No. 42179 (Amendment): Rule R162-2f. Real Estate Licensing and Practices Rules

(Amendment)

DAR File No.: 42179
Filed: 10/02/2017 05:12:49 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this proposed rule amendment is to correct and clarify the existing rule, to add provisions regarding the responsibilities of a branch broker, to replace the current state approved Real Estate Purchase Contract (REPC) form with a newly approved REPC form, and to add the Deposit of Earnest Money With Title Company Addendum to Real Estate Purchase Contract form as a state-approved form available for use by licensees.

Summary of the rule or change:

In Section R162-2f-401a, the change corrects a typographical and a reference error. In Section R162-2f-401b, the change clarifies that a licensee must obtain the written consent of all owners of a property in order to advertise, offer to sell, or lease the property. In Subsection R162-2f-401c(2), the change requires that a branch broker exercise active supervision of all licensees and unlicensed staff employed by or affiliated with the branch and be personally responsible and accountable for all responsibilities and duties assigned to the branch broker by the principal broker and accepted by the branch broker. In Subsection R162-2f-401c(3), the change includes a branch broker from the exclusion of accountability already provided to a principal broker for certain violations of rule by an affiliated licensee or an unlicensed staff member when the branch broker follows the requirements set out in Subsection R162-2f-401c(3). In Section R162-2f-401f, the change approves for use by licensees the newly approved REPC form and the Deposit of Earnest Money With Title Company Addendum to Real Estate Purchase Contract form.

Statutory or constitutional authorization for this rule:

• Subsection 61-2f-103(1)(a)
• Subsection 61-2f-206(8)
• Subsection 61-2f-306(3)

Anticipated cost or savings to:

the state budget:

The Division of Real Estate (Division) has the staff and budget in place to administer this proposed amendment. After conducting a thorough analysis, it was determined that the proposed rule amendment will not result in a fiscal impact, affect those resources, or result in any additional cost or savings to the state budget.

local governments:

Local governments are not required to comply with or enforce the Real Estate Licensing and Practices Rules. After conducting a thorough analysis, it was determined that the proposed rule amendment will not result in a fiscal impact to local governments.

small businesses:

The proposed amendment does not create new obligations for small businesses nor does it increase the cost associated with any existing obligation. However, some real estate brokerages employ one or more branch brokers who are affected by the proposed rule amendment. The proposed rule amendment in Subsection R162-2f-401c(2) would require a branch broker to actively supervise the conduct of all licensees and unlicensed staff employed by or affiliated with the branch or branches supervised by the branch broker. The Division and Real Estate Commission believe and understand that in most instances branch brokers have always been active in supervising the licensees and staff affiliated with the branch. It is conceivable that a branch broker may request or negotiate for additional compensation from the brokerage as a result of the obligation in the proposed amendment. However, after conducting a thorough analysis, it was determined that the proposed rule amendment will not result in a fiscal impact to small businesses because branch brokers have already been supervising licensees and staff for policy or business reasons.

persons other than small businesses, businesses, or local governmental entities:

The proposed amendment does not create new obligations for persons other than small businesses, businesses, or local government entities nor does it increase the cost associated with any existing obligation. After conducting a thorough analysis, it was determined that the proposed rule amendment will not result in a fiscal impact to persons other than small businesses, businesses, or local government entities.

Compliance costs for affected persons:

The proposed rule amendment in Subsection R162-2f-401c(2) would require a branch broker to actively supervise the conduct of all licensees and unlicensed staff employed by or affiliated with the branch or branches supervised by the branch broker. The Division and Real Estate Commission believe and understand that in most instances branch brokers have always been active in supervising the licensees and staff affiliated with the branch. In these instances, the branch brokers have been supervising licensees and staff as a result of a policy or business decision, not because of an obligation imposed by administrative rule. If the proposed amendment is made effective, a branch broker will be subjected to a new obligation that requires active supervision. To the extent that a branch broker has not been actively supervising licensees or unlicensed staff affiliated with the branch, or, if a branch broker feels obligated to increase the time spent actively supervising as a result of the proposed rule, the branch broker may incur a compliance cost. The compliance cost will be reflected in the amount of time spent supervising and possibly additional time documenting the supervision. The amount of time required to actively supervise licensees and staff will vary from branch to branch depending on the number of licensees and staff affiliated with the branch. The value of the time spent supervising will also vary from branch broker to branch broker. The current REPC approved for use by licensees is being phased out and a new REPC form has been approved for use. Licensees may use the current REPC form until end of December 2017. Beginning in January 2018, licensees must (with a few exceptions) use the newly approved REPC. The current and new REPC forms are available online on the Division website at no cost to affected persons. The newly approved Deposit of Earnest Money With Title Company Addendum to Real Estate Purchase Contract form will also be on the Division website at no cost to affected persons. These forms are also available to many licensees from associations of which they are members. After conducting a thorough analysis, it was determined that the proposed rule amendment will not result in a fiscal impact to affected persons.

Comments by the department head on the fiscal impact the rule may have on businesses:

The purpose of these amendments is to establish, by rule, provisions regarding the responsibilities of a branch broker to exercise active supervision over licensed and unlicensed staff employed by or affiliated with a branch broker, to apply to branch brokers the same safe harbor for compliance with the rule as currently accorded to a principal broker, and to approve for use by licensees the newly approved REPC form and the newly approved Deposit of Earnest Money with Title Company Addendum to Real Estate Purchase Contract form. Only the first of these amendments has any potential for fiscal impact upon small businesses. However, after conducting a thorough analysis, the Division has determined that the proposed rule amendment will not result in a fiscal impact to small businesses because branch brokers have already been supervising licensed and unlicensed staff, and there will be little or no change to current practices by branch brokers.

Francine A. Giani, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Commerce
Real Estate
HEBER M WELLS BLDG
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

• Justin Barney at the above address, by phone at 801-530-6603, by FAX at , or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/01/2017

This rule may become effective on:

12/08/2017

Authorized by:

Jonathan Stewart, Director

RULE TEXT

R162. Commerce, Real Estate.

R162-2f. Real Estate Licensing and Practices Rules.

R162-2f-401a. Affirmative Duties Required of All Licensed Individuals.

An individual licensee shall:

(1) uphold the following fiduciary duties in the course of representing a principal:

(a) loyalty, which obligates the agent to place the best interests of the principal above all other interests, including the agent's own;

(b) obedience, which obligates the agent to obey all lawful instructions from the principal;

(c) full disclosure, which obligates the agent to inform the principal of any material fact the agent learns about:

(i) the other party; or

(ii) the transaction;

(d) confidentiality, which prohibits the agent from disclosing, without permission, any information given to the agent by the principal that would likely weaken the principal's bargaining position if it were known, but excepting any known material fact concerning:

(i) a defect in the property; or

(ii) the client's ability to perform on the contract;

(e) reasonable care and diligence;

(f) holding safe and accounting for all money or property entrusted to the agent; and

(g) any additional duties created by the agency agreement;

(2) for the purpose of defining the scope of the individual's agency, execute a written agency agreement between the individual and the individual's principal, including:

(a) seller(s) the individual represents;

(b) buyer(s) the individual represents;

(c) buyer(s) and seller(s) the individual represents as a limited agent in the same transaction pursuant to this Subsection (4);

(d) the owner of a property for which the individual will provide property management services; and

(e) a tenant whom the individual represents;

(3) in order to represent both principals in a transaction as a limited agent, obtain prior informed consent by:

(a) clearly explaining in writing to both parties:

(i) that each is entitled to be represented by a separate agent;

(ii) the type(s) of information that will be held confidential;

(iii) the type(s) of information that will be disclosed; and

(iv) the circumstances under which the withholding of information would constitute a material misrepresentation regarding the property or regarding the abilities of the parties to fulfill their obligations;

(b) obtaining a written acknowledgment from each party affirming that the party waives the right to:

(i) undivided loyalty;

(ii) absolute confidentiality; and

(iii) full disclosure from the licensee; and

(c) obtaining a written acknowledgment from each party affirming that the party understands that the licensee will act in a neutral capacity to advance the interests of each party;

(4) when acting under a limited agency agreement:

(a) act as a neutral third party; and

(b) uphold the following fiduciary duties to both parties:

(i) obedience, which obligates the limited agent to obey all lawful instructions from the parties, consistent with the agent's duty of neutrality;

(ii) reasonable care and diligence;

(iii) holding safe all money or property entrusted to the limited agent; and

(iv) any additional duties created by the agency agreement;

(5) when making an offer or solicitation to buy, sell, lease or rent real property as a principal, either directly or indirectly, or as an agent for a client, a licensee shall disclose in the initial contact with the other party the fact that the licensee holds a license with the division, whether the license status is active or inactive;

(6)[(5)] prior to executing a binding agreement, disclose in writing to clients, agents for other parties, and unrepresented parties:

(a) the licensee's position as a principal in any transaction where the licensee operates either directly or indirectly to buy, sell, lease, or rent real property;

(b) the fact that the licensee holds a license with the division, whether the license status is active or inactive, in any circumstance where the licensee is a principal in an agreement to buy, sell, lease, or rent real property;

(c) the licensee's agency relationship(s);

(d)(i) the existence or possible existence of a due-on-sale clause in an underlying encumbrance on real property; and

(ii) the potential consequences of selling or purchasing a property without obtaining the authorization of the holder of an underlying encumbrance;

(7)[(6)] in order to offer any property for sale or lease, make reasonable efforts to verify the accuracy and content of the information and data to be used in the marketing of the property;

(8)[(7)] in order to offer a residential property for sale, disclose the source on which the licensee relies for any square footage data that will be used in the marketing of the property:

(a) in the written agreement, executed with the seller, through which the licensee acquires the right to offer the property for sale; and

(b) in a written disclosure provided to the buyer, at the licensee's direction, at or before the deadline for the seller's disclosure per the contract for sale;

(9)[(8)] upon initial contact with another agent in a transaction, disclose the agency relationship between the licensee and the client;

(10)[(9)] when executing a binding agreement in a sales transaction, confirm the prior agency disclosure:

(a) in the currently approved Real Estate Purchase Contract; or

(b) in a separate provision with substantially similar language incorporated in or attached to the binding agreement;

(10) when executing a lease or rental agreement, confirm the prior agency disclosure by:

(a) incorporating it into the agreement; or

(b) attaching it as a separate document;

(12)[(11)] if the licensee desires to act as a sub-agent for the purpose of showing property owned by a seller who is under contract with another brokerage, prior to showing the seller's property:

(a) notify the listing brokerage that sub-agency is requested; and

(b) enter into a written agreement with the listing brokerage with which the seller has contracted:

(i) consenting to the sub-agency; and

(ii) defining the scope of the agency;

(c) obtain from the listing brokerage all available information about the property; and

(d) uphold the same fiduciary duties outlined in this Subsection (1);

(13)[(12)] provide copies of a lease or purchase agreement, properly signed by all parties, to the party for whom the licensee acts as an agent;

(14)(a)[(13)(a)] in identifying the seller's brokerage in paragraph 5 of the approved Real Estate Purchase Contract, use:

(i) the principal broker's individual name; or

(ii) the principal broker's brokerage name; and

(b) personally fulfill the licensee's agency relationship with the client, notwithstanding the information used to complete paragraph 5;

(15)[(14)] timely inform the licensee's principal broker or branch broker of real estate transactions in which:

(a) the licensee is involved as agent or principal;

(b) the licensee has received funds on behalf of the principal broker; or

(c) an offer has been written;

(16)(a)[(15)(a)] disclose in writing to all parties to a transaction any compensation in addition to any real estate commission that will be received in connection with a real estate transaction; and

(b) ensure that any such compensation is paid to the licensee's principal broker;

(17)(a)[(16)(a)] in negotiating and closing a transaction, a licensee may fill out those legal forms as provided for in Section 61-2f-306;

(18)[(17)] use an approved addendum form to make a counteroffer or any other modification to a contract;

(19)[(18)] in order to sign or initial a document on behalf of a principal in a sales transaction:

(a) obtain prior written authorization in the form of a power of attorney duly executed by the principal;

(b) retain in the file for the transaction a copy of said power of attorney;

(c) attach said power of attorney to any document signed or initialed by the individual on behalf of the principal;

(d) sign as follows: "(Principal's Name) by (Licensee's Name), Attorney-in-Fact;" and

(e) initial as follows: "(Principal's Initials) by (Licensee's Name), Attorney-in-Fact for (Principal's Name);"

(20)[(19)] in order to sign or initial a document on behalf of a principal in a property management transaction:

(a) obtain prior written authorization executed by the principal which specifically identifies the actions that are authorized to be taken on behalf of the principal;

(b) retain in the file for the transaction a copy of the written authorization;

(c) sign as follows: "by (Licensee's Name), on behalf of Owner;" and

(d) initial as follows: "by (Licensee's [inititials]initials), on behalf of Owner;"

(21)[(20)] if employing an unlicensed individual to provide assistance in connection with real estate transactions, adhere to the provisions of Section R162-2f-401g;

(22)[(21)] strictly adhere to advertising restrictions as outlined in Section R162-2f-401h;

(23)[(22)] as to a guaranteed sales agreement, provide full disclosure regarding the guarantee by executing a written contract that contains:

(a) the conditions and other terms under which the property is guaranteed to be sold or purchased;

(b) the charges or other costs for the service or plan;

(c) the price for which the property will be sold or purchased; and

(d) the approximate net proceeds the seller may reasonably expect to receive;

(24)[(23)] immediately deliver money received in a real estate transaction to the principal broker for deposit; and

(25)[(24)] as contemplated by Subsection 61-2f-401 (20)[(19)], when notified by the division that information or documents are required for investigation purposes, respond with the required information or documents in full and within ten business days.

 

R162-2f-401b. Prohibited Conduct As Applicable to All Licensed Individuals.

An individual licensee may not:

(1) engage in any of the practices described in Section 61-2f-401 et seq., whether acting as agent or on the licensee's own account, in a manner that:

(a) fails to conform with accepted standards of the real estate sales, leasing, or management industries;

(b) could jeopardize the public health, safety, or welfare; or

(c) violates any provision of Title 61, Chapter 2f et seq. or the rules of this chapter;

(2) require parties to acknowledge receipt of a final copy of any document prepared by the licensee prior to all parties signing a contract evidencing agreement to the terms thereof;

(3) make a misrepresentation to the division:

(a) in an application for license renewal; or

(b) in an investigation.

(4)(a) propose, prepare, or cause to be prepared a document, agreement, settlement statement, or other device that the licensee knows or should know does not reflect the true terms of the transaction; or

(b) knowingly participate in a transaction in which such a false device is used;

(5) participate in a transaction in which a buyer enters into an agreement that:

(a) is not disclosed to the lender; and

(b) if disclosed, might have a material effect on the terms or the granting of the loan;

(6) use or propose the use of a double contract;

(7) place a sign on real property without the written consent of the property owner;

(8) take a net listing;

(9) sell listed properties other than through the listing broker;

(10) subject a principal to paying a double commission without the principal's informed consent;

(11) enter or attempt to enter into a concurrent agency representation when the licensee knows or should know that the principal has an existing agency representation agreement with another licensee;

(12) pay a finder's fee or give any valuable consideration to an unlicensed person or entity for referring a prospect, except that:

(a) a licensee may give a gift valued at $150 or less to an individual in appreciation for an unsolicited referral of a prospect that results in a real estate transaction; and

(b) as to a property management transaction, a licensee may compensate an unlicensed employee or current tenant up to $200 per lease for assistance in retaining an existing tenant or securing a new tenant;

(13) accept a referral fee from:

(a) a lender; or

(b) a mortgage broker;

(14) act as a real estate agent or broker in the same transaction in which the licensee also acts as a:

(a) mortgage loan originator, associate lending manager, or principal lending manager;

(b) appraiser or appraiser trainee;

(c) escrow agent; or

(d) provider of title services;

(15) act or attempt to act as a limited agent in any transaction in which:

(a) the licensee is a principal in the transaction; or

(b) any entity in which the licensee is an officer, director, partner, member, employee, or stockholder is a principal in the transaction;

(16) make a counteroffer by striking out, whiting out, substituting new language, or otherwise altering:

(a) the boilerplate provisions of the Real Estate Purchase Contract; or

(b) language that has been inserted to complete the blanks of the Real Estate Purchase Contract;

(17) advertise or offer to sell or lease property without the written consent of:

(a) the owner(s) of the property; and

(b) if the property is currently listed, the listing broker;

(18) advertise or offer to sell or lease property at a lower price than that listed without the written consent of the seller or lessor;

(19) represent on any form or contract that the individual is holding client funds without actually receiving funds and securing them pursuant to Subsection R162-2f-401a (24)[(23)];

(20) when acting as a limited agent, disclose any information given to the agent by either principal that would likely weaken that party's bargaining position if it were known, unless the licensee has permission from the principal to disclose the information;

(21) disclose, or make any use of, a short sale demand letter outside of the purchase transaction for which it is issued;

(22) in a short sale, have the seller sign a document allowing the licensee to lien the property; or

(23) charge any fee that represents the difference between:

(a) the total concessions authorized by a seller and the actual amount of the buyer's closing costs; or

(b) in a short sale, the sale price approved by the lender and the total amount required to clear encumbrances on title and close the transaction.

 

R162-2f-401c. Additional Provisions Applicable to[Principal] Brokers.

(1) A principal broker shall:

(a) strictly comply with the record retention and maintenance requirements of Subsection R162-2f-401k;

(b) provide to the person whom the principal broker represents in a real estate transaction:

(i) a detailed statement showing the current status of a transaction upon the earlier of:

(A) the expiration of 30 days after an offer has been made and accepted; or

(B) a buyer or seller making a demand for such statement; and

(ii) an updated transaction status statement at 30-day intervals thereafter until the transaction either closes or fails;

(c)(i) regardless of who closes a real estate transaction, ensure that final settlement statements are reviewed for content and accuracy at or before the time of closing by:

(A) the principal broker;

(B) an associate broker or branch broker affiliated with the principal broker; or

(C) the sales agent who is:

(I) affiliated with the principal broker; and

(II) representing the principal in the transaction; and

(ii) ensure the principals in each closed real estate transaction receive copies of all documents executed in the transaction closing;

(d) in order to assign all or part of the principal broker's compensation to an associate broker or sales agent in accordance with Section 61-2f-305, provide written instructions to the title insurance agent that include the following:

(i) an identification of the property involved in the real estate transaction;

(ii) an identification of the principal broker and sales agent or associate broker who will receive compensation in accordance with the written instructions;

(iii) a designation of the amount of compensation that will be received by both the principal broker and the sales agent or associate broker;

(iv) a prohibition against alteration of the written instructions by anyone other than the principal broker; and

(v) additional instructions at the discretion of the principal broker;

(e) obtain written consent from both the buyer and the seller before retaining any portion of an earnest money deposit being held by the principal broker;

(f) exercise active supervision over the conduct of all licensees and unlicensed staff employed by or affiliated with the principal broker, whether acting as:

(i) the principal broker for an entity; or

(ii) a branch broker;

(g) strictly adhere to the rules governing real estate auctions, as outlined in Section R162-2f-401i;

(h) strictly adhere to the rules governing property management, as outlined in Section R162-2f-401j;

(i)(i) except as provided in this Subsection (1)(i)(iii), within three business days of receiving a client's money in a real estate transaction, deposit the client's money into a trust account:

(A) maintained by the principal broker pursuant to Section R162-2f-403; or

(B) if the parties to the transaction agree in writing, maintained by:

(I) a title company pursuant to Section 31A-23a-406; or

(II) another authorized escrow entity; and

(ii) within three business days of receiving money from a client or a tenant in a property management transaction, deposit the money into a trust account maintained by the principal broker pursuant to Section R162-2f-403 or forward or deposit client or tenant money into an account maintained by the property owner;

(iii) a principal broker is not required to comply with this Subsection (1)(i)(i) or (ii) if:

(A) the contract or other written agreement states that the money is to be:

(I) held for a specific length of time; or

(II) as to a real estate transaction, deposited upon acceptance by the seller; or

(B) as to a real estate transaction, the Real Estate Purchase Contract or other written agreement states that a promissory note may be tendered in lieu of good funds and the promissory note:

(I) names the seller as payee; and

(II) is retained in the principal broker's file until closing;

(j)(i) maintain at the principal business location a complete record of all consideration received or escrowed for real estate and property management transactions; and

(ii) be personally responsible at all times for deposits held in the principal broker's trust account;

(k)(i)(A)(I) in a real estate transaction, assign a consecutive, sequential number to each offer; and

(II) assign a unique identification to each property management client; and

(B) include the transaction number or client identification, as applicable, on:

(I) trust account deposit records; and

(II) trust account checks or other equivalent records evidencing the transfer of trust funds;

(ii) maintain a separate transaction file for each offer in a real estate transaction, including a rejected offer, that involves funds tendered through the brokerage and deposited into a trust account;

(iii) maintain a record of each rejected offer in a real estate transaction that does not involve funds deposited to trust:

(A) in separate files; or

(B) in a single file holding all such offers; and

(l) if the principal broker assigns an affiliated associate broker or branch broker to assist the principal broker in accomplishing the affirmative duties outlined in this Subsection (1):

(i) actively supervise any such associate broker or branch broker; and

(ii) remain personally responsible and accountable for adequate supervision of all licensees and unlicensed staff affiliated with the principal broker.

(2) A branch broker shall:

(a) exercise active supervision over the conduct of all licensees and unlicensed staff employed by or affiliated with the branch or branches supervised by the branch broker; and

(b) be personally responsible and accountable for all other responsibilities and duties assigned to the branch broker by the principal broker and accepted by the branch broker.

[(2)](3) [A]Neither a principal broker nor a branch broker shall[not] be deemed in violation of [this ]Subsections (1)(f) and (2) where:

(a) an affiliated licensee or unlicensed staff member violates a provision of Title 61, Chapter 2f et seq. or the rules promulgated thereunder;

(b) the supervising broker had in place at the time of the violation specific written policies or instructions to prevent such a violation;

(c) reasonable procedures were established by the broker to ensure that licensees receive adequate supervision and the broker has followed those procedures;

(d) upon learning of the violation, the broker attempted to prevent or mitigate the damage;

(e) the broker did not participate in the violation;

(f) the broker did not ratify the violation; and

(g) the broker did not attempt to avoid learning of the violation.

 

R162-2f-401f. Approved Forms.

(1) The following standard forms are approved by the commission and the Office of the Attorney General for use by all licensees:

(a)[(1)] July 19, 2017,[August 27, 2008,] Real Estate Purchase Contract;

(b)[(2)] January 1, 1987, Uniform Real Estate Contract;

(c)[(3)] October 1, 1983, All Inclusive Trust Deed;

(d)[(4)] October 1, 1983, All Inclusive Promissory Note Secured by All Inclusive Trust Deed;

(e)[(5)] August 5, 2003, Addendum to Real Estate Purchase Contract;

(f)[(6)] August 27, 2008, Seller Financing Addendum to Real Estate Purchase Contract;

(g)[(7)] January 1, 1999, Buyer Financial Information Sheet;

(h)[(8)] August 27, 2008, FHA/VA Loan Addendum to Real Estate Purchase Contract;

(i)[(9)] January 1, 1999, Assumption Addendum to Real Estate Purchase Contract;

(j)[(10)] January 1, 1999, Lead-based Paint Addendum to Real Estate Purchase Contract; and

(k)[(11)] January 1, 1999, Disclosure and Acknowledgment Regarding Lead-based Paint and/or Lead-based Paint Hazards.

(l) July 19, 2017, Deposit of Earnest Money With Title Company Addendum to Real Estate Purchase Contract.

 

KEY: real estate business, operational requirements, trust account records, notification requirements

Date of Enactment or Last Substantive Amendment: [May 10], 2017

Notice of Continuation: August 12, 2015

Authorizing, and Implemented or Interpreted Law: 61-2f-103(1); 61-2f-105; 61-2f-203(1)(e); 61-2f-206(3); 61-2f-206(4)(a); 61-2f-306; 61-2f-307

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