by: Jerry McMahan
As your Chairman, I will be committed to serving the licensees and the real estate industry. I want to say that I am honored and privileged to serve you in this capacity, and I look forward to the upcoming year.
It is an exciting time in the real estate industry. With technology moving ahead, the way real estate is being conducted almost seems to change on a daily basis. Although change can be good, we understand that, as licensees, it is difficult to always know how every situation should be handled.
Each month the Commission reviews questions from licensees, educational issues, administrative concerns and other legal miscellaneous matters. If you encounter a new situation, feel free to submit your questions to the Commission for review at our monthly meeting.
Since being on the Commission, I have noticed an increase in matters involving the Internet and technological developments in the real estate industry. On every monthly agenda there are usually two or three questions regarding advertising on the Internet. Because so many of the license laws were written many years ago, it is sometimes difficult for the Commission to determine if something would actually violate the license law. As the industry changes and you are faced with new possibilities, always know that you can contact the Commission for assistance.
I also want to commend all of the licensees who participate in the Commission meetings. The Commission has tackled many tough issues this year. Input from licensees is extremely helpful in the Commission's decision-making process. I encourage licensees to stay involved in what the Commission is doing because the decisions we make affect the way you do business.
In closing, I want to encourage all licensees to take a minute to look over the new October 2001 Law Manual. We have added an index to assist you in locating the statutes and regulations. I have already found this helpful when looking for a particular law. I want all of my fellow Wildcat fans to know that I had nothing to do with choosing "red" as the color, but I did have something to do with the color of this newsletter.
by: Norman Brown, Executive Director
In the three years since I started at the Commission, it has been my goal to visit every area of the state and every local Board of Realtors® to meet as many of our licensees as possible and to hear your ideas and perspectives on what the Commission is doing. So far, I have been to twenty-six of the twenty-eight local Boards of Realtors®. Someone from the Commission has also attended each and every Kentucky Association of Realtors® (KAR) meeting throughout the state and also every Association of Real Estate License Law Officials (ARELLO) meeting throughout the nation.
I have truly enjoyed these meetings and these journeys throughout the state and the country. The real estate industry in Kentucky is very diverse, and the industry is practiced differently in every region of the state. Therefore, it is especially important for the Commission to keep its finger on the pulse of each region, so that our rules, regulations and laws will apply to every licensee and not just a select few.
As you know, the laws and regulations have changed over the past two years and we felt that it was very important for us to personally answer your questions and address your concerns. So, our staff attorneys and I accepted every invitation to appear at a Board meeting, company meeting and the like to explain the license law changes, answer your questions and try to understand the areas where the laws may not be working.
But that is not the end of our services to you. We have a very strong commitment to answer every question you have every day - not just at an organized meeting. If you are in the middle of a transaction and a legal issue arises, please contact our staff attorney for her assistance. In addition, if you have an issue you feel the Commission should be addressing or looking into, please contact me or any of our other staff members. If you are in the process of changing offices or hiring new agents, feel free to contact our licensing department for guidance. Also, if you are interested in learning more about the process of how we go about our daily business here, please feel free to attend one of the Commission's monthly meetings or participate in one of our public hearings. I have been amazed at how dedicated our staff is to helping you, the licensees, as well as the consumers in our state. For example, you will always be greeted with a live voice when you contact our offices. What's more, we update our website daily with the latest information on continuing education, licensing information, legal forms, law changes, etc.
Finally, the Commission has shown a true and continuing support for education of licensees as well as consumers, applicants and others in this state. A few years ago, the Kentucky Core Course won the ARELLO national award for mandatory continuing education. As I have mentioned in this column before, we recently developed a Home Sweet Home curriculum to teach high school students about the value of home ownership and good credit. I would like to close by congratulating Linda Poliskie and Dr. Jack Morgan for winning the ARELLO consumer education award for this program.
Recently, the Commission was approached with a new concept in advertising. It is called "Internet Data Exchange," or "IDX." This is already being used by the Northern Kentucky Association of Realtors® and the Lexington/Bluegrass Association of Realtors®. Basically, IDX allows Multiple Listing Service (MLS) participants to display the listings of other brokers on their websites. Many brokers believe that it benefits the consumer to be able to view all MLS listings on a single website. The Commission needed to determine whether or not Kentucky law would allow IDX to exist.
On April 6, 2001, a new regulation, 201 KAR 11:420, took effect which explains what should be contained in a licensee's real estate Internet real property advertisement. Two things are required: (1) the name of the licensee advertising the property; and (2) the name of the licensee's principal broker or the company name. In addition, 201 KAR 11:105, Section 1 says that: "When promoting or advertising the real estate to the general public, the broker shall have a written listing agreement signed by the owner."
At its September 13, 2001 meeting, the Commission discussed this matter at length. A dozen or so people spoke regarding this issue, but there was not a consensus opinion among the attendees. After hearing input both for and against, the Commission deferred making a decision at that meeting.
At the October 19, 2001 Commission meeting, the Commission ruled that IDX could exist as long as the listing agent's name appeared on the advertisement along with the name of the principal broker or the company name.
If you ever have any questions about requirements for advertising, please do not hesitate to contact the Commission's legal staff.
A. You should deliver the form and complete items 1-3 of "Section A" of the Agency Information and Disclosure Form with the consumer:
(1) Prior to receiving confidential information from a consumer or writing or presenting an offer for the consumer;
(2) Prior to receiving confidential information from a consumer; and
(3) Before the end of the second contact with a consumer.
Q. What do I tell the consumer when I give them the form?
A. Explain to the consumer that this is not a contract. Tell them to read the agency information and then decide in what capacity you may be representing the consumer.
Q. How do I fill out "Section A" of the form?
A. Q. 1 asks for your name, your company name and the name of your principal broker. The Commission allows companies to pre-print this information. Q. 2 is asking for the name of your prospective buyer or seller. Q. 3 is asking for type of relationship that you may have with your prospective buyer or seller. Please note that you should choose ALL that may apply - which means you can check more than one box. Also, the selection of "sole agent" in Q. 3 means "seller's agent" or "buyer's agent."
Q. What do I do when "Section A" is completed?
A. If you are not using dual agency, simply file the signed form in your file and give a copy to your prospective buyer or seller. If you are using dual agency, "Section B" must also be completed.
Q. When do I fill out "Section B?"
A. If dual agency is being used, you must complete and deliver to the buyer and seller "Section B." It must also be completed and delivered if designated agency is being used, since the principal broker is always a dual agent in a designated agency situation. At the end, you will have 2 completed forms - one for the buyer and one for the seller. Remember, the party who signs "Section A" also signs "Section B" on the same form..
Q. How do I fill out "Section B"?
A. Q. 1 asks for the name of the property on which an offer is being made. Q. 2 asks for the name of the other party being represented by you. If you are on the buyer's form, that is the seller. If you are on the seller's form, that is the buyer. Q. 3 discloses designated agency. If your company does not use designated agency, skip this! Q. 4 asks whether you or anyone in your company is acting as a party (i.e., buyer or seller) in the transaction. If so, check the first box; if not, skip it. Q. 4 also asks whether you or someone in your company has a financial interest in the property. This would be a known financial interest above and beyond the commission you may earn on the deal. Q. 5 asks about your relationships with either party. Check this box and fill in the blanks if you have a personal, family or business relationship with either party.
Q. Our company does not use "dual agency." Do we have to complete and deliver Section B?
A. No. Section B is required only when dual agency is being used.
Q. Can I make changes to the form?
A. Yes. If your company wants to change the form in any way, please submit the changes to the Commission for review and approval.
Q. What are the changes being submitted to the Commission for approval?
A. Many companies want to have the form printed on one page so they have changed the wording in Section A to read: "I have received and read the Agency Information and Disclosure Form contained on the front and back of this form." Also, companies are pre-printing the company name and principal broker's name on the form. One other common requested amendment is to change "Dual-Limited Agent" to "Limited-Dual Agent" on the Information sheet in order to be consistent with the form. All of these changes have been approved by the Commission.
Q. What if I still have questions about the form?
A. The Commission has a FAQ section on the website at www.krec.ky.gov which goes into much more detail than this newsletter. Also, do not ever hesitate to contact staff attorney Lee Harris. She is always happy to assist licensees with legal questions.
RICHARD ROWE
(STANFORD) Case No 00-0026
Violation: Mr. Rowe was found in violation of KRS 324.160 (4)(b) for making any substantial misrepresentation by informing the complainant that the property on which she was making an offer had already been sold. In fact, he was the other offering party, and his own offer had not yet even been conveyed to the sellers. He was also found in violation of KRS 324.160 (v) for improper, fraudulent or dishonest dealing for exploiting his position as a real estate broker to the detriment of the complainant by using the information he obtained in his position as a broker to formulate his own offer and to substitute it for hers once the sellers had verbally accepted her offered price.
Disposition: Mr. Rowe's license was suspended for a period of two (2) years and he was ordered to pay a fine in the amount of $1,000.
CHARLES W. SHELTON, SR.
(MAYFIELD) Case No's. 00-0038, 99-0142, 99-0153, 99-0158
Violation: Mr. Shelton was found in violation of KRS 324.160 (4)(h) for failing to account for or remit any money belonging to others that came into his possession; and KRS 324.160 (4)(j) for being convicted of a felony while holding a real estate license. He was also found in violation of KRS 324.160 (4)(v) for improper, fraudulent or dishonest dealing.
Disposition: Mr. Shelton agreed to have his license revoked for a period of not less than five (5) years, and the Commission paid $50,000 restitution to the complainants out of the Real Estate Education and Recovery Fund. Mr. Shelton may not reapply for licensure until such time as he has re-paid the Recovery Fund in full, plus ten (10%) percent interest per annum.
ROBERT F. LEE
(ELIZABETHTOWN) Case No. 98-0114
Violation: Mr. Lee was found in violation of KRS 324.160 (4)(s) and (u) & KRS 324.151 for failing to file an answer or participate in any aspect of the hearing process.
Disposition: Mr. Lee's license was revoked for a period of not less than five (5) years.
CARY TRUE
(LEXINGTON) Case No. 00-0045
Violation: Mr. True was found in violation of KRS 324.160 (4)(j) and (v) for pleading guilty to federal felony crimes while holding a real estate license and engaging in improper, fraudulent and dishonest dealings.
Disposition: Mr. True's license was revoked for a period of not less than five (5) years.
TRAVIS GRAVES
(FRANKLIN) Case No. 00-0046
Violation: Mr. Graves stipulated to a violation of KRS 324.160 (4)(v) for improper, fraudulent or dishonest dealing. Mr. Graves was involved in a deal in which the price of a property sold was inflated to reflect that the purchaser had a more substantial downpayment than he did. This was done to make the loan to value ratio appear to be lower than it really was.
Disposition: Mr. Graves agreed to have his license suspended for a period of three (3) years.
BARBARA NAISER
(LOUISVILLE) Case No. 00-0025
Violation: Ms. Naiser was found in violation of KRS 324.117 (1) for false, misleading, or deception advertising. Ms. Naiser included square footage from a vaulted ceiling as part of the total square footage of the property she had listed.
Disposition: Ms. Naiser received a formal reprimand and agreed to attend the Kentucky Core Course. She also agreed to reimburse the complaint $7,855.
BRUCE EVANS
(SHEPHERDSVILLE)Case No. 99-0112
Violation: Mr. Evans was found in violation of KRS 324.160 (4)(b) for failing to disclose a known defect. He stated that the hot tub in his home was in working order despite the fact he knew the heater was not working the last time he used the hot tub. Mr. Evans owned the property in question.
Disposition: The Commission ordered Mr. Evans to pay $600 in restitution to the complainants.
MALCOLM TAYLOR
(BURKESVILLE) Case No. 00-0121
Violation: Mr. Taylor stipulated to a violation of KRS 324.160 (4)(u) for violation of 201 KAR 11:095 and KRS 324.360 for failing to provide a closing statement to the buyer and for failing to provide a Seller's Disclosure of Property Condition form to the buyer.
Disposition: He agreed to pay a fine of $500 and to accept a formal reprimand.
by: Jane Broadwater Long, E & O Counsel
The Commission recently passed a new regulation that allows unlicensed personal assistants, office workers, or clerical workers to perform certain tasks under the direct supervision of a principal broker or assigned licensee. The permitted tasks, and those which are prohibited, are clearly set forth in 201 KAR 11:440, the regulation entitled "Personal Assistant Duties". Duties, among others, which may be performed by unlicensed personnel include distributing literature and greeting guests at an open-house without a supervising licensee present and providing general public information to others including the listing price of the house.
The Kentucky Group Real Estate Errors and Omissions Policy with Medmarc Casualty Insurance Company, which became effective on April 1, 2001, provides coverage for a written claim first made against an Insured and reported to the Company during the Policy Period. A claim is a written demand for money or services or the institution of a lawsuit or arbitration. More importantly, an Insured is defined in the E & O Policy to include: "unlicensed employees of and under the direct supervision of an Insured Licensee, while acting in the course and scope of their employment..." The key term in the definition is "employee." The definition does not include unlicensed personal assistants, clerical workers, or office workers, unless they are "employees." The Commission has defined a "regular employee" in KRS 324.010 (11) as "an employee who works for an employer, whose total compensation is subject to withholding of federal and state taxes and FICA payments, and who receives from the employer a fixed salary governed by federal wage guidelines that is not affected by specific real estate transactions."
Therefore, if you are using office personnel to perform certain tasks allowed under the "Personal Assistant Duties" regulation, but who do not qualify as "regular employees," as defined in 201 KAR 11:011(7), these individuals' negligent acts and/or omissions may not be covered under your E & O Policy. For example, if you have an oral agreement to pay a clerical worker $50 cash for sitting at the open-house, answering other questions permitted under 201 KAR 11:440, and handing out literature, but this individual does not work exclusively for you, and you are not withholding FICA and taxes from his pay, then that individual is not a "regular employee", and will not be covered by your E & O Policy for his negligent acts and/or omissions.
However, if you are using a personal assistant that is assigned to you by your supervising broker, and who is a "regular employee" of your real estate firm, to perform allowed duties at an open- house, then your Kentucky Group E & O Policy should provide coverage for the negligent acts and/or omissions of this unlicensed assistant. This is additional coverage for you, whereas many E & O Policies do not provide any coverage for unlicensed personnel workers. As your Kentucky Group insurance provider, we want to make you aware of significant coverage and policy provisions, so you can make responsible decisions regarding your professional activities.
This article does not describe the policy terms, conditions, and exclusions in your E & O Policy in full. Please read your policy and the applicable Kentucky Real Estate Commission Administrative Regulations cited here to learn more.
For specific questions about the group policy, please contact the E & O carrier directly at 1-800-637-7319 or 502-897-1876.
by: Lee Harris, Staff Attorney
A major part of my duties here at the Commission is taking legal calls from licensees and attorneys throughout the state concerning issues that arise in your day-to-day practice. Perhaps one of the most common questions I receive involves procuring cause versus agency.
The "procuring cause" of a sale is defined as "the cause originating a series of events, which, without break in their continuity, result in the accomplishment of the prime object." Black's Law Dictionary, West Publishing Company, 5th edition, page 1088.
Part of the reason that this issue arises so often is that there are several misconceptions out there about procuring cause and agency. A common misconception seems to be that the agent who is the procuring cause of the sale must be the consumer's or client's agent. In fact, procuring cause and agency - while interrelated - are two separate and distinct legal concepts. In most transactions, the procuring cause and the agent are one and the same. However, as discussed below, there are numerous instances when this is not the case.
In the next few years, I predict that buyer's brokerage agreements will become very prevalent in the Kentucky real estate industry. No one would consider (and the law would not allow) listing a property without a written agreement, yet many - if not most - agents represent buyers with no written agreement binding that buyer to you. As many of you may have experienced, buyers sometimes go out and create procuring cause issues between you and other agents.
For example, a common occurrence is for a buyer to drive down a street and see a house she really wants to view. Even though that buyer has been working with you for weeks or months, she is so anxious to see the house immediately that she calls the agent on the sign and asks to see the property. The buyer never mentions that she is working with you and wants to be represented by you. The listing agent shows the home and perhaps even receives information from that buyer. Then, the buyer calls you, says she's found her dream home and wants you to draw up an offer for her. Lo and behold, you now have a procuring cause versus agency issue.
Unless he or she has a binding buyer brokerage agreement, that buyer is entitled to be represented by the agent of her choice, even if that agent steps in at the eleventh hour. However, that said, this does not mean that the buyer's agent is necessarily the procuring cause of the sale or is necessarily entitled to a full or partial fee for that representation.
Of course, the ideal situation would be to eliminate these issues even arising at all. One way to do this is to try to educate your buying clients from the beginning as to how the real estate industry works. Buyers create these problems for agents out of lack of knowledge rather than out of malice or indifference. Encourage your buyers to only contact you regarding property showings and not to discuss their confidential information with other agents at open houses and the like. Stay in good contact with your clients, return their phone calls promptly and appoint someone to handle your calls and business when you are away - even if it just for a day or a long weekend.
It is very difficult to assess who is the procuring cause in a particular transaction. Each case is very fact-specific and does not necessarily depend upon who showed the property or even who drafted the offer. There are so many things that an agent does from the beginning to the end of a transaction, and each act may contribute to the procuring cause issue.
Perhaps the best - and most common - way to handle these situations when they arise is to work out a referral fee or split fee with the other agent. If that fails, most local Boards of Realtors® generally have a panel that will hear these types of disputes and render a decision as to who is the procuring cause and who is therefore entitled to compensation on the deal. Finally, if you cannot agree and there is no panel to hear your case, your local civil court would likely have jurisdiction over the dispute and could render an opinion as to payment.
The three options above are perfectly legal and viable ways to resolve a procuring cause issue. However, there is also an absolutely wrong way to handle the situation. You should not steer your client away from the property because you and the other agent cannot work out a fee agreement. The commission issue can always be dealt with either by your local Board, or, if you do not have a Board or are not a member, by an arbitrator, court or other such entity. No buyer should be prevented from buying and no seller should be prevented from selling a home because the agents have a procuring cause dispute in the background. If this happens, there could be a serious breach of a fiduciary duty to those clients by the buyer's agent, the seller's agent, or both. You do not ever want your fee disputes to interfere with your fiduciary relationships.
