Designated managing broker oversight for new broker licensees

Elizabeth A. (Betsy) Urbance
General Counsel and Vice President of Legal Services

The substantially revised Illinois Real Estate License Act (RELA) has been effective for just over one year. So now is a good time to review some of the changes of importance to Designated Managing Brokers and perhaps to encourage a checkup on how things are going. Granted, while RELA changed, the industry still awaits publishing and ultimately implementation of regulations to clarify some of the RELA directives. To that end Illinois REALTORS® has spent the better part of this last year working alongside the Division of Real Estate to craft meaningful rules.

Important disclaimer: We don’t yet have draft rules on file, but the concepts discussed herein should be the same or very close to those that will comprise upcoming regulations.

What does RELA say regarding oversight of new broker licensees by DMBs?

Keeping in mind that RELA has always required DMBs to supervise and oversee the activities of their sponsored licensees, the RELA revisions of last August did add some more specific requirements involving the management of new broker licensees who have not completed their 45-hour post-license education, such as:

• Oversight of all escrow handling (i.e. earnest money and security deposits),
• Oversight of all negotiations of purchase and lease contracts,
• Prohibiting those new broker licensees from binding the company to contracts such as listing contracts and buyer brokerage agreements, and
• Oversight of all of the new broker licensee’s advertising materials.

Watch this short video to learn more about oversight and education

And check out the entire RELA Live video series.

What might regulations look like regarding oversight of new broker licensees by DMBs?

Concepts have been put forward for a rules draft to clarify the “how” for DMB supervision of new broker licensees prior to their successful completion of the 45-hour post-license course.

We can expect language in the new rules discussing handling of escrow money. DMBs will be expected to have an established procedure for actual physical transfer of a paper check from the new broker licensee to the DMB (or the DMB’s designee, such as an office manager, depending on the size of the brokerage). If funds are delivered electronically, the DMB will be directly responsible for the handling and oversight of the funds transfer. As mentioned, use of properly delegated office personnel (not the new broker licensees) are still permissible, but DMBs must be involved in the process and prove their oversight function is being accomplished.

Similar concepts apply to contract negotiations and to signing brokerage company contracts like listing agreements or buyer brokerage contracts.

The bottom-line test for DMBs will be an ability to prove the DMB was involved in the process, and that the new broker licensee was acting under the DMB’s direct supervision at all times. An increased use of technology in brokerage practice processes could be a positive development for DMBs in this regard. As more processes become automated or performed on electronic platforms, DMBs can insert themselves into the process as a party, they can be copied on specific tasks and they can be the ultimate signer for those things requiring signatures.

Looking ahead to virtual offices

Once again, keeping in mind that operation of a virtual office (meaning an “office” provided through use of a website) is allowable under RELA so long as all provisions of RELA can be met by the brokerage operating on that platform. RELA requires the registration of all offices, whether real or virtual. Rules should be forthcoming to provide a clear definition of a virtual office, but in the meantime, use reasoning that is analogous to walking into a bricks and mortar office.

Anything on a brokerage’s website that is accessible to the public will be considered under advertising guidelines. The home page should, in essence, meet signage requirements. Does the consumer know this is a brokerage company? What is the name of that company? Is it a franchise? How can I contact an agent of the company?

Once a consumer becomes a client, they should be required to sign in or log on to the virtual office. Virtual files must be “locked” with only appropriate permissions of office personnel to access records that contain confidential information. Electronic files must be “lockable.” For example, only the designated agent, the DMB and perhaps an assistant for a seller client should have access to “locked” electronic files.

In addition, rules will likely provide requirements for virtual office practitioners to grant access to Division of Real Estate (DRE) personnel, like auditors and/or investigators, to carry out appropriate agency oversight functions within a virtual office. This is similar to allowing DRE personnel access to physical files in a bricks and mortar location.

DMBs can expect a DRE requirement to keep an up-to-date roster of all sponsored licensees and their office locations, real or virtual, on file with the agency. In addition, there will likely be a requirement for a physical address registered with DRE, even if that is not the location of the brokerage “office.”

Stay tuned to Illinois REALTORS®’ communication channels for updates on the progress of filing, the beginning of a notice and comment period and ultimately implementing administrative rules that help to clarify RELA provisions.