Commerce, Real Estate

Rule R162-2f

Real Estate Licensing and Practices Rules

Notice of Proposed Rule

(Amendment)

DAR File No.: 34458
Filed: 02/23/2011 04:54:33 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Three amendments are proposed, all of which respond to industry concerns, as explained more fully in the summary of the amendment presented below.

Summary of the rule or change:

Section R162-2f-205 is amended to state that an entity may not register under a name that closely resembles the name of another registered entity or that the division determines might otherwise prove confusing or misleading to the public. Section R162-2f-401a is amended to outline standards that a licensee must follow in disclosing to a buyer the source from which the licensee obtains square footage data of a property. Section R162-2f-403 is amended to clarify that a principal broker may not pay a commission out of a trust account without first depositing the withdrawn funds into an operating account.

State statutory or constitutional authorization for this rule:

• Subsection 61-2f-103(1)

Anticipated cost or savings to:

the state budget:

These amendments establish standards for complying with existing rules. They do not create new requirements that the Division will be required to administer or enforce. Therefore, no impact to the state budget is anticipated.

local governments:

Local governments are not subject to these rules. Therefore, no fiscal impact to local governments is anticipated.

small businesses:

No new fees are imposed on small businesses as a result of these rule amendments, nor are any incidental costs associated with a small business being required to choose a unique business name, to provide a square footage disclosure to a buyer, and to deposit a principal broker's commission into an operating account before further disbursing the money. Therefore, there should be no fiscal impact to small businesses.

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

No new fees are imposed on affected persons as a result of these rule amendments, nor are any incidental costs associated with an affected person being required to choose a unique business name, to provide a square footage disclosure to a buyer, and to deposit a principal broker's commission into an operating account before further disbursing the money. Therefore, there should be no fiscal impact to affected persons.

Compliance costs for affected persons:

To comply, an affected person must adhere to the standards that are established. Doing so will require some care and awareness, but will not impose a financial burden.

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

As indicated in the rule summary, this rule filing further clarifies existing provisions and standards and is not expected to have any fiscal impact to businesses.

Francine A. Giani, Executive Director

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

Commerce
Real Estate
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

• Jennie Jonsson at the above address, by phone at 801-530-6706, by FAX at 801-526-4387, or by Internet E-mail at jjonsson@utah.gov

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:

04/14/2011

This rule may become effective on:

04/21/2011

Authorized by:

Deanna Sabey, Director

R162. Commerce, Real Estate.

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

R162-2f-205. Registration of Entity.

(1) A principal broker shall not conduct business through an entity, including a branch office, dba, or separate property management company, without first registering the entity with the division.

(2) Exemptions. The following locations may be used to conduct real estate business without being registered as branch offices:

(a) a model home;

(b) a project sales office; and

(c) a facility established for twelve months or less as a temporary site for marketing activity, such as an exhibit booth.

(3) To register an entity with the division, a principal broker shall:

(a) evidence that the name of the entity is registered with the Division of Corporations;

(b) certify that the entity is affiliated with a principal broker who:

(i) is authorized to use the entity name; and

(ii) will actively supervise the activities of all sales agents, associate brokers, branch brokers, and unlicensed staff;

(c) if registering a branch office, identify the branch broker who will actively supervise all licensees and unlicensed staff working from the branch office;

(d) submit an application that includes:

(i) the physical address of the entity;

(ii) if the entity is a branch office, the name and license number of the branch broker;

(iii) the names of associate brokers and sales agents assigned to the entity; and

(iv) the location and account number of any real estate trust account in which funds received at the registered location will be deposited; and

(e) pay a nonrefundable application fee.

(4) Restrictions.

(a)(i) The division shall not register an entity proposing to use a business name that :

(A) is likely to mislead the public into thinking that the entity is not a real estate brokerage or property management company[.];

(B) closely resembles the name of another registered entity; or

(C) the division determines might otherwise be confusing or misleading to the public.

(ii) Approval by the division of an entity's business name does not ensure or grant to the entity a legal right to use or operate under that name.

(b) A branch office shall operate under the same business name as the principal brokerage.

(c) An entity may not designate a post office box as its business address, but may designate a post office box as a mailing address.

(5) Registration not transferable.

(a) A registered entity shall not transfer the registration to any other person.

(b) A registered entity shall not allow an unlicensed person to use the entity's registration to perform work for which licensure is required.

(c) If a change in corporate structure of a registered entity creates a separate and unique legal entity, that entity shall obtain a unique registration, and shall not operate under an existing registration.

(d) The dissolution of a corporation, partnership, limited liability company, association, or other entity registered with the division terminates the registration.

 

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) a seller the individual represents;

(b) a buyer the individual represents;

(c) a buyer and seller 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 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) 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;

(6) [when completing a listing agreement, make reasonable efforts to verify the accuracy and content of the listing;]in order to offer a property for sale or lease:

(a) disclose the source on which the licensee relies for any square footage data that will be used in the marketing of the property:

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

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

(b) make reasonable efforts to verify the accuracy and content of all other information and data to be used in the marketing of the property.

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

(8) 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;

(9) 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;

(10) when offering an inducement to a buyer who will not pay a real estate commission in a transaction:

(a) obtain authorization from the licensee's principal broker to offer the inducement;

(b) comply with all underwriting guidelines that apply to the loan for which the borrower has applied; and

(c) provide notice of the inducement, using any method or form, to:

(i) the principal broker of the seller's agent, if the seller paying a commission is represented; or

(ii) the seller, if the seller paying a commission is not represented;

(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);

(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;

(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;

(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;

(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;

(16) in negotiating and closing transactions, use:

(a)(i) the standard forms approved by the commission and identified in Section R162-2f-401f;

(ii) standard supplementary clauses approved by the commission; and

(iii) as necessary, other standard forms including settlement statements, warranty deeds, and quit claim deeds;

(b) forms prepared by an attorney for a party to the transaction, if:

(i) a party to the transaction requests the use of the attorney-drafted forms; and

(ii) the licensee first verifies that the forms have in fact been drafted by the party's attorney; or

(c) if no state-approved form exists to serve a specific need, any form prepared by an attorney, regardless of whether the attorney is employed for the purpose by:

(i) the principal; or

(ii) an entity in the business of selling blank legal forms;

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

(18) in order to sign or initial a document on behalf of a principal:

(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);"

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

(20) strictly adhere to advertising restrictions as outlined in Section R162-2f-401h;

(21) 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;

(22) immediately deliver money received in a real estate transaction to the principal broker for deposit; and

(23) as contemplated by Subsection 61-2f-401(18), 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-403. Trust Accounts.

(1) A principal broker shall:

(a) maintain a trust account in a bank or credit union located within the state of Utah;

(b) notify the division in writing of:

(i) the account number; and

(ii) the address of the bank or credit union where the account is located; and

(c) use the account for the purpose of securing client[s] funds:

(i) deposited with the principal broker in connection with a real estate transaction regulated under Title 61, Chapter 2f et seq.;

(ii) if the principal broker is also a builder or developer, deposited under a Real Estate Purchase Contract, construction contract, or other agreement that provides for the construction of a dwelling; and

(iii) collected in the performance of property management duties as specified in this Subsection (4)(b).

(2) A principal broker who deposits in any trust account more than $500 of the principal broker's own funds violates Subsection 61-2f-401(4)(b).

(3) A principal broker may not deposit into the principal broker's real estate trust account funds received in connection with rental of tourist accommodations where the rental period is less than 30 consecutive days.

(4)(a) A principal broker who regularly engages in property management on behalf of seven or more individual units shall establish a property management trust account separate from the real estate trust account.

(b) A principal broker who collects rents or otherwise manages property for no more than six individual units at any given time may use the real estate trust account to secure funds received in connection with the principal broker's property management activities.

(5) A trust account maintained by a principal broker shall be non-interest-bearing, unless:

(a) the parties to the transaction agree in writing to deposit the funds in an interest-bearing account;

(b) the parties to the transaction designate in writing the person to whom the interest will be paid upon completion or failure of the sale;

(c) the person designated under this Subsection (5)(b):

(i) qualifies at the time of payment as a non-profit organization under Section 501(c)(3) of the Internal Revenue Code; and

(ii) operates exclusively to provide grants to affordable housing programs in Utah; and

(d) the affordable housing program that is the recipient of the grant under this Subsection (5)(c)(ii) qualifies at the time of payment as a non-profit organization under Section 501(c)(3) of the Internal Revenue Code.

(6) Disbursement of funds held in trust.

(a) A principal broker may disburse funds only in accordance with:

(i) specific language in the Real Estate Purchase Contract authorizing disbursement;

(ii) other proper written authorization of the parties having an interest in the funds; or

(iii) court order.

(b) A principal broker may not release for construction purposes those funds held as deposit money under an agreement that provides for the construction of a dwelling unless the purchaser authorizes such disbursement in writing.

(c) A principal broker may not withdraw any portion of the principal broker's sales commission:

(i) without written authorization from the seller and buyer; or

(ii)(A) until after the settlement statements have been delivered to the buyer and seller; and

(B) the buyer or seller has been paid for the amount due as determined by the settlement statement.

(d) A principal broker may not pay a commission from the real estate trust account without first:

(i) [until after]closing or otherwise terminating the transaction[ has closed or otherwise terminated];[and]

(ii) [without] making a record of each disbursement[.]; and

(iii) depositing the withdrawn funds into the principal broker's operating account.

(e) A principal broker may not release earnest money or other trust funds associated with a failed transaction unless:

(i) a condition in the Real Estate Purchase Contract authorizing disbursement has occurred; or

(ii) the parties execute a separate signed agreement containing instructions and authorization for disbursement.

(f) If both parties to a contract make a written claim to the earnest money or other trust funds and the principal broker cannot determine from any signed agreement which party's claim is valid, the principal broker may:

(i) interplead the funds into court and thereafter disburse:

(A) upon written authorization of the party who will not receive the funds; or

(B) pursuant to the order of a court of competent jurisdiction; or

(ii) within 15 days of receiving written notice that both parties claim the funds, refer the parties to mediation if:

(A) no party has filed a civil suit arising out of the transaction; and

(B) the parties have contractually agreed to submit disputes arising out of their contract to mediation.

(g) If a principal broker is unable to disburse trust funds within five years after the failure of a transaction, the principal broker shall remit the funds to the State Treasurer's Office as unclaimed property pursuant to Title 67, Chapter 4a et seq.

 

KEY: real estate business, licensing, enforcement

Date of Enactment or Last Substantive Amendment: [December 22, 2010]2011

Authorizing, and Implemented or Interpreted Law: 61-2f-103(1)