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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
