BILL ANALYSIS Ó
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 510 (Correa) Hearing Date: April 27,
2011
As Introduced: February 17, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would authorize an employing real estate broker or
corporate officer appointed by an employing real estate broker
to appoint branch office or division managers of real estate
offices, as specified, and would subject these appointees to
disciplinary action for failure to properly supervise.
DESCRIPTION
1. Would authorize an employing real estate broker or
corporate officer appointed by an employing real estate
broker to appoint a licensee to manage a branch office or
division of the employing broker's real estate business, and
to 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.
2. Would subject a licensee accepting appointment as a branch
office or division manager to disciplinary action for
failure to properly supervise licensed activity over which
the appointee is given authority.
3. Would require any appointment made pursuant to the
provisions of the bill to be made through means of a written
contract in which the appointee accepts the delegated
responsibility, and would require the employing broker or
corporate officer to send a copy of the contract to the
Department of Real Estate (DRE), along with a notice, in a
form approved by the Commissioner of Real Estate
(commissioner), identifying the appointee and the branch
office or division the manager is appointed to supervise.
4. Would provide that a licensee may not be appointed as a
manager, if he or she holds a restricted license, is subject
SB 510 (Correa), Page 2
to an order of debarment, or is a salesperson with less than
two years of full-time real estate experience when
appointed.
EXISTING LAW
5. Defines a real estate salesman (aka salesperson) as a
natural person who, for compensation or in expectation of
compensation, is employed by a licensed real estate broker
to engage in one or more of the activities for which a real
estate license is required (Business and Professions Code
Section 10132; all further references are to the Business
and Professions Code).
6. Provides that the commissioner may suspend or revoke the
license of a real estate broker licensee who fails to
exercise reasonable supervision over the activities of his
or her salespersons, or who, as the officer designated by a
corporate broker licensee, fails to exercise reasonable
supervision and control over the activities of the
corporation (Section 10177(h)).
7. States that no violation of any of the provisions of the
Real Estate Law by a real estate salesperson or other
employee of a licensed real estate broker shall cause the
revocation or suspension of the license of the employing
broker, unless it appears upon a hearing by the commissioner
that the employing broker had guilty knowledge of such
violation (Section 10179).
8. Sets out minimum standards of experience and education for
persons who wish to obtain a real estate salesperson or real
estate broker license, as follows (Sections 10150.6, 10151,
and 10153.2):
a. Applicants for a real estate salesperson license
must pass three, three semester-unit courses, or the
quarter equivalents thereof, including one class each in
real estate principles and real estate practice, and one
class from the following list: legal aspects of real
estate, real estate appraisal, real estate financing,
real estate economics or accounting, business law,
escrows, property management, real estate office
administration, mortgage loan brokering and lending,
computer applications in real estate, or California law
SB 510 (Correa), Page 3
relating to common interest developments.
Real estate salesperson applicants must also pass the real
estate salesperson examination administered by DRE,
successfully complete a criminal background check and the
DRE salesperson application, and pay their license fees,
which are currently $245 for a four-year period.
b. Applicants for a real estate broker's license must
either have served for two years as a real estate
salesperson or obtained a bachelor's degree in a subject
that includes specialization in real estate, and have
applied in writing for permission from the commissioner
to substitute that bachelor's degree for the two years of
real estate experience otherwise required.
Real estate broker applicants must also pass eight, three
semester-unit courses, or the quarter equivalents
thereof, including one class each in real estate
practice, legal aspects of real estate, real estate
appraisal, real estate financing, and real estate
economics or accounting; and three of the following:
advanced legal aspects of real estate, advanced real
estate finance, advanced real estate appraisal, business
law, escrows, real estate principles, property
management, real estate office administration, mortgage
loan brokering and lending, computer applications in real
estate, or California law relating to common interest
developments.
Real estate broker applicants must also pass the real
estate broker examination administered by DRE, complete
the real estate broker application, and, if they have not
already been licensed as a real estate salesperson,
successfully complete a criminal background check. Real
estate broker applicants must also pay their licensees
fees, which are currently $300 for a four-year period.
EXISTING REGULATION Requires real estate brokers to exercise
reasonable supervision over the activities of their
salespersons, as specified, and provides that a broker may use
the services of brokers and salespersons to assist in this task,
as long as the broker does not relinquish overall responsibility
for supervising the acts of salespersons licensed to the broker
(Regulation 2725).
SB 510 (Correa), Page 4
COMMENTS
1. Background and Discussion: This bill is sponsored by the
California Association of Realtors (CAR), in order to enact
one of the seven recommendations developed by a broker
supervision task force convened by DRE during 2010. The
task force included five representatives from DRE and nine
from industry, including two from CAR. It was developed to
discuss issues relating to broker supervision, including the
challenges posed by the day-to-day oversight of large
offices and multiple points of broker supervision.
As discussed by DRE in its September 2010 task force report,
"Currently, there are no license disciplinary consequences
to any subordinate licensee when supervisorial authority is
delegated under the provisions of Regulation 2725 for
failure to properly supervise. It was decided that
legislation should be considered to provide a multi-tiered
operational structure that would hold a subordinate
supervisor delegate liable for proper supervision
potentially along with the designated officer or
broker....Real estate licensee(s) accepting delegated
supervisory authority shall be subject to disciplinary
action, potentially along with the responsible broker or
designated officer, for failing to properly supervise the
licensed activities performed within his/her delegated areas
of responsibility. Regardless of any such agreements, the
principal real estate broker or designated officer of a
corporation shall exercise reasonable supervision and
control over all activities that require a real estate
license."
The task force concluded that requirements for appointment as an
office manager should include those provided for in this
bill (a minimum of two years for any real estate salesperson
appointed to a branch manager position, inability of anyone
with a restricted license or subject to a bar order to act
as a branch manager, and a requirement that a written
contract be in place between the employing broker and the
branch manager). SB 510 is being sponsored by CAR, to
implement the task force's recommendation.
2. Are the task force's recommendations adequately protective
of the public? As noted above, the task force envisions
that real estate brokers who head up large real estate
offices will be able to delegate branch manager
SB 510 (Correa), Page 5
responsibilities to real estate salespersons and real estate
brokers in their employ. This is nothing new; employing
brokers already delegate branch manager and office manager
responsibility to others. What is new in this bill is the
concept that the people to whom this responsibility is
delegated will be subject to disciplinary action for failure
to properly supervise.
However, the task force report is somewhat vague in its desire
to ensure that the accountability of branch office managers
is additive to the responsibility that employing brokers
already have to exercise adequate supervision over all of
those who report to them, rather than in lieu of that
existing responsibility. In more than one place, the task
force report suggests that, after delegating responsibility
to a branch office manager, the potential could exist for
the employing broker to be subject to disciplinary action
for failure to properly supervise. In order to minimize the
possibility that an employing broker will seek to shield
him- or herself from discipline by delegating tasks to
branch managers, staff has requested, and the sponsor has
agreed to language clarifying that nothing in the bill is
intended to absolve employing brokers of their
responsibilities to perform adequate supervision of those
who report to them (see Amendments section below) .
Staff also asks, "Should the minimum experience level among
branch managers be increased? Is a salesperson (junior
level licensee) with two years of experience experienced
enough to run a large office that could include a few
hundred other salespersons and brokers?" The bill's sponsor
asserts that the task force concluded two years' experience
as a salesperson is sufficient experience to run a real
estate office. Additional years of experience were deemed
unnecessary by the task force, as was a requirement that
anyone placed in charge of a branch office hold a real
estate broker (senior level) license. Further, the task
force did not propose any minimum level of experience for
branch managers who are real estate brokers.
Staff is less optimistic than the task force about the
management qualities of relatively inexperienced real estate
licensees. As noted above, real estate salespersons are
required to pass only three courses in order to obtain their
licenses, and none of these courses is required to cover
management or supervision. Prospective real estate
SB 510 (Correa), Page 6
salespersons may, but are not required to, take an elective
on real estate office administration. Real estate
salespersons must operate under the supervision of real
estate brokers at all times; unlike real estate brokers,
they may not act independently. Should real estate
salespersons with as few as two years of experience be
sanctioned as managers of large real estate offices, where
mortgages are brokered, escrows are handled, and residential
and commercial properties are managed, bought, and sold?
Would a requirement that branch office managers have at
least four years of recent experience if they are
salespersons, or two years of recent experience if they are
brokers, be more protective of the public?
3. Summary of Arguments in Support: In its letter of support,
CAR states that SB 510 will add two much-needed changes to
state law - first, minimum standards for appointment of a
branch manager, and second, a statutory duty to supervise
the salespersons that report to the office manager, with
resultant license discipline for failure to properly
supervise. CAR states that SB 510 does not remove any
existing accountability for the employing broker that is at
the head of the company.
4. Summary of Arguments in Opposition: None received.
5. Amendments:
a. The sponsor has agreed to the following amendments,
some at the request of Committee staff, and others at the
request of DRE.
Page 2, lines 3 and 4: After "corporate" insert:
designated broker, and strike "appointed by an employing
broker"
Page 2, line 5: After "broker's" insert: or employing
corporate designated broker officer's
Page 2, line 10, insert the following after "(b)":
Notwithstanding subdivision (a), nothing in this section
shall limit the responsibilities of an employing broker
or a corporate designated broker officer pursuant to
subdivision (h) of Section 10177.
Page 2, line 15: After "corporate" insert: designated
SB 510 (Correa), Page 7
broker
Page 2, lines 16 and 17: Strike "send a copy of the
contract to the department, along with a notice"" and
insert: retain a copy of the contract and send a notice
Page 2, line 23, after "is" insert: or has been
Page 2, line 25, strike "when appointed" and insert:
within five years preceding the appointment.
Page 2, between lines 25 and 26, insert: (e) Whenever an
appointment of a branch manager is terminated or changed,
the employing broker or corporate designated broker
officer shall immediately notify the commissioner thereof
in writing.
Delay the operative date of the bill to July 1, 2012.
b. As noted above, staff is concerned that the
experience requirements for branch office managers may
not be sufficiently protective of the public, but was
unable to reach agreement with the bill's sponsor on an
amendment to address this concern prior to the hearing.
If this committee wishes to increase the experience
requirements of branch office managers, staff suggests
the following changes on page 2, lines 24 and 25: "The
licensee is, a salesperson with less than two four years
of full-time real estate experience during the six years
preceding appointment, or a broker with less than two
years of full-time real estate experience during the four
years preceding appointment when appointed ."
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Association of Realtors (sponsor)
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102
SB 510 (Correa), Page 8