SHORT INTRODUCTION TO CALIFORNIA REAL ESTATE PRINCIPLES,

 

ゥ 1994 by Home Study, Inc. dba American Schools

 


Click on link to go to:
Table of Contents; Chapter I: Real Property; Chapter II: Legal Ownership; Chapter III: Agency & Ethics; Chapter IV: Contracts; Chapter V: Real Estate Mathematics; Chapter VI: Financing; Chapter VII: Mortgage Insurance; Chapter VIII: Appraisal; Chapter IX: Transfers of Real Estate; Chapter X: Property Management; Chapter XI: Land Control; Chapter XII: Taxation; Chapter XIII: Fair Housing Laws; Chapter XIV: Macroeconomics; Chapter XV: Legal Professional Requirements; Chapter XVI: Notarial Law; Chapter XVII: Selling Real Estate; Chapter XVIII: Trust Funds Handling; Glossary; Index.


READING REQUIREMENT IN THIS SECTION:

Chapter XV: Legal Requirements of Employment in Real Estate 

Educational Objectives: Learn about GOVERNMENT REGULATION IN BROKERAGE TRANSACTIONS, Real Estate Act Brief History, Real Estate Advisory Commission, REAL ESTATE LICENSING GENERAL REQUIREMENTSORIGINAL REAL ESTATE BROKER LICENSECORPORATE REAL ESTATE LICENSESORIGINAL SALESPERSON LICENSECONTINUING EDUCATIONVIOLATIONS OF REAL ESTATE LAW AND PENAL CODEThe Real Estate Recovery FundMINERAL, OIL AND GAS BROKERAGE,BUSINESS OPPORTUNITIES, Franchises, EXAMPLES OF POSSIBLE REAL ESTATE LAW VIOLATIONS, R. E. TERMS GLOSSARY, INDEX.

 

Chapter XVI: Notarial Law

 

 

 

Educational Objectives: Learn about Appointment and qualifications, Requirements for qualifying and time limit, Notary public bonds, Geographic jurisdictions, Notaries may not refuse services, Notary seal, Notarial records, JURAT, Notarization of incomplete documents, Certified copies, Common questions and answers, R. E. TERMS GLOSSARY, INDEX.

 

Chapter XVII: Real Estate Salesmanship

 

Educational Objectives: Learn about REAL ESTATE CAREER BUILDING, Personal Promotion, Target Marketing, Nine Types of Promotional Literature and Their Uses, THE ACTUAL REAL ESTATE SALES PROCESS, Closing, The art of negotiation.

 

Chapter XVIII: TRUST FUNDS

 

Educational Objectives: TRUST FUNDS - GENERAL INFORMATION; ADVANCE FEE TRUST FUNDS; TRUST FUND BANK ACCOUNTS; ACCOUNTING RECORDS; RECONCILIATION OF ACCOUNTING RECORDS; DOCUMENTATION REQUIREMENTS; AUDITS AND EXAMINATIONS; CONSEQUENCES OF TRUST FUNDS CONVERSION: - LOSS OF LICENSE; - RECEIVERSHIP; - CIVIL LIABILITY; - TAX LIABILITY; - CRIMINAL SANCTIONS, R. E. TERMS GLOSSARY, INDEX.

 

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Chapter XV: Legal Requirements of Employment in Real Estate 

 

Educational Objectives: Learn about GOVERNMENT REGULATION IN BROKERAGE TRANSACTIONS, Real Estate Act Brief History, Real Estate Advisory Commission, REAL ESTATE LICENSING GENERAL REQUIREMENTS, ORIGINAL REAL ESTATE BROKER LICENSE, CORPORATE REAL ESTATE LICENSES, ORIGINAL SALESPERSON LICENSE, CONTINUING EDUCATION, VIOLATIONS OF REAL ESTATE LAW AND PENAL CODE, The Real Estate Recovery Fund, MINERAL, OIL AND GAS BROKERAGE, BUSINESS OPPORTUNITIESFranchises, EXAMPLES OF POSSIBLE REAL ESTATE LAW VIOLATIONS, R. E. TERMS GLOSSARY, INDEX.

 

(The following is reprinted by permission from the CalBRE Reference Book, p. 1-41)

 

GOVERNMENT REGULATION IN BROKERAGE TRANSACTIONS

 

As America outgrew its pioneering and homesteading stages of development and moved steadily toward greater and greater urbanization, city dwellers across the land found they personally could no longer satisfactorily "strike a deal" with strangers in bargaining for land and homes.

 

The need for an intermediary to provide basic real estate knowledge and services, to negotiate and bring about desired results was very real. This need was met in the person of the real estate agent, who continues to fill this important role in today's society.

 

However, along with increasing opportunities to provide real estate services to the maturing nation came certain abuses of the public trust in the form of unethical, illegal or sharp practices by dishonest or incompetent agents operating in a climate of unorganized and often unscrupulous competition. Real estate practitioners themselves began to see the need for some type of controlling organization. The general public's legitimate interest in the buying, selling, exchanging and financing of real property predictably led to the regulation of the real estate business through the adoption, state by state and over time, of reasonable legislative and administrative controls. The enactment of such controls is within the general power of a stat e to regulate any occupation whose membership should meet specified qualifications.

 

The Legislative and Administrative Roles

 

Today all fifty states and the District of Columbia have enacted statutes governing, to some degree, the licensing, regulation and conduct of real estate agents. The nation's first Real estate licensing law was passed in California in 1917. It was challenged in the courts and declared to be unconstitutional. The Real Estate Act of 1919 was then adopted and upheld by the State Supreme Court as being a reasonable exercise of the power of the state to regulate the conduct of its citizens in the interest of the common good. With subsequent amendments and additions the law has been in effect ever since.

 

Real estate agents operating in the 1980s provide both basic services and specializations to the real estate consumer. General brokerage, property management, development, financing, counseling, franchising and appraising are examples of the services offered by today's real estate professionals in the fields of residential, commercial and industrial, investment special purpose, raw land and agricultural real estate. Consumer concern that high business standards be maintained by today's broker professional is no less than it was when the real estate profession first came under regulation.

 

During past years, as weaknesses in existing laws to control abuses in real estate activities were revealed, corrective legislation was passed by socially responsive legislators, until today a complete set of reasonable licensing, regulatory, and subdivision marketing controls are in place and enforced by the California Real Estate Commissioner.

 

This power of government regulation and supervision is called "police power. " Since the Real Estate Law is upheld under police power, it is important to know more about it.

 

THE POLICE POWER AND THE REAL ESTATE LAW

 

To many laypersons "police power" means that power exercised by police of officers and police departments. It is, however, much more than the business of detecting crime and criminals, and the maintaining of public order and tranquility. It is almost as broad as the power of the people to govern through their chosen representatives.

 

A full and satisfactory definition of police power is not easily given. Courts and writers rather declare its nature and extent. A quotation from an opinion from the United States Supreme Court gives this comprehensive description: ''By means of it , the legislature exercises a supervision over matters affecting the commonwealth and enforces the observance by each individual member of society of duties which he owes to others and the community at large. The possession and enjoyment of all rights are subject to this power. Under it the state may prescribe regulations promoting the health, peace, morals, education and good order of the people, and legislate so as to increase the industries of the state, develop its resources and add to its welfare and prosperity. "

 

In short, police power is the power in the state to enact laws within constitutional limits to promote the order, safety, health, morals and general welfare of the commonwealth.

 

Power Not Arbitrary

 

This power does not give the legislature capricious authority of regulation or permit it to pass laws arbitrarily taking the life, liberty or property of the citizen. Each statute must be justified as necessary and proper for the protection or advancement of a genuine public interest.

 

Under our system of government, the federal government has only those powers granted to it by the United States Constitution. This includes all powers necessary and proper to carry into effect the powers expressly granted. This latter doctrine of implied powers is necessary for the federal government to function. Implied powers have been vastly increased in recent years by all three branches of the federal government.

 

The states have all powers of sovereignty except those exclusively granted to the United States, those prohibited to them by the federal Constitution and those powers limited by their own respective constitutions. Hence, the state legislative branch is possessed of the entire police power of the state, except as so limited.

 

By the California Constitution this power of legislation is also vested in counties, cities and towns to make and enforce within their respective limits all such local police and other regulations as are not in conflict with general laws.

 

Real Estate Act A Brief History

 

The California Bureau of Real Estate, whose chief officer is the Real Estate Commissioner, was created by legislative act in 1917. It was the first law of its kind providing for the licensing and regulation of real estate agents. It has served as a pattern for similar legislation in many other states.

 

As first enacted, the law was declared unconstitutional by the State Supreme Court (In re Raleigh, 177) C. 746 on March 19, 1918. Opponents had claimed the act was unreasonable interference with the right of every citizen to engage in a legitimate and useful occupation and that the power given to the Commissioner was arbitrary. In its ruling the court found the act invalid because it exempted from its provisions those corporations and persons who had received from the Insurance Commissioner or the Bureau of Building and Loan Supervision a certain authority or license to do business within the state.

 

The court noted the requirements for obtaining licenses from the Insurance Commissioner were much simpler and far less burdensome than those imposed upon real estate brokers and salespersons by the real estate act, e. g. , insurance licensees did not require recommendations vouching for their truthfulness and honesty; did not need a bond; and did not need to maintain an office. The court could not discern any reason for these special conditions or concessions but raised no other objections to the act.

 

Constitutionality of Act Declared

 

The constitutionality of the act was still in question when a new Real Estate Commissioner, Ray L. Riley, was appointed on July 28, 1919. Through his urging, the Legislature passed the Gates Bill which amended the original real estate law. As amended, the law was upheld by the Supreme Court in November, 1919.

 

Among the strongest supporters of the real estate licensing law was the organized real estate industry itself. The industry believed the reasonable regulation of those engaged in the real estate business would benefit the public and assist in creating and maintaining higher professional standards and ethical practices in the conduct of real estate brokerage activities.

 

Thus, the law has been designed primarily for the protection of the public in real estate transactions in which the services of an agent are employed. By requiring qualifications for licensing (the original act did not require a licensing examination) the Commissioner is able to ascertain that persons acting in the capacity of a broker or salesperson have certain knowledge qualifications.

 

This power given to the Commissioner is not arbitrary and is not without control or guidance. If the Commissioner finds that an applicant for a license is not honest and truthful, that finding must be based upon facts which reasonably justify this conclusion. When an applicant in fact has the qualifications required by the law, the Commissioner must issue the license.

 

By requiring qualifications for license and by the establishment and enforcement of definite standards and practices, the law has also played an important part in the continuing industry drive for professional designations and recognition for those engaged in real estate practice.

 

Commissioner's Jurisdiction Extended

 

Since the passage of the original act creating the California Bureau of Real Estate, the jurisdiction of the Real Estate Commissioner, at first only over the licensing of real estate brokers and salespersons, has been gradually extended.

 

Beginning in 1933 the administration and enforcement of those provisions of the Business and Professions Code regulating the sale or lease of subdivided lands (Subdivided Lands Law) have been a responsibility of the Commissioner and the Department, with gradual yet consistent increases over time in the degree of authority given to the Commissioner by law.

 

As with the licensing law, the subdivided lands provisions were attacked as being unconstitutional in that they placed unreasonable burdens on the exercise of property rights. They were vague and uncertain, and they benefited only a special class and not the whole public. Again, our Supreme Court held these contentions were not sound.

 

The court held that the object of the law was the prevention of fraud and sharp practices in a type of real estate transaction particularly open to abuses. The court said the method of furnishing information to real property purchasers which involved investigation and written disclosure of certain essential facts was protection for innocent purchasers.

 

Law Codified

 

On August 4, 1943, the Real Estate Law was codified as Division 4 of the Business and Professions Code, consisting of two parts. Part 1 covers Licensing of Persons (Sections 10000 to 10602) and may be cited as the Real Estate Law. Part 2 covers Regulation of Transactions (Subdivided Lands Law Sections 11000-11202). Since that time numerous amendments and additions have been made.

 

The full text of the law, and Regulations of the Real Estate Commissioner, which clarify, implement, interpret or make specific the various sections of the law appear in the Real Estate Law, a book published and sold by the California Bureau of Real Estate.

 

Extensions of Authority

 

Distinct licenses as well as regulatory controls for mineral, oil and gas and business opportunity brokers and salespersons were enacted by law in 1943. Later legislation permitted and still allows any licensed real estate broker or salesperson to engage in the business opportunity field under a general real estate license. There is no longer a special license required to engage in business opportunity transactions. In 1967 the mineral oil and gas salesperson license was discontinued, but the broker licensing was retained.

 

In 1955 because of complaints about practices of some brokers which were clearly adverse to the public good, the Legislature passed statutes regulating the handling of real property loans by licensees since amended and strengthened. Substantial new laws and regulations were adopted in 1982 regulating disclosures in mortgage loan broker activities.

 

On January 2, 1970, the Real Estate Commissioner became responsible for administering the Real Estate Syndicate Act relating to some types of real estate syndicates that were formerly under the jurisdiction of the Corporations Commissioner. However , under a law change on January 1, 1978, this jurisdiction was returned to the Corporations Commissioner.

 

On July 1, 1975, brokers and salespersons under the authority of their real estate licenses, became authorized to engage in the sale, purchase, negotiation, etc. , of mobilehomes registered for at least one year with the Department of Motor Vehicles . Effective July 1, 1980, licensees could also negotiate the sale of other mobilehomes provided the requirements of the Health and Safety Code Section 18551 for transforming a mobilehome to real property had been satisfied.

 

Prepaid rental listing services (PRLS) were regulated as real estate brokers until 1979. In 1979 the commissioner's authority to regulate prepaid rental listing services was overturned by the California Court of Appeals (Anderson v. California Bureau of Real Estate (1979) 93 CA. 3d 696). On September 25th of the following year prepaid rental listing services became regulated under a new law requiring licensing of any person offering those services.

 

Public Trust

 

In the brief history given, it can readily be understood that brokers and salespersons are engaged in many activities, as representatives of others in a confidential and fiduciary capacity. The public has more than a passing interest in seeing that the trust of the community is well placed in the real estate professional. To that end, the state seeks to help justify this trust and confidence by prescribing certain educational, experience and ethical requirements for real estate practitioners, subjecting to discipline those licensees who violate this trust.  

 

Decisions And Rulings Affecting Real Estate Law

 

What is commonly referred to throughout this Reference Book as the "Real Estate Law" must clearly be distinguished from what is known as real property law, law of agency, contract law, or other legal aspects of real estate ownership and conveyancing. Although these sets of laws interrelate and overlap, they are at the same time distinct and should therefore be perceived separately.

 

The Real Estate Law affects the licensing and conduct of persons acting as real estate agents. The law is enforced at special administrative hearings by the Commissioner rather than by a court of law. The Real Estate Law or license law, as it is sometimes referred to, has two principal purposes: ( 1 ) the protection of the general public from harm at the hands of dishonest and incompetent agents and (2) the protection of the reputation of honest agents against the adverse publicity and public resentment often caused by the unprincipled and unscrupulous who would infiltrate the agents' ranks.

 

In upholding legislation of this character the court in Hall v. Geiger Jones, 242 U. S. 539 ( 1917) ruled licensing regulation was a proper exercise of the police power of the state. Other courts have held that license law regulation must be reason able and that no enforcement officer can be vested with an arbitrary power to grant or refuse a license (see Riley v. Chambers, 181 Cal. 589).

 

An unlicensed person who acts as a real estate broker or real estate salesperson violates the Real Estate Law and is guilty of a misdemeanor. This portion of the law is upheld in the case of Haas v. Greenwald, 196 Cal. 236. In the same case it was also held that an attorney at law performing a real estate broker's service is required to obtain a real estate broker license in order to collect a commission and that an attorney does not come within the exception of the law unless it can be shown that he or she is acting as an attorney and not as a real estate broker in the transaction.

 

The statutes vesting the Real Estate Commissioner with certain responsibilities and authority over the offering of subdivided real property have had their constitutionality upheld several times, the leading case being in re Sidebotham, 12 C. 2d 434.

 

Administration by Commissioner

 

The Commissioner, appointed by the governor to serve at the governor's pleasure, is chief executive of the California Bureau of Real Estate and presides at the meetings of the Real Estate Advisory Commission. It is the Commissioner's duty to determine administrative policy and enforce the provisions of the Real Estate Law in a manner which achieves maximum protection for the purchasers of real property and those persons dealing with real estate licensees.

 

The Commissioner shall have been a real estate broker for five years and actively engaged in business as such in California, or shall possess related experience associated with real estate activity in California for five years within the last ten years.

 

Among the Commissioner's duties in administering the provisions of the law are: the investigation of complaints against licensees, regulating in specified respects the sale of subdivisions; real property securities; PRLS; screening and qualifying of applicants for license; and the investigation of nonlicensees alleged to be performing acts for which a license is required.

 

The Commissioner has the power to hold formal hearings within the terms of the Administrative Procedure Act for determination of issues involving a licensee, license applicant or a subdivider. After the hearing the Commissioner may revoke or suspend the license, deny or issue a license to an applicant, and in a proper case, order restitution. The Commissioner is empowered to issue orders to desist and refrain to prevent violation of the Real Estate Law and the Subdivided Lands Law. The law requires that on demand of the subject of the order a speedy hearing and decision must follow and that failure to do so will void the order.

 

There are definite limitations to the authority of the Commissioner, including a lack of authority to settle commission disputes. Sometimes complainants seeking the return of a deposit cannot understand why the Commissioner has no authority to determine who is legally entitled to the funds. It must be remembered that the Commissioner does not take the place of a court of law and does not give legal advice.

 

Real Estate Advisory Commission

 

A State Real Estate Board was established by legislative act in 1937. The name was changed to the State Real Estate Commission in 1957. The Commission was abolished January 1, 1977, being replaced by a Real Estate Advisory Commission. This official body consists of ten members, each appointed by the Commissioner to serve at the Commissioner's pleasure. Six of the members shall be real estate brokers licensed in California and four shall be public members. All but the Commissioner serve without compensation, except each member shall be allowed actual and necessary expenses incurred in the discharge of duties.

 

The Commissioner shall meet and consult and advise with the commission on the functions and policies of the Department, and how it may best serve the people of the State and recognize the legitimate needs of the industry and the licensees of the department which it regulates. At such meetings the views and suggestions of the public and of the licensees of the Department shall be solicited. The commission may make such recommendations and suggestions of policy to the Commissioner as it deems beneficial and appropriate. The Commissioner shall call meetings of the commission at least four times each year. Written notice of the time and place of each meeting shall be given to the members and such other persons who shall have requested notice at least 10 days before such meeting.

 

REAL ESTATE LICENSINGGENERAL REQUIREMENTS

 

Real Estate License When Required

 

Without a license one cannot receive compensation, a commission or fee for the performance of any of the acts defined as being within the purview of a licensed broker or salesperson. In addition the law sets up severe penalties for the person who acts or purports to act as a real estate broker or salesperson without being duly licensed. Such a person, upon conviction, may be punished by a fine not to exceed ten thousand dollars ($10,000), or by imprisonment up to six months, or by both such fine and imprisonment. If a corporation is found guilty of such action it may be fined up to fifty thousand dollars ($50,000). Furthermore any person who pays a compensation to a nonlicensee for performing services which require a license is guilty of a misdemeanor and may be fined up to one hundred dollars ($100) for each such offense (Sections 10138, 10139).

 

Exemptions From License Requirements

 

The law contains a lengthy list of special exemptions to the license requirement. These include, among others: resident managers of apartment buildings and complexes or their employees; employees of certain lending institutions; lenders making loans guaranteed or insured by an agency of the federal government; certain agricultural associations; licensed personal property brokers, cemetery authorities, certain collectors of payments for lenders or on notes for owners in connection with loans secured directly or collaterally by liens on real property, provided such collectors annually meet exemption criteria; clerical help, etc. (Sections 10131. 01, 10133, 10133. 1, 10133. 15 and 10133. 2. )

 

License Term

 

Original broker and salesperson licenses are issued for a four-year period. A broker or salesperson license may be renewed every four years upon filing a proper application and payment of the required fee unless the license has been revoked as a disciplinary measure (Sections 10153. 6 and 10153. 7); and the continuing education prerequisite for the renewal of a real estate license has been completed (completion of specified approved continuing education offerings totaling 45 clock-hours).

 

An applicant for a real estate license meeting the prerequisite requirements for the requested license is scheduled for the applicable qualifying examination. No restrictions are placed on the number of times an applicant who fails the qualifying examination may apply for reexamination. Applicants may apply for reexamination by filing the application and fee. An examination application and fee are good for a maximum period of two years after filing; after two years another application and fee must be submitted. When a qualifying examination is passed, the successful examinee is entitled to apply for a four-year license. (Sections 10153,10153. 6, 10153. 7, 10153. 8, 10153. 9. )

 

Examinations Required

 

The law requires the Commissioner to ascertain by written examination that the license applicant is qualified to act in the capacity of a broker or salesperson. Under no circumstances can the examination requirement be waived.

 

Applications for Real Estate Licenses

 

Applications for all examinations and for all licenses issued by the Commissioner must be made on forms furnished by the department. Forms can be obtained by calling at any one of the department's offices or writing to the main office in Sacramento . Detailed instructions are furnished with the application forms.

 

Note: When the application for license or license examination is completed, it may be presented at any one of the Department's offices or mailed to Sacramento. The application must be accompanied by the appropriate license and one set of classifiable fingerprints and the fingerprint processing fees.

 

Fingerprinting Requirement. A set of fingerprints is also required of all license applicants who have not had a real estate license in current status within the immediately preceding two year period. Fingerprints must be taken on "California License Applicant" fingerprint cards (Form BID-7). Applicants must pay a fee for processing.

 

Any office of the California Bureau of Real Estate and the Sacramento office of the California Department of Justice will take fingerprints without charge. The Department of Motor Vehicles' 149 field offices, most sheriffs offices, police stations, private fingerprint companies (listed under identification bureaus), passport service companies, and the California State Police Offices in San Francisco, Los Angeles, and Sacramento, and other facilities will take prints for an additional charge, by arrangement. Both sides of fingerprint cards must be completed including the applicant's signature and the signature of the official taking the prints. Applicants should clearly indicate on the reverse side of the fingerprint cards that the submission is made for "Real Estate License. '' As all fingerprints must be classifiable the fingerprint cards should be handled carefully to avoid smearing. Any unclassifiable fingerprints will require a new set of prints to be taken.

 

Some law enforcement agencies are reluctant to supply fingerprint cards because their agency name is printed on the cards. If applicants encounter this problem they should assure the printing agency that their name and address will be deleted from the fingerprint cards when they are processed by the Department of Real Estate. If the printing agency wishes, they may delete this information from the fingerprint cards prior to taking the applicant's prints.

 

The Real Estate Law permits the Commissioner to suspend without hearing, within 90 days after issuance, the license of any real estate licensee who procured a license by fraud, misrepresentation or deceit, or made any material misstatement of fact in the application (Section 10177. 1 of the Business and Professions Code).

 

ORIGINAL REAL ESTATE BROKER LICENSE

 

The individual broker license is by far the most common type of broker license. It licenses one to act for one's own personal account in conducting a brokerage business under one's own name or under a fictitious business name (Sections 10131-10131. 6,10150,10150. 6,10159. 5 of the Business and Professions Code, and Section 2731 Regulations of the Commissioner).

 

The applicant for an original real estate broker license must: (1) be at least 18 years old, (2) have had previous experience and education as required by law, (3) be honest and truthful; (4) make application on a form prescribed by the Commissioner; and (5) pass the qualifying examination. The Real Estate Law requires that every applicant for real estate broker license must either have been actively engaged as a real estate salesperson for at least two years during the five years immediately preceding the application or prove to the satisfaction of the Commissioner that applicant has general real estate experience which would be the equivalent of two years of full-time experience as a salesperson, and must have successfully completed the following statutory three-semester-unit (or equivalent) college level courses:

 

1. Real Estate Practice

 

2 Legal Aspects of Real Estate

 

3. Real Estate Finance

 

4. Real Estate Appraisal

 

5. Accounting or Real Estate Economics

 

6. And three from the following group:

 

Real Estate Principles

 

Business Law

 

Property Management

 

Real Estate Office Administration

 

Escrows

 

Advanced Legal Aspects of Real Estate

 

Advanced Real Estate Finance

 

Advanced Real Estate Appraisal.

 

* NOTE: If the Applicant completes both Accounting and Economics, only two group 6 courses are required.

 

As an alternative means of qualification, the applicant may show graduation from an accredited four-year university or college and completion of the above described real estate courses.

 

Some private vocational schools offer these required courses, both in residence (classroom) and through correspondence study. However, only those schools which have obtained formal approval from the Real Estate Commissioner may offer these courses for CalBRE credit.

 

3000. Equivalent Courses of Study at private vocational Schools.

 

(a) In making a determination under authority of section 10153. 5of the Code as to whether a course of study at a private vocational school is equivalent in qualify to real estate courses offered by colleges and universities accredited by the Western Association of Schools and Colleges, the commissioner shall consider, but shall not be limited to the following criteria:

 

(1) An attended course must provide at least 45 periods of classroom instruction, each of which shall be not less than 50minutes duration. A correspondence course shall consist of not less than 15 separate lesson assignments.

 

(2) (A) An attended course must provide for a final examination administered and supervised by the school in a classroom setting.

 

(B)A correspondence course must provide for a final examination administered and supervised by a person designated by the school for that purpose. The School shall send the final examination materials to the person so designated and the completed final examination should be returned to the school by the person so designated.

 

(3) The school must provide instructors, instructional material and classroom facilities adequate to achieve the objective of the course offered.

 

(4) The school shall maintain records of for each student sufficient to allow for the preparation of a duplicate certificate upon request by a student.

 

(5) The school shall not use advertising or other promotional devices that are deceptive or misleading.

 

(6) The school shall, within 15 days of a student's successful completion of the course, deliver a document to the student evidencing such completion. The document shall contain the following information:

 

(A) California Bureau of Real Estate course approval number.

 

(B) Name of student.

 

(C) Course title.

 

(D) Dates of course completion

 

(E) Name and address of school.

 

The school may include such additional information in this document as it deems necessary.

 

(7) The school shall have an appropriate method of assessing student knowledge of the subject, such as, but not limited to, multiple choice, essay or oral examinations.

 

(b) The simultaneous instruction of two or more students in one of the courses enumerated in sections 10153. 2, 10153. 3 or 10153. 4of the Code constitutes a "private vocational school" as that term is used in section 10153. 5.

 

Experience Qualification

 

Many candidates for a real estate broker license base their claims of qualification on two years of experience as a licensed real estate salesperson in California. A section of the application form provides space for making such claims. However, even though the Department's records show the applicant has been licensed for two or more years as a salesperson, that fact does not in itself qualify the applicant; evidence that applicant has worked full time as a salesperson for at least two years must be provided. The Commissioner's office furnishes forms on which the employing broker or brokers can certify as to the extent and scope of the applicant's activity as a real estate salesperson. The completed verification forms must be mailed with the application.

 

An applicant for real estate broker license claiming qualification on the basis of general real estate experience equivalent to two years of full-time work as a licensed salesperson is expected to furnish a detailed account of this claimed experience. This account may be presented in a letter over the applicant's signature, however, it must be corroborated in writing by others. Letters of recommendation will not suffice.

 

Equivalency Claims

 

All claims of "equivalent" - qualifying real estate experience must be supported by valid evidence. Usually this is furnished in the form of letters or statements from employers or other responsible parties who have been in a position to note the applicant's duties or activities as they have related to the general field of real estate and will certify to them in some detail. In cases where the applicant has been licensed as a real estate agent in another state, the applicant is expected to present an official statement from the licensing authority of that state giving the complete license record of the applicant. In addition, the applicant is expected to furnish reasonable evidence that the applicant's activities as a real estate agent were on a full-time basis.

 

Claims of qualification based on education with specialization in subjects relating strictly to real estate must be supported by transcripts of record or certificates of achievement.

 

In some instances persons are in a position to claim qualification by combining certain experience and education. For example, the applicant may have been actively engaged as a licensed salesperson in California for one year, had additional experience as an escrow officer or a loan officer and also had certain education relating to real estate. In such cases a combination claim for experience can be made.

 

All claims of experience qualification for real estate broker license other than those based upon two years of full-time work as a licensed salesperson in California, are individually evaluated. The Commissioner decides whether the claim of qualifications meets the Commissioner's standards. If the claim is approved the candidate is scheduled for examination; if rejected the candidate may eventually qualify for a real estate broker license examination by working the required time as a salesperson. Often a claim of qualification is rejected, but the applicant is given a certain amount of credit toward two years as a salesperson.

 

The applicant who fails to qualify for a license because of lack of experience and/or educational prerequisites is not entitled to a refund of the fee paid with the application. The fee, however, remains to applicant's credit for two years.

 

Examination for Original Broker License

 

All applicants for an original broker license must take and pass a written qualifying examination before the license can be granted.

 

An applicant failing the examination may apply for reexamination. There is no limit to the number of reexaminations which may be taken (Section 10153. 8 of the Business and Professions Code) but an application is valid for only two years. A broker applicant who fails to take the examination on the scheduled date may apply for another examination date by completing, signing, and returning the Examination Schedule Notice (RE 401) along with the appropriate fee to the Examination Section of the Department. The rescheduling request can also be made on an Examination Change Application (RE 415) after the originally scheduled examination date has passed and the test results have been released. The first request for a new examination date must be accompanied by a fee; another fee is charged for the second and any subsequent rescheduling requests (Section 10213. 6 of the Business and Professions Code). A person who fails to pass the examination during this two-year period must file a new application as the original application is lapsed (Section 10208. 5 of the Business and Professions Code).

 

An applicant who passes the examination is notified and must then within one year of the examination date (Section 10201. 6 of the Business and Professions Code. ) apply for the original broker license, which is issued for a four-year period. The broker license is renewable.

 

CORPORATE REAL ESTATE LICENSES

 

In some cases brokers will elect to do business as a corporation. A corporation may be licensed as a real estate broker provided at least one officer of the corporation is a duly qualified real estate broker willing to act as the corporation's responsible designated broker-officer. The corporation must submit with the corporation's license applications and fee, a Certificate of Status from the Secretary of State before the Commissioner will issue the corporation a real estate broker license. ( Business and Professions Code Sections 10211,10158,10159 and Commissioner's Regulations 2740, 2742. )

 

No real estate salesperson may be licensed in the employ of a corporate real estate broker licensee, or perform acts for which a real estate license is required on behalf of or in the name of the corporation, if: (a) the salesperson singly or together with other real estate salespersons licensed in the employ of the corporation owns or controls, directly or indirectly, a majority of the outstanding shares of stock of the corporation, or (b) the salesperson is a director or an officer of the corporation.

 

The provisions above shall not apply in the case of a corporation which is licensed to act through an individual real estate broker who is an officer and director of the corporation, and who has the responsibility to supervise the performance of acts for which a real estate license is required by those real estate salespersons who are shareholders, officers or directors of the corporation. (Section 10159. 2 and Regulation 2741. )

 

Because the California Bureau of Real Estate receives many daily inquiries concerning all aspects of corporate real estate broker licenses, we have included the following information.

 

Licensing a Corporation as a Real Estate Broker

 

When a corporation is to act as a real estate broker, the firm must be licensed by the California Bureau of Real Estate through a qualified broker, i. e. a person who is now licensed as a broker, or who has passed the broker license examination and is now qualified to obtain a broker license.

 

Application

 

Each broker who is to act for and on behalf of a corporation as a broker-officer must submit a completed Corporation License Application (RE Form 201) and the appropriate license fee. Broker-officer applicants without individual broker status will be required to furnish evidence of completion of continuing education requirements.

 

Certificate of Status

 

A Certificate of Status, obtained from the Office of the California Secretary of State must be submitted. The Certificate of Status must be executed within thirty days from the date the corporation applications are submitted. In the case of a foreign corporation, a Certificate of Qualification is also acceptable.

 

Fictitious Business Name

 

If the firm desires to use any name other than its own, a copy of the Fictitious Business Name Statement filed with the County Clerk's office showing the d. b. a. filed on behalf of the corporation in the county where the corporation's principal place of business is located must be submitted. (Section 10159. 5. )

 

Salesperson Licensed to Corporation

 

For each currently licensed salesperson to be placed in the employ of the corporation, a completed Salesperson Change Application (RE Form 214) must be submitted.

 

Licensed Corporate Directors and/or Officers not Acting as the Designated

 

Broker-Officer

 

Refer to Sections 10131 10158, and 10159 of the Business and Professions Code to determine if additional corporation licenses may be required. Any broker conducting business for and on behalf of the corporation which requires a real estate license will be at variance with the Real Estate Law if not licensed as a broker-officer. NOTE: All documents relating to a corporation submitted to this office must be signed by the licensed broker-officer(s) of the corporation.

 

Restrictions on Employment of Salespersons

 

The Commissioner's Regulations restrict the employment of a salesperson by the corporation when (a) the salesperson is a director or officer of the firm, or (b) the controlling interest of the firm is owned by one OF more salespersons, unless the responsible corporate broker-director-officer supervises the licensed acts of such salespersons (Commissioners Regulation 2741).

 

Additional Officers

 

Additional broker/officers may be licensed by submitting a completed Corporation License Application (RE Form 201) and the appropriate license fee. Broker-officer applicants without individual broker status will be required to furnish evidence of completion of continuing education requirements.

 

Replacing The Designated Broker-Officer

 

The licensed designated broker-officer of a corporation may be replaced by another qualified broker for the balance of the license period by submitting (a) a completed Corporation License Application (RE 201) and (b) a copy of the personally signed resignation of the officer leaving the firm, or a copy of the Resolution of the Board of Directors with the corporate seal, or a signed statement giving the date of death of the currently licensed designated broker-officer.

 

Adding A New Officer As The Designated Officer

 

A new designated officer may be licensed upon receipt of a completed Corporation License Application (RE 201) the appropriate license fee and statement that the currently designated broker-officer will remain with the firm as an "additional" officer. Broker-officer applicants without individual broker status will be required to furnish evidence of completion of continuing education requirements. Branch licenses will be reissued to match the term of the new "designated" officer without any additional fee.

 

Change Of Designated Officer When Both Currently Hold A Broker-Officer

 

License With Corporation

 

Submit a completed Corporation Change Application (RE 204A). No new license certificate will be issued to either officer. However, if the license terms differ, new branch office licenses will be issued.

 

Change Of Main Office Or Mailing Address

 

Submit a completed Corporation Change Application (RE 204A) signed by licensed officer.

 

ORIGINAL SALESPERSON LICENSE

 

This license covers those individuals who are to be employed as salespersons under the control and supervision of a licensed broker. The license permits licensed activity in the employ of a broker only, and never as an independent agent. Salespersons' licenses must be available for inspection in the broker's principal office and not at branches (Commissioner's Regulation 2753). The salesperson can be compensated for work as an agent only by the salesperson's employing broker (Business and Professions Sections 10132, 10160 and 10137).

 

License Requirements

 

The candidate for an original real estate salesperson license must: (1 ) be at least 18 years old; (2) make application on a form prescribed by the Commissioner; (3) be honest and truthful; and (4) pass a qualifying examination as required. On and after January 1, 1986, an applicant must, prior to the examination, complete a statutory three semester unit course in real estate principles, and either prior to issuance of the original license or within 18 months after issuance complete two additional basic real estate courses selected from the following:

 

real estate practice

 

real estate appraisal

 

accounting

 

business law

 

property management

 

legal aspects of real estate

 

real estate finance

 

real estate economics

 

escrows

 

real estate office administration

 

All courses must be three semester unit courses, or the quarter-unit equivalents, completed at an accredited institution of higher learning or an equivalent course of study offered by a private vocational school approved by the Commissioner.

 

The application for a salesperson examination must be made on R/E Form 400 and be accompanied by the examination fee.

 

There is no limitation on the number of reexaminations which may be taken by the candidate for salesperson license who fails the qualifying examination. There is a reexamination fee.

 

An applicant who fails to take the examination on the scheduled date may apply for another examination date by completing, signing and submitting the Examination Schedule Notice (RE 401) along with the appropriate fee to the Examination Section. The rescheduling request can also be made on an Examination Change Application (RE 415) after the originally scheduled examination date has passed and after the test results have been released. A fee is charged for the first rescheduling; another fee is charged for any subsequent rescheduling requests.

 

An applicant who successfully passes the salesperson examination may apply for a four-year original license by submitting, within one year of the examination date, an application for the real estate salesperson license (RE 202) together with a $120 license fee, a set of classifiable fingerprints, the fingerprint processing fee, and transcripts showing completion of the remaining required courses. If the applicant does not submit evidence of completion of the two remaining required courses when applying for the license, the fee for the license is $145. The license will then be issued on the condition that evidence of the remaining courses will be submitted within 18 months of licensure or the license will automatically be suspended.

 

LICENSE RENEWALS

 

BROKERS AND SALESPERSONS

 

All real estate licenses are issued for a period of four years. An original four-year license is renewable upon payment of appropriate fees without examination, but continuing education requirements must be satisfied. The application for license renewal must be postmarked prior to midnight of the expiration date of the current license to avoid a lapse in licensure and payment of a late renewal fee. Brokers should avoid allowing their own licenses to expire, as, aside from bringing an immediate halt to all licensed activities of the broker, the broker's salespersons are also immediately placed in canceled status and broker must then reinstate the license of each salesperson to the broker's employ.  

 

Since January 1, 1981, no broker or salesperson license may be renewed unless the commissioner finds that the applicant for such renewal license has completed the continuing education required by law.

 

Late Renewal

 

The holder of a license who fails to renew it prior to the expiration of the period for which it was issued may renew it within two years from such expiration upon proper application and the payment of a late renewal fee. However, this two year grace period does not authorize a continuation of licensed real estate activity (that must cease upon the expiration of the license) .

 

Two years after a license expires, all license rights lapse. The individual will be required to requalify through the examination process again before being licensed in real estate.

 

OTHER LICENSE INFORMATION

 

Inactive License Status Eliminated

 

Effective January 1, 1981, the status of inactive licensure was eliminated.

 

Partnerships

 

The department no longer issues formal partnership licenses, following a change in the law in 1968. Real estate business partnerships continue to exist and partnerships may be formed under the general law relating to such entities. A partnership ma y perform acts for which a real estate broker license is required, provided every partner through whom the partnership so acts is a licensed real estate broker.

 

Broker members of a partnership formed by written agreement may operate from the branch offices of the partnership without obtaining an individual branch office license, provided one member of the partnership is licensed at that location (Commissioner's Regulation 2728).

 

A salesperson whose employing broker is a member of the partnership (formed by written agreement) may work out of any branch office maintained by any one of the members of the partnership and may perform acts on behalf of the partnership (Commissioner's Regulation 2755).

 

Restricted License

 

There are certain types of restricted licenses sometimes issued by the Commissioner when a license has been suspended, revoked or denied after a hearing. In effect, they are probationary licenses and contain specific restrictions. (Business and Professions Code Sections 1O156. 5, 10156. 6, 10156. 7, 10156. 8 and 10177(k).

 

Note: The Commissioner can restrict licenses by: term (one month, three months, etc. ); employment by a particular broker (for a salesperson); limitation to a certain area or type of activity; requiring detailed reports of each transaction; the filing of a surety bond; or by other conditions or combination of conditions.

 

EXAMINATION AND LICENSE FEES

 

License or examination fees must accompany the application for the different types of examinations or licenses.

 

Under the law, fees paid to the CalBRE in connection with licenses and examinations are not refundable (B & P Code Section 10207). For example, a change of mind on the part of the applicant, rejection of a broker license examination application, examination failure or failure to appear to take an examination will not result in refund of all or any part of the fee paid.

 

Other fees

 

Fees for license changes are no longer required, such as: address changes of any kind, salesperson employment transfers, personal or corporate name change, adding or deleting fictitious business names, branch offices and duplicate license certificates.

 

CONTINUING EDUCATION

 

Since January 1, 1981 a license renewal applicant, broker or salesperson must prove compliance with the Business and Professions Code (Real Estate Law) and the Commissioner's Regulations pertaining to continuing education requirements. A renewal applicant must satisfactorily complete a total of 45 clock-hours of approved continuing education courses and programs (offerings) including the specific subjects shown below, within the four-year period preceding license renewal. This requirement must also be met for each subsequent renewal of the license.

 

Course Requirements

 

Since July 1, 1987, the category requirements of continuing education necessary to meet license renewal requirements have included:

 

(1) A 3 clock-hour offering (minimum) in ethics, professional conduct and legal aspects of real estate.

 

(2) A 3 clock-hour offering (minimum) in agency relationships and duties in a real estate brokerage practice.

 

(3) Not less than 18 clock-hours (minimum) of offerings designated under the category of consumer protection, and; 

 

(4) Other offerings which will enable the licensee to achieve a high level of competence in serving the objectives of consumers. These offerings generally related to business skills are designated under the category of consumer service and may make up the remaining 21 clock-hours needed to complete the total of 45 clock-hours required for license renewal.

 

Testing

 

The law provides that all continuing education offerings will require the successful completion by attendants of an appropriate form of testing examination or evaluation in order to receive credit.

 

Certificate of Attendance

 

Upon successful completion of an offering the offering entity (CalBRE approved sponsor) is required to furnish the participant with either an exam failure notice or a certificate of attendance containing information specified by Commissioner's Regulation 3012. 2. Evidence of the successful completion of an offering must then be listed on an Education Course Verification form, RE 251 (provided by the Department) and be submitted with the application for renewal of a license. Renewal applications are to be filed no earlier than 60 days prior to the expiration of a license.

 

FAIR HOUSING AND TRUST FUND HANDLING CONTINUING EDUCATION REQUIREMENTS

 

As a result of recent legislation (AB 1902 - Knowles), the continuing education renewal requirements will change, effective January 1, 1996. The changes affect all licensees, salespersons and brokers. Licensees with an expiration date of December 31, 1995 will be subject to these new requirements, since the effective date of their license will be January 1, 1996. These changes are somewhat complicated, because the requirements change depending on whether it is the first renewal on or after January 1, 1996 or a subsequent renewal on or after January 1, 2000.

 

Every broker and salesperson who renews his or her license on or after January 1, 1996 will be required, as part of the continuing education renewal requirement, to successfully complete a 3-hour course in each of the following subjects: Agency, Ethics, Trust Fund Handling, and Fair Housing. Except for salespersons who are renewing for the first time after qualifying for their license (by completing Real Estate Principles and the two additional courses required by Section 10153. 4 of the Business and Professions Code), licensees will also be required to complete a minimum of 18 additional hours of courses related to consumer protection. The remaining hours required to satisfy the 45-hour continuing education requirement may be related to either consumer service or consumer protection at the option of the licensee.

 

New salespersons who renew their licenses for the first time on or after January 1, 1996 will only have to complete the four courses specified, instead of the full 45-hour continuing education requirement.

 

When licensees renew their license for the second time on or after January 1, 2000 (i. e. , the second renewal period after January 1, 1996), they will be required to complete, as part of the standard 45 hours of continuing education, either a 4-hour survey course covering the four mandatory subjects (Agency, Ethics, Trust Fund Handling, and Fair Housing) or separate 3-hour courses in any two of the four mandatory courses. Those licensees who select the option of taking two separate 3-hour courses in any two of the four mandatory subject areas are required, on their next renewal, to take either the two mandatory courses that were not taken for the immediate prior renewal, or the 4-hour survey course.

 

Exemption from CE Requirement

 

The only exemption to the continuing education requirement is for those individuals who have been a licensee in good standing for 30 continuous years in the state and who are 70 years of age or older.

 

Transfer of Salesperson License

 

To effect a transfer of employment, a salesperson, the former broker, and new employing broker should take the following steps:

 

(1) The former employing broker must immediately notify the Department's headquarters in Sacramento of the action in writing.

 

(2) The former employer gives the transferring salesperson the latter's license certificate and signs Salesperson Change Application.

 

(3) The salesperson strikes out the former broker's name and address on the license and types or writes in ink the new employer's name with the date and salesperson's initials and gives the license certificate to new broker to maintain at the main office.

 

(4) Within five days a Salesperson Change Application is to be completed by the salesperson and the new employing broker and sent to the California Bureau of Real Estate. A new license certificate will not be issued.

 

Discharge of Salesperson. When a salesperson is discharged by an employing broker for a violation of any of the provisions of the Real Estate Law, the employing broker must immediately file a certified written statement of the facts with the Commissioner.

 

Effect of Revocation or Suspension. When a real estate broker license is revoked or suspended, the licenses of every real estate salesperson in the broker's employ are automatically canceled. Such salespersons may transfer their licenses to a new employing broker.

 

Loss of License Status. This occurs when a person holding a license allows two years to elapse from the expiration date without applying for renewal, submitting evidence of completion of the statutory continuing education requirements, and paying the required fee. Another example of loss of status is revocation.

 

VIOLATIONS OF REAL ESTATE LAW AND PENAL CODE

 

Sections 10176 and 10177 of the Business and Professions Code constitute the foundation for most license suspensions or revocations. Section 10176 is concerned with the actions of the real estate licensee performing or attempting to perform any of the acts licensed within the scope of the Real Estate Law. As a general rule the licensee must have been acting as an agent in a real estate transaction before the section will apply.

 

Types of Violations

 

The following is a brief discussion of the various grounds in the Business and Professions Code for disciplinary action against a licensee and the reasons for which a real estate license may be denied:

 

Misrepresentation. A great majority of the complaints received by the Commissioner allege misrepresentation on the part of the broker or salesperson. Included also as a cause for discipline under this section, is the failure of a broker or salesperson to disclose to his or her principal material facts of which the principal should be made aware. If the misrepresentation was not important, and the person to whom it was made would have proceeded with the transaction anyway even if it had not bee n made, the misrepresentation probably would not be material. However, in regard to damage or injury, an Attorney General's opinion holds these factors need not be present to support an action under this section. The reason is that the California

 

Real Estate Law concerns the conduct of licensees rather than the settling of disputes about damages or injuries between licensees and their clients.

 

False Promise. A false promise and a misrepresentation are not the same thing. A misrepresentation is a false statement of fact. A false promise is a false statement about what the promisor is going to do in the future. Many times a false promise is proved by showing that the promise was impossible to perform and that the person making the promise knew it was impossible.

 

Continued Misrepresentation. This section gives the Commissioner the right to discipline a licensee for "a continued and flagrant course of misrepresentation or making of false promises through real estate agents or sales-persons. "

 

Dual Agency. This section requires a licensee to inform all principals if the licensee is acting as agent for more than one party in a transaction. An example is the licensee who receives a selling commission from the owner of a piece of property and, at the same time, receives an additional fee from the buyer without the knowledge of both.

 

Commingling. Commingling takes place when a broker has mixed the funds of principals with the broker's own money. Commingling is not the same thing as conversion. Conversion is misappropriating and using principal's fund. A broker who upon receipt spends a principal's deposit without the principal's authorization has not commingled in a technical sense, but has converted. Conversion, of course, can be a more serious offense.

 

Definite Termination Date. This section requires a specified termination date on all exclusive listings relating to transactions for which a real estate license is required, including loan authorizations and bonds, not just exclusives for sale, purchase or exchange of real estate or business opportunities. What is a definite termination date has been the subject of a number of lawsuits. Generally, it can be said that if a definite date is specified, or if a definite period of time is indicated , the requirement is satisfied. However, where it cannot be determined from the listing itself when the listing is to expire, then the listing would not be in compliance with the law.

 

Secret Profit. Secret profit cases usually arise when the broker, who already has a higher offer from another buyer, makes a low offer, usually through a "dummy" purchaser. The broker then sells the property to the interested buyer for the higher price. The difference is the secret profit.

 

Listing Option. This section requires a licensee who has used a form which is both an option and a listing to inform the principal of the amount of profit the licensee will make, and to obtain the written consent of the principal approving the amount of such profit, before the licensee may exercise the option. This section does not apply where a licensee is using an option only.

 

The reason for this requirement in the law is that a licensee, acting as an agent occupies a highly confidential position of a fiduciary nature. The law imposes upon an agent the responsibility to do nothing which will act to the detriment of the principal, and to keep the principal informed of any fact of which the principal should be aware. This section is provided to prevent unauthorized profits by requiring the broker to give the principal full information. This section of the Real Estate Law has had the effect of minimizing the use of combination option-listings.

 

Dishonest Dealing. "Dishonest dealing" is a sort of catch-all section.

 

Signatures of Prospective Purchasers. This strikes at what was once a common practice in some areas in the sale of business opportunities, where brokers used an agreement form known as a "send-out list. " They had no written or oral listings from the owners of the businesses included in these lists. The agreement provided that the prospective purchaser should either deal with the broker who furnished the list of businesses for sale, or pay the broker a fee, if the purchaser bought directly from the owner or through any other agent. Brokers must now obtain a written authorization to sell from a business owner before securing the signature of a prospective purchaser to any such agreement. Obtaining a License by Fraud. This section gives the Commissioner the power to proceed against a licensee for misstatements of fact in an application for a license, and in those instances where licenses have been procured by fraud, misrepresentation, or deceit. Generally, cases arise under this section when the applicant has falsified an application or failed to reveal a previous criminal record.

 

Convictions. This section permits proceeding against a licensee after a criminal conviction for either a felony or a misdemeanor which involves moral turpitude and is substantially related to the qualifications, functions, or duties of a real estate licensee. A court has defined moral turpitude as everything done contrary to justice, honesty, modesty, or good morals.

 

Nonpayment of Child Support. Section 11350. 6 of the Welfare and Institutions Code has been modified to take care of the so-called dead-beat parents, who do not pay court ordered child support. Any state board issuing any kind of professional license, thus also the Department of Real Estate, will withhold renewal of such license to any licensee of whose name it was notified by the State Department of Social Services.

 

False Advertising. This section makes licensees who are parties to false advertising subject to disciplinary action. The ban extends to subdivision sales as well as general property sales. A related section in the subdivision law, Business and Professions Code Section 11092, permits the Department to proceed against a person for criminal prosecution when not a licensee, and to discipline when such person is a licensee.

 

The Department has authority to proceed against the licensee for violation of any of the other sections of the Real Estate Law, the Regulations of the Commissioner, and the subdivision laws.

 

Misuse of Trade Name. Only active members of the national association or local associations of real estate boards are permitted to use the term "Realtor(R)". This is a term belonging exclusively to such members, and no licensees may advertise or h old themselves out as "Realtors" without proper entitlement. The section applies to any "term" or insignia of any real estate organization.

 

Conduct Warranting Denial. This is a general section of the Real Estate Law. Almost any act involving a crime or dishonesty will fall within the purview of this section including the denial, or suspension of a license issued by another government agency. An essential requirement to the issuance of a license is that the applicant be honest and truthful. If any of the acts of a licensee establishes that a licensee is not possessed of these characteristics, then Section 10177(f1) will apply. This section also provides for disciplinary actions to be taken where a real estate licensee has either had a license denied or a license issued by another agency of this state, another state, or the federal government, revoked or suspended for acts which if done by a real estate licensee would be grounds for the suspension or revocation of a California real estate license.

 

Negligence or Incompetence. Demonstrated negligence or incompetence, while acting as a licensee, is cause for disciplinary action. The Department proceeds in those cases where the licensee is so careless or unqualified that to allow the licensee to handle a transaction would endanger the interests of clients or customers.

 

Supervision of Salespersons. This section provides that a broker is subject to disciplinary action if the broker fails to exercise reasonable supervision over the activities of the broker's salespersons.

 

Violating Government Trust. This section prescribes disciplinary liability for using government employment to violate the confidential nature of records thereby made available.

 

Other Dishonest Conduct. Specifies that any other conduct which constitutes fraud or dishonest dealing may subject the one so involved to license suspension or revocation.

 

Restricted License Violation. Makes violation of the terms conditions, restrictions and limitations contained in any order granting a restricted license grounds for disciplinary action.

 

Inducement of Panic Selling. It is a cause for disciplinary action to solicit or induce the sale lease, or the listing for sale or lease, of residential property on the grounds, wholly or in part, of loss of value, increase in crime, or decline in the quality of the schools due to the present or prospective entry into the neighborhood of a person or persons of another race, color, religion, ancestry or national origin.

 

Violation of Franchise Investment Law. It deals with violations of any of the provisions of the Franchise Investment Law (Division 5 (commencing with Section 31000) of Title 4 of the Corporations Code) or any regulations of the Corporations Commissioner pertaining thereto.

 

Violation of Corporations Code. Violates any of the provisions of the Corporations Code or of the regulations of the Commissioner of Corporations relating to securities as specified in Section 25206 of the Corporations Code.

 

Other Penalty Sections

 

There are further sections in the Business and Professions Code which provide for the revocation or suspension of licenses for acts other than those set out under the general disciplinary action sections just described.

 

Sections 10137 and 10138 provide that the license of any real estate broker may be revoked or suspended for employing or compensating any unlicensed person to perform acts requiring a license.

 

Section 10140 provides that the real estate license of any licensee may be revoked or suspended for false advertising.

 

Section 10140. 6 provides that advertising of acts which require a license must contain a designation disclosing that the licensee is performing such acts.

 

Section 10141 provides that a broker must cause notice of sales price to be given to both buyers and sellers within one month after the sale is completed.

 

Section 10141. 5 specifies a broker's responsibility for recording trust deeds.

 

Section 10142 provides that a licensee must give a copy of any contract to the party signing it at the time it is signed.

 

Section 10145 specifies licensee's responsibilities in handling trust funds.

 

Section 10148 requires retention and availability for inspection of all listings, deposit receipts, cancelled checks, trust records, etc. for a three year period.

 

Section 10160 provides that brokers shall retain and make available for inspection licenses of salespersons in the broker's employ.

 

Section 10161. 8 requires a broker to notify the Department when a salesperson is employed or terminated.

 

Section 10162 provides that all active brokers must maintain a definite place of business in the State of California.

 

Section 10163 provides that brokers maintaining more than one place of business must first procure a branch office license for each branch.

 

Section 10165 provides for penalties for failure to make licenses available for inspection and to maintain a place of business.

 

Section 10167 requires the licensing of individuals, other than real estate licensees, engaged in prepaid rental listing services and makes a willful violation of the law a misdemeanor.

 

Section 10175. 2 provides for a monetary penalty in lieu of suspension.

 

Section 10177. 1 provides that the Commissioner may, without a hearing, suspend the license of any person who procured the license by fraud, misrepresentation, deceit, or by the making of any material misstatement of fact in the application for such a license.

 

Section 10177. 2 authorizes the Commissioner to investigate complaints and take action against a licensee who while performing acts under Section 10131. 6 (used mobilehome sales) is guilty of specified acts of false advertising, misrepresentation, vehicle transfers. and unjustified costs.

 

Section 10177. 4 provides for a suspension or revocation of a license if a licensee claims, demands or receives compensation for referring customers to any of the following companies: escrow, pest control, home warranty, title insurer or underwritten title company or controlled escrow.

 

Section 10177. 5 provides for a revocation or suspension of a license in a transaction for which a license is required when a final judgment is obtained in a civil action against the licensee upon the grounds of fraud, misrepresentation or deceit.

 

Section 10178 makes it a violation if a broker discharges a salesperson for cause and then fails to notify the Commissioner.

 

Section 10238. 6 provides fine and imprisonment penalties for the real property securities dealer or an employee of a real property securities dealer who makes false statements, uses or is responsible for false advertising, willfully violates or conspires to violate statutory or commissioner's regulations of conduct relative to real property securities or loans.

 

Section 10475 provides for automatic suspension of a real estate license if the Commissioner pays a claim against a licensee from the Recovery Account. No license reinstatement shall be granted until full reimbursement to the fund has been made.

 

Section 11023 provides that any person who violates any part of Sections 11010, 11010. 1, 11013. 1, 11013. 2, 11013. 4, 11018. 2, 11018. 7, 11019, or Section 11022, having to do with subdivision controls is guilty of a public offense punishable by a maximum fine of $10,000 or by a maximum imprisonment of one year or both. Violation of these sections of the law is cause for discipline under Section 10177 (d) .

 

The Real Estate Recovery Fund

 

This fund was established to provide financial restitution for any wronged party participating in a real estate transaction. Most states require the posting of a bond for the expressed purpose of satisfying a claim against a licensed real estate professional. States vary in the method of assessment and administration of the fund. The states governments determine management, policy and procedure.

 

Broker/Agent

 

The licensed real estate broker and frequently the owner of the brokerage firm is legally responsible for the actions of the agent. The broker, depending upon the size of the firm supervises himself. The broker is responsible for preparing or overseeing all documents resulting in the sale, lease and purchase of property including land.

 

The real estate broker is also responsible for all funds or trust monies resulting from transactions generated by the firm. If a brokerage firm has more than one office or branch, an experienced sales agent or broker must supervise all real estate transactions conducted in that branch. The broker and sales agent's license must be displayed in each branch.

 

The licensed sales agent performs essentially the same functions as the broker with few exceptions. The broker must supervise property closing or be responsible for trust monies. The sales agent cannot work independently of the broker. All documents and advertisements must have the broker's name, also.

 

Broker Required to Initial and Review Instruments, and Delegation of Authority

 

Commissioner's Regulation 2725 requires that every instrument prepared or signed by a real estate salesperson in connection with any transaction for which a real estate license is required that may have a material effect upon the right or obligations of a party to the transaction shall be reviewed, initialed, and dated by the salesperson's broker within five working days after preparation or signing by the salesperson or before the close of escrow, whichever occurs first. As long as the broker does not relinquish his overall responsibility for supervision of the acts of salespersons licensed to him, the broker may delegate this responsibility or authority as follows:

 

1. To any licensed real estate broker who has entered into a written agreement with the broker relating to the delegation;

 

2. To a real estate salesperson licensed to the broker if the salesperson has accumulated at least two years full-time experience as a salesperson licensee during the immediately preceding five year period and has entered into a written agreement with the broker with respect to the delegation of responsibility.

 

In the case of any real property or business opportunity transaction where an escrow is conducted by a real estate broker under the exemption of Section 17006 of the Financial Code, the broker's responsibility to review and initial instruments extends to escrow instructions and closing statements if rendered to the parties to a transaction prior to close of escrow, and which were prepared or signed by a salesperson licensed to the broker or by an associate or employee of the broker.

 

Unlawful Practice of Law

 

This seems to be a good place to caution aspiring licensees against conduct that may constitute the unlawful practice of law. The Business and Professions Code of California (Secs. 6125, 6126) specifically prohibits the practice of law by persons who are not members of the State Bar.

 

In 1943 in People v. Sipper (61 CA 2d 844), California District Court of Appeal stated that the practice of law is the doing and performing services in a court of justice in any matter pending therein throughout its various stages and in conformity with the adopted rules of procedure. The court recited the larger traditional definition that includes legal advice and counsel and the preparation of legal instruments and contracts by which legal rights are secured, although such matters may not be pending in a court.

 

In the Sipper case a married couple had asked the real estate broker "to make out a paper to protect Mrs. Hetman for the money" which they had borrowed from her in order to pay off the indebtedness on their real property. This request was made when they first met the defendant broker, and he proceeded to prepare a trust deed, and later a mortgage. He charged $15 for his services, later reducing the charge to $10.

 

The appellate court held that the trial jury was justified in concluding the defendant broker undertook to, and did, advise his clients as to the kind of legal document that they should execute in order to secure the loan. He made a charge which clearly indicated "that he considered he was called upon to do something more than the mere clerical work of typing in certain furnished information on a blank form. " This was practicing law.

 

Significantly the court stated that if the defendant ". . . had only been called upon to perform and had only undertaken to perform the clerical service of filling in the blanks on a particular form in accordance with information furnished by the parties, or had merely acted as a scrivener to record the stated agreement of the parties to the transaction, he would not have been guilty of practicing law without a license. "

 

Licensees may, however, in the course of exercising their profession be helpful to their clients and such efforts would be recognized as proper where:

 

(1) the instrument is simple or standardized;

 

(2) the draftsman or intermediary does not charge any fee for such work (other than his regular commission for the transaction); and,

 

(3) the drafting is incidental to his other activities in the transaction.

 

Selection and use of a form by the broker may sometimes require a lawyer's help.

 

Criminal Law

 

Comparatively few prosecutions are brought against persons engaged in the real estate business for violations of the criminal laws of the state that are related to real estate. The problem of violations of the Penal Code is nevertheless of interest to all practitioners, particularly since many offenses may be committed by clients or by others with whom brokers come into contact.

 

A felony is a crime which is punishable with death or by imprisonment in the state prison. Every other crime is a misdemeanor or an infraction. Many crimes may, in the discretion of the court, be punishable by imprisonment in the state prison on the one hand or in the county jail or fine on the other. Such a crime is a misdemeanor for all purposes if the court's judgment imposes punishment other than imprisonment in the state prison or where the court grants probation without imposition of sentence and declares the offense to be a misdemeanor.

 

The punishment for a felony varies depending on many factors. In general punishment is not for less than 16 months in state prison, and often is much longer. Misdemeanors are punishable by a maximum of one year in the county jail and in general not more than six months, or by a fine, or both. Terms of probation may include a period of imprisonment as well.

 

There are many other statutes which provide for criminal penalties. If the broker is in doubt as to whether the structure of a transaction constitutes a crime, he or she would do well to obtain legal advice.

 

The definitions which follow are paraphrased from the actual code sections in the interest of brevity and clarity. Reference to the actual code language is necessary to learn the precise meaning and effect. No attempt has been made to include every crime that may be related to the real estate business.

 

The Penal Code

 

Grand Theft and Petty Theft References to "larceny," "embezzlement," or "stealing" in California laws or statutes have been consolidated to" theft. " Grand theft is committed when the money, labor, or real or personal property taken exceeds four hundred dollars ($400) in value. There are provisions however which define theft of property of lesser value as grand theft, such as some farm crops, farm animals and real property severed from the land. (Penal Code Sections 484, 487a through 487g, 488)

 

Real Estate Related Crimes

 

Receiving funds for the purpose of construction, and wrongfully diverting that money from the intended purpose is theft, as is receiving such funds by submitting a false voucher for construction loan funds. (P. C. Sections 484b, 484c)

 

Copying without permission, and with intent to use, documents owned by a title company is theft. (P. C. Section 496c)

 

Removing a structure from mortgaged real property, or after foreclosure sale, with intent to defraud or to injure the mortgagee or purchaser is theft. (P. C . Section 502. 5)

 

A debtor who sells property covered by a security agreement and fails to pay to the secured party the amounts due under the security agreement, or the proceeds (whichever is the lesser), commits embezzlement. (P. C. Section 504b)

 

A broker or other fiduciary fraudulently appropriating or secreting trust funds commits embezzlement. (P. C. Section 506)

 

Obtaining property from another by a threat to accuse that other person or members of his or her family of a crime or to expose their secrets is extortion. (P. C. Sections 518, 519)

 

Making or recording a deed, knowing the maker has no title is a misdemeanor, as is being a party to a fraudulent conveyance of land. (P. C. Section 531a)

 

Making or procuring a false financial statement to benefit oneself or another person in obtaining credit is a misdemeanor or a felony. (P. C. Section 532a)

 

Offering or giving parcels of real property with winning numbers at any drawing of members or with admission tickets, and collecting fees in connection with the land transfer are misdemeanors. (P. C. Section 532c)

 

Giving a kickback of construction funds is a misdemeanor. (P. C. Section 532e)

 

Selling the same land twice to different persons is a felony. (P. C. Section 533)

 

Willful concealing by a married person of the necessity for concurrence of a spouse in the sale or mortgaging of land is a felony. (P. C. Section 534)

 

A broker or agent "holding out" on a principal, or rendering a principal, on demand, a false accounting is committing a misdemeanor. (P. C. Sections 536, 536a)

 

Except for posting legal notices, placing advertising signs on public or private property without permission is a misdemeanor. (P. C. Sections 556, 556. 1, 556. 2)

 

Bribing a lender to obtain credit is a felony and accepting the bribe is also a felony. (P. C. Sections 639, 639a)

 

Signing the name of another person, or of a fictitious person, without authority to do so or falsely making, altering, forging or counterfeiting certain documents such as leases, deeds or checks or passing such documents as true and genuine, wit h intent to defraud is a misdemeanor or a felony. (P. C. Sections 470, 473)

 

The Civil Code

 

The Civil Code sets out various crimes. Several are for regulation of real property sales contracts, which are defined as agreements to convey title to land upon satisfaction of specified conditions set forth in the contract and which do not require conveyance within one year of formation of the contract. These are also known as contracts of sale or land installment contracts.

 

a. A seller under an unrecorded contract of sale who, without the buyer's consent, encumbers the land in an amount exceeding the present contract balance, commits a crime. (Civil Code Section 2985. 2)

 

b. A seller under a contract of sale who knowingly, while there is a payment due on an obligation secured by the land, appropriates a payment received from the buyer to any purpose except payment on that obligation commits a crime. (Civil Code Sect ion 2985. 3) This does not apply to any difference between the payment received by the seller over the amount due on the seller's obligation.

 

c. If the seller under a contract of sale receives pro rated tax and insurance payments from the buyer, seller must hold those sums in trust and disburse the funds only for that purpose, unless seller has the consent of the buyer and any holder of a n encumbrance. To violate this Section 2985. 4 of the Civil Code is a crime by virtue of Penal Code Section 506b, which also, redundantly, makes a crime of violation of Civil Code Section 2985. 3.

 

d. Any real property sales contracts entered into after January 1, 1978, describing property created by a division of land after and before that date, must contain a statement by the vendor that the parcel or parcels conveyed either comply with the Subdivision Map Act or meet other criteria. A willful violation of some aspects of this law is a misdemeanor. (Civil Code Section 2985. 5 1) .

 

The Business and Professions Code

 

The Business and Professions Code provisions which specifically regulate the real estate business and real estate licensees are set out in the book entitled Real Estate Law. Several crimes are defined in the real estate law. The index in the law book lists them under the category of "crimes. " (These prohibitions have mainly to do with false advertising and the use of unfair trade practices in connection with the sale of real estate. )

 

The Corporations Code

 

The sale of fractionalized interests in promissory notes secured by deeds of trust may result in the sale of corporate securities subject to qualification or exemption with the California Department of Corporations. Without such qualification or exemption, the sales are illegal and the broker or offeror could be convicted of a misdemeanor or a felony.

 

MINERAL, OIL AND GAS BROKERAGE

 

Broker applicants must pass an examination and meet the requirements of honesty and truthfulness. The general requirements and licensing provisions relating to real estate licensees also apply to Mineral, Oil and Gas (M. O. G. ) licensees. The same penalties are imposed for performing any acts which are at variance with the requirements of the Real Estate Law. In general, causes for disciplinary action against the M. O. G. Licenses are much the same as those pertaining to real estate licenses.

 

Mineral, Oil and Gas License Examinations

 

As mineral, oil and gas brokerage is a specialized branch of the general real estate brokerage business. The primary prerequisite is a broad knowledge of the elementary principles of geology relating to this field and sound knowledge of the fundamentals of real estate practice and ethics.

 

It is suggested that a person interested in obtaining a M. O. G. license develop a keen knowledge of subject matter such as that discussed in the California Bureau of Real Estate's Reference Book, with particular emphasis upon the functions and duties of a real estate broker as they relate to practice in the field of mineral, oil and gas brokerage. Any of the subjects included in this book may be the basis for questions in the mineral, oil and gas broker examination.

 

The mineral, oil and gas broker examination is not designed for persons with backgrounds restricted to geology or engineering, as it incorporates the precepts of the practice of real estate which are required for any applicant for a real estate broker license. The applicant should become familiar with real estate law, public control, appraisal, finance and practice, in addition to the field of geology which is specific to the mineral, oil and

 

gas broker examination.

 

Study References

 

Many of the subjects are covered in a number of geology text books available in bookstores, including California's Changing Landscapes by Gordon B. Oakeshott, which focuses on the geology of California in particular.

 

Considerable information concerning the oil and gas fields of this state their structural conditions, importance, quality of oil or gas produced, etc. , may be obtained in the various publications of the California Division of Oil and Gas, Department of Conservation, listed in their publications listing PR2S. The booklet California Oil, Gas, and Geothermal Resources An Introduction (TR03) is available free on request. The Annual Report of the State Oil and Gas Supervisor may be obtained free upon request, as may various technical reports, papers and pamphlets. It covers in general terms the highlights of the state's energy resources oil and gas origin and accumulation, oil and gas exploration methods, drilling methods, well completion and production methods, oil reservoirs, production simulation methods, offshore fields, conservation, transportation of oil and gas, refining, history of production in California, environmental protection and enhancement and geothermal resources.

 

The California Division of Mines and Geology Bulletin 176 (out of print but available at most libraries) together with Bulletin 191 provide a condensed history of the geologic occurrence, economic development and utilization of the state's mineral, oil and gas resources.

 

Additional source material is the Mineral Yearbook, United States Bureau of Mines and California Laws for Conservation of Petroleum and Gas both available from the California Division of Oil and Gas.

 

Special Permits for Real Estate Licenses

 

Under the law, licensed real estate brokers are not required to have an M. O. G. license to engage in transactions wherein the transfer of mineral, oil or gas property is purely incidental to the sale, lease or exchange of real property.

 

Further, the law provides that any real estate broker who occasionally negotiates a transfer of mineral, oil or gas property incidental to the real estate business may secure a permit for such transactions from the Commissioner and is not required to have a mineral, oil and gas license. Not more than 10 such transactions may be performed by a real estate broker and real estate sales persons employed by a broker in any calendar year.

 

A licensee who has occasion to negotiate more than 10 mineral, oil or gas transactions within any one calendar year must secure a mineral, oil and gas license. An application form for a special permit to engage in mineral, oil and gas transactions may be obtained at any office of the department.

 

Mineral, oil and gas subdivisions are those created for the sale of speculative parcels of land or leases. The property may be located in California or in any other state or country. If it is proposed to make sales in this state, the department assumes jurisdiction.

 

(End of the CalBRE Reference Book excerpt)

 

BUSINESS OPPORTUNITIES

 

Real estate licensees are allowed to sell business opportunities, meaning the sale or lease of the business and goodwill of existing business enterprises. Goodwill, an intangible asset, is the expectation of continued public patronage or sales. Frequently a covenant not to compete for a certain period of time and within a certain area accompanies the sale of a business. Since 98% of business ventures in the United States are relatively small businesses, this is a large and promising field for real estate licensees.

 

The sale involves usually either the sale of assets in case of individual business owners or the sale of both of assets and stock in case of corporations. In the last case the licensee needs to have also a broker-dealer securities license from the California Department of Corporations or the Securities Exchange Commission.

 

Especially in the sale of assets, the licensee should be familiar with the Bulk Sales Law of the Uniform Commercial Code, Sections 6105-6107. A bulk transfer is a transfer of a substantial part of materials, supplies merchandise and other inventory which takes place outside the ordinary course of business of the transferor. The transfer involves certain requirements of recordation and public notice. The main purpose of the law is to afford creditors of the business notice to make claim on the business prior to its transfer to a bona fide purchaser. If the statutory filing and publication requirements are not met the transfer is fraudulent and void.

 

The licensee would be well advised to proceed with the sale through an escrow company specialized in the transfer of business opportunities. In the case of professional businesses, bars or restaurants, other state licenses are involved, like an alcoholic beverage license, a sales license, a city business license, board of health or other boards permits, and sometimes a fictitious name statement in the county or counties where the business wants to legally preserve its name. Government agencies which might be involved in the supervision of the business like the Internal Revenue Service, the State Board of Equalization, Employment Development Department, State Department of Industrial Relations, County and City agencies need also be notified of the transfer of the business.

 

The necessity for complete disclosure in the sale of a business cannot be impressed enough upon the real estate licensee. More than in any other type of transaction, the licensee may unwillingly end up a party in numerous lawsuits started by disappointed buyers. It is incumbent upon the licensee to make sure that the operation of the business and the transaction is legal in all respects and in conformity with all codes and regulations.

 

Franchises

 

A franchise is a business plan allowing an investor to conduct under certain conditions the business of the franchisor. According to the Franchise Investment Law, provided certain requirements are met, real estate licensees may sell franchise interests without being identified in the registration-application with the California Department of Corporations.

 

EXAMPLES OF POSSIBLE REAL ESTATE LAW VIOLATIONS

 

Situation 1. Betty has listed the Jones' home for sale. In showing the property to a prospective buyer, Betty casually mentions that the Jones are going through a very messy divorce. This statement implies that the sellers may be willing to accept a "lowball" offer, given their personal situation.

 

Discussion. As an agent of the seller, the listing broker has a fiduciary duty to protect and enhance the financial position of the principal. A cooperating broker, likewise, has this same duty. In either case, a broker has no business conveying anything at all about the marital difficulties of a principal to a prospective buyer. Not only is this unethical, but it violates the agency agreement and could lead to suspension of the broker's license.

 

Situation 2. The situation is the same as described above, except instead of a divorce, the Jones' are having financial problems. Mr. Jones has been unemployed for six months and has a child in need of surgery. In attempting to find a buyer for the Jones' home, Broker Smith tells his prospects that the sellers are in such dire straits they would accept just about any offer to get out from under the monthly payments.

 

Discussion. A broker who would use the financial position of a principal in this manner to promote a sale would be guilty of violating the fiduciary trust, as well as engaging in an extremely unethical practice. Only if the Jones authorize the broker to mention this information to prospective buyers would the broker be justified in doing so. While some may argue that the broker is doing the Jones family a favor by "helping" them get some debt relief, such an argument is specious, for the broker is hired to get the best price possible for the principal. Rarely would the best price be obtained by capitalizing on the financial problems of the seller.

 

Situation 3. Early in the business day, Broker John receives an offer to purchase a property considerably below the asking price. The owner of the property may be reached at his place of employment at any time during the day to convey the offer. John, however, has an appointment to show the same property later that day to another prospect who has expressed an interest in seeing it. Rather than telling the owner of the offer, John delays in hopes that the other prospect will be interested enough to submit an offer closer to the asking price than the first offer. Of course, John will let the prospect know of the existing offer in some casual manner so as to elicit an immediate offer if the second prospect is at all interested.

 

Discussion. By delaying, or actually concealing, an offer, a broker may lose the sale altogether if the offeror changes his/her mind and decides he/she does not want the property. If the broker had not presented the offer to the seller, the person making the offer could cancel it without recourse. While the broker hopes for a larger commission, this practice violates the fiduciary relationship between agent and principal. A licensee who delays making known an offer to the principal is not protecting or promoting the interest of the client and is in fact guilty of concealment.

 

Situation 4. Broker Betty is working with a prospective buyer who asks her how much he should offer for a property he likes. Betty, says she would pay no more than $90,000. The buyer offers $85,000 thinking that he will go to $90,000 if necessary. The asking price is $100,000.

 

Discussion. It is unethical for a licensee to set an offer price for a prospective buyer. An offer should be based on what the prospect-- not the broker--believes the property is worth. Although a broker can assist by providing a prospective buyer with comparable sales data, the final decision on the offer price is the buyer's alone. In this situation Betty has also violated the fiduciary trust by not attempting to get the highest price possible for her client's property.

 

Situation 5. Broker Sue tells a prospective buyer she can get him "a good deal" on a certain property listed with her.

 

Discussion. The student and licensee should immediately recognize the potential problem. Assuming Sue gets the prospect a so-called "good deal" and a sales contract is signed, she has almost certainly created the grounds for an accusation of dual agency. The buyer has every reason to believe that Sue, who told him directly that she can get a good deal, is working directly for him. Without disclosure of her dual agency status, the buyer may never know that Sue truly represents the seller. This practice is unethical and could eventually be the basis of a suit to overturn the sale.

 

Situation 6. Broker Wayne is contemplating the purchase of a dwelling that has been offered for sale by the owner. Wayne is interested in the property as his residence and has no intention of offering it for resale. After approaching the owner of the property and disclaiming any agency relationship, Wayne purchases the home. After closing, however, a prospective buyer approaches Wayne's firm and expresses an interest in the very same property Wayne purchased. The buyer makes Wayne an offer that is too good to pass up, and Wayne accepts. After closing, the former owner becomes aware of the sale and the details of the transaction. The former owner lets it be known to all who should care to listen that he feels Wayne and Wayne's firm took advantage of him. Did Wayne do anything wrong-

 

Discussion. Legally, ethically, or otherwise, the answer is NO. Wayne did nothing wrong. The semblance of wrongdoing was present, however, and that is enough potentially to ruin a broker's reputation. In this situation, what started innocently could taint or even ruin Wayne's reputation and that of his firm. Even though Wayne might explain the circumstances satisfactorily to some, others will have serious doubts about Wayne's integrity.

 

Situation 7. Broker Fred is approaching retirement and, after a bout of ill health, finds that he has more listings than he can comfortably handle. One of the homeowners who has listed with Fred has begun complaining that her house is not being shown. Fred asks other agents in his firm to take any of their clients through the house, whether or not they are qualified or interested in that particular house, thus creating the impression that the house is being shown. There is always the chance that one of them will like the house and make an offer.

 

Discussion. Occasionally a listing broker may not have any clients interested in a particular property that the broker has listed, and the broker can do nothing about it. However, it is unethical for a listing broker to fabricate showings solely for the purpose of deceiving the property owner. In this case, Fred is no longer competent to conduct the business for which he was hired. He should explain the situation to the homeowner and allow her to list with another broker.

 

Situation 8. Broker Barbara, a member of the local MLS, actively solicits listings for inclusion in the MLS pool. Unlike other brokers who spend a good deal of time showing their listings as well as those of other brokers, Barbara does little to market the properties she has listed. Barbara knows she will receive a commission split on every property she has listed that sells, regardless of who sells it.

 

Discussion. While Barbara is doing nothing illegal, she is operating unethically. By signing the listing contract Barbara is pledging to do everything within her power to protect and enhance the financial well being of her principal. Obtaining listings with the intention of letting other brokers market the properties is not in the principal's best interests. Furthermore, Barbara owes the same degree of effort and care to her fellow professionals as she demands of them.

 

Situation 9. Broker Billy frequently has cash flow problems and occasionally deposits down payments entrusted to him into his own account for brief periods. Billy always manages to produce the necessary funds prior to closing.

 

Discussion. Broker Billy's practice of depositing down payments into his own account, even for the briefest time, is both illegal and unethical. The law and regulations of the Real Estate Commissioner prohibit the practice of combining funds, called commingling.  

 

Situation 10. Broker Jean is approached by a married couple, John and Mary, interested in purchasing a home. Mary, who is black, is a successful businesswoman and her husband John, who is white, is attending graduate school. Jean shows the couple only MLS listings in racially mixed neighborhoods.

 

Discussion. The real estate licensee should never categorize customers according to their race. Jean has an obligation to show any and all homes meeting the requirements of the prospective buyers, regardless of the race of the couple or individuals looking for a home. By only showing homes in certain neighborhoods, Jean essentially is practicing an overt form of steering. Besides being unethical, the practice is discriminatory, a violation of federal and state fair housing laws, and could lead to charges being filed against Jean and her firm.

 

Chapter XVI: Notarial Law

 

Educational Objectives: Learn about Appointment and qualifications, Requirements for qualifying and time limit, Notary public bonds, Geographic jurisdictions, Notaries may not refuse services, Notary seal, Notarial records, JURAT, Notarization of incomplete documents, Certified copies, Common questions and answers, R. E. TERMS GLOSSARY, INDEX.

MANDATORY NOTARY EDUCATION TAKES EFFECT JULY 1, 2005

Assembly Bill 1210, Chapter 513, Statutes of 2003, sponsored by Secretary of State Kevin Shelley and authored by Assembly Member George Nakano, introduces for the first time mandatory education for all notary public applicants. The bill requires all notary public applicants to complete approved courses of study prior to being appointed as notaries public. (Government Code section 8201.)

Further, Assembly Bill 2062, Chapter 539, Statutes of 2004, which takes effect in 2005, amends the date notary public applicants are required to complete mandatory education.

The bill specifies that commencing July 1, 2005 every notary public applicant must complete a six-hour approved course of study prior to being appointed as a notary public. Applicants seeking reappointment must also meet the same requirements.

To ensure all applicants receive the most qualified training available, the Secretary of State, commencing January 1, 2005, will review all course curriculums submitted by education vendors. To be eligible for approval, courses must include all information a person is expected to know to satisfactorily complete the written notary public examination. (Government Code section 8201.2.) The Secretary of State will compile a list of all education vendors offering approved courses of study, which will be available in the Spring of 2005.

The responsibilities of a notary public are crucial to many facets of our personal and professional lives. These duties must not be taken lightly. Legal and financial liabilities may result from improper notary acts. Understand and perform your duties as required by law. It is your responsibility as a notary public commissioned to a public office to know the relevant law and perform your duties accordingly.

 

If you are unable to apply the law to specific circumstances, please seek competent counsel. You are reminded to be especially cautious when notarizing documents relating to immigration, insurance matters and mortgages on real property. There are specific limitations and resultant stiff penalties for improper notarizations of these types of documents.

 

Keep in mind that the notary's role is to serve the public. As a notary, you cannot refuse to notarize a document in response to an otherwise proper request unless you fall within the specific provisions of Government Code Section 8202. 8. This section provides for an exception to the rule which requires you to provide notary services to all persons who present a proper request and pay the required fees.

 

Your notary public commission belongs to you; you qualified for appointment and commissioning and no other person or organization has the right to your seal or journal. Regardless of who paid for the commission, seal and journal, they are yours and you are required by law to retain them except for those appointed for military or naval reservations under the provisions of Government Code Section 8203. 1. If you resign your commission or it expires and you do not obtain another within thirty days, you must submit all notarial records and papers to the clerk of the county where your last oath of office is filed.

 

Notaries public perform invaluable services to the legal, business, financial, and real estate communities. Take the time to study this handbook so that you are confident of your knowledge in the law. Your role is an important public service for the people of California. Know the relevant law, perform your duties accordingly and serve them well!

 

APPOINTMENT AND QUALIFICATIONS

 

Every person appointed a notary public shall:

 

1. Be at the time of appointment a legal resident of the State of California except a person appointed to act for a military reservation.

 

2. Be not less than 18 years of age.

 

3. Have satisfactorily completed the written examination prescribed by the Secretary of State.

 

Persons who have not held a notary public commission, or who have had a break in their commission of more than three months, are required to submit a completed fingerprint card with their application.

 

REQUIREMENTS FOR QUALIFYING AND TIME LIMIT

 

No person who has been granted a notary public commission may act there under unless within thirty calendar days from the beginning of the term prescribed in the commission, said person has filed an oath of office and $10,000 bond with the county clerk's office. The filing must take place in the county where the notary maintains his or her principal place of business as shown in the application submitted to the Secretary of State. Failure to comply with these requirements within the thirty calendar day period will render the commission void and the person commissioned may not act as a notary public until a new appointment is secured and the person has properly qualified within the thirty calendar day time limit.

 

NOTARY PUBLIC BONDS

 

A notary public is held to a high standard of obligation relative to his or her duties. A notary public is liable to the persons injured for all damages sustained because of official misconduct or neglect, regardless of the notary's intention. Thus, a notary public who takes and certifies to the acknowledgment of a person with whom the notary is not, in fact, acquainted (or whose identity is not proven) will be held liable for any consequent damages.

 

In order to provide some protection to the public, California requires that notaries public be bonded. It is important to note that the notary bond is not an insurance policy for the notary. It is designed only to provide a limited fund for paying claims against the notary. The notary remains personally liable to the full extent of the damage sustained and may be required to reimburse the bonding company for sums paid by the company because of misconduct or negligence of the notary public.

 

GEOGRAPHIC JURISDICTION

 

A notary public has jurisdiction to act as such throughout the State of California. In virtually all of the certificates the notary is called on to complete, there will be a venue heading such as "State of California, County of Los Angeles. " The county named in the heading is the county where the signer personally appeared before the notary public and acknowledged signing the document.

 

ACTS CONSTITUTING THE PRACTICE OF LAW

 

(Inserted at the request of The State Bar of California)

 

Among the acts which constitute the practice of law, and which therefore notaries public are prohibited from performing for others, are the preparation, drafting, or selection or determination of the kind of any legal document, or giving advice with relation to any legal documents or matters.

 

NOTARIES MAY NOT REFUSE SERVICES

 

California Government Code Section 8205 makes it the duty of a notary public to provide notary services to all persons who present a proper request and pay the required fees. Not providing services when required to do so could cause the notary to be liable if any damages resulted from the refusal.

 

Government Code Section 8202. 8 does provide an exception to the duty of a notary public to provide services if certain conditions are met. This section requires that there be an agreement between the notary and a private employer in which the employer pays the costs connected with the commission. If this agreement is in effect, then the private employer may limit, during the notary's ordinary course of employment, to providing notary services solely to transactions where the employer is either named or acting as an agent. The notary public may not notarize any other documents other than those of the employer. Private documents brought by a customer or employee of the company may not be notarized. This provision of law does not apply to notaries public who are appointed to act for public agencies such as counties, the state or school districts, even when the appointment was made to act for and on behalf of the public employer.

 

NOTARY SEAL

 

Each notary public is required to have and to use a seal. Because of the legal requirement that the seal be photographically reproducible, the rubber stamp seal has become all but universal. The legal requirements in Section 8207 of the Government Code for a rubber stamp seal are as follows:

 

1. It is photographically reproducible when it is affixed to a document.

 

2. It contains the State Seal and the words "Notary Public. "

 

3. It contains the name of the notary public.

 

4. It contains the name of the county where the oath of office and notary bond are on file.

 

5. It contains the expiration date of the notary public commission.

 

6. It contains the sequential identification number assigned to the notary as well as the identification number assigned to the manufacturer or vendor for every seal or stamp manufactured on or after January 1, 1992.

 

7. The seal has a serrated or milled edged border.

 

Many documents which are acknowledged may be later recorded. A document may not be accepted by the recorder if the notary seal is illegible. Notaries are cautioned to take care that the notary stamp leaves a clear impression. All the elements must be easily discernible. The seal should not be placed over signatures or any printed matter on the document. An illegible or improperly placed seal may result in rejection of the document for recordation and result in inconveniences and extra expenses for all those involved.

 

The law allows only one condition under which a notary may authenticate an official act without using an official notary seal. Because subdivision maps are usually drawn on a material that will not accept standard stamp pad ink and other acceptable inks are not as readily available, acknowledgments for California subdivision map certificates may be notarized without the official seal. The notary's name, the county of the notary's principal place of business and the commission expiration date must be typed or printed below the notary's signature on the acknowledgment.

 

A NOTARY PUBLIC SHALL NOT USE THE OFFICIAL SEAL OR THE TITLE NOTARY PUBLIC FOR ANY PURPOSE OTHER THAN THE RENDERING OF NOTARIAL SERVICE. (Section 8207, Government Code)

 

NOTARY RECORDS

 

A notary pubic is required to keep a sequential journal of all acts performed as a notary public. (Section 8206, Government Code)

 

The record shall include:

 

1. Date, time and type of each official act.

 

2. Character of every instrument acknowledged or proved before the notary.

 

3. The signature of each person whose signature is being notarized.

 

4. A statement as to whether the identity of a person making an acknowledgment was based on personal knowledge or satisfactory evidence. If identity was established by satisfactory evidence pursuant to Section 1185 of the Civil Code, then the journal shall contain the signature of the credible witness swearing or affirming to the identity of the individual or the type of identifying document, the governmental agency issuing the document, the serial or identifying number of the document, and the date of issue or expiration of the document.

 

5. If the identity of the person making the acknowledgment was established by the oaths or affirmations of two credible witnesses whose identities are proven upon the presentation of satisfactory evidence, the type of identifying documents, the identifying numbers of the documents and the dates of issuance or expiration of the documents presented by the witnesses to establish their identity.

 

6. The fee charged for the notarial service.

 

7. If the document to be notarized is a deed, quitclaim deed, or deed of trust affecting real property within the County of Los Angeles, the notary public shall require the party signing the document to place his or her right thumbprint in the journal. If the right thumbprint is not available, then the notary shall have the party use his or her left thumb, or any available finger and shall so indicate in the journal. If the party signing the document is physically unable to provide a thumb or fingerprint, the notary shall so indicate in the journal and shall also provide an explanation of that physical condition.

 

ACKNOWLEDGMENTS

 

The form most frequently completed by the notary public is the acknowledgment. The acknowledgment form is set forth in Section 1189 of the Civil Code. In the acknowledgment, the notary public certifies:

 

1. That the signer personally appeared before the notary public on the date indicated in the county indicated.

 

2. To the identity of the signer.

 

3. That the signer acknowledged executing the document.

 

The notary public sequential journal must contain a statement as to whether the identity of a person making an acknowledgment was based on personal knowledge or satisfactory evidence. If identity was established based on satisfactory evidence then the journal shall contain the signature of the credible witness swearing or affirming to the identity of the individual or the type of identifying document used to establish the person's identity, the governmental agency issuing the document, the serial or identifying number of the document, and the date of issue or expiration of the document.

 

The certificate of acknowledgment must be completely filled out at the time the notary's signature and seal are affixed. The completion of an acknowledgment that contains statements that the notary public knows to be false not only may cause the notary to be liable for civil penalties and administrative action, but it also may constitute a criminal offense.

 

JURAT

 

The second form most frequently completed by a notary public is the jurat. The jurat is identified by the wording "Subscribed and sworn to" immediately above the place where the notary public signs his/her name. In the jurat, the notary public certifies:

 

1. That the signer personally appeared before the notary public on the date indicated and in the county indicated.

 

2. That the signer signed the document in the presence of the notary public.

 

3. That the notary public administered the oath.

 

There is no prescribed wording for the oath, but an acceptable oath would be "Do you swear or affirm that the statements in this document are true?' When administering the oath, the signer and notary traditionally raise their right hands but this is not a legal requirement.

 

In the jurat, the notary public is not certifying to the identity of the signer. A sample of an affidavit containing a jurat is as follows:

 

I certify that I am over the age of 18 years of age and have resided in the State of California for more than five years.

 

State of California County of Alpine(ss)

 

Subscribed and sworn to before me on May 18, 1993.

 

/s/ John Doe

 

/s/ Richard Roe

 

NOTARY SEAL

 

SUBSCRIBING WITNESS

 

When the signer of an instrument is unable to appear before a notary to acknowledge its execution, proof of execution may be made by a subscribing witness. (Civil Code Section 1195)

 

The requirements for proof of execution by a subscribing witness are as follows

 

1. The witness must be personally known to the notary or the witness' identity must be proved to the notary by the oath of a credible witness who is personally known to the notary. (Civil Code Section 1196)

 

2. The witness must sign the instrument.

 

3. The witness must prove by oath that the person whose name is subscribed to the instrument is the person who executed it.

 

Shown below is a suggested format for proof of execution by a subscribing witness. Other formats with similar wording may also be acceptable.

 

State of California)

 

County of) ss

 

On (date) , before me, the undersigned, a notary public for the state, personally appeared (subscribing witness' name) personally known to me (or proved to me on the oath of (credible witness' name) who is personally known to me) to be the person whose name is subscribed to the within instrument, as a witness thereto, who, being by me duly sworn, deposes and says that he/she was present and saw (name of principal) , the same person described in and whose name is subscribed to the within and annexed instrument as a party thereto, execute the same, and that said affiant subscribed his/her name to the within instrument as a witness at the request of (name of principal)

 

NOTARY SEALNOTARY SIGNATURE

 

NOTARIZATION OF INCOMPLETE DOCUMENTS

 

A notary public should not notarize a document which is incomplete. If presented with a document for notarization which the notary knows from his or her experience to be incomplete or is without doubt on its face incomplete, the notary should refuse to notarize the document. If there is any doubt as to the completeness of the document, the notary should ask the signer if it is incomplete and if any part will be filled in later. If the signer states it is incomplete, then the notary should refuse to notarize the document. If the signer states that the document is complete and nothing is to be filled in later, the notary should accept the signer's word and notarize the document.

 

CERTIFIED COPIES

 

California law does not authorize notaries public to certify copies of any documents other than the notary's own official records. Persons requesting certified copies of documents should be referred to the official who has custody of the original document or to where the document has been officially filed or recorded.

 

WILLS

 

The California State Bar advises that when a notary public is asked to notarize a document which purports to be a will, the notary public should decline and advise the person requesting the notarization to consult a member of the California State Bar.

 

IMMIGRATION DOCUMENTS

 

Contrary to popular belief, there is no prohibition against notarizing immigration documents. However, several laws specifically outline what you can and cannot do. Because of differing customs and literal translations from other languages, you must know the limitations on your authority. California law requires any non-attorney notary who advertises notarial services in a language other than English to post a prescribed notice, in English and the other language, that the notary is not an attorney and cannot give legal advice; the notary must also list the fees charged for notarial services. In any event, a notary may not translate the term "Notary Public" into Spanish, even if the prescribed notice is also posted.

 

In addition, a notary is legally barred from advertising in any manner whatsoever that he or she is a notary if the notary promotes himself or herself as an immigration specialist or consultant. A notary may not charge any individual more than $10 to complete all forms relating to the change of a person's immigration status, unless the notary is also an attorney who is rendering professional services as an attorney. This fee limitation applies even if the person is not performing notarial duties.

 

COMMON QUESTIONS AND ANSWERS

 

Q. Is a notary to keep his or her seal and journal under lock and key?

 

A. Although the law does not specifically deal with the question of the security of the notary seal or journal, notaries should exercise reasonable and customary care in providing security for these materials.

 

Q. Can a notary notarize a document for a relative?

 

A. California law provides that notaries public may not act in any matter in which they have a direct financial or beneficial interest. There is nothing in statutory law that prohibits notaries from notarizing for relatives where there is no direct financial or beneficial interest. Because of California's community property laws, care should be exercised when notarizing for a spouse. (See Government Code Section 8224. )

 

Q. May a notary notarize a document in a foreign language that he/she is not familiar with?

 

A. A notary public is not responsible for the contents of documents notarized and therefore the document does not need to be written in a language understood by the notary. You should scan the document to determine if it appears complete and be able to describe the character of the instrument, if it is to be acknowledged, in the journal. If the character cannot be easily determined, then it may be described as "a document in a foreign language. " Although the text of the document may be written in a language not understood by the notary, a certificate of acknowledgment or jurat which is completed by the notary must be understood by the notary.

 

Q. May a notary notarize a document when the signer cannot speak his/her language?

 

A. Notaries public must be able to communicate with constituents in order that the signer may either swear to or affirm the contents of an affidavit or acknowledge the execution of an instrument.

 

Q. Must a notary charge every person a fee or may the fee be waived in certain cases?

 

A. Government Code Section 8211 provides for the maximum fee that can be charged for notarial services but it does not require that you charge a fee. However, there is an exception. Government Code Section 6100 requires any notary public who is appointed to act for and on behalf of certain public agencies pursuant to Government Code Section 8202. 5, to charge for all non public agency work and remit the fees received to the employing agency. The fee charged must be entered in the journal.

 

Q. Must a notary see the person sign the document being notarized?

 

A. When preparing an acknowledgment, no. The document can be executed before the person brings it to you for notarization. In the acknowledgment, the signer is acknowledging that they executed the document, not that they executed the document in your presence. When preparing a jurat, yes. The person requesting the jurat must appear before you, take an oath, and sign the document in your presence.

 

Q. When you leave your place of employment where your employer has paid all the fees associated with your commission, what happens to your commission?

 

A. The commission belongs to you, the notary, regardless who paid the fees with the exception of those commissioned on behalf of a military reservation. Your employer cannot retain your stamp or journal. If you choose to resign your commission, you must deliver all your notarial records and papers to the county clerk's office, in which your current oath is on file, within 30 days.

 

Q. What are the procedures for a change of business address?

 

A. A notary public must notify the Secretary of State in writing, by certified mail, within 30 days as to any change in location, address, or name of principal place of business. To ensure proper processing of your notice, send a copy of your commission certificate or include the name exactly as it appears on your commission, the expiration date and commission number.

 

EXCERPTS FROM NOTARIAL LAW

 

Government Code

 

8206. Sequential journal; contents; deeds affecting real property in Los Angeles county; copies of pages

 

A notary public shall keep a sequential journal of all official acts performed as a notary public. The journal shall be in addition to and apart from any copies of notarized documents which may be in the possession of the notary public and shall include:

 

(a) Date, time, and type of each official act.

 

(b) Character of every instrument acknowledged or proved before the notary.

 

(c) The signature of each person whose signature is being notarized.

 

(d) A statement as to whether the identity of a person making an acknowledgment was based on personal knowledge or satisfactory evidence. If identity was established by satisfactory evidence pursuant to Section 1185 of the Civil Code then the journal shall contain the signature of the credible witness swearing or affirming to the identity of the individual or the type of identifying document, the governmental agency issuing the document, the serial or identifying number of the document, and the date of issue or expiration of the document.

 

(e) If the identity of the person making the acknowledgment was established by the oaths or affirmations of two credible witnesses whose identities are proven upon the presentation of satisfactory evidence, the type of identifying documents, the identifying numbers of the documents and the dates of issuance or expiration of the documents presented by the witnesses to establish their identity.

 

(f) The fee charged for the notarial service.

 

(g) If the document to be notarized is a deed, quitclaim deed, or deed of trust affecting real property within the County of Los Angeles, the notary public shall require the party signing the document to place his or her right thumbprint in the journal. If the right thumbprint is not available, then the notary shall have the party use his or her left thumb, or any available finger and shall so indicate in the journal. If the party signing the document is physically unable to provide a thumbprint or fingerprint, the notary shall so indicate in the journal and shall also provide an explanation of that physical condition. This subdivision shall not apply to a trustee's deed resulting from a decree of foreclosure or a nonjudicial foreclosure pursuant to Section 2924 of the Civil Code, nor to a deed of reconveyance.

 

Upon written request of any member of the public, which request shall include the name of the parties, the type of document, and the month and year in which notarized, the notary shall supply a photostatic copy of the line item representing the requested transaction at a cost of not more than thirty cents ($0. 30) per page.

 

This section shall remain in effect only until January 1, 1996, and as of that date is repealed, unless a later enacted statute, which is enacted before January 1, 1996, deletes or extends that date.

 

***

 

8208. Protest of bill or note for nonacceptance or nonpayment

 

The protest of a notary public, under his or her hand and official seal, of a bill of exchange or promissory note for nonacceptance or nonpayment, specifying any of the following is prima facie evidence of the facts recited therein:

 

(a) The time and place of presentment.

 

(b) The fact that presentment was made and the manner thereof.

 

(c) The cause or reason for protesting the bill.

 

(d) The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found.

 

***

 

8211. Fees

 

Fees charged by a notary public for the following services shall not exceed the fees prescribed by this section.

 

(a) For taking an acknowledgment or proof of a deed, or other instrument, to include the seal and the writing of the certificate, the sum of ten dollars ($10) for each signature taken.

 

(b) For administering an oath or affirmation to one person and executing the jurat, including the seal, the sum of ten dollars ($10).

 

(c) For all services rendered in connection with the taking of any deposition the sum of twenty dollars ($20), and in addition thereto, the sum of five dollars ($5) for administering the oath to the witness and the sum of five dollars ($5) for the certificate to such deposition.

 

(d) For every protest for the nonpayment of a promissory note or for the nonpayment or nonacceptance of a bill of exchange, draft, or check, the sum of ten dollars ($10).

 

(e) For serving every notice of nonpayment of a promissory note or of nonpayment or nonacceptance of a bill of exchange, order, draft, or check, the sum of five dollars ($5).

 

(f) For recording every protest, the sum of five dollars ($5).

 

(g) No fee shall be charged to notarize signatures on absentee ballot identification envelopes or other voting materials.

 

***

 

8214. 2. Fraud relating to deed of trust; single-family residence; felony

 

A notary public who knowingly and willfully with intent to defraud performs any notarial act in relation to a deed of trust on real property consisting of a single family residence containing not more than four dwelling units, with knowledge that the deed of trust contains any false statements or is forged in whole or in part, is guilty of a felony.

 

***

 

8224. Conflict of interest; financial or beneficial interest in transaction; exceptions

 

A notary public who has a direct financial or beneficial interest in a transaction shall not perform any notarial act in connection with such transaction. For purposes of this section, a notary public has a direct financial or beneficial interest in a transaction if the notary public:

 

(a) With respect to a financial transaction, is named, individually, as a principal to the transaction.

 

(b) With respect to real property, is named, individually, as a grantor, grantee, mortgagor, mortgagee, trustor, trustee, beneficiary, vendor, vendee, lessor, or lessee, to the transaction.

 

For purposes of this section, a notary public has no direct financial or beneficial interest in a transaction where the notary public acts in the capacity of an agent employee, insurer, attorney, escrow, or lender for a person having a direct financial or beneficial interest in the transaction.

 

8224. 1. Writings, depositions or affidavits of notary public; prohibitions against proof or taking by that notary public

 

A notary public shall not take the acknowledgment or proof of instruments of writing executed by the notary public nor shall depositions or affidavits of the notary public be taken by the notary public.

 

SHORT INTRODUCTION TO CALIFORNIA REAL ESTATE PRINCIPLES,

 

ゥ 1994 by Home Study, Inc. dba American Schools 

 

Chapter XVII: Real Estate Salesmanship

 

Educational Objectives: Learn about REAL ESTATE CAREER BUILDING, Personal Promotion, Target Marketing, Nine Types of Promotional Literature and Their Uses, THE ACTUAL REAL ESTATE SALES PROCESS, Closing, The art of negotiation, R. E. TERMS GLOSSARY, INDEX.  

 

REAL ESTATE CAREER BUILDING

 

Developing a professional career from real estate practice requires more than passing an examination and carrying a valid license. The skilled practitioner recognizes the diversity of the field and the personal commitment required to practice competently and ethically. The newcomer, therefore, soon learns that selling real estate differs from selling other products in very specific ways:

 

1. Real estate is a unique commodity; no two properties are exactly alike. The licensee must become very familiar with the property, its value, construction, features, and neighborhood. The licensee also must know the entire community, its history, characteristics, past, present and future goals and plans. Real estate is not sold in a vacuum.

 

2. The real estate sales period is indefinite, sometimes taking months before a sale occurs; or the sale may "fall through" for reasons not related to the broker's competence or diligence. Selling real estate takes patience and perseverance. Licensees, therefore, should resist the temptation to take short cuts that lead to unethical behavior.

 

3. A real estate purchase represents a large investment, often the largest purchase a buyer will make. The licensee who markets such property must carefully match the needs and capabilities of the buyer with the property to make an effective sale. Both buyer and seller have much at stake.

 

4. Real estate sales involves working closely with buyers and sellers, individuals with unique psychological needs, expectations, and goals, sometimes conflicting with each other. The licensee, therefore, must be able to work with people under what can be stressful circumstances, often for long periods.

 

5. Real estate practice requires close scrutiny of federal, state, and local laws. Real estate laws and those laws affecting its practice may change frequently, and the licensee must remain current on each.

 

6. Real estate practice is closely identified with the practitioner. The successful professional is well respected and firmly established in the community. In every transaction, the licensee should be more concerned with dealing honestly and ethically than with earning the commission. Thus as the licensee gains a reputation for fair dealing, his/her practice will grow accordingly.

 

The philosophy of the real estate market

 

Success can be boiled down to doing what you do well over and over again. Your analysis of the questions indicate where your successful market segment lies.

 

Does this mean you are locking yourself into a certain type of home or buyer? Absolutely not! It merely indicates where you are most comfortable as a sales person at this time and where you might concentrate your primary marketing efforts for even greater success.

 

One of the primary requirements of any good marketing plan is to know the audience to whom efforts are being directed and toward whom written communication is aimed. Target marketing is the ability to say this is where the promotional arrow is aimed and these are the people who will hopefully be nudged into action.

 

Marketing pieces aimed at the "general public" are aimed at no one and motivate no one to action. This shot-gun approach is expensive and ineffective.

 

All have seen real estate materials aimed at buyers/sellers/ investors. These types of materials are prime examples of the scatter approach. "Let's shot-gun 'em. Something's bound to fall out of the sky!"

 

Seldom does anything result from this approach for the one sheet of paper attempts to address three different motivations and none with a strong enough appeal to attain results. All marketing efforts must be targeted to a specific audience with a specific message to achieve a specific result. For example:

 

HOMEOWNERS OF SKI ISLAND

 

Have you thought about selling your home lately?

 

Are you aware of the savings you can have with the current low interest rates? Call me today for free information on how smart sellers are winning potential buyers. Call NOW!

 

A specific audience - homeowners of Ski Island.

 

A specific message - thinking of selling - savings you can have - smart sellers - win potential buyers.

 

A specific result - call me today for more information.

 

Now that the target market has been defined as a group of people with a specific background and living within a certain area and sharing some common characteristics, personal promotion will be addressed.

 

Personal Promotion

 

Personal promotion is the activity engaged in face to face with the target market. The agent participates and interacts with a chosen group of potential customers and clients to further the name, business reputation and personal credibility of the agent. Depending upon the needs and interest of the target community, the activities can range from chairing a local charity fundraiser to being involved in a Neighborhood Watch Association.

 

Promotion is good public relations and the more active one can be with the target population, the healthier the business activity. All like to do business with someone they know who understands and cares enough about a segment of the community to participate in some activity. This is known as the shelter syndrome of modern man, "shelter me from the cruel world. " It is also known as networking.

 

A weekly schedule should include some activity with a group of people outside of real estate that will give enjoyment, better the target group and enhance the public image of the agent. This is what personal promotion is all about.

 

As activities are chosen, the interests of the agent should be considered - not the desire to associate with a certain group of people. The needs of the target community should also be considered and matched with the needs and interests of the agent. The degree of dedication and sincerity is easily measured by the degree of involvement.

 

One agent has enjoyed coaching Little League teams for the past ten years. Parents from the first team still are calling to list their homes.

 

Such activities become a social farm and will be far more important in the future as society continues to splinter into- special interest groups. But paying attention to personal interests for this type of farming is long range and requires effort on the part of the agent.

 

Personal promotion is a subtle but extremely effective form of marketing. It is developing the small town approach in a complex city. One cannot possibly know everyone in a large city but one can develop nodding acquaintance with 3500 people and a speaking relationship with 350. If one "knows" 350 people and each of them has ten to fifteen personal friends, referrals are assured and a "market" source has been developed.

 

This is not a form of using people. It is the way good business people function - face to face, nose to nose and toes to toes.

 

Accomplishments are a matter of focus and dedication. It is not luck or random activity. To accomplish one positive deed, one must make a conscious move forward. Life is a series of choices. Personal promotion is not for monetary gain - it is intended to enhance ones reputation as a worthwhile human being who gives time and energy to the betterment of the community.

 

Many large corporations demand of their employees at least three outside affiliations with community groups and personnel directors sometime pay more attention to community activities of a potential employee than to college transcripts. The reason is simple-public relations or promotional abilities of the individual enhance the ability of the corporation to get things done on the local level.

 

The Personal Marketing Plan

 

One-half of the marketing strategy - the personal promotion half - has now been explored. Both short term and long range goals as well as an analysis of self-perceptions blend into a cohesive plan of action.

 

The life and activities of a professional should be reflected in personal promotion and advertising. All promotion and advertising efforts need to be in sync with each other and a reflection of personal and business philosophy.

 

Philosophy is a study which seeks to systematize and interpret knowledge through basic concepts of reality, validity and value. This is the great unexplored, ever-changing territory within everyone.

 

Reality, validity and values are largely reflected in how people want others to perceive them and although goal setting is not the purpose of this unit, ones personal marketing efforts must arise and be directed by personal and business philosophy. In the corporate world, this is called the "mission statement. "

 

The purpose of a written mission statement is to convey the value system and direction of the corporate entity to everyone within the corporation. It becomes the standard by which every memorandum, every advertisement and every action is measured. It is the ultimate game plan.

 

For instance, the mission statement of a teacher might be to produce information, low in cost, of the highest quality and with immediate value to the student. The mission statement, done by a corporation, is a guide to the myriad of employees, and acts as a directional arrow for all of the corporation's public marketing activities

 

Also, though the company may have a mission statement, it is vital to the efforts of independent contractors to develop their own mission statements as directional arrows for their activities.

 

It has been forecast that the next decade will witness a rise of cocooning, the stay at home syndrome. This cocooning may take place in high tech caves, but people are searching for a haven at home where they can draw their shades, plump their pillows and clutch their remote TV controls. Many have responded to the impulse to go inside because the rat race has become too tough and scary outside.

 

Cocooning is evidenced by the skyrocketing sales of VCRs, tape rentals, the production of comfort food for the couch, and a mega-million dollar volume for microwave popcorn sales. The birth rate has risen and mail order sales have increased by billions of dollars in the last decade.

 

To the real estate professionals, this means homes are more important to consumers who want comfortable cocoons. They are seeking security, and this is evidenced even in home decor. One of the hottest current trends is the Victorian Look, shades of ancestors who lived more calm and peaceful lives. Comfort is sought in the frills and ruffles and yards of lace and old fashioned reminders of another century.

 

The demand is now for less standardization and more standards of excellence. In a consumer culture, one that offers choice beyond survival basics, the motive has never been need, but want. Pushing that motivation beyond want to deserve is a recent and powerful, cultural transformer. People not only want a nice home for a cocoon, but feel they deserve it because of having been subjected to the uncertainties of the work place. image is not where it's at any longer; they are seeking quality at the best price.

 

Profit can be reaped by providing for the needs of consumers for personalization, whether it be in product concept, product design, or personal service. The marketeer who enables each customer and client to feel unique will succeed.

 

Homes are, and will be more so in the future, important because at present millions of corporate employees work at home, either part time or full time. Flex time and work at home flexibility are becoming important corporate "perks" for valued employees.

 

Confronted every day with shabby quality, irresponsibility and false claims, consumers are taking up the banner of protest against marketing immorality. Consumers are screaming and smart markets are listening. What will make customers buy one product over another is a feeling of partnership with the seller, and feeling that they are buying for the future. Anonymous, impersonal selling, where one did not get too involved with the customer, is past.

 

So where does this leave the professional real estate person? First of all, since America is cocooning, customers are more difficult to reach. As they are rejecting the old anonymous treatment, there is a need to be recognized as unique and the consumer has a pent up demand for solving special problems. They want to know and feel comfortable with the people from whom they purchase goods or service. The burden is on real estate professionals to satisfy that need through the use of personal marketing and advertising.

 

Marketing could be divided into two basic segments, showing and advertising, but this is just the tip of the iceberg.

 

People want to buy from people. They want to establish a comfort zone of trust and recognition of them and their individual needs. Any broker who is scrupulously honest will admit the old days of running page long ads of three liners full of trite phrases is not, and has not been for several years, cost effective. Many recognize that those types of ads were just glorified pacifiers. It satisfies the seller that something is being done about promotion, and it eases the pain of agents who want to see their listings in print.

 

It has been said over the years, "The name over your door can be of some help in getting your foot inside a seller's home, but if that seller does not like or trust you as an agent, you will not get the listing. "

 

So the mission for real estate practitioners in these times is to master the art of personal marketing and not only survive, but meet the goal of prosperity.

 

Personal Marketing

 

Personal marketing and customer service are the "hot buttons" of sales. Success will depend on a willingness to practice both activities.

 

Society is growing more complex as people move deeper into the isolation of cocooning. In fact, futurists say we are moving into a burrowing state of socialization as social contacts are turned to special interest groups. This accounts for the profusion of special interest magazines, hobby and recreational groups. People are content to entertain small groups, rent videos, buy books or computer games and "spend a quiet week-end at home. " These and other rapid changes in our work place and society make reaching the customer with any advertising message more difficult.

 

Therefore, the challenges of personal marketing become one of the most exciting and fun twists of doing business today.

 

Personal marketing is the equivalent of product, service and image advertising in large corporations. The products being sold by the service and image are agents themselves!

 

Defining Personal Marketing

 

Personal marketing may be defined as the activities designed and engaged in by agents to promote themselves and their personal or business reputations. Such activities are usually divided into two categories: personal promotion and personal advertising.

 

Personal promotion falls into the image building or public relations approach to marketing. It includes the nose to nose, toes to toes, face to face type of marketing activity.

 

Personal advertising involves some form of mass media, print, radio, TV, billboards, or specialty items with name and phone number of the agent on them. The list of possibilities is endless. The difference between promoting and advertising is the face to face factor. In advertising, the goal is to make a name familiar to the recipient and if at all possible, get them to contact that person.

 

Personal promotion builds for the future while personal advertising is directed at the short term now.

 

Salespeople who feel that a box of business cards is going to break the ice and make them a roaring success are going to be disappointed. In today's competitive environment, success depends on the ability to reach and communicate with a public that is swamped with advertising messages.

 

Success means actively seeking new customers and clients on a daily basis. Real estate is a business of prospecting. The majority of time and energy must be directed to this activity. Prospecting is a numbers game and it takes a larger number of contacts in a real estate sale than nearly any other type of sales because not everyone is in the market to buy or sell property. A greater portion of the population needs a medical doctor in any given year more than a real estate agent. In marketing, the job is to find the people who need the service in a manner that is the most comfortable method for the practitioner.

 

The Purpose of Personal Marketing

 

The purpose of personal marketing is to help develop a marketing plan, both promotional and advertising that fits the agent. Each agent is a unique individual and each brings differing talent, skill and personality to the profession.

 

One of the goals within the marketing plan is to identify and promote the best of an agent and build upon a success ratio using a method that is comfortable to the agent. A best friend's marketing plan will not work for another because personal marketing, like shoes, must "fit" the individual.

 

Target Marketing.

 

In marketing, there is a statement called "the majority fallacy," which says "I can sell anything to anyone. " Wrong! Most customers cannot be sold a corporate jet because:

 

1. They can't afford it.

 

2. They have no use for it!

 

3. They dislike flying!

 

4. The majority of their business is local!

 

Now, some will say the choice of a corporate jet is too unique a product for this example, but unfortunately many real estate agents are approaching marketing with the same majority fallacy philosophy by not taking the time to analyze where their successes occur.

 

They might, in the dark of the night, recognize that they seem to have a greater success ratio with certain types of customers, prices or styles of houses but they never direct their energies toward more success. They continue to practice the majority fallacy by shot-gun marketing (a little for everyone in the population) which leads to frustration, failure and self-doubt.

 

Target marketing is a method of isolating the concentration on a segment of the market - a portion of the population with which the agent is known to be able to work successfully. It does not limit the seeking of new markets for one can always develop a secondary plan for those new areas of exploration, but it enables one to multiply current success. Agents tend to fall into two patterns - those few who understand the benefits of target marketing and those who plan on a 3. 5 million dollar listing and sale to come off the phones or otherwise drop in their laps.

 

One agent for example recognizes his market as homes in the below $40,000 range but his goal is to sell 100 units per month. He doesn't think dollar volume - only units. The result is a successful agent. He isn't going after or waiting for the once in a lifetime deal; he works what he does best.

 

Target marketing says that since one cannot work the entire market, an agent aims the guns at a small segment of the market where there is the best chance of success. Direct mail experts say at least seven mailings must be sent to each individual within fourteen months before golden results can be expected. If agents are attempting to market all of a major city or selected metro areas, they may be buying a bunch of stamps or mass media advertising with no real direction.

 

Target Market Exercise

 

The more focused your marketing effort is the greater your return will be. To recognize your market, complete the following exercise:

 

Clients:

 

Most of my clients are between the ages of and (Limit yourself to a twenty year age range. )

 

Most of my clients are selling a house between $ and $ (Limit yourself to a $30,000 difference in the range)

 

Most of my clients have completed years of schooling.

 

Most of my clients are professionals, white collar, blue collar, retirees. (Circle one. )

 

Most of my clients want to move up, move down, transfer out of town, buy a new home in the same price range. (Circle one. )

 

Customers:

 

Most of my customers are between the ages of and . (Limit yourself to the 20 year range and only those people who have bought homes from you. )

 

Most people who buy from me buy a home in the $ to $ price range. (Limit yourself to a $30,000 difference. )

 

Most of my successful buyers have completed years of schooling.

 

Most of my successful buyers are professional, white collar, blue collar, retirees. (Circle one. )

 

Most of my successful buyers are moving up, moving down, transferring in, or buying a new home. (Circle one. )

 

Most of my successful buyers are first timers, experienced buyers, or investors. (Circle one. )

 

Now you have defined your primary target market. Take a map of your community and circle the areas where these people live. This is where you should be concentrating your efforts for more success. If you are going bear hunting, go where the bears are!

 

Five Ways To Use Promotional Literature

 

1. Leave behind. Listing appointments are crucial to success. Does it make sense to leave a penny business card and a computer print out with a potential client? Or is it better to leave a personal brochure that pumps service? It is that extra touch of class!

 

2. Inquiry fulfillment. Promotional material is a great follow up to those customers requesting more information, especially out of town inquiries.

 

3. Direct mail. Direct mail is one of the primary methods of prospecting for new clients and customers. Remember the "rule of seven. " Seven contacts within fourteen months are needed to establish a relationship with a consumer base. Each contact requires a slightly different message. Also, mail-outs remind previous customers and clients that the agent is still in the real estate business and would appreciate referrals and repeat business.

 

4. Open houses. At open houses, personal marketing materials are equal to point of sale literature. When next visiting an insurance office or a bank, look around. All the brochures, cards and other types of printed literature are geared to informing the customer how that institution can meet their particular needs. It serves the secondary purpose of keeping the company name in front of the consumer. Develop a variety of materials that have your name on them, that gives valuable information or is some type of specialty item that a visitor will keep around the house.

 

A Guest Register is an important tool to be used in connection with the open house. Place it on a conspicuous table and make sure each and every visitor gets a chance to enter name, address and phone number. Many prospects may be obtained this way. Visitors who do not like this property may easily be talked into considering other properties the salesperson has to offer.

 

Some agents will offer light snacks and coffee or tea at least. Leaving the entrance door ajar or having a "Welcome, come right in!" sign at the door is advisable. The embarrassment of the visitors having to ring the door bell will be avoided.

 

Another creative idea is to hold an open house at unusual times to accommodate professional people such as doctors or dentists. Such professionals have sometimes Wednesdays or Thursdays afternoons off and are available for such special events.

 

5. Sales tool. Once materials are developed, many top sales people keep the booklet, brochure, etc. , directly in front of them as they lead the customer through a discussion. For instance, if you were presenting bond money rules to a first time buyer, it is real handy to have a booklet which outlines those rules and regulations.

 

This list of suggestions is not meant to limit ideas. Literature for real estate agents has been seen in libraries, in restaurants, the waiting rooms of a maternity ward, and the place where one waits to have the car's oil changed.

 

The point of having marketing literature developed and in "kit" form is to allow time to discover a greater variety of methods for spreading the name and services around town.

 

Nine Types of Promotional Literature and Their Uses

 

Booklets. The use of booklets work well by providing useful information to clients and customers. A booklet may be written to answer frequently asked questions or to teach clients and customers to be informed consumers. Also, there is the opportunity of generating more sales and listings by offering the booklet in ads and via direct mail. The booklet is a lead generation piece of literature.

 

Case Histories. This technique is often overlooked by real estate licensees. It is simply a compilation of success stories. Agents usually have stories that are unique and demonstrates their abilities. Get permission of the participants or change the name to John and Mary Doe. Success stories overcome skepticism and demonstrate problem solving abilities.

 

Letters of Reference. Although they are not nearly as much fun to read as the success stories, they can be effective in developing trust.

 

Catalogs. Personal catalogs, in full or partial color, are beginning to appear on the state scene. Most of the current catalogs are pictures of homes and brief descriptions with perhaps one or two pages devoted to the individual agent.

 

Flyers. Flyers are one of the most economical methods of personal promotion. Most agents have a personal computer at their disposal and can quickly create some type of material. Flyers are mailed or hand carried to a target neighborhood.

 

Data Sheets. A data sheet may be written for a particular house to point out the benefits and features which are not apparent to the eye. For instance, neighborhood facts and association rules, design features or benefits, the school system and bus pick-up points, etc.

 

Newsletters. Newsletters can be extremely effective if the writer will avoid the mass produced materials available. Remember, the agents are seeking the personal touch in all of the literature and are aiming at a specific audience with a specific message. Chit chat concerning the care and maintenance of an automobile during an Arctic winter is not personalized marketing. The fact that ones name and picture appear on this wonderful literary attempt makes it neither effective nor personal.

 

Readers are interested in information which impacts them, their investment and well being. Even on a semi-annual schedule, such newsletters are far better received than the mass produced pieces of fluff which discuss the newest shade of mauve or present a recipe for caterpillar popcorn.

 

The purpose of a newsletter is to build the trust of consumers over a period of time. This goal is achieved by advising customers/ clients of new policies, new services and other matters that affect their lives. The return is to get more sales leads when their friends request copies of the newsletter.

 

Specialty Advertising. Specialty advertising is a catch-all phrase which includes anything a name and telephone number can be put on. Pencils, tee-shirts, cookbooks, billboards are only some of the possibilities. For most specialty items, the main question is, "Will this item remain part of the household and how much is each piece going to cost?"

 

All advertising must be measured by the basic cost per thousand (CPM). The goal is to be able to reach a thousand people at a low dollar cost and a high exposure index.

 

Specialty advertising should:

 

1. Lift the message out of the crowd.

 

2. Create excitement about the agent's service.

 

3. Get ones name in front of the consumer.

 

4. Increase business.

 

If all four objectives do not happen after a limited trial basis, the game plan should be changed because specialty items are usually the most expensive type of advertising.

 

Postcards. Due to increased postal rates, the simple postcard may still be the best buy for a low budget effort. If the card is designed with care and projects a clear but clever message, it will result in increased business.

 

Writing Good Ad Copy For a Promotional Kit

 

Approach the writing of all promotional literature by writing benefits of the service, not its features. Focus the copy on the prospect's natural curiosity, "What's in it for me?" Find the mission statement exercise. Review what was wanted of clients to think of you. Write those as benefits on the writing exercise sheet.

 

The "What's in it for me?" question should be reflected in every line of good copy.

 

Focus on the prospects and their problems.

 

Create believable client or customer centered benefits.

 

Pile benefit after benefit on the copy.

 

Avoid real estate jargon.

 

Touch the anxious nerves as well as exciting the deepest hopes and wants of the prospects.

 

Give the prospect a reason to act now!

 

Ask for the business of the prospects and make sure they know how to reach you.

 

People buy and sell houses to solve problems. Let them know the problems are understood and the solutions can be provided.

 

Use verbs and nouns. Adjectives and adverbs water down the message.

 

Write in the "you. " You need more bedrooms. You want a new house.

 

Collect testimonials from previous clients and customers. Select snappy quotes from the testimonials. Get permission to quote them. Become a testimonial fanatic. It is amazing how flattered people are that when asked for a recommendation.

 

THE ACTUAL REAL ESTATE SALES PROCESS

 

Qualifying buyers

 

Real estate professionals have to assess the needs and the financial possibilities of the potential buyers. This process is called "qualifying the buyer" and the agent is well advised to proceed tactfully to obtain information about the client without getting nosy. Beyond obtaining financial information the real estate professional has to understand the background reasons why the visitor could become a buyer and be aware of some "symptoms" displayed in the interaction between the salesperson and the potential buyer.

 

The key to success in real estate among other factors is an ability to understand people and be able to communicate effectively after becoming aware of their needs. The successful real estate professional has a deep insight into the psychology of the customer.

 

Why buy a home?

 

1. A home provides shelter and offers basic protection from physical discomfort or harm. A roof over one's head provides protection from the elements and other threats to an individual's well being.

 

2. A home can also provide protection from unwanted social contact. Most people want to be able to control the extent of their exposure to the rest of society. Of course, those who have or who have had teenagers realize this is not always possible. Nevertheless, shelter for the family is desired, and also within that context, some form of privacy for each individual is sought.

 

3. Because homes are generally immobile, most people want them conveniently located in relation to other factors important to their place of employment, schools, shopping, recreation facilities and transportation.

 

4. The characteristics of the surrounding area, the neighborhood, are important considerations. These may include the appearance of other homes, the cost and quality of public services, the social environment, absence of noise and pollution and any prestige that may be attached to the area.

 

5. As housing is a form of wealth, the purchase of a home represents an important investment and an inheritable estate.

 

Greater understanding of people will increase ability to function as a problem solver. One of the most valuable skills in the real estate business is the ability to "read" people. Some agents posses a natural instinct and a higher degree of empathy, but it is a skill that can be magnified by learning what to look and listen for. If done consistently, the agent will find that each person will convey how services should be performed. Dozens of signals, both verbal and nonverbal, will tell when to speed up or slow down, when to zero in on details, or when to put extra effort into building the relationship.

 

Personality Types

 

Everyone is essentially driven by the same basic needs, but with each person, some needs are more dominant than others.

 

this light, the four major categories of needs are: results, recognition, relationships and regimentation.

 

Some measure success by results. To these, the finished product is the most important thing and they will do whatever it takes, within reason, to get the job done. Their dominant need is accomplishment.

 

Another variation is the sensitive, supportive, warm individual whose main need is relationships, and who is dominated by the need for empathy and building trust. A presentation that would work well with the results-oriented person, would more than likely be ignored or not accepted by the person interested in relationships.

 

A third type of individual places high value on recognition. To this person, success is measured by the amount of acknowledgment and praise received.

 

Then there are those who are more concerned with the "content" rather than the "congratulations. " The dominating need for them is orderliness, regimentation, or the "tying up in neat packages. " They want things presented in crystal clear fashion, without superfluous adjectives.

 

It is obvious with the four major personality types, four different methods of action are required. Once having learned the needs of each behavior pattern, the agent will know how to work more effectively with each type of person.

 

When people are in social situations, they act and react in a manner that exhibits clues defining their behavioral styles. These can be identified by becoming a dedicated "people watcher. " The complexities in this exercise can lead to frustration and futility, but it is possible by simplifying and identifying a person's behavior on two dimensions: openness and directness. A shoe salesman wants to make certain the shoe is both long enough and wide enough. By doing this, the rest of the foot should fit someplace in between.

 

Openness is the readiness and willingness with which a person outwardly shows emotions or feelings and develops relationships. This type of behavior pattern could be at one end of a hypothetical scale of behavioral patterns. "Open people" commonly are described by their peers as being, "laid back, warm, personable, informal and responsive to others. " They tend to be relationship oriented. In conversations, they are not hesitant to share both their opinions and feelings. They often are given to joking and telling stories. They are flexible as to time and tend to base decisions on "gut" feelings more than on hard facts and data. It is no secret what an "open" person is thinking. Their spoken and nonverbal feedback will make it clear.

 

At the other end of the spectrum are the self contained persons. They tend to be more aloof and guarded in their relationships. They are the types of individuals who follow the letter of the law and would go into cardiac arrest in making a decision on anything other than the cold, hard facts. These people are usually task oriented and highly disciplined about time. Their personal feelings are hidden in the presence of others.

 

A third personality type is the "direct" individual. These tend to "come on strong," take the social initiative and create emphatic impressions. They think, move and act fast. Not afraid of taking risks, they easily become impatient with those who cannot keep up with their own fast pace. They are very active people who do a lot of talking and appear confident and frequently are regarded as domineering. Direct people express their opinions readily and make "no holds barred" statements.

 

The other side of the picture from the "direct" person are indirect people who give the impression of being shy, reserved and quiet in nature. They may seem to be supportive and easy going, and tend to be security conscious, moving slowly, meditating on their responses and decisions, and avoiding risks. Prone to ask questions and listen more than talk, they reserve opinions and make tentative statements when taking a stand.

 

The major point in outlining these four personality types is that each of us possesses to some degree each of these traits, but are dominated by one more than the others.

 

For simplification, these people are designated as socializers, the director, the thinker and the relater. The name denotes a dominant characteristic rather than a full and complete personality analysis.

 

Dealing with Personality Types

 

Most can identify their own personalities and think of others who fit in other categories. There is no "best" style. Each possesses its own individual strengths and weaknesses, and in fact, there can even be some variances in styles on a given day. However, there is a constant that can be construed as the dominant in everyone.

 

The purpose of knowing that people are different is quite obviously to meet and serve their needs. Practitioners must be aware and flexible enough to present their services in a manner making it comfortable and easy for people to receive. As discussed earlier, while working with someone, all of a sudden it seems that every shred of rapport that had been established was "gone with the wind. " It could be that the real estate professionals are the "open, socializer" type and were doing "their thing" relating some story considered most amusing, but unfortunately the customers or clients were "directors," who could have cared less about the anecdote and wanted to "pick up the pace" and get the information in a straight dose!

 

All of this information and that which follows, leads to the necessity of the opening interview with both clients and customers. By plunging directly into loading people in a car and taking them on a "buy or die" tour, great risk is run of having those people escape and at the earliest opportunity, never to appear again. This is the scene described earlier where the associate was staring blankly at the wall and could be heard muttering, "Why me, Lord? Why do I always get the people who don't give me a clue as to what they want?"

 

To prevent this sad scene, look at some behavior patterns needed in order to serve effectively the different types of personalities.

 

When dealing with "socializers," avoid hurrying and discussing and attempt to build some mutually stimulating ideas together. Make opinions, ideas, and even dreams, the focal point in conversations. Paint a picture of how they will feel in their new home. If at some point in the transaction there is a bone of contention, avoid arguing. No one can win an argument with a "socializer. " They deal in intuitions and opinions; they explore alternative solutions. Here are some quick points in how to handle a "socializer:"

 

* Show an interest in them. Allow them time to talk. Be stimulating.

 

* Do not be shy and non-verbal.

 

* Study and pay attention to their dreams and goals, as these may be as important as their needs.

 

* Present a solution to their needs by means of stories and illustrations that relate to them.

 

* Confirm the details in writing, be specific and direct.

 

Customer/clients who are "directors" are easy to deal with provided the agent is efficient, highly time organized, specific, well-organized and precise. That is the language "directors" speak. The relationship should be strictly businesslike. They are more than likely not seeking a personal relationship. Make the directors' goals the topic of conversation. Remember that they are the most goal, task and achievement oriented of all personality types. Should a point need to be made, share the facts, not personal feelings. Make certain that statements can be backed with hard facts and tangible proof. Provide the "directors" with alternatives. They like to make their own decisions. Don't go "all around the barn" to make a point and above all, don't waste time. Keep these key behavior patterns in mind when working with a "director. "

 

* Be prepared, fast paced, to the point and organized.

 

* Be professional and businesslike.

 

* Determine what they want to do and how.

 

* Make proposals clearly, succinctly defining the results and rewards and how it would apply to them.

 

Be Professional and businesslike

 

Determine what they want to do and how.

 

Have more than one solution. . . . then let them make the decision of which to take.

 

With the "thinkers," systematic is the magic word. Do everything possible to support their organized, thoughtful approach to things. Any contribution made to the solution of their situation should be done with actions, rather than words. They want to be provided with solid and tangible proof that what is said is so. Be scrupulously honest in presenting the "good and the bad" of a property. Leaving out or trying to minimize a disadvantage will make a "thinker" feel things are being hidden and will probably terminate the transaction speedily. Don't rush them. They need time to think and to digest words and actions, and to verify their veracity. Don't even think of letting things be a "guesstimate. "

 

Thinkers expect and demand accuracy.

 

Be prepared to answer all their questions.

 

* Don't waste time in "small talk. "

 

* Approach their situation in a practical, logical manner and ask lots of questions to determine and uncover their real needs.

 

* Present the solutions to their needs in a logical fashion and back it up with documentation.

 

* Don't rush them to a decision making point. They need time to think.

 

The "relaters" of the world want to know that others are interested in them as a person and that their feelings are important. Move slowly and informally and be attentive. Offer assurances of support. Avoid rushing a "relater. "

 

* Get to know them. Be professional, but friendly.

 

* Take the time to get them to divulge and elaborate on their needs and what is important to them.

 

* Go at a moderate pace, build a relationship, friendship, trust and credibility.

 

* Be regular and consistent in communication and always be ready to nurture and reassure them.

 

Among other qualifications for being a successful real estate agent are being adaptable and flexible. When one treats other people in a manner that is inappropriate, they are uncomfortable and the tension already experienced because of moving is increased. This is obviously counter productive to any situation.

 

Not only will customers and clients benefit from skills in "reading" personalities but agents will find themselves less stressed, more productive, and better equipped to serve their needs.

 

Listening

 

Real estate professionals are constantly in search of new and different "tools" to facilitate their jobs. They often overlook and fail to utilize one of the most obvious tools in their possession listening. They hear but don't listen.

 

Hearing is the awareness or consciousness of sounds in surroundings. All are bombarded by sounds, ringing telephones, clattering typewriters and conversations nearby. They hear these things, but don't necessarily listen to them.

 

In contrast, listening is a conscious effort to hear a particular sound and interpret its meaning. To listen means to gather information. Effective listening is a further effort to understand the message in terms of the response it requires.

 

After taking the time and energy required to analyze the type of individual one is working with, it would be the height of folly to fail to listen to that person. Someone has said, "There is a way of listening that surpasses all compliments. Golden words can put gold in your pocket. "

 

A leftover from the age of the dinosaur is the fact that too many real estate sales people confine their marketing approach to listing the features of a property or their service. What does this mean? Look at an illustration. A feature is an objective characteristic of a product or service. For instance, the surface of a desk is flat, and the customer's reaction may be "so what?" A similar reaction could result if a caller asked to see a listing and all the agent did was agree to meet them there, open the front door and say, "I'll see you later. " The feature of the service is that the phone was answered and the agent agreed to open the house for them. Not very impressive.

 

If, however, the agent not only opens the house, but points out the fact the living area is large and would a perfect place to entertain, and the kitchen with its state of the art equipment is a delight for gourmet cooking, a whole series of benefits appeal to the love for entertaining guests by an owner with gourmet talents!

 

Agents need to recognize the distinction of a feature and a benefit and be conscious of the fact a benefit satisfies a need and that needs are highly personal in nature. Case in point: The fact that doorways are at least nine feet tall is merely a feature to a 5 feet, 2 inch homemaker. To a 7 foot, 2 inch professional basketball player, it would be a decided benefit.

 

By adopting benefit selling as a part of their repertoire, agents will find their jobs much easier, the satisfaction of customers and clients greatly enhanced and pay checks healthier.

 

Poor communication and a lack of understanding accounts for a large percentage of lost sales. If an agent could increase production by 75% through better communication, it would seem well worth the time and effort to acquire these skills.

 

Agents should seek to increase the number of comments prospects make. The type of comments or remarks desired are those that would be likely to lead to an agreement. The job of the agent is to reinforce the remarks that are favorable and that would ultimately lead to the sale being made, and avoid reinforcing negative comments.

 

Closing

 

The topic of closing is probably the least understood and the one that produces the greatest fear in agents. It is not something that just should happen, but it is the natural progression when following the techniques previously discussed. Selling is a lot like courting, to use a term that those older remember.

 

Virtually all have experienced meeting someone to whom they were attracted, made an effort to find out more about them, tried to find areas of mutual interest, asked questions that provided them with wanted information, and also had ideas of the "romance just sitting there. " Most will admit to being hopeful of an encounter that would result in a date and an opportunity, based on what happened next, to go beyond dating!

 

The same is true in a sales situation. They have been courted, now why not expect them to make an offer on something that has been shown to them.

 

But in romance and in selling it comes down to "dosing" or gaining a commitment. But also in both departments, signals the other party is giving must be recognized before the next step can be taken.

 

Listen to a series of phrases and tell if they would signal a buying sign if a customer said them:

 

1. "It does look nice, but. . . . "

 

2. "What other homes do you have?"

 

3. "I wonder how our furniture would fit in here?"

 

The first statement does indicate interest, but more questions must be asked, first indirect, then direct, to find out what is behind the "but. " The second statement is one of rejection. They are not interested in this property and the third statement is the one that can send the agent into orbit. Wondering how their furniture would fit here is a good sign.

 

Prospective buyers tend to give recognizable signals. If they linger in the house for a long period of time, or keep going back through the rooms, or if they sit down and make themselves comfortable, they are trying to picture themselves at home there. If they go off in a comer somewhere and begin to talk quietly between themselves, watch the expression on their faces. Husbands and wives, if they have been married for any length of time will give one another signals. Stay tuned into their behavior, and of course, another good sign is if the wife is jumping up and down and "ohhing" and "ahhing. " This is a positive sign. Of course, her husband may physically abuse her for showing too much emotion. Even the statement, "I believe the price is too high" is a buying signal. It could be translated to say, "I'm interested in this home and with a little luck, I'll get it below the asking price. "

 

The point is - be tuned in to the responses of buyers and sellers. Agents cannot sit and wait for buyers to hit them over the head and force them to write an offer or fill out a listing agreement, else they may get real lean and mean! Agents must learn to implement the tool known as "closing. "

 

When is it time to close? Just as soon as a sign that could be construed as a buying sign is observed. The agent summarizes all the benefits that are important to the prospect. Summarization is an effective way of reinforcing important benefits at a time when the prospect is more likely to be touching or focusing on the drawbacks or objections they have in mind. By enumerating all the positive points, or summarizing, the agent is helping the prospects make up their minds and the agent is overriding the negative things that normally occur to anyone faced with making a major decision. Most of us can easily think of a jillion reasons not to do something, but if someone is pointing out the good things, it takes some of the "sting" out of making a decision. Of course, being able to review the appropriate benefits hinges on having carefully listened to all the things that were especially important to the prospective buyer or seller.

 

Summarizing the procedure for handling objections: first, clarify what the objection is. If it is a lack of information or misunderstanding, it can be easily remedied. The best method of clarifying is to repeat the objection back to the prospect, "You are saying, Mr. Jones, you feel the price is too high?" Make certain to be on the same wave length with the prospect and referring to the same problem. Decide at this point if it is an easy or hard objection. Take care of it if possible and if not, try to offset with other benefits.

 

The art of negotiation

 

Quality negotiations can be boiled down to four basic points which define a straight forward method of negotiation that can be used under most circumstances.

 

Separation of people from the problem.

 

Focusing on interests, not on positions.

 

Generation of a variety of possibilities before deciding what to do.

 

Insistence that the results be based on some objective standard.

 

Separation of People From The Problem

 

The first point responds to the fact that human beings are not computers. Humans are creatures of strong emotions who often have radically different perceptions and have difficulty communicating clearly. Emotions typically become entangled with the objective merits of the problem. Taking positions just makes this worse because people's egos become identified with their emotional positions which may not be the same as their rational position. Therefore, before working on the subject of the negotiation, disentangling the "people problem" may be necessary. Figuratively, the negotiators should see themselves as dealing with the problem, not attacking each other.

 

One way to achieve this is to separate, in time and space, the emotions from the work on the problem. If, in the midst of negotiations, the other negotiator says something that creates anger, it is important to control the emotion, perhaps, "letting them have it" at some other time and place. Entering negotiations with strong feelings is dangerous. It is recommended that any emotional exchange be gotten out of the way first and then do the negotiating later or hold the feelings in check until the problem is negotiated.

 

A Basic Rule of Negotiating: The negotiator who loses control of his/her emotions while the opposite negotiator retains his/hers, loses.

 

The loss of emotional control may "win" temporarily because of the overwhelming of the other party or appeal to his/her emotions. This may result in a short range win and a long range loss. Most people are helpless in the face of strong emotions. About all that can be accomplished is to try to restrain the other person, offer comfort, or give directions as to the location of the door. We might temporarily "give-in" for some small favor or need, but usually the professional negotiator will not respond favorably to emotion. Emotional encounters are great for making enemies or making love, but make lousy conditions for real negotiations, R. E. TERMS GLOSSARY.

 

Focus on Interests - Not Positions

 

The second point is designed to overcome the drawback of focusing on people's stated positions when the object of the negotiation is to satisfy their underlying interests. A negotiating position often obscures what one really wants. A position might even be stated differently from what one really wants. This is because most of us are not very good communicators. We do not always know the best way to say things or to present needs.

 

Another basic rule that relates to the second point is to listen THROUGH the other negotiator's position and get to what that person's actual interest is. Also, try to put into words what your own real interests are, not just some position you are taking. The second point is, therefore, a classic communications problem and should be treated as such. Another helpful thing to do is to restate or feedback to the other negotiator what you think his/her interests are or might be. Skilled negotiators even help the other party define what the other party's interests really are by going around or through the "positional" statements and getting to the nitty-gritty.

 

Compromising between positions is not likely to produce an agreement which will effectively take care of the human needs that led people to adopt those positions.

 

Generate a Variety of Possibilities

 

The third point responds to the difficulty of designing "best" solutions while under pressure. Trying to decide in the presence of an adversary narrows ones vision. Having a lot at stake inhibits creativity and increases emotional loading. So does frantic searching for the one right solution. You can offset these constraints by setting aside a designated time within which to think up a wide range of possible solutions that advance shared interests and creatively reconcile differing interests. This relates critically to the planning stage of negotiations.

 

Objective Criteria

 

The fourth element provides a means to deal with an opposite party who is stubborn, emotional, confused or threatened by the negotiations. Where interests are directly opposed, a negotiator may be able to obtain a favorable result simply by being stubborn. That method tends to give place intransigence and produce arbitrary results. There is usually very little commitment to implementation of results. More often this leads to sabotage. Such a negotiator may be countered by insisting that his/her single say-so is not enough and the agreement must reflect some fair standard independent of the naked will of either side. This does not mean insisting the terms be based only on the standards selected, but only that some fair standard. By discussing such criteria rather that what the parties are willing or unwilling to do, neither party need give in to the other. Both can defer to a fair standard.

 

Basics of Quality Negotiations

 

The four basic propositions of negotiation are relevant from the beginning to the conclusion of the negotiations process. The negotiations period can be divided into three stages: analysis, planning and discussion.

 

During the analysis stage, the negotiator is simply trying to diagnose the situation-gather information, organize it, and think about it. The negotiator will consider the people problems of partisan perceptions, emotional barriers, and unclear communication, as well as identify interests of both sides. Options already on the table will be noted and any criteria already suggested as a basis for agreement will be identified.

 

During the planning state, the negotiator will deal with the same four elements a second time, both generating ideas and deciding what to do. How will the people problems be handled? What are the real interests of both sides? What are some realistic objectives?

 

Again, during the discussion stage, when the parties communicate back and forth, looking toward agreement, the same four elements are the best subjects to discuss. Differences in perceptions, feelings of anger or pleasure, and difficulties in communication can be acknowledged and addressed.

 

Over and beyond all the legal, financial and technical knowledge possessed by the real estate professionals, it is their negotiating skills which will produce the closing of the sale, and thus enable them to earn a commission.

 

SHORT INTRODUCTION TO CALIFORNIA REAL ESTATE PRINCIPLES, 

 

ゥ 1994 by Home Study, Inc. dba American Schools

 

Chapter XVIII: TRUST FUNDS

 

Educational Objectives: TRUST FUNDS - GENERAL INFORMATION; ADVANCE FEE TRUST FUNDS; TRUST FUND BANK ACCOUNTS; ACCOUNTING RECORDS; RECONCILIATION OF ACCOUNTING RECORDS; DOCUMENTATION REQUIREMENTS; AUDITS AND EXAMINATIONS; CONSEQUENCES OF TRUST FUNDS CONVERSION: - LOSS OF LICENSE; - RECEIVERSHIP; - CIVIL LIABILITY; - TAX LIABILITY; - CRIMINAL SANCTIONS, R. E. TERMS GLOSSARY, INDEX.

 

(The following is quoted by permission from several publications of the California Bureau of Real Estate as follows: CalBRE Reference Book, Copyright 1989 CalBRE; Real Estate Law, Copyright1994 CalBRE. The applicable law appears in italics. )

 

Real estate brokers and salespersons receive trust funds in the normal course of doing business. They receive these funds on behalf of others, thereby, creating a fiduciary responsibility to the funds' owners. Brokers and salespersons must control, and account for these trust funds according to established legal standards. While compliance with these standards may not necessarily have a direct bearing on the financial success of a real estate business, non-compliance can result in unfavorable business consequences. Improper handling of trust funds is cause for revocation or suspension of a real estate license, not to mention the possibility of being held financially liable for damages incurred by clients.

 

This textbook discusses the legal requirements for receiving and handling trust funds in real estate transactions as set forth in the Real Estate Law and the Regulations of the Real Estate Commissioner. It describes the requisites for maintaining a trust fund bank account and the precautions a licensee should take to ensure the integrity of the account. It explains the trust fund record keeping requirements under the Business and Professions Code and the Commissioner's Regulations.

 

The discussions and examples in this book involve real property sales and property management trust account transactions. Other types of real estate activities involving trust funds, although subject to the same laws and regulations, may also have to comply with additional legal and regulatory requirements. While these other types of transactions may require records significantly different, the record keeping fundamentals discussed still apply.

 

TRUST FUNDS- GENERAL INFORMATION

 

Trust Funds vs Non-Trust Funds

 

Since trust funds must be handled in a special manner, a licensee must be able to distinguish trust funds from non-trust funds. Trust funds are money or other things of value that are received by a broker or salesperson on behalf of a principal or any other person, and which are held for the benefit of others in the performance of any acts for which a real estate license is required. Trust funds may be cash or non-cash items. Some examples are: cash, a check used as a purchase deposit (whether made payable to the broker or to an escrow or title company), a personal note made payable to the seller, or even a pink slip to a car that is given as a deposit. The discussions in this book pertain to real estate trust funds received by licensees, and not to non-trust funds such as real estate commissions, general operating funds, and rents and deposits from broker-owned real estate. These other types of funds, which as long as they are not commingled with trust funds are not subject to the Real Estate Law and Commissioner's Regulations. It should be noted, however, that under certain circumstances the California Bureau of Real Estate does have the jurisdiction to look into transactions involving non- trust funds.

 

Commissioner's Regulation 2830. Trust Fund Account.

 

If a real estate broker who accepts funds in a trust from others in the course of carrying on activities for which a real estate license is required does not effect compliance with section 10145of the code by immediately placing such funds into a neutral escrow depository or into the hands of a principal on whose behalf the funds were received, the broker shall deposit the funds upon receipt into a trust fund account in the name of the broker as trustee at a bank or other financial institution.

 

Except as expressly provided by subdivision (d) of Section 10145of the Code or by a regulation in this article, the account into which the trust funds are deposited shall not be an interest-bearing account for which prior written notice can by law or regulation be required by the financial institution as a condition to the withdrawal of funds.

 

Commissioner's Regulation 2830. 1. Interest Bearing Trust Account. A real estate broker, when acting as agent for a financial institution as beneficiary of a loan, may deposit and maintain funds from or for the account of an obligor for the future payment of property taxes, assessments or insurance relating to real property containing only a one-to-four family residence, in an interest-bearing trust account in a bank or savings and loan association in order to pay interest to the obligor in accordance with Section 2954. 8 of the Civil Code if the following requirements are met:

 

(a) The account is in the name of the broker as trustee.

 

(b) All of the funds in the account are covered by insurance provided by an agency of the federal government.

 

(c) All of the funds in the account are funds held in trust by the broker for others.

 

(d) The broker discloses to the obligor how interest will be calculated and paid. (e) No interest earned on the funds shall inure directly or indirectly to the benefit of the broker nor to any person licensed to the broker.

 

Trust Fund Handling Requirements

 

Because trust funds belong to others and are entrusted to the care and handling of a real estate licensee, the licensee has a fiduciary responsibility to the owners of the funds. This duty requires that the licensee handle the funds according to the law and use them only for purposes authorized by the funds' owners. Additionally, the licensee must maintain accurate, complete, and up-to-date accounting of the funds. A typical trust fund transaction begins with the broker or salesperson receiving trust funds from a principal in connection with the purchase or lease of real property. According to Business and Professions Code Section 10145, trust funds received must be placed into the hands of the owner(s) of the funds, into a neutral escrow depository, or into a trust account maintained pursuant to Commissioner's Regulation 2830 not later than the next business day following receipt of the funds by the broker or by the broker's salesperson.

 

An exception to this rule is when a check is received from an offeror in connection with an offer to purchase or lease real property. As provided under Commissioner's regulation 2832, a deposit check may be held uncashed by the broker until acceptance of the offer if the following conditions are met:

 

1. The check by its terms is not negotiable by the broker, or if the offeror has given written instructions that the check shall not be deposited or cashed until acceptance of the offer; and

 

2. The offeree is informed, before or at the time the offer is presented for acceptance that the check is being so held. If the offer is later accepted, the broker may continue to hold the check undeposited only if the broker receives written authorization from the offeree to do so. Otherwise, the check must be placed, not later than the next business day after acceptance, into a neutral escrow depository or into the trust fund bank account or into the hands of the offeree if both the offeror and offeree expressly so provide in writing.

 

According to Business and Professions Code Section 10145, a real estate salesperson who accepts trust funds on behalf of the broker under whom he or she is licensed must immediately deliver the funds to the broker or if directed by the broker, place the funds into the hands of the broker’s principal or into a neutral escrow depository or deposit the funds into the broker's trust fund bank account. A neutral escrow depository, as used in Business and Professions Code Section 10145, means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by any person described in subdivisions (a) and (c) of Section 17006 of the Code.

 

Identifying the Owner(s) of the Trust Funds

 

A broker must be able to identify which of the parties in a transaction owns the trust funds and is entitled to receive them, since these funds can be disposed of only upon the authorization of that person. The person entitled to the funds may or may not be the person who originally gave the funds to the broker or the salesperson. In some instances the party entitled to the funds will change upon the occurrence of certain events in the transaction. For example, in a transaction involving an offer to buy or lease real property or a business opportunity, the party entitled to the funds received from the offeror (prospective buyer or lessor) will depend upon whether or not the offer has been accepted by the offeree (seller or landlord) .

 

Prior to the acceptance of the offer, the funds received from the offeror belong to that person and must be handled according to his/her instructions. If the funds are deposited in a trust fund bank account, they must be maintained there for the benefit of the offeror until acceptance of the offer. Or, as discussed in the previous section, if the offeror wishes, his/her check may be held uncashed by the broker as long as he/she gives written instructions to the broker to do so and the offeree is informed before or at the time the offer is presented for acceptance that the check is being so held.

 

After acceptance of the offer, however, the funds shall be handled according to instructions from the offeror and the offeree as follows:

 

. An offeror's check held uncashed by the broker before acceptance of the offer may continue to be held uncashed after the acceptance of the offer, only upon written authorization from the offeree. (Commissioner’s Regulation 2832(d)).

 

. The offeror's check may be given to the offeree only if the offeror and offeree expressly so provide in writing. (Commissioner's Regulation 2832(d)).

 

. All or part of an offeror's purchase money deposit in a real estate sales transaction shall not be refunded by an agent or subagent of the seller without the express written permission of the offeree to make the refund. (Commissioner's Regulation 2785(a)(10)).

 

ADVANCE FEE TRUST FUNDS

 

BUSINESS AND PROFESSIONS CODE

 

10026. Definition of Advance Fee

 

The term "advance fee" as used in this part is a fee claimed, demanded, charged, received, collected or contracted for a listing, advertisement or offer to sell or lease property, other than in a newspaper of general circulation, issued primarily for the purpose of promoting the sale or lease of business opportunities or real estate or for referral to real estate brokers or salesmen, or soliciting borrowers or lenders for, or to negotiate loans on, business opportunities or real estate.

 

10131. 2 Broker License Needed

 

A real estate broker within the meaning of this part is also a person who engages in the business of claiming, demanding, charging, receiving, collecting or contracting for the collection of an advance fee in connection with any employment undertaken to promote the sale or lease of real property or of a business opportunity by advance fee listing, advertisement or other offering to sell, lease exchange or rent property or a business opportunity, or to obtain a loan or loans thereon.

 

10146. Advance Fees to Be Deposited in Trust Account

 

Any real estate broker who contracts for or collects an advance fee from any other person, hereinafter referred to as the "principal," shall deposit any such amount or amounts, when collected in a trust account with a bank or other recognized depository. Such funds are trust funds and not the funds of the agent. Amounts may be withdrawn there from for the benefit of the agent only when actually expended for the benefit of the principal or five days after the verified accounts mentioned hereinafter have been mailed to the principal. Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of the trust account in accordance with the procedures set forth in Section7473 of the Government Code.

 

The commissioner may issue such rules and regulations as he deems necessary to regulate the method of accounting, and to accomplish the purpose of the provisions of this code relating to advance fees including, but not limited to, establishing forms for and determining information to be included in such accountings. Each principal shall be furnished a verified copy of such accountings at the end of each calendar quarter and when the contract has been completely performed by the licensee. The Real Estate Commissioner shall be furnished a verified copy of any account or all accounts on his demand therefore.

 

Where advance fees actually paid by or on behalf of any principal are not handled in accordance with the preceding paragraph, it shall be presumed that the agent has violated Sections 506 and506a of the Penal Code. The principal may recover treble damages for amounts so misapplied and shall be entitled to reasonable attorney’s fees in any action brought to recover the same.

 

Rental Advance Fees

 

10167. 10 Refund of Advance Fee Paid

 

(a) (1) A licensee, other than a real estate broker, shall refund in full the advance fee paid by a prospective tenant the licensee does not, within five days after execution of the contract, supply at least three rental properties then available to prospective tenant and meeting the specifications of the contract.

 

(2) A licensee will be deemed to have supplied information meeting the specifications of the prospective tenant if the information supplied meets the contract specifications with reference to: (i) type of structure; (ii) designated area;(iii) furnished or unfurnished; (iv) number of bedrooms;(v) maximum rental; and (vi) any other specification expressly set forth in the contract. A demand for the return of the fee shall be made by or on behalf of the prospective tenant within 10 days following the expiration of the five-day period referred to above by delivery or by mailing by registered or certified mail to the address of a location, or branch of a real estate broker, set forth in the contract.

 

(b) A licensee shall refund any amount over and above the sum of a twenty-five dollar ($25) service charge to the prospective tenant if the prospective tenant obtains a rental other than through the services of the licensee during the term of the contract or does not obtain a rental, provided that the prospective tenant demands a return of that part of the fee within 10 days after the expiration of the contract. Within10 days of receipt of such a demand by the respective tenant, the licensee shall refund any amount over and above the sum of a twenty-five dollar ($25) service charge to the prospective tenant.

 

(c) Each contract, other than a contract employed by a licensee who is a real estate broker, shall contain provisions which shall contain provisions which shall read as follows unless different language shall have been approved in writing by the department prior to use:

 

RIGHT TO REFUND

 

(Full caps, bold face or italicize)

 

"If, within five days after payment of an advance fee, the licensee has not supplied the prospective tenant with at least three rental properties meeting the specifications of the contracts to (i) type of structure; (ii) designated area; (iii) furnished or unfurnished; (iv) number of bedrooms; (v) maximum rental; and(vi) any other specification expressly set forth in the contract, the amount of the fee paid shall be refunded to the prospective tenant upon presentation of evidence of such failure within 10days of the expiration of the five-day period.

 

"If the prospective tenant obtains a rental other than through the services of the licensee during the term of this contract or if the prospective tenant does not obtain a rental through the services of the licensee during the term of the contract, the licensee shall refund the fee received in excess of a twenty-five dollar ($25) service charge to the prospective tenant within 10days after receipt by the licensee of the demand for refund.

 

To be entitled to a refund in excess of the service charge, the prospective tenant must mail or deliver the demand for refund not later than 10 days after expiration of this contract. "

 

(d) Each contract employed by a real estate broker shall contain provisions which shall read as follows, unless different language shall have been approved in writing by the department prior to its use:

 

RIGHT TO REFUND

 

(Full caps, bold face or italicize)

 

"If the prospective tenant obtains a rental other than through the services of the licensee during the term of this contract or if the prospective tenant does not obtain a rental through the services of the licensee during the term of the contract, the licensee shall refund the fee received in excess of a twenty-five dollar ($25) service charge to the prospective tenant within 10days after receipt by the licensee of the demand for refund.

 

To be entitled to a refund in excess of the service charge, the prospective tenant must mail or deliver the demand for refund not later than 10 days after expiration of this contract. "

 

(e) This section shall not apply to a person purchasing rental information for a purpose other than that of locating a rental unit for personal use or the use of a designated person. The contract shall so provide and shall be initialed by the customer.

 

(f) If the licensee fails to make a refund as provided in this section and if the denial or delay in making the refund is found to have been done in bad faith, a court of appropriate jurisdiction, including a small claims court, shall be empowered to award damages to the plaintiff in an amount not to exceed five hundred dollars ($500) in addition to actual damages sustained by the plaintiff. If the licensee refuses or is unable to pay the damages awarded by the court, the award may be satisfied out of the security required under Section10167. 7.

 

(Paragraph 10167. 7 provides for licensees to maintain a $2,500bond with the CalBRE Commissioner. )

 

Disbursement Disclosure Requirements

 

REAL ESTATE COMMISSIONER'S REGULATIONS

 

2972. Accounting Content.

 

Each verified accounting to a principal or to the commissioner as required by Section 10146 of the Code shall include at least the following information:

 

(a) The name of the agent.

 

(b) The name of the principal.

 

(c) Description of the services rendered or to be rendered.

 

(d) Identification of the trust fund account into which the advance fee has been deposited. (e) The amount of the advance fee collected.

 

(f) The amount allocated or disbursed from the advance fee for each of the following:

 

(1) In providing each of the services enumerated under (c)above.

 

(2) Commissions paid to field agents and representatives.

 

(3) Overhead costs and profit.

 

(g) In cases in which disbursements have been made for advertising, a copy of the advertisement, the name of the publication, the number of the advertisements actually published and the dates that they were carried.

 

(h) In the case of an advance fee for the arrangement of a loan secured by a real property or a business opportunity, a list of the names and addresses of the persons to whom information pertaining to the principal's loan requirements were submitted and the dates of the submittal.

 

Agents' Responsibility as to Advance Fees

 

Authority to Receive Deposits

 

The general rule is that when the scope of authority of a real estate broker has been limited to producing a buyer able and willing to purchase the property upon terms prescribed by the broker's principal, the broker has no authority to accept a deposit from the buyer. Even when an agent has express authority to negotiate a sale of real property, this does not give him or her implied or ostensible authority to collect the purchase price. When an agent does so the agent is acting as agent for the buyer and not the seller. Consequently any misappropriation of these funds by the broker would result in loss to the buyer and not the seller. This general rule of law does not apply, however, where the broker actually had authority to receive a deposit on behalf of the seller. Virtually all listing agreement forms in use today give express authority to the broker to accept an earnest money deposit on behalf of the owner. The authority granted a listing broker also applies to any subagents of the seller. The authority, however, would not apply to a broker who is acting only as an agent of the buyer.

 

In those cases where a down payment has been paid to the broker and not deposited in escrow, title to such payment vests in the seller when the seller accepts the contract. Further, where an agreement for sale of realty provides that a deposit with the broker is to become a part of the down payment when the seller puts in escrow a deed evidencing good title, the deposit becomes the seller's property when the deed is put in escrow and the broker cannot, except at broker's own risk, return it to the buyer. Similarly money received by seller's agent under a deposit receipt with a valid liquidated damages clause is not recoverable by the buyer in the case of the buyer's breach.

 

The rationale behind this rule is that money received by a broker as agent or subagent for the seller belongs to the seller when the offer has been accepted. The broker may not return the funds to the buyer without the consent of the seller.

 

Checks

 

In those cases where an earnest money deposit has been paid to the broker with written instructions to hold and not negotiate the check until acceptance of the offer, the buyer's instructions should be followed. But the seller must be informed in writing, that the buyer's check is being held and not negotiated. This disclosure should be given to the seller not later than the actual presentation of the offer to the seller and must be acknowledged by the seller prior to or concurrent with the seller's acceptance of the offer. It is acceptable practice to include the disclosure as a term and condition of the offer. During the time between the receipt of the check by the broker and the acceptance of the purchase offer by the seller, the broker should enter the fact of receipt of the check into the broker's trust fund records and hold the check in a safe place. (See Commissioner's Regulations 2831 and 2832. ) Although there may be a custom in real estate transactions for a broker to accept a check instead of cash as an earnest money deposit, the existence of such a custom does not justify the acceptance of either a check or a promissory note in lieu of cash unless there is full disclosure to the seller. While checks are universally accepted as the equivalent of money in business transactions, promissory notes are not. The maker of a check represents that the maker has money in the bank to cover it and the failure to have such money may be a crime. The maker of a note makes no such representation and the maker's failure to pay is generally not a crime. California law has held that a post- dated check is the equivalent of a promissory note. Therefore, a broker should not accept a post-dated check from a buyer since this may result in mischaracterization of the form of earnest money deposit without adequate disclosure to the seller.

 

Promissory Note

 

A real estate broker, like a trustee, has an affirmative duty to disclose all material facts which might influence a principal's decision. Thus the broker who impliedly represents to a principal that the broker has received cash from a purchaser as an earnest money deposit when in fact the broker has accepted a non- negotiable promissory note has violated the Real Estate Law.

 

Escrow Depository

 

In those cases where an earnest money deposit has been paid by the buyer directly into escrow under the standard form of escrow instructions which provide for the exchange of money and a deed on stipulated conditions, the buyer is said to have conditionally delivered the money to the escrow holder, while it may be argued that the buyer retains title to the money until the conditions imposed by the buyer have been performed. When the buyer and seller have each fully performed under an escrow agreement (all conditions of escrow have been satisfied or waived), the escrow holder becomes the agent of the seller as to the purchase money and the agent of the buyer as to the deed. The escrow holder thereupon delivers the money to the seller and the deed to the buyer.

 

Commingling

 

The agent who places a client's money in agent's personal bank account is guilty of commingling and creates a risk of having it attached for personal claims against the agent. (See Section 10176(e) B. & P. Code. ) Hence real estate licensees are required by law to immediately place all funds received on behalf of principals in a special trust account, unless they place them in a neutral escrow depository or in the hands of the principal who is entitled to them. Checks must be deposited for collection by the next business day following receipt by the broker. If the broker fails to do so, the broker is liable to disciplinary action by the commissioner. A salesperson should immediately deliver all deposits into the hands or into the control of salesperson's broker, or as instructed by the broker.

 

Approval of Advance Fee Agreement

 

BUSINESS AND PROFESSIONS CODE

 

10085. Materials used in obtaining advance fee agreements; submission to commissioner; order; violations

 

The commissioner may require that any or all materials used in obtaining advance fee agreements, including but not limited to the contract forms, letters or cards used to solicit prospective sellers, and radio and television advertising be submitted to him or her at least 10 calendar days before they are used.

 

Should the commissioner determine that any such matter, when used alone or with any other matter, would tend to mislead he or she may, within 10 calendar days of the date he or she receives same, order that it not be used, disseminated, nor published. Any person using, disseminating, or publishing any matter which the commissioner has ordered, pursuant to this section, not to be used, published, or disseminated shall be guilty of a misdemeanor punishable by a fine not exceeding one thousand dollars ($1,000)or by imprisonment in the county jail not exceeding six months, or both, for each such use, dissemination, or publication.

 

Any violation of any of the provisions of this part or of the rules, regulations, orders or requirements of the commissioner there under shall constitute grounds for disciplinary action against a licensee, or for proceedings under Section 10081 of this code, or both. These sanctions are in addition to the criminal proceedings hereinbefore provided.

 

The commissioner may determine the form of the advance fee agreements, and all material used in soliciting prospective owners and sellers shall be used in the form and manner which he or she determines it necessary to carry out the purposes and intent of this part.

 

Any violation of any of the provisions of this part or of the rules, regulations, orders or requirements of the commissioner there under shall constitute grounds for disciplinary action against a licensee, or for proceedings under Section 10081 of this code, or both. These sanctions are in addition to the criminal proceedings hereinbefore provided.

 

10085. 5 Payment of advance fees; loans secured by lien on real property

 

(a) It shall be unlawful for any person to claim, demand, charge, receive, collect, or contract for an advance fee (1) for soliciting lenders on behalf of borrowers or performing services for borrowers in connection with loans to be secured directly or collaterally by a lien on real property, before the borrower becomes obligated to complete the loan or, (2)for performing any other activities for which a license is required, unless the person is a licensed real estate broker and has complied with the provisions of this part.

 

(b) This section shall not prohibit the acceptance or receipt of an advance fee by any bank, savings association, credit union, industrial loan company, or person acting within the scope of a license issued to that person pursuant to Division 9(commencing with Section 22000) Division 10 (commencing with Section 24000) or Division 11 (commencing with Section 26000)of the Financial Code, in connection with loans to be secured directly or collaterally by a lien on real property. This section shall not apply to charges made by title insurers and controlled escrow companies pursuant to Chapter 1 (commencing with Section 12340) of Part 6 of Division 2 of the Insurance Code.

 

(c) A violation of this section is a public offense punishable by a fine not exceeding ten thousand dollars ($10,000), or by imprisonment in the county jail for a term not to exceed six months, or by both fine and imprisonment, or if by a corporation, punishable by a fine not exceeding fifty thousand dollars ($50,000).

 

REAL ESTATE COMMISSIONER'S REGULATIONS

 

Article 21. Advance Fee Agreements

 

2970. Advance Fee Materials.

 

A person who proposes to collect an advance fee as defined in Section 10026 in the Code shall submit to the Commissioner not less than five days before publication or other use, all materials to be used in advertising, promoting, soliciting and negotiating an agreement calling for the payment of an advance fee including the form of advance fee agreement proposed for use.

 

(b) Material used in advertising, promoting, soliciting and negotiating an advance fee agreement shall not be approved if it:

 

(1) Includes any representation which is false, misleading or deceptive.

 

(2) Does not set forth a specific, complete description of the services to be rendered for the advance fee.

 

(3) Does not set forth the total amount of the advance fee along with the date on which the fee shall become due and payable.

 

(4) Contains any provision which purports to relieve or exempt the person collecting the advance fee from an obligation to fulfill verbal commitments and representations made by employees and agents of the person contracting for the advance fee.

 

(5) Contains any provision which purports to give a guarantee that the real property or business opportunity in question will be purchased, leased or exchanged or that a loan secured by real property will be obtained as a result of the services rendered by the person collecting the advance fee.

 

(6) Does not set forth a definite date for full performance of the services promised under the advance fee agreement.

 

(c) Not less than 10-point type shall be used in advance fee agreements.

 

TRUST FUND BANK ACCOUNTS

 

General Requirements

 

Trust funds received by a licensee that are not forwarded directly to the broker's principal or to a neutral escrow depository or for which the broker does not have authorization to hold uncashed must be deposited to the broker's trust fund bank account. (Business and Professions Code Section 10145. )

 

Business and Professions Code Section 10145 and Commissioner's Regulation 2830 require that a trust account meet the following criteria:

 

1. Designated as a trust account in the name of the broker as trustee;

 

2. Maintained with a bank or recognized depository located in California; and

 

3. Not an interest-bearing account for which prior written notice can by law or regulation be required by the financial institution as a condition to withdraw the funds, except as noted in the following discussion of "Interest Bearing Accounts".

 

Trust Account Withdrawals

 

Commissioner's Regulation 2834.

 

(a) Trust Account Withdrawals. Withdrawals may made from a trust fund account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker:

 

(1) a salesperson licensed to the broker.

 

(2) an unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust fund to which the employee has access at any time.

 

(b) Withdrawals may be made from the trust fund account of corporate broker only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or10211 of the Code or one of the persons enumerated in paragraph (1) or (2) of subdivision (a) above.

 

(c) An arrangement under which a person enumerated in paragraph(1) or (2) of subdivision (a) above is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee from responsibility or liability as provided by law in handling trust funds in the broker’s custody.

 

According to Commissioner's Regulation 2834, withdrawals from the trust account may be made only upon the signature of one or more of the following:

 

1. The broker in whose name the account is maintained; or

 

2. The designated broker-officer if the account is in the name of a corporate broker; or

 

3. If specifically authorized in writing by the broker, a salesperson licensed to the broker; or

 

4. If specifically authorized in writing by the broker, an unlicensed employee of the broker covered by a fidelity bond at least equal to the maximum amount of the trust fund to which the employee has access at any time.

 

Any arrangement under which a person named in items 3 or 4 is authorized to make withdrawals from a broker's trust fund account does not relieve an individual broker or the broker-officer of a corporate broker licensee from responsibility or liability as provided by law in handling trust funds in the broker's custody. The fact of an employee's irresponsibility or negligence also does not relieve the broker of compliance with the law.

 

Why a trust Account?

 

A trust account is set up as a means to separate trust funds from no trust funds. Although it can certainly be argued that keeping trust funds in a trust account will not prevent a dishonest broker from misusing the funds, separating client's funds from the broker's own funds provides a better physical and accounting control over the trust funds. An important reason for designating a trust fund depository as a trust account is the protection afforded principals' trust funds in situations where legal action is taken against the broker or if the broker becomes incapacitated or dies. Trust funds held in a true trust account cannot be "frozen" pending litigation against the broker or during probate. Trust funds also have better insurance protection if deposited into a trust account. The general counsel of the Federal Deposit Insurance Corporation (FDIC), in an opinion in 1965, held that funds of various owners which are placed in a custodial deposit (trust account) in an insured bank will be recognized for insurance purposes to the same extent as if the owners' names and interests in the account are individually disclosed on the records of the bank, provided the trust account is specifically designated as custodial and the name and interest of each owner of funds in the account are disclosed on the depositor's records. Each client with funds deposited in a trust account maintained with a federally insured bank is insured by the FDIC up to $100,000, as opposed to just $100,000 for the entire account, as long as the regulatory requirements are met.

 

Interest Bearing Accounts

 

A trust fund bank account normally may not be interest bearing. A broker may, however, at the request of the owner of trust funds, or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank or savings and loan association if all of the following requirements pursuant to Business and Professions Code Section 10145 are met:

 

1. The account is in the name of the broker as trustee for a specified beneficiary or specified principal of a transaction or series of transactions;

 

2. All of the funds in the account are covered by insurance provided by an agency of the federal government;

 

3. The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust; and

 

4. The broker discloses the following information to the person from whom the trust funds are received and to any beneficiary whose identity is known to the broker at the time of establishing the account:

 

. The nature of the account;

 

. How the interest will be calculated and paid under various circumstances;

 

. Whether service charges will be paid to the depository and by whom; and

 

. Possible notice requirements or penalties for withdrawal of funds from the account.

 

5. No interest earned on funds in the account shall inure directly or indirectly to the benefit of the broker or to any person licensed to the broker. Even authorization by the funds' owners shall not legally permit the broker to collect the earned interest on trust funds.

 

6. In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.

 

The only other situation where a real estate broker is allowed to deposit trust funds into an interest bearing account is when the broker is acting as an agent for a financial institution which is the beneficiary of a loan. In this case the broker may, pursuant to Commissioner's Regulation 2830. 1, deposit and maintain funds received from or for the account of an obligor (or borrower) into an interest bearing trust account in a bank or savings and loan association in order to pay interest on an impound account to the obligor in accordance with Section 2954. 8 of the Civil Code, as long as the following requirements are met:

 

1. The funds received from or for the account of the obligor are for the future payment of property taxes, assessments or insurance relating only to a property containing a one-to four- family residence;

 

2. The account is in the name of the broker as trustee;

 

3. All of the funds in the account are covered by insurance provided by an agency of the federal government;

 

4. All of the funds in the account are funds held in trust by the broker for others

 

5. The broker discloses to the obligor how interest will be calculated and paid; and

 

6. No interest earned on the trust funds shall inure directly or indirectly to the benefit of the broker or to any person licensed to the broker.

 

Commingling Prohibited

 

Funds belonging to the licensee may not be commingled with trust funds. Commingling is strictly prohibited by the Real Estate Law. It is grounds for the revocation or suspension of a real estate license pursuant to Business and Professions Code Section 10176(e).

 

Commingling occurs when: 

 

1. Personal or company funds are deposited into the trust fund bank account. This is a violation of the law even if separate records are kept.

 

2. Trust funds are deposited into the licensee's general or personal bank account rather than into the trust fund account. In this case the violation is not only commingling, but also handling trust funds contrary to Business and Professions Code Section 10145. It is also grounds for suspension or revocation of a license under Business and Professions Code Section 10177 (d) .

 

3. Commissions, fees, or other income earned by the broker and collectible from the trust account are left in the trust account for more than 30 days from the date they were earned. A common example of commingling is depositing rents and security deposits on broker-owned properties into the trust account. As these funds relate to the broker's properties, they are not trust funds and, therefore, may not be deposited into the trust fund bank account. Likewise, mortgage payments and other payments on broker-owned properties may not be made from the trust account even if the broker reimburses the account for such payments. Conducting personal business through the trust account is strictly prohibited and is a violation of the Real Estate Law.

 

For practical reasons, a real estate broker's personal funds may be commingled in the trust account in the following two specific instances:

 

1. A broker is allowed to maintain up to $100 of personal funds in a trust account to cover checking account service fees and other bank charges such as check printing charges and service fees on returned checks. Trust funds may not be used to pay for these expenses. The preferred practice however, is for the broker to have the bank debit his/her own personal account for any trust account fees and charges.

 

2. Commissions, fees, and other incomes earned by a broker, collectible from trust funds deposited into the broker's trust account may remain there for a period not to exceed 30 days. While leaving this income in the trust account is technically commingling of funds, sometimes it may just not be practical to disburse the earned income immediately upon receipt. For instance, a property management company may find it too burdensome to collect its management fee every time a rent check is received and deposited to the trust account. Therefore, as long as the broker disburses the fee from the trust account within 30 days after it is earned there is no commingling violation.

 

Note, however, that income earned shall not be taken from trust funds received before depositing such funds into the trust bank account. Also, under no circumstances may the broker pay personal obligations from the trust fund bank account even if such payments are a draw against commissions or other income. The broker must issue a trust account check to himself/herself for the total amount of the income earned, adequately documenting such payment, and then pay personal obligations from the proceeds of that check.

 

Trust Fund Liability

 

2831. Trust and Records to Be Maintained

 

(a) Every broker shall keep a record of all trust funds received, including uncashed checks held pursuant to instructions of his or her Principal. This record, including records maintained under an automated data processing system, shall set forth in Chronological Sequence the following information in columnar form:

 

(1) Date trust funds received.

 

(2) From whom trust funds received.

 

(3) Amount received.

 

(4) With respect to funds deposited in an account, date of said deposit.

 

(5) With respect to trust funds previously deposited to an account, check number and date of related disbursement.

 

(6) With respect to trust funds not deposited in an account, identity of other depository and date funds were forwarded.

 

(7) Daily balance of said account.

 

(b) For each bank account which contains trust funds, a record of all trust funds received and disbursed shall be maintained in accordance with subdivision (a) or (c).

 

(c) Maintenance of journals of account cash receipts and disbursements, or similar records, or automated data processing systems, including computer systems and electronic storage and manipulation of information and documents, in accordance with generally accepted accounting principles, shall constitute compliance with subdivision (a) Provided that such journals. records. or systems contain the elements required by subdivision (a) and that such elements are maintained in a format that will readily enable tracing and reconciliation in accordance with Section 2831. 2.

 

(d) Nothing in this section shall be construed to permit a violation of Section 10145 of the Code.

 

(e) A broker is not required to keep records pursuant to this section of checks which are written by a Principal, given to the broker and made payable to third parties for the provision of services providers, including but not limited to escrow, credit and appraisal services, when the total amount of such checks for any transaction from that principal does not exceed51,000. Upon request of the Deportment or the maker of such checks, a broker shall account for the receipt and distribution of such checks. A broker shall retain for three years copies of receipts issued or obtained in connection with the receipt and distribution of such checks.

 

NOTE: Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code.

 

2831. 1. Separate Record for Each Beneficiary or Transaction.

 

(a) A broker shall keep a separate record for each beneficiary or transaction, accounting for all funds which have been deposited to the broker's trust bank account and interest, if any, earned on the funds on deposit. This record shall include information sufficient to identify the transaction and the parties to the transaction. Each record shall set forth in chronological sequence the following information in columnar form:

 

(1) Date of deposit.

 

(2) Amount of deposit.

 

(3) Date of each related disbursement.

 

(4) Check number of each related disbursement.

 

(5) Amount of each related disbursement.

 

(6) If applicable, dates and amounts of interest earned and credited to the account.

 

(7) Balance after posting transactions on any date.

 

(b) Maintenance of trust ledgers of separate beneficiaries or transactions, or similar records, or automated data processing systems, including computer systems and electronic storage and manipulation of information and documents, in accordance with generally accepted accounting principles will constitute compliance with subdivision (a) provided that such ledgers, records, or systems contain the elements required by subdivision (a) and that such elements are maintained in a format that will readily enable tracing and reconciliation in accordance with Section 2831. 2.

 

NOTE: Authority cited: Section 10080 Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code.

 

2832 Trust Fund Handling

 

(a) Compliance with Section 10145 of the Code requires that the broker place funds accepted on behalf of another into the hands of the owner of the funds, into a neutral escrow depository or into a trust fund account in the name of the broker as trustee at a bank or other financial institution not later than three business s days following receipt of the funds by the broker or by the brokers salesperson.

 

(b) Except as expressly provided by subdivision (d) of Section10145 of the Code or by a regulation in this article, the account into which the trust funds are deposited shall not bean interest-bearing account for which prior written notice can by law or regulation be required by the financial institution as a condition to the withdrawal of funds.

 

(c) A check received from the offeror may be held uncashed by the broker until acceptance of the offer if

 

(1) the check by its terms is not negotiable by the broker or if the offeror has given written instructions that the check shall not be deposited nor cashed until acceptance of the offer and

 

(2) the offeree is informed that the check is being so held before or at the time the offer is presented for acceptance.

 

(d) In these circumstances if the offeror's check was held by the broker in accordance with subdivision (c) until acceptance of the offer, the check shall be placed into a neutral escrow depository or the trust fund account, or into the hands of the oferee if offeror and offeree expressly so provide in writing, not later than three business days following acceptance of the offer unless the broker receives written authorization from the offeree to continue to hold the check.

 

(e) Notwithstanding the Provisions of subdivisions (a) and (d), a real estate broker who is not licensed under the Escrow Law(Section 17000. et seq. of the Financial Code) when acting in the capacity of an escrow holder in a real estate purchase and sale. exchange or loan transaction in which the broker is Performing acts for which a real estate license is required shall place all funds accented on behalf of another into the hands of the owner of the funds. into a neutral escrow depository or into a trust fund account in the name of the broker as trustee at a bank or other financial institution not later than the next business day following receipt of the funds by the broker or by the broker's salesperson.

 

NOTE: Authority cited: Section 10080, Business and Professions Code. Reference: Section 10145, Business and Professions Code.

 

Commissioner's Regulation 2832. Trust Fund Handling.

 

(a) Compliance with Section 10145 of the Code requires that the broker place funds accepted on behalf of another into the hands of the owner of the funds, into a neutral escrow depository or into a trust fund account maintained pursuant to Section 2830 of these regulations not later than the next business day following receipt of the funds by the broker or by the broker's salesperson.

 

(b) Except as provided in subdivision (c), if the funds are received by the broker prior to acceptance of an offer to purchase or lease in connection with which the funds have been tendered, the funds shall be maintained in the trust fund account for the benefit of the offeror until acceptance of the offer.

 

(c) A check received from the offeror may be held uncashed by the broker until acceptance of the offer if (1) the check by its terms is not negotiable by the broker or if the offeror has given written instructions that the check shall not be deposited nor cashed until acceptance of the offer and (2) the offeree is informed that the check is being so held before or at the time the offer is presented for acceptance.

 

(d) In these circumstances if the offeror's check was held by the broker in accordance with subdivision (c) until acceptance of the offer, the check shall be placed into a neutral escrow depository or the trust fund account or into the hands of the offeree if offeror and offeree expressly so provide in writing not later than the next business day following acceptance of the offer unless the broker receives written authorization from the offeree to continue to hold the check.

 

Commissioner's Regulation 2832. 1. Trust Fund Handling for Multiple Beneficiaries. Compliance with Section 10145 of the Code requires that a real estate broker not disburse, nor cause or permit the disbursement of trust funds from a trust fund account without the prior written consent of every principal who is an owner of the funds in the account if the disbursement will reduce the balance of funds in the account to an amount less than the existing aggregate trust fund liability of the broker to all owners of said funds.

 

Trust fund liability arises when funds are received from or for the benefit of a principal, and decreases when funds are disbursed according to instructions from that principal. The aggregate trust fund liability at any one time for a trust account with multiple beneficiaries is equal to the total positive balances due to all beneficiaries of the account at the time. Note that beneficiary accounts with negative balances are not deducted from other accounts when calculating the aggregate trust fund liability. Funds on deposit in the trust account must always equal the broker's aggregate trust fund liability. If the trust account balance is less than the total liability a trust fund shortage results. Such a shortage is in violation of Commissioner's Regulation 2832. 1, which states that a broker may not disburse or cause or permit the disbursement of funds from a trust fund account without the prior written consent of every owner of the funds if the disbursement will reduce the balance of the account below the trust fund liability. Conversely, if the trust account balance is greater than the total liability there is a trust fund overage. An overage is also a violation of the Real Estate Law since non-trust funds may not be commingled in the trust account.

 

A trust fund discrepancy of any kind is a serious violation of the Real Estate Law. Many broker and salesperson licenses have been revoked after a CalBRE audit disclosed a trust account shortage, even in those cases where the shortage had been corrected prior to the audit.

 

To ensure that the balance of the trust account at all times equals the trust fund liabilities, a broker should take the following precautionary measures:

 

1. Deposit intact and in a timely manner to the trust account all funds that are not forwarded to escrow or to the funds' owner(s) or which are not held uncashed as authorized. This practice, required under Commissioner's Regulation 2832, lessens the risk of the funds being lost, misplaced, or otherwise not deposited to the trust account. A licensee is accountable for all trust funds received whether or not they are deposited. Department auditors have seen numerous cases where trust funds received were properly recorded on the books, but were never deposited to the bank.

 

2. Maintain adequate supporting papers for any disbursement from the trust account, and accurately record the disbursement both in the Bank Account Record and in the Separate Beneficiary Record. The Broker must be able to account for all disbursements of trust funds. Any unidentified disbursement will cause a shortage.

 

3. Disburse funds against a beneficiary's account only when the disbursement will not result in a negative or deficit balance (negative accountability) to the account. Many trust fund shortages are caused by the broker's making disbursements for a beneficiary in excess of funds received from or for account of that beneficiary. The over-disbursements are, in effect, paid out of funds belonging to other beneficiaries with positive balances. A shortage occurs because the balance of the trust fund bank account, even if it is a positive balance, is less than the broker's liability to those other beneficiaries.

 

4. Ensure that a check deposited to the trust fund account has cleared before disbursing funds against that check. This applies, for example, when a broker after depositing an earnest money deposit check for a purchase transaction has to return the funds to the buyer because the offer is rejected by the seller. A trust fund shortage will result if the broker issues the buyer a trust account check and the buyer's deposit check bounces or for some reason fails to clear the bank.