BILL ANALYSIS Ó AB 345 Page 1 Date of Hearing: April 14, 2015 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Susan Bonilla, Chair AB 345 (Frazier) - As Amended March 16, 2015 SUBJECT: Real estate licensees: continuing education requirements. SUMMARY: Requires a real estate broker, as part of his or her 45 hours of continuing education (CE), to complete a 3-hour course in the management of real estate offices and supervision of licensed activities, and provides that elective CE courses may also include relevant information to assist salespersons and brokers in understanding how to be effectively supervised. EXISTING LAW 1)Provides for the licensure and regulation of real estate brokers and salespersons by the Real Estate Commissioner. (Business and Professions Code (BPC) Section 10000 et seq.) 2)Requires a responsible broker, as defined, to exercise control and supervision of salespersons. (BPC 10159.7) 3)Authorizes an employing broker or corporate designated broker officer to appoint a licensee as a manager of a branch office AB 345 Page 2 or division of a real estate business if specified requirements are met. (BPC 10164) 4)Requires brokers and salespersons licensees to successfully complete 45 hours of continuing education, except as specified, as a prerequisite to license renewal as follows: (BPC Section 10170.5). a) Requires 15 of those 45 hours to include a three hour course in each of the following categories: i) ethics, professional conduct, and legal aspects of real estate; ii) agency relationships and duties in a real estate brokerage practice; iii) trust fund accounting and handling; iv) fair housing; and v) risk management; b) Requires at least 18 of those 45 hours to include courses or programs related to consumer protection, and designated by the Commissioner as satisfying this purpose in his or her approval of the offering of these courses or programs, as specified; and, c) Requires other courses and programs that will enable a AB 345 Page 3 licensee to achieve a high level of competence in serving the objectives of consumers who may engage the services of licensees to secure the transfer, financing, or similar objectives with respect to real property, including organizational and management techniques. 5)Authorizes the Commissioner to suspend or revoke a real estate license of a licensee or of a corporation if the licensee, or an officer, director, or person owning or controlling 10 percent or more of the corporation's stock, has, as a broker licensee, failed to exercise reasonable supervision over the activities of his or her salespersons, or, as the officer designated by a corporate broker licensee, failed to exercise reasonable supervision and control of the activities of the corporation for which a real estate license is required. (BPC Section 10177(h)) THIS BILL 1)Requires a real estate broker, as part of his or her 45 hours of CE, to successfully complete a 3-hour course in the management of real estate offices and supervision of licensed activities, as specified. 2)Provides that the elective CE requirement, which requires courses and programs that will enable a licensee to achieve a high level of competence in serving the objectives of consumers, including organizational and management techniques, also include relevant information to assist a salesperson or broker in understanding how to be effectively supervised by a responsible broker or branch manager. 3)Makes other technical and conforming changes. AB 345 Page 4 FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel. COMMENTS 1)Purpose. This bill is sponsored by the California Association of REALTORS (CAR). According to the author, "Current real estate law requires a real estate broker to exercise reasonable supervision over the activities of his or her salespersons. Reasonable supervision includes the establishment of policies, rules, procedures and systems to review, oversee, inspect and manage real estate transactions. Brokers are further required to establish a system for monitoring compliance. Supervision is a critical part of a real estate broker's responsibility. [This bill] simply allocates three hours of a licensed broker's existing 45 hours of [CE] to be reserved for a course to provide guidance of how to manage real estate offices, salespersons, and broker associates, while also permitting salespersons to elect to take a course containing relevant information to assist them in understanding how to be effectively supervised by a responsible broker or branch manager." 2)Background. Licensing and CEs. In order to obtain a real estate salesperson license, an individual must apply for and pass a real estate examination and fulfill certain real estate education requirements. In order to obtain a real estate broker license, an individual, in most cases, must have held a real estate salesperson's license for at least two years during which time he or she must have been actively engaged in real estate, meet certain real estate education requirements in addition to passing an examination. Broker and salesperson licenses are issued for a four-year period. In general, both types of licenses may be renewed by submitting the appropriate fee and application, and evidence of completion of 45 hours of AB 345 Page 5 California Bureau of Real Estate (CalBRE)-approved continuing education courses. These courses include 15 hours of required courses in ethics, agency relationships, trust fund handling, fair housing, and risk management, and at least 18 hours in courses dedicated to consumer protection. The remaining courses, up to 12 hours of electives, may be related either to consumer protection or consumer services that will enable the licensee to achieve a high level of competence in serving the objectives of consumers who may engage the services of licensees to secure the transfer, financing, or similar objectives with respect to real property, including organizational and management techniques. Failure to Supervise is a Common Violation. Under existing law, an employing real estate broker or corporate designated broker officer, appointed by an employing real estate broker,may appoint a licensee to manage a branch office or division of the employing broker's or employing corporate designated broker officer's real estate business. The employing real estate broker or corporate designated broker officer may also delegate to the appointed manager the responsibility to oversee day-to-day operations, supervise the licensed activities of licensees, and supervise clerical staff employed in the branch office or division. Any appointment is required to be made through means of a written contract, in which the appointee accepts the delegated responsibility, and requires the employing broker or corporate designated officer retain a copy of the contract and send a notice to the CalBRE identifying the appointee and the branch office or division the manager is appointed to supervise. According to the author, while principal brokers remain accountable for overall supervisorial responsibilities, CalBRE can also hold managers accountable for failure to supervise. According to the CalBRE's website, one of the six most common types of violations of the Real Estate Law that have resulted AB 345 Page 6 in disciplinary action include failure to supervise, in violation of BPC Section 10177(h), which requires a real estate broker to exercise reasonable supervision over the activities of salespersons, or as the designated officer of a corporation, to exercise the activities conducted by the corporation for which a real estate license is required. CalBRE's website also indicates that lack of supervision on the part of a broker is a recurring problem, and in many cases, real estate brokers become designated officers of corporations owned by salespersons or unlicensed individuals and do not properly supervise the operations. This bill seeks to address this problem by requiring, as a part of existing CE requirements for brokers, a three hour course on management and supervision, and by allowing salespersons to take a course on how to be effectively supervised by including that issue under elective CE requirements. CE Requirements in Other States. According to the author, several states require brokers to complete a course on supervision when renewing their license. For example, Montana requires supervising brokers to complete a three-hour course on supervision to assure competent practice in the real estate industry, while Virginia requires brokers to complete an eight-hour course on management and supervision. Minnesota requires brokers and salespersons to complete a one-hour course on broker supervisory obligations, Maryland requires brokers, office managers, and team leaders to complete a three-hour course on supervision within 90 days of assuming a supervisory position if they did not complete the course during their renewal, and Texas requires designated brokers and licensees delegated supervision of one or more real estate licensees, for a period of longer than six months, to complete a six hour course on broker responsibility. 3)Prior Related Legislation. AB 2105 (DeSaulnier) of 2014, among other things, would have required the consumer protection CE AB 345 Page 7 courses to include instruction in financial elder and dependent adult abuse signs and reporting requirements. NOTE: This bill was vetoed by Governor Schwarzenegger for reasons primarily related to other portions of the bill. SB 510 (Correa), Chapter 709, Statutes of 2012, established various minimum requirements for an individual to become a branch manager and authorized the Commissioner to discipline a branch manager for failure to supervise branch operations. AB 223 (Negrete McLeod), Chapter 183, Statutes of 2005, required CE requirements to include completion of a 3-hour course in risk management that includes principles, practices, and procedures calculated to avoid errors and omissions in the practice of real estate licensed activities. AB 555 (Dutra), Chapter 116, Statutes of 2002, included in the consumer protection CE the subject of California law relating to common interest developments, as specified. ARGUMENTS IN SUPPORT According to the California Association of REALTORS , "Current law requires a real estate broker to exercise reasonable supervision over the activities of his or her salespersons. Reasonable supervision includes the establishment of policies, rules, procedures and systems to review, oversee, inspect and manage real estate transactions. Existing law also requires real estate licensees renewing a real estate license to complete 45 hours of [CalBRE] approved CE. Currently, 15 hours of that CE requirement are earmarked for specified courses (ethics, agency, trust fund handling, fair housing, and risk management), while 18 hours are dedicated to consumer protection courses, with the remaining 12 hours of CE being elective. C.A.R. supports [this bill] as it will provide guidance to brokers on AB 345 Page 8 how to properly manage real estate offices, salespersons, and broker associates, while permitting salespersons to elect to take a course to assist them in understanding how to be effectively supervised." ARGUMENTS IN OPPOSITION None on file. REGISTERED SUPPORT / OPPOSITION: Support California Association of REALTORS (sponsor) Opposition None on file. Analysis Prepared by:Eunie Linden / B. & P. / (916) 319-3301 AB 345 Page 9