Real Estate Practice in California

PREFACE

The practice of real estate has gone through many changes over the years. With the various legal modifications and professional refinements that have occurred in recent years, it is critical that all real estate agents keep current. This book will provide you with the latest information to enable you to better practice your profession.

Please be advised of the following. This book is not meant as a substitute for expert legal or business advice. Also, specific laws, regulations and requirements are subject to change. Finally, the terms he, him, and his are used throughout this book. They are meant to apply equally to the female professional. It is merely an editorial device.

Chapter 1

LICENSING LAW

INTRODUCTION

California has been the leader in real estate licensing since the first laws for it were enacted. Often California’s laws serve as models for other states. Before real estate licenses are granted, qualifications are thoroughly checked and knowledge is tested.

This chapter explains the types of real estate licenses available, requirements for getting them initially and for renewing them, and some laws related to licenses.

Incidentally, none of the fees required for licensing is refundable.

PURPOSE OF LICENSING LAWS

Licensing laws were developed in order to protect the public by regulating real estate agents. Almost every activity related to a real estate transaction requires a license to perform.

If the agent has no license for his activities, he cannot receive commissions or fees for performing them.

Anyone found guilty of operating without a license faces a possible $1,000 fine or six months in jail or both. Corporations can be fined up to $5,000.

Anyone who pays an unlicensed person for real estate transactions requiring licenses is guilty of a misdemeanor and can be fined up to $50.

BROKER’S LICENSE

Anyone who wants a real estate broker’s license in California must be at least 18 years old and honest and truthful. He must also file necessary applications, prove required experience and education, pass a qualifying exam, and pay all required fees.

One must meet all qualifications prior to being scheduled for examination. The Department of Real Estate will conduct no evaluation of claimed experience or education with applicants in person or on the telephone. Satisfaction of requirements is a matter of records and filings. In order to be evaluated by the DRE for previous college courses, degrees, or experience, you must submit the following materials:

a. Examination application (form RE 400)

b. Appropriate fee

c. Transcripts of your college courses and/or degree

d. Catalog description of any courses that you wish to substitute for the statutorily required courses

e. Employment Verification Form (form RE 226).

f. Equivalent Experience Form (form RE 227)

When you apply for qualification, as described above, you may find that you do not meet all of the qualifications. If that is the case, you will be given two years from the date of the receipt of your application in which to complete the qualifications and take the examination for your license.

If you do not pass the examination during the two year period, the application expires, and you will be required to resubmit all qualifying material with the appropriate application and fee.

There are no upper limit age restrictions for a California real estate license. Nevertheless, to apply for a license you have to be 18 years of age or older — minors are not eligible.

There are certain residency requirements. One need not necessarily be a resident of California, but the state in which one resides must allow California residents to qualify for and obtain a real estate license in that state. Otherwise, one may not apply for either an original or a renewal license.

EDUCATION

If you wish to apply for a real estate broker’s license in California, you must successfully complete certain college level courses, required by state law, plus a certain number of elective courses from an approved list. We will break down the required courses into an easily understandable listing presently. First, it should be mentioned that college level does not necessarily mean that you have to take the courses at a college, or be enrolled at a college.

Broker qualification courses must be completed in any one of the following ways:

1. At an institution of higher learning (college) accredited by the Western Association of Schools and Colleges, or by any other regional accrediting agency recognized by the United States Department of Education (be sure to check); or

2. Through a private school which has had its courses approved by the California Real Estate Commissioner.

Each college level course must be a minimum of 45 classroom or clock hours (i.e., three semester-units or equivalent quarter-unit). The courses must be completed prior to being scheduled for an examination. Anyone looking for classes on real estate should check with local Real Estate Boards, colleges, universities, and private state-approved schools. A list of approved courses and institutions is available from the Department of Real Estate for $4.50.

COURSE REQUIREMENTS

Anyone who wishes to apply for a real estate broker’s license must have successfully completed the following statutorily required courses at or through one of the institutions described above:

1. Real Estate Practice

2. Legal Aspects of Real Estate

3. Real Estate Finance

4. Real Estate Appraisal

5. Real Estate Economics or General Accounting

And three* courses selected from the following group:

1. Real Estate Principles

2. Business Law

3. Property Management

4. Real Estate Office Administration

5. Escrows

6. Advanced Legal Aspects of Real Estate

7. Advanced Real Estate Finance

8. Advanced Real Estate Appraisal

(*If the applicant completes both Accounting and Real Estate Economics, only two courses from the latter group are required.)

TO REVIEW:

The total number of required courses is eight: five specific courses (listed first above) plus three of the eight courses listed last above, or two of the last eight if both Accounting and Real Estate Economics are completed.

NOTE: BROKER QUALIFICATION COURSES DO NOT SATISFY CONTINUING EDUCATION REQUIREMENTS FOR EITHER SALESPERSONS OR BROKERS.

PROOF OF EDUCATIONAL QUALIFICATION

As was mentioned previously, the courses must be completed prior to being scheduled for an examination. Copies of official transcripts are acceptable evidence of having completed courses. Transcripts of other courses, submitted as an equivalent course of study in lieu of the statutory courses, must be accompanied by an official course or catalog description in order to be evaluated.

EXP ERIE NCE REQU IREM ENT AND EQUIVALENT EDUCATION AND ACTIVITIES IN LIEU OF SUCH EXPERIENCE

Within the five years immediately preceding the application for a broker’s license, the applicant must have had at least two years full-time licensed salesperson experience or the equivalent. Later we will discuss the requirements for getting a salesperson’s license; for now, let’s concentrate on the broker’s license. Remember: Two years of full-time licensed salesperson experience, or the equivalent (in experience or education) within the five years immediately preceding the application for a broker’s license.

WHAT IS LICENSED EXPERIENCE?

Since licensed experience as a salesperson (or equivalent experience or education) is so critical to qualifying for a broker’s license, we should spell out as carefully as possible just what that experience amounts to.

Full-time salesperson activity means at least 40 hours per week devoted to activities which require a real estate license. No additional credit will be given for more than 40 hours of activity.

Part-time activity as a real estate salesperson will be given on a prorated basis. For example, 20 hours of activity per week would be given credit as half-time employment, and four years of such employment would be required to qualify for a broker license. No credit is given for less than 10 hours of activity per week.

Salespersons who claim full-time employment for 40 hours per week, but who are employed as full-time employees in another industry, will not, ordinarily, be credited in excess of 20 hours per week maximum (or half-time employment in the real estate business).

You may qualify with only one year of full-time California real estate salesperson employment (gained within five years prior to the date of application) if, in addition to the one year, you have had at least two years of full-time California licensed employment accumulated more than five years, but not less than twelve years, prior to the date of application.

ACCEPTABLE KINDS OF EQUIVALENT EXPERIENCE:

An applicant MAY qualify with:

a. Four years of experience as a subdivider or contractor during which time applicant financed and sold 50 or more improved lots or the equivalent.

b. Working one year as a full-time licensed real estate salesperson, if the applicant also has three years of experience as an escrow or title officer.

c. Five years of experience during the past ten years as a real property appraiser or salaried real property appraiser.

d. Four years of experience in speculative building, selling, and leasing of multi-unit, industrial, or commercial building; and six months of real estate salesperson employment.

e. At least five years of experience as an escrow, title, or loan officer of a land-title company, bank, mortgage company, etc., in a capacity directly related to the financing or conveying of real property.

Please note the following procedural hints which will facilitate the smooth presentation and processing of your application:

Care in preparing the claim of qualification and presentation of adequate supporting letters or certifications will facilitate clearing an application. Do not have verifiers send individual letters separate from your application submissions.

Furthermore, be accurate as to dates, etc., as incompleteness or inaccuracies will result in delays and extra correspondence. Because of the delays in obtaining college transcripts, a student applicant should make arrangements with the college far in advance of a desired examination date.

If you are not qualified at the time of making application, you have two years from the original date the application and fee were received by DRE to complete the qualifications and take the examination. If you do not pass the examination during the two year period, the application automatically lapses, and you will be required to re-submit all qualifying material with the appropriate application and fee.

Here are a few helpful "do’s and don’ts:

1. Do not request a qualification evaluation over the telephone.

2. Do not expect a refund or credit for any fees submitted. The Business and Profession’s Code (legal statutes) prohibits refunds of application fees.

3. Do inform the Department of any change of your mailing address. Any changes must be submitted in writing at the examination site or via a letter.

4. Do not submit a fingerprint card with the examination application.

5. Do not request an A.M. or P.M. examination time, or a specific date or day of the week; such requests cannot be granted.

6. Do not apply for an examination if you are not prepared to take it. You will be scheduled for the first available date on or after the date indicated on the application.

7. Do not send cash to the DRE.

8. Do complete the application form correctly and fully. Any misrepresentations or missing items may result in a delay in obtaining an examination date or disqualification from the examination.

9. Do not attempt to obtain an examination date via telephone. Applications can only be accepted by following the procedure which follows:

HOW TO APPLY

What to Submit

1. Completed Examination Application (RE 400). Remember, no changes of any kind will be made to an application once it has been received by DRE, so make sure you have it the way you want it before you send it to the Department.

Also, do not submit more than one application. If you previously applied for an examination and then submit a new application and fee prior to receiving your results, an examination date will not be assigned and you will forfeit that fee.

You may not apply to take an examination for a license for which you already have a right of renewal. We will discuss renewals later.

2. Correct fee. Again, we will be discussing licensing fees later, and you should be sure to consult the most recent fee schedule before sending in your application. Money orders or checks should be made payable to the Department of Real Estate. Do not send cash.

3. Transcripts showing successful completion of the statutory college-level real estate courses and degrees.

4. Employment Verification Form(s) (RE 226)

Where to Submit It

Department of Real Estate,

Examination Section

P.O.Box 160010

Sacramento, CA 95816.

NOTE: It might be a good idea to consult with the DRE prior to sending in your application, just to verify that you have the correct mailing address, as P.O. box numbers are subject to change.

Wait at least three weeks for notification of your examination date, time and location. This information will be sent to you on an Examination Schedule Notice (RE 401).

If you do not take the examination on the date scheduled, there are procedures for rescheduling.

RE-SCHEDULING

If you do not take the examination on the date scheduled, you may apply for another examination date by completing, signing, and returning the Examination Schedule Notice (RE 401) to the address shown below. If the RE 401 has been lost, the rescheduling request can be made on an Examination Change Application (RE 415); however, when the RE 415 is used, it may not be submitted until after the originally scheduled examination date has passed and the results of that examination have been released.

The first request for a new examination date must be accompanied by a fee of $15. A fee of $25 is required for the second and subsequent rescheduling applications. All rescheduling applications. All rescheduling requests should be mailed to:

Department of Real Estate

Examination Section

Box 160010

Sacramento, CA 95816

PLEASE NOTE: Rescheduling is not arranged by telephone.

VERIFICATION

We will presently look at education in lieu of licensed sales experience, but first you should know how verification of licensed sales experience is managed.

The fact that you have held a salesperson license for two years (if you have) does not, under the law, necessarily qualify you for a broker’s license. You must document employment as a licensed salesperson on a full-time basis (or a part-time for the equivalent of two years full-time) in the form of certifications from your employing broker or former employing broker. These certifications must be made using the Employer Verification Form (form RE 226), which is included in the broker examination application package. Letters of recommendation will not suffice.

Further, this experience must have been gained sometime during the five years immediately preceding the date of the application.

You may contact the Licensing Information Section of DRE for the broker’s current address of record.

If it is ABSOLUTELY impossible to obtain verification of employment from a former employing broker, you must still complete the Employment Verification Form in full and indicate the reason why you could to obtain the employing broker’s signature (e.g. deceased, litigation, etc.) in the space labeled Signature of Certifying Broker.

In addition, you must attach two Employment Certifications (RE 228) from persons in a position to attest to your experience and activity. An Employment Verification Form and two Employment Certification forms are required for each separate employment when the actual employing broker is not able to verify employment.

EQUIVALENCE: EDUCATION AND ACTIVITY

Suppose you don’t have the requisite licensed salesperson employment experience. You still have other avenues you can pursue to achieve licensure as a real estate broker. For example, an applicant with a four-year degree from an accredited college is exempt from the two-year salesperson experience requirement.

You are not required to major in real estate or a real estate related academic field. However, regardless of the degree conferred, the applicant must show evidence (transcripts) that he has completed the eight aforementioned required courses at the time of filing the application. The eight courses may have been part of the degree requirement, or they may be completed separately from the college degree course work.

To make it simple, if you majored in a subject which required you to take the eight required courses discussed earlier, then you have accomplished two things: You have discharged the experience requirement by getting a degree (any degree) in lieu of experience, and you have discharged the statutory course requirement, which is a separate issue. If you majored in English, and didn’t take any of the required real estate college-level courses, you have merely discharged the experience requirement, and will have to take the eight courses in addition to the degree.

Other Educational Substitutes For Experience:

(1) Members of the bar of any state in the United States will generally qualify on the basis of their education and experience, and are statutorily exempt from the college level course requirements. Evidence of admission to practice law must be furnished, such as a photocopy of both sides of a state bar membership card.

(2) Graduates of law schools recognized by the California State Bar, who are not members of the State Bar, will generally qualify on the basis of education, but are required to successfully complete a college-level course in Real Estate Finance and one in Real Estate Appraisal. Evidence of a LL.B. or J.D. degree should accompany the application, along with transcripts showing successful completion of Real Estate Finance and Real Estate Appraisal.

(3) You may qualify with one year of full-time employment as a licensed salesperson in California within five years immediately prior to filing the application, plus graduation from an accredited college with an A.A. degree, plus satisfactory completion of the required statutory real estate courses.

REAL ESTATE SALESPERSON’S LICENSE

This license is required by individuals who are to be employed as salespersons under the control and supervision of a licensed broker. A license may be obtained by a person who does not immediately intend to be employed by a broker. However, in this instance, no real estate activity may be performed. The license permits real estate activity only if the salesperson is in the employ of a licensed broker; it does not authorize the salesperson to act as an independent agent.

Minimum Requirements to Apply for the Salesperson’s Examination

1. Age — No upper limit restrictions, but you have to be at least 18 to qualify.

2. Residence — The same requirements for out-of-state residents explained in the previous broker’s section apply.

3. Experience — None required.

4. Honesty — License applicants must be honest and truthful. Conviction of a crime which is either a felony or involves moral turpitude may result in the denial of a license. The failure to reveal a criminal conviction on an original license application may also result in the denial of a license.

5. Education — Evidence of successful completion of a three semester-unit or equivalent quarter-unit college level course in Real Estate Principles is required.

Within 18 months after the issuance of a license, the licensee must furnish transcript evidence of the successful completion of two additional three semester-unit or equivalent quarter-unit college-level courses selected from the following list:

1. Real Estate Practice

2. Real Estate Appraisal

3. Property Management

4. Real Estate Finance

5. Real Estate Economics

6. Legal Aspects of Real Estate

7. Real Estate Office Administration

8. General Accounting

9. Business Law

10. Escrows

NOTE: Members of the bar of any state in the United States or graduates of law schools recognized by the California State Bar will generally qualify on the basis of their education, and as such are exempt from the college-level course requirements. Evidence of admission to practice law or of a L.L.B. or J.D. degree should accompany the application.

If you have completed all three of the required courses at the time you apply for the examination, you should submit all three course transcripts with the initial examination application and fee.

If only the Real Estate Principles course has been completed, the other two course transcripts may be submitted:

a. when submitting the license application and fee or

b. within the 18 month period following the issuance of the original license.

Transcripts for the additional two courses should not be submitted until both have been successfully completed. Both transcripts must be submitted at the same time.

If transcripts for the additional courses are submitted with the original license application, the standard license fee would apply; however, if the transcripts are not submitted along with the original license application, an additional fee for processing an 18-month conditional license will be required.

Failure to submit transcripts of the two additional required courses within the initial 18-month license period will result in the automatic suspension of the conditional license. The suspension shall be effective 18 months after issuance, and shall not be lifted until evidence of course completion has been submitted and acknowledged by DRE.

If the transcripts for the two additional courses are not submitted within four years of the license issuance date, the license may not be renewed. Another salesperson license can, however, be obtained after the expiration date of the original conditional license only by requalifying through the examination process.

NOTE: The Real Estate Principles course must be completed prior to being scheduled for an examination. Copies of official transcripts are acceptable evidence of completed courses. Transcripts of equivalent courses, submitted in lieu of the statutory courses, must be supported by an official course or catalog description in order to be evaluated for equivalence.

Courses must be completed at the same educational institutions listed earlier for broker qualification.

HOW TO APPLY FOR A REAL ESTATE SALESPERSON’S LICENSE

1. Complete an original Examination Application (RE 400). No changes of any kind will be made to an application once it has been received by DRE.

2. Do not submit more than one application. If you previously applied for an examination and then submit a new application and fee prior to receiving your results, an examination date will not be assigned and you will forfeit that fee.

You may not apply to take an examination for a license for which you already have a right of renewal.

3. Determine the appropriate fee for the application. Money orders or checks should be made payable to the Department of Real Estate. Do not send cash.

4. Obtain a transcript of the required course in Real Estate Principles (plus additional courses, if completed).

5. Mail the completed form, appropriate fee, and transcript(s) to:

Department of Real Estate

Examination Section

P.O. Box 160010

Sacramento, CA 95816

6. Wait at least three weeks for notification of your examination date, time, and location. This information will be sent to you on an Examination Schedule Notice (RE 401).

If you do not take the examination on the date scheduled, you may apply for another examination date by completing, signing and returning the Examination Schedule Notice (RE 401) to the address above. If the RE 401 has been lost, the rescheduling request can be made on an Examination Change Application (RE 415); however, when the RE 415 is used, it may not be submitted until after the originally scheduled examination date has passed and the results of that examination have been released.

The first request for a new examination date must be accompanied by a fee of $10. A fee of $25 is required for the second and all subsequent re-scheduling applications. All re-scheduling requests should be mailed to the address above.

The same Do’s and Don’ts apply to applying for a salesperson’s license as to applying for the broker’s license.

CONTINUING EDUCATION

Continuing education is very important to the real estate licensee, especially since license renewal, which takes place every four years, cannot be accomplished without proof of having successfully completed the required continuing education courses.

Licenses are renewed by submitting such proof, as well as the appropriate application and fee. The licensee who wishes to renew must provide evidence of completion of 45 hours of DRE approved continuing education offerings during the four years’ immediately preceding renewal of his license. Part of this 45 hours must include a specified three-hour course in ethics, professional conduct, and legal aspects of real estate, and not less than 21 clock hours of courses related to consumer protection.

Effective January 1, 1986, salespersons who were required to complete Real Estate Principles and two other qualifying college-level real estate courses will not be required to meet the continuing education requirement for the first renewal except for the three-hour Ethics course and three-hour Agency course. Please note that neither the salesperson nor broker license qualification courses satisfy continuing education requirements.

FINGERPRINTS

After passing the examination, the successful applicant for a salesperson’s license will receive a Salesperson License Application (RE 202). This form must be completed and returned along with the appropriate fee, one set of classifiable fingerprints, and the fingerprint processing fee, within one year of the examination date. The successful broker applicant will receive a Broker License Application (RE 200), which must be completed and returned along with the appropriate fee and, if needed, one set of classifiable fingerprints and the fingerprint processing fee within one year of the examination date. Some new brokers may have never filed fingerprints because they may never have had a salesperson’s license.

Generally, applicants for any real estate license must submit one set of classifiable fingerprints, acceptable to the State Department of Justice, unless the applicant is currently licensed or has held a license which expired less than two years ago.

Fingerprints may be taken at any of the following DRE district offices:

Los Angeles — Executive Office

107 S. Broadway, Room 8107

Los Angeles, CA 90012

San Francisco

185 Berry St., Room 5816

San Francisco, CA 94107

San Diego

1350 Front St., Room 5008

San Diego, CA 92101

Santa Ana

28 Civic Center Plaza, Room 324

Santa Ana, CA 92701

Fresno

2550 Mariposa St., Room 3070

Fresno, CA 93721

Arrangements may be made to have the prints taken for a fee at most sheriff’s offices, police stations, Department of Motor Vehicles offices, or other facilities where acceptable prints may be obtained. Prints must be taken on a California license application Fingerprint Card (BID-7, Rev.2/82). This form is usually available at the fingerprinting locations.

An additional charge, payable to DRE, is required for processing the fingerprint card through the Department of Justice. This fee must be included with the license application and license fee. Check with a regional office for current fees, or avail yourself of the Department’s most recent reference book.

PUBLICATIONS

Speaking of the Reference Book, this is a book which explains practices common to real estate, and contains information concerning real estate licensing and examinations; legal, financial and economic aspects of real estate; business opportunities; and mineral, oil and gas brokerage. In addition, the book includes reference materials, sample real estate forms, and various useful charts and tables. As of this printing, the price is $13.25.

Additionally, the Department publishes the Real Estate Law Book and its supplements. This book contains the full text of the Real Estate Law, which is part of the California Business and Professions Code. Also included are the Regulations of the Real Estate Commissioner, the Subdivision Map Act, and excerpts from other California codes pertaining to real estate.

The DRE also publishes the Bulletin, four times a year, and this is mailed to all licensees in order to help them stay informed about matters relating to the Department, changes affecting the laws and regulations, and other matters of concern to licensees. You can obtain single copies of the Reference Book and Real Estate Law over the counter at district offices, or you may order them from the Department by mail, using checks, money orders, or cashier’s checks. Books are not sold for cash.