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 




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              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 




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                 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).   
                




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           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 




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              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 




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              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 




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                 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





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