The latest RELA update, as of Aug. 12, 2019
As you may already be aware, the Illinois Real Estate License Act of 2000 (RELA, or the Act) was due to “sunset” at the end of 2019. This is a regular “thing” for licensing laws, and knowing this was on the horizon Illinois REALTORS® set to work organizing a task force to study, consider and recommend changes for a rewrite of RELA.
Elizabeth A. (Betsy) Urbance
General Counsel and Vice President of Legal Services
The task force was divided into several subgroups where members rolled up their collective sleeves and dove into their particular focus areas to vet ideas for changes that would protect consumers and bring the brokerage practice and the Act into the future. Once the task force work was complete, its initiatives were presented to the Illinois REALTORS® Board of Directors for approval. After that, IR had its “wish list” for the next iteration of RELA.
End of story, right? Not so fast.
The initiatives were translated into official legislative language in the form of a proposed bill (shout out to Jeff Baker and the legal team).
Once there is draft language, all that is needed is legislative approval, correct? Sort of.
Illinois REALTORS®’ governmental affairs department took action to navigate the legislative process. However, there was a little wrinkle. There was a pending race for governor of Illinois, which raised a question: Would the newly elected administration be the same or different and would either even want to pursue a rewrite. Or would there simply be an extension to the existing Act?
With the installation of a new governor, Illinois REALTORS® reached out to see if there could still be a plan for a rewrite in the Spring legislative session. After all. time was short. To the credit of the state Department of Financial and Professional Regulation (IDFPR) and its new director of the Real Estate Division, Mario Treto, the agency agreed to meet with the state association at the negotiation table to see if we could hammer out a compromise bill.
All of that came to pass in a relatively short period of time. Through the efforts of so many different team members at both Illinois REALTORS® and IDFPR, this agreed-to bill flew through both chambers on its way to unanimous passage. The bill was signed into law on Aug. 9, 2019 by Governor Pritzker and became effective upon his signature.
1. Paperless Practice & Technology
Listed below are bulleted items that, when considered together point to the fact that both IDFPR’s administration of licenses and the practice of real estate brokerage will happen in an electronic environment.
- IDFPR is moving away from paper licenses and sponsor cards. Rather than signing a paper sponsor card, sponsoring brokers and licensees will go to IDFPR’s online portal to add licensees to sponsoring brokers or to terminate sponsorships. Proof of sponsorship will be the order of the day as opposed to signing and mailing sponsor cards.Rather than displaying licenses on office walls and carrying a pocket card, RELA provides for electronic license production. A licensee might print her license or carry a copy in her phone.
- Section 5-40(a) contains language about notifying IDFPR of sponsorship changes within 24 hours.
- Section 5-50(e) deletes the pocket card requirement, but mandates licensees prove they are licensed, such as by carrying an electronic version of a license.
- New provisions cover virtual offices: While a physical brick-and-mortar office space is still very much allowed under RELA, and there are provisions that continue to apply to physical offices, provisions are now included which allow for brokerages to use virtual offices.
- Go to Section 5-45(d) in the Act to notice the removal of the definite office requirement
- Also, in Section 5-45(d) there is language regarding the maintenance of electronic records that must be protected just like physical records. In addition, the brokerage must provide ways for IDFPR to access the electronic records for audit and enforcement purposes.
- Rules will be promulgated to further clarify what a virtual practice will look like.
2. Licensing & Management
The items in this category relate to age requirements, education changes and managing broker supervision requirements for new broker licensees. It is important to note that many of the concepts presented already exist under the current Act, but the new provisions are more specific with the goal of producing better and more professional real estate brokers both for the benefit of the industry and for the benefit of consumer protection.
- Age change in Act: First, Illinois REALTORS® License Law task force gave a directive to the state association that it advance an initiative to allow for broker licensees to be 18 years old. The thinking was that with proper training and oversight, a high school graduate could become a productive real estate broker without having to attend college first, or even just before reaching a certain age.Some 18-year olds are ready to be professionals (with proper training and oversight).Likewise, some practitioners, while older on a calendar won’t ever be ready or choose to be a professional. Also, if a new broker licensee does not successfully complete the 45-hour post-license education in the allotted time, he will not be allowed to renew.
- Reducing the entry-level age results in changes. The RELA rewrite did reinforce the need for restructuring the pre- and post-license education and oversight requirements.
- Education requirements change: Next, with regard to the pre- and post-license education, the restructuring changes are:
- The pre-license broker education requirement changes from 90 hours to 75 hours, with the thought being that a tighter, reduced course will get new licensees started, but real-world practice will help them learn better as they get into the post-license education modules.
- The post-license broker education requirement changes from 30 hours to 45 hours which will be divided into three, 15-hour segments, each requiring passage of a 50-question exam. The three courses will focus on:
- Applied brokerage principles
- Risk management and discipline
- Transactional issues
- New rules for managing broker supervision: Managing broker supervision was a significant concern for both the Illinois REALTOR® task force and IDFPR. While supervision requirements are currently contained in the regulations for RELA, those requirements are now part of Section 10-55(a) in the Act itself. Section 10-55(b) provides further specific oversight duties upon the designated managing broker for new broker licensees who have not completed their 45-hour post-license education. The areas covered are those that typically present challenges for new licensees.
- The designated managing broker will need to oversee the handling of any escrow funds or earnest money.
- The designated managing broker will need to oversee the negotiation of contracts in the new broker’s real estate transactions.
- Education requirements change: Next, with regard to the pre- and post-license education, the restructuring changes are:
Again, current law already imposed upon managing brokers contains the requirement to adequately train and supervise brokers. The changes here reinforce the importance of those requirements and are aimed at insuring Illinois brokers are the most well-trained brokers on the job.
3. Teams & Advertising
This was one of the biggest “hot topics” and concern areas for the task force. The concerns revolve around advertising and being truthful to the public.
The public should know when and if they are dealing with a licensed real estate brokerage company. They should also know that a team is a group that works within the sponsoring brokerage company and should avoid the appearance that a team is really its own, entirely separate company.
Here are some of the changes related to teams and advertising:
- With regard to advertising in general:
- The Act will now incorporate the “one-click” rule. This means a real estate licensee or brokerage can create a link or some bit of electronic information and, so long as all of the required information is contained in the content that populates on the device being used as a result of that “click,” the content will be compliant with the Act (similar to the NAR Code of Ethics).
- There is now a requirement that any team or licensee’s name in an advertisement be no bigger than the sponsoring broker’s company name, which must be in the advertisement. This requirement used to be in RELA, however it was removed in a prior amendment of the Act and since that time, sponsoring broker’s company names, if they are present at all, have become increasingly hard to find.A team operates within a sponsoring company, so an advertisement should not appear that the team is the sponsoring company.Again, this was a task force initiative that was unanimously approved and recommended by the Illinois REALTORS® Board of Directors.
- With regard to the Section 10-30(g) requirement that the designated managing broker (the sponsoring broker’s contact person for IDFPR), had to identify herself where her name was used in ads continues as a requirement under the rewrite.However, if a licensee holds a managing broker license, she can now use managing broker on advertising materials since this reflects a level of education and licensing she has attained. The designated managing broker must identify herself in ads as designated managing broker, which is now a defined term in the rewrite.This was important to Illinois REALTORS® as we strongly support those that have sought out additional training and education.
- With regard to teams:
- “Team” is now defined under RELA in Section 1-10 as: any two or more licensees who work together to provide real estate brokerage services, represent themselves to the public as being part of a team or group, are identified by a team name that is different than their sponsoring broker’s and sponsored by the same sponsoring broker. “Team” does not mean a separately organized, incorporated, or legal entity.
- Teams and advertising:
- The Act currently prohibits any advertising that is false, deceptive or misleading in any way. As a result, as a factual matter many existing team names are or, if fully vetted, would be determined to be deceptive per the current version of RELA.
- The new provisions clarify existing law, prohibiting terms that are inherently misleading because they imply the team is the sponsoring brokerage. The terms that are prohibited in team names are:
- Real estate
4. Consumer Protection & Business Practices
REALTORS® have always been intent on setting a high bar for industry professionalism, not just for the benefit of practitioners, but also for the benefit of the clients whose interests it is the brokers’ duty to protect.
Accordingly, the Illinois REALTORS® task forces were focused on consumer protection from the start. In addition, IDFPR has a mission of consumer protection together with establishing the standards for professional real estate licensees in Illinois.
One change in the Act deals with compensating consumers or aggrieved persons who have been injured by licensee’s in the course of their representation. Other changes focus on business practices that can be used to the detriment of (usually) distressed property owners, like guaranteed sales plans.
- Changes have been made to Sections 20-85 and 20-90 regarding the Real Estate Recovery Fund, which was established to compensate those harmed by licensees. The current provisions make it almost impossible for a person who has been financially harmed to recover from the fund. The newer version of the Act and rules removes most of the obstacles, which should actually encourage use of the Recovery Fund.
- With regard to business practices, in Section 1-10, the definition of “broker” has been amended to include the practice of “wholesaling” if done as a business model. Generally, “wholesaling” involves the practice of entering contracts to purchase property, then quickly assigning that contract to another buyer for a profit. When done as a business practice, “wholesaling” will now come under RELA’s enforcement provisions and the wholesaler will need a real estate broker’s license, as well as be subject to consumer protection provisions such as disclosure of self-interest and prohibition against dual agency.
- Guaranteed sales plans have always been covered by the Act, but now they are defined in a separate and distinct section. There are very specific requirements a licensee must meet when offering a guaranteed sales plan to a consumer. These provisions are contained in new Section 10-50.
This catchall provision is provided to point out some changes in the rewrite that did not quite fit within the prior categories:
- “Ministerial acts” was deleted as a defined term in the Act. It became clear over time that some licensees sought to use “ministerial acts” disclosure to opposing parties in a transaction in an effort to avoid disclosed dual agency and to try to avoid owing any agency duties to either party.This seemed to be a way to create a facilitator or transactional non-agent, which is not a specific option under RELA. A licensee can still represent one party and treat the other as a customer by giving proper notice of no agency to the customer and performing clerical administrative acts in order to assist the licensee’s own client.
- With regard to leasing agents, there is a global change to call them residential leasing agents. This clarifies the limited nature of this license. Also, the required CE for residential leasing agents will be eight hours instead of the current six for each two-year renewal cycle.
- There are some new categories added to Section 5-70 for appropriate CE courses, such as “transaction management,” “broker supervision,” “use of technology” and “professional conduct.”
- Section 10-20(e), which allows a licensee to form an entity for the purpose of receiving his compensation from his sponsoring broker, has been amended to allow for a two-owner entity IF the owners are spouses and are both licensed and sponsored by the same company, or one spouse is licensed and the other spouse is not licensed.
- There is a provision regarding a citation program with the purpose of making late completion of CE subject to a fine, without disciplining the licensee, unless the licensee is habitually late or egregiously non-compliant.
Stay tuned for more updates with more explanations and proposed rulemaking to implement the provisions of this rewrite.
Even though P.A. 101-357 is now effective, IDFPR has assured Illinois REALTORS® that for those provisions that take effect immediately deference will be given if the licensee and/or the sponsoring brokerage company can show diligence and attentiveness to coming into compliance as soon as is practicable.
Other provisions, such as the new broker license pre- and post-license education requirements will require some transition provisions.
Finally, perhaps most important in the near-term, keep in mind that many of the new provisions are not really changes to the concepts already present in the current Act, but clarifications so that those who must operate under the Act have better guidance for compliance and know IDFPR’s expectations should they experience an audit or investigation.