virginia real estate laws and real estate board rules€¦ · · 2010-04-05psi exam topics step 1...

PSI Exam Topics Step 1 VA Law & Regulations

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May not be duplicated. www.moseley.org

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I. LICENSING

A. BASIC LICENSING TErmS

1. Active Status: Describes an associate broker or salesperson under the supervision of a principal or supervising broker, who is engaging in regulated acts of real estate brokerage (some requirements, such as continuing education, differ for active and inactive licenses).

2. Actively Engaged: One with an active license engaged at least 40 hours per week in regulated real estate activity. Applies to the broker experience requirement (salesperson for 36 of 48 months), and to licensees seeking reciprocity.

3. Applicant: One who applies to the Board for a real estate license.

4. Associate Broker: A licensed broker, other than the principal broker or broker/owner at a firm.

5. Board: The Virginia Real Estate Board, or VREB.

6. Firm: Partnership, association, corporation, limited liability company, or sole proprietorship engaged in the sale of real estate on behalf of others for profit. Firms (other than sole proprietor-principal broker owners) must be licensed.

7. Inactive Status: Describes a broker or salesperson who is not under the supervision of a principal or supervising broker, not active with a firm, and prohibited from performing any acts of brokerage (compare active status, above).

PSI BulletIn Alert ________________________________

State specific topics are tested separately from national topics. The Virginia PSI Bulletin indicates that salesperson candidates will receive 40 exam questions on Virginia State topics and broker candidates will receive 50 exam questions, including the following subtopics covered below: Licensing Qualifications and Requirements; Broker’s Supervisory Requirements; Disciplinary Procedures and Sanctions; Virginia Real Estate Transaction recovery Act; real Estate Education; Escrow Accounts; Disclosure requirements; Agency Definitions and Relationships; Virginia Fair Housing Laws and Regulations; Virginia Real Estate Time-Share Act and Regulations; Virginia Condominium Act and Regulations; Virginia Residential Landlord and Tenant Act; Virginia Common Interest Communities Act

See www.psiexams.com for more information on PSI Topics, State testing procedures, and preparation tips.

Virginia Real Estate Laws and Real Estate Board Rules

VA Law & Regulations Step 1 PSI Exam Topics


May not be duplicated.www.moseley.org

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8. Licensee: One who is licensed (salesperson or broker) by the Board.

9. Person: Any natural (person) or artificial (company) entity.

10. Principal Broker: Individual broker who must be designated by each firm to assure compliance with the Virginia License Law and to supervise affiliated licensee and firm activity.

11. regulant: One (salesperson or broker) who is regulated by the Board.

12. Sole Proprietor (Non-Broker Owner): Brokerage firm, which requires a firm license but may be owned by an unlicensed individual under specified circumstances.

13. Sole Proprietor (Principal Broker Owner): Brokerage firm, which does not require a firm license, as long as the individual broker/owner is licensed. Principal broker owners may operate under legal or fictitious names as the Board approves.

14. Supervising Broker: Either the broker designated by the principal broker to supervise associate brokers and salespersons (could be the principal broker) or the broker designated by the principal broker to supervise a designated agent.

B. THE VIRgINIA REAL ESTATE BOARD (VREB OR BOARD): Virginia State Government body authorized to regulate the real estate profession in Virginia.

1. Composition: The VREB consists of nine (9) members; seven (7) licensed brokers or salespersons with five consecutive years of experience, and two (2) citizens.

2. Authority: The Board may only regulate the real estate profession as authorized by the Virginia legislature.

a. Licensing Oversight: The Board regulates real estate licenses through the following powers.

i. rulemaking: The Board may create and enforce its own administrative rules.

ii. Licensing: The Board may issue and renew real estate licenses.

iii. Enforcement: The Board may enforce the license law (in addition to its own regulations). Enforcement authority includes the power to withdraw a license temporarily (suspension) or permanently (deny renewal, revocation), and to impose monetary penalties (fines) for violating the law and regulations (no criminal authority).

iv. Education: Consistent with the law, the Board regulates educational requirements for all license candidates (pre-licensing education), and existing licensees (post licensing education—CE and PLE); the Board also regulates real estate education providers (schools).

b. Administering Virginia Real Estate Laws: The Board may administer (through rulemaking and enforcement authority) the following Virginia real estate laws: The Virginia Fair Housing Act, The Virginia Condominium Act, The Virginia Time-Share Act, The Virginia Property Owner’s Association Act, The Virginia Common Interest Community Management Information Fund, The Virginia Real Estate Transaction Recovery Fund, and the Virginia Residential Property Disclosure Act.




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c. Lack of Authority: The Board may not arbitrate disputes between salespersons and brokers or between brokers, and the Board may not establish commission rates, or standardized agreements (such as sales contracts).

d. Compared to Trade Organizations: Trade organization membership and standards (such as NVAR) are voluntary and do not affect licensure; VREB rules and orders are mandatory.

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PSI exAm trAIner QueStIon 1Allow 2-minutes to answer the following question. Print your answer choice and rate the difficulty of this question in the spaces provided below. A thorough review of the Question, Answer, Difficulty, and Trap using the Question Analysis on the following even-numbered page is essential for your exam success.

Classroom PLUS™ Students: Your Moseley instructor will review the Question Analysis.

Correspondence PLUS™ Students: For additional assistance contact [email protected]

Online PLUS™ Students: You may complete step 1 online.

1. The Real Estate Board regulates: 1. the wording contained in standard exclusive right-to-sell

listing agreements 2. the size of “For Sale” signs placed on private property 3. the real estate licensing examination 4. real estate sales commissions

Answer: _____ Difficulty (circle one): Easy Medium Hard Very Hard

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C QuALIFICATIONS AND REQuIREmENTS: Certain persons and certain firms must be licensed to engage in specified real estate activities.

1. License required: Subject to the exemptions below, all persons and some firms must be licensed if, on behalf of another person for a fee, they: sell or offer to sell real estate, buy or offer to buy real estate, negotiate the purchase or exchange of real estate, or rent, lease or negotiate a lease for real estate.

2. License Exemptions: Persons and firms do not require a license merely because they sell their own property, act under a power of attorney, resolve client issues as a licensed attorney, follow a court order (bankruptcy, wills, -trusts, estates), auction property (auctioneers), or merely show rental property (rental agents). Also, broker owned firms with a single location require no firm license (but the principal broker owner must be licensed).




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3. minimum Qualifications for Individual Licenses: The Board is guided by (but has discretion to override) the following qualifications for initial licensure (broker or salesperson).

a. Personal Attributes: Candidates for a real estate license must have a high school diploma or its equivalent, be at least 18 years old, be in good standing in all other jurisdictions where licensed, and be reputed to act honestly, truthfully, fairly, and competently. Broker candidates must have experience as licensed active salespersons for 36 of the 48 months before application.

b. Prior Convictions: Candidates for a real estate license must disclose prior convictions of certain misdemeanors (moral turpitude, sexual offense, drug distribution, physical injury) that occurred within 5 years of application, and any felony convictions that occurred within the candidate’s lifetime. All candidates must submit a set of fingerprints to the Virginia Central Criminal Records Exchange for the purpose of conducting a state and national fingerprint-based criminal history record. Additionally, candidates must not have had a license suspended, revoked, or surrendered in any state.

c. Education: Candidates for a real estate license must pass an approved pre-license education course. Candidates must sit for and pass the state examination (National and State portions) following successful completion of pre-license education.

4. minimum Qualifications for Firm Licenses: All firms, except those owned by a single licensed broker with a single location (sole proprietor principal broker owner), must be (separately) licensed and must also be registered to do business in Virginia pursuant to the Virginia Law (Corporation, LLC, Partnership, etc.).

5. minimum Qualifications for Business Entity Salesperson License: Licensed salespersons and associate brokers may apply for a separate “business entity” salespersons license. A business entity salespersons license permits the individually licensed salesperson(s) and/or associate broker(s) to work under a principal broker as a business entity (corporation, partnership, LLC) and to benefit from the accompanying limitations on personal liability. Like non-broker owned firms, the business entity must first be registered under Virginia Law.

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PSI exAm trAIner

QueStIon 1 Analysis

Answer: 3

Difficulty: Easy

PSI Topic/Subtopic: Virginia Law/Real Estate License Laws

Trap: Understand that PSI conducts the exam on behalf of the Real Estate Board; the Real Estate Board is the only body with authority to regulate the exam.

Explanation: The Real Estate Board regulates the format, scheduling, and administration of the real estate licensing exam. The other choices are outside the Board’s authority.

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2. Which of the following persons must be licensed when selling real property for others?

1. a trustee, appointed by a court 2. a receiver in a bankruptcy proceeding 3. an executor of a will

4. an appraiser


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6. APPLyINg FOR INDIVIDuAL LICENSES (SALESPERSON AND BROkER)

a. Initial Licenses: An initial license is intended for those without a license in any state.

i. Active/Inactive Status: Initial license applicants must choose an active or inactive license.

1) Active Status: License issued to one who is affiliated with a broker.

• Issued to Broker: The Board issues active licenses directly to the applicant’s principal broker (not the licensee), who must make the license publicly available at the main office (but no requirement to display).

• Property of the Board: Licenses belong to the Board, not the licensee or the principal broker, and therefore must be returned to the Board if the licensee is terminated from a firm, becomes inactive, or has his license revoked.

2) Inactive Status: License issued to one who is not affiliated with a broker, which carries the following limitations:

• Prohibited Activity: Inactive licensees cannot engage in any acts requiring a real estate license.

• Limited Period: Licensees with inactive licenses must apply for active status within three (3) years or re-qualify (redo pre-license




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education and exam), subject to the Board’s discretion (waiver for related experience and military members or spouses).

ii. Application Deadline: A license application (either active or inactive) must be submitted within 12 months of passing the state exam or the applicant must retake the exam.

iii. Fictional Names: Licensees may be licensed under fictional or professional names so long as the legal name is properly registered with the Board.

FOR EXAMPLE: William Robert Smith (legal name) wants to do business as Billy-Bob Smith (professional name). In this case his real estate license would be issued in the name of, William Robert “Billy-Bob” Smith.

iv. Non-Residents: Non-residents applying for a Virginia license must file an irrevocable consent to suits and services (agreement to allow the Board to receive notice of any lawsuit on the licensee’s behalf).

b. License by Reciprocity: A license by reciprocity is intended for those already licensed in another state.

i. Compared to Initial License: Unlike the applicant for an initial license, the Board may waive pre-license education, waive the national portion of the exam, and delay the state portion of exam for reciprocity applicants.

ii. Qualifications: Same personal attributes and personal conduct standards as initial licensure (high school, age, honesty, standing, reputation, fair housing and criminal violations).

1) Salesperson Experience: Salespersons must be actively engaged as salespersons for 12 of the 36 months preceding application.

2) Broker Experience: Brokers must be actively engaged as salespersons or brokers for 36 of 48 months preceding application.

iii. Education: Applicants (brokers and salespersons) must have passed exams substantially equivalent to the Virginia exam, and must certify they have read and understand Virginia license law.

iv. Testing: All (active and inactive) applicants (broker and salesperson) must pass the state portion (Virginia Law) of the license exam only within two (2) years (renewal period) of reciprocal licensing.

v. Fee: Applicants must pay an application fee for license reciprocity.

c. Concurrent Broker’s License: A concurrent broker’s license is a license for brokers seeking to be active in multiple firms (only brokers may be active in multiple firms). Broker must pay a fee, submit an application, and provide written verification that they notified the principal broker of each firm.

d. Transferring Individual Licenses: Active licensees (brokers and salespersons) may transfer licenses from one firm to another by applying to the Board and paying a fee.

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PSI exAm trAIner

QueStIon 2 Analysis

Answer: 4

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Licensing Requirements

Trap: Remember to narrow your choices to the best answer. In this case, the only certainty is that there is no exception for appraisers.

Explanation: An appraiser acting as an appraiser needs an appraiser’s license. However, an appraiser selling real estate for others must be licensed. A trustee, executor, and receiver could qualify for an exception to the license law. We do not know whether an exception applies or not under these facts, but that fact that one could apply makes “appraiser” the best answer.

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7. APPLyINg FOR FIRm LICENSES

a. Broker Owned Sole Proprietor: Firms owned by a single licensed broker (sole proprietor) with a single location (no branch offices) need no firm license.

i. Branch Offices: All branch offices must be licensed (and supervised by a broker), even if owned by a single licensed broker. Branch licenses must be kept at the licensed branch office.

ii. Names: All firms may operate under fictitious names. However, licensed (single) broker owners must first register their legal name with the Board, along with their fictitious name, and residential and business addresses.

b. All Other Firms: All other firms owned by multiple brokers, non-brokers, or organized as a corporation, partnership, association, or limited liability company (LLC) must have a firm license (in addition to individual licenses). The firm must also be authorized to do business in Virginia by the Virginia State Corporation Commission.

i. Branch Offices: All branch offices must be licensed (and supervised by a broker). Branch licenses must be posted at the licensed branch.

ii. Names: All firms may operate under fictitious names. However, non-broker owned firms may only be licensed in the company’s legal name (which may be fictitious).

8. APPLyINg FOR BuSINESS ENTITy SALESPERSON LICENSES: License available to salespersons and associate brokers who are associated with a firm but want to reduce personal liability and obtain tax advantages (sales teams) by forming a business entity (corporation, partnership, limited liability company).

a. Limitations: Does not replace the requirement for an individual or firm license, does not authorize brokerage activity (requires broker license).

b. Qualifications for a Business Entity Salesperson License: Applicant must satisfy all the salesperson qualifications, as well as the following:

i. Active Participation: Owner or officer active participants must hold a license (salesperson, associate broker).

ii. Authorized to Do Business in Virginia: The business entity must be authorized to do business in Virginia by the Virginia State Corporation Commission.

9. mAINTAININg INDIVIDuAL AND FIRm LICENSES

a. Reporting Changes: License changes must be reported within either ten (10) or thirty (30) days as follows. Termination of the principal broker must be reported in three (3) days.

i. Change in Status—10 Days: A change in active or inactive status (termination or voluntary separation) must be reported to the Board within ten (10) days (measured from date of receipt).

1) Termination of Salesperson or Associate Broker: If the firm terminates a licensee, the principal broker must return the license to the Board by certified mail within ten (10) days.

2) Voluntary Inactivation: The licensee must notify the Board within ten (10) days when voluntarily inactivating a license.




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ii. Change in Personal Information—30 Days: Licensees must report changes in personal information (name, address) to the Board within thirty (30) days (measured from the date of receipt).

iii. Change in Firm Information—30 Days: Principal broker must report changes in firm information (firm and branch address, ownership) to the Board within thirty (30) days.

iv. Termination of Principal Broker: If the firm terminates the principal broker, the firm must return the license within three (3) days.

b. Renewing Licenses: All licenses (firm and individual, active and inactive) must be renewed every two (2) years (from date of receipt) by the license holder by paying a renewal fee and completing any mandatory education (extensions are available for military personnel). The Board has discretion to deny renewal as with initial licensure.

i. Expiration: Licenses not timely renewed (every 2 years) will expire. Once expired, the licensee cannot engage in regulated activity.

ii. reinstatement: Expired licenses may be reinstated for up to one (1) year following expiration (within 30 days by paying renewal fee; 31 days to 1 year by paying extra reinstatement fee). The Board has discretion to deny reinstatement, as with renewal and initial licensure.

iii. Lapse: Licenses not timely reinstated (over 1 year from expiration) will lapse. Once lapsed, the licensee must reapply for an initial license.

iv. Education: Licensees must complete mandatory education during each renewal period as follows.

1) PLE for New Salespersons: All new salespersons (active or inactive) must complete 30 hours of post license education (PLE) within 1 year of initial certification date in 1 of three approved tracks (residential, commercial, property management).

2) Continuing Education for all Other Licensees: All other active licensees (brokers, salespersons, reciprocity) must complete sixteen (16) credits of continuing education (CE) every renewal period (2 years).

3) Limited Service Agency One Time: All licensees (active or inactive) must complete two (2) credits of Limited Service Agency education by their first license renewal date. This is a one-time requirement that is in addition to the CE due at renewal.

4) Reciprocal Licensees: All reciprocal licensees must pass the state portion (Virginia Law) of the state exam before their first renewal period (2 years).




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3. In addition to obtaining a Virginia Real Estate License, a nonresident must do which of the following in order to sell real estate in Virginia?

1. post a surety bond 2. move to Virginia 3. work for a licensed Virginia broker

4. get permission of his out-of-state broker, if the person is licensed in another jurisdiction


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D. BROkER’S SuPERVISORy REQuIREmENTS

1. OPERATINg A FIRm: Duties in addition to firm and branch licensing.

a. Place of Business:

i. Firm Location: Firms cannot operate on residential property unless the business office is separated from the living quarters (separate entrances). Virginia residents (brokers) must maintain at least one (1) location in Virginia. Non-Virginia residents do not need a Virginia location.

ii. main Office management:

1) main Office Records: The principal broker must keep the following records at the main firm office (and make them publicly available upon request): firm license (not branch license), principal broker’s license, and salesperson and associate broker’s licenses of all those active at the main location and branch locations. The principal broker must also keep all financial records from all locations in one location (main or branch office).

2) main Office Supervision: A supervising broker, who may be the principal broker or other designated broker, must exercise reasonable supervision over real estate brokerage services performed by all licensees assigned to the main office.

iii. Branch Office management: Each branch must be licensed and a single location must be designated as the “main” location.




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1) Branch Office Records: The supervising broker must post the following records in a conspicuous place at the branch office: branch office license, and a list of assigned licensees (not licenses, which must be kept at the main office).

2) Branch Office Supervision: A supervising broker must exercise reasonable supervision over real estate brokerage services performed by all licensees assigned to the branch office.

b. The Role of Brokers:

i. Principal Brokers: All firms must have one (1) principal broker (the broker owner in case of broker owned firms). Principal brokers have the following duties.

1) Ensure Compliance: Principal brokers must ensure firm and licensee compliance with all laws and regulations (at all locations). Principal broker may be disciplined for subordinate licensee violations if she knew or should have known of a violation and failed to take reasonable action to remedy it. If the principal broker’s license is suspended, revoked, or denied renewal, all subordinate licenses must be returned to the Board.

2) Receive Board Communication: Board addresses all communications about the firm or licensees affiliated with the firm (all locations) to the principal broker.

3) keep Records: Principal broker must keep all financial records (source of funds, disclosures, executed documents) for three (3) years (from date of closing or ratification) in one location (main or branch office).

4) Supervise Advertising: Principal broker must supervise all firm advertising.

5) manage Escrow Accounts: Principal broker is responsible for all firm escrow accounts.

ii. Supervising Brokers: Broker assigned (by principal broker) to supervise associate brokers and salespersons at each branch office (or the main office if the principal broker chooses).

1) Supervision: Supervising brokers must provide reasonable and adequate supervision of all subordinate licensees under their charge. Supervising brokers may appoint another broker to assist, but the supervising broker remains responsible for proper supervision. The Board considers the following in evaluating the reasonableness and adequacy of supervision: general availability; specific availability to review and approve documents; availability of training and procedures on escrow deposits, fair housing, advertising, negotiating and drafting, unlicensed individuals, agency relationships, regulatory updates, property disclosures, and other matters.

2) Long-distance Supervision: Supervising brokers located over 50 miles from a branch office must make quarterly certifications to the Board that they complied with the rules of supervision.

3) Designated Agents: The principal broker may also assign a supervising broker to supervise a designated agent.

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PSI exAm trAIner

QueStIon 3 Analysis

Answer: 3

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Licensing Procedures

Trap: Sometimes questions omit all necessary facts and require that you supply a missing assumption. Identify the missing assumption by eliminating each answer choice that cannot be true, until you find the choice that could be true given the missing assumption.

Explanation: In order to sell real estate in Virginia, one must either be a licensed Virginia broker, or a licensed Virginia salesperson that is active with a licensed Virginia broker. The facts do not specify whether we are dealing with a broker or a salesperson. However, there is no legal or regulatory requirement to obtain permission from the out-of-state brokers, nor is there any requirement to live in Virginia or post a surety bond. Therefore, choice three is the only correct statement if you assume the person in question is a salesperson.

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iii. Associate Brokers: Any other licensee in a firm that holds a broker’s license that is not the principal broker or a supervising broker.

c. Compensation: Licensees may only be compensated by the principal broker (or broker owner).

i. Former Salespersons: Brokers may compensate former (transferred) salespersons for any commission earned while affiliated with that broker.

ii. Client Referral Fees: Brokers (not salespersons) may pay referral fees and split commissions with other brokers or firms only.

iii. Service Referral Fees: Except as otherwise prohibited by RESPA, all active licensees (salesperson or broker) may accept referral fees for services required by a sales contract (inspection, survey) as long as the fee is disclosed to the parties in writing before requesting the service (failure to properly disclose is a violation).

iv. Client Expenditures: Licensees cannot incur charges, or receive money on behalf of clients without the client’s written consent.

v. Transaction Information Referral Fees: All active licensees (salesperson or broker) may accept referral fees for non-protected transaction information (property, parties, finances) as long as they obtain the written consent of their principal broker.

vi. Employment as Settlement Agent: All active licenses (salesperson or broker) are prohibited from working for a settlement company without the written consent of the principal broker.

vii. Net Listings: Net listings (licensee keeps all proceeds over specified amount) are prohibited in Virginia.

d. Death or Disability of Principal Broker: If a firm’s principal broker dies or becomes incapacitated, the Board may appoint an unlicensed person to conclude the firm’s business (limited to 180 days).

E. DISCIPLINARy PROCEDuRES & SANCTIONS

1. Standards of Conduct: The Board may discipline (fine, suspend, revoke) any licensee (active or inactive) for the following conduct.

a. Firm Conduct: Firms must properly seek and maintain firm and individual licenses (salespersons, brokers).

b. Disclosures: All licensees (salesperson or broker) must make disclosures as follows.

i. Disclosure of Interest: All active licensees (salesperson or broker) must make disclosure (to the parties) if they have an interest in a real estate transaction. Licensees are interested if they, a family member, or their firm owns or has an interest in the subject property.

ii. Disclosure of Brokerage Relationship: All active licensees (salesperson or broker) must make written (before service provided) disclosure (whom licensee represents) upon having a substantive conversation (disclosure may be oral upon trigger but must be written by date of service) about a specific property with un-represented non-clients.

iii. Agency: Dual and designated agency disclosures must be properly written and conspicuous (or on standard forms) and timely obtained from both buyers (before receiving an offer) and sellers (before presenting an offer).




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c. Financial records and Escrow management: Principal or supervising brokers must keep financial and escrow records as follows.

i. Retention Period: Principal or supervising brokers must keep records of all real estate transactions (including escrow activity) for three (3) years from date of closing, contract ratification if there is no closing, termination of a lease, or conclusion of the licensee’s involvement.

ii. Accounting: Principal or supervising broker must account for, and timely remit (within a “reasonable time”), all monies held for parties (including escrow funds).

iii. Board requests: Principal or supervising broker must submit records to the Board within ten (10) days of the Board’s request.

iv. Escrow Accounts: Principal broker is primarily liable for escrow accounts although the supervising broker or any other licensee with escrow account authority may be disciplined for the following violations.

1) Commingling: Illegal practice of mixing escrow and non-escrow funds.

2) Conversion: Appropriation (stealing) of escrow money or property.

3) Borrowing Against Accounts: Escrow holders cannot disburse money or property from one escrow account to cover another.

4) Acknowledging Receipt: Licensees must acknowledge receipt of escrow funds or property in the subject contract (offer, lease).

5) Reporting Violations: All licensees must report known escrow violations. Principal brokers must report escrow violations to the Board within three (3) business days of forming a reasonable belief that any violation occurred.

d. Board Inquiries: All licensees (salesperson or broker, active or inactive) must respond to Board inquiries (question or records request) for any information (other than financial records, which are due in 10 days) within twenty-one (21) days.

e. unworthiness and Incompetence: All licensees (salesperson or broker, active or inactive) must be worthy and competent. Unworthiness and incompetence violations include: obtaining a license by misrepresentation (false information), holding multiple licenses, retaking the exam without cause, felony conviction, misdemeanor conviction (moral turpitude, sex offense, or drug distribution only), failing to report criminal convictions (within 30 days of plea or conviction), violating fair housing laws, violating and/or failing to report violations of license laws of other states, failing to safeguard the public interest, and improper conduct.

FOR EXAMPLE: You may not allow another person to take the license examination on your behalf or falsify your examination or license application.

FOR EXAMPLE: The regulations provide that only brokers may hold more than one Virginia license.




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FOR EXAMPLE: A licensed salesperson may not take the salesperson’s examination again. However, when they qualify, the licensed salesperson may sit for the broker’s examination. Also, if a licensee’s license lapses, they may be required to sit for the licensing exam again.

f. Conflicts of Interest: All licensees (salesperson or broker, active or inactive) must avoid conflicts of interest. Conflicts of interest include undisclosed dual or designated agency, and impermissible accepting compensation from someone other than the licensee’s principal broker.

FOR EXAMPLE: It is a conflict of interest for a licensee to be active with, or receive compensation from, a real estate broker other than the licensee’s principal broker, unless the principal broker consents in writing.

FOR EXAMPLE: Acting for more than one client in a transaction (dual agency) without first obtaining the written consent of all clients is a conflict of interest. Dual agency is not a violation so long as the principals to the transaction consent to it in writing—only undisclosed dual agency is a violation.

FOR EXAMPLE: A salesperson or associate broker may not enter into a brokerage agreement directly with a seller, buyer, landlord or tenant. Only an employing broker may enter into an agreement directly with the client. To do otherwise is a conflict of interest.

g. Improper Commissions: All active licensees (salesperson or broker) may receive compensation from the principal broker only, and must not compensate an unlicensed person for acts of real estate brokerage.

FOR EXAMPLE: A salesperson or associate broker may only receive compensation from his or her employing broker (the broker whose name appears on the license), and only if his or her license is active.

i. Client Referral Fees: Brokers (not salespersons) may pay referral fees and split commissions with other brokers or firms only.

ii. Service Referral Fees: Except as prohibited by RESPA, (ex. referral fees from settlement companies and mortgage lenders), all active licensees (salesperson or broker) may accept referral fees for services required by a sales contract (inspection, survey) so long as the fee is disclosed to the parties in writing before requesting the service (failure to properly disclose is a violation).

iii. Transaction Information Referral Fees: All active licensees (salesperson or broker) may accept referral fees for non-protected transaction information (property, parties, finances) so long as they obtain the written consent of their principal broker.

iv. Employment as Settlement Agent: All active licensees (salesperson or broker) are prohibited from working for a settlement company without the written consent of their principal broker.




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v. Net Listings: Net listings (licensee keeps all proceeds over certain amount) are prohibited in Virginia.

vi. Client Expenditures: All active licensees (salesperson or broker) must obtain the client’s written consent before personally paying for required services (inspections, surveys) on behalf of the client.

FOR EXAMPLE: If the licensee pays to have repairs made to a property in order to make a sale, the licensee would be paying valuable consideration. This is permissible if the client gives written consent before the repairs are made.

h. Improper Dealing: All licensees (salesperson or broker, active or inactive) must treat clients and customers fairly and honestly.

FOR EXAMPLE: Improper dealing includes: placing signs without the owner’s consent, failing to identify the firm or broker owner in any advertisement, listing property without the owner’s consent or on terms the owner did not agree to, and entering an exclusive agency without specifying how the agency will terminate (date, action, or by client).

i. misrepresentation/Omission: All licensees (salesperson or broker, active or inactive) are prohibited from making any misrepresentation or omission related to a transaction, including: bait and switch, failing to disclose or concealing material facts, failing to timely present offers, disclosing confidential information, omitting material information in contracts, failing to identify persons holding deposits, making material misrepresentations, and making false statements.

j. Delivery of Instruments: All licensees (salesperson or broker, active or inactive) must deliver copies of all signed documents as soon as practical, notify all parties of any material changes to documents, and return any documents they hold upon request.

k. Advertising: All licensees (salesperson or broker, active or inactive) must follow the advertising rules (more on advertising below).

2. ADVERTISINg RESTRICTIONS

a. Broadly Defined: Includes any purpose related to licensed activity in any medium (Internet, telephone, business cards, signs, television, etc).

b. Supervision: All firm advertising must be supervised by the principal or supervising broker and include the firm’s name.

c. Advertising Disclosures: Advertising disclosure differs depending on who advertises (firm or licensee) and where one advertises (Internet or conventional media).

i. Conventional media: Includes newspapers, magazines, and flyers (not Internet). Both individual and firm ads must always include the firm name and address. Individual ads must also include the licensee’s name.

ii. Internet Advertising: Both individual and firm ads must always include the firm name and address, and the state (Virginia) of the firm. Individual ads must also include the licensee’s name. All online listings must display the date of last update and be kept current, including timely requests to




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the listing service to make material changes to the listing information and the property’s current status. All Internet disclosures must be displayed as follows:

1) Web Pages: Viewable page must display required disclosures or a link to required disclosures.

2) Email, Newsgroups, Discussion Lists, & Bulletin Boards: Disclosures must appear at the beginning or end of a message or posting.

3) Instant messages: Disclosures unnecessary only if provided elsewhere (email, letter, etc) before providing or offering regulated services.

4) Chat: Disclosures may appear on the web page containing the chat session (must be visible) or in the context of the chat before providing or offering regulated services.

5) Voice Over Net (VON): Disclosures must be spoken before providing or offering regulated services, or disclosures may appear on the web page containing the VON sessions (must be visible).

6) Banner Advertisements: Disclosures must be in the advertisement itself, or be accessible via a link from the advertisement.

d. Personal Interest Disclosures: Individual ads must also specify that the owner is a licensed real estate agent (active or inactive) if the licensee owns or has an ownership interest in offered property (unnecessary if licensee uses a broker).

i. Nature of Licensee Interest: A licensee has an ownership interest if he: owns all or part of the offered property, or if his firm or business owns all or part of the offered property.

ii. Additional Disclosure in Contracts: In addition to advertising, a licensee (active or inactive) must disclose his interest (includes assisting family) in writing in any offer to purchase or lease, application to lease, or the lease itself (whichever comes first).

e. Prohibited Advertising Conduct: Regardless of whether ads are in conventional media or on the Internet, licensees cannot: imply property is for sale by owner, fail to include the firm’s licensed name on signs located at the place of business, advertise property without the owner’s or landlord’s (written) consent, fail to identify the nature of services offered, or fail to include the firm name and address on any advertisement.




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4. Ben and Jerry are communicating for the first time via instant messages. Ben is a licensee and Jerry is interested in locating property in Ben’s area. Ben suggests that he may be able to help. Which of the following disclosures must Ben make?

1. Ben must disclose his firm name and address 2. Ben must disclose his user name 3. Ben must disclose his email address 4. Ben is not required to make any disclosures because instant

messages are not advertisements


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3. DISCIPLINARy PROCEDuRES: All licensees (salesperson or broker, active or inactive) who violate the standards of conduct are subject to discipline (fines, suspension, or revocation) according to the following procedures:

a. Complaints: The Board may investigate misconduct based on a written complaint by any person (client, customer, other licensee) or by exercise of its own discretion.

b. Investigation: If the Board decides to investigate an alleged violation, it must notify the accused licensee and her principal broker. A Committee then interviews witnesses, examines evidence, and reports to the Board. The Board then decides whether to dismiss or prosecute the case.

c. Prosecution: The accused may either admit guilt and voluntarily agree to the proposed punishment, or dispute the allegations through an informal trial. Regardless, the Board may impose fines up to $2,500 per violation and/or suspend and/or revoke the licensee’s license. The Board must prosecute violations within one year of discovery, but cannot prosecute beyond five years of occurrence (statute of limitations).

d. Appeal: All disciplinary rulings may be appealed to the Virginia Court of Appeals and higher. However, there is no appeal for suspensions from failing to pay transaction recovery fund assessments or for revocations due to transaction recovery fund payments.




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5. gene, an independent broker, lists a property. Susan, also an independent broker, sells the property. gene agrees to split the commission with Susan, but advises neither the seller nor the buyer of the agreement. According to Virginia regulations:

1. Susan is guilty of accepting money from someone other than her employing broker

2. the seller must be informed of any such payment, prior to signing the listing agreement

3. neither Susan nor gene is in violation of the law 4. gene is guilty of paying valuable consideration to another party,

thereby creating a dual agency


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F. VIRgINIA REAL ESTATE TRANSACTION RECOVERy FuND (TRF) ACT

1. Nature of TRF: Compensates those who suffer a monetary loss from the misconduct of a licensees.

2. Funding the TRF:

a. Assessments: New licensees must pay a $20 fee to the TRF. If the balance falls below $400,000, the Board may assess (notice by mail, 45 days to respond) all licensees (active and inactive) up to an additional $20 over 2 years. Failure to pay results in a second notice (with another 30 days to pay). Failure to pay after a second notice results in automatic suspension of the licensee’s license until payment is received.

b. Earned Interest: Used for administration costs, accrued to fund, research and education, or restoring shortages.

3. Payments to Consumers: In order to receive reimbursement from the TRF, consumers must: obtain a final judgment (Virginia court) against a licensee for improper or dishonest conduct (which caused a monetary loss), fail to receive full compensation from the final judgment, exhaust all other attempts to receive full compensation (seek licensee’s personal assets, investigate current listings, file a claim in any bankruptcy proceeding), and timely (within 6 months of final judgment) file a claim with the Board and include an affidavit (describing actions of licensee and steps taken by consumer for reimbursement).




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4. Limitations on recovery:

a. Persons Limited: No TRF payments may be made to any licensee, spouses and children of guilty licensees, banks and lenders, and construction and development companies.

b. Damages Limited: TRF payments are limited to actual damages only (including attorney fees & court costs but not pain and suffering or punitive damages) that were not reimbursed by the final judgment against the licensee or any subsequent actions. TRF payments are also limited in amount as follows.

i. Single Transactions: Maximum TRF payment to a single aggrieved party in a single transaction is $20,000. Maximum TRF payment to multiple aggrieved parties in a single transaction is $50,000.

ii. multiple Transactions: Maximum TRF payment to a single aggrieved party in multiple transactions (over a 2 year period) is $20,000 per guilty licensee. Maximum TRF payment to multiple aggrieved parties in multiple transactions is $100,000.

c. Suspending Payments: The Board may suspend (withhold) payment from an otherwise qualified party if it believes more claims are forthcoming (within 1 year from the same licensee), or if claims threaten to overwhelm the fund (until fund replenished).

5. Licensee Consequences: License of guilty licensee is automatically revoked if payment from TRF is made (licensee may reapply only after reimbursing the TRF with interest). Licenses of licensees failing to timely pay assessments are automatically suspended.

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6. If a broker repays the amount awarded to an aggrieved consumer from the Transaction Recovery Fund with interest, which of the following is true?

1. his or her license must be reinstated 2. the Real Estate Board could withhold issuance of a new license, forever 3. he or she must wait for at least 30 days to reapply for a license 4. he or she could be reinstated as a salesperson, but NOT as a broker, for

a period of 2 years


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PSI exAm trAIner

QueStIon 4 Analysis

Answer: 1

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Disclosure Requirements

Trap: Many students get confused on Internet advertising rules and wrongly assume that simple communications like chat or instant messaging are unregulated. Also, note the last answer choice. You will encounter choices such as these with qualifiers (“no because . . . “ or “yes because . . . “), which add an additional layer of analysis.

Explanation: Ben must disclose his firm name and address. Board regulations now cover instant messages. However, if disclosures were provided in prior formal communications, then continued discussions would not require repeated disclosures.

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G. REAL ESTATE EDuCATION

1. Pre-Licensing Education:

a. Salesperson Pre-License Education: Before taking the State license exam salesperson candidates must pass an approved course in the principles of real estate (60 credit hours) by classroom or correspondence.

b. Broker Pre-Licensing Education: Before taking the State license exam broker candidates must pass at least 180 hours of Board approved study in: real estate brokerage (at least 45 credit-hours), two (2) other Board-approved mandatory courses (real estate law, real estate finance, or real estate appraisal), and Board-approved electives for any hours remaining in the 180 hour total (brokers must also be licensed salespersons active for 36 of the 48 months preceding application).

2. Post Licensing Education (PLE): After taking the State exam, all (active and inactive) salespersons (not brokers) must complete thirty (30) hours of PLE in one (1) of three (3) tracks (residential, commercial, property management) within one (1) year of licensure. No other Continuing Education is required throughout this first renewal period. The Board can place the salesperson’s license on inactive status for failing to timely complete PLE.

3. Continuing Education (CE):

a. Active Status: All active brokers, and salespersons who have been active more than two (2) years (completed PLE on first renewal cycle) must complete continuing education every 2 years (renewal period) as follows:

i. Salespersons: 16 credit-hours of CE every 2 years (renewal period). Eight (8) credits must be in mandatory topics (fair housing (2 hours), ethics (3 hours), legal updates (1 hour), agency (1 hour), and contracts(1hour)) and eight (8) credits may be in approved electives

ii. Brokers: 24 credit hours of CE every 2 years (renewal period). Sixteen (16) credits must be in mandatory topics (agent supervision & management (8 credits); fair housing (2 credits); ethics & standards of conduct (3 credits); state real estate laws & regulations (1 credit); agency (1 credit); and contracts (1 credit)); and eight (8) credits may be in approved electives.

iii. Limited Service Agency: Both active salespersons and active brokers must complete one course on limited service agency that is at least two (2) credit hours before their first renewal or reinstatement period (a one-time requirement).

b. Inactive Status: No annual CE requirement for inactive licensees, but CE must be completed prior to activation (activation must occur within 3 years or applicant must re-do pre-license education). However, inactive salespersons must still complete PLE within 1 year of licensure.

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PSI exAm trAIner

QueStIon 5 Analysis

Answer: 2

Difficulty: Easy

PSI Topic/Subtopic: Virginia Law/Disciplinary Procedures and Sanctions

Trap: Commissions and referrals can be a confusing topic. In this case, note the difference between splitting commissions or paying referral fees among brokers, and the same conduct among salespersons or between brokers and unaffiliated salespersons.

Explanation: Prior to entering into any brokerage relationship, a licensee shall advise the prospective client of the type of brokerage relationship proposed and the broker’s compensation. The licensee must also disclose whether the broker will share such salary or compensation with another broker who may have a brokerage relationship with another party to the transaction.

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II. ESCROW ACCOuNTS:

A. Establishing Escrow Accounts: Only necessary if holding money or property for others. If established, it must be in the firm’s licensed name, with a federally insured bank located in Virginia, all accounts and all deposits must be designated (labeled) “escrow.”

B. Items requiring Deposit: Includes (but not limited to) earnest money and down payments (deposit within 5th banking day of ratification), rental payments, security deposits, and advances (deposit within 5th banking day following receipt).

C. Interest Bearing Accounts: Not necessary, but must make written disclosure (of who keeps) if interest is earned.

D. Disbursing Escrow Funds: Funds may not be removed from escrow unless the transaction is consummated, the parties agree, or a court orders.

1. Problem Topics: Problem disbursements include: commissions (cannot remove until earned and parties agree), and insufficient funds (cannot cover one escrow account shortage with another escrow account).

FOR EXAMPLE: Broker Smith is managing five (5) different apartment buildings. Scenic View Apartments needs roof repairs and the owner authorized Smith to pay for the repairs out of funds held in escrow. The bill for the roof repairs is $2,000. Broker Smith’s escrow account has a balance of $10,000, but Scenic View only has $1,500 in the account. Broker Smith may not withdraw more than the $1,500 that specifically belongs to Scenic View.

2. Disputes: If the transaction does not close, funds must be held until all parties agree, court orders, or the principal (or supervising) broker follows the terms of the sales contract (requires written notice to non-receiving party with 30 days to protest).

E. Escrow Violations: Principal broker is primarily liable, but any other licensee may be secondarily liable for commingling, conversion, mixing account disbursement, failing to acknowledge receipt of escrow funds, failing to timely report escrow violations to the Board, and escrow record keeping violations.

F. Judicial Control of Escrow Accounts: Board may request that a court seize control of mismanaged escrow accounts, barring licensee access and appointing a receiver to manage the account.

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PSI exAm trAIner

QueStIon 6 Analysis

Answer: 2

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Transaction Recovery Act

Trap: This question re-quires that you evaluate the difference between the “must” and “could” answer choices. Despite the mandatory and permissive nature of such choices, your analysis is the same—eliminate the choices that CANNOT be true and find the best answer, which is the one that COULD BE true.

Explanation: Once re-voked, a licensee can reapply for a new license after she repays the fund plus interest. However, the Real Estate Board has the discretion to refuse to issue a license to any person who has EVER had his or her license revoked or suspended. When a claim is paid due to a licensee’s misconduct, that licensee’s license must be revoked—whether a licensee repays the fund or not will not change this fact. When reapplying, the salesperson experience requirement must be satisfied for 36 of the prior 48 months (3 years) or waived at the Board’s discretion.

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7. If a broker receives a deposit for escrow, his handling of the deposit would be in violation of Virginia License Regulations if he:

1. obtains permission from all parties involved in the transaction to have the interest earned on the deposit credited to his personal account

2. places the money in a non-interest bearing account 3. does not advise the principals precisely how the interest earned on the

deposit will be distributed 4. places the money in an interest bearing account


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III. DISCLOSuRE REQuIREmENTS

A. VIRgINIA RESIDENTIAL PROPERTy DISCLOSuRE ACT: Imposes property disclosure obligations on sellers and licensees (inform sellers) that are in addition to the agency duty to disclose material facts.

1. Nature of Act: The Act applies to residential property (1-4 units) sales, options, installment sales, and leases with an option to buy regardless of whether an agent is involved.

2. Exceptions: The Act does not apply to court ordered transactions (foreclosures, eminent domain, bankruptcy, and estate settlements), voluntary transfers between co-owners, voluntary transfers between relatives, divorce settlements, and new home construction (first sale).

3. Basic Requirement for Licensees: Inform clients and customers of rights and duties under the Act.

4. Basic Requirement for Sellers: On the required Disclosure Form that the Seller must give the Buyer under the Act, the Seller must affirmatively disclose any pending enforcement actions for violations of Uniform Statewide Building Code that affect the safe, decent, sanitary living conditions of the property, and any pending violation of the local zoning ordinance which has not been timely remedied.

In addition, the Disclosure Form advises the Buyer to do his own due diligence, because the Seller makes no representations as to: the condition of the property; any




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adjacent parcels; applicability of any historic district ordinance; whether the property has any resource protection areas under the Chesapeake Bay Preservation Act; information on any registered sexual offenders in the area; whether the property is in a dam break inundation zone; the presence of any stormwater detention facilities on the property.

a. Standard Property Disclosure Form: Selling Homeowners must provide this statement. Below is the required of a Residential Property Disclosure/Disclaimer Form drafted by the Board which includes reference to the Chesapeake Bay Preservation Act.

RESIDENTIAL PROPERTY DISCLOSURE STATEMENT

NOTICE TO SELLER AND PURCHASER

The Virginia Residential Property Disclosure Act (§ 55-517 et seq. of the Code of Virginia) requires the owner of certain residential real property, whenever the property is to be sold or leased with an option to buy, to furnish to the purchaser a RESIDENTIAL PROPERTY DISCLOSURE STATEMENT stating the owner makes the following representations as to the real property. Certain transfers of residential property are excluded from this requirement (see § 55-518).

Property Address/ Legal Description: _______________________________________________________________

The undersigned owner(s) of the real property described above makes no representations or warranties as to the condition of the real property or any improvements thereon, and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary including obtaining a certified home inspection, as defined in § 54.1-500, in accordance with the terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement on the parcel of residential real property.

The undersigned owner(s) makes no representations with respect to any matters that may pertain to parcels adjacent to the subject parcel, and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary with respect to adjacent parcels in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement on the parcel of residential real property.

The undersigned owner(s) makes no representations to any matters that pertain to whether the provisions of any historic district ordinance affect the property, and the purchaser(s) is advised to exercise whatever due diligence the purchaser deems necessary with respect to any historic district designated by the locality pursuant to § 15.2-2306, including review of any local ordinance creating such district or any official map adopted by the locality depicting historic districts, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement on the parcel of residential real property.

The undersigned owner(s) makes no representations with respect to whether the property contains any resource protection areas established in an ordinance implementing the Chesapeake Bay Preservation Act (§ 10.1-2100 et seq.) adopted by the locality where the property is located pursuant to § 10.1-2109, and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary to determine whether the provisions of any such ordinance affect the property, including review of any official map adopted by the locality depicting resource protection areas, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement on the parcel of residential real property.

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PSI exAm trAIner

QueStIon 7 Analysis

Answer: 3

Difficulty: Easy

PSI Topic/Subtopic: Virginia Law/Escrow Accounts

Trap: Escrow account violations lead to many Virginia disciplinary actions. As such, it is reasonable to assume it will be well represented on the exam. In this question, many students will be tempted by the first answer choice because it just seems “wrong.”

Explanation: The law does not require that escrow monies be held in interest bearing accounts. However, escrow monies may be held in interest bearing accounts so long as the licensee makes written disclosure to all parties to the transaction as to who will keep any earned interest. So long as disclosure is proper, the broker may keep the interest.

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The undersigned owner(s) makes no representations with respect to information on any sexual offenders registered under Chapter 23 (§ 19.2-387 et seq.) of Title 19.2, and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary with respect to such information, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to that contract.

The undersigned owner(s) makes no representations with respect to whether the property is within a dam break inundation zone and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary with respect to whether the property resides within a dam break inundation zone, including a review of any map adopted by the locality depicting dam break inundation zones. The undersigned owner(s) makes no representations with respect to the presence of any stormwater detention facilities located on the property and the purchaser(s) is advised to exercise whatever due diligence the purchaser(s) deems necessary to determine the presence of any stormwater detention facilities on the property, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to that contract.

The undersigned owner(s) represents that there are no pending enforcement actions pursuant to the Uniform Statewide Building Code (§ 36-97 et seq.) that affect the safe, decent, and sanitary living conditions of the real property described above of which the owner has been notified in writing by the locality, nor any pending violation of the local zoning ordinance which the violator has not abated or remedied under the zoning ordinance, within a time period set out in the written notice of violation from the locality or established by a court of competent jurisdiction, except as disclosed on this statement. _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Additional Written Disclosure Requirements

Section 55-518.B. contains other disclosure requirements for transfers involving the first sale of a dwelling because the first sale of a dwelling is exempt from the disclosure requirements listed above. The builder of a new dwelling shall disclose in writing to the purchaser thereof all known material defects which would constitute a violation of any applicable building code.

In addition, for property that is located wholly or partially in any locality comprising Planning District 15, the builder or owner, if the builder is not the owner of the property, shall disclose in writing whether the builder or owner has any knowledge of (i) whether mining operations have previously been conducted on the property or (ii) the presence of abandoned mines, shafts, or pits, if any.

The disclosures required by this subsection shall be made by a builder or owner (i) when selling a completed dwelling, before acceptance of the purchase contract or (ii) when selling a dwelling before or during its construction, after issuance of a certificate of occupancy. Such disclosure shall not abrogate any warranty or any other contractual obligations the builder or owner may have to the purchaser. The disclosure required by this subsection may be made on this disclosure form. If no defects are known by the builder to exist, no written disclosure is required by this subsection.

Section 55-519.1 contains a disclosure requirement for properties located in any locality in which there is a military air installation.

Section 32.1-164.1:1 contains a disclosure requirement regarding the validity of septic system operating permits.




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See also the Virginia Condominium Act (§ 55-79.39 et seq.), the Virginia Cooperative Act (§ 55-424 et seq.) and the Virginia Property Owners’ Association Act (§ 55-508 et seq.).

The owner(s) acknowledge having carefully examined this statement and further acknowledge that they have been informed of their rights and obligations under the Virginia Residential Property Disclosure Act.

_________________________ _________ _________________________ ________ Owner Date Owner Date

The purchaser(s) acknowledge receipt of a copy of this disclosure statement and further acknowledge that they have been informed of their rights and obligations under the Virginia Residential Property Disclosure Act. ________________________ __________ _________________________ ________ Purchaser Date Purchaser Date

b. Aircraft Noise/Crash Disclosure:

Under VA law, the owner of residential real property located in any locality in which a military air installation is located must disclose to the purchaser (on a form provided by the VREB) whether the subject parcel is located in a noise zone or accident potential zone, or both, if so designated on the official zoning map by the locality in which the property is located. Such disclosure must state the specific noise zone or accident potential zone, or both, in which the property is located according to the official zoning map.

c. Septic Disclosure:

VA law provides that whenever any onsite sewage system serving real property is failing and the Board of Health’s regulations for repairing such failing system impose (i) a requirement for treatment beyond the level of treatment provided by the existing onsite sewage system when operating properly or (ii) a new requirement for pressure dosing, the owner may request a waiver from such requirements. Any such waivers shall be recorded in the land records. Waivers are not transferable and are null and void upon transfer or sale of the property. Additional treatment or pressure dosing requirements will be imposed in such instances when the property is transferred or sold.

Because the waivers are not transferrable, the owner of the property must disclose (on a form provided by the VREB) that any operating permit for the onsite sewage system that has been granted a waiver shall be null and void at the time of transfer or sale of the property and that the Board of Health’s regulatory requirements for additional treatment or pressure dosing shall be required before an operating permit may be reinstated.

The purchaser may void the contract and have his deposit returned if the property is subject to such waiver.

This disclosure requirement applies only with respect to transfers by sale, exchange, installment land sales contract, or lease with option to buy residential real property consisting of not less than one nor more than four dwelling units, whether or not the transaction is with the assistance of a licensed real estate broker or salesperson.




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d Limit on Disclosure Liability: The Act shields owners from liability for errors in information provided by third parties (public records survey, inspection) as long as the owner did not have actual knowledge (or willful blindness) to the contrary.

e. New Disclosure Information: Owner’s must revise disclosure if information in disclosure changes prior to closing.

5. Timing: Disclosures or disclaimers must be made prior to the buyer’s acceptance or the buyer has the right to terminate (without penalty) by providing timely written notice to the seller.

IV. AgENCy DEFINITIONS AND RELATIONSHIPS

Virginia law replaces portions of the common law of agency. That is, where the two are in conflict, Virginia law controls. However, you must understand both the common law (national portion of the exam) and Virginia Agency (state portion of the exam).

A. Virginia Agency Representation: Virginia real estate agents may provide brokerage services as standard agents, independent contractors, or limited service agents.

1. Standard Agents: A standard agent in Virginia is a licensee who acts for or represents a client in an agency relationship subject to all agency duties and disclosures imposed by the Virginia Law and regulations, as well as any additional duties that the licensee and client agree to in the brokerage agreement.

2. Limited Service Agents: A limited service agent is a licensee who agrees to represents a client without providing one or more of the duties required of standard agents. A limited service representative is held only to the duties identified in the brokerage agreement and must provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal, state, or local law. If the limited service agreement does not explicitly identify the licensee as an agent, the licensee will be presumed to be acting as an independent contractor of the client.

3. Independent Contractors: An independent contractor is a licensee that is not subject to the agency duties imposed by Virginia Law and regulations, but is subject to certain disclosures and limitations on the brokerage relationship. An independent contractor is only subject to duties the licensee and the client agree to in the brokerage agreement (which could include some standard agent duties).

B. Virginia Agency Commencement: Virginia Real estate agency relationships (listing, buyer/broker) begin when the client “engages” the licensee. Brokers may establish a limited service agency with clients only by so stating in the brokerage agreement, and obtaining the client’s written consent.

C. Virginia Agency Termination: Virginia real estate agency relationships terminate when completed or the earlier of: a mutually agreed to expiration date (90 days if parties do not specify), a mutually agreed to termination at any time, a default by a party, or if the agent chooses to terminate after a client refuses to consent to a disclosed dual representation.

D. Virginia Agency Disclosures:

1. Brokerage Relationships:

a. Clients: Before creating an agency relationship, licensees must disclose the type of agency proposed, the method of compensation, and whether a broker will share compensation with another broker who represents another party in the same transaction.




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b. Limited Service Agency: The limited service representative must disclose the following in the brokerage agreement: That the licensee is acting as a limited service representative; a list of the specific services that the licensee will provide to the client; and A list of the specific duties required of a standard agent that the limited service representative will NOT provide to the client. These initial disclosures must be conspicuous and printed either in bold lettering or all capitals, and must be underlined or in a separate box. The Virginia Legislature suggests specific language to properly disclose a limited service agency.

c. Non-Clients/Customers: Before discussing property with a non-client (includes landlords and tenants), licensees must disclose whom they represent (if anyone) that has an interest in the property at issue.

i. Nature of Discussion: Only discussions that are “substantive conversations about a specific property” trigger disclosure to the non-client/customer.

ii. Nature of Non-Client: Only non-clients (buyers, sellers, landlords, tenants) that are not represented by another licensee trigger the disclosure.

iii. Nature of Disclosures: Disclosures must be oral when triggered (qualified discussion, non-client, unrepresented), and written before “specific real estate assistance” (if any) is provided.

iv. Format of Disclosure: If specific real estate assistance is provided, then the disclosure may be made in a standard format described in Virginia law or along with other disclosures, as long as it is conspicuous (bold font, all capitals, underlined, or in a box).

2. Dual representation: Dual representation (one Broker owner or one firm represents both parties in same transaction) is permissible if properly disclosed and agreed to in writing.

a. Nature of Disclosure: Disclosure must indicate that the licensee cannot reveal any personal or financial information received from one party during the brokerage relationship to the other party (client need not request secrecy), and that the licensee cannot reveal any other information that a party requests to remain confidential during the brokerage relationship to the other party (client must request secrecy).

b. Form of Disclosure: Disclosure must be written and may be made in a standard format described by Virginia law, or along with other disclosures as long as it is conspicuous (bold font, all capitals, underlined, or in a box).

c. Nature of Agreement: Clients must consent to dual representation and acknowledge disclosure by their signatures. Licensees may terminate an existing agency relationship (without liability) if the client refuses to consent to dual representation.

3. Designated representation: Designated representation (one Broker owner or one firm and separate salespersons represent both parties in same transaction) is permissible if properly disclosed.

a. Nature of Disclosure: Same as dual representation, above. However, licensees (salespersons and associate brokers) can reveal any information to their supervising or principal broker (who is treated as a dual representative under Virginia law).

b. Form of Disclosure: Same as dual representation, above.




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4. Licensee’s Interest: Licensees (active or inactive) must disclose that they are licensed real estate agents if they have an interest in a transaction, regardless of whether there is any advertising.

a. Nature of Interest: Licensees must make disclosure if they are offering property, which they, their firm, or their business own (all or part); are actual or potential (offers) parties to the transaction; are assisting family members, or have a business interest (includes licensee’s business or firm) in the subject property.

b. Format: Disclosure must be written in any offer to purchase or lease, application to lease, or the lease itself (whichever comes first). Disclosure must be made to purchaser, seller, or lessee upon having substantive discussions about a specific property.

5. material Facts:

a. Property Condition: Licensees must disclose all known material adverse facts about the subject property’s physical condition to both clients and customers.

b. Transaction Information: Licensees must disclose all known material facts about the transaction (includes customer financial information) to the client only.

6. Record keeping: Principal broker must keep records of all agency disclosures for three (3) years from the date of execution.

7. mLS Participation: Under Virginia law, no licensee representing a buyer or tenant shall be deemed to have a brokerage relationship with a seller, landlord or other licensee solely by reason of using a common source information company. However, an MLS may require licensees to disclose the nature of brokerage relationships with clients, including, but not limited to, whether the licensee is acting as (i) an independent contractor, (ii) a limited service representative, or (iii) a transaction broker, facilitator or in some other capacity as provided in the brokerage agreement. The MLS may also make such information publicly available (but is not required to do so).

E. Virginia Agency Duties: Virginia real estate agents have duties to both clients and customers. The nature of the duty depends on whether the licensee is acting as a standard agent or a limited service agent and the type of person the licensee represents (buyer, seller, landlord, tenant). Standard agents owe all of the following duties to clients and customers. Limited service agents owe only those duties that they agree to in the brokerage agreement.

1. Client/Sellers: Standard agents representing seller clients owe the following duties to the seller client.

a. Performance: Standard agents representing a seller client must perform in accordance with the terms of the brokerage relationship.

b. Promote Seller’s Interest: Standard agents representing a seller client must conduct marketing activities on behalf of the seller in accordance with the brokerage agreement. In so doing, the licensee shall seek a sale at the price and terms agreed upon in the brokerage relationship or at a price and terms acceptable to the seller; however, the licensee shall not be obligated to seek additional offers to purchase the property while the property is subject to a contract of sale, unless agreed to as part of the brokerage relationship or as the contract of sale so provides; Assisting in the drafting and negotiating of offers and counteroffers, amendments, and addenda to the real estate contract and in establishing strategies for accomplishing the seller’s objectives; Receiving and




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presenting in a timely manner written offers and counteroffers to and from the seller and purchasers, even when the property is already subject to a contract of sale; and Providing reasonable assistance to the seller to satisfy the seller’s contract obligations and to facilitate settlement of the purchase contract.

c. Confidentiality: Standard agents representing a seller client must maintain confidentiality of all personal and financial information received from the seller client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential, unless otherwise provided by law or the seller consents in writing to the release of such information.

d. Ordinary Care: Standard agents representing a seller client must exercise judgment similar to a reasonable person under like circumstances.

FOR EXAMPLE: A residential broker that decides to take a commercial listing will be held to the standards of the reasonable commercial broker, and vice versa.

e. Accounting: Standard agents representing a seller client must account in a timely manner for all money and property received by the licensee in which the seller has or may have an interest.

f. Comply with the Law: Standard agents representing a seller client must comply with the law.

g. material Facts: Standard agents representing a seller client must disclose all known material facts related to the property or concerning the transaction (including information about the buyer) of which the licensee has actual knowledge.

h. Advice on Brokerage Relationships. Prior to entering into brokerage relationship with a seller client, a standard agent must advise the prospective client of (i) the type of brokerage relationship proposed by the broker, and (ii) the broker’s compensation and whether the broker will share compensation with another broker who may have a brokerage relationship with another party to the transaction.

2. Customer/Buyer: Standard agents representing seller clients owe the following duties to buyer customers:

a. Honesty: Standard agents representing seller clients must treat all prospective buyers honestly and shall not knowingly give them false information.

b. material Facts: Standard agents representing seller clients shall disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. The term “physical condition of the property” refers to the physical condition of the land and any improvements thereon, and does not refer to: (i) matters outside the boundaries of the land or relating to adjacent or other properties in proximity thereto, (ii) matters relating to governmental land use regulations, and (iii) matters relating to highways or public streets. Such disclosure shall be conspicuous and printed either in bold lettering or all capitals, and shall be underlined or in a separate box. A licensee is not liable to a buyer for providing false information to the buyer if the false information was provided to the licensee by the seller or was obtained from a governmental entity or from a person licensed, certified, or registered to provide professional services in the Commonwealth, upon which the licensee relies, and the licensee did not (i) have actual knowledge that the information




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was false or (ii) act in reckless disregard of the truth. A standard agent may also reveal information required by law, without liability.

c. ministerial Acts: Standard agents representing seller clients may (but are not required) to assist actual or potential buyers with routine administrative acts that do not entail material advice or substantive assistance (unless prohibited by the brokerage agreement). Such acts alone do not create an agency relationship.

d. Brokerage Relationship Disclosure: Standard agents representing seller clients must properly disclose the brokerage relationship they have with the seller to the unrepresented buyer.

3. Client/Buyers: Standard agents representing buyer clients owe the following duties to the client buyer.

a. Performance: Standard agents representing buyer clients must perform in accordance with the terms of the brokerage relationship.

b. Promote the Buyer’s Interests: Standard agents representing buyer clients must promote the buyer’s interests by: Seeking a property of a type acceptable to the buyer and at a price and on terms acceptable to the buyer; however, the licensee shall not be obligated to seek other properties for the buyer while the buyer is a party to a contract to purchase property unless agreed to as part of the brokerage relationship; Assisting in the drafting and negotiating of offers and counteroffers, amendments, and addenda to the real estate contract and in establishing strategies for accomplishing the buyer’s objectives; Receiving and presenting in a timely manner all written offers or counteroffers to and from the buyer and seller, even when the buyer is already a party to a contract to purchase property; and Providing reasonable assistance to the buyer to satisfy the buyer’s contract obligations and to facilitate settlement of the purchase contract.

c. Confidentiality: Standard agents representing buyer clients must maintain confidentiality of all personal and financial information received from the buyer during the brokerage relationship and any other information that the buyer requests during the brokerage relationship be maintained confidential unless otherwise provided by law or the buyer consents in writing to the release of such information.

d. Ordinary Care: Standard agents representing buyer clients must exercise judgment similar to a reasonable person under like circumstances.

e. Accounting: Standard agents representing buyer clients must account in a timely manner for all money and property received by the licensee in which the buyer has or may have an interest.

f. Comply with the Law: Standard agents representing buyer clients must comply with the law.

g. material Facts: Standard agents representing buyer clients must disclose to the buyer material facts related to the property or concerning the transaction of which the licensee has actual knowledge.

h. Showing to Other Buyers: A standard agent engaged by a buyer does not breach any duty or obligation to the buyer by showing properties in which the buyer is interested to other prospective buyers, whether as clients or customers, by representing other buyers looking at the same or other properties, or by representing sellers relative to other properties.

i. Advice on Brokerage Relationships. Prior to entering into brokerage relationship with a buyer client, a standard agent must advise the prospective




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client of (i) the type of brokerage relationship proposed by the broker, and (ii) the broker’s compensation and whether the broker will share compensation with another broker who may have a brokerage relationship with another party to the transaction.

4. Customer/Seller: Standard agents representing buyer clients owe the following duties to potential and actual seller customers:

a. Honesty: Standard agents representing buyer clients must treat all prospective sellers honestly and cannot knowingly give them false information.

b. Status as Owner Occupied: In the case of a residential transaction, a standard agent engaged by a buyer must disclose to a seller whether or not the buyer intends to occupy the property as a principal residence. The buyer’s expressions of such intent in the contract of sale shall satisfy this requirement and no cause of action shall arise against any licensee for the disclosure or any inaccuracy in such disclosure, or the nondisclosure of the buyer in this regard.

c. ministerial Acts: Standard agents representing buyer clients may, unless prohibited by law or the brokerage relationship, provide assistance to the seller, or prospective seller, by performing ministerial acts. Such assistance alone does not create a brokerage relationship.

d. Brokerage Relationship Disclosure: Standard agents representing buyer clients must properly disclose the brokerage relationship they have with the buyer to the unrepresented seller.

5. Client/Landlord: Standard agents who represent landlord clients owe the following duties to the landlord client:

a. Performance: Standard agents representing landlord clients must perform in accordance with the terms of the brokerage relationship.

b. Promote the Landlord’s Interests: Standard agents representing landlord clients must promote the interests of the landlord by: Conducting marketing activities on behalf of the landlord pursuant to the brokerage agreement with the landlord. In so doing, the licensee shall seek a tenant at the rent and terms agreed in the brokerage relationship or at a rent and terms acceptable to the landlord; however, the licensee shall not be obligated to seek additional offers to lease the property while the property is subject to a lease or a letter of intent to lease under which the tenant has not yet taken possession, unless agreed as part of the brokerage relationship, or unless the lease or the letter of intent to lease so provides; Assisting the landlord in drafting and negotiating leases and letters of intent to lease, and presenting in a timely manner all written leasing offers or counteroffers to and from the landlord and tenant, even when the property is already subject to a lease or a letter of intent to lease; Providing reasonable assistance to the landlord to finalize the lease agreement.

c. Confidentiality: Standard agents representing landlord clients must maintain confidentiality of all personal and financial information received from the landlord during the brokerage relationship and any other information that the landlord requests during the brokerage relationship be maintained confidential, unless otherwise provided by law or the landlord consents in writing to the release of such information.

d. Ordinary Care: Standard agents representing landlord clients must exercise ordinary care.

e. Accounting: Standard agents representing landlord clients must account in a timely manner for all money and property received by the licensee in which the landlord has or may have an interest.




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f. Comply with the Law: Standard agents representing landlord clients must comply with the law.

g. material Facts: Standard agents representing landlord clients must disclose to the landlord material facts related to the property or concerning the transaction of which the licensee has actual knowledge.

h. Showing to Other Tenants: A standard agent engaged by a landlord does not breach any duty or obligation owed to the landlord by showing alternative properties to prospective tenants, whether as clients or customers, or by representing other landlords who have other properties for lease.

i. Advice on Brokerage Relationships. Prior to entering into brokerage relationship with a landlord client, a standard agent must advise the prospective client of (i) the type of brokerage relationship proposed by the broker, and (ii) the broker’s compensation and whether the broker will share compensation with another broker who may have a brokerage relationship with another party to the transaction.

6. Customer/Tenant: Standard agents who represent landlord clients owe the following duties to actual or prospective tenant customer:

a. Honesty: Standard agents representing landlord clients must treat all prospective tenants honestly and shall not knowingly give them false information.

b. material Facts: Standard agents representing landlord clients must disclose material facts to tenant customers. A licensee engaged by a landlord shall disclose to prospective tenants all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. As used in this section, the term “physical condition of the property” shall refer to the physical condition of the land and any improvements thereon, and shall not refer to: (i) matters outside the boundaries of the land or relating to adjacent or other properties in proximity thereto, (ii) matters relating to governmental land use regulations, and (iii) matters relating to highways or public streets. Such disclosure shall be conspicuous and printed either in bold lettering or all capitals, and shall be underlined or in a separate box. A licensee shall not be liable to a tenant for providing false information to the tenant if the false information was provided to the licensee by the landlord or was obtained from a governmental entity or from a person licensed, certified, or registered to provide professional services in the Commonwealth, upon which the licensee relies, and the licensee did not (i) have actual knowledge that the information was false or (ii) act in reckless disregard of the truth. No cause of action shall arise against any licensee for revealing information as required by this article or applicable law. Nothing in this subsection shall limit the right of a prospective tenant to inspect the physical condition of the property.

c. ministerial Acts: Standard agents representing landlord clients may, unless prohibited by law or the brokerage relationship, provide assistance to a tenant, or potential tenant, by performing ministerial acts. Such acts alone do not create a brokerage relationship with tenants or potential tenants.

d. Brokerage Relationship Disclosure: Standard agents representing landlord clients must properly disclose the brokerage relationship they have with the landlord to the unrepresented tenant.

7. Client/Tenant: Standard agents who represent tenant clients owe the following duties to the tenant client:

a. Performance: Standard agents representing tenant clients must perform in accordance with the terms of the brokerage relationship.




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b. Promote the Client’s Interests: Standard agents representing tenant clients must promote the interests of the tenant by: Seeking a lease at a rent and with terms acceptable to the tenant; however, the licensee shall not be obligated to seek other properties for the tenant while the tenant is a party to a lease or a letter of intent to lease exists under which the tenant has not yet taken possession, unless agreed to as part of the brokerage relationship, or unless the lease or the letter of intent to lease so provides; Assisting in the drafting and negotiating of leases, letters of intent to lease, and rental applications, and presenting, in a timely fashion, all written offers or counteroffers to and from the tenant and landlord, even when the tenant is already a party to a lease or a letter of intent to lease; Providing reasonable assistance to the tenant to finalize the lease agreement.

c. Confidentiality: Standard agents representing tenant clients must maintain confidentiality of all personal and financial information received from the tenant during the brokerage relationship and any other information that the tenant requests during the brokerage relationship be maintained confidential unless otherwise provided by law or the tenant consents in writing to the release of such information.

d. Ordinary Care: Standard agents representing tenant clients must exercise ordinary care.

e. Accounting: Standard agents representing tenant clients must account in a timely manner for all money and property received by the licensee in which the tenant has or may have an interest.

f. Comply with the Law: Standard agents representing tenant clients must comply with the law.

g. material Facts: Standard agents representing tenant clients must disclose to the tenant material facts related to the property or concerning the transaction of which the licensee has actual knowledge.

h. Showing to Other Tenants: A standard agent engaged by a tenant does not breach any duty or obligation owed to the tenant by showing the same properties to both the tenant client and other prospective tenants, whether as clients or customers, or by representing other tenants.

i. Advice on Brokerage Relationships. Prior to entering into brokerage relationship with a tenant client, a standard agent must advise the prospective client of (i) the type of brokerage relationship proposed by the broker, and (ii) the broker’s compensation and whether the broker will share compensation with another broker who may have a brokerage relationship with another party to the transaction.

8. Customer/Landlord: Standard agents who represent tenant clients owe the following duties to actual or prospective landlord customers.

a. Honesty: Standard agents representing tenant clients must treat all prospective landlords honestly and shall not knowingly give them false information.

b. material Facts: Standard agents representing tenant clients must disclose any material facts related to the property or the transaction to the landlord customer.

c. ministerial Acts: Standard agents representing tenant clients may, unless prohibited by law or the brokerage relationship, provide assistance to a landlord, or potential landlord client, by performing ministerial acts. Such acts alone do not create a brokerage relationship with landlords or potential landlord clients.

d. Brokerage Relationship Disclosure: Standard agents representing tenant clients must properly disclose the brokerage relationship they have with the tenant to the unrepresented landlord.




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F. Virginia Limits on Agency Liability: Virginia law deviates from common law agency liability as follows.

FOR EXAMPLE: Both clients and licensees are presumed to possess actual knowledge and information only—knowledge or information among or between clients and licensees is not imputed to one or the other party. Other more specific limitations on liability are presented below.

1. Client Liability: Virginia agency law creates a presumption (may be rebutted) that clients are unaware of (and not liable for) licensee misconduct (includes negligent and intentional acts), and licensee misrepresentation (unless the client knew or should have known and failed to act).

2. Licensee Liability: Under Virginia agency law, licensees are not liable for passing false information (if provided by clients and licensee has no actual knowledge or willful blindness of falsity), revealing information as required by law, or misrepresentation and misconduct of any assisting broker (assuming no actual knowledge or willful blindness). In general, licensees who assist unrepresented customers, or customers represented by a limited service agent, are liable for wrongdoing only if the licensee’s conduct is grossly negligent or intentionally wrongful. Licensees who are dealing with the client of a limited service agent may themselves enter into a limited service agency with the same client for additional services (client may have multiple limited service agents).

3. Exceptions: Virginia law does not limit liability for fair housing-related misconduct, for client or licensee’s personal misconduct.

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8. When must a Virginia agent initially disclose who they represent to non-clients?

1. upon any discussion about property 2. upon any substantive discussion about a specific property 3. upon first sight 4. upon receipt of an offer


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V. VA FAIR HOuSINg ACT LAWS AND REguLATIONS

A. Similar to Federal Act: The principal difference between the Federal Fair Housing Act and the Virginia Act is that the Virginia Act adds elderliness (those 55 or older) to the other protected classes (race, color, religion, national origin, gender, family status, and handicap).

FOR EXAMPLE: Seller A agrees to sell to buyers B on the condition that they presently have no children and do not plan to have any in the future. That condition violates the familial status protection under both the Virginia and Federal Fair Housing Acts and is unenforceable. The condition is void, but the rest of the contract, if valid, would be enforceable. If it turns out that the buyers actually have children they may ignore the condition and enforce the underlying contract.

FOR EXAMPLE: A family with 6 children wants to rent a one-bedroom apartment. Local zoning restricts bedroom occupancy to two individuals. The landowner may refuse to rent to this family without violating the familial status provision of either the Virginia or Federal Fair Housing Acts.

FOR EXAMPLE: If a real estate agent has a customer who makes $40,000 per year, it is not discrimination when that agent decides not to show the customer a $500,000 house. However, if she decides not to show a customer a particular house because the customer is a minority, then the licensee is guilty of steering.

FOR EXAMPLE: It would be illegal for a lender to deny a loan because the subject property is located in a deteriorating neighborhood. Instead, approval must be based on the economic qualifications of the applicant and the appraised value of the property only.

FOR EXAMPLE: Increasing the amount required for a down payment in order to discourage a protected class of persons from purchasing property is a violation of both the VA and Federal Fair Housing Acts.

FOR EXAMPLE: You own an apartment house in Peaceful Retreat, Virginia. The dwelling contains six one bath/two bedroom units. You do not like children and do not want to rent to families with children. However, you do not qualify for either of the all-elderly housing exemptions, so you may not discriminate against families. But because Peaceful Retreat has an ordinance that limits apartment occupancy to four people per bathroom, you will not violate either the Virginia or Federal Fair Housing Acts if you refuse to rent to a family of five.

B. Enforcement: Victims may file complaints with the Board (within 1 year) or victims and the Virginia attorney general may file complaints with a Virginia State court (within 2 years). Penalties include fines (up to $50,000 for first violation and $100,000 for subsequent violations), injunctive relief (order to act or cease acting), attorney fees, punitive damages (money in addition to any fine), and licensee discipline by the Board (fine, suspension, or revocation).

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PSI exAm trAIner

QueStIon 8 Analysis

Answer: 2

Difficulty: Easy

PSI Topic/Subtopic: Virginia Law/Disclosure Requirements

Trap: This question offers a straight-forward definition as the best answer choice. However, note that the realm of when a conversation is “substantive” can be very subjective and murky in practice. Given such a scenario in an exam question, err on the side of caution and select the choice that makes the disclosure as early as possible.

Explanation: Virginia agency law requires agents to disclose who they represent upon having a “substantive conversation about a specific property” with an unrepresented person.

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VI. SPECIFIC ACTS PERTAININg TO REAL ESTATE PRACTICE

A. VIRgINIA REAL ESTATE TImE SHARE ACT

1. Nature of Act: Governs creation and transfer of time share property. Time share property is owned by multiple people who have an undivided interest in the same property with the right to occupy it at different time intervals (5 or more time periods over at least 5 years).

2. Developing a Time Share: Declarant (owner who develops or converts property) must register with the Board (submit application and Public Offering Statement) and record (locally) time share instruments (includes name and location of time share development, form and duration of time share periods (use or ownership), any common expenses, any restrictions (use, occupancy, enjoyment, resale, etc.), nature of management (must establish an association before registration), and any proposed additions/ improvements.

3. Converting a Time Share: Existing structures may be converted to time share ownership by following the same steps above as well as providing notice (90 days) to any existing tenants of the intent to convert and the right to purchase their unit (for 60 days following notice). Any month-to-month tenants have at least 120 days to vacate (if they choose not to purchase).

4. Sale of Time Share units:

a. Initial Sale: Initial sale (new construction by the declarant) must include a public offering statement (similar to condominium POS); a right of rescission (7 days from later of ratification or POS receipt); and must conform to minimum marketing standards (no pre-registration offers; limited marketing permissible; no false or misleading statements; proper disclosure of nature, value, odds, conditions, and expiration of any prizes or promotions).

b. Resale: Unit owners (sale after initial sale) must provide subsequent buyers with a certificate of resale from the association (association may charge $50 for preparing). Resale certificates must include notice of right of rescission (5 days of ratification or receipt of certificate, whichever later), and copies of all pertinent financial information (association financial statements, by laws, rules, fees, assessments).

5. Time Share Association: Declarant manages project until 90% of all units sold or when the project is complete (whichever later, but no longer than 10 years after first sale), then unit owners take control through a time share association.

6. Termination of Time Share Ownership: Unit owners may vote (requires at least 51% of all members) to convert from time share ownership to another form of ownership (to fee simple, condominium, etc.).

7. Statute of Limitations: Any legal action based on inaccuracies in the project instrument, the POS, or any related contract must be brought within 2 years from the date of contracting.




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B. VIRgINIA CONDOmINIum ACT

1. Nature of Act: Regulates the creation and transfer of condominiums and condominium projects (horizontal property regimes) in Virginia. A condominium is real property, which vests an undivided interest in common areas in all unit owners.

2. Developing a Condominium: Declarant (owner who develops or converts property) must register with the Board and record (locally) condominium instruments.

a. Board registration: Declarant submits standard application, including evidence of ownership; copy of condominium instruments (declaration, bylaws, plats, and plans—locally recorded); evidence of financial ability (lender commitment); proposed public offering statement (documents disclosing material facts to purchasers); and a copy of all plats and plans.

b. Recording Condominium Instruments: Must be locally recorded (city or county of development); includes declaration instruments (identifies name and location of development, units, common areas, any incomplete construction, any easements, and any existing lessees if property to be converted); plats/plans; and by-laws (rules of operation, including covenants, conditions, and restrictions, nature of self government, executive bodies, record keeping practices, and meeting schedules and notices). Affirmative vote by no less than 25% of members may change by-laws.

3. Converting to a Condominium: Existing structures may be converted to condominium ownership by following the same steps above as well as providing notice (including price, proposed assessments, and measures to avoid tenant dislocation) to any existing tenants and the opportunity to purchase rented units (for 60 days following notice).

4. Sale of Condominium units: Buyer acquires fee simple in unit and undivided percentage in common areas.

a. Initial Sale: Initial sale (new construction by the declarant) must include a public offering statement and must conform to minimum marketing standards.

i. Public Offering Statement (POS): The POS includes and provides public disclosure of the purchaser’s ten (10) day right of rescission (measured from earlier of contract ratification or receipt of POS); declarant’s identity; a narrative description of the project (number of units, future construction); construction status (permits, zoning, local compliance); any encumbrances; the terms of any financing; the terms of warranties; the nature of amenities; and any occupation limits. The POS also includes the following documents: declaration and by-laws, property management contracts, and projected budget of association.

ii. marketing Standards: Declarants may not offer units before Board registration (unless properly disclosed and filed with the Board), provide false/misleading marketing, suggest improvements not registered with the Board, or violate fair housing standards.

b. Resale: Unit owners (sale after initial sale) must provide subsequent buyers with notice of the Act and a resale certificate from the association (association may charge $100 for preparing). Resale certificates must include copies of all financial reports of association, current fees, any reserves of association, any pending legal matters against the association, any insurance coverage, declaration instruments, by-laws and covenants, and statement that any unit alterations conform to zoning and association rules.




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i. Right of Rescission: The purchaser may rescind the contract within three (3) days of ratification (signing), or within three (3) days of receiving the resale certificate if hand or electronically delivered (6 days from postmark if delivered by mail).

ii. Failure to Provide Resale Certificate: Renders the sales contract void (unless the parties agree otherwise).

5. Condominium Associations: Declarant manages project until 75% of all units are sold, then unit owners take control (but declarant remains a member as long as any unit remains unsold). All unit owners have voting rights (may be in proportion to unit size or amenities) in a condominium association. Associations may place impose liens against units for unpaid assessments/fees.

6. Termination of Condominium Ownership: Unit owners may vote (requires 80% of all members) to convert from condominium ownership to another form of ownership (to fee simple, time share, etc.).

C. VA RESIDENTIAL LANDLORD AND TENANT ACT

1. Nature of Act: Applies to all (written and oral) residential (not commercial) rental agreements (leases), unless exempt.

2. Exemptions: The Act does not apply to: public and private institutions (prisons, religious, educational, etc.); social organizations (fraternity houses); transient housing (hotels, motels, boarders); landlord employees (maintenance persons living on-site); business, commercial and agricultural housing (bunk house for workers); public housing (HUD regulated); non-paying tenants (those living rent free); commercial renters; and landlords with few holdings (10 or fewer single family houses for rent; 4 or fewer condos).

3. Application Fees: Landlords may impose up to a $50 nonrefundable fee ($32 for HUD housing). Any application fee above this amount must be refunded if the parties do not enter into a lease within ten (10) days (20 days if fee is paid by check).

4. Security Deposits: Cannot exceed two (2) months rent and must be held in escrow (interest due only if held over 13 months). Any remaining security deposit (after deducting damages or rent) must be returned within 45 days of lease termination. If damages are to be withheld, the landlord must provide a written and itemized notice. Tenant has the right to be present at the landlord’s final inspection of the premises (which must occur within 72 hours of lease termination).

5. Violations of Lease Terms:

a. Tenant Violations:

i. Non-Payment: Landlords may provide (written) 5 day notice to pay or vacate, seek an unlawful detainer warrant (begins eviction proceedings), and file suit for eviction if payment not received within 5 days. The tenant maintains all rights under the lease until the eviction process is complete (final order from court). Landlords may also require cash payment within five (5) days of any checks that bounce.

ii. Other Lease Terms: Landlords must notify the tenant (in writing) and allow at least 21 days for correction. If the tenant does not correct within 31 days, the lease will terminate. Landlord also has right of entry to correct any violations, make repairs, or clean (at tenant’s expense) with a 14 day notice (or as necessary in an emergency).




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b. Landlord Violations: Tenant must notify (in writing) the landlord and allow 30 days to correct (or as necessary in an emergency). If the landlord fails to correct, the tenant may pay rent into escrow (care of local court) until the matter is corrected. Tenant cannot terminate the lease without a court order.

6. Other Rights and Obligations: Landlords may impose house rules (minor changes require notice, major changes require written agreement), access the premises with reasonable notice (no notice for emergencies), impose automatic renewal clauses (assuming no material changes like rental amount, which requires written agreement), dispose of abandoned property (with proper notice), must keep tenant information confidential (but may release if related to law enforcement or emergency, tenant consents, information is public, information is only a summary of rental payments, requested by subpoena in a civil case, and may deliver to a contract purchaser of the landlord’s property). Tenants may install security devices (must restore property upon termination), seek an injunction to bar landlord’s abuse of access rights, terminate a lease early for military purpose (requires 30 day notice and copy of orders), sublease premises if the lease permits (requires landlord approval within 10 days).

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9. When a tenant legally terminates a lease, the Virginia Landlord/Tenant Act requires that the owner return any security deposit to the tenant within:

1. 3 days 2. 15 days 3. 30 days 4. 45 days


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D. VA COmmON INTEREST COmmuNITy ACT

The Common Interest Community Act (the “Act”), was passed in 2008 and made effective July 1, 2008. It made sweeping changes to existing Virginia laws governing condominiums, planned communities, time shares, and cooperatives. To accomplish these changes, the Act creates a new, statewide Common Interest Community Board (“CIC Board”) of nine members appointed by the Governor to carry out the Act’s new regulations. The Act moves oversight of community associations from the Real Estate Board to the newly created CIC Board. In addition, a new Office of Common Interest Community Ombudsman is also created to provide assistance to both community associations and consumers.

The Common Interest Community Board regulates Common Interest Community Managers and their supervisory and managerial employees. Also included under the Common Interest Community Board are the Condominium Act, the Real Estate Time-Share Act, the Real Estate Cooperative Act, and the Property Owners´ Association Act. The Common Interest Community Board regulates the sale of new condominiums and time-shares. The Condominium Act and the Real Estate Time-Share Act cover transactions occurring within the Commonwealth, even if the property involved is located outside the Commonwealth.

Additionally, property owner, condominium, and cooperative associations are required to file annual reports with the Common Interest Community Board. The fees from the annual reports go to fund the Common Interest Community Management Information Fund, which in turn helps to fund the Common Interest Community Management Recovery Fund.

The Office of the Common Interest Community Ombudsman was established by the 2008 General Assembly and was created to:

• Assist members in understanding and exercising their rights in resolving issues with their Associations (condominiums, property owners’ association, time-shares, and cooperatives).

• Issue non-binding explanations of laws and regulations governing Associations.

• Offer referrals to alternative dispute resolution services.

• Assist members in using the procedures and processes available to them in their association, including nonbinding explanations of laws or regulations governing common interest communities or interpretations thereof by the Board.

• Once regulations are in effect, the Ombudsman will receive complaints from constituents who allege an Association governing body violated legal requirements (statutes, regulations, or Association governing documents).

• Such complaint notices must be filed within 30 days of an Association’s final adverse decision, must be submitted in writing on Board forms (to be developed through the regulatory process), and must include a $25 filing fee (statutory requirement).

As of July 2009, the VREB website indicates the Condominium Act, the Real Estate Time-Share Act, the Real Estate Cooperative Act, and the Property Owners´ Association Act are still listed under the Real Estate Board until such time as the newly-created Common Interest Community Board has the opportunity to promulgate regulations.




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E. mISS uTILITy

Although it is not a specific real estate act, the Virginia Real Estate Board has requested that we provide to all real estate licensees the following information concerning safe digging practices and installation of signs in the ground, including “for sale” signs. Follow the guidelines below to prevent any unnecessary accidents or damage.

Call miss utility at 811 before Installing Real Estate Signs.

Adopted thirty years ago, the Virginia Underground Utility Damage Prevention Act (the Act) was passed by Virginia legislators to address the responsibilities of all stakeholders in preventing damage to underground utility lines. Since then, with the help of all stakeholders, Virginia has made great strides in becoming a model for other states. Unfortunately, recently the Division of Utility and Railroad Safety (Miss Utility) has seen damage to utility lines caused by the installation of real estate signs.

Many real estate signs are placed in front property areas to increase visibility and are often placed on utility easements. Utility companies use these easements to bury their facilities that provide service to Virginia homes and businesses. Excavating to install real estate signs without following the Act’s requirements may result in damaging an underground utility line. Such damage can cause far-reaching consequences from loss of life or injuries, to economic or environmental damage, liability claims and civil penalties. Real estate licensees are obligated to encourage the company or individual that installs their signs to comply with Virginia law.

“Dig with C.A.R.E.—keep Virginia Safe!” is a message established by the Virginia State Corporation Commission (SCC) to assist in educating Virginia citizens about the Act’s requirements.

In short, the acronym “C.A.R.E” stands for:

C - Call miss utility at 811 before you dig. Your Miss Utility ticket’s life is fifteen (15) working days beginning at 7:00 a.m. the following working day after Miss Utility is notified. A “working day” means every day, except Saturdays, Sundays or legal state and national holidays.

A - Allow the required time for marking. The waiting period is 48 hours and begins at 7:00 a.m. the next working day after you contact Miss Utility. This does not include Saturdays, Sundays or legal state and national holidays.

R - Respect and protect the marks. Marking underground utility lines is the way utilities show the approximate horizontal location within two feet of either side of their facilities. It is the excavator’s responsibility to protect and preserve the markings from the time the excavation begins until markings are no longer needed for the proper and safe excavation near the utility lines.

E - Excavate carefully. Prior to excavating, conduct a site inspection that includes verifying the correct location, verifying locate markings, and, to the best of your ability, checking for clear evidence of unmarked utility lines. Additionally, when excavating within two feet on either side of a staked or marked location of an underground utility line such steps include, but may not be limited to, exposing the utility to its extremities by hand digging to see where the utility line is located, not using mechanized equipment within two feet of the exposed utility line, and protecting the utility from damage.

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PSI exAm trAIner

QueStIon 9 Analysis

Answer: 4

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Residential Landlord and Tenant Act

Trap: This question is straight-forward, but re-quires in-depth knowledge of the Landlord/Tenant Act. Test writers sometimes use the various deadlines and time limits imposed by covered VA real estate laws to shake unprepared students.

Explanation: The Virginia Landlord/Tenant Act re-quires that all or part of the security deposit be re-turned to the vacating tenant within 45 days of terminating the tenancy.

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PSI exAm trAIner ComPrehenSIve QuIz QueStIonS 10-13Allow 8-minutes to answer the following four questions. Print your answer choice and rate the difficulty of each question in the spaces provided below. A thorough review of the Question, Answers, Difficulty, and Traps using the Question Analysis on the following even-numbered page is essential for your exam success.




10. The initial purchaser of a Virginia time-share estate has a statutory right to rescind a purchase agreement. under the Virginia Time Share Act, how many days does the buyer have to exercise this right of rescission?

1. 5 days 2. 7 days 3. 10 days 4. none of the above

Answer: _____ Difficulty (circle one): Easy Medium Hard Very Hard___________________________________________________________________________

11. Every Virginia licensed broker who is also a Virginia resident muST: 1. maintain an office in the state of Virginia 2. maintain an escrow account in an insured depository in the state 3. identify his place of business with an appropriate sign 4. all of the above

Answer: _____ Difficulty (circle one): Easy Medium Hard Very Hard___________________________________________________________________________

12. The Board may discipline licensee misconduct by all of the following actions EXCEPT:

1. suspending a license 2. revoking a license 3. imposing a fine of up to $5,000 per violation 4. all of the above


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13. Virginia Real Estate Board members include: 1. brokers only, with at least 5 years active experience 2. either salespersons or brokers with at least 5 years active experience,

and consumers (unlicensed persons) 3. at least one salesperson whose license has been on inactive status for

the last 9 months 4. salespersons only, with at least 10 years of active experience


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PSI exAm trAIner AnalysisComPrehenSIve QuIz QueStIonS 10-13

QueStIon 10 Answer: 2

Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Time Share Act and Regulations

Trap: This question is straight-forward once you master the content. However, it illustrates the level of detail you may face on the exam.

Explanation: Under the VA Time Share Act, the initial purchaser has a right of rescission, which runs 7 days from the date of contract ratification or receipt of the Public Offering Statement, whichever is later._________________________________________________________________________


Difficulty: Hard

PSI Topic/Subtopic: Virginia Law/Escrow Accounts

Trap: Always take note when you see absolute and restrictive terms like “must” and “every person.” In this case, “all of the above” may tempt those students who are unprepared.

Explanation: Resident brokers must maintain an office in Virginia. However, only brokers who receive escrow funds must establish escrow accounts. Similarly, there is no requirement that firms post a sign outside their place of business. However, if a firm does post a sign, the advertising regulations specify that it must include the firm’s licensed name. _________________________________________________________________________


Difficulty: Medium

PSI Topic/Subtopic: Virginia Law/Disciplinary Procedures and Sanctions

Trap: Read carefully, the question asks you to identify the false statement. Many students will be tricked into looking for the true statement(s), which could lead to the “all of the above” choice.

Explanation: The Board has authority to suspend or revoke licenses. In addition, it may impose monetary penalties. However, it may only impose penalties up to $2,500 per violation, not $5,000 per violation.

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Difficulty: Easy

PSI Topic/Subtopic: Virginia Law/Real Estate License Laws

Trap: This question tests students’ understanding of the details of the license law and the composition of the Real Estate Board.

Explanation: The Real Estate Board consists of 9 members—7 licensees (salespersons and/or brokers) with at least 5 years of experience and 2 citizens (unlicensed).

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virginia real estate laws and real estate board rules€¦ · · 2010-04-05psi exam topics step 1...

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