INTRODUCTION
Remember a home purchase is the most important investment most people will make. They look to you as industry professional to keep it running smooth and obey all laws and regulations. As an agent you are not expected to know everything, and you need to refer your clients to the professionals who can help them.
Remember to continue your learning, even after you have obtained your license.
HISTORY OF CALIFORNIA RE LAW
The basic laws come from English Common Law, pertaining to land and estates. Origins in Germanic medieval habits.
Legislation in CA is compiled into books called codes. Business and Professional Code is the book most RE law is found (1917). RE law is upheld by ‘Police Power’ which is power of state to enact laws which help order, safety and health of general public. www.leginfo.ca.gov. Laws updated yearly, so check.
California Department of Real Estate
Primary concern, to protect public in RE transactions and subdivision of land. DRE watches over RE in california using laws and regulations set by the RE Commissioner.
STRUCTURE OF THE DEPARTMENT OF REAL ESTATE
The ceo of the DRE is the Commissioner appointed by the Governor, but approved by the legislator. Must have been practicing broker for 5 years OR involved in RE for 5 of last 10 years.
Duties of RE Commissioner:
• Issue rules and regulations, which have effect of law and become part of CA Code of Regulations.
• Regulates sale of subdivisions and nonexempt franchises
• Screens & qualifies licensees. Sole authority to issue, suspend and revoke.
• Determines business policies of the DRE
• Investigate complaints against licensees and others involved in RE where a license may be needed. District attorney procecutes.
• Holds hearings where licensees are diciplined by Administrative Procedure Act. Courts exact the fines if any.
• If buyer wins civil judgement against broker for fraud, Commissioner may revoke license, after hearing.
• Can discipline a licensee for falsified application or non-revealed criminal record.
• Sate attorney is legal advisor.
Real Estate Advisory Commission
Commissioner appoints this. Made up of 6 brokers and 4 public members. They meet with the commissioner 4 times a year. Try to balance the need of Californians and the industry they serve. Also to enforce things like Desist and Refrain orders, also govern licensees.
Operations of the DRE
Fees are generated by licenses, fees and reports. Includes 5 districts:
Sacramento
Oakland
Fresno
Los Angeles
San Diego
2 main roles:
i) Protect public and consumers
ii) Uphold industry standards
REAL ESTATE LICENSES
If you want to represent a client in a RE transaction for compensation, you have to licensed as a broker or salesperson.
As a sales associate/associate licensee you may only operate under the supervision of a broker.
You need a RE license for:
• Buying, selling, soliciting, obtaining listings or negotiating the sales of RE, business opportunities, mineral,oil or gas properties.
• Renting, leasing, managing, collecting rents or negotiating sale of leased property, gas oil and all the rest.
• Soliciting borrowers or lenders or negotiating loans.
• Buying or selling promissory note secured by RE.
Fine for acting as an agent without a license $10,000 as an individual and $50,000 for corporations.
Those who do not need a license:
• A principal handling sale/purchase of own property
• An attorney-in-fact. (Acting under power of attorney)
• Attorney-at-law (lawyer) while performing duties. However not allowed to charge brokers fee.
• Trustee selling under a deed of trust.
• Resident property managers. (Off site managers must have license)
• Anyone working under direction of the court.
• Licensed securities broker involved in sale of business opportunity
• A corporation performing a specified activity by an officer who does not receive compensation.
• Employees of lending institutions, pension trusts, credit union or insurance companies in connection with loans secured with RE
• Escrow agents collecting funds to place in escrow accounts.
RE Brokerage
A brokerage is where RE activities take place under supervision of 1 licensed broker of record who supervises the goings-on. Brokerage can be 1 person or huge company, but all business is under 1 brokers license.
Corporation
As long as one officer is a broker and they as the responsible one. A corporation may be formed.
Corporation Must Send To The DRE
• Corporation license application and fee.
• Certification of Status issued by the Secretary of State 30 days before application.
• Statement of the officers as filed with Secretary of State.
A salesperson my be an officer as long as there is a broker above him or as co-director. Salesperson is not allowed to hold a majority of shares in corporation.
Partnership
All partners performing RE duties must have individual license. There must be a broker present at each branch. Partnership does not need a license itself.
Fictitious Business Name Statement
Any RE company may work under a DBA. Must be filed with county of business and good for 5 years starting on Dec 31 of year of filing. Copy of filing sent to DRE.
Business cards must reflect accurately the DBA. Any change as a new DBA is required. Commissioner may refuse on grounds of inappropriate or misleading.
License Inspection
The broker must have license available at all times. Each branch must have a copy. All salespersons working under brokerage must have theirs available too.
Broker and Salesperson Relationship
The salesperson works for the broker and the broker is responsible for actions and conduct of salesperson. Under employment pay and taxes, the salesperson is considered an independent contractor.
Salesperson’s contract is not activated until a brokers name is signed to it. Broker and salesperson must have a signed agreement with duties and pay outlined.
Broker Licensee Requirements
Brokers may start a company. They need:
• 18 or older
• Previous experience or required education
• Honest and truthful
• Must pass qualifying exam
2 years of RE experience or 4 year degree from accredited college. May submit transcript from college in lieu of experience. Must also pass following 8 college-level courses.
Mandatory Courses
• RE practice
• Accounting or RE Economics
• Legal Aspects of RE
• Real Estate Appraisal
• RE Finance
• 3 From the list below
Elective Courses
• Business Law
• Escrow
• Mortgage Loan Brokering and Lending
• RE Office Administration
• Property Management
• Advanced Legal Aspects of RE
• Advanced RE Appraisal
• Advanced RE Finance
RE Principals
See DRE.ca.gov for full rules. Attorneys need no experience or education.
Breakdown of brokers exam:
Land use controls and regulations. Property ownership = 15%
Agency laws = 12%
Market Analysis and Valuation = 11%
Financing = 13%
Transfer of Property = 10%
RE Practice and Mandated disclosures = 27%
Contracts = 12%
Salesperson License Requirements
For individuals who want to work in the RE field but not as a broker. Salesperson must work under a broker.
Also must be
• 18 years old
• Honest + ethical
• Meet education requirements
Must complete college level in RE Principals… grants a conditional license. Must then pass 2 additional courses within 18 months, Real Estate Practice being one of them.
Other choices:
• Business Law
• Escrows
• General Accounting
• Legal aspects of RE
• Mortgage Loan Brokering and lending
• RE Appraisal
• RE Economics
• RE Finance
• RE Office Administration
• Property Management
If you don’t take 2nd course in 18 month… license suspended.
Breakdown of salesperson exam:
Land use controls and regulations. Property ownership = 18%
Agency laws = 12%
Market Analysis and Valuation = 12%
Financing = 13%
Transfer of Property = 9%
RE Practice and Mandated disclosures = 24%
Contracts = 12%
You can expect multiple choice. Main purpose to test knowledge and english comprehension. Some math needed.
Exam contains 150 questions. 70% correct needed to pass (105). Lesson time: 31/4 hrs.
Broker has 200 questions. 1/2 hour morning session and one 1 1/2 hr evening session. 75% passing grade (150).
License Term and Renewal
License lasts for 4 years with optional 45 course hours within the 4 years to extend it a further 4, plus fee.
Salesperson’s First Renewal
Must complete four 3 hr DRE-approved CE courses.
• Ethics
• Agency
• Trust Fund Handling
• Fair Housing
Broker’s First Renewal
45 clock hours of DRE-approved CE courses.
Four 3 hour courses (12 hrs)
• Ethics
• Agency
• Trust Fund Handling
• Fair Housing
Consumer protection courses (18hrs)
Consumer protection or service (21hrs)
If a brokers license expires, all salespeople will be affected. License may be renewed up to 2 years after with the brush-up course and the fee. After 2 years… start from scratch.
VIOLATIONS OF RE LAW
Fraud
Intentional deceit of material facts to lure 3rd party into a contract, not in their best interest.
Misrepresentation
Making a false statement of fact without knowing if it’s true or not. This is a civil wrong, but still fraud.
Puffing
Exaggerating the the properties benefits. Misrepresenting the facts.
Divided Agency
Representing more than 1 party, without consent from all involved. (Undisclosed Dual Agency)
i) If all principals agree, agent may collect commission from all.
ii) If no agreement, agent punished, buyer may rescind and no commission.
Commingling
When a broker mixes their funds with that of their principals. Not placing the funds in escrow the next business day. Broker is allowed to place up to $200 in trust account to cover fees.
i) Keeping buyers cash in brokers safe is commingling
ii) Broker may hold un-cashed check, with instructions from principal
iii) The opposite if commingling is segregation
Conversion
Misappropriations of clients funds. Spending the principals money on your own expenses.
No Contract Copies
Failing to give a copy of the contract to the signer.
Secret Profit
Any profit received by agent without principal consent. Includes friends or family of broker/agent. Violates fiduciary responsibility.
No Listing Termination Date
For any exclusive listing or other agreement.
Proceeding Without Principal’s Signature
No representation,commission, lease, rent sale or exchange without authorization.
Willful and Repeated Violation of RE Civil Code
Also agents dealing with loans or a promissory note secured by RE. Fall under the:
Business and Profession Code
Misrepresentation of lender/purchaser to borrower
Lead a borrower to believe there is a lender willing to load the amount the buyer requires.
Misrepresentation of borrower lender/purchaser
Lying about the borrowers ability to meet the terms offered by the seller or lender. Or withholding material facts about borrower.
Misrepresentation of expenses to borrower or Lender
Hiding the true costs and fees to lure borrower/lender into the transaction.
Misrepresentation of Lien Status
Purposely minimising the priority of a lien to get lender to fund same property.
Misrepresenting Service Fee
Lying about a service being free when the licensee knows full well that fees are associated.
Misrepresentation of Loan Payments
Untruths about the amount or treatments of a loan to assignee/endorsee.
No Accountability Of Advance Fee
When accepting an advance fee for the procurement of a loan and not accounting where the money went.
Misrepresentation Of Loan Terms
Hiding the true facts about a loans terms when soliciting a borrower.
Misrepresentation Of Security
False claims about market value, condition of the interior/exterior, size or square footage of improvements.
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Enforcement Of RE Law
Commissioner is mandated to investigate all claims including:
• A statement from the licensee
• Licensee’s financial records
• Title company records
• Public records
Formal Hearing
An administrative judge is assigned, the Commissioner becomes the complainant the original principal becomes a witness and the licensee a respondent.
Licensee may have attorney. Accusation is filed against licensee and made aware of rights. Testimony is taken under oath, other evidence presented.
Commissioner can accept or reject the decision and change the penalty. Licensee has right of appeal.
Formal Hearing Outcome
If charges not proven = dismissed. If proved license can be suspended or revoked. If revoked, 1 year has to pass before reapplying.
Commissioner could also restrict the license (limit length of license, place license under a particular broker and filing a bond as insurance for public dealing with license)
License may not be renewed until restriction is lifted after a formal hearing.
More Penalties
Commissioner can attach penalties:
• Payment of Fine
• Return of Documents
• Education (Forced to take classes)
• Reimbursement to RE Recovery Account Fund
RE Funds
2 funds held by DRE
1) Education and Research funded from license and exam fees
2) Recovery Account Fund funded from damages
To qualify for funds plaintiff must have a judgement in arbitration or civil court for fraud, misrepresentation, deceit or conversion of trust funds. Claim can be filed at commissioners office.
Payment Limits
• $20,000 per plaintiff.
• $100,000 per licensee
When payment is made out of fund, the license is suspended until the amount is replaced.
TRADE ASSOCIATIONS
Voluntary organization of trade professionals who identify problems and promote assets of the industry.
National Association of Realtors
NAR = largest national organization for all state and local boards. To unite realtors nationally, promote good conduct and encourage legislation favorable to realtors (lobby).
California Association of Realtors
CAR = State organization of NAR. 130,000 members + 200 chapters and is largest in US.
Duties include:
• High standards and unite members
• Encourage legislation to benefit RE
• Contribute to growth and development of the state
• Safeguard public
Offers various products e.g. magazines, forms and services e.g. legal and liaison type to members. Only members of NAR or CAR can call themselves realtors.
www.car.org
National Association of Real Estate Brokers
NAREB = Mostly African-American, known as Realtists. CAREB (1955), 8 membership boards and trumpets democratic housing.
American Institute of RE Appraisers
MAI = merged with Society of RE Appraisers.
Certified Commercial Investment Member
CCIM = Prefessional dealing in brokerage, leasing, financing analysis, management and valuation.
Institute of RE Management
IREM = Created by the NAR for professionals who have completed certain training and meet ethical standards. CPM is offered to accredited company members.