Commissioner’s Rules

Commissioner’s Rules/ License Law

Mission of the Department of Real Estate –

To protect the public (Commissioner’s Standards/Rules)

penalties After Violating Rules: 1. License Penalties

probation – different forms of probation

Suspension – ranging from 6 months to 2 years

Revocation – take license away 2. Fines

Up to $1,000 for each rule violated (not per act)

Miscellaneous Information:

1. *Arizona Attorney General is the legal arm of the real estate department.

2. Advance Fee Rental Agent –

Someone who for a fee dispenses (gives out) rental information (Example: For Rent magazine)

*3. Both all new applicants for Brokers and Sales license must be

fingerprinted. (Must submit fingerprints, along with appropriate applications)

4. Franchise –

Business plan and common symbol (called a logo) used by and associated with independently owned real estate companies (Example: Remax)

5. Franchisor -

Seller of the business plan and logo, is not licensed (not a selling agent)

6. Franchisee -

Buyer of the business plan and logo, must be licensed and is the real estate company

Three Team Requirements:

All members of the team must belong to the same real estate company

Team must be approved by the Broker and all team member names must be on the application and approved by the Real Estate Department

All advertising must include the Real Estate Company’s name

Licensing Requirements:

Brokers –

Three years of actual experience, as a real estate licensee out of the last five year period of time, where the real estate was the person’s principal occupation

(Do not have to live in Arizona to hold one)

90 hours of classroom education

21 years or older

pass the state test

Broker Duties: Employ licensees

Compensate licensees through commissions

Be hired by the public (only one, real estate agents work for broker)

Have a trust account (for holding public’s money)

Liable for the acts of salespersons and associate brokers

Associate Broker –

Designated broker may appoint Associate Broker to operate branch office and give the Associate Broker all the power that the designated Broker has

*Branch Office –

Any location other than where the Broker has a principal office

*Branch offices must have a special branch office license when the Broker vacates an office and the company sign must come down immediately.

*Temporary Absence of a Designated Broker:

Temporary absence is defined as more than 30 days

Broker must appoint in writing, a designated representative (must be licensed) to act in absence

If representative is a salesperson, he/she may not hire or fire licensees.

When a Broker is allowing the use of his license, the broker may not receive a fee from the salesperson, without ‘actual supervision’.

All licensees must notify the Department of Real Estate within 10 days:

(*All 10 days are consecutive) 1. *Licensee moves, change of residence (home)

2. *If convicted of a misdemeanor or felony (anywhere) 3. If the licensee is a defendant in a lawsuit, where he/she was a party in a real estate transaction and loses 4. *If any adverse action is taken against any professional licensee or designation or occupational certification held by the licensee anywhere (Example: beautician license, life insurance sales license) 5. *If a licensee leaves a real estate company, broker must notify

Designated Brokers requirement to keep records for 5 years: 1. *All completed documents (signed by everyone)

Uncompleted (rejected offers) documents are kept only one year 2. *Employment status form is used by the Broker to hire and sever a license (this is used “to track” a license)

Real Estate Education

*Individuals who are looking for pre-licensing need to complete 90 hours of real estate education classes.

Requirements for Real Estate Renewal:

*(Real estate licenses need to be renewed every two years. ) 1. *Twenty four hours are required of continuing education real estate classes.

This includes –

18 mandatory hours, which are broken down into three hours of each of the following topics -

Agency Law, Contract Law, Real Estate Legal Issues, Fair Housing, Disclosure and Commissioner’s Rules

The remaining six hours are elective. (choices of the real estate

Licensee) 2. Must be 18 years of age

3. Does not have to be a resident of Arizona or a citizen of the United States to obtain or maintain a Arizona real estate license

Real Estate licenses expire the last day of the month, two years from the month of licensure. If license is not renewed, the license is terminated.

The Department of Real Estate will accept late renewal within one year of expiration. Applicant must pay their license fees within one year of the date they passed the state exam. If late, the exam must be retaken.

A licensee receives only one license. This license is sent to the employing broker. If a licensee leaves a broker, the license is sent to back to the Department of Real Estate. (This is called the tracking or path of a license. )

Licensees can be inspected at a designated broker’s office.

Licensees do not hold their own license.

Real Estate Advertising Guidelines:

50% or more of the complaints to the Department of Real Estate Department focus on advertising.

*Licensee shall not advertise in a manner that implies no license is involved in the offer of the sale, or exchange of property. (Example: blind newspaper ads – that only state a phone number, but when called a real estate agent is on the end of the line)

The Broker’s name or the name of the real estate company must identify the person advertising as a broker or real estate licensee in all advertising and promotions. (Example: when a licensee is promoting themselves with pens, key chains, etc. the items must include the broker’s name or name of company. )

Real Estate Company’s name must be conspicuously and reasonably calculated to attract the public’s attention on a salesperson’s advertisement.

*Designated broker is directly responsible for all the company’s advertising.

*Written permission is needed in order for placement of a “For Sale’s” sign to be placed on the property. However, in order for the sign to be taken down, the owner need only to request the removal of the sign, which must be promptly taken down. (There is no definition of the word “promptly”. )

If a promotion includes items for “free” or with “no obligation”, these items must be exactly that with no strings attached.

Licensees are forbidden to use the words “awards” or “prizes” in any advertising promotions.

Any strings attached to an advertising promotion, must be described to the public. The public has a right to know what these strings are in the advertisement.

No gaming is allowed by a licensee in any advertising promotions.

Real Estate Document Requirements:

Document Requirements:

Broker shall approve all contracts within 5 days of the date of the contract.

All employment contracts must be in writing, such as listings, property management agreements, and buyer broker agreements.

Licensee will make sure anyone signing a document receives a copy of that document.

Licensee will promptly submit all offers, until the close of escrow, unless there are written instructions to do otherwise

Even after the Seller has accepted an offer, his agent must continue submitting any new incoming offers, until the sale is final or at the close of escrow. (Additional offers after the acceptance of an offer are called back up offers. ) Unless, the Seller instructs the agent in writing to cease submitting offers.

Designated Brokers are responsible for giving the Seller a complete detailed statement of how the Seller’s money was handled at the end of the transactions. This form is called the Escrow Settlement or HUD 1.

Real Estate Professional Conduct:

The National Association of Realtors subscribes to ethics. Ethics are what all licensees strive for.

If a real estate licensee works for a Broker and the broker belongs to the National Association of Realtors, which in turn means the real estate licensee will also belong to the association. Once a member of the National Association of Realtors, you can be called a Realtor.

Rules of Conduct to be Followed:

*Licensee owes a fiduciary (position of trust) duty to his client and must promote and protect only the best interests of his client.

Disclose all information possessed that could be material or adversely affect a party’s decision to participate in a transaction. Including information such as defects of property, defects in title, information that either party may not be able to perform, environmental concerns, and upcoming events effecting property value or quiet enjoyment of the property (like new freeway, etc).

*(Listing) Real Estate Company owes fiduciary to the Seller.

*Selling Real Estate Company owes fiduciary to the Buyer.

*All negotiations for the sale of the listed property must be conducted through the listing company, unless 24 hours goes by and no one from the Listing Company is available to present the offer. Then the Selling Company can go directly to the Seller and once the Selling Company has the Sellers written permission to be there alone and present their offer.

Licensees may not allow disputes amongst themselves jeopardize a principal’s position.

Licensee may represent both parties of a transaction, as long as both sides have given written consent.

*Licensee may not discourage a party from seeking legal, tax or other professional advice.

If a licensee buys, sells, or leases property for himself/herself disclosure of being a licensed real estate agent in Arizona must be given.

*Three Categories of Disclosure: 1. Things a Licensee/Broker Must Tell the Seller –

If the Buyer will be financially unable to complete the transaction 2. Things a Licensee/Broker Must Tell the Buyer –

If there is something physically wrong with the buying property they are buying (what the licensee/broker know or what is, is a matter of public information)

If things go wrong with the title of property (ownership rights)

If there are any liens or encumbrances, the Buyer will be receiving if the Buyer purchases the property 3. Things a Licensee/Broker Must Tell the Buyer or Seller –

If either, the Buyer or Seller, have an Arizona Real Estate license the other side has a right to know

If a licensee, acting as a licensee, will financially benefit from the transaction, other than the commission, must notify the party(s) (Example: secretly benefiting/conflict of interest from a side business of roofing)

Handling of Client Money (Earnest):

Broker may keep up to $500 of his/her own money, in the trust account to cover bank charges and minimum balance requirements.

If a Broker is practicing property management, a trust account is not required.

All purchase contracts must state the form in which the earnest money is being taken.

Salesperson must turn earnest money over to broker promptly. Broker must immediately deposit money into either a Broker’s Trust Account or Escrow.

Trust account may be interest bearing, however this must be disclosed in written form, along with to whom the interest is to be paid

If a Broker or salesperson is a party to the transaction, the earnest money must be deposited in escrow.

Alicensee with a broker may be a signatory on the Trust Account, but may not sign commission checks.

possible Test Questions: 1. Commissioner’s Rules ___________.

The Commissioner’s Rules have the force and effect of law. 2. Who is the legal arm of the Arizona Real Estate Department?

The legal arm of the Arizona Real Estate Department is Arizona Attorney General.

3. Does an Advance Fee Rental Agent need a license?

Yes, an advance fee agent needs a license in order to operate.

4. Does a franchisor need a license?

No, a franchisor does not need a license because a franchisor is a seller of a business plan and logo, not a selling agent. However, a franchisee does need a license because a franchisee is a buyer of the business plan and logo and is the real estate company.

5. Does Arizona require residency in order to hold license?

No, Arizona does not require residency. However, the Department of Real Estate will not issue a licenses to individuals that have a P. O. Box or live in an R. V. (one must have an address), in order for the department to have contact.

6. What is the ‘track of the license’?

The ‘track of the license’ is the path a license follows. Example: Real Estate Department issues license and goes to Real Estate Company to hold, then back to the Department of Real Estate. Licensee does not physically hold the license.

7. How many hours are needed for pre-licensing?

90 hours are required for pre-licensing.

8. What does fiduciary mean?

Fiduciary means a position of trust.

Real Estate License Law

Department of Real Estate:

Governor appoints the department heads; one department head selected is the Department of Real Estate. The Department of Real Estate is a regulatory agency focusing on real estate.

The head of the Department of Real Estate is called the Real Estate Commissioner. The commissioner’s basic function is to protect the public.

*This is paid position, appointed by the Governor and serves at the Governor’s pleasure.

Real Estate Department Limitations:

Employees - 1. Can’t hold an active real estate license 2. Can’t own or be associated with a real estate company 3. Can’t be married to anyone in the above stated categories

Two Kinds of Complaints Heard by the Real Estate Department:

Verbal –

These complaints may be investigated

Written –

These complaints must be investigated (mandatory)

The Commissioner of the Department of Real Estate will not hear disputes between licenses, regarding commission (splits or earnings).

Commissioner’s Duties:

May investigate complaints

May reject real estate applications (based on felony convictions, etc. )

Enforce Arizona Real Estate licensing laws

Regulates the Commissioner’s Rules and activities of real estate licensees and subdivides (including timeshare and membership camping)

Real Estate Advisory Board:

*Governor also appoints members to the Real Estate Advisory Board.

Members of this board are not paid.

The board meets four times a year.

*The Real Estate Advisory board is sometimes called the Blue Ribbon Panel. *There are nine members on the board and they serve six year staggered terms.

*The members consist of four real estate brokers (two of which must primarily do residential real estate), two sub dividers (builders, developers), and three public members (who are familiar with real estate).

*Duties of the Real Estate Advisory Board:

Evaluate the Real Estate Commissioner (once a year and report back to the Governor its findings)

Advise the Real Estate Department of anything they wish to advise them of

Real Estate Recovery Fund:

All fees are paid by license and renewal and go into the state general fund. Arizona law requires that the Real Estate Commissioner maintains a Real Estate Recovery Fund.

Fees are $10 for a salesperson and $20 for a broker

*A fund of money paid into by new Real Estate licensees to somewhat compensate the public, if damaged (financial damage caused by fraud, misrepresentation, embezzlement or etc. ) by an Arizona real estate licensee.

*The Real Estate Recovery Fund may not fall below $600,000 (a minimum of $600,000 must always be in the fund)

The fund is audited every June. If the fund falls below $600,000, every licensee, who renews in the following year, will pay the Recovery Fund fee again.

Amounts Paid Out From the Real Estate Recovery Fund:

No more than $30,000, regarding a single real estate transaction (per transaction)

No more than $90,000, on behalf of a real estate licensee (per licensee)

Requirements/Steps to Claim Real estate Recovery Fund: 1. Complainant must sue the licensee and win a judgment

2. Complainant must make ‘good faith’ attempt to collect the money from the licensee 3. Complainant then goes to the Department of Real Estate and subrogates (complainant gives up rights, judgment rights, to the Department of Real Estate in the amount the complainant is owed – this also means the Department of Real Estate has the right and will now go after the licensee for the money taken out of the fund) and gets a check

Example: $100,000 Judgment $30,000 amount Department of Real Estate gives out (subrogates) of the Real Estate Recovery Fund $70,000 left over from the Judgment

* Subrogate – Substitution of another person in place of the creditor, to whose rights succeeds in relation to the debt (someone agrees to stand for the performance of a contract by another person) (Example: the Department of Real Estate takes over the part of the amount owed to the complainant by payment and also receives the ‘right and will’ to go after the licensee for the amount paid)

*Only one person, who can not collect from the Real Estate Recovery Fund – an Arizona Real Estate Licensee (even if the licensee is inactive)

After a Judgment, a Licensee:

Automatic termination of the license, if any money is paid out of the Real Estate Recovery Fund

*Termination of license is a requirement of Arizona law

Once a license is terminated, the licensee may re-apply:

After paying back the fund for money taken out

plus pay back the fund at 6% interest

Totally compensate the complainant

The fund will not satisfy a judgment in which a licensee can do himself/herself.

The statute of limitations against the fund is 5 years.

Individuals Who Do Need a Real Estate License: 1. Sells, exchanges, purchases, rents or leases real estate or time share 2. Offers to sell, exchange, purchase, rent or lease real estate or time share 3. Lists or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of real estate or time share 4. Auctions or offers, attempts or agrees to auction real estate or time share 5. Buys, sells, offers to buy or sell or deals with options on real estate or timeshare 6. Collects or offers, attempts or agrees to collect rent for the use of real estate or timeshare 7. Advertises or holds himself/herself out as to being engaged in the business of buying, selling, exchanging, renting, or leasing real estate or timeshare or counseling or advising 8. Assists or directs in the procuring of prospects, calculated to the sale, exchange, leasing or rental of real estate or timeshare 9. Incident to the sale of real estate negotiates or offers, attempts or agrees to negotiate a loan secured or to be secured by a mortgage or other encumbrance or transfer of real estate or timeshare (with provisions to mortgage brokers) 10. -weight: normal; -size: 7. 0pt; -family: Times New Roman”>Engages in the business of assisting or offering to assist another in filing an application for purchase or lease, or locating or entering upon, lands owned by the state or federal government 11. -weight: normal; -size: 7. 0pt; -family: Times New Roman”>Claims, demands, charges, receives, collects or contracts for the collection of an advance fee in connection with the promotion of a sale or lease of real estate property through an advanced listing fee, by furnishing rental information to prospective tenant for a fee paid by a prospective tenant, by advertisement or offering to sell, lease, exchange, or rent real property or selling kits in connection 12. -weight: normal; -size: 7. 0pt; -family: Times New Roman”>performs any acts as employee, or on behalf of an owner of real estate or in interest or improvements for compensation

Individuals Who Do Not Need a Real Estate License: 1. Any owner of real estate

2. Attorney in fact ( anyone can be an attorney in fact – a person appointed by another to represent he/she, one time only ability) 3. Attorneys (lawyers – so long as they are acting as an attorney) 4. Person who manages, not more than one unit (apartment complex) for one owner (entity)

Commission –

An agent’s payment for the performance of specific duties, as the percentage of sales price for selling a property

To collect commissions, in a court action, the complaint must allege that the plaintiff was a qualified licensed broker/salesperson when the claim arose. However, prior to the hearing, the court will require the plaintiff to prove alleged qualification.

Commission Sharing:

Licensee must disclose to all parties, the names of any person receiving any portion of the commission. (This does not authorize payment of any individual with out a license. )

Commissioner of the Department of Real Estate will not hear complaints concerning commissions.

Two Types of Broker Licenses:

1. Designated Broker (Employing Broker)

Head of a real estate company

Must have only one designated broker for each real estate company

Four Main Duties:

Hire other licensees

Is the only one that can be hired by the public (sales/real estate agent’s work for the Broker)

Is the only one that takes in money and pays out commissions

Is the only one that can operate a trust account (an account operated by the Broker or real estate Company designed only to hold the public’s money)

Temporary Broker’s License –

Two Reasons for issuing

1. Death of designated broker

2. Incapacitation of designated broker

*Anyone can be named temporary designated broker by the Department of Real Estate.

Temporary Broker’s License Allowed to Operate for a Short Time, Only If:

Company is trying to find a new designated broker

Company is being sold

Atemporary broker’s license is issued for 90 days only. However, if a company is being sold extensions may be given up to 15 months.

2. Associate Broker

Someone with a broker’s license working for the designated broker

Ten Causes to Lose License: 1. *Misrepresentation –

#1 reason for loss of license according to the Department of Real

Estate 2. Failure to Pay License Renewal Fee –

Another #1 reason for loss of license, must be renewed every two years 3. Violation of Fair Housing Laws

4. Co-mingling and Conversion –

Mixing the public’s money with personal or company money and using the co-mingled money for personal use 5. Placing a for sale’s sign on an owner’s property, without the owner’s written consent

6. Acting on the behalf of both parties in a real estate transaction –

Without the parties written consent 7. Being compensated by both parties in a real estate transaction without their written consent

8. If the designated broker compensates anyone (other than own licensees, other real estate companies or licensed entities) anywhere 9. If a licensee receives compensation from anyone other than their own designated broker

10. -weight: normal; -size: 7. 0pt; -family: Times New Roman”>If a licensee compensates anyone (Brokers can compensate, but licensees may not)

Three Types of Land: 1. *Subdivided Land –

Six or more lots, any of which is less than 36 acres

Sales of this is controlled by the Department of Real Estate

Example: lot – 40 acres lot – 40 acres

lot – 40 acres lot – 40 acres

lot - 36 acres lot – 80 acres

lot - 40 acres lot – 40 acres

lot – 40 acres lot – 40 acres

lot – 40 acres lot – 40 acres

(not a subdivision) (is a subdivision) 2. Unsubdivided Land –

Six or more lots any of which is between 36 and 160 acres (including 36 acres)

Sales of this is controlled by the Department of Real Estate

Example: lot – 200 acres

Lot – 200 acres

Lot – 200 acres

Lot – 159 acres

Lot – 200 acres

Lot – 200 acres

(is Unsubdivided land) 3. Land –

Anything not in the above state two categories

Sales of this is not controlled by the Department of Real Estate

permission to Subdivide: 1. City, county allows for zoning to divide 2. Department of Real Estate allows for the selling of lots

prior to the issuance of the Public Report, a subdivider may market lots. However, the subdivider may only accept lot reservations (with a deposit of not more than $5,000). This lot reservation is an expression of interest on the part of the buyer and not a binding agreement.

Original purchaser of unimproved subdivided or unsubdivided land shall have 7 days for right of rescission (annulling of a contract by mutual consent of the parties, or for cause by either party to the contract). If original purchaser is doing so sight unseen of the property, there is a 6 month right of rescission.

Commissioner Public Report (C. P. R. ) –

Gives permission to sell subdivided land

Commissioner Public Report Must Have (in order to sell): 1. Provide set of marketing plans 2. Plat map (all the lots) 3. Each lot must have permanent access (touch a street, not land locked) 4. All improvements must be done in a timely manner (paving, sidewalks, etc. ) 5. Persons involved in 10% or more ownership of the subdivision 6. Subdivider’s indebtness (with proper releases) 7. Ability to clear title

*The Commissioner’s Public Report must be given a copy of the report to all prospective purchasers of a subdivided land.

*The owner of the subdivision must get a receipt from the prospective Buyer to prove the Buyer had a copy of the Commissioner’s Public Report.

*Receipt of prove of the Buyer’s copy of the Commissioner’s Public Report must be kept by the owner/developer for five years.

If the purchaser was not issued a copy of the Commissioner’s Public Report, the purchaser has three years from the purchase to cancel the transaction.

It is illegal to use/represent the Commissioner’s Public Report (C. P. R. ) as an endorsement of the subdivision.

Article XXVI (26) of the Arizona Constitution:

Gives licensees the right to draft all documents incidental to a real estate transaction

Licensees may not charge a fee for this service.

Statue of Frauds:

Requires certain contract to be in writing in order to be enforceable

These contracts include:

Real Estate Sales Contracts

Commission Agreements

Leases for more than one year

Agreements that cannot be performed within one year

possible Test Questions: 1. What are the two places that the public’s money may be held?

The two places that the public’s money may be held are the Broker’s Trust Account and the Escrow Trust Account.

2. What are the four duties of a Broker?

The four duties of a Broker are hiring licensees, holding the public’s money in a trust account, taking in and paying out commissions, and only one that can be hired by the public (sales/real estate agents work for the broker).

3. Who can have a temporary Broker’s license?

Anyone approved by the Department of Real Estate may have a temporary Broker’s license.

4. What is subrogating?

Subrogate refers to the Real Estate Recovery Fund. It is a substitution of another person in place of the creditor, to whose rights succeeds in relation to the debt (someone agrees to stand for the performance of a contract by another person) (Example: the Department of Real Estate takes over the part of the amount owed to the complainant by payment and also receives the ‘right and will’ to go after the licensee for the amount paid)