This week’s House to House is written by Gary Isom, Executive Director of the Arkansas Real Estate Commission. Gary can be reached at email@example.com.
In Arkansas and other states, real estate brokers and salespersons are required to meet established entry-level educational and experience requirements in addition to undergoing state and federal background checks. Afterward, throughout their careers, real estate licensees must continue to complete continuing educational requirements. Most real estate licensees who make a career of their chosen profession will exceed the minimum state requirements by completing additional educational workshops and obtain specialized designations earned by more rigorous pursuit of knowledge, skills and abilities which enable them to better serve their clientele. Also, through the Arkansas Real Estate Commission, if a consumer thinks a real estate licensee has acted improperly in the brokerage of the consumer’s real estate transaction, a complaint can be filed against the real estate licensee. If the complaint results in a formal administrative hearing before the commission, the consumer may even be able to recover some actual damages caused by the licensee.
For the most part, anyone who brokers real estate transactions in Arkansas is required to hold an Arkansas real estate license. However, certain circumstances have resulted in unlicensed persons engaging in the real estate brokerage, both legally and illegally. Consumers who conduct business with these unlicensed persons can lose some of the assurances of minimum competency and regulatory relief afforded to the consumers who do business with licensed brokers and salespersons.
Two new provisions added to the Arkansas Real Estate License Law by Act 865 enacted by the 88th General Assembly increase the likelihood that consumers will be afforded better protection through the Arkansas Real Estate Commission.
First, Act 865 clarifies that persons who broker the sale of businesses that include real estate must hold an Arkansas Real Estate License. The new language states that “Real estate includes without limitation…an interest in real property that is purchased or sold in connection with the purchase or sale of all or part of the assets, stock, or other ownership interest of a business or other organization”. This legislation was necessitated by an Arkansas Supreme Court decision from the late 1950’s that created a loophole allowing unlicensed persons to broker the sale of some ongoing businesses that included real estate. No other state has such an exemption. Consequently, in Arkansas, some unlicensed persons chose to operate in a business brokerage capacity without having fulfilled the educational, experience and background check requirements that real estate licensees must undergo. Unfortunately, consumers may not have realized that they were doing business with unlicensed persons and would not have had any recourse available through the Real Estate Commission. By requiring a real estate license for persons who broker these types of transactions, Act 865 will offer further assurance that consumers will be working with a knowledgeable and competent licensed real estate agent and therefore have access to the protections offered through the Real Estate Commission.
Secondly, Act 865 provides that the Arkansas Real Estate Commission can conduct an administrative hearing against an unlicensed person. If the unlicensed person is found to have engaged in unlicensed real estate activity, the Commission may impose a civil penalty up to $5,000, assess costs against the unlicensed person and furthermore, may require the unlicensed person to reimburse any compensation, fees, or other remuneration collected for performance of the unlicensed real estate activity. By granting this authority to the Real Estate Commission, even those consumers who utilize the brokerage services of unlicensed persons may have some financial recourse through the Arkansas Real Estate Commission This portion of the act does not create a new violation. It has long been a violation for unlicensed persons to engage in activities that require a license, specifically a Class D felony. This portion of Act 865 provides the Arkansas Real Estate Commission authority to take administrative action against such unlicensed persons. Prior to this act, the only jurisdiction over unlicensed activities was through the prosecuting attorney for each county in which the violation occurred.
Existing Arkansas statute only allows an actively licensed principal broker or owner of a real estate firm that has an approved principal broker to file suit to collect compensation for performing real estate activities that require a license. This can create a problem for unlicensed persons who try to collect compensation for brokering a real estate transaction.
The existing law, combined with these new changes offered by Act 865, should improve consumer protection by ensuring that persons who broker real estate transactions are properly licensed and have successfully completed the education, experience and background checks required to enter the profession.