Chapter 2
License and Agency Law

Rational of occupational regulation

*   Protect the Public?

*   Restrict new entry into the profession?

Objectives of Occupational Regulation

*   Promote further education

*   Screen out incompetent or dishonest

Who Needs a License?

*   Anyone who performs brokerage activities

*   Anyone attempting to perform traditional brokerage activities

Traditional Brokerage Activities

*   Selling

*   Listing

*   Leasing

*   Managing

*   Appraising for non-federally related transactions except where the person is a Certified Appraiser.

Non-traditional Brokerage Activities

*   Advertising and promotion except where this activity is the primary business function such as an advertising agency or a public relations firm.

*   Real estate consulting

*   Negotiating a real estate loan

*   Business brokerage (Not in PA)

Exemptions

*   Personal portfolio

*   Power of attorney

*   Trustee

*   Attorneys (acting as a legal expert)

*   CPA's (in ordinary business valuations)

*   Auctioneers (in PA if they have license to auction)

Certain Employees

*   Officer or director of any financial institution involving transactions on property of the institution.

*   Officer, director, or employee of any financial institution involving appraisal or financing transactions on property of the institution.

*   Performing services for the institution's property provided compensation is not commissioned (Up to 5 officers are exempt)

*   Employees of Public Utilities

*   Mineral extraction employees (e.g. coal, oil, or gas)

*   Employees of an owner of a multifamily residential property provided the employee does not negotiate any leases or sales.

Special Licenses

*   Rental Listing Referral Agents--same as a salesperson without the requirement of affiliation with a broker.

*   Campground membership salespersons--18 years old, 15 hours of instruction, 30 days of on-site training--responsible to the broker

*   Builder-owner (in PA requires Builder-owner salesperson's license w/o education requirement)

*   Cemetery lot (in PA must hold Limited License unless cemetery owned by a religious or fraternal organization)

General Requirements

*   Specific educational requirements

*   Age (21 in PA)

*   Reputation and criminal history

*   General education (high school or equivalent in PA)

*   Examination requirements

*   60 hours for Salesperson

*   240 hours for Broker

*   Experience requirements (3 years for broker)

*   Post-licensing education (None in PA)

Operation of the Real Estate Business

*   Business name must be prominently and permanently displayed exactly the same as on the license.

*   Branch offices require supervision and must be licensed.

*   Change of address--form required within ten days

*   Change of employer--form required within ten days--broker cannot pay a commission to a former employee if the license has not been moved to another broker.

*   Display of Fair Housing Notice

*   Records must be kept for three years.

Place of business requirements

*   Must have own entrance if in a home

*   Name must be prominently displayed

*   Branch offices require associate broker

*   Address changes require notification w/in 10 days

*   Prominent display of licenses required

Disclosure of License Status

*   Active/inactive

*   Broker/salesperson

*   Even for own portfolio

Escrow Requirements

*   Deposit must be made into a federally or state insured financial institution. If money is expected to be held for more than 6 months, the broker is encouraged to deposit money into an interest bearing escrow account.

*   Deposit must be within one business day unless given a check.

*   In case of a check, the broker is allowed to delay depositing until the offer has been accepted provided the broker obtains written approval from both the buyer and the seller. Upon acceptance, the broker has one business day.

*   Restriction against commingling except for deposit of broker's money to cover account fees.

*   Accurate escrow records must be kept.

*   In case of dispute, the broker is required to hold the money. After 30 days notice, the broker may ask court.

Advertising

*   May not advertise without written consent including signs on the property.

*   Business name must appear in the ad

Real Estate Recovery Fund

*   Used for payment of uncollected judgments against licensees.

*   Limit of $20,000 per person and $100,000 per licensee.

*   License is suspended upon payment by fund--may be reinstated by repayment and 10% interest per year.

Real Estate Documents (Disclosures)

*   Disclosure to seller

*   Disclosure to buyer

*   Requirements

*   Agency status

*   Real Estate Recovery Fund information

Listing Agreements

*   Sale or lease price

*   Commission rate

*   Duration of agreement

*   Copy must be given to seller immediately.

Exclusive Listings May Not Contain:

*   Listing periods exceeding one year

*   Automatic renewal clauses

*   Requirement of a cancellation notice upon expiration

*   Power-of-attorney

*   An option by the broker to purchase the listed property

Listing Agreement Disclosures

*   Real Estate Recovery Fund information

*   Payments to be held in escrow account

*   Commission and duration of listing is negotiable

*   If an exclusive-right-to-sell/lease, the following must be in boldface type: broker earns a commission on the sale or lease during the listing period by whomever the sale is made, including the owner.

Good Faith Settlement Cost Estimates
Completed Before Agreement of Sale Is Executed.

*   Broker's commission

*   Expected mortgage payments and financing costs

*   Taxes and assessments

*   Settlement expenses

Agreements of Sale

*   The date of the agreement

*   The name(s) of the buyer

*   Legal description and rights to be conveyed

*   Sales price

*   Dates for execution

Agreements of Sale (Cont.)

*   Zoning of the property (except for single-family dwellings

*   Statement of agency relationship

*   Escrow information

*   Real Estate Recovery Fund information

*   Mortgage contingencies must contain:

*   The type of mortgage

*   Mortgage principal

Violations

*   Mishandling trust monies

*   Fraud and misrepresentation

*   Improper business practice

*   Failure to impart required information

*   Improper handling of commissions

*   Other violations

Mishandling Trust Monies

*   Commingling

*   Failure to remit monies within the required periods

*   Failure to seek permission to use noncash payments when tendered.

Fraud and Misrepresentation

*   False advertising

*   Misleading advertising (identification of firm or status or exaggeration of property)

*   Intentionally misleading

*   Improper compensation (kickbacks, referral fees, etc.)

*   Failure to disclose agency and identity status when required

Improper Business Practice

*   Failure to submit offers

*   Failure to comply with client’s lawful instructions

*   Inducing a party involved in a transaction to violate a lawful contract.

*   Failure to follow real estate document requirements

*   Violation of local, state, and federal housing and property related laws.

Failure to Impart Required Information

*   Failure to leave copies of listing contract, sales contract, agency status, or good faith estimate.

*   Failure to disclose known structural defects or other material information

Improper Compensation

*   Paying a commission, fee or ANY gift to an unlicensed person.

*   Paying a commission to a salesperson that is not under your license. (Fee must be paid to his or her broker.)

*   Salesperson may not accept a commission from anyone other than his or her own broker.

Other Violations

*   Conviction or pleading nolo contendere to any felony or any misdemeanor involving moral turpitude (fraud, forgery, bribery, larceny, etc.)

*   Failure to obtain proper permissions (sign, lockbox, etc.)

*   Making false statements on application or other forms required by real estate commission.

*   Academic dishonesty in a pre-licensing course.

*   Gross incompetence.

Law of Agency

*   Types of agency

*   Universal agency (unlimited power of attorney)

*   General agency--partnership

*   Specific agency (listings)

*   Dual agency

Agents Obligation to Principal

*   Faithful performance (obedience)

*   Loyalty to principal

*   Keep principal informed

*   Protect and promote owner's interest

*   Reasonable care

*   Duty to account for funds

*   Commingling

Brokers Obligation to Third Parties

*   Honesty

*   Disclosure

*   Duty to account