
 May be requested instead of full hearing in
 certain less serious situations—includes:
   disputes over whether applicant meets
    criteria to take exam or renew license
   whether cease and desist order was
    properly issued
   whether licensee defaulted on educational
    loan
       Disciplinary Procedures
           Brief adjudicative hearing
 In brief adjudicative hearing, no live testimony
  heard.

 Decision made based on written record and, if
  hearing officer chooses, oral arguments by
  parties.
       Disciplinary Procedures
                  Sanctions
 If accusation is proved, Director may impose
 any of following sanctions:
   revocation of license for a period
   suspension of license for fixed or indefinite
    term
   restriction or limitations of real estate
    activities
   satisfactory completion of specific program
    of remedial education or treatment
    Disciplinary Procedures
                Sanctions
 monitoring of real estate activities according
  to Director’s order
 censure or reprimand
 compliance with conditions of probation for
  designated period of time
 payment of fine for each violation found by
  the Director, of up to $5,000 per violation
 denial of initial or renewal license
  application for a period
 other corrective action
    Disciplinary Procedures
               Sanctions
 Fines go into Real Estate Education
  Account to be used for education for
  benefit of licensees.

 Copy of Director's order imposing sanctions
  will be mailed to licensee, and sanctions
  become effective as soon as licensee
  receives this copy.
                Sanctions
         Cease and desist order
 Cease and desist order: Order directing
 licensee to stop violating law

 Director has power to issue temporary cease
 and desist order even before hearing is held,
 if delay involved in hearing would result in
 irreparable harm to public interest.
                 Sanctions
          Cease and desist order
 When temporary cease and desist order is
 issued, licensee has right to hearing to
 determine if order should be canceled,
 modified, or made permanent.

 If licensee requests hearing, it must be held
 within 30 days, unless licensee wants more
 time.
                 Sanctions
           Temporary injunction
 Director also authorized to ask court for
 temporary injunction against licensee to
 stop violation of license law.

 Court can appoint receiver to take over or
 close real estate office that is operating in
 violation of law, until hearing can be held.
          Disciplinary Action
                    Appeal
 Within 30 days of Director’s order, licensee
 may file appeal in superior court.

 Licensee must post $1000 appeal bond to
 cover court costs, and must pay for transcript
 of disciplinary hearing.

 Filing appeal does not prevent Director's
 sanctions from taking effect.
           Disciplinary Action
            Criminal prosecution
 Any license law violation is gross
 misdemeanor.

 In certain cases, Director may decide to file
 criminal charges against licensee.

 Case would usually be prosecuted by
 prosecuting attorney in county where violation
 occurred.
           Disciplinary Action
                  Civil liability
 If license law violation results in financial
  injury to client or customer, injured party may
  sue licensee for civil damages:
    civil lawsuit would be handled through court
     system—not by Department of Licensing
    Director has no authority to order licensee
     to pay damages to injured party
          Disciplinary Action
         Notification requirement
 Licensee must inform Department of
 Licensing within 20 days after learning of:
   any criminal complaint, information,
    indictment, or conviction in which licensee
    is named as defendant; or
   any civil court order, verdict, or judgment
    entered against licensee if case involves
    any of her real estate or business activities.
              Antitrust Laws
 Federal antitrust laws regulate real estate
 agent’s relationships with clients and other
 agents by limiting anticompetitive behavior.

 Sherman Act: Prohibits any agreement with
 effect of restraining trade, including
 conspiracies
   applies to real estate industry—Supreme
    Court ruled mandatory fee schedules
    violate Sherman Act
              Antitrust Laws
                    Penalties
 Both criminal and civil penalties for violation of
  Sherman Act:
   individual guilty of violating Sherman Act
    can be fined up to one million dollars and/or
    sentenced to ten years’ imprisonment
   corporation can be fined up to one hundred
    million dollars
              Antitrust Laws
             Types of violations
 Four main categories of activities prohibited
 by antitrust laws:
   price fixing (such as fixing commission
    rates)
   group boycotts
   tie-in arrangements
   market allocation
           Types of Violations
                  Price fixing
 Price fixing: Cooperative setting of prices or
  price ranges by two or more competing firms
 To avoid creating appearance of price fixing,
  licensees from different brokerages should
  never discuss commission rates.
 Printed materials appearing to fix prices by
  publishing “recommended” or “going”
  commission rates also prohibited.
          Types of Violations
                 Price fixing
 Even casual announcement that brokerage
  firm intends to raise commission rates could
  violate antitrust laws.
 But firm may discuss commission rates with
  its own affiliated licensees.
 Two competing firms may also discuss
  amount of commission split between listing
  brokerage and selling brokerage in
  cooperative sale.
          Types of Violations
               Group boycotts
 Group boycott: Agreement between two or
  more firms to exclude other firms from fair
  participation in real estate activities
 Purpose is to hurt or destroy competitor—
  automatically unlawful under antitrust laws.
 If licensee feels another licensee is dishonest
  or unethical, she may choose not to do
  business with her, but she can’t tell other
  agents to do same.
          Types of Violations
           Tie-in arrangements
 Tie-in arrangement: Agreement to sell one
 product, only on condition that buyer also
 purchases different (or tied) product
   automatically violates antitrust laws
          Types of Violations
             Market allocation
 Market allocation: Agreement between
 competing firms to agree not to sell certain
 products or services, in certain areas or to
 certain customers.

 Businesses in open market, including real
 estate firms, should be free to do business
 freely, with any/every potential customer.
              Antitrust Laws
       Avoiding antitrust violations
 To avoid violating antitrust laws, licensees
 should:
   always establish their fees and other listing
    policies independently, without consulting
    competing firms
   never use listing forms containing pre-
    printed commission rates
           Antitrust Laws
    Avoiding antitrust violations
 never imply to client that commission rate is
  fixed or nonnegotiable
 never discuss their business plan with
  competitors
 never tell clients or competitors that they
  won’t do business with a competing firm
 always train licensees to be aware of what
  might constitute antitrust law violation
      Summary
Disciplinary Action and
    Antitrust Laws
 Sanctions
 Appeal
 Cease and desist order
 Price fixing
 Group boycott
 Tie-in arrangement
 Market allocation

				
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