ILLINOIS 
BROKER MANAGEMENT
Laurie S. MacDougal

Dearb fprri
Real Estate Education

Introduction vii
About the Author ix Acknowledgments xi
Cha er 1	Broker Licensing and Responsibilities 1
Key Terms 1
Introduction 1
Who Needs a Broker's License? 2
Exempt Persons and Entities 2
Civil Penalty for Unlicensed Real Estate Practice 3 Broker Requirements 3
Licensing of Business Entities 4
Place of Business 6
Branch Office Licensing 8
Loss of a Managing Broker or Death of a Sole Proprietor 8 Change of Information 8
License Renewals 9
Continuing Education Requirements 9
Summary 10
Chapter 1 Review Quiz 13
Chap 2	Agency Agreements and Issues 15
Key Terms 15
Introduction to Agency 15 Level of Services 17
Types of Agency Relationships 17
Designated Agency 18 Dual Agency 19
Treatment of Customers versus Clients 20
Agency Creation 21
Brokerage Agreements 22 Required Minimum Services 24 Summary 27
Chapter 2 Review Quiz 29

contents

aum
Ch	r5	Disciplinary Actions 87

Key Terms 87
Introduction 87
Causes for Discipline 87
Nonpayment of Child Support, Income Tax, or Student Loans 90
Discriminatory Actions 90
Civil and Criminal Penalties 90
Business Violations and Penalties 91
Practicing Real Estate without a License 91
Consent Orders 91 Injunctions 91
Advisory Letter 92
Disciplinary Statute of Limitations 92
Summary 93
Chapter 5 Review Quiz 95
Appendix: Disclosure Forms 97 Answer Key 105

This course was created as a result of Senate Bill 2887 (PA) 93-0957, which was signed into law in Illinois August 19, 2004. The bill contains several important revisions to the Illinois Real Estate License Act of 2000 to promote greater professionalism and accountability within the industry and to provide greater protection for real estate consumers.
The legislation contains several provisions that impact real estate brokers, specifically the following:
•	Requires real estate brokers to take an additional six hours of continuing education every two years dealing specifically with broker-management issues. New broker licensees will be required to complete the six-hour broker management course within 180 days of initial licensure. Brokers will have to complete this additional continuing education in the prerenewal period prior to the April 30, 2008, renewal.
Provides that brokers receiving an initial broker license 90 days or less before the renewal date do not have to take the additional hours for that renewal period
Allows a broker to change his or her license status to "salesperson" at any renewal date
•	Deletes the "grandfather clause" for continuing education
The textbook is divided into five major sections covering brokerage licensing, agency, office operations and escrow accounting, risk management, and disciplinary actions. A special focus is placed on opening and managing a brokerage office.
Chapter 1, "Broker Licensing and Responsibilities," contains requirements for obtaining and maintaining an Illinois real estate broker license, both for individuals and business entities. Various types of business entities are defined, along with their specific licensing requirements.
Chapter 2, "Agency Agreements and Issues," covers brokerage agreements, duties to clients and customers along with the minimum service requirements, and required disclosures.
Chapter 3, "Office Management and Escrow Responsibilities," combines all facets of operating a brokerage company with the important function of escrow account management. Discussion centers on developing a policy and procedures manual, advertising, sales training and retention, and proper escrow accounting procedures.
Chapter 4, "Risk Reduction," focuses on those topics important to reducing broker liability and includes antitrust, property and lead-based paint disclosure, sexual harassment issues, the National Do Not Call Registry, and the CAN-SPAM Act.

Laurie MacDougal has worked in the real estate industry since 1975. She presently is a real estate educator with the Chicago Association of REALTORS® and its affiliates. Having taught all levels of real estate licensing courses, she is best known for her ongoing involvement with real estate broker prelicensing, continuing education, and sales training courses. In addition, she founded and operates Laurmac Learning Center, which provides customized training for the real estate and mortgage brokerage industry.
Laurie served as consulting editor on DearbornTM Real Estate Education's Modern Real Estate Practice in Illinois, Fifth Edition and Fifth Edition Update.
Beyond the classroom, Laurie's real estate experience of three-plus decades includes industrial and commercial development, property management, economic development, and residential real estate sales. Currently, she provides consulting services to numerous real estate—related organizations regarding license law and compliance issues. She is a former member of the Academic Affairs Committee at Triton College, from which she currently broadcasts her weekly radio show, Radio Real Estate.
Laurie has appeared as an industry expert on NBC Nightly News and CLTV segments, discussing real estate—related news.

ackno wledgments
We are grateful to the Illinois Real Estate Educational Foundation and the Illinois Association of REALTORS® for their invaluable assistance and support in creating this course, and to Francis Patrick Murphy, JD, who contributed to the development of a number of the case studies and reviewed the course in its development.

chapter

o n e

Broker Licensing and
Responsibilities
learning objectives
Upon completion of this chapter, you should be able to:
•	Describe requirements for broker licensing
Identify exemptions from licensing
Describe the various forms of business ownership and licensing requirements
Explain the requirements for place of business
Identify continuing education requirements for license renewal
III Key Terms
branch office	IDFPR	partnership
broker	limited liability company	sole proprietorship
corporation	limited partnership
 Introduction
This chapter begins with a description of real estate broker licensing requirements. First and foremost, it is unlawful for any person, corporation, limited liability company, registered limited liability partnership, or partnership to act as a real estate broker without a real estate broker's license issued by the Illinois Department of Financial and Professional Regulation (IDFPR). We will begin with a discussion of these various entities and their licensing requirements before going into detail on the place of business itself, independent contractor or employment agreements, and continuing education requirements.

Broker Licensing and Responsibilities	3
•	Multiple listing services or information exchanges engaged in the collection and dissemination of information concerning real estate along with which no other licensed activities are provided
•	Railroads and other public utilities regulated by the State of Illinois or its subsidiaries or affiliates and the employees of such organizations
•	Any advertising medium that routinely sells or publishes real estate advertising but provides no other real estate–related services
•	Any tenant of a residential dwelling unit who refers no more than three tenants in any 12-month period, and who receives no more than $1,000 or one month's rent (whichever is less) in total yearly compensation, and who does not engage in actually showing the properties or discussing terms or otherwise participate in negotiating leasing terms
•	An exchange company and its regular employees registered under the Real Estate Timeshare Act of 1999 only when conducting an exchange program as defined in that act
An existing time-share owner who, for compensation, refers prospective purchasers, but only if the existing time-share owner refers no more than 20 prospective purchasers in any calendar year, receives no more than $1,000 for referrals in any calendar year, and limits activities to referring prospective purchasers of time-share interests to the developer
Any person who is licensed without examination under Section 10-25 of the Auction License Act for the limited purpose of selling or leasing real estate at auction, subject to certain restrictions
A hotel operator that is registered with the Illinois Department of Revenue and pays taxes under the Hotel Operator's Occupation Tax Act and rents rooms for a period of not more than 30 consecutive days and not more than 60 days in a calendar year
•	Civil Penalty for Unlicensed Real Estate Practice
It is illegal in Illinois for any person to practice, offer, or attempt to practice, or to hold himself or herself out to practice as a real estate broker, salesperson, or leasing agent without being licensed. Anyone who does so is subject to a civil fine (in addition to any other penalties provided by law) of up to $25,000 per offense. The civil fine is assessed by and payable to IDFPR after a disciplinary hearing and a finding of unlicensed practice. IDFPR has the authority to investigate any alleged unlicensed activity. The civil fine must be paid within 60 days after the effective date of the order. The order constitutes a judgment.
•	Broker Requirements
Applicants for a broker's license must meet the requirements shown in Figure 1.1. If an applicant for a broker's license is currently an attorney admitted to the practice of law by the Illinois Supreme Court, he or she is exempt from the education requirements. However, an attorney must still take and pass the state exam and make application for a license.

Broker Licensing and Responsibilities	5
Sole Proprietor
If a broker chooses to practice as a sole proprietor, he or she must submit the following to IDFPR by certified or registered mail, return receipt requested, or by other signature delivery service:
1.	A copy of the sponsor card issued to himself
2.	The appropriate sponsor card fee
1.	One of the following:
•	His or her properly endorsed real estate broker license and pocket card
An expired broker license along with the reinstatement and back license fee and proof of education, if applicable
The pocket card and a sworn statement by the licensee explaining why the license is not submitted. If neither the license nor the pocket card is available, the status of the license must be verified by the director or his or her designee
Initial application/score report
4. A completed Consent to Audit and Examine Special Accounts form, if one is not already on file
If a sponsoring broker acting as a sole proprietor operates under a name other than the name appearing on his or her license, the sponsoring broker must submit to IDFPR a certified copy of the broker's registration under the Assumed Business Name Act. The assumed name business registration form must be completed for each county in which the assumed business name is used. Any corporation, limited partnership, general partnership, or limited liability company operating under any name other than that appearing on its application for a license must provide to IDFPR a copy of the filing or certificate authorizing it to do business under an assumed name issued by the Illinois Secretary of State's office. Sponsored licensees may not operate under an assumed business name other than that of their sponsoring broker. This information must be submitted to IDFPR within 30 days after use of the assumed name.
Other Entities
A corporation, partnership, or limited liability company may receive a broker's license when the following conditions apply:
•	In a corporation, every corporate officer who actively participates in the organization's real estate activities must hold a broker's license.
In a partnership, every general partner must hold a broker's license.
In a limited liability company or limited liability partnership (LLP), every manager must hold a broker's license if he or she will be running the real estate brokerage business.
No corporation, partnership, limited liability company, or limited liability partnership may be licensed to conduct a brokerage business if any individual salesperson, leasing agent, or group of salespeople and/or leasing agents owns—or directly or indirectly controls—more than 49 percent of the shares of stock or ownership interest in the business entity.
Anyone who desires to practice real estate as a corporation, partnership, limited partnership, or limited liability company must submit an application to IDFPR with the following:

Broker Licensing and Responsibilities	7
Figure 1.2 I Licensing Requirements of Individual Business Entities
Corporations
Corporations must submit to IDFPR:
1.	The name of the corporation and its registered address, a list of all officers, and the license number for each officer who is licensed as a real estate broker
A copy of the Articles of Incorporation bearing the seal of the office, in the jurisdiction in which the corporation is organized; if it is a foreign corporation, a copy of the certificate of authority to transact business in Illinois is required as well.
1.	All unlicensed officers shall submit affidavits of nonparticipation with the corporation application. Licensed salespersons cannot be officers of the corporation, even if they submit an affidavit of nonparticipation.
1.	A list of all shareholders, the number of shares the corporation owned, and the license number for each shareholder who is a licensee
Limited Liability Companies (LLCs)
Limited liability companies must submit to IDFPR:
1.	The name of the limited liability company and its registered address, a list of all members, and the license number for each member who has an Illinois real estate license. If a member of the LLC is a business entity, the applicant must identify any licensees who are owners, officers, managers, or partners of the business entity.
A list of all managers and their broker license numbers
A copy of the Articles of Organization filed with the Secretary of State or, if it is a foreign LLC, a copy of the application for admission endorsed by the Secretary of State
1.	All unlicensed members must submit with the LLC application affidavits of nonparticipation. Licensed salespersons cannot be managers of the LLC, even if they submit an affidavit of nonparticipation.
Partnerships
Partnerships must submit to IDFPR:
1.	An application containing the name of the partnership and its business address and the names of all general partners, and the broker license number of each general partner. Licensed salespersons cannot be general partners.
An affidavit stating the partnership has been legally formed
Limited Partnerships (LPs)
Limited partnerships must submit to IDFPR:
1.	A letter of authority from the Secretary of State's Limited Partnership Department or, if it is a foreign LP, a copy of the application for admission endorsed by the Secretary of State
A listing of all general partners and the broker license number for each licensed general partner
All unlicensed general partners must submit with the partnership application affidavits of nonparticipation
2.	If the general partner is an entity, the identity and license number of any brokerage licensees who are owners, managers, members, or partners of the entity	

Broker Licensing and Responsibilities	9
When a licensee acquires or transfers any interest in a corporation, LLC, partnership, or LP that is licensed under the Act, appropriate change of business information must be filed with IDFPR. In addition, any changes in managing brokers, branch managers, or principal officers must be reported in writing to IDFPR within 15 days after the change.
In lieu of opening an office, sometimes real estate licensees join together as a team to share business, expenses, and time. This is sometimes referred to as a "shop within a shop." A full discussion of real estate teams in a brokerage office is contained in Chapter 3.
 License Renewals
Keeping a license is just as important as getting a license, so remember to renew timely and complete all renewal requirements outlined below.
Broker licenses expire April 30 in even-numbered years. Salesperson licenses expire April 30 in odd-numbered years. Leasing agent licenses expire July 31 in even-numbered years. Licenses for corporations, limited liability companies, partnerships, limited partnerships, or branch offices expire October 31 in even-numbered years.
 Continuing Education Requirements
Each broker who applies for renewal of his or her license must successfully complete 18 hours or its equivalent of real estate continuing education (CE) courses approved by the Real Estate Education Advisory Council.
Only continuing education schools approved by the Advisory Council may provide real estate continuing education courses. Instructors and course materials must also be approved.
The CE requirement may be satisfied by successfully completing six hours of core courses, six hours of electives, and an additional six hours dealing specifically with broker-management issues. The Real Estate Education Advisory Council determines the core areas, which are subject to change.
The core continuing education requirement currently consists of three hours in Core A, covering License Law and Escrow, and Core B, covering Agency and Fair Housing.
The elective topics include appraisal; property management; residential brokerage; farm property management; rights and duties of sellers, buyers, and brokers; commercial brokerage and leasing; financing; or any other currently approved CE course topics as determined by IDFPR and the Real Estate Education Advisory Council.
Courses that may not be used for CE include exam-preparation courses, speed reading, memory improvement, advertising, sales psychology, sales and marketing, time management, or standard real estate company training.

Broker Licensing and Responsibilities	11
Jim spends a lot of money to transform his spare bedroom into a modern home office with all necessary accoutrements. He does not put any other business in that room. The licensed name of Jim's business is the West Bucktown Land Emporium.
Jim is approached by three new salespersons who want Jim to be their sponsoring broker. So, Jim leases a separate space in Wheeling to accommodate the salespeople. He is the sponsoring broker and managing broker of this office. He is unsure what to do with their licenses, so he keeps them in the top right drawer of his desk. Jim plans to show the licenses to anyone who asks to see them (examiner, investigator, or consumer).
For Discussion
What requirements must Jim meet to obtain a real estate brokerage license for his business? Is Jim's real estate office in compliance with the state requirements for license display?
Case Study Questions
1. Jim is the manager of the new branch real estate office in Wheeling, which is the branch of his soon-to-be-franchised company. He hires three new agents and wants to hold their licenses. Jim should
a.	be sure that his main office is in compliance by having proper signage and registration of the Wheeling office as a branch of his place of business.
submit a branch office application to IDFPR with the required fee identifying the managing broker of the Wheeling branch office.
place the licenses conspicuously on a public wall in the Wheeling branch office.
a.	All of the above are office requirements pursuant to the Act.
2. Regarding his home office, Jim convinces his condominium board to let him place a professionally prepared sign with his correct business name for his home office, but the condominium board asks him where he intends the sign to be placed. Jim should
a.	place the sign outside his condominium on or near the front door of his unit.
place the sign in his storage locker in the basement above the file cabinets with his closed cases and his collectable real estate memorabilia.
a.	place the sign on the directory in the public atrium of the condominium.
Both a and c could be correct.
XYZ Realty, Inc. has its main office at Apple Orchard Lane, Suite 100. XYZ Realty, Inc. West Loop Branch is located in the same building at Apple Orchard Lane, Suite 300. However, it is more convenient for the salespeople to operate out of Suite 100 rather than Suite 300.

Broker Licensing and Responsibilities	13

 Chapter 1 Review Quiz
1. Which activity requires a real estate license?
a.	A resident manager who collects rent on behalf of a building owner
a.	A service that, for a fee, matches individuals from different parts of the state who want to exchange properties
a.	A multiple listing service providing listing information to participants
d.	An executor selling a decedent's building
2. Which statement applies to a corporation that wants to receive a broker's license?
a.	Every officer must hold a broker's license, even if not actively practicing.
No more than 50 percent of the shares of stock in the corporation can be held by salespeople.
The corporation's broker's license expires October 31 in even-numbered years.
The corporation's broker's license is valid until the corporation is dissolved.
3. To meet the continuing education requirement in Illinois, broker licensees must obtain how many total hours of continuing education in any two-year renewal period?
a.	3
18
9
12
4. Which is NOT a requirement for obtaining an Illinois broker's license?
a.	Having successfully completed 120 hours of approved real estate courses
a.	Being at least 21 years of age
a.	Having been actively engaged as a licensed salesperson for at least three years
a.	Being of good moral character

5. In Illinois, who must be a licensed real estate broker?
a.	An off-site apartment manager who manages 20 units in a residential building that are not owned by the manager
a.	A licensed attorney acting under a power of attorney to convey real estate
A resident apartment manager working directly for the owner
A partnership selling a building owned by the partners
6. John is opening a real estate office. Which activity may he legally do?
a.	Display his wall license and that of any sponsored licensees in an area not easily accessible to the public for security purposes
a.	Locate his place of business in connection with a financial establishment for client ease
a.	Display a conspicuous identification sign on the inside of the office rather than identifying the business on the outside
Hire his spouse, who is licensed as a broker, to act as the managing broker to keep expenses down
7. Laurel has decided to retire as managing broker.
When must IDFPR be notified of this change?
a.	Within 10 days
Within 15 days
As soon as possible
a.	Not necessary at any time because a new managing broker has already been hired
8. A broker choosing to operate as a self-sponsored broker is referred to as a(n)
a.	sole proprietor.
limited partner.
corporation.
individual broker.

Agency Agreements
and Issues
learning objectives
Upon completion of this chapter, you should be able to:
•	Distinguish types of agency relationships and their role in the practice of real estate brokerage
Define exclusive brokerage agreements and their significance
Identify minimum service requirements for exclusive brokerage agreements
Discuss agency compliance issues

•	Key Terms	agency
buyer-agency agreement designated agency
dual agency	exclusive brokerage agreement
express agreement implied agreement	listing agreement minimum service
requirements ministerial acts	

•	Introduction to Agency
The relationship between a real estate licensee and the parties involved in a real estate transaction is not a simple one. In addition to the parties' assumptions and expectations, the licensee is subject to a wide range of legal and ethical requirements designed to protect the seller, the buyer, and the transaction itself. Agency is the word used to describe that special relationship between a real estate licensee and the person he or she represents. It is a legal framework that allows a person to act through a representative. Common examples include the following:
•	An attorney representing you in a business transaction
A stock broker buying and selling investments on your behalf
A real estate broker assisting you in buying, selling or leasing real estate

Agency Agreements and Issues	17

•	Client—a person who is being represented by a licensee
Consumer—a person or entity that is seeking or receiving licensed activities
Customer—a consumer that is not being represented by a licensee, but for which the licensee is performing ministerial acts
Ministerial acts—acts that a licensee may perform for a consumer that are informative or clerical in nature and do not rise to the level of active representation on behalf of a consumer

•	Level of Services

There is a distinction between the level of services a licensee provides to a client and the level of services a licensee provides to a customer. The client is the principal whom his or her agent advises. The agent is entrusted with certain confidential information and has statutory responsibilities to the principal as set forth in Section 15-15 of the Act.

An agent works for the client and with the customer.

In contrast, the customer is entitled to factual information and honest dealings but never receives advice and counsel or confidential information about the principal without specific consent from the principal client. The real estate professional provides small acts of assistance to the customer but, as an agent, works for the client. Essentially, the agent is an advocate for the principal but cannot be an advocate for a customer.

The Act considers the agent to be representing the person he or she is working with and considers the agent to be the designated agent for that person.

The principal delegates authority to the broker to act on the principal's behalf, and the broker consents to act as the agent of the principal. Alternatively, the broker may designate a salesperson to act as designated agent of the principal. Just as the broker owes certain duties to the principal, the principal has responsibilities toward the broker. The principal's primary duties are to comply with the agency agreement and to cooperate with the broker; that is, the principal must not hinder the broker and must deal with the broker in good faith. The principal also must compensate the sponsoring broker according to the terms of the brokerage agreement.

•	Types of Agency Relationships
There are five different types of agency relationships. The agent's responsibilities vary in each.
1.	Universal agent—empowered to do anything the principal could do personally, for example, through a written power of attorney
General agent—represents the principal in a broad range of matters related to a particular activity
Special agent—authorized to represent the principal in one specific act
Designated agent—authorized by the broker to act as the agent of a specific principal
Disclosed dual agent—represents two principals in the same transaction Our discussion will focus on designated agency and disclosed dual agency.

Agency Agreements and Issues	19
outlining agency alternatives are available to a firm's clients and customers. As stated in Section 15-10 of the Act:
Licensees shall be considered to be representing the consumer they are working with as a designated agent for the consumer, unless (1) there is a written agreement between the sponsoring broker and the consumer providing that there is a different relationship; or (2) the licensee is performing only ministerial acts on behalf of the consumer.
If the other party is represented by an agent, no disclosures are necessary. A licensee who is acting as the designated agent of a party must disclose to that party in writing the agency relationship that exists.
According to Article 15 of the Act, a consumer must receive the following disclosures no later than the time when a brokerage agreement is created, whether the agreement is express (in writing) or implied (not in writing):
•	A clear indication that a designated agency relationship will exist unless there is a written agreement providing otherwise
The names of any designated agents who will be involved with the client
The amount and manner of the broker's compensation
An indication of whether the broker will share the compensation with brokers who represent other parties in a transaction
A licensee must disclose to an unrepresented customer in writing that the licensee is not acting as the customer's agent. The disclosure must be made at a time intended to prevent disclosure of confidential information by the customer to the licensee. The licensee may perform ministerial acts for a customer without violating any brokerage agreement with a client. Merely performing ministerial acts does not create a brokerage agreement.
In dual agency, the agent represents two principals in the same transaction in a limited role. Dual agency requires equal loyalty to two separate principals on opposite sides of the transaction. The challenge is to fulfill the agent's statutory obligations to one principal without compromising the interests of the other, especially when the parties' interests may not only be separate but also opposite. While practical methods of ensuring equal representation exist, it should be noted that a dual agent can never fully represent either party's interests. (See Figure 2.1.) However, some will argue the insights a disclosed dual agent can be useful in bringing certain buyers and sellers together.
Disclosed Dual Agency
Real estate licensing laws permit disclosed dual agency only if the buyer and seller receive the required written disclosure and give their informed consent to the agent's representation of both in the same transaction. Therefore, disclosed dual agency
•	must have the informed written consent of the parties;
must provide the Disclosure and Consent to Dual Agency form;

Agency Agreements and Issues	21
•	Responding to phone inquiries from a consumer concerning the price or location of property
•	Attending an open house and responding to questions about the property from a consumer
•	Setting an appointment to view property
•	Responding to questions of consumers walking into a licensee's office concerning brokerage services offered or a particular property
Accompanying an appraiser, inspector, contractor, or similar third party on a visit to a property
Completing business or factual information for a consumer on an offer or contract to purchase on behalf of a client
Showing a client through a property being sold by an owner on his or her own behalf
•	Referring to another broker or service provider

III Agency Creation

An agency relationship may be based on a formal agreement between the parties, an express agency, or it may result from the parties' behavior, an implied agency.
Express Agency
The client and agent may enter into a contract, or an express agreement, in which the parties formally express their intention to establish an agency relationship and state its terms and conditions. The agreement may be either oral or written. An agency relationship between a seller and a broker generally is created by a written brokerage contract, commonly referred to as a listing agreement or an exclusiveright-to-sell agreement, that authorizes the broker to find a buyer or tenant for the owner's property. An express agency relationship between a buyer and a broker is created by a buyer-agency agreement or representation agreement. Similar to a listing agreement, it stipulates the activities and responsibilities the buyer or tenant expects from the broker in finding the appropriate property for purchase or rent. The Act requires that all exclusive brokerage agreements must be in writing; however, it is strongly recommended that all brokerage agreements be in writing.
Implied Agency
An agency also may be created by implied agreement. This occurs when the actions of the parties indicate that they have mutually consented to an agency relationship. A person acts on behalf of another as agent; the other person, as principal or client under the Act, delegates the authority to act. Agency relationships sometimes occur without having been consciously intended. An agency created unintentionally by actions or words may be viewed as a legal agency relationship, sometimes with confusing and even illegal results.
For Example
Nancy tells Phillip, a real estate broker, that she is thinking about selling her home. Phillip immediately contacts several prospective buyers and tells Nancy that he can "get her home sold for her." There is no written brokerage contract. One of the buyers, Phillip's client under an exclusive buyer brokerage agreement, makes an attractive offer with Phillip's help. Phillip goes to Nancy's house and presents the offer, which Nancy accepts.

Agency Agreements and Issues	23
Buyer Agreements
We will discuss two types of exclusive buyer brokerage agreements: the exclusiveright-to-acquire agreement and the exclusive-agency agreement.
In the exclusive-right-to-acquire agreement, the buyer is legally bound to compensate the broker whenever the buyer purchases a property of the type described in the agreement. The broker is entitled to payment regardless of how the property is located for the buyer. Even if the buyer finds the property independently, the broker is entitled to payment under the contract.
The buyer's exclusive-agency agreement is an exclusive agreement between the buyer and the broker. However, this agreement limits the broker's right to payment. The broker is entitled to payment only if he or she locates the property the buyer ultimately purchases. The buyer is free to find a suitable property without obligation to pay the broker. The agreement could be helpful in protecting an agent in procuring cause disputes. Other companies may not work with this buyer. If they do, they would risk nonpayment of the cooperating commission if the agreement with the first broker predates the relationship with the second broker.
The Process
Issues have to be addressed by the broker with the seller before signing any listing agreement, as they do with the buyer before signing a buyer brokerage agreement. The agent on behalf of the broker has to make the same disclosures to both. The agent must discuss the forms of agency available and the parties' rights and responsibilities under each type. The specific services provided to a seller-client or buyer-client must be clearly explained. Compensation issues need to be addressed.
All exclusive brokerage agreements, including all exclusive-listing agreements and exclusive buyer brokerage agreements, must be in writing as mentioned earlier. All written listing agreements, whether exclusive or not, have to contain the following information:
•	List price
•	Agreed basis or amount of commission and the time of payment of the commission
Duration of the listing agreement with a definite termination date—no automatic extensions of the agreement
Name of the broker and the seller
Property address or legal description
Signatures of the parties
Duties of the listing broker All buyer brokerage agreements have to contain the following information:
•	Agreed basis or amount of compensation and time of payment
Duration of the buyer brokerage agreement, stated clearly
Name of the broker and the buyer
Signatures of the parties
Duties of the buyer's broker
Every written brokerage agreement must expressly provide that no amendment or alteration to the terms, with respect to the amount of commission or with respect

Agency Agreements and Issues	25
The whole purpose of agency is to assist the client through the process until a binding contract is entered into by the parties. Following is a list of typical compliance-related questions often asked by licensees.
Questions Frequently Asked about Minimum Services
1. What if a licensee does not perform the required minimum services pursuant to an exclusive brokerage agreement?
•	The licensee could now be subject to discipline by IDFPR pursuant to the Section 20-20 "Bad Acts" list. The Bad Acts list refers to subsection (h) in Section 20-20 of the Act, which lists various causes for licensee discipline.
The sponsoring broker's license and/or the licensee's license could be subject to discipline ranging from letters of reprimand to suspension or revocation of license and monetary fines.
2. Are minimum services required if the brokerage agreement is open or nonexclusive?
•	No. The minimum services apply by definition only to exclusive brokerage agreements.
A broker is free to offer nonexclusive or open brokerage relationships.
3. What agreements do minimum services affect?
•	For practical purposes, if an exclusive brokerage agreement to buy, sell, or lease is signed, the minimum services would be required.
4. May these duties be waived?
•	No. The definition of exclusive brokerage agreement contains the requirement to perform the minimum services.
If these minimum services are waived in the brokerage agreement, then by law the agreement will not be an exclusive one.
5. Is there a requirement to have the statutory minimum services language in the exclusive brokerage agreement?
•	Not necessarily. The sponsoring broker should review existing exclusive brokerage forms to analyze whether language there already describes the minimum duties owed to clients.
If not, the sponsoring broker might (1) add a statement that says the broker, through its designated agents, will perform those services set forth in Section 15-75 of the Act, or (2) add the statutory language to the form verbatim from Section 15-75.
6. Will the minimum services apply to exclusive brokerage agreements with commercial brokers, builders, and developers?
•	Yes. The legislation is business model neutral and fee structure neutral.
•	If an exclusive brokerage agreement is entered into with a commercial builder client, minimum services will be required. However, every situation is different, and the needs of the client may vary, so actual services provided may differ.
After the sponsoring broker explains the minimum services required in an exclusive relationship, the client might elect to enter an open or nonexclusive agreement.

Agency Agreements and Issues	27
 Summary
Agency describes the relationship between a licensee and a client. The licensee must perform specific duties as prescribed by law. Two types of agency described in the statute are designated agency and disclosed dual agency.
Licensees have a duty to be honest and provide disclosure of certain facts to third parties. Licensees can provide ministerial acts to customers without becoming their agent.
Examples of two types of brokerage agreements licensees can have with clients are the listing or exclusive-right-to-sell agreement with sellers and the buyer brokerage agreement with buyers. All exclusive brokerage agreements must be in writing and contain minimum service requirements.
case s
Paige, an Illinois licensed broker, represents the seller, Stacy, in the sale of her attractive, fully restored greystone two-flat in the Logan Square neighborhood of Chicago. The property lists for $999,000, but Stacy is anxious to sell because she has been transferred to Rockford for her job. Paige, authorized to act as a dual agent, receives an offer for list price from buyer, Robert, to close in two months. At the time of the offer, Paige is unaware that Robert is a registered sex offender, which would be very important information to Stacy because of her close relationship with her neighbors, Joe and Marianne, and their five children. Paige sets an appointment with Stacy, who is pleased with Robert's offer and admits that she was concerned she would get offers of $900,000 or lower and that she must pay off $860,000 in mortgages she used in the restoration of the two-flat. Before she can leave the appointment, Paige receives a second offer from Lance, who is offering only $850,000 but is willing to close in three weeks, which is closer to Stacy's preferred closing date.
For Discussion
Should Paige show Stacy the second offer even though it is too low to pay off Stacy's mortgages, or should she tell Lance the offer is too low? How should Paige advise Stacy regarding the two offers? If either Paige or Stacy were to find out that Robert was a registered sex offender, how would that impact the negotiations, and should Stacy turn down Robert's offer as a result of the information? What recourse would Robert have as a result Stacy's refusal to accept his offer because of his registered sex offender status, if any?
Case Study Questions
1. Paige is representing Stacy in her residential sale and gives Stacy the offer from buyer Robert. Stacy accepts Robert's offer and signs the disclosure and consent to dual agency, allowing Paige to act as dual agent to quickly close the deal. Paige has both parties sign off on the confirmation and consent to dual agency authorization. To the delight of both parties, the closing is quickly set. Stacy is certain that her neighbors will like Robert, especially her best friends, Joe and Marianne, whose five children are like nieces and nephews to her. Two days before the closing, Robert asks if he can disclose something to Paige. She explains the ethical obligations of confidential

Agency Agreements and Issues	29

 Chapter 2 Review Quiz
1. Which is a similarity between an exclusive-agency listing and an exclusive-right-to-sell listing?
a.	Under both, the seller retains the right to sell the real estate without the broker's help and without paying the broker's commission.
b.	Under both, the seller authorizes only one particular salesperson to show the property.
Both types of listings give the responsibility of representing the seller to one broker only.
c.	Both types of listings are open listings.
2. The seller has listed his property under an exclusive-agency listing with the broker. If the seller sells the property himself during the term of the listing to someone introduced to the property by the seller, and the buyer has no agent, he will owe the broker
a.	no commission.
the full commission.
a.	a partial commission.
reimbursement only for the broker's costs.
3. Which statement is TRUE of a listing contract?
a.	It is a contract for the professional services of the broker to be provided to the seller client.
a.	It obligates the seller to convey the property if the broker procures a ready, willing, and able buyer.
a.	It obligates the broker to work diligently for both the seller and the buyer.
It automatically binds the owner, broker, and MLS to the agreed provisions.
4. Broker Raphael and buyer Leo enter into a buyer exclusive-right-to-acquire agreement. This means
a.	Leo is obligated to compensate Raphael regardless of who locates the property ultimately purchased.
a.	Raphael is entitled to payment only if he, or any agent acting under his authority, locates the property Leo ultimately purchases.
a.	Leo may enter into similar agreements with any number of other brokers.
if Leo finds the property without any help from Raphael, Leo must pay Raphael a reduced commission.

5. Services performed for a buyer that do NOT create an agency relationship are referred to as
a.	transactional acts.
a.	routine brokerage acts.
a.	ministerial acts.
facilitator acts.
6. The listing agreement with the seller has expired, and the seller lists with a different firm. The original listing agent now has a buyer interested in the seller's property. The original listing agent
a.	is a dual agent.
a.	cannot disclose to the buyer offers received on the seller's property while it was listed with him.
cannot disclose to the buyer information about the physical condition of the property.
a.	cannot represent the buyer.
7. Bob is a real estate broker. Saul is a for-sale-byowner who has a home advertised for $298,000. Vera comes into Bob's office and asks Bob to represent her while she searches for a home in the $300,000 price range. Bob calls Saul and asks if he can show Saul's home to Vera. Based on these facts, which of the following statements is TRUE?
a.	Both Saul and Vera are Bob's customers.
a.	Saul is Bob's customer; Vera is a client.
Vera is Bob's customer; Saul is Bob's client.
Bob is now a dual agent.
8. A buyer contacts a real estate company and indicates an interest in purchasing a home in the area. If offered, which service would be considered a client-level service rather than a ministerial act?
a.	Answering questions about availability and pricing of brokerage services
Giving the buyer rate sheets from several lenders
a.	Setting an appointment to view the property
Preparing a CMA on a home of interest

Office Management and
Escrow Responsibilities
learning objectives
Upon completion of this chapter, you should be able to:
•	Explain the relationship between a broker and a sponsored licensee
Describe the key responsibilities and necessary skills of the managing broker
Discuss branch offices, management, and reciprocal licensing issues
•	Discuss typical compensation issues between a broker and a sponsored
licensee
•	Describe the components of a business plan and how to formulate them
•	List the components of a policy and procedures manual and its importance
to office operations
•	Describe advertising requirements
Fully understand and explain escrow or special accounts
List the requirements for setting up an escrow account
Distinguish between commingling and conversion of funds
Identify and implement the procedures for maintaining escrow records

 Key Terms	advertising business plan commingling compensation plan conversion employees
employment agreement escrow money	independent contractor journal
ledger
managing broker
master escrow account log
monthly reconciliation statement	personal assistants policy and procedures manual
reciprocity
sponsor card sponsoring broker	

Office Management and Escrow Responsibilities	33

Employees
A broker can exercise a great amount of control over sponsored licensees who are employees. The broker can require that an employee follow rules governing such matters as working hours, office routine, attendance at sales meetings, assignment of sales quotas, and adherence to dress codes, for example. When dealing with employees, a broker is required by the federal government to withhold Social Security tax and income tax from wages paid to those employees. The broker is also required to pay unemployment compensation on wages paid to one or more employees, as defined by state and federal laws, and provide workers' compensation coverage. In addition, employees may receive benefits such as health insurance and participate in profit-sharing plans.
Independent Contractors

Independent contractors generally:
•	Do not work employer‑
determined hours
Do not receive scheduled salaries
Decide when and how to do their work
Are paid irregularly based on project completion (e.g., a completed sale)

A broker's relationship with a salesperson who is an independent contractor can be very different from the relationship with an employee. In Illinois, many real estate firms are "staffed" almost totally by independent contractors. As the name implies, a true independent contractor might operate on a more flexible schedule than does an employee, and a broker might not exercise the same degree of control over this person's daily activities. While the broker may determine what the independent contractor does (especially because the contractor is still representing the broker as his or her agent), the broker cannot dictate how they do it. For example, a company can expect independent contractors to comply with its policies and procedures. An independent contractor's income usually is commission based. Independent contractors are responsible for paying their own income taxes and Social Security taxes.
It is not unusual for the Internal Revenue Service (zvzvzv.irs.gov) to investigate the independent contractor and employee status in real estate offices. Under the qualified real estate agent category in the Internal Revenue Code, three requirements need to be met in order to establish an independent contractor status:
1.	The individual must have a current real estate license.
He or she must have a written contract with the broker specifying that the salesperson will not be treated as an employee for federal tax purposes and will need to pay his or her own taxes.
At least 90 percent of the individual's income as a licensee must be based on sales production and not on the number of hours worked.

•	Real Estate Teams in a Brokerage Office
In Chapter 1, it is noted that sometimes licensees within a brokerage firm join together and operate as a team, sharing business expenses and working cooperatively.
What Is a Team?
While there is no legal definition under Article 1 of the Act, for purposes of discussion, a team is "a functional unit operating within a real estate brokerage office comprised of one or more real estate licensees and one or more administrative personnel." (Source: Teams and the Illinois Real Estate Brokerage Firm, Illinois Association of REALTORS°, 2004.)

Office Management and Escrow Responsibilities	35
•	If the team member is a licensee, that member might be an independent contractor under the IRS "20 factor test," or under the IRS safe harbor test of (1) having a license; (2) receiving "substantially all" (90 percent) of compensation from sellers; (3) having a written contract that states that the agent is not an employee and must pay his or her own taxes.
If a licensed team member is a statutory independent contractor, this might be true for tax purposes only; and for other purposes, the licensee might be a common law employee where Illinois workers' compensation laws might apply.
A licensed team member must have a written employment contract/independent contractor agreement with the sponsoring broker.
Unlicensed team members will be employees. Either the sponsoring broker or a licensed team member could compensate them. The sponsoring broker will want to ensure proper withholding requirements are met. It is vital to consult an attorney and a competent tax advisor on these issues.
(Source: Teams and the Illinois Real Estate Brokerage Firm, Illinois Association of REALTORS®, 2004.)
•	Personal Assistants
As a real estate business grows, it is not uncommon for a licensee to hire a personal assistant. Personal assistants are not required to be licensed; however, if they are licensed, they can perform all functions of a licensed real estate agent. Indeed, their license will be that of a salesperson or broker. In very few instances, it may be a leasing agent license. If the assistant is unlicensed, he or she may only engage in administrative or clerical functions. If the assistant is licensed, then he or she can host public open houses, show property, and assist in all aspects of the real estate transaction.
Two legal issues inherent in using personal assistants are whether the personal assistants will be licensed or unlicensed and whether they are employees or independent contractors.
Licensed or Unlicensed?
The question to ask is, what activities will the personal assistants be performing? Brokers who choose to have licensed personal assistants need to pay attention to the requirements set forth in the Act. Remember, there is no separate class of licensure for a personal assistant under the Act. As a result, the same guidelines that apply to brokers and salespeople apply to licensed personal assistants. It is an internal business decision to treat a licensee as a personal assistant.
As a licensee, the personal assistant will need to have a sponsor card from the sponsoring broker, not the salesperson for whom the personal assistant may work or by whom the personal assistant may be directed.
As noted, the sponsoring broker must also have a written employment agreement with the licensed personal assistant detailing the relationship between the sponsoring broker and the personal assistant, including the responsibilities of the salesperson the personal assistant works for. A licensed personal assistant can receive compensation only for licensed activities from his or her sponsoring broker. The sponsoring broker is also ultimately responsible for the supervision of the licensed personal assistants he or she is sponsoring.

Figure 3.1 f Employee or Independent Contractor? The 20 Factor Test
1.	Is the individual expected to comply with instructions about when, where, and how the person is to perform his or her work?
Specific training required by an employer indicates the expectation that services will be performed in a particular method or manner.
Are the services incorporated into the overall business so that the operation of the business depends upon the performance of those services?
1.	Must the services be performed personally by the individual?
Does the worker hire, supervise, and compensate assistants of the employer?
Is there a continuing relationship between the worker and the employer?
Does the worker have set hours of work?
1.	Must the worker work full-time for the employer or does the employer have any restrictions on the work or performing the work for other entities or individuals?
1.	Is the work performed on the employer's premises?
Must the work be performed in a certain sequence or order?
Must regular written or oral reports be submitted to the employer?
Is the worker paid by the hour, week, or month as opposed to a straight commission?
Does the worker pay for his or her own travel and business expenses?
1.	Does the worker provide his or her own tools, materials, and other equipment needed for the performance of the job or are they provided by an employer?
Does the worker have a significant investment in the facilities, office space, and similar items?
1.	Can a worker realize a profit or loss on the work that is being performed?
Can the worker perform work for more than one firm, company, or entity at a time?
1.	Can the worker make his or her services available to the general public on a regular and consistent basis?
1.	Can the worker be fired?
1.	If the worker can terminate the relationship at any time without liability, then there is an indication of an employment relationship.
Source: The P.A. Manual, Illinois Association of REALTORS°, 2004.	
Personal Assistant Activities
An unlicensed assistant, on behalf of and under the direction of a licensee, may engage in the following administrative, clerical, or personal activities without being in violation of the licensing requirements of the Act. The list of permissible and nonpermissible activities shown in the box on pages 38-39 is intended to be illustrative and declarative of the Act and is not intended to increase or decrease the scope of activities for which a license is required under the Act.

Office Management and Escrow Responsibilities	39

An unlicensed assistant of a licensee may not:
1)	host open 'houses, kiosks, or home show booths or fairs;
show property;
interpret information on listings, titles, financing, contracts, closings, or other information relating to a transaction;
explain or interpret a contract, Wing, lease agreement, or other real estate document with anyone outside the licensee's company;

mission, commission split, management fee, or ensee; or

for which a license under the Act is required.

ee to an ehalf
er

5)	negotiate o 

referral fee

6)	perform an

Any licensee, as well as the sponsoring broker of the licensee, who employs an unlicensed assistant will be responsible for the actions of the unlicensed assistant while under the supervision of or at the direction of the licensee. The licensee, including the sponsoring broker, responsible for the unlicensed assistant who allows the unlicensed assistant to engage in licensed activities without a license will also be in violation of the Act and subject to discipline. In addition, an unlicensed assistant cannot be compensated for the performance of licensed activities.
A licensee is prohibited from acting as an unlicensed assistant for any licensee other than his or her sponsoring broker or a licensee sponsored by the sponsoring broker. In other words, you can't be licensed to a broker and then engage in administrative functions for another licensee sponsored by another brokerage company. In short, a licensee can only work for one sponsoring broker at any one time.
Stenographic, clerical, maintenance, engineering, building trades, security, or office personnel not directly engaged in the practice of real estate brokerage are not required to be licensed.

 Compensation

A well-designed compensation plan is vital to a real estate firm's profitability. The amount of compensation a real estate agent receives from a transaction is determined by mutual agreement between the agent and his or her sponsoring broker. This compensation agreement is included in the employment or independent contractor agreement. A sponsoring broker may agree to pay a fixed salary or a predetermined percentage, as stated in the employment agreement, based on transactions originated by a specific licensee. Some brokers require that licensees pay all or part of the marketing expenses associated with the transaction, and this amount may be subtracted from commissions by agreement or be billed separately to the licensee.
In Illinois, it is illegal for a sponsoring broker to pay a commission to anyone other
than the following:
•	A licensee sponsored by that same sponsoring broker
Another firm's sponsoring broker (co-op commission), who then pays his or her own licensee involved in the transaction

Office Management and Escrow Responsibilities	41
laws such as RESPA (Real Estate Settlement Procedures Act) might apply, thus prohibiting some of the practices described above. Consult an attorney for further clarification.
A licensee can offer compensation, including prizes, merchandise, services, rebates, discounts, or other consideration to an unlicensed person who is a party to a sales contract or lease agreement. A licensee can offer cash, gifts, prizes, awards, coupons, merchandise, rebates, or chances to win a game of chance to a consumer as an inducement to that consumer to use the services of the licensee in a broker-client relationship. Any advertising related to such a promotion must be truthful and contain all the terms and conditions that a consumer would need to know to qualify for the benefit being offered.
Referral Fees
No licensee may pay a referral fee to an unlicensed person who is not a party to the transaction. In order to meet the license requirement, the person receiving the referral fee may be licensed as a broker in Illinois or in his or her own state or country of domicile. In a case where the person's country of domicile does not have a licensing statute for real estate agents, in order to receive the referral fee, he or she must comply with the laws, if any, of his or her country of domicile concerning the practice of real estate brokerage business.
Also, a licensee may not request a referral fee unless reasonable cause for payment of the fee exists. Reasonable cause for a referral fee payment means that
•	an actual introduction of a client has been made to a licensee or
•	a contractual referral fee relationship exists with the licensee.
The fact that reasonable cause to demand a referral fee exists does not necessarily mean a legal right to the referral fee exists.
•	Termination of Sponsorship
If a salesperson, broker, leasing agent, or licensed personal assistant terminates employment with the sponsoring broker for any reason, the licensee must obtain his or her license from the sponsoring broker. The sponsoring broker signs and dates the license, which indicates that the relationship has been terminated. The sponsoring broker must send IDFPR a copy of the terminated license within two days of the termination or be subject to discipline for failure to do so. The signed license automatically becomes inoperative, as does the licensee's ability to practice real estate, unless he or she accepts employment with a new sponsoring broker.
If the licensee is simply changing brokers, the new sponsoring broker must immediately complete a sponsor card (45-day permit) for the licensee to carry until a new license and pocket card (with the new firm's name indicated as sponsor) arrives. The sponsoring broker prepares and sends a duplicate sponsor card to IDFPR for this transition period, along with the original endorsed license from the previous broker within 24 hours of sponsorship along with the required fee.
•	Managing Broker Responsibilities

•	Familiarizing sponsored licensees with the requirements of federal and state laws relating to the practice of real estate
•	Compliance with the rules for licensees and offices under his or her supervision
The sponsoring broker is ultimately responsible for the actions of all sponsored licensees including the managing brokers. This would include making sure that the licenses the sponsoring broker sponsors are renewed in a timely manner.
Office Oversight and Reciprocity Issues
Now that we have discussed oversight of an office, we should also take a moment to discuss requirements for a physical office location as well as some instances where a physical office might not be required.
If we start with the basic question about whether a broker must maintain a definite, physical office space in Illinois, the general answer would be yes. However, there are certain instances where this might not be the case, and it would be helpful for us to recognize those. Section 5-45(d) of the Act generally requires a broker to have a definite office space or place of business in the state of Illinois, unless the sponsoring broker from another state has an Illinois license issued, either by examination or reciprocity. If the broker is an active broker and has an office in the broker's state of domicile and files documents with IDFPR appointing IDFPR as an agent for service of process or other legal notices, the broker might not need to have a physical office in Illinois.
Briefly, a broker might be issued an Illinois license by reciprocity under the following circumstances: (1) the broker must have a license in his or her state of domicile; (2) the standards in his or her state must be substantially equivalent to the standards in Illinois; (3) the broker must have been actively practicing in his or her state for not less than two years preceding application for an Illinois broker's license; (4) the broker must furnish certified documents from his or her home state's licensing authority that his or her license is in good standing; (5) he or she must pass a test on Illinois-specific real estate brokerage laws; and (6) there must be a reciprocal agreement in place between the broker's state of licensure and the State of Illinois.
States with Which Illinois Has Reciprocal Agreements
Colorado	Indiana	Nebraska
Connecticut	Iowa	South Dakota
Georgia	Kentucky	Wisconsin
Salespersons might also be issued licenses in Illinois by reciprocity, and, generally speaking, those salespersons would be subject to the same requirements as those discussed for a broker. In addition, they must be sponsored by the same broker in their home state, who also holds a reciprocal license in Illinois. In other words, salesperson A in Indiana who is sponsored by ABC Realty, Inc., an Indiana-licensed broker with a reciprocal license issued in Illinois, would have to have his or her Illinois reciprocal salesperson's license sponsored by ABC Realty, Inc., and

Figure 3.3 I Sample Policy and Procedures Manual
Table of Contents
•	Company Mission Statement	 Sample Brokerage Relationship Policies
Statement of Business Principles	 Cooperation and Compensation Policy
Equal Employment Opportunity Policy	 Agency Disclosure Policy
Policy Against Sexual Harassment	 Mandatory Buyer-Agency Events
•	Independent Contractor/Employment	a Strongly Recommended Buyer-Agency
Agreement	Events
•	Use of Personal Assistants	 Agency and Confidentiality
Office Hours	 Fair Housing Policy
Holidays and Holiday Hours	 Antitrust Policy
Office Opening and Closing Procedures	 Listing Procedures
Smoking Policy	 Buyer Qualification Policy
Training Program and Schedule	 Sales Contract Policy
Sales Meetings/Property Inspections	 Advertising Policy
InquiriesNisits by Government Officials	 Risk Reduction Policy
•	Subpoenas and Summonses	 Business Items List
•	Agent Safety	 E-mail and Internet Policy
Functions of Unlicensed Office Personnel	 Acknowledgment and Agreement
Payments to Unlicensed Persons	 Agency "Dos and Don'ts"
Source: Sample Office Policy Manual, © 2000 Illinois Association of REALTORS®, with permission of Bruce Aydt and the Missouri Association of REALTORS®	
the broad courses of action that you think will accomplish the goal. Finally, the tasks are the specific day-to-day activities that will make the strategies a reality.
Preparing a Policy and Procedures Manual
A policy and procedures manual should be written and should serve as a risk management tool for the company. In preparing the manual, the writer should be positive. For example, one should use the "it's okay to" approach rather than "don't do this" approach. The Illinois Association of REALTORS® (IAR) has a Sample Office Policy Manual that can serve as a general guideline in developing your policy manual. The table of contents from this manual shown in Figure 3.3 serves as a guideline for topics to include in a policy and procedures manual.
Policies and procedures are extremely beneficial for the following reasons:
•	Establishing a clear understanding of the relationship between broker and sponsored licensees as well as administrative functions versus staff functions
Working to resolve conflicts before they come up
Building confidence that everyone knows what the rules are and how the company is supposed to operate
Giving guidance for many of the situations licensees face on a day-to-day basis

Office Management and Escrow Responsibilities	47

 Advertising

While advertising generally is addressed in the policies and procedures manual, it is important enough to discuss separately because of the potential for disciplinary action if not done in accordance with the Act.
A sponsoring broker must include the company name and any franchise affiliation in all advertisements. Blind ads are prohibited. (Blind ads are those that do not indicate the brokerage firm name and that the advertiser is a licensee, and they offer only a box number, street address, or telephone number for responses.) No blind advertisements may be used by a licensee regarding the sale or lease of any real estate, other real estate activities, or the hiring of other licensees.
Ads prepared by licensees at a minimum should include the following:
•	Licensee name
•	Company name as registered with IDFPR
•	Enough information to convey the message in a truthful and comprehensible manner
There is no advertising print size restriction between the sponsoring broker's company name and the licensee's name. On Internet ads, the city and geographical area of the advertised property must be included.
Deceptive advertising includes the following:
•	Advertising a property that is subject to an exclusive agreement with a sponsoring broker other than the licensee's own without the permission of and identifying the listing broker
•	Failing to remove advertising from a listing within a reasonable time Internet Advertising
Ads prepared for the Internet must adhere to the following:
•	An Internet ad must include proper identification—licensee name.
•	Company name, company location, and the geographic location of the property should be clearly displayed.
In addition, e-correspondence, bulletin boards, or e-commerce discussion
groups require licensee name, company name, and company location.
Links to listing information from other Internet sites are permitted without approval, unless the Web site owner requires approval for links to be added. Any such link must not "mislead or deceive the public as to the ownership of any listing information."
Internet sites are to be updated periodically, and information must be kept current.
In Internet advertising situations, the rules do not allow "advertising a property that is subject to an exclusive listing agreement with a sponsoring broker other than the licensee's own without the permission of and identifying that listing broker," and "failing to remove advertising of a listed property within a reasonable time, given the nature of the advertising, after the earlier of the closing of a sale on the listed property or the expiration or termination of the listing agreement." However, listing information on a

Office Management and Escrow Responsibilities	49
•	If the brokerage company is a franchise, the company name and the franchise affiliation must appear in all advertisements. So, if a team name were included in the ad along with the company name and franchise affiliation, no special registration of the team name would be necessary.
If the team name appears in an advertisement and the company name is also
included, no additional registration of the team name would be needed.
If the team name is being used in lieu of the brokerage company name, then appropriate registration of the team name by the sponsoring broker is required.
Just as critical as the operation of the brokerage company is the handling of the funds of others. The remainder of this chapter will deal specifically with maintaining an escrow account, deposits and disbursements, reconciliations, and the escrow dispute process. Let us begin by discussing escrow funds.
•	Escrow Funds
Managing escrow funds is another major broker responsibility. Sponsoring brokers are required to maintain an escrow account or special account if they accept escrow money. Escrow money means all moneys, promissory notes, or any other type or manner of legal tender or financial consideration deposited with any person for the benefit of the parties to the real estate transaction. A transaction exists once an agreement has been reached and an accepted real estate contract signed or lease agreed to by the parties. According to the Act, escrow moneys include "earnest moneys and security deposits, except those security deposits in which the person holding the security deposit is also the sole owner of the property being leased and for which the security deposit is being held."
In addition to earnest money and security deposits, other examples include possession escrows, which are funds deposited to ensure performance of some other promise related to the agreements made between the parties, and sometimes from property management activities. (Note: This is the case only when there is no written management agreement between the broker and the property owner.)
•	Escrow Accounts
If escrow funds are accepted by the brokerage firm, an escrow account at a federally insured financial institution must be established. A sponsoring broker can maintain more than one escrow account; however, sponsored licensees may not maintain their own escrow account.
A Consent to Examine and Audit Special Accounts form for each account and each financial institution must be completed by the managing broker and filed with IDFPR. The identity of each signatory on the account must be provided. The sponsoring broker is responsible for any theft or mismanagement of escrow funds.
All escrow moneys must be held in a non-interest-bearing account unless otherwise required by law or unless the principals to the transaction specifically require, in writing, that the escrow funds be placed in an interest-bearing account. The written instructions to place the escrow funds in an interest-bearing account must state specifically to whom the interest will be paid.

Figure 3.4 I Summary of Escrow Account Rules
1.	The escrow account must be non-interest-bearing, unless the principals to the transaction specifically require, in writing, that the deposit be placed in an interest-bearing account.
1.	The escrow account must be maintained at a federally insured depository.
Commingling is prohibited.
1.	The sponsoring broker must provide a receipt to the payor of any cash constituting escrow funds and must retain a copy of the receipt.
The escrow agent must notify all principals in writing if a principal fails to tender escrow moneys, when a principal's payment is dishonored by the bank on which it was drawn, or when there appears to be a deficiency under the contract terms.
4.	All escrow moneys accepted by a sponsoring broker shall be placed in the sponsoring broker's escrow account not later than the next business day following the transaction.
The sponsoring broker must keep all escrow moneys on deposit in the escrow account until the transaction is consummated or terminated.
1.	Upon consummation or termination, the escrow moneys must be disbursed no earlier than the day the transaction is consummated or terminated and not later than the next business day following the sponsoring broker's receipt of notice of the consummation or termination, or otherwise in accordance with the written direction of all principals to the transaction or their duly authorized agents.
1.	The broker may release escrow moneys prior to the consummation or termination of the transaction in accordance with directions contained in any written contract signed by the principals to the transaction or their duly authorized agents. In this case, the broker must adhere to the terms of the contract concerning the release of the escrow moneys.
Commissions or fees earned by a broker in any transaction will be disbursed from the funds deposited in the escrow account no earlier than the day the transaction is consummated or terminated and not later than next business day after the transaction was consummated or terminated, or otherwise in accordance with the written direction of all principals to the transaction.
7.	A broker must not withhold, for any period of time, an authorized disbursement of escrow moneys due to any claim for a commission or compensation to any licensee.
8.	A broker must receive monthly bank statements for all escrow accounts.
9.	A broker must maintain an escrow account to hold security deposits associated with leases, unless the tenant waives this right and the lease waiver language is in bold print.	
if the parties do not object, the broker holding escrow may release the moneys. This procedure must be contained in the contract [Section 1450.175(g)(3)].
If an interpleader action is filed by the sponsoring broker, and the broker is authorized by the real estate contract to withdraw from the escrow account those amounts necessary to reimburse the sponsoring broker for costs and reasonable attorney's fees associated with that action, the broker may do so. Costs and attorney's fees associated with that broker's attempt to collect a commission or fee are excluded.
Please note: The broker must not use his or her judgment to determine if a default has occurred. Contract law is complicated. The occurrence of certain events may, under law, excuse performance of one of the parties. What appears to be a default may not trigger the exercise of a forfeiture clause. Always comply with the mutually written instructions of the parties or their duly authorized agents. This can

has to be kept for at least five years from the last day of the month covered by the reconciliation.
If the broker discovers a discrepancy when reconciling the accounts monthly, the broker should review the journal, ledgers, and both the open and recently closed transaction files. In addition, the broker should reconcile the operating account.
4. Master escrow account log. Each broker has to maintain a master escrow account log identifying all escrow bank account numbers, and the name and address of the bank where the escrow accounts are located. The master escrow account log must specifically include all bank account numbers opened for the individual transactions, even if the account numbers fall under another umbrella account number.
Source: Escrow Account and Record Keeping Requirements, Illinois Department of Financial and Professional Regulation, 2005.
Samples of these materials follow in Figures 3.5 through 3.10.
The broker must always be able to account for client or escrow funds and any pertinent documents. If IDFPR requests to view or audit escrow records, these must be supplied to IDFPR personnel within 24 hours of the request. Escrow records must be maintained for five years. The escrow records for the prior two years have to be maintained in the office location, and the balance of the records can be maintained at another location.
A sponsoring broker may employ a more sophisticated bookkeeping system based on sound accounting principles, including a system of electronic data processing equipment. However, the system must contain or produce printed records containing the information required.
The sponsoring broker must retain copies of all escrow money instruments received from a principal as part of a transaction, including copies of all personal checks, cashier's checks, certified checks, money orders, promissory notes, or other financial instruments. The sponsoring broker must also retain copies and/or documentation of all disbursements or transfers into and out of the escrow account.
If escrow records are lost, stolen, or destroyed due to fire, flood, or any other circumstances, the broker must report the loss to the IDFPR enforcement division within 30 days by signature-restricted delivery. The sponsoring broker must also immediately obtain copies of monthly bank statements, deposit and disbursement receipts, and any other available records, to reconstruct the loss of escrow records.
A sponsoring broker may delegate the bookkeeping duties to another person, including: a managing broker, bookkeeper, certified public accountant, unlicensed personal assistant, licensed personal assistant, or sponsored licensee. However, compliance with the bookkeeping duties remains the responsibility of the sponsoring broker. The sponsoring broker is ultimately responsible for the proper administration of the escrow account pursuant to the Act.

Office Management and Escrow Responsibilities	55
Figure 3.6 I Sample Ledger Card
	ABC REALTY		
	Property Address: 1234 S. Main St., Hammond
Seller: J. Jackson
Buyer: E. Smith
Transaction #: 30101		
	Date	Description	Check #	Amount	Balance		
	3-Mar-07	Received earnest money from E. Smith		2,000.00	2,000.00		
	10-Mar-07	Rec. additional E money from E. Smith		8,000.00	10,000.00		
	29-Apr-07	ABC Realty - apply towards commission	1302	6,000.00	4,000.00		
	29-Apr-07	J. Jackson - balance due to seller	1303	4,000.00	0.00		

							

							

							

							

							

	This is a sample. For requirements please refer to:
The Illinois Real Estate License Act of 2000 — Administrative Rules
Section 1450.175 (i)(2)		

Office Management and Escrow Responsibilities	57
Figure 3.8 I Sample Reconciliation Worksheet

Account Number		Month 	May 31, 2007	

(date of bank statement)
BANK STATEMENT
Bank Balance per Statement	21,476.25 
Add Deposits Not Credited to Statement	0.00
TOTAL	21,476.25 
Less Outstanding Checks	5,000.00
List checks by name and amount on a separate page. Attach to Report

Reconciled Bank Balance
JOURNAL
Journal Balance Brought Forward

16,476.25	16,476.25
16,476.25	16,476.25

LEDGER CARD
Total of Open Transactions	16,000.00
(attach tape)
If tape is not used, list balances by name and amount on a separate page. Attach to Report
Broker's Fund	476.25
TOTAL	16,476.25

Reconciled Ledger Balance	16,476.25	16,476.25	

This is a sample. For requirements please refer to,
The Illinois Real Estate License Act of 2000 — Administrative Rules Section 1450.175 (i)(3)

Office Management and Escrow Responsibilities	59
Figure 3.10 I ABC Realty Escrow Account Log

ABC REALTY
Account #	Name of Bank	Address of Bank	Description	
379855321-9	First National Bank of U.S.A.	777 Main Street,
Chicago, Illinois 60601	Non-Interest Bearing
Escrow Account	
888880432-1	First National Bank of U.S.A.	777 Main Street,
Chicago, Illinois 60601	Interest Bearing-Sub
Account for trans. 99-00126	

				

				

 Commercial representation. These are tenant or owner representation agreements, letters of intent, leases, and any written modifications to an executed lease.
Transaction records have to be maintained for five years. The sponsoring broker has to ensure that any transaction records involving any active or pending transaction or representation or any escrow funds not yet disbursed remain at the office location and are available for inspection and audit during normal business hours after receiving 24 hours' notice from IDFPR. Sponsored licensees may keep duplicate transaction records.
Compensation payment records must also be kept for five years. Employment agreements must be kept for five years after the sponsored licensee is terminated.
Consent to Examine and Audit Special Accounts
At the time of the original application for licensure and at the time of the renewal of licensure, each sponsoring broker must file with IDFPR the names of the banks, savings and loan associations, or other recognized depositories in which each escrow account is maintained; the name of each account; and the names of the

Office Management and Escrow Responsibilities	61
sponsoring broker must pay every licensee on the team and must have a written employment/independent contractor agreement with each licensee.
Personal assistants may be licensed or unlicensed. The Act contains a nonexhaustive list of specific permissible and nonpermissible activities for unlicensed personal assistants.
Compensation is paid by the sponsoring broker to the sponsored licensees. Compensation disclosure is important. Clients must be aware of compensation sources and the broker's policy on cooperation with other brokers.
The managing broker has supervisory responsibilities for all licensees, including the planning and preparation of policy and procedure manuals, advertising, and handling of escrow funds.
There are many regulations regarding the handling of escrow accounts. The broker must maintain a ledger, journal, monthly reconciliations worksheets, and a master escrow account log. The broker must not commingle or convert funds. The escrow accounts are subject to audit by IDFPR and outside auditors working on behalf of IDFPR.

case study 1			

Sally Jackson, an Illinois licensed broker, owns Able Real Estate Company. Broker Jackson employs ten full-time salespersons and five part-time brokers. There is a written independent contractor agreement between Able Real Estate and each sponsored licensee.
Able Real Estate Company has a listing at 10533 S. Main Street for $154,000. Broker Jackson secured the listing from Betty Nunn, the daughter of Iris Nunn. Iris Nunn is presently under hospice care and unable to attend to her own affairs.
Luke Jackson, a salesperson for Able Real Estate Company, had some discussions with Broker Sally Jackson about this listing and then presented an offer for $150,000. Luke made this offer based on information from Broker Jackson that the seller would accept this bid because the house needed some repairs. Betty did not want to incur any expenses for repairs.
Broker Jackson then arranged for the buyer to have the repairs completed by Honest Abe Construction. The repairs cost $25,000 and Broker Jackson added this amount to the purchase price for purposes of securing the loan, but it was not included in the price when determining the brokerage commission. Honest Abe Construction is a sole proprietorship owned by Broker Jackson. Work began on the repairs when the buyer had delivered $15,000 in earnest money, which was paid to Honest Abe Construction.
For Discussion
Was proper disclosure made regarding the relationship between Honest Abe Construction and Broker Jackson? Was the seller's daughter legally able to enter into a listing agreement with Broker Jackson on behalf of her ailing mother? Was there any fraud involved by adding the cost of the repairs onto the purchase price of the property, thus inflating the true purchase price?

For Discussion
Since the brokers are licensed through reciprocity, have all requirements been met regarding a place of business? If agents are being recruited to work in Illinois and there is no place of business in Illinois, is there proper supervision of sponsored licensees?
Case Study Questions
1. Which statement is MOST correct?
a.	A salesperson with an Illinois reciprocal license could be sponsored by any Illinois broker.
New York brokers are free to list Illinois real estate on national commercial informational exchanges without any consideration being given to the Illinois Act.
Brokers licensed in any state could freely open an Illinois branch so long as they have their company name on file with IDFPR.
A managing broker of an Illinois branch could be licensed in Missouri with a reciprocal license for practicing in Illinois, if certain requirements are met under the Illinois Act.
2. Which statement is MOST correct?
a.	An Indiana broker would not need a license to practice real estate brokerage in Illinois because Indiana shares a border with Illinois.
There is a two-year time limit within which a managing broker must submit changes in company information to IDFPR.
A managing broker based in Iowa would not have the same level of oversight responsibility for an Illinois branch because he or she is based out-of-state.
So long as a broker has a valid reciprocal license in Illinois, that broker could engage in any and all practice of real estate brokerage in Illinois.
3. Relative to the scope of the Act governing Illinois real estate brokerage, which of the following is MOST correct?
a.	Commercial real estate brokerage relating to Illinois real property is not subject to the same requirements under the Act as residential real estate.
Commercial real estate could be listed on a commercial real estate information exchange without any concern about the location of the real estate.
Agency principles do not apply in the practice of commercial real estate brokerage.
b.	If the commercial property is located in Illinois, the licensee who markets that property for sale will most likely need to be sponsored by a sponsoring broker who holds an Illinois license, either originally issued in Illinois or by reciprocity.

Office Management and Escrow Responsibilities	65

11. Which shows the chronological sequence in which funds are received and disbursed for all transactions?
a.	Journal
Ledger
Monthly reconciliation statement
Master escrow account log
12. Which identifies all escrow bank account numbers and bank name and address?
a.	Journal
Ledger
Monthly reconciliation statement
Master escrow account log
13. Escrow records must be maintained for at LEAST
a.	three years.
five years.
a.	seven years.
a.	ten years.
14. A broker who deposits earnest money in an escrow account must make sure of all of the following EXCEPT that
a.	the account is FDIC insured.
both buyer and seller have signed a written agreement identifying who is to receive the interest.
the money, when released, is at the joint written direction of the principals.
the interest be deposited in the real estate education fund.
15. Audits of escrow accounts may be conducted by
a.	licensed attorneys.
IDFPR personnel, or in some circumstances, certified public accountants.
the local police.
certified bank administrators and IDFPR personnel.

16. Escrow moneys must be released from the escrow account no later than
a.	the next business day after consummation or termination of transaction.
within three business days after closing.
upon completion of the HUD-1 settlement statement.
upon the direction of the title company.
17. When the broker mixes business and personal funds with the escrow funds, it is referred to as
a.	conversion.
a.	commingling.
c.	juggling.
a.	misappropriation.
18. All of the following information is required for a ledger card EXCEPT
a.	the property that is the subject of the transaction.
the names of all parties to the transaction.
the name of the party delivering the funds to the broker.
the date of receipt or disbursement of funds.
19. All of the following records are required to be maintained by the broker EXCEPT
a.	compensation records.
sponsored licensees' driving records.
a.	escrow records.
a.	employment agreements.

chapter	f our	

Risk Reduction
learning objectives
Upon completion of this chapter, you should be able to:
•	Fully understand and discuss antitrust issues and their impact on the real estate industry
Describe and discuss all property disclosures, including seller disclosure and lead-based paint disclosure
•	List requirements for compliance with the CAN-SPAM Act
Utilize and comply with the National Do Not Call Registry
Discuss sexual harassment and its potential impact in the workplace
Utilize and comply with do-not-fax requirements

•	Key Terms	antitrust
CAN-SPAM Act of 2003
Equal Employment Opportunity Commission	Junk Fax Prevention Act
lead-based paint disclosure
National Do Not Call Registry	residential real property disclosure
sexual harassment	

•	Introduction
The function of risk management is to protect, preserve, and promote the growth of the brokerage company, which will ultimately result in consumer protection. This is important to the brokerage company because situations can arise that could subject the company to litigation, thus subjecting the company to financial loss and loss of business reputation. It is important to be proactive in establishing policies and procedures and in providing supervision on the way business is being conducted in your company. This chapter addresses key risk areas of concern to a broker.

behavior that should be prohibited as "unfair methods of competition" and to proceed against violators of the Sherman and Clayton acts. It also bans unfair or deceptive acts and practices. The FTC is only authorized to issue cease and desist orders, directing the respondent to terminate conduct deemed to restrict competition unfairly or to deceive consumers. Unlike the Sherman Act, under the Federal Trade Commission Act a company or individual cannot recover damages and/or attorney's fees.
•	The Robinson-Patman Act
The Robinson-Patman Act of 1936 prohibits price discrimination that inhibits competition. The act was passed for the purpose of greatly expanding the original prohibition against price discrimination, which was contained in the Clayton Act.
The two federal statutes of principal concern to real estate licensees and brokerage companies are the Sherman Act and the Federal Trade Commission Act. These acts specifically prohibit contracts, combinations, and conspiracies in restraint of trade and can result in enforcement, prosecution, and penalties.
•	Antitrust Enforcement
The Sherman Act is enforced by the U.S. Department of Justice. Violators found guilty under the Sherman Act may be subject to injunction, forced divisions or divestiture of assets, and/or government seizure of property. Criminal penalties against individuals can result in fines up to $1 million and/or up to ten years imprisonment. Penalties against corporations can include fines up to $100 million.
The Federal Trade Commission Act is enforced by the Federal Trade Commission. As stated earlier, the FTC issues cease and desist orders when a practice is found to violate the law. The violation of an FTC order may result in a penalty of up to $10,000 per day.
The Antitrust Improvements Act of 1976 gave new authority to all state attorneys general to file treble damage suits on behalf of citizens of the state who have allegedly been injured by an antitrust violation. A judgment for the government in a criminal action may be used as prima facie evidence of illegal activity in a private treble damage suit. This means antitrust violations are subject to two separate actions, which could have a debilitating effect on any defendant.
•	Illinois Antitrust Law
Illinois adopted an antitrust act in 1965 patterned after federal antitrust legislation. The state law, although quite similar in purpose, is somewhat more liberal in some areas. It gives Illinois and its residents a remedy to prevent antitrust violations when the federal government declines or refuses to act to enforce violations of the federal law.
The Illinois law carries forth the basic prohibitions of the federal act against price-fixing, limitations on production, and allocations of markets or customers by agreement or conspiracy that constitute per se violations and are punishable by

Brokers and licensees would be well advised to remember the following:
1.	Do not discuss your business with competitors. At any time, in any place, or under any circumstances, do not have any personal, telephone, or e-mail conversations with competitors concerning commissions, fees, charges, or any other business practices of your real estate business or those of the firm with which you are associated.
1.	Written communication must be clear and explicit. When you discuss a real estate transaction or the superiority of your business practices over your business competitors, do not write to competitors but talk only to your broker or associates in your firm or your clients or prospective clients. Regardless of how carefully you may phrase your letter or memorandum, things look much different in writing than they do when spoken between knowledgeable people.
Do not talk unless you know who you're talking to and what you're talking about. Inform only those who need to know such matters as to how and in what manner commission or fee contracts were negotiated, how much business you are doing, what business prospects are, how many and which properties you have sold, and anything else that might be of interest to someone investigating your business for a reason you know nothing about. You would do well to make it a rule in discussing business matters to speak as if you were being recorded.
Do not deceive yourself or let anyone else deceive you into believing that any transgression of the antitrust laws has little risk involved. Violating antitrust laws is a crime. The federal government possesses extensive investigatory powers, as well as ingenious and dedicated investigators. Also, in private litigation, parties have litigation discovery tools to examine corporate records and documents and to compel testimony.
Do not use such phrases as "Please Destroy When Read," "For Your Eyes Only," "No Copies," or similar expressions. Experience has demonstrated that even if no copies are made, the original of such documents eventually ends up in somebody's file. Even when marked "personal and confidential," the document is usually retained by the recipient and eventually filed. When an antitrust investigation is under way or documents are produced on a civil investigative demand or in private antitrust litigation, such terms and phrases are red flags for the investigator or opposing counsel.
3.	Do not at any time use dangerous words and phrases. For example ...
•	"We would like to charge a lower commission, but the board has a rule."
"This is the rate that all brokers charge."
"The MLS will not accept a listing for less than 120 days."
•	"Before you list with XYZ Realty, you should know that nobody is going to show their listings."
"If you valued your services as a professional, you wouldn't cut your commission."
"If X is going to cut his commissions, we'll just pay him less on splits."
"The standard commission in this area is X."
7. If in doubt, consult. Situations are bound to arise that create doubt. If you do have doubts about the legal wisdom of any business practice, procedure,

Remember...
•	Intact lead-based paint that is in good condition usually is not hazardous.
Peeling, chipping, or cracking lead-based paint is a hazard and is potentially harmful.
Lead dust generated from friction sources such as windows, door frames, and stairs is a particularly significant source of lead exposure.
Roles and Responsibilities of Sellers, Lessors, and Licensees
Sellers and lessors of properties built before 1978 must disclose their actual knowledge (e.g., prior test results or other first-hand information) of lead-based paint or lead-based paint hazards. The licensee has the responsibility to ensure that the seller or lessor satisfies the disclosure obligations. The listing agent has the responsibility to advise the seller or lessor of his or her obligation to make the required lead-based paint disclosures and to ensure that the seller or lessor satisfies this obligation. Any other licensee involved in the transaction, such as a cooperating or buyer's agent, is also responsible to ensure that the seller or lessor satisfies his or her obligations. (See Figure 4.2.) The only licensee exempt is the buyer's agent, who receives all compensation from the purchaser.
Roles and Responsibilities of Purchasers, Lessees, and Licensees
When a purchaser/lessee indicates the desire to make an offer, the listing or cooperating agent will begin the disclosure process as follows:
•	Give the purchaser/lessee an EPA-approved lead-based paint hazard information pamphlet titled Protect Your Family from Lead in Your Home
Provide the purchaser/lessee with the seller's/lessor's knowledge about or inform the purchaser/lessee that the seller/lessor has no knowledge of lead-based paint or lead-based paint hazards by providing disclosure form
Figure 4.2 I Five Must Requirements for Sellers, Lessors, Licensees
1.	Disclose the presence of known lead-based paint or lead-based paint hazards in residential dwellings built before 1978.
Provide purchasers/lessees with copies of any available records or reports pertaining to the presence of lead-based paint hazards.
Provide purchasers/lessees with a federally approved lead-based hazard information pamphlet.
Provide purchasers with a period of up to 10 days (or other mutually agreed upon period), prior to becoming obligated under the purchase contract, during which time the purchaser may conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards. The purchaser may agree to waive this testing opportunity, but the offer must not be conditioned upon the buyer waiving this opportunity.
Sales and lease contracts must include certain specified disclosure and acknowledgement language.
Source: The Lead-Based Paint Manual, Illinois Association of REALTORS®, 1996.	

Figure 4.3 I Environmental Hazards

Mold in the 

House

Urea-Formaldehyde Insulation 

Asbestos Ceiling Tiles

Dripping PCBs

Lead-Based 

Paint

Contaminated Well Water

FCs from

Air Conditioner

Contaminated Groundwater
from Nearby Landfill

c	c
o	0
0	Ts
al	as
cc	cc

Electromagnetic Radiation

Underground Storage Tanks

Source: Fillmore W. Galaty, Wellington J. Allaway, and Robert C. Kyle, Modern Real Estate Practice, 17th ed. (Chicago: Dearborn Real Estate Education, 2006), 392.
Disclosure is the real estate licensee's duty to keep the client informed of all facts and information that could affect a real estate transaction. Failure to do so may result in substantial risk and liability to the licensee. The duty of disclosure requires the agent to disclose latent physical defects in the property that are material and about which the agent has actual knowledge. Also, the agent may have a duty to disclose other materials facts related to the property unless the information is otherwise confidential.
Many key items of concern are covered by the Illinois Residential Real Property Act's section on a standardized seller disclosure form. (A copy of the form is included in the Appendix.) The form places the responsibility for disclosure of the specified items on the seller. It requires sellers of from 1-4-unit residential properties to complete this form disclosing any known material defects in the property of which the seller has knowledge. The completed form, along with a copy of that act, should be given to buyers before an offer is made. If the disclosure form is given after the offer has been accepted, and it has any material defects disclosed, the buyer may have three days to cancel or rescind the contract. Further, if the seller learns of a new defect after a contract is signed and up until closing, an amended disclosure form must be completed and given to the buyer. However, the

rests on the buyer's agent to disclose all known non-physical-condition stigmas known to the agent if they could reasonably affect the buyer's decisions.
Listing agents do not have a legal duty to disclose that a known sex offender resides near a listed home, but skilled buyer's agents should always be watchful for any signals of hard-to-identify issues. Sex-offender-location lists are public information and a buyer's agent should refer a buyer-client to such lists. The lists can be researched on the Internet or could be obtained from local police departments, and though they won't provide these lists, agents might direct concerned parties to relevant sources to do their own research.
The seller's disclosure form is a good guide to follow for what must be disclosed to all parties by the listing side of a transaction. In all other respects, unless it is illegal or a material fact about the property itself, the listing agent should follow the seller's instructions. A buyer's agent should be watchful for potential issues. When in doubt, consult an attorney.
 Sexual Harassment
Another area of risk for any company is sexual harassment, which violates Title VII of the Civil Rights Act of 1964 and is enforced through the Equal Employment Opportunity Commission (EEOC). The EEOC makes equal employment opportunity policy and approves most litigation. Title VII applies to employers with 15 or more employees. In addition, brokers should make sure they have procedures and guidelines in place to protect against sexual harassment in the context of an agent-client or agent-consumer relationship. The written policy manual should set forth a complaint procedure that would be followed in case a consumer were to allege that he or she had been sexually harassed by any of the broker's sponsored licensees. Complaints should be taken seriously and investigated promptly. The broker may need to consult legal counsel on these issues.
The Supreme Court has ruled that sexual harassment is a form of illegal sex discrimination and that employees are entitled to work in an environment free from sexual harassment. The EEOC has defined sexual harassment as "unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when this conduct explicitly or implicitly affects an individual's employment, unreasonably interferes with an individual's work performance, or creates an intimidating, hostile, or offensive work environment."
Sexual harassment can occur in a variety of circumstances, including but not limited to the following:
•	The victim as well as the harasser may be a woman or a man. The victim does not have to be of the opposite sex.
The harasser can be the victim's supervisor, an agent of the employer, a supervisor in another area, a co-worker, or a nonemployee.
The victim does not have to be the person harassed but could be anyone affected by the offensive conduct.
Unlawful sexual harassment may occur without economic injury to or discharge of the victim.
The harasser's conduct must be unwelcome.

The numbers are sorted and available by area code. Companies can access as many area codes as desired. For example, they may select all area codes within a certain state, but there is a substantial fee for more than five area codes. A company can access up to five area codes free of charge.
Regulators say that companies must have a do-not-call policy even if they do not engage in cold calling. A company that is a seller or telemarketer could be in violation of the law for placing any telemarketing calls (even to numbers not on the do-not-call registry) if the company does not have a policy for access to the registry. Violators may be subject to fines of up to $11,000 for each call placed.
If a seller or telemarketer can show that, as part of its routine business practice, it meets all of the conditions outlined below, it might not be subject to civil penalties or sanctions for mistakenly calling a consumer who has asked for no more calls or for calling a person on the do-not-call registry.
To successfully avoid penalties ("safe harbor"), the seller or telemarketer must demonstrate the following:
•	It has written procedures to comply with the do-not-call requirements.
•	It trains its personnel in those procedures.
It monitors and enforces compliance with these procedures.
It maintains a company-specific list of telephone numbers it may not call.
•	It accesses the national registry every 30 days before calling any consumer and maintains records documenting this process.
•	It must show that any call made in violation of the do-not-call rules was the result of an error.
The best source of information about complying with the do-not-call rules is the FTC's Web sites: www.donotcall.gov and www.ftc.gov. They include business information about the registry.
There are three main situations where a real estate agent might call: It is okay to call (1) if the caller has received the express written permission of the consumer, (2) if an "established business relationship" already exists between the parties and the agent is within the 18-month time limit, and (3) if a consumer has made an inquiry about the company's services and the agent is calling within that three-month time period. The real estate company should have documentation to prove each situation as warranted. Note that any consumer called, whether subject to any of the above, still has the right to be placed on your company-specific do-not-call list in order to prohibit calls.
Frequently Asked Questions about the Do-Not-Call Registry
1. Do the new rules apply to calls made to FSBOs?
There are two instances when a real estate agent might wish to call a FSBO seller whose phone number is listed on the do-not-call registry. The first would be a real estate agent seeking a FSBO listing, and the second would be a buyer's agent who believes a client might be interested in a FSBO property. A buyer's agent calling about a client's potential interest in the property is permissible as long as the agent does not initiate efforts to obtain the listing. A real estate agent is prohibited from initiating a telephone call to a FSBO seller whose number is listed in the registry in an attempt to obtain the listing.

What the CAN-SPAM Act Requires Briefly, the CAN-SPAM Act requires the following:
•	False or misleading header information is banned. Your e-mail's "From," "To," and routing information—including the original domain name and e-mail address—must be accurate and identify the person who initiated the e-mail.
•	Deceptive subject lines are prohibited. The subject line cannot mislead the recipient about the contents or subject matter of the message.
E-mail recipients must have an opt-out method. You must provide a return e-mail address or another Internet-based response mechanism that allows a recipient to ask you not to send future e-mail messages to that e-mail address and you must honor the requests. You may create a "menu" of choices to allow a recipient to opt out of certain types of messages but you must include the option to end all commercial messages from the sender. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your commercial e-mail. When you receive an opt-out request, the law gives you 10 business days to stop sending e-mail to the requestor's address. You cannot help another entity send e-mail or e-mail on your behalf to that address.
Commercial e-mail must be identified as an advertisement and include the sender's valid physical postal address.
Penalties for Noncompliance
Each violation is subject to fines of up to $11,000. Deceptive commercial e-mails are also subject to laws banning false or misleading advertising. Additional fines are provided for commercial e-mailers who violate the rules and do any of the following:
•	"Harvest" e-mail addresses from Web sites or Web services that have published a notice prohibiting the transfer of e-mail addresses for the purpose of sending e-mail
Generate e-mail addresses using a "dictionary attack"—combining names, letters, or numbers into multiple permutations
Use scripts or other automated ways to register for multiple e-mail or user accounts to send commercial e-mail
Relay e-mails through a computer or network without permission—for example, taking advantage of open relays or open proxies without notification.
•	The Junk Fax Prevention Act
The Junk Fax Prevention Act does not legalize unsolicited fax advertisements or solicitations but does allow for an established business relationship exception. As a general rule, a real estate licensee could not legally send an unsolicited commercial fax message without express written consent or without an established business relationship with the recipient.
Following are the provisions of the new fax law:
•	Reaffirms the long-standing established business relationship (EBR) exception to the ban on unsolicited commercial faxes by establishing explicit statutory authority for the EBR

The CAN-SPAM Act establishes requirements for commercial e-mail, spells out penalties for e-mail senders, and gives consumers the right to have e-mailers stop sending e-mails to them. It is enforced by the FTC and the Department of Justice with fines of up to $11,000 per transgression.
The Junk Fax Prevention Act prohibits faxing unsolicited fax advertisements or solicitations but does allow for an established business relationship exception.
case study 1
After April gets bad advice from Victor and Regina, she meets with another friend, Audrey, who is also an Illinois licensed broker, to discuss risk management issues and errors and omissions insurance for her office.
Audrey tells April that she carries no errors and omissions policy for herself or the five salespeople who work for her in her real estate office. She established her self-insurance policy at the last office Christmas party when she said, "My Christmas present to my staff is that I hereby promise to insure all of you from any claim arising out of a real estate transaction. I canceled the old errors and omissions policy, which never seemed to cover any claim that was filed." April recalled that the prior claims in Audrey's office usually involved misrepresentation, fraud and discrimination. Audrey further told the staff at the party, "Similarly, I don't care if you have any automobile insurance. You all are independent contractors and, as such, are solely responsible for your actions." April also learned that Audrey did not find an umbrella policy in her homeowners' insurance policy useful for excess business liability.
For Discussion
April is uneasy with this advice. What would you advise her? Case Study Questions
1. If Audrey wants to reduce threats to her company's liability, it would be best for her to
a.	buy automobile insurance for all of her agents.
a.	engage in group boycotts so that she can charge higher commissions and afford errors and omissions coverage.
institute policies and procedures for all staff to avoid real estate mistakes and training the staff in the proper manner to practice real estate, along with carrying reasonable levels of errors and omissions insurance.
engage in territorial allocation because those clients would be less likely to file lawsuits.
2. If her staff does not carry automobile insurance, then Audrey can expect to find
a.	her staff will complain less about their expenses.
her staff will be more careful when using their vehicles for work.
a.	she will not be found liable for her staff's automobile accidents because she put them on notice to be more responsible.
she could still be liable for litigation arising from accidents related to real estate transactions by her staff because the staff was working for her.

 Chapter 4 Review Quiz

1. Broker Pat and Broker Joe agreed to boycott the services of XYZ Title Company so that ABC Title Company can take over XYZ's market share. Which act are both Broker Pat and Broker Joe violating?
a.	Megan's Law
a.	Sherman Antitrust Act
Fair Trade Act
a.	Free Competition Act
2. To best reduce the risk of antitrust liability, a broker should have office policies that cover
a.	education and sales training for agents.
a mandatory review of the antitrust law by all agents.
education classes for buyers and sellers.
both a and b.
3. Lead-based paint disclosures must be made when selling a house built before
a.	1940.	
b.	1957.	
c.	1987.	
d.	1978.	
4. One way to shift risk from the broker is to
a.	recommend the use of evaluations by third-party experts.
discourage the use of third-party experts.
offer optional seller disclosure forms.
offer advice on the environmental impact on the property.
5. Lead-based paint disclosure forms must be kept
a.	for one year after completion date of the sale or commencement of the lease period.
for ten years after completion date of the sale or commencement of the lease period.
for three years after completion date of the sale or commencement of the lease period per IDFPR rules.
forever.

6. A registry of telephone numbers of consumers who wish not to be called by telemarketers is referred to as a
a.	do-not-call list.
harassment list.
telecommunications list.
CAN-SPAM list.
7. The act that establishes requirements for those who send commercial e-mail is called the
a.	Do Not Call Act.
Harassment Act of 2000.
CAN-SPAM Act.
Telecommunications Act.
8. Having a sexual harassment policy
a.	helps to reduce risk for the broker.
provides guidelines for appropriate behavior by agents with clients.
creates leverage for the agent with the broker.
both a and b.
9. Sexual harassment can occur in which set of circumstances?
a.	The victim is not of the opposite sex.
There is no economic injury to the victim.
a.	The harasser's conduct is unwelcome.
a.	All of the above apply.
10. The CAN-SPAM Act's main provisions
a.	ban false or misleading header information.
prohibit deceptive subject lines.
b.	require that e-mails give recipients an opt-out method.
All of the above are provisions of the act.

Disciplinary Actions
learning objectives
Upon completion of this chapter, you should be able to:
•	Describe the causes for disciplinary action specifically unprofessional conduct and misrepresentation
Describe the penalties for individuals and business entities for violations of the act and rules
Describe and discuss an advisory letter
Describe and discuss broker supervisory responsibilities and how improper supervision results in discipline
Understand actual disciplinary actions as related to the practice of brokerage
•	Key Terms
advisory letter	disciplinary action	misrepresentation
consent order	injunction
•	Introduction
The Real Estate License Act of 2000 (the Act) is the body of law intended to regulate the real estate industry. The Bureau of Real Estate Professions within the Division of Professional Regulation under the umbrella of the Illinois Department of Financial and Professional Regulation (IDFPR) is responsible for administering the Act. Article 20 of the Act discusses the activities for which discipline may be imposed by IDFPR against a real estate licensee. In this chapter, we will be identifying those specific activities as well as describing the possible consequences of those activities.
•	Causes for Discipline
IDFPR may take disciplinary action against a licensee for any one cause or a combination of causes. Specifically, a licensee may be subject to disciplinary action and possible fines for the following:

Disciplinary Actions	89
•	Engaging in dishonorable, unethical, or unprofessional conduct of a character likely to deceive, defraud, or harm the public. For example...
Failure to act in the best interests of a client
Deliberately misleading a client as to the market value of the property
Failing to advertise the property as obligated by the listing agreement
•	Deliberately misrepresenting to prospective purchasers or their agents the condition of the property or the availability of access to show the property
•	Purchasing or transferring the property through false representations
•	Inducing a seller through false representations or false promises to transfer the property to the licensee
Taking unfair advantage of a client's or customer's age, disability, or lack of understanding of the English language
Engaging in conduct with the public or other real estate licensees in the
practice of real estate in a manner that is abusive, harassing, or lewd
Representing oneself as a sponsoring broker or managing broker without providing the actual supervision and management of the real estate business
Failing to reasonably safeguard confidential information or improperly using confidential information
Obstructing an inspection, audit, investigation, examination, or a disciplinary proceeding
•	Violating the rules regarding special or escrow accounts
Assisting or inducing a licensee to violate the Act or rules
•	Commingling the money or property of others with one's own
Employing any person on a purely temporary or single-deal basis as a means of evading the law regarding illegal payment of fees to nonlicensees
Permitting the use of one's license by another person in order to operate a real estate office
Engaging in any dishonest dealing, whether specifically mentioned by the Act or not
Displaying a For Rent or For Sale sign on any property without the written consent of the owner or advertising in any fashion without written consent of the owner or his or her authorized agent
Failing to provide information requested within 30 days of the request, as related to audits or complaints made against the licensee based on the Act
Utilizing blind advertising as defined in the Act
Offering an improperly constructed guaranteed sales plan or one that does not meet the act's following requirements:
Provide the details and conditions of the plan in writing to the seller
•	Offer evidence of sufficient financial resources to satisfy the agreement's purchase commitment
Market the listing in the same manner in which he or she would market any other property, unless the agreement with the seller provides otherwise
•	Intending to promote racial or religious segregation by use of actions or words or behaving or speaking in such a way as to discourage integration
Violating the Illinois Human Rights Act

(e.g., reprimand), suspension or revocation, civil monetary penalties, to even criminal sanctions being imposed in certain cases. It is most likely that IDFPR would impose some discipline against the licenses of those involved in the infraction, together with civil monetary penalties. Civil monetary penalties can be up to $25,000 per offense.
Following are potential criminal penalties for individuals violating the disciplinary provisions of the Act, except unlawful use of trade names, unlicensed practice, and escrow issues:
•	First individual offense: Class C misdemeanor
•	Second and subsequent individual offenses: Class A misdemeanor
II Business Violations and Penalties
An LLC or corporation convicted of a first-time violation is guilty of a business offense and is subject to a fine not to exceed $2,000. A second or subsequent business offense results in a fine of not less than $2,000 and not more than $5,000.
Officers, members, and agents of corporations, partnerships, or LLCs who personally participated in or were accessories to the business entity's violation may be prosecuted as individuals and are subject to the prescribed criminal penalties for individuals.
•	Practicing Real Estate without a License
Individuals, LLCs, LPs, or corporations that engage in real estate business activities without a license are singled out for especially harsh penalties. For an individual, conviction for a first offense could constitute a Class A misdemeanor. For a business entity, such a violation constitutes a business offense and carries a fine of up to $10,000.
A second or subsequent violation of the law against practicing real estate without a license is a Class 4 felony for individual licensees; and business entities convicted of a second or subsequent violation (business offense) could pay a fine of between $10,000 and $25,000.
•	Consent Orders
IDFPR has the authority to negotiate settlements of disciplinary actions and these settlement agreements are called consent orders. Consent orders may provide for any of the forms of discipline authorized by the Act. It is important to note that consent orders are a form of settlement agreement between IDFPR and the licensee accused of illegal conduct under the Act.
•	Injunctions
In addition, IDFPR has the duty and authority to originate an injunction to prevent or stop a violation of the Act and to prevent an unlicensed person from engaging in licensed activities.

 Summary

The Bureau of Real Estate Professions is charged with the administration of the Act. Article 20 of the Act identifies numerous violations for which a licensee can be subject to discipline. The penalties for violating the Act can be both civil and criminal penalties, including monetary fines. A licensee may request an advisory letter from IDFPR seeking advice on a factual or hypothetical situation thereby reducing their potential for discipline.
It is vital that all licensees have a solid understanding of all facets of the Act and rules to ensure that their activities are legal and responsible. The complete Act and rules are available for download from the Internet at wzvw.IDFPR.com/dpr/ re/realest.asp.

case study 1

Oscar has an Illinois broker's license. The IDFPR determined that Oscar placed an ad regarding one of his listings in the neighborhood newspaper stating only, "Hot Property for Rent or Sale. Call Oscar anytime - 887-666-6666." IDFPR decides to resolve the disciplinary action against Oscar by offering him a consent order that would place his real estate license on probation for one year and by fining him $10,000 for using a blind ad to market real estate. When Oscar receives the consent order to resolve the complaint against him, he asks you if he can continue to practice real estate if he signs the consent order.
For Discussion
Should Oscar seek legal advice before signing the consent order? Does Oscar have any other remedies available to him? What specific violation(s) did Oscar commit regarding the Act?
Case Study Questions
1. When Oscar's license is put on probation for one year and he is fined $10,000, it means
a.	Oscar has not violated the Act because he utilized a blind ad.
a.	Oscar can never practice real estate again.
a.	Oscar would have violated the Act if IDFPR had proven someone took his ad seriously.
Oscar can still practice real estate while he is on probation but must be very careful about the manner of his practice in the future.
2. If Oscar signs the consent order and later commits another violation involving advertising, IDFPR
a.	will increase his penalty to a Class A misdemeanor, possibly resulting in jail time.
must give him another consent order offering probation for one additional year, but increase the fine by $10,000.
may impose any sanction it finds appropriate, including license revocation, after a hearing on the matter.
a.	may refuse to renew his license upon expiration.

 Chapter 5 Review Quiz

1. Which would be grounds for a disciplinary action?
a.	Being convicted of a felony in Illinois
Advertising in a magazine that he or she is a member of the Chicago Association of REALTORS® when he or she is not
a.	Depositing escrow money into a personal account
All of the above would be grounds for disciplinary action.
2. Which actions are legal and would not expose a licensee to disciplinary action?
a.	Advertising without the name of the sponsoring broker
Depositing earnest money into the broker's business account
a.	Disclosing designated agency to client
a.	Displaying a For Sale sign on a property without the owner's consent
3. All of the following would cause the real estate agent to be disciplined by the IDFPR EXCEPT
a.	failing to perform as promised in a guaranteed sales plan.
a.	negotiating a higher commission fee.
commingling business and escrow moneys.
a.	failing to provide information requested by IDFPR within 30 days of the request.
4. A broker is convicted of a crime involving fraud in Wisconsin on November 9. On February 1 of the following year, the Wisconsin licensing agency notifies IDFPR of the conviction. Based on this information, which is TRUE?
a.	The broker should have called IDFPR first.
IDFPR may refuse to renew the broker's license based on his Wisconsin conviction for a crime involving fraud.
Because the conviction was not in Illinois, no discipline will occur.
A conviction due to fraud does not constitute a violation of the Act.

5. An unlicensed person found engaging in the practice of real estate twice without a valid license is subject to which penalties?
a.	A fine not to exceed $1,000 and imprisonment for five years
A fine not to exceed $5,000 and imprisonment for one year
A civil penalty not to exceed $25,000 in addition to other penalties prescribed by law
A civil penalty not to exceed $25,000 and imprisonment not to exceed three years
6. The purpose of an advisory letter is to
a.	protect the public.
provide guidance to the licensee.
ensure compliance with the Act.
Both b and c are correct.
7. Illegal discrimination may result in any of the following actions EXCEPT
a.	A local community service requirement
Loss of license
Fines up to $25,000
Reprimand of the licensee's license
8. If a person is convicted of engaging in real estate activities without a valid license, what is the maximum penalty allowed?
a.	A fine of no more than $2,000
A fine of no less than $2,000 and no more than $5,000
a.	A fine of up to $10,000
a.	A civil fine of $25,000 under Section 20-10 of the Act
9. Which circumstance would not subject the licensee to discipline?
a.	Working as a licensee for someone other than the sponsoring broker
Engaging in dual agency with a written disclosure and consent form signed by both parties
Engaging in unethical and unprofessional conduct
Acting as both broker and lawyer in the same transaction

appendix
Disclosure Forms
•	Disclosure of Information and Acknowledgment: Lead-based Paint and/or Lead Based Paint Hazards
•	Pre-1978 Housing Rental and Leases Disclosure of Information: Lead-based Paint and/or Lead Based Paint Hazards
Residential Real Property Disclosure Report

ILLINOIS ASSOCIATION OF REALTORS
PRE-1978 HOUSING RENTAL AND LEASES DISCLOSURE OF INFORMATION LEAD-BASED PAINT AND/OR LEAD BASED PAINT HAZARDS
Lead Warning Statement
Housing built before 1978 may contain lead-based paint. Lead from paint, paint chips, and dust can pose health hazards if not managed properly. Lead exposure is especially harmful to young children and pregnant women. Before renting pre-1978 housing, lessors must disclose the presence of known lead-based paint and/or lead-based paint hazards in the dwelling. Lessees must also receive a federally approved pamphlet on lead poisoning prevention.
Lessor's Disclosure (initial)
	(a) Presence of lead-based paint and/or lead-based paint hazards (check one below):
•	Known lead-b	aint and/or lead-based paint hazards are present in the housing (explain):

•	Lessor has•ad-based paint and/or lead-based paint hazards in the housing.
	(b) Records and Repo	a	e t the lessor (check one below):
•	Lessor has provided	I available records and reports pertaining to lead‑
based paint and/or lead-b	the housing (list documents below):

•	Lessor has no reports or recor hazards in the housing.
Lessee's Acknowledgment (initial)
	(c) Lessee has received copies of all information lis
	(d) Lessee has received the pamphlet Protect Your

ad-based paint and/or lead-based paint
rom Lead in Your Home.

Date	/	/	Lessee	
Date	/	/	Lessee	
Date	/	/	Agent	

Date / /

Date

Date / /

Lessor Lessor

Agent Property

Address:

Agent's Acknowledgment (initial)

	(e) Agent has informed the lessor of the lessor's obligation	. 4852d and is aware of his/her responsibility to ensure compliance.
Certification of Accuracy
The following parties have reviewed the information above and certify to the best of their knowledge, that the information they have provided is true and accurate.

Note: These disclosures are not intended to cover the common elements of a condominium, but only the actual residential real property including limited common elements allocated to the exclusive use thereof that form an integral part of the condominium unit.
Note: These disclosures are intended to reflect the current condition of the premises and do not include previous problems, if any, that the seller reasonably believes have been corrected.
If any of the above are marked "not applicable" or "yes", please explain here or use additional pages, if necessary:
Check here if additional pages used: 	J
Seller certifies that seller has prepared this statement and certifies that the information provided is based on the actual notice or actual knowledge of the seller without any specific investigation or inquiry on the part of the seller. The seller hereby authorizes any person representing any principal in this transaction to provide a copy of this report, and to disclose any information in the report, to any person in connection with any actual or an pat sale of the property.
Seller: Seller:

PROSPECTIVE BUYER IS AWA SUBJECT TO ANY OR ALL MATER INSPECTIONS OR WARRANTIES TH THE SELLER IS NOT AWARE OF A PA BUYER IS AWARE THAT HE MAY REQUEST A
Prospective Buyer: Prospective Buyer:

MAY CHOOSE TO NEGOTIATE AN AGREEMENT FOR THE SALE OF THE PROPERTY ED IN THIS REPORT ("AS IS"). THIS DISCLOSURE IS NOT A SUBSTITUTE FOR ANY E BUYER OR SELLER MAY WISH TO OBTAIN OR NEGOTIATE. THE FACT THAT ION OR PROBLEM IS NO GUARANTEE THAT IT DOES NOT EXIST. PROSPECTIVE O HE PREMISES PERFORMED BY A QUALIFIED PROFESSIONAL.
Time: Time:

is Act may be commenced later than one year from the earlier of the date of possession, date of conveyance of the residential real property.

ding Section 35, must be printed on or as a part of the Residential Real Property Disclosure Report form. 

94.

-111), REPRINTED IN ITS ENTIRETY

d, effective date 1-1-98

Section 60. No actio 

occupancy or date of recording

Section 65. A copy of 

Section 99. This Act take

Section 45. This Act is not intended to limit or modify any obligation to disclose created by any other statute or that may exist in common law in order to avoid fraud, misrepresentation, or deceit in the transaction.
Section 50. Delivery of the Residential Real Property Disclosure Report provided by this Act shall be by:
1)	personal or facsimile delivery to the prospective buyer;
depositing the report with the United States Postal Service, postage prepaid, first class mail, addressed to the prospective buyer at the address provided by the prospective buyer or indicated on the contract or other agreement, or
depositing the report with an alternative delivery service such as Federal Express, UPS, or Airborne, delivery charges prepaid, addressed to the Prospective buyer at the address provided by the prospective buyer or indicated on the contract or other agreement.
For purposes of this Act, delivery to one prospective buyer is deemed delivery to all prospective buyers. Delivery to authorized individual acting on behalf of a prospective buyer constitutes delivery to all prospective buyers. Delivery of the Report is effective upon receipt by the prospective buyer. Receipt may be acknowledged on the Report, in an agreement for the conveyance of the residential real property, or shown in any other verifiable manner.
Section 55. Violations and damages. If the seller fails or refuses to provide the disclosure document prior to the conveyance of the residential real property, the buyer shall have the right to terminate the contract. A person who knowingly violates or fails to perform any duty prescribed by any provision of this Act or who di	•ny information on the Residential Real Property Disclosure Report that he knows to be false shall be
liable in the amount of actual damag	costs, and the court may award reasonable attorney fees incurred by the prevailing party.

Chapter 1	Chapter 3	Review Quiz 1. b.
Case Study #1	Case Study #1	2. d.
1.	d.	1. d.	3. d.
d.	2. c.	4. a.
1.	d.	5. c.
Case Study #2	6. a.
1.	a.	Case Study #2	7. c.
2.	d.	1. d.	8. d.
d.	2. d.	9. d.
3. d.	10. d.

Review Quiz

Chapter 5
Case Study #1
1.	d.
2.	c.
Case Study #2
1.	d.
b.
Review Quiz
1.	d.
2.	c.
1.	b.
b.
4.	c.
1.	d.
6.	a.
1.	d.
8.	b.
1.	b.
b.

1.	b.	Review Quiz
2.	c.	1. b.
1.	b.	2. a.
4.	c.	3. c.
a.	4. d.
1.	d.	5. a.
b.	6. b.
6.	a.	7. a.
a.	8. d.
7.	a.	9. d. 10. b.
Chapter 2	11. a.
12. d.
	Case	Study #1	13. b.
1.	b.	14. d.
2.	a.	15. b. 16. a.
	Case	Study #2	17. b.
1.	b.	18. c.
2.	a.	19. b.
Review Quiz	Chapter 4
1.	c.
1.	a.	Case	Study #1
1.	a.	1. c.
a.	2. d.
1.	c.
5.	b.	Case	Study #2
6.	b.	1. d.
d.	2. d.
1.	c.
8.	d.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
President: Roy Lipner
Vice President of Product Development & Publishing: Evan M. Butterfield
Managing Editor: Kate DeVivo
Senior Development Editor: Anne Huston
Director of Production: Daniel Frey
Senior Managing Editor, Production: Jack Kiburz
Creative Director: Lucy Jenkins
© 2007 by Dearborn Financial Publishing, Tnc.®
Published by DearbornTM Real Estate Education 30 South Wacker Drive
Chicago, Illinois 60606-7481
(312) 836-4400
www.dearbornRE.com
All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.
Printed in the United States of America 08 09 10 9 8 7 6 5 4
ISBN-13: 978-1-4195-3820-9 ISBN-10:	1-4195-3820-9

Ch4r 3	Office Management and Escrow Responsibilities 31	
		
Key Terms 31
Introduction 32
Broker-Sponsored Licensee Relationship 32 Real Estate Teams in a Brokerage Office 33 Personal Assistants 35
Compensation 39
Termination of Sponsorship 41
Managing Broker Responsibilities 41 Advertising 47
Escrow Funds 49
Escrow Accounts 49
Escrow Records 52
Escrow Audits by Outside Auditors 60 Summary 60
Chapter 3 Review Quiz 64
Ch 4r 4	Risk Reduction 67
Key Terms 67
Introduction 67
Understanding Antitrust 68 The Sherman Antitrust Act 68 The Clayton Act 68
The Federal Trade Commission Act 68 The Robinson-Patman Act 69 Antitrust Enforcement 69
Illinois Antitrust Law 69
Guidelines for Antitrust Compliance 70 Disclosure Issues 72
Lead-Based Paint Disclosure 72 Property Disclosure 74
Sexual Harassment 77
National Do Not Call Registry 78 The CAN-SPAM Act 80
The Junk Fax Prevention Act 81 Summary 82

I

Chapter 4 Review Quiz 85

Finally, Chapter 5, "Disciplinary Actions," lists causes for discipline that can result in civil and criminal penalties to a licensee, and contains a discussion about advisory letters that might help a licensee take a proactive approach to avoid a penalty.
Each chapter includes two related case studies, with thought-provoking questions for class discussion, as well as a Chapter Review Quiz.
We hope that you find this textbook to be a useful tool and reference for success in your brokerage operation.

2	chapter one
•	Who Needs a Broker's License?
A broker is defined as any individual, partnership, registered limited liability partnership, limited liability company, or corporation other than a salesperson or leasing agent that, for another and for compensation, performs any of the services for which a real estate license is required.
According to Article 1, Section 1-10 of the Illinois Real Estate License Act of 2000 (the Act), any person or business entity that performs any of the following services for another and for compensation must have a real estate broker's license:
•	Sells, exchanges, purchases, rents, or leases real estate
•	Offers to sell, exchange, purchase, rent, or lease real estate
•	Negotiates, offers, attempts, or agrees to negotiate the sale, exchange, purchase, rental, or leasing of real estate
•	Lists, offers, attempts, or agrees to list real estate for sale, lease, or exchange
•	Buys, sells, offers to buy or sell, or otherwise deals in options on real estate or improvements thereon
Supervises the collection, offers, attempts, or agrees to collect rent for the use of real estate
Advertises or represents himself or herself as being engaged in the business of buying, selling, exchanging, renting, or leasing real estate
Assists or directs in the procuring or referring of prospects intended to result in the sale, exchange, lease, or rental of real estate
Assists or directs in the negotiation of any transaction intended to result in the sale, exchange, lease, or rental of real estate
•	Opens real estate to the public for marketing purposes
•	Sells, leases, or offers for sale or lease real estate at auction
•	Exempt Persons and Entities
The requirement for holding a broker's license does not apply to the following:
•	Owners or lessors (whether individuals or business entities) or their regular employees that sell, lease, or otherwise deal with their own property in the ways described under Article 1 Section 1-10 definitions
Attorneys-in-fact acting under duly executed and recorded power of attorney to convey real estate from the owner or lessor
The services rendered by an attorney-at-law in the performance of his or her duties as an attorney-at-law
Any person acting as receiver, trustee in bankruptcy, administrator, executor, or guardian, or while acting under a court order or under the authority of a will or a testamentary trust
A resident apartment manager working for an owner or working for a broker managing the property, if the apartment is his or her primary residence and if he or she is engaged in leasing activities of the managed property
•	State and federal officers and employees or state government or political subdivision representatives performing official duties

4	chapter one
Figure 1.1 I Broker Requirements
1.	At least 21 years of age and willing to supply a Social Security number (Exception: 18 years with four semesters of college credit emphasizing real estate completed)
Good moral character
High school diploma or the equivalent of a high school diploma (GED)
Completion of 120 classroom hours of real estate courses approved by the Advisory Council if not currently a licensed salesperson; if currently licensed, 75 additional hours of approved real estate courses
Completion of 15 of the above required hours of prelicense education must be in Brokerage Administration, 15 hours in Contracts and Conveyances, and 15 hours in Advanced Principles.
A passing grade on both portions of the state-sponsored written examination
Completion of a 6-hour broker management course within 180 days of initial licensure	
 Licensing of Business Entities
Strict licensing requirements apply for business entities as well. A licensed real estate broker can practice as a sole proprietor, corporation, partnership, limited partnership, and limited liability company provided that prior to doing business the broker complies with the licensing requirements. Before going into detail on these licensing requirements, here is a brief discussion on the various forms of business ownership.
A sole proprietorship is a method of ownership in which one person owns the entire business and reports all profits and losses personally.
A corporation is a legal entity created under the authority of the laws of the state from which it receives its charter. The charter sets forth the powers of the corporation. As a legal entity, a corporation continues to exist until it is formally dissolved.
A partnership is an association of two or more persons who carry on a business for profit as co-owners. All partners participate in the operation and management of the business and share full liability for losses.
A limited partnership (LP) consists of one or more general partners as well as limited partners. The business is operated by the general partner or partners. The limited partners do not participate in the operation of the partnership, and each limited partner can be held liable for business losses only to the extent of his or her investment.
A limited liability company (LLC) combines the features of limited partnerships and corporations. The members of an LLC enjoy the limited liability offered by a corporate form of ownership and the tax advantages of a partnership.
Before creating any of these forms of business ownership, consultation with an attorney is always advised because of the legal and tax ramifications of one form of ownership over another.

6	chapter one
1.	If an assumed name is to be used, a copy of the assumed name certificate issued by the Illinois Secretary of State's office
A Federal Employer Identification Number (FEIN). If a FEIN has not been issued, a photocopy of the FEIN application
A properly completed Consent to Examine and Audit Special Accounts form
A properly completed real estate corporation/limited liability company/ partnership form
The appropriate application fee
In addition to the items just listed, business entities each have special requirements for becoming licensed. (See Figure 1.2.)
Now that you are properly licensed, you must ensure that your place of business meets statutory requirements and that all office requirements have been met.
 Place of Business

Any sponsoring broker actively engaged in the real estate business must maintain a definite office or place of business within Illinois. The broker must display a visible, conspicuous identification sign outside the office. The sign must be of a size and nature that will be easily readable by the public and plainly visible from an area accessible to the public. The sign must be professional in appearance and must meet all applicable zoning restrictions and applicable restrictive covenants. A listing within a building on the building directory will fulfill the requirement of this provision.

Visual Inspection/ Office Requirements
•	Identification sign displayed on the outside
Location separate
and distinct from other businesses
•	Licenses conspicuously displayed

Inside, the broker must conspicuously display any business entity broker license, if applicable, and his or her own license certificate along with those of any licensees he or she sponsors in a manner that is visible and physically accessible to the public. Accessible areas include the wall of a public waiting or reception area or the wall of a main hallway the public can frequently walk through.
The broker's office or place of business may not be located in any retail or financial establishment, unless it is set apart as a clearly separate and distinct area within that establishment.
Exemptions to Required Place of Business
A broker licensed in Illinois by reciprocity may be exempt from the requirement of maintaining a definite office in Illinois if the following apply:
•	The broker maintains an active broker's license in the home state.
The broker maintains an office in that home state.
The broker has filed a written statement with IDFPR appointing the director of the Division of Professional Regulation as his or her agent for service of process and other legal notices, agreeing to abide by all the provisions of the Act and submitting to the jurisdiction of IDFPR.
In addition to compliance with office requirements, a broker is responsible for having written employment agreements or independent contractor agreements with all sponsored licensees. If the sponsoring broker is an entity, there must be a written agreement between the brokerage entity and the individual broker. Also, if a broker has exclusive brokerage agreements with clients, these agreements must be in writing.

8	chapter one
Display of Employment/Independent Contractor Agreements
Make sure that for every wall license displayed, there is a corresponding employment/independent contractor agreement on file, including one for yourself, unless you are a sole proprietor. Written employment/independent contractor agreements must include supervision guidelines, licensee's duties, compensation arrangements, and procedures governing any termination process.
•	Branch Office Licensing
Brokerage expansion generally entails opening additional offices. Any sponsoring broker who wants to establish branch offices must apply for a branch office license for each branch office maintained. Each application must include the following:
•	A properly completed Consent to Examine and Audit Special Accounts form
The name and license number of the manager of the branch office
All required fees
The sponsoring broker names a managing broker for each branch office and is responsible for supervising all managing brokers. The managing broker, who must be a licensed Illinois broker, oversees the branch's operations. A managing broker may manage more than one branch of the same sponsoring broker.
The name of the branch office must be the same as that of the main office or must clearly delineate the branch office's relationship with the main office. IDFPR must be immediately notified in writing of any change of a primary or branch office location and within 15 days of a managing broker change for any branch.
•	Loss of a Managing Broker or Death of a Sole Proprietor
In the event a sponsoring broker dies or a managing broker leaves an office unexpectedly, a request may be made to IDFPR within 15 days of this occurrence for an extension for continued office operations. Extensions may be granted for up to 60 days. In the case of an owner's death, a representative of the estate could operate the office for up to 60 days. In most cases involving the loss of a sponsoring or managing broker, a licensed real estate broker assumes the management of the office. He or she must sign a written promise to personally supervise the office operations and accept responsibility for the office until a permanent replacement is located.
•	Change of Information
It is the licensee's responsibility to immediately notify IDFPR of any change of name, address, or office location. For example, if the licensee has had a name change either by court order or due to a change in marital status, the licensee must notify IDFPR of the name change and provide a certified copy of the marriage certificate or the pertinent portions of the court order relating to the name change, and indicate under which name the license will be issued. If the licensee regularly practices under a diminutive of their first name (e.g., Meg for Margaret), last name, or a middle name instead of the licensee's full legal name, the licensee must notify IDFPR of the alternate name. For proper educational credit, the licensee must ensure that all continuing education certificates are issued under their name of licensure.

10	chapter one
specifically approved by IDFPR as "self study." Credit also may be earned by means of state-approved self-study or computer-based programs.
No more than six hours of courses may be taken in any one day. Courses must be for a minimum of three CE credit hours and must be offered in three-hour or six-hour increments. For any course—on-site, online, or self-study—the examination must be proctored and shall include at least 25 questions, and a score of at least 70 percent on the final exam is required for the successful completion of a CE course and the crediting of CE hours.
All CE courses must contribute to the advancement, integrity, extension, and enhancement of a licensee's professional skills. Courses must provide relevant experiences and be developed and presented by qualified instructors with expertise in the field being taught.
If a renewal applicant has earned CE hours in another state, the Real Estate Education Advisory Council may approve the credit at its discretion based upon whether the course would be approved under the Act. Also, the request for credit must be submitted within 30 days of completion of the course, with appropriate fee, proctored final exam, and so on (when approvable under the Act).
Continuing education is not optional for most licensees; it is an absolute requirement and is strictly monitored. A licensee is vulnerable to disciplinary action if he or she continues to practice after the CE renewal deadline without having completed the required courses.
 Summary
The purpose of the Real Estate License Act of 2000 is to regulate real estate businesses for the protection of the public. As a result, Illinois has adopted strict broker licensing requirements for individuals as well as business entities.
In addition to practicing as a sole proprietor, a broker can opt to form a corporation, partnership, limited partnership or limited liability company. IDFPR requires additional documentation to be submitted for licensing.
There are statutory and regulatory requirements for opening a real estate brokerage office. The location must be separate from any other business; a sign must be appropriately displayed on the outside; license certificates must be conspicuously displayed in a public area; and written employment agreements are required between the broker and all sponsored licensees. These are all necessary to ensure regulatory compliance. Continuing education is necessary for license renewal. Currently, brokers have to complete 18 hours for each renewal period.
Jim is an Illinois licensed broker who lives in a condominium in Chicago. He wants to open his office in his condo in a spare bedroom that he uses as his home office and where he has hung his license. His condo association allows home businesses but will not allow Jim to put a sign anywhere in the public entrance or any public corridor or other location.

To keep costs at a minimum, all office files are centralized at the Suite 300 location, including all wall licenses, transaction files, and employment/independent contractor agreements. The branch office at Suite 300 is simply used to provide a larger space for salespeople to meet with clients. The sponsoring broker has appointed two managing brokers to manage the operations in Suite 100, the main office, due to the number of agents sponsored to that branch office and the different real estate specializations practiced within that office.
For Discussion
Is it permissible for a sponsoring brokerage company to have more than one branch office in the same building or location as the main office? Is it permissible for a sponsoring broker to have more than one managing broker within one office? Would XYZ Realty have been better off just renting one larger office space rather than licensing two separate spaces?
Case Study Questions
1. Which statement is correct in relation to the branch office requirement given the above-referenced situation?
a.	The branch would need to have separate signage indicating that the office is a branch of the main brokerage office.
The salespeople sponsored by XYZ Realty are all independent contractors, so they can decide where they will work.
The salespeople's home offices are automatically considered branches of XYZ Realty's main office.
The sponsoring broker can open a branch office only if there is a good business reason for opening a branch office.
2. Which is TRUE regarding the actions of XYZ Realty, Inc.?
a.	If XYZ Realty, Inc., elects to have a branch office, it should be a different address than the principal brokerage office.
The branch office should not be distinguishable from the main office if it will be a separate branch in the same building.
The branch office would need separate signage indicating that the office is a branch of the main brokerage office.
a.	The branch would have to have a different branch manager assigned to oversee the licensees who are primarily engaged in practice out of that branch only.
3. With regard to the above stated facts, which is TRUE relative to having more than one managing broker within one office?
a.	There is only one "official" managing broker for any one real estate brokerage office.
a.	There is nothing in the Act prohibiting multiple managing brokers.
A managing broker can manage multiple offices of the same company.
Both b and c are correct.

1 4	chapter one
9. In the event the sponsoring broker dies or the managing broker leaves unexpectedly, a request must be made to IDFPR to continue operations within
a.	15 days.
b.	30 days.
a.	90 days.
d.	120 days.	10. If a sponsoring broker, acting as a sole proprietor, is doing business under an assumed name, the sponsoring broker must
a.	submit to IDFPR a certified copy of the broker's registration under the Assumed Name Act, which is also on file in each county where the broker does business.
b.	be sure that the assumed name is similar to that of the broker's registered name.
c.	file the certificate with the county where the broker resides.
open an additional office under the broker's assumed name.	

16	chapter two

Agency is governed by two kinds of law: common law (the rules of a society established by tradition and court decisions) and statutory law (the laws, rules, and regulations enacted by legislatures and other governing bodies).
Real estate agency relationships in Illinois are now governed by statutes that replace common law. The statute governing Illinois real estate agency is Article 15 of the Real Estate License Act of 2000 (the Act).

"Do my actions and words represent my client's best interests?" The answer should always be "Yes."

According to this statute, the agent's duties include the following:
•	Performing the terms of the brokerage agreement between the broker and the client
Promoting the best interests of the client by seeking a transaction at the price and terms stated in the brokerage agreement or at a price and terms otherwise acceptable to the client
Timely presentation of all offers to and from the client, unless the client has waived this duty (Note: This means all offers are subject only to client's direction, not the discretion of the licensee or the licensee's broker.)
Disclosing to the client material facts concerning the transaction of which the licensee has actual knowledge, unless that information is confidential information
Timely accounting for all money and property received in which the client has, may have, or should have an interest
IN Obeying specific directions of the client that are not otherwise contrary to applicable statutes, ordinances, or rules
•	Acting in a manner consistent with promoting the client's best interests as opposed to a licensee's or any other person's self-interest
•	Exercising reasonable skill and care in the performance of brokerage services
•	Keeping confidential all confidential information received from the client. Confidentiality is not limited to the term of the agreement; client confidentiality is forever.
Complying with the requirements of any other applicable law, including fair housing and civil rights laws

If possible, when receiving multiple offers it is advisable to present all offers to the client at the same time and then ask for direction on how the client wishes to proceed.

In agency relationships today, the agent still owes the principal (client) loyalty and duty—above the agent's own personal interests. The real estate professional should be regarded as an expert on whom the principal can rely for specialized professional advice.
Definitions
Key terms of the law of agency under Article 15 of the Act are defined as follows:
•	Agency—a relationship in which a real estate broker or licensee, whether directly or through an affiliated licensee, represents a consumer by the consumer's consent, whether express or implied, in a real property transaction
•	Brokerage agreement—a written or oral agreement between a sponsoring broker and a consumer for licensed activities to be provided to a consumer in return for compensation or the right to receive compensation from another. Brokerage agreements may constitute either a bilateral or a unilateral agreement between the broker and the broker's client depending upon the content of the brokerage agreement. All exclusive brokerage agreements shall be in writing.

18	chapter two
 Designated Agency
Assuming you are the client, designated agency is an arrangement where one or more agents from a real estate brokerage company are appointed as your legal/ designated agent. You are presumed to be represented by the real estate agent you are working with unless you have a written agreement to the contrary. Other associates in the brokerage company may be designated agents for other buyers or sellers and may be the legal agents of the opposite parties in your transaction. Even though your brokerage agreement will be with the real estate brokerage company, you will have a designated agent to act on your behalf.
Section 15-50 Designated Agency
(a)	A sponsoring broker entering into an agreement with any person for the listing of property or for the purpose of representing any person in the buying, selling, exchanging, renting, or leasing of real estate may specifically designate those licensees employed by or affiliated with the sponsoring broker who will be acting as legal agents of that person to the exclusion of all other licensees employed by or affiliated with the sponsoring broker, A sponsoring broker entering into an agreement under the provisions of this Section shall not be considered to be acting for more than one party in a transaction if the licensees specifically designated as legal agents of a person are not representing more than one party in a transaction.
(b)	A sponsoring broker designating affiliated licensees to act as agents of clients shall take ordinary and necessary care to protect confidential information disclosed by a client to his or her designated agent.
(a)	A designated agent may disclose to his or her sponsoring broker or persons specified by the sponsoring broker confidential information of a client for the purpose of seeking advice or assistance for the benefit of the client in regard to a possible transaction. Confidential information shall not be disclosed by the sponsoring broker or other specified representative of the sponsoring broker unless otherwise rerl  by this Act or requested or permitted by the client who originally disclosed the,c fidential information.
(Source: PA, 91-245, eft 12-31-99.)
Accepted Agency Activities
In a designated agency relationship, it will not be construed to be an agency violation in following situations:
•	The licensee shows the same or similar properties to more than one interested buyer or tenant client.
The licensee representing a buyer or tenant client is being compensated a higher fee if the purchase/lease price is higher.
The agent provides false information to a customer if the false information was given to the agent by a client, and the agent did not know the information was false.
Required Agency Disclosure
Mandatory agency disclosure laws now exist in every state. These laws stipulate when, how, and to whom disclosures must be made. Frequently, printed brochures

20	chapter two
Figure 2.1 I Dual Agency

Source: Fillmore W. Gaiety, Wellington J. Allaway, and Robert C. Kyle, Modern Real Estate Practice, 17th ed. (Chicago: Dearborn Real Estate Education, 2006), 55.
•	must have a signed disclosure form from both sides before the agent acts as a disclosed dual agent; and
must have a signed confirmation of the parties' consent to dual agency no later than at the time a purchase contract is signed or lease entered.
It is important to note that a client can ask to be removed from a dual agency situation at any time. If the dual agent refers the withdrawing client to another designated agent, he or she may not receive a referral fee without disclosing this to both the remaining client and the withdrawing client.
 Treatment of Customers versus Clients
Even though an agent's primary responsibility is to the client, the agent also has duties to customers. Any time a licensee works with a customer, the licensee is responsible for adhering to state and federal consumer protection laws as well as to any applicable ethical requirements imposed by professional associations and legal requirements imposed by state regulators.
At common law, an agent's primary responsibility is to the principal, and Illinois courts have long held that the contractual principal-agent relationship as defined in a listing contract gives the seller a cause of action against the licensee who breaches his or her duties to the client. The courts have not found that fiduciary duties are owed to customers. However, the Act does set forth the duties that licensees owe to customers.
An agent owes a customer the duties of reasonable care and skill, promoting the best interest of the client, and disclosure of known material facts that are not confidential.	Licensees are to treat all customers honestly. They cannot negligently or knowingly give customers false information. Finally, licensees must disclose to the customer all material adverse facts about the physical condition of the property of which they are aware and that could not be discovered by a reasonably diligent inspection of the property by the customer.

A licensee must disclose to an unrepresented customer in writing that the licensee is not acting as the customer's agent. The disclosure must be made at a time intended to prevent disclosure of confidential information by the customer to the licensee. The licensee may perform ministerial acts for a customer without violating any brokerage agreement with a client. These are examples of ministerial acts:
•	Responding to phone inquiries by consumers as to the availability and pricing of brokerage services	

22	chapter two
Although no formal agency agreement was entered into with Nancy either orally or in writing, Phillip's actions and words to the seller, Nancy, implied that Phillip was acting as her agent. He already is an agent to the buyer. Phillip is now in an undisclosed dual agency situation based on an implied agency with the seller and a written agency with the buyer. Unless full disclosure to all parties was made before Phillip acted as a dual agent and dual agency was consented to in writing, this example describes illegal undisclosed dual agency.
Jim is a designated seller's agent for Sue. Jim is also a designated buyer's agent for Frank. Frank happens to drive by Sue's house and decides he wants to see it, so he walks into Jim's office to ask about the property. Because Sue refused dual agency, can Jim say he is only performing ministerial acts for Frank if he responds to Frank's inquiries? No, once Jim was Frank's designated agent, he cannot then try to limit his role and treat the buyer as a customer.
 Brokerage Agreements
Brokerage agreements are agreements between the client and the broker that establish the agency relationship between the two parties. If the agency relationship is with the seller, it is created through the listing or exclusive-right-to-sell agreement. If the agency relationship is with the buyer, it is created through some sort of buyer brokerage agreement. The Act requires that all exclusive brokerage agreements be in writing.
Listing Agreements
Two common types of exclusive listing agreements are the exclusive-right-to-sell agreement and the exclusive-agency agreement.
In an exclusive-right-to-sell listing, one broker is appointed as the seller's sole agent. The broker is given the exclusive right, or authorization, to market the seller's property as agreed to in the contract. If the property is sold while the listing contract is in effect, the seller must pay the broker a commission regardless of who sells the property. In other words, if the seller finds a buyer without the broker's assistance, the seller will still be obligated to pay the broker the contracted commission. Sellers benefit from this form of agreement because it allows the broker to spend time and money actively marketing the property, making a timely sale more likely. From the broker's perspective, an exclusive-right-to-sell listing offers the greatest opportunity to receive a commission.
In an exclusive-agency listing, one broker is authorized to act as the exclusive agent of the seller client. However, the seller retains the right to try to sell the property on his or her own without obligation to the broker. The seller is obligated to pay a commission to the broker only if the broker or some other agent or broker procures a buyer for the property.
Regardless of which type of listing agreement is used, most agreements require similar information.

24	chapter two
to the time of payment of commission, will be valid or binding unless made in writing and signed by all parties. Licensees cannot use real estate sales contract forms to change previously agreed commission payment terms.
If a listing agreement provides that, in the event of a default by a buyer, the broker's full commission or fees will be paid out of an earnest money deposit, with the remainder of the deposit to be paid to the seller, this information must be in larger bold type.
The broker cannot enter into a listing agreement that prohibits the sale or rental of real estate to any person because of race, color, religion, national origin, sex, ancestry, age, marital status, physical or mental handicap, familial status, or any other class protected by Article 3 of the Illinois Human Rights Act.
Each listing agreement for a residential property of four units or less, which provides for a protection period subsequent to its termination date, must also provide that no commission or fee will be due and owing if the seller enters into another valid written brokerage agreement with another broker.
A broker can discuss a possible future brokerage agreement with a consumer whose property is exclusively listed with another broker or who is subject to a written exclusive brokerage agreement only under these conditions:
•	When the consumer initiates the contact
•	When the current broker upon request fails to provide within 10 calendar days the type and expiration date of the brokerage agreement between the consumer and the current broker. The request and response have to be in writing and mailed return receipt requested. If the information is not received within 14 calendar days, the broker can then contact the consumer only if this information cannot be obtained from another source of shared broker information.
In 2004, the definition of exclusive brokerage agreement changed. The Act now defines exclusive brokerage agreement as "a written brokerage agreement that provides that the sponsoring broker has the sole right, through one or more sponsored licensees, to act as the exclusive designated agent or representative of the client and that meets the requirements of Section 15-75 of this Act."
 Required Minimum Services
The sponsoring broker, through its sponsored licensees, must provide the following three minimum service requirements:
1.	Accept delivery of and present to the client all offers and counteroffers to buy, sell, or lease the client's property or the property the client seeks to purchase or lease
Assist the client in developing, communicating, negotiating, and presenting offers, counteroffers, and notices that relate to the offers and counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived
Answer the client's questions relating to the offers, counteroffers, notices, and contingencies

7. Do the minimum service requirements prohibit disclosed dual agency?
•	No. If a seller client has entered into an exclusive brokerage agreement with the sponsoring broker, and the seller's designated agent finds a buyer, with proper written disclosure and consent of both clients, the agent could proceed as a disclosed dual agent and satisfy the minimum services requirements.
The role of the designated agent may become limited to a messenger or delivery person conveying information back and forth between the clients, as opposed to counseling clients about the price to offer or accept.
8. What if there is a listing in the MLS that directs the buyer to consult the seller directly?
•	First, the local MLS is free to make its own individual business decision as to whether it will accept only exclusive brokerage agreements.
•	If the local MLS does restrict its listings to only exclusive ones, you should assume the listing is exclusive.
•	The buyer agent might try to contact the listing office to educate the list‑
ing broker about the requirements and get the listing agent involved.
•	If not, the buyer agent, in serving the buyer client, should contact the seller to schedule a showing. The buyer agent might give the seller a Notice of No Agency Relationship while taking care to act only as a buyer's agent.
9. What can I do if a licensee continues to put listings in our MLS that do not provide for minimum services?
•	If you believe the licensee is taking exclusive agreements and not providing minimum services, you might file a complaint with IDFPR.
If the MLS has made a business decision to take only exclusive agreements, then you might consult your MLS to see if the listings violate the MLS policy.
(Source: Exclusive Brokerage Agreements and Minimum Services, Illinois Association of REALTORS, 2004.)
When representing sellers or buyers, be mindful of the minimum services requirement pursuant to the Act. Remember honest dealings throughout the process, together with expeditious and continuous communication, will enhance the probability that all statutory obligations have been met regarding the agent/client relationship.
Duties after Termination of Brokerage Agreement
It is important to note the following continuing duties of a licensee and/or sponsoring broker once a brokerage agreement has been terminated. Except as may be provided in a written agreement between the broker and the client, neither a sponsoring broker nor any licensee affiliated with the sponsoring broker owes any further duties to the client after termination, expiration, or completion of performance of the broker agreement, except (1) to account for all moneys and property relating to the transaction and (2) to keep confidential all confidential information received during the course of the brokerage agreement.

communication between a client and an agent and assures Robert that he is her client. Greatly relieved, Robert tells Paige in confidence that he is a class B sexual offender with violent tendencies and will register and conform to all of the requirements of the Illinois law relating to registration of convicted sex offenders. What should Paige do?
a.	Meet with Stacy as soon as possible to disclose Robert's criminal background
b.	Discuss the situation with her own office's attorney to determine what, if anything, she can disclose given that she is a dual agent
Find a way to sabotage the transaction without Stacy or Robert knowing in order to protect the neighbors, Joe and Marianne
Notify in writing all of Stacy's neighbors about Robert's sexual predator status
2. After Paige has received the second offer on Stacy's two-flat from the second buyer, Lance, she should tell Lance that
a.	she would be pleased to present his offer to the seller, Stacy.
she cannot give the offer to Stacy because a prior offer is pending.
he must increase his offer by at least $30,000 or she won't present it.
he is wasting his time because she knows Stacy won't accept this offer.
case study 2
Broker Xavier and his wife, Broker Yvonne, own XY Real Estate, and the company sponsors five other agents. This is a relatively small firm where confidential information of opposing parties is not always protected. Yvonne actively buys distressed properties for her own account. Usually, these properties need some minor repairs. Xavier lists the properties that Yvonne owns for sale, and the listing sheet does not disclose that the property is "broker owned" anywhere. The XY Real Estate firm has a sizeable market share, so most sales are made by buyer agents from the XY Real Estate firm.
Case Study Questions
1. What agency concerns might there be for XY Real Estate based on these facts?
a.	It is not a problem for any of the agents sponsored by XY Real Estate to be buyer's agent on the sale of property owned by Yvonne.
b.	None of the sponsored agents could represent a buyer for the sale of properties owned by Yvonne, because in doing so the buyer agent who is sponsored by XY Real Estate would be a dual agent on property that is owned by one of the company's broker-owners. Dual agency on broker-owned properties is not permitted under the Act.
a.	Neither a nor b is correct.
2. The XY Real Estate firm might have some exposure relative to Yvonne's ownership of the property. What is the obvious problem in the facts given above?
a.	They have issues under the Act, because they have not disclosed that the properties listed by Xavier are broker owned.
a.	Any of the XY agents could act as disclosed dual agents on these facts.
Only Xavier or Yvonne could act as a disclosed dual agent on these facts.

30	chapter two

9. A buyer who is a client of an agent wants to purchase a house that the same agent has listed for sale. Which statement is TRUE?
a.	This is not governed under law of agency.
a.	The agent should refer the buyer to another broker to negotiate the sale.
The seller and buyer must have been informed of the situation and have agreed in writing to the agent representing both of them as a disclosed dual agent.
The buyer should not have been shown a house listed by the agent.

10. Minimum services include which action by the licensee?
a.	Assisting the client in the negotiation process
b.	Presentation of all offers and counteroffers on behalf of the seller
a.	Answering client questions relating to offers, counteroffers, and contingencies
d.	All of the above are required of the licensee.

32	chapter three
 Introduction
Opening and managing a real estate office requires a significant amount of knowledge, time, training, and money. The broker must set effective policies for every aspect of the brokerage operation: maintaining enough space for the sales force, keeping equipment and technology updated, attracting skilled salespeople, determining profitable but fair compensation schedules, directing effective marketing efforts, and staying abreast of all current legal and professional standards issues. Sometimes, a managing broker must also consider office requirements and licensure by reciprocity if the initial real estate license was issued in another state. Another critical area of proper office management involves handling the funds of others. This chapter deals with the day-to-day operations of a brokerage office as well as the requirements for establishing and maintaining an escrow account. It will serve as a useful guide in your real estate brokerage business. Our discussion begins with the relationship between the sponsoring broker and his/her sponsored licensees.
 Broker-Sponsored Licensee Relationship
All sponsoring brokers must have a written employment agreement for all sponsored licensees, both independent contractors and employees, as well as one for themselves. These agreements define the employer-employee or independent contractor relationship and include supervision, duties, compensation, and any termination process for employment. The employment agreement must be dated and signed by both parties. Termination is not intended to indicate that a specific termination date is required but rather allows for negotiation as to the term of the employment agreement. An executed copy of the employment agreement must be provided to the sponsored licensees.
The Real Estate License Act of 2000 (the Act) generally affects licensees who are employees or independent contractors without differentiating between the two. However, choosing employee or independent contractor status could have a big impact on an individual's taxes, job responsibilities, and the broker's responsibility to pay and withhold taxes from an individual's earnings.

The Act Applies to Teams
The Act applies to all agents licensed to a sponsoring broker, whether they are part of a team or not. The following indicates what this means:
•	The sponsoring broker remains ultimately responsible for the oversight of the team and all its licensed team members.
•	A licensee can only work for one sponsoring broker. If a licensee is a team member, he or she will be sponsored by the same sponsoring broker as the "team captain" and is not sponsored by the team captain.
•	All licensed team members must be paid directly by the sponsoring broker. Team captains cannot pay other licensed team members.
Every licensee on the team must have a written employment agreement/ independent contractor agreement with the sponsoring broker.
•	The team cannot be a separate corporation within the sponsoring broker's corporation. This would require another sponsoring broker, and licensees may only work for one sponsoring broker.
Please note this is not to be confused with a licensee's ability to set up a single-shareholder unlicensed corporation for the purpose of receiving that licensee's compensation. Remember, only one licensee can receive compensation through that corporation. See Section 10-20 (e) of the Act and Section 1450.170 in the administrative rules regarding "Corporation for Indirect Payment."
Agency Issues and Teams
Designated agency, covered in Article 15 of the Act, applies to teams. As a result, if one team member represents the seller and one team member represents a buyer, they are not automatically dual agents but designated agents for each party in certain circumstances:
•	If this is the case, confidential information of opposing parties must be protected from team members on the opposite side of the transaction.
Office policies and procedures should address agency issues that arise within the team.
If the team practices disclosed dual agency, written disclosure and consent must be obtained before team members act as dual agents.
The sponsoring broker should analyze how the team is representing itself to the public.
•	If a consumer or client would assume, based on the team's advertising or promotion, that all members of the team are working on the consumer's behalf, and all team members have access to information on both sides, it would be dual agency in most cases.
•	On the other hand, if a consumer or client is told through advertising or promotional materials that team members represent opposing parties, and confidential information is protected, then it could be that there is no dual agency.
Independent Contractor versus Employee for Team Members
The sponsoring broker must consider whether licensed team members should be treated as independent contractors or employees under the Internal Revenue Code and the Fair Labor Standards Act, to name a couple of applicable statutes:

Employee or Independent Contractor?
The natural inclination is to treat personal assistants as independent contractors for tax purposes. However, this issue should be closely examined by accounting and legal advisors. If the personal assistant is unlicensed, it will be difficult to treat him or her as an independent contractor. Under the Act, the unlicensed personal assistant cannot be compensated by commission for licensed activities. Thus, the unlicensed personal assistant cannot meet the safe harbor guidelines of the Internal Revenue Code (IRC) requiring a real estate broker's or salesperson's license and the receipt of "substantially all" of one's compensation from sales activities in order to be treated as an independent contractor.
Since the safe harbor provisions of the IRC cannot be met, unlicensed personal assistants must meet the traditional test for an independent contractor. One of the key areas for consideration is control over the activities of the personal assistant. If the personal assistant is intended to relieve salespeople of some of their responsibilities and duties, then there is probably a need to retain direction and control as to hours and work to be done. This would indicate an employee relationship. If the unlicensed personal assistant is an employee, there are obligations as to tax withholdings, including federal and state income tax, FICA, FUTA, and state unemployment and workers' compensation. Failure to withhold or pay these amounts may result in claims for back taxes against either the employing or sponsoring broker.
Even if personal assistants are licensed, brokers must take a close look at whether they should be treated as employees or independent contractors. To be treated as an independent contractor, the personal assistant must either qualify under the 20 factor test of the IRS (Figure 3.1) or meet the IRC safe harbor test discussed earlier. It is very important to carefully analyze this issue due to the ramifications of not properly withholding taxes or paying FICA and unemployment taxes.
Employee Benefits
One of the questions regarding the use of personal assistants is whether or not they should receive broker-provided employee benefits. Generally, personal assistants in an office who are licensed and have employment agreements with the sponsoring broker as independent contractors will not receive any benefits other than what a licensed salesperson with the same sponsoring broker might receive.
Personal assistants who are treated as employees will be entitled to workers' cornpensation, unemployment compensation, and fringe benefits granted to other employees. Also, even if unlicensed personal assistants are being treated as independent contractors, they may still be entitled to workers' compensation benefits and unemployment compensation benefits. In particular, the Illinois Workers' Compensation Act includes a provision that states "the term 'employee' does not include persons performing services as real estate broker, broker-salesman, or salesman when such persons are paid a commission only."
Thus, the exemption that exists today under the Illinois Workers' Compensation Act is not one for independent contractors but is established for those individuals licensed under the Real Estate License Act who are paid only by commission. Similarly, the Illinois Unemployment Insurance Act states that "the term 'employment' shall not include services performed as a real estate salesman to the extent that such services are compensated for by commission."

A nonsponsoring broker can pay compensation directly to a licensee sponsored by another broker if the payments are made pursuant to terms of an employment agreement that was previously in place between the licensee and the nonsponsoring broker, and the payments are for licensed activities performed by that person while previously sponsored by the other broker.
Fees, commissions, or other compensation cannot be paid to unlicensed persons for services that legally require a real estate license. Compensation can include anything of value, like items of personal property, such as a new television, or other premiums, such as vacations, given to nonlicensed persons to perhaps acquire names of "leads or referrals of real estate brokerage business." This is not to be confused with referral fees paid between brokers for leads, which are legal as long as the individuals involved are all real estate licensees.
Corporation for Indirect Payment of Compensation
Sponsoring brokers may pay their sponsored licensees their commissions directly or, under the Act, a licensee may form a solely owned corporation for the purpose of receiving compensation. That one-shareholder corporation cannot be licensed by IDFPR. However, the licensee must file a copy of the certificate of incorporation issued by the Secretary of State with IDFPR. The corporation can receive compensation earned by that licensee only, both from real estate and non-realestate-related activities. The corporation cannot be licensed and cannot be used by the licensee to perform real estate activities, sponsor or employ other licensees, or advertise itself to the public in the corporation's name.
Any person who is a licensed personal assistant for another licensee can only be compensated in his or her capacity as a personal assistant by the licensed personal assistant's sponsoring broker.
Disclosure of Compensation
Disclosure of compensation is a significant issue. The Act states that clients must be made aware of compensation, sources of compensation, and the broker's general policy on sharing commission with cooperating brokers representing other parties in the transaction.
If compensation is being paid to a licensee from both buyer/tenant and seller/ landlord in the same transaction, the compensation must be disclosed in writing to the licensee's client in the transaction. Any compensation received from a third party by a licensee must also be disclosed to the licensee's client.
If a licensee refers a client to a service in which the licensee has greater than a 1 percent ownership interest, for the purposes of the client obtaining services related to the transaction, it must be disclosed to the client at the time of making the referral. In addition, a licensee must disclose, in writing, any compensation the licensee expects to receive arising out of a referral fee to any person or entity whose services are related to the transaction, including financial institutions, insurance broker, mortgage broker, home inspector, or any other third party. The disclosure has to indicate the relationship between the licensee or the licensee's sponsoring broker and the referred person or entity, including any interest the licensee or sponsoring broker may have in the referred person or entity. A disclosure form that could be used is referred to as the affiliated business disclosure. Keep in mind that federal

of a multioffice company, more than one office appointed by the sponsoring broker. Sometimes, in the case of a sole proprietorship, the managing broker and the sponsoring broker are one and the same. If they are not the same, the sponsoring broker can delegate the issuance of sponsor cards to the managing broker.
The sponsoring broker is required to notify IDFPR in writing of the names and license numbers of all managing brokers he or she employs and the office or branch offices each managing broker is responsible for. The managing broker must have a current active broker's license.
If a sponsoring and/or managing broker dies or a managing broker leaves a branch office unexpectedly, a request may be made to IDFPR within 15 days of this development to grant an extension for continued office operations. The extension may be granted for up to 60 days. In the case of an owner's death, a representative of the estate could operate the office for up to 60 days. In most cases of loss of a sponsoring or managing broker, a licensed real estate broker assumes the management of the office. He or she must sign a written promise to personally supervise the office operations and accept responsibility for the office until a permanent replacement is located.
When a managing broker receives a renewal application from IDFPR for his or her sponsored licensees, the managing/sponsoring broker must notify the licensee of the receipt, in person within 7 days or by registered or certified mail or some other form of signature delivery within 10 days. The notice will inform the licensee that any undeliverable renewal form will be returned to IDFPR. When a managing broker receives a renewal application form from IDFPR for a licensee not supervised or sponsored by the managing or sponsoring broker, the renewal form must be returned immediately to IDFPR.
All managing brokers must notify IDFPR on business letterhead of any change of business address for any of the offices they manage within 24 hours of any change. Change of address filing is required for all offices and branch offices.
IDFPR will honor the order of a court of competent jurisdiction appointing a legal representative for the sole purpose of closing out the affairs of a deceased or disabled broker who was a sole proprietor. The court order is honored until the real estate brokerage operation is closed but does not allow the brokerage to actively engage in the brokerage business.
Supervision
A managing broker must exercise reasonable supervision over the activities of licensees and unlicensed personal assistants working in those offices managed by the managing broker. These supervisory duties include the following:
•	The implementation of office policies and procedures established by the sponsoring broker
Training of licensees or unlicensed assistants
Assisting licensees as necessary in real estate transactions
Supervising escrow accounts over which the sponsoring broker has delegated responsibility to the managing broker in order to ensure compliance with the escrow account provisions of the Act
Supervising all advertising of any service for which a license is required

Figure 3.2 I Mission Statement
A brokerage company's mission statement should do the following:
1.	Identify the services you are planning to offer to the public
Identify your target markets
Describe the methods you will use to deliver the services you are offering to your clients/customers
Inform the client/customer about the value of your services
Identify any unique services that your company is providing
Describe your company in comparison to your competitors	
not XYZ Brokerage, an Illinois licensed broker. Salesperson A, who has a reciprocal license, could not be sponsored in Illinois by a different broker.
Both brokers and salespersons who are licensed by reciprocity might have their licenses converted to Illinois resident licenses without examination, if they meet licensure requirements under the Act and change their place of domicile to Illinois.
Planning
Planning is the most fundamental management activity. Almost every business decision is guided by a business plan. Planning takes time and money. But the resources devoted to planning are relatively small in comparison to the benefits of a sound plan that is followed and reviewed often. It is useful for building credibility with others outside your company. For the plan to be effective, it must be flexible and measurable, but, most important, it must be achievable.
The development of the business plan begins with creating a mission statement. This statement identifies the company's purpose for being in business and sets the course, purpose, and tone of the organization. The mission statement provides the focus for the company. Everything else in the business plan supports the mission statement. (See Figure 3.2.)
Now we'll expand on the mission statement by identifying specific objectives or goals for accomplishing the mission. These are the end results you want to achieve. Goals must be translated into specific words that tell exactly how to focus the company's resources. Goals have several characteristics. They must
•	be specific or identifiable;
be measurable;
be attainable; and
have beginning and ending dates.
Each of the goals is supported by strategies, which prescribe the methodology used in accomplishing that specific goal. Strategies include things needing to be done to overcome any obstacles or enhancement of resources. They also help to eliminate nonproductive activities. Lastly, activities or tasks must be designed to carry out the strategies to accomplish the goal. To summarize, the mission statement provides an overall view of where the company is going. The objectives or goals spell out specifically what the company wants to achieve. The strategies are

Keep in mind that the policy and procedures manual is not a sales training manual. Obviously, the policy manual cannot become the complete solution to every policy issue. When a decision cannot be made easily about a specific problem, the manual should state how it is to be interpreted and who will do the interpretation.
Sales Force Training
Setting up a continuous, structured program imparts skills to the sales force ensuring support of the company's objectives and proper communication of the company's values. Whether it reviews the basics, provides refresher courses on a specific aspect of the original training, or is strongly oriented to motivation, continued training is essential for both new and experienced sales associates. Training also provides the agents with the techniques they need to become top producers, providing the company with a continued competitive edge. Training sales agent to exhibit effective time management skills will result in higher sales and profitability. Well-trained sales agents produce sooner, produce more, and generally stay with the company longer.
Some brokers have the idea that training is a necessary evil. That couldn't be further from the truth. Effective broker company training can reduce agent turnover, improve company image, reduce the need for constant supervision, make recruiting easier, and improve company morale.
The sales agents want training because they know it will make them productive more quickly, and that proper training equates to more sales. Training builds confidence in the sales agent's ability to perform. It provides agents with personal satisfaction in knowing they are growing in professionalism. Education enhances competency, which furthers the goal of professionalism.
Retention of Sales Agents
Just as brokers are aware of their need to develop a strong sales force, they are concerned with keeping top producers and improving productivity of the existing sales force. Retention is a challenge for all brokers; therefore, developing a detailed, workable, and ongoing retention plan should be a key objective of every brokerage company.
A strong retention program is critical to recapturing company dollars invested in recruiting, and training every sales agent is necessary to continue the process of growing the organization. Enormous amounts of time and money are spent on each agent, and losing an agent can result in a potentially large loss of business to the company.
The broker's first responsibility is to create and maintain the best possible working environment and then to provide the tools for getting the job done. The working environment should be positive and stimulating. Everyone on the company sales force should be happy in the business and experience a feeling of pride and accomplishment in his or her work. In addition to training, the sales team looks to the broker for recognition, leadership, motivation, opportunity for growth, and security through a fair commission schedule.

licensee's Web site behind a firewall or other similar device requiring a password or some other type of security clearance to access that information is not considered advertising.
Advertising must contain all the information necessary to communicate to the public in an accurate, direct, and readily comprehensible manner. It is specifically indicated that any portions of the Act and rules that apply to advertising are intended to include "farming" (marketing to a small group), unsolicited marketing of services, and all Internet materials in front of a "password-protected" area.
Advertising Personal Real Estate for Sale
Selling or leasing your own property or a property in which you have an interest means you, as a licensee, must use the expression "broker-owned" or "agent-owned" in all advertising, on listing sheets, and in any contact with consumers, customers, and clients.
If the real estate firm's sign is used in the yard, and the firm's services are being used, then having the agent-owned or broker-owned notation on the real estate company sign is not necessary. However, all listing sheets must state broker-owned or agent-owned, and written disclosure must be made. The Act provides that no matter how you list an agent-owned property—by owner or through a real estate firm—you as the agent must take care not to confuse the public. You may not act as a dual agent in the sale, purchase, or lease of any property in which you have, or will have, a financial interest.
Finally, it is possible and permitted by the Act and rules to list your own personal real estate with a firm other than the one at which you work, if you so desire and as long as you have not previously agreed by contract to use your sponsoring broker's company.
If a licensee advertises to personally purchase or lease real estate, written disclosure of licensee status is required.
Phone Book Listing Advertising
Licensees must not place their own names under the heading "Real Estate" in a telephone directory or otherwise advertise their services to the public through any media without also listing the business name of the broker with whom they are affiliated. This rule is consistent throughout all advertising media.
Team Name Advertising
Although it would be rare, if the team has a team name that is used in advertising without using the name of the brokerage company, it is up to the sponsoring broker to register that name with the appropriate governmental authority and the IDFPR. Neither the team as a unit nor any of the team members would have authority to register a team name that is different from the sponsoring broker's business name. If the sponsoring broker is affiliated with a franchise, the franchise affiliation must appear with the company name, so a team name could not be used alone.
Consider these scenarios:
 In team advertising, the sponsoring broker's name must appear in all advertisements, unless the sponsoring broker has registered a team name as an assumed business name where allowable.

The broker must maintain all escrow moneys separate and apart from any personal, business, or operating accounts; otherwise, the broker could be subjected to charges of commingling. If the broker were to spend any part of the escrow moneys, it could be construed as conversion. Both commingling and conversion would subject the broker to disciplinary action that could result in license suspension or revocation, as well as possible criminal sanctions. The sponsoring broker cannot deposit personal funds into the escrow account other than the minimum amount necessary to avoid incurring bank service charges, with proof on file to justify this amount.
Branch Office Escrow Accounts
Branch offices may maintain escrow accounts or may transmit all escrow moneys received to the main office. They may not transfer funds to another branch office. If the branch office does maintain escrow accounts, the same requirements apply, including maintaining all required escrow accounts and submitting to IDFPR all required escrow forms. If the branch office does not maintain escrow accounts but instead transmits all escrow moneys received to the main office, all escrow moneys must be transmitted by the branch office to the main office no later than the next business day following the transaction. Even if the branch office transmits all escrow moneys received to the main office, the branch office must maintain records showing the date the escrow moneys were transferred to the main office along with the amount of funds transferred. The funds received at the main office from a branch office will then be placed in the sponsoring broker's escrow account no later than the next business day following receipt of the funds from the branch office.
Time of Deposit or Disbursement
All escrow funds received by the broker, or broker's agent, must be deposited into the broker's escrow account no later than the next business day following the transaction. A transaction exists once an agreement has been reached and an accepted real estate contract signed or lease agreed to by the parties. If the funds are received on a day prior to a bank holiday or day on which the bank is closed, the funds must be deposited no later than the next business day that the bank is open.
Figure 3.4 summarizes the administrative rules established for escrow accounts under the Act.
In the event of a dispute over the return or forfeiture of the escrow moneys held by the sponsoring broker, or when the sponsoring broker has knowledge that any party to a transaction contests or disagrees with an anticipated disbursement of escrow moneys held by that broker, he or she must continue to hold the deposit in the escrow account until one of the following occurs:
•	A written release from all parties consenting to the disposition is received.
A civil action is filed, by either the sponsoring broker or one of the parties, to determine its disposition, at which time payment may be made to the court.
The funds are turned over to the state treasurer or such other appropriate state agency or officer designated pursuant to the Act or the Uniform Disposition of Unclaimed Property Act.
The escrow agent might follow a procedure set forth in the purchase contract that calls for written notice, served upon the parties, of a proposed distribution. Then,

52	chapter three
include instructions in a real estate purchase agreement signed by the parties [Section 1450.175(g)(3)]. If no agreement is reached, they must seek appropriate remedies in a court of law.
If the broker has a claim for commission or other remuneration, he or she should seek payment directly from the obligated party. The escrow moneys cannot be withheld because the broker has or thinks he or she has a claim against one of the parties. The broker cannot force a customer to sign a release of escrow money in order for the broker to receive a portion of the funds.
 Escrow Records
Each sponsoring broker who accepts earnest money must maintain, in his or her office or place of business, a bookkeeping system in accordance with sound accounting principles. Such a system should consist of at least four key escrow records: a journal, a ledger, a monthly reconciliation worksheet, and a master escrow account log. Each is described in detail as follows:
1.	Journal. A journal must be maintained for each escrow account. The journal must show the chronological sequence in which funds are received and disbursed. For funds received, the journal must include the date the funds were received and the name of the party on whose behalf the funds were delivered to the broker. For fund disbursement, the journal must include the date the funds are disbursed, the payee, the check number of the disbursal, and the amount disbursed. A running balance must be shown after each entry (receipt or disbursement).
Ledger. The broker is required to maintain a ledger card for each transaction. The ledger must show the receipt and the disbursement of funds affecting a single transaction, such as between buyer and seller, landlord and tenant, or the respective parties to any other relationship. The ledger must include the property address, names of all parties to a transaction, the amount of escrow funds received, the date the funds are received and disbursed, the payee of any disbursal, the check number, and the amount disbursed. A running balance has to be maintained after each entry. The ledger must segregate one transaction from another transaction. There must be a separate ledger or separate section of each ledger, as the broker elects, for each of the various kinds of real estate transactions. If the ledger is computer generated, the broker must maintain copies of the bank deposit slips and receipts, bank disbursement slips and receipts, and all bank instruments to account for the data on the ledger card.
A separate ledger card must be maintained for any broker funds that are kept in each escrow account. These funds represent nonescrow moneys deposited into the escrow account and must only cover costs associated with the maintenance of the escrow account, such as bank service charges and check printing fees.
2.	Monthly reconciliation statement. Each broker must reconcile, within ten days after receipt of the monthly bank statement, each escrow account maintained by the broker except where there has been no transactional activity during the previous month. The reconciliation must include a written worksheet comparing the balances as shown on the bank statement, the journal, and the ledger, respectively, in order to ensure agreement between the escrow account and the journal and the ledger entries. Each reconciliation

cn
3 0
CD
m
C)
0
0 3

	ABC REALTY	
	Trans.
or I.D.
Number	Date
Received or
Disbursed	Received From
or
Pa ee	Property Address
or
Descnition	Sellers
Name	Buyers
Name	Amount
Received	Amount
Disbursed	Disbursement
Check
Number	Running
Balance	
		3-Mar-07	__ ._.___
Broker	Broker's Funds to open account			500.00			500.00	
	30101	3-Mar-07	Al Jones / Block Realty	1234 S. Main St, Hammond	J. Jackson	E. Smith	2,000.00			2,500.00	
	30102	6-Mar-07	S. Miller	843 Washington, Oak Park	Vera White	S. Miller	1,000.00			3,500.00	
	30103	10-Mar-07	E. Smith	1234 S. Main St, Hammond	J. Jackson	E. Smith	8,000.00			11,500.00	
	30104	14-Apr-07	Mary Pulsson	20 Sycamore, Lombard	Julie Brown	Pulsson	5,000.00			16,500.00	
	30105	29-Apr-07	ABC Realty	1234 S. Main St, Hammond	J. Jackson	E. Smith		6,000.00	1302	10,500.00	
	30106	29-Apr-07	J. Jackson	1234 S. Main St, Hammond	J. Jackson	E. Smith		4,000.00	1303	6,500.00	
	30107	3-May-07	G. Lewis	1846 Oak, Chicago	Marek	G. Lewis	4,000.00			10,500.00	
	30108	10-May-07	Sanders	456 N. Main, Glen Ellyn	Smith	Sanders	1,000.00			11,500.00	
		11-May-07	First National Bank	Bank fee/charge for new checks	Broker's Funds		23.75		11,476.25	
	30109	12-May-07	Jay Smith / C-21 City Realty	76 Mapleleaf, Wheaton	Johnson	M. Mercer	1,000.00			12,476.25	
	30110	15-May-07	ABC Realty	843 Washington, Oak Park	Vera White	S. Miller		1,000.00	1304	11,476.25	
	30111	27-May-07	Rogers	310 S. Michigan, Chicago	Humphrey	Rogers	10,000.00			21,476.25	
	30112	28-May-07	ABC Realty	20 Sycamore, Lombard	Julie Brown	Pulsson		5,000.00	1305	16,476.25	
	30113	3-Jun-07	John Black I Homer Realty	148 Circle, Lombard	Berreles	Wolf	3,000.00			19,476.25	
	This is a sample. For requirements please refer to:
The Illinois Real Estate License Act of 2000 – Administrative Rules
Section 1450.175 (i)(1)	

56	chapter three
Figure 3.7 Sample Ledger Card for Broker's Funds
	ABC REALTY		
	Broker's Funds
Property Address:	N/A
Seller:	N/A
Buyer:	N/A		
	Date	.	Description	W	Check #	Amount	Balance		
	3-Mar-07	Deposit, to open account		500.00	500.00		
	11-May-07	New checks - Bank fee/charge		23.75	476.25		

							

							

							

							

							

							

							

58	chapter three
Figure 3.9 I Sample Supplement for Reconciliation Worksheet

Check #	Outstanding Checks
Payee	Amount	
			
1305	ABC Realty	5,000.00	

			
			
Total:	5,000.00	
	
Trans #	Ledger Cards
Total of Open Transactions
Name	Amount	
30126	G. Lewis	4,000.00	
30127	Sanders	1,000.00	
30129	M. Mercer	1,000.00	
30130	R. Rogers	10,000.00	
			
Total:	16,000.00	

Transaction Records
In addition to the escrow recordkeeping requirements, the sponsoring broker is also responsible for maintaining transaction records, employment agreements, and records reflecting compensation payments. Records relating to transactions must be kept in the office involved in the transaction. These records include copies of the following:
•	Residential property transactions. These are signed contracts, including offers and counteroffers, written release of escrow funds, dual agency authorization, written direction for deposit into interest bearing escrow accounts, powers of attorney, all required disclosures (seller disclosure or property condition, lead-based paint disclosure, etc.), and closing statements.
Property management/leasing. These include any rental finding agreement, leases, periodic accounting, or statement to the owner regarding the receipts and disbursements.

60	chapter three
persons authorized to withdraw funds from the accounts, and as a condition of licensure must consent to the examination and audit of all escrow accounts.
A new consent form must be filed with IDFPR within ten days of the change any time there is a change of depository, method of doing business, or persons authorized to make withdrawals.
Any licensee who violates any of these provisions may be deemed to have endangered the public interest and may be subject to discipline resulting in possible license suspension or revocation and fines up to $25,000 per infraction.
•	Escrow Audits by Outside Auditors
IDFPR may order audits of escrow accounts to be conducted by licensed certified public accountants under these circumstances:
•	A complaint from one or more members of the public
Information from another regulatory or law enforcement agency
Evidence developed by IDFPR that causes IDFPR to believe that escrow moneys have been misappropriated
IDFPR will notify the sponsoring broker in writing that an auditor has been retained to audit the escrow accounts, the identity of the auditor, and the requirement for the broker to submit all pertinent records for the audit within 30 days of the request. After the audit is complete, the auditor will provide a written report to IDFPR, including a copy to be provided to the broker. The report details the findings of the auditor with specific reference to the escrow account's compliance with the Act and rules.
The sponsoring broker is liable for the cost of the audit if it is found that the escrow moneys were misappropriated by the sponsoring broker or the broker's employees, independent contractors, agents, or designees.
•	Summary
Successfully opening a real estate office requires a significant amount of knowledge, time, training, and money. The broker must set effective policies for every aspect of the brokerage operation from maintaining enough space for the sales force to keeping equipment and technology updated, attracting skilled salespeople, determining profitable but fair compensation schedules, directing effective marketing efforts, and staying abreast of all current legal and professional standards issues. In addition, another critical area regarding office management involves handling the funds of others, or escrow funds.
Just as brokers have a relationship with their clients, they also have a relationship with their sponsored licensees. This relationship is outlined in the written employment agreement between the two. Sponsored licensees can be either independent contractors or employees. The Internal Revenue Code has guidelines for independent contractor status.
The Act applies to teams, which means that the sponsoring broker remains responsible for the oversight of the team and all its licensed team members. The

Case Study Questions
1. Broker Jackson's supervisory responsibilities regarding the listing agent include
a.	making sure she had the appropriate signature of or on behalf of the seller to take the listing for her company.
disclosure of her compensation from Honest Abe Construction to the seller-client.
disclosure of her compensation from Honest Abe Construction to the buyer-client.
all of the above.
2. Assuming that Betty had the legal authority to sign the listing with Able Real Estate Company, Broker Jackson's supervisory responsibilities include
a.	releasing escrow moneys to the buyer.
using escrow moneys to offset the cost of the repair work.
holding the escrow moneys until there is written direction signed by both parties as to any distribution.
none of the above.
3. Broker Jackson's supervisory responsibilities include
a.	giving a dual agency disclosure form and having consent signed by Betty at the time the listing is entered.
giving a dual agency consent form and having the consent signed by the buyer before any agent for Able Real Estate acted as a dual agent.
not disclosing the price the seller is willing to take.
all of the above.
The Illinois border areas are experiencing rapid growth in residential development, and with that growth they are experiencing commercial revitalization. In the residential market, brokers from Missouri, Iowa, and Indiana are setting up offices in Illinois. The out-of-state brokers are licensed in Illinois by reciprocity. These brokers are opening branches of their parent out-of-state companies and are serving as managing brokers for the branches. The out-of-state parent companies are handling the escrow moneys. In addition, the managing brokers are spending most of their time in the offices located in the other states. The rapid development has created an environment of aggressive recruiting for agents in the Illinois branches, and the managing brokers are changing at a record-breaking pace.
Moreover, with all of this expansion and development, there is an increase in real estate investment. Many of the investors could potentially come from anywhere in the world. In order to get a high degree of exposure, brokers from St. Louis, Indianapolis, and New York are listing the Illinois real estate on national commercial information exchanges.

64	chapter three

 Chapter 3 Review Quiz
1. An Illinois real estate salesperson who is engaged as an independent contractor
a.	is considered an employee by the IRS for tax purposes.
must have a written independent contractor agreement with the sponsoring broker.
a.	must be covered by workers' compensation.
a.	may work as an independent contractor for multiple brokers.
2. Patrick is an unlicensed personal assistant. Under Illinois law, Patrick can do all of the following EXCEPT
a.	host an open house to the general public.
a.	prepare and distribute promotional materials under the supervision of the licensee.
a.	place yard signs on the property.
a.	submit listing and changes to listings in the MLS.
3. The purpose of a business plan is to
a.	satisfy the IDFPR.
parallel planning textbooks.
direct the company's resources properly.
protect traditional activities of the organization.
4. A written policy and procedures manual can protect a broker from liability ONLY when
a.	the company does not practice within its established procedures.
procedures that affect independent contractors are identical to those for employees.
it is prepared and adopted without review by the company's legal counsel.
everyone follows the procedures set forth in the manual.
5. A brokerage company must be sure to comply with what laws, regardless of whether people working in the office are independent contractors or employees?
a.	State and federal labor laws
Building safety codes
Local board's code of ethics
Local zoning ordinances

6. A brokerage firm's policies and procedures should be
a.	oral.
in writing and definitive but flexible enough to allow for change as the firm grows.
a.	protected as confidential information.
a.	followed by the majority of the firm's brokers, including the managing broker.
7. When supervising independent contractors, a managing broker can
a.	expect them to comply with the sponsoring broker's policies and procedures.
b.	allow an agent to work for more than one brokerage company.
Both a and b are correct.
a.	None of the above is correct.
8. The way to manage real estate agents is to
a.	ignore their status and do whatever it takes to reach the company's goals.
resign yourself to the fact that they can't be managed.
set production quotas they are required to meet.
b.	encourage them and show them how to keep in compliance with the Act and rules.
9. The company's top producer has violated a company policy resulting in the potential for litigation. You have had several discussions with the agent about this and the agent agreed to stop what the agent was doing immediately. When you find out the problem is still occurring, your next step as managing broker is to
a.	consider whether it is appropriate to terminate the agent.
a.	exempt the agent from the policy.
a.	investigate to see if other agents in the office are doing the same thing.
Both a and c are correct.
10. Which shows the receipt and disbursement of funds affecting a single transaction?
a.	Journal
b.	Ledger
a.	Monthly reconciliation statement
Master escrow account log

Office Management and Escrow Responsibilities	65

11. Which shows the chronological sequence in which funds are received and disbursed for all transactions?
a.	Journal
Ledger
Monthly reconciliation statement
Master escrow account log
12. Which identifies all escrow bank account numbers and bank name and address?
a.	Journal
b.	Ledger
Monthly reconciliation statement
Master escrow account log
13. Escrow records must be maintained for at LEAST
a.	three years.
five years.
a.	seven years.
a.	ten years.
14. A broker who deposits earnest money in an escrow account must make sure of all of the following EXCEPT that
a.	the account is FDIC insured.
both buyer and seller have signed a written agreement identifying who is to receive the interest.
the money, when released, is at the joint written direction of the principals.
the interest be deposited in the real estate education fund.
15. Audits of escrow accounts may be conducted by
a.	licensed attorneys.
IDFPR personnel, or in some circumstances, certified public accountants.
the local police.
certified bank administrators and IDFPR personnel.

16. Escrow moneys must be released from the escrow account no later than
a.	the next business day after consummation or termination of transaction.
within three business days after closing.
upon completion of the HUD-1 settlement statement.
upon the direction of the title company.
17. When the broker mixes business and personal funds with the escrow funds, it is referred to as
a.	conversion.
a.	commingling.
juggling.
misappropriation.
18. All of the following information is required for a ledger card EXCEPT
a.	the property that is the subject of the transaction.
the names of all parties to the transaction.
the name of the party delivering the funds to the broker.
the date of receipt or disbursement of funds.
19. All of the following records are required to be maintained by the broker EXCEPT
a.	compensation records.
sponsored licensees' driving records.
a.	escrow records.
a.	employment agreements.

68	chapter four
•	Understanding Antitrust
An important topic in the discussion of risk reduction is antitrust. The real estate industry has come under federal and public scrutiny on antitrust compliance, and it now faces the legal complexities associated with those issues. The government's purpose in federal antitrust laws is to preserve competition, discourage monopolies, and control the exercise of monopoly powers.
The basic federal antitrust acts are the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and the Robinson-Patman Act.
•	The Sherman Antitrust Act
The Sherman Antitrust Act of 1890 provides that "every contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce" is declared illegal. "Every person who shall monopolize any part of trade or commerce among the several states, or with a foreign nation, shall be deemed to be guilty." Exemptions to the act are those industries that are affected by being in the public interest and/or are regulated by other government agencies, such as banking and insurance to name two.
The Sherman Act has jurisdiction over interstate activities. While it is true most real estate transactions are local in nature, the U.S. Supreme Court has ruled they still fall under the Sherman Act because the companies that finance and insure the titles in real estate transactions are usually involved in interstate commerce.
The Supreme Court has applied a reasonableness test in ascertaining illegality in many situations. The rule of reason permits the court to examine the reasons the business engaged in the activities that appear to be in violation of the Sherman Act. The rule of reason encompasses the nature of the alleged restraint, its effect on market conditions, and the purpose the restraint is intended to serve.
Opposite the rule of reason is conduct that would per se violate the Sherman Act. This means some conduct is illegal based on the act itself and does not need to be analyzed on a case-by-case basis as to whether there are reasonable means of accomplishing an objective without unduly suppressing trade. Price-fixing, boycotts, and territorial allocation are all considered illegal per se violations and will be discussed later in the chapter.
•	The Clayton Act
The Clayton Act of 1914 was passed to supplement the Sherman Act by specifically making certain practices illegal that had been ruled by the courts not to be barred by the Sherman Act. The Clayton Act prohibits various kinds of business conduct that have a tendency to lessen competition or monopolize trade. Among the practices made illegal by this statute are exclusive dealing arrangements, acquisitions and mergers that lessen competition, and certain interlocking boards of directors.
•	The Federal Trade Commission Act
The Federal Trade Commission Act of 1914 created the Federal Trade Commission (FTC) and empowered the commission to identify any anticompetitive

70	chapter four
criminal sanctions. As under federal law, these are violations of the Illinois Antitrust Act, regardless of the economic effect on the market.
Section 3 of the Illinois Antitrust Act further prohibits vertical agreements (such as agreements between buyers and sellers fixing the price for which the buyer must resell to third parties), boycotts, and certain types of mergers. However, under Section 3, prohibiting unreasonable restraints of trade or commerce, the contract, combination, or conspiracy must be shown to be unreasonable after examining the economic purposes and consequences of such agreement. Thus, under Illinois law, individuals and brokerage companies could be subject to state sanctions.
Because the basis of the real estate transaction is bringing together diverse parties for the purchase, sale, lease, or exchange of real estate for a fee, a network of cooperating and competing interests has developed. The broker is competing to offer specific services while trying to cooperate with competitors to deliver specific services to clients and customers alike. This dual tradition of cooperation and competition presents opportunities for antitrust misconduct daily. Some key antitrust areas of concern in the real estate industry are shown in Figure 4.1.
 Guidelines for Antitrust Compliance
In antitrust cases, proof against the defendant is most likely to come from the defendant or his associates. Thus, an antitrust compliance program must not only avoid actual violations of antitrust laws but also avoid creating or permitting the creation of files, records, documents, statements, or conversations that might create an appearance of violation.
Figure 4.1 I Areas of Antitrust Concern
•	Price-fixing. The practice of setting prices for brokerage services rather than letting competition in the open market establish prices
Boycotts. Two or more businesses conspiring against other businesses or colluding to withhold their patronage to reduce competition. This could include collusion to exclude a "discounter."
Territorial allocations. An agreement among brokers to divide their territories or markets and refrain from competing for each other's business
Tying agreements. Agreements to sell one product only if the buyer agrees to purchase another product as well. Tying agreements are not always illegal. For example, facts will be considered as to whether there is extreme disparity in bargaining power between the parties.
An example of a tying agreement would be...
•	a list-back agreement. This occurs when a developer, who also is a broker, places a condition on the sale of a new home in his development that the buyer will list the home with the developer's brokerage company if and when the home is sold by the buyer or a property management agreement that binds the owner to list the property with the broker who also is the property manager.	

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or activity, consult the broker under whose license you work or legal counsel knowledgeable about antitrust matters.
8. Without clearance, don't do it.
(Source: Antitrust Compliance Manual, Illinois Association of REALTORS®, 1996.)
To protect against allegations of antitrust activity, all real estate licensees and offices should participate in continuous office training sessions relating to avoidance of antitrust situations. One very important rule of thumb to remember is that your company must make independent business decisions for itself. One example of this would be for a company to establish the commission rates it will charge.
Another aspect of risk management important to real estate licensees is disclosure. Disclosure is the licensee's duty to keep the client informed of all facts and information affecting the transaction. It is the licensee's responsibility to inform the client of his or her obligation to make the required property disclosures and lead-based paint disclosures.
•	Disclosure Issues
Licensees should encourage their seller clients to make full, honest disclosures and encourage buyer clients to seek outside expertise for testing and information whenever appropriate. Licensees are expected to be generally aware of environmental issues. Some of these issues are covered in the lead-based paint disclosure and the residential real property disclosure report, commonly called the seller disclosure form. Samples can be found in the Appendix.
•	Lead-Based Paint Disclosure
Much of the country's housing built before 1978 contains lead-based paint, generally found on walls, woodwork, doors, and window frames. Lead-based paint is especially hazardous to children as they grow and develop and because they are more likely to exhibit hand-to-mouth behavior, such as chewing on surfaces covered by lead-based paint or ingesting pieces of paint that have cracked or peeled.
To protect families from lead exposure, the Residential Lead-Based Paint Hazard Reduction Act–Title X, was passed. In accordance with this act, I-IUD and the EPA promulgated regulations requiring the disclosure of known information on lead-based paint and hazards before a sale or lease agreement becomes binding. This act covers all housing built before 1978 with these few exceptions:
•	Units with no bedrooms, or with no separation between sleeping and living areas
Property leased for 100 days or less with no lease renewal or extension
Property sold at foreclosure, although the disclosure must be made at resale time
Rental property that is certified "lead-based paint free" by an inspector who is certified under a federal program or federally authorized state certification program
Renewals of existing leases if disclosure was made at the time of the initial lease
Housing for the elderly or disabled if children under the age of six are not expected to live there

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•	Advise the purchaser of his or her opportunity to have the property tested for lead-based paint hazards
Incorporate lead-based paint testing contingency language into the contract, with the help of buyer/lessor's attorney
Disclosure to the Purchaser/Lessee
Disclosure of all information must be made to the purchaser/lessee, including providing copies of records and reports on lead-based paint testing previously done. Disclosure must occur prior to the seller's acceptance of the purchaser's written offer to purchase. If the potential purchaser makes an offer before the requisite disclosures are provided, the seller may not accept that offer until
1.	disclosure activities are completed, including providing the appropriate EPA pamphlets and disclosure forms;
the potential purchaser has had the opportunity to review the information and consider whether to amend his offer; and
disclosure prior to entering into a lease applies to the lessor/lessee. Ten-Day Testing Period
Neither the law nor the regulations require a seller/lessor to test for lead-based paint. The law simply requires sellers to provide potential purchasers with up to ten days in order to have the property tested for lead-based paint before they become obligated under the contract.
Purchasers may agree to a different time period to perform the testing or may waive their opportunity to test altogether. The purchaser may elect to test even though the seller has already done so. The ten-day testing period does not apply to lease transactions.
Agent Liabilities and Penalties for Noncompliance
Federal penalties are severe. Civil penalties can range up to $11,000 for each violation. The penalty for those who knowingly and willfully violate the law and habitually fail to comply can be $11,000 for each violation and imprisonment for up to one year, or both. In addition to federal penalties are those penalties imposed under state law for failure to disclose a material hazardous condition. The seller/ lessor or licensee may be liable for three times the damages for injuries sustained by the purchaser/lessee. These damages may include costs of correcting lead-based paint hazards and medical costs related to lead-based paint poisoning.
Inspection and Record Keeping
The regulations require lead inspector certification under a federal program or a federally authorized state certification program. Agents must keep a copy of the Disclosure of Information and Acknowledgement Form for three years after completion date of the sale or three years from the commencement of the lease period.
III Property Disclosure

t

In addition to lead-based paint, environmental issues have become an important factor in the practice of real estate. Real estate licensees should generally be aware of the existence of environmental hazards, as illustrated in Figure 4.3.

buyer does not have the power to simply cancel the contract. Compensation may be negotiated or the problem remedied by the seller.
Typically, the disclosure form is completed by the seller prior to or at the time the seller signs the listing agreement. The use of the disclosure form does not alleviate an agent's responsibility to disclose all known latent material defects to the buyer. A buyer's agent must also disclose to the buyer material deficiencies in a property of which he or she is aware. Material facts, however, typically will not include information related to property that is not the subject of the transaction.
The seller has a duty to disclose any known latent defects that threaten structural soundness or personal safety. Likewise, an agent or broker would also have a duty to disclose a latent material defect of this type. A latent defect is a hidden structural defect that would not be discovered by ordinary inspection. Buyers have been able to either rescind the sales contract or receive damages when a seller fails to reveal known latent defects. The courts also have decided in favor of the buyer when the seller neglected to reveal known violations of zoning or building codes.
Stigmatized Property Disclosure
In recent years, questions have arisen about stigmatized properties—properties considered undesirable because of events that have occurred there. Stigma is the continuing negative association with or feeling about the property. Typically, the stigma is a criminal event such as homicide, gang-related activity, or a tragedy such as a suicide. Properties also have been stigmatized by rumors that they are haunted.
Article 15 of the Real Estate License Act of 2000 (the Act) states that in dealing with specific situations related to disclosure, "no cause of action shall arise against a licensee for the failure to disclose that an occupant of that property was afflicted with HIV or any other medical condition or that the property was the site of an act or occurrence which had no effect on the physical condition of the property or its environment or the structures located thereon."
Article 15, Section 15-20, continues: ". . . no cause of action shall arise against a licensee for the failure to disclose a fact situation on property that is not the subject of the transaction. . . no cause of action shall arise against a licensee for the failure to disclose physical conditions located on property that is not the subject of the transaction that do not have a substantial adverse effect on the value of the real estate that is the subject of the transaction."
For any action brought under Article 15, "the court may in its discretion, award only actual damages and court costs or grant injunctive relief, when appropriate."
Any action brought under Article 15 must commence within two years after the person bringing the action knew or should have known of such act or omission. In no event can the action be brought more than five years after the date on which the act or omission occurred. If the person entitled to bring the action is under the age of 18 or under legal disability, the period of limitation shall not begin to run until the disability is removed.
Because of potential liability issues, listing brokers should seek competent legal counsel when dealing with a stigmatized property. In some states, a greater burden

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It is helpful for the victim to inform the harasser directly that the conduct is unwelcome and must stop. The victim should use any employer complaint mechanism or grievance system available. When investigating allegations of sexual harassment, the EEOC looks at the whole record: the circumstances, such as the nature of the sexual advances, and the context in which the alleged incidents occurred. A determination on the allegations is made from the facts on a case-by-case basis.
There are two kinds of harassment. Quid pro quo harassment involves requiring an employee to submit to sexual activity in return for a raise or promotion or to retain employment. No tangible benefit has to be lost in order to file a complaint of sexual harassment. A hostile environment is one in which unwelcome sexual requests, gestures, remarks, jokes, and the like are directed toward another worker in the environment where the individual must work.
Prevention is the best tool to eliminate sexual harassment in the workplace. Employers are encouraged to take the steps necessary to prevent sexual harassment. The courts have determined that employers must have policies and procedures in place so that employees know what to do in the event of sexual harassment. The policies should define it and explain reporting, investigation, and disciplinary procedures. The policy should clearly communicate that sexual harassment will not be tolerated. This can be done by providing training to prevent sexual harassment and by establishing an effective complaint or grievance process. Taking immediate and appropriate action when a complaint occurs is a strong defense to risk. Brokers should seek legal counsel about state regulations when drafting the policy.
 National Do Not Call Registry
In 2003, the Federal Communications Commission (FCC) established the National Do Not Call Registry. The registry is a list of phone numbers of consumers who do not want to be contacted by commercial telemarketers. It is managed by the FTC and is enforced by the FTC, the FCC, and state officials.
The do-not-call rules cover the sale of goods or services by telephone. Political organizations, charities, telephone surveyors, or companies with which a consumer has an existing business relationship are exempt from the do-not-call rules. A company may call a consumer, even if that consumer is on the registry, for 18 months after that consumer's last purchase, delivery, or payment; or a company may call a consumer for three months after a consumer makes an inquiry or submits an application to the company. If the consumer asks the company not to call again, the company must honor the request, even if the consumer is not on the do-not-call registry.
For example, it is permissible for a real estate agent to call expired listings for the purpose of listing the property because the established business relationship exception permits the listing agent, as well as other agents from the same cornpany, to contact the seller for up to 18 month after the listing expiration date. Keep in mind that companies must also maintain a company-specific do-not-call list that applies as well.
Accessing the National Do Not Call Registry
Sellers, telemarketers, and other service providers must register to access the registry. The do-not-call registry may not be used for any purpose other than preventing telemarketing calls to the telephone numbers on the registry. The only consumer information available from the registry is a list of telephone numbers.

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2.	Can I still call expired listings?
The established business relationship (EBR) exemption permits the listing agent as well as other agents from the same company to contact the seller for up to 18 months after the expiration date. For agents from any other company, the registry must be consulted prior to calling. If the owner has placed the client's number in the registry, you should refrain from calling until further clarification is provided by the FCC.
3.	A consumer calls my office to inquire about a listing. Can I call this consumer to talk about other listings over the next three months, or am I limited to only discussing the property that prompted the consumer's call?
The do-not-call rules permit a company to call a consumer following an inquiry for three months after the inquiry or until the consumer requests to be placed on the company's do-not-call list. There is no limit on what the company can discuss with the consumer during those three months so long as the consumer has not asked to be placed on your company-specific donot-call list. Thus, other listings could be discussed with the consumer over the next three months.
4.	A former client calls and tells me her friend would like me to call to discuss the possibility of listing his house with me. Do I have to check the registry before making the call?
Yes, you would need to check the registry because it is not clear whether this sort of indirect inquiry would qualify as a "customer inquiry" within the law.
5.	Can I call visitors from an open house who provide their phone numbers on a sign-in sheet?
Whether this would qualify as a customer inquiry is not clear from the law, and this is another area requiring clarification from the FCC. The safest course would be to provide some kind of notice on the sign-in sheet alerting visitors that they are consenting to receive a follow-up call; also include an opt-out provision.
Source: Based on material published by the National Association of REALTORS®
 The CAN-SPAM Act
The CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act) establishes requirements for those who send commercial e-mail; spells out penalties for those that don't comply, not just "spammers"; and gives consumers the right to have e-mailers stop e-mailing them. The law, which became effective January 1, 2004, covers e-mail whose primary purpose is advertising or promoting a commercial product or service, including Web site content. A "transactional or relationship message" (e-mail that facilitates an agreement upon transaction or updates a customer in an existing business relationship) may not contain false or misleading routing information but otherwise is exempt from most provisions of the CAN-SPAM Act.
The FTC is authorized to enforce the CAN-SPAM Act. The act also gives the Department of Justice the authority to enforce its criminal sanctions. Other federal and state agencies have the authority to enforce the law against organizations under their jurisdiction. Companies that provide interstate access may regulate violators as well.

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•	Places no time limit on an EBR
Requires all commercial faxes to include an opt-out provision on the first page of the fax and provide a cost-free, 24/7 means for the recipient to request removal from a fax distribution list
•	Requires that, after the date of enactment, fax numbers to which advertising is sent be obtained either directly from the recipient by oral or written consent or, if sent within the context of a newly established business relationship, from a public source to which the recipient gave the number willingly for publication (i.e., a Web site or advertisement)
Allows senders, in the case of an earlier EBR, to use fax numbers in their possession prior to the effective date
Requires, in the case of an EBR that existed prior to enactment but for which the sender did not possess a fax number at the time of enactment of this legislation, that a fax number be obtained either directly from the recipient by oral or written consent or from a public source to which the recipient gave the number willingly for publication
Authorizes the FCC, after not less than three months from enactment, to review this matter and, if the FCC determines that there are significant abuses of faxes sent under the EBR exception, may reconsider imposing limitations on the EBR
It is also important to know that despite adoption of this federal law, state laws on the sending of unsolicited faxes are not preempted. Going forward, senders must comply with both the federal and applicable state laws. The federal law will not allow an unsolicited fax to be sent where doing so is prohibited by state law.
Understanding how these laws impact your business and implementing effective procedures will greatly assist in risk reduction for your brokerage company and its agents.
 Summary
The purpose of antitrust laws is to preserve competition, discourage monopolies, and control the exercise of monopoly powers. The basic federal antitrust acts are the Sherman Act, the Clayton Act, the FTC Act, and the Robinson-Patman Act. Antitrust practices include price-fixing, boycotts, territorial allocations, and some tying agreements.
Disclosure issues include lead-based paint and property disclosures among others. Sellers and licensees all have certain disclosure responsibilities.
Sexual harassment is a form of illegal discrimination and is regulated under Title VII of the Civil Rights Act of 1964. It is enforced through the EEOC.
The National Do Not Call Registry is a list of consumer telephone numbers that do not want to be contacted by businesses who sell goods or services. Violators are subject to fines of up to $11,000 for each illegal call placed.

Salesperson A works for Able Real Estate and has an active rural practice. At a listing presentation, Salesperson A is asked by the seller, who is her regular golf partner, how to complete the seller disclosure form. There were a couple of instances when the basement leaked, and the sellers were not sure how to proceed. Salesperson A asked her golf partner/seller when the last leaks occurred. One happened about five years ago during the big rain of 2000 when every basement leaked. Salesperson A advised her friend not to acknowledge that the basement had leaked since it was over five years ago and would also be considered an act of God. The property sold and the purchaser finished the basement. During renovation, the contractor noted evidence of previous water damage. The buyer immediately provided a copy of the seller disclosure form to his attorney.
For Discussion
If the seller has remedied a prior defect and feels reasonably sure that the defect has in fact been remedied, does the seller have a duty to still disclose the defect?
What constitutes seller's actual knowledge of a material defect? Case Study Questions
1. Why should the broker for Able Real Estate be concerned about the actions of Salesperson A?
a.	Salesperson A should never represent her golf partner.
Salesperson A may have engaged in the unauthorized practice of law.
a.	Salesperson A should not advise her golf partner how to complete her seller disclosure form.
a.	Both b and c are correct.
2. What issues present potential exposure for the broker?
a.	There is no potential exposure because it is the seller's duty to complete the seller disclosure form.
The broker could be held liable for Salesperson A's representations made to her seller client.
The broker might share liability on these facts for any money damages incurred by the buyer when the basement floods the next time.
a.	Both b and c are correct.

i

•	Makes a false or fraudulent representation in the attempt to obtain a real estate license
•	Has been convicted of a felony or of a crime involving dishonesty, fraud, larceny, embezzlement, or obtaining money, property, or credit by false pretenses or by means of a confidence game
Has been convicted in Illinois or any other state of a crime that constitutes a felony under Illinois law
•	Has been convicted of a felony in a federal court
Has been found by a court to be a person under legal disability or subject to voluntary or judicial admission under the Illinois Mental Health and Developmental Disabilities Code
•	Performs or attempts to perform any act as a broker or salesperson in a retail sales establishment from an office, desk, or space that is not separated from the main retail business and in a separate and distinct area;
Has been subjected to disciplinary action by another state, the District of Columbia, a territory, a foreign nation, a government agency, or any other entity authorized to impose discipline if at least one of the grounds for that discipline is the same as or equivalent to a cause for discipline in Illinois
Has engaged in real estate activity without a license or with an expired or inoperative license
Attempts to subvert or cheat on the licensing exam or assists someone else in doing so
In performing or attempting to perform any act as a broker or salesperson or in handling his or her own property (whether held by deed, option, or otherwise), a licensee may also be subject to disciplinary action if found guilty of any of the following activities:
•	Making any substantial misrepresentation or untruthful advertising
Making any false promises to influence, persuade, or induce
•	Pursuing a continued and flagrant course of misrepresentation or making
false promises through agents, salespeople, advertising, or otherwise
•	Using any misleading or untruthful advertising
•	Using any trade name or insignia of membership in any real estate organization of which the licensee is not a member
Acting for more than one party in a transaction without providing written agency disclosure
Representing or attempting to represent a broker other than the sponsoring broker
Failing to account for or to remit any moneys or documents belonging to others that come into the licensee's possession
•	Failing to properly maintain and deposit escrow moneys in a separate account
•	Failing to make available all escrow records maintained in connection with the practice of real estate during normal business hours and within 24 hours of an IDFPR request
Failing to furnish on request copies of all documents relating to a real estate transaction to all parties executing them
•	Failure of the sponsoring broker to provide appropriate licensing documents (sponsor cards, license termination information) to IDFPR in a timely manner

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•	Inducing any individual to break an existing contract to enter into a new one, whether a sales or lease contract or a brokerage contract
•	Negotiating directly with the exclusive client of another agent
•	Acting as an attorney in the same transaction in which one acts as a real estate broker or salesperson
If merchandise or services are advertised for free, failing to state any conditions or obligations necessary for receiving the merchandise or services in the same ad or offer
Disregarding or violating any provisions of the Land Sales Registration Act or the Time-Share Act
•	Violating a disciplinary order
Paying any compensation that violates Article 10 of the Act
•	Disregarding or violating any provision of this act or the published rules or any regulations promulgated to enforce the Act
•	Assisting any individual or business entity in disregarding the Act or rules
Violating the terms of a disciplinary order issued by IDFPR
•	Forcing any party to a transaction to compensate the licensee as a requirement for releasing escrow moneys
III Nonpayment of Child Support, Income Tax, or Student Loans
Specifically highlighted in the Act, IDFPR will refuse to issue or renew (or may revoke or suspend) the licenses of individuals who are more than 30 days delinquent in child support payments.
Anyone who fails to file a tax return or to pay any tax, penalty, interest, or final assessment required by the Illinois Department of Revenue may have his or her license withheld or suspended until any such tax requirements are met.
Failure to repay Illinois student loans is also emphasized. If student loans were provided or guaranteed by the Illinois Student Assistance Commission or any governmental agency of the state and not paid back, IDFPR will not grant a real estate license to that individual. For an existing licensee, a hearing would be set. If no satisfactory repayment plan has been made, the license may be suspended or revoked through a disciplinary action.
•	Discriminatory Actions
Civil rights violations are taken very seriously by IDFPR. If there has been a civil or criminal trial in which a licensee has been found to have engaged in illegal discrimination in the course of a licensed activity, IDFPR must suspend or revoke the licensee's license unless the adjudication is on appeal. Similarly, if an administrative agency finds that a licensee has engaged in illegal discriminatory activities, IDFPR must take disciplinary action against the licensee unless the administrative order is on appeal.
•	Civil and Criminal Penalties
A licensee found guilty of an infraction of the Act may be subject to disciplinary action. Discipline can range from action taken against a person's license

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Violations of the Act are specifically declared to be harmful to the public welfare and a public nuisance. The attorney general of Illinois, a county state's attorney, IDFPR, and private citizens may seek an injunction to stop or prevent a violation.
III Advisory Letter
An advisory letter issued by IDFPR addresses issues and answers questions the licensee may have regarding the interpretation and application of the Act and the rules. Rather than acting without regard to the potential for violating the Act or rules, it would behoove the licensee to submit a request for an advisory opinion as to the appropriateness of the licensee's actions. Requests for advisory letters have to be submitted in writing to IDFPR. The request must include the following:
1.	The name of the licensee on whose behalf the letter is being sought
The factual or hypothetical situation on which the letter is being sought
Citations to any provisions of the Act, rules, or cases the licensee believes are relevant to the issue
A statement of the issue or issues on which advice is being sought
A licensee is entitled to rely upon an advisory letter from IDFPR and will not be disciplined for actions taken in reliance on the advisory letter. An advisory letter may only be relied upon by the licensee seeking the advisory letter. IDFPR can change its position at any time, at which time the licensee would have to meet the new position or policy of IDFPR.
If another licensee relies on an advisory letter issued to another licensee, the licensee can refer to the advisory letter as the reason for the licensee's actions; however, IDFPR may, when deciding discipline, take this under consideration but is not bound to it, because the advisory letter was issued to another licensee.
Since the information will be available through the Freedom of Information Act and may also be published by IDFPR, the licensee requesting the letter should indicate whether the licensee's name should be disclosed in the letter. If the request for the advisory letter includes a request to keep the name of the licensee confidential, then the person requesting the letter should submit, along with the request, a second letter using generic business names for confidentiality.
IDFPR will issue a response within 60 days from receipt of a request. The response may be the advisory letter, an estimated time for providing an advisory letter, a request for clarification or additional information, or a statement that IDFPR declines to issues an advisory letter as requested with an indication of the reason for declining the request. IDFPR will provide copies of all correspondence to the sponsoring broker if a sponsored licensee makes the request rather than the broker.
III Disciplinary Statute of Limitations
IDFPR may only take disciplinary action for a violation of the Act or its rules within five years after the alleged violation occurred. A violation that is continuing will be deemed to have occurred on the date when the circumstances that gave rise to the violation last existed. Article 15 has a two-year statute of limitations for civil actions after the person knew or should have known of the violation and a statute of repose of five years.

Iskren is an Illinois licensed broker. Iskren had advertised a promotion that anyone who lists with him in October will get a free plasma television. When the seller, Tatiana, signed a one-year exclusive-right-to-sell listing agreement to sell her condominium, Iskren told Tatiana that she would only receive the plasma television when the sale of her property closed.
Iskren places an ad on the Internet to sell Tatiana's property stating it has a lake view. A buyer, Liduvina, based on her computer search and virtual tour, submits an offer to buy Tatiana's condo, which Tatiana accepts. Unfortunately, the condo is in Oak Park and faces Lake Street, not Lake Michigan, which is eight miles to the east. When the buyer, Liduvina, discovers this, she demands to be released from the contract. An angry Tatiana and Liduvina each file a complaint with IDFPR against Iskren for false and deceptive advertising.
For Discussion
Will Tatiana and Liduvina prevail with their complaints at IDFPR against Iskren? What specific violations did Iskren commit and what discipline could IDFPR impose?
Case Study Questions
1. When Iskren defends his actions regarding Tatiana's complaint before IDFPR, he claims that he was within his rights to offer a plasma television. Under the Act, his claim should be considered
a.	acceptable because the seller, Tatiana, should have asked more questions before signing the listing agreement.
a.	acceptable because Iskren has the right to use the terms of his ad to mean anything he chooses, and it was certainly not misleading to insist that the transaction close.
a.	acceptable because the seller, Tatiana, got something for signing the listing agreement, and everyone knows that the broker can switch the object of the promotion anytime the broker wants.
not acceptable because the seller, Tatiana, as well as the general public, has the right to rely on the normal and customary usage of the words in an ad.
2. When IDFPR reviews the complaint of the buyer, Liduvina, it will likely find that Iskren's ad was
a.	acceptable because the word lake was correctly used and the problem is the result of the buyer, Liduvina, misinterpreting the ad.
not acceptable because the buyer, Liduvina, relied on the misrepresentations of the broker, Iskren, to her financial detriment.
acceptable because the buyer, Liduvina, should not be buying properties based on a virtual tour on the Internet.
a.	acceptable because the buyer, Liduvina, has signed a valid real estate contract which can be voided only by an action of the seller, not the broker.

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10. Agent Jones is also a licensed attorney in Illinois. She practices with a small civil practice law firm and her real estate salesperson's license is sponsored by ABC Realty, Inc. Which situation would be prohibited under the Act?
a.	Agent Jones represents Buyer Barnaby as a buyer's agent only on Barnaby's purchase of a condominium.
a.	Agent Jones finds a home for Buyer Barnaby to purchase and serves as Barnaby's lawyer at the closing.
a.	Agent Jones acts only as attorney for Barnaby at the closing of Barnaby's home purchase transaction.
a.	None of the above is prohibited.

11. At a closing the seller's agent, Broker A, collects the entire commission and tells the buyer's agent, Broker Z, to collect the check for the co-op commission the next day. After closing, Broker A checks the IDFPR Web site and finds that Broker Z's broker's license was revoked three months prior to the transaction. What should Broker A do?
a.	Pay the commission to IDFPR
a.	Notify Broker Z the cooperative commission cannot be paid because he does not have a valid license and notify IDFPR of the problem
Notify Broker Z their license has been revoked and pay the cooperative commission at a reduced rate
Notify Broker Z their license has been revoked and pay the cooperative commission

9 8	appendix
	ILLINOIS ASSOCIATION OF REALTORS		
	DISCLOSURE OF INFORMATION AND ACKNOWLEDGMENT LEAD-BASED PAINT AND/OR LEAD BASED PAINT HAZARDS	!QUAL HOUSING	

Lead Warning Statement
Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory. Lead poisoning also poses a particular risk to pregnant women. The seller of any interest in residential real property is required to provide the buyer with any information on lead-based paint hazards from risk assessments or inspections in the seller's possession and notify the buyer of any known lead-based paint hazards. A risk assessment or inspection for possible lead-based paint hazards is recommended prior to purchase.
PropertyAddress:	 Seller's Disclosure (initial)

(a) Presence Li Known

t and/or lead-based paint hazards (check one below):
t and/or lead-based paint hazards are present in the housing (explain):

D	Seller has no k (b) Records and Reports av
n	Seller has provided t paint and/or lead-base

-based paint and/or lead-based paint hazards in the housing. (check one below):
II available records and reports pertaining to lead-based the housing (list documents below):

sed paint and/or lead-based paint hazards

9 Seller has no reports or records p in the housing.
Purchaser's Acknowledgment (initial)
	(c)	Purchaser has received copies of all inform
	(d) Purchaser has received the pamphlet Protect Your	ead in Your Home.
	(e) Purchaser has (check one below):
Received a 10-day opportunity (or mutually agre	on perios	onduct a risk assessment
or inspection of the presence of lead-based paint	-b	azards; or

•	Waived the opportunity to conduct a risk assessment	presence of lead-based paint and/or lead-based paint hazards.
Agent's Acknowledgment (initial)
	(f )	Agent has informed the seller of the seller's obligations under 42 .S.C. 4852d and is aware of his/her responsibility to ensure compliance.
Certification of Accuracy
The following parties have reviewed the information above and certify to the best of their knowledge, that the information they have provided is true and accurate.

Seller Seller Agent

Date	I	/	Purchaser	Date	/	/	
Date	/	/	Purchaser	Date	I	I	
Date	/	/	Agent	Date	I	/	

Form 420	Revised 8/2004	(This disclosure form should be attached to the Contract to Purchase)

100	appendix

Illinois Association of REALTORS®
RESIDENTIAL REAL PROPERTY DISCLOSURE REPORT
NOTICE: THE PURPOSE OF THIS REPORT IS TO PROVIDE PROSPECTIVE BUYERS WITH INFORMATION ABOUT MATERIAL DEFECTS IN THE RESIDENTIAL REAL PROPERTY. THIS REPORT DOES NOT LIMIT THE PARTIES RIGHT TO CONTRACT FOR THE SALE OF RESIDENTIAL REAL PROPERTY IN "AS IS" CONDITION. UNDER COMMON LAW SELLERS WHO DISCLOSE MATERIAL DEFECTS MAY BE UNDER A CONTINUING OBLIGATION TO ADVISE THE PROSPECTIVE BUYERS ABOUT THE CONDITION OF THE RESIDENTIAL REAL PROPERTY EVEN AFTER THE REPORT IS DELIVERED TO THE PROSPECTIVE BUYER. COMPLETION OF THIS REPORT BY SELLER CREATES LEGAL OBLIGATIONS ON SELLER THEREFORE SELLER MAY WISH TO CONSULT AN ATTORNEY PRIOR TO COMPLETION OF THIS REPORT.
Property Address: 	
City, State & Zip Code: 	
Seller's Name:

This report is a disclosure of Disclosure Act. This information date or information that becom or any person representing any
In this form, "am aw
rial defect" means a condition tha impair the health or safety of future rected.

onditions of the residential real property listed above in compliance with the Residential Real Property f 	 20	, and does not reflect any changes made or occurring after that er after that date. The disclosures herein shall not be deemed warranties of any kind by the seller tion.
actual notice or actual knowledge without any specific investigation or inquiry. In this form a "mate‑
tat adverse effect on the value of the residential real property or that would significantly
tial real property unless the seller reasonably believes that the condition has been cor‑

The seller discloses the follown prospective buyers may choose to rely on this in
The seller represents that to the best o "no" (incorrect) or "not applicable" to the prope not applicable, the seller shall provide an explanatu

the knowledge that even though the statements herein are not deemed to be warranties, whether or not and on what terms to purchase the residential real property. ledge, the following statements have been accurately noted as "yes", (correct), seller indicates that the response to any statement, except number 1, is yes or al information area of this form.

YES

1.	

2.	
3.	
4.	

91-1
10.	

11.	LI
12.	1
10.	
14.	LI
15.	L_J

16.	

NO N/A

1	

II 

II

L_J

onths. (No explanation is needed.) 

e crawlspace or basement.

t I currently have flood hazard insurance on the property.

ng cracks and bulges). 

himney.

Seller has occupied the prope
I am aware of flooding or recurring I am aware that the property is loca
I am aware of material defects in the basem I am aware of leaks or material defects in
I ant aware of material defects in the walls or floo
I am aware of material defects in the electrical system.

des such things as water heater, sump pump,

I am aware of material defects in the the plumbing s water treatment system, sprinkler system, and swim
I am aware of material defects in the well or well equip I am aware of unsafe conditions in the drinking water.
I am aware of material defects in the heating, air conditioning,
I am aware of material defects in the fireplace or woodburning s
I am aware of material defects in the septic, sanitary sewer, or other	system.
I am aware of unsafe concentrations of radon on the premises.
I am aware of unsafe concentrations of or unsafe conditions relating to asbestos on the premises.
I am aware of unsafe concentrations of or unsafe conditions relating to lead paint, lead water pipes, lead plumbing pipes or lead in the soil on the premises.
I am aware of mine subsidence, underground pits, settlement, sliding, upheaval, or other earth stability defects on the premises.
I am aware of current infestations of termites or other wood boring insects.
I am aware of a structural defect caused by previous infestations of termites or other wood boring insects. I am aware of underground fuel storage tanks on the property.
I am aware of boundary or lot line disputes.
I have received notice of violation of local, state or federal laws or regulations relating to this property, which violation has not been corrected.

108 Revised 1/00	COPYRIGHT © BY ILLINOIS ASSOCIATION OF REALTORS®	

102	appendix

RESIDENTIAL REAL PROPERTY DISCLOSURE ACT 
SENATE BILL 828 (PUBLIC ACT 88-111) EFFECTIVE OCTOBER 1, 1994 AN ACT relating to disclosure by the seller of residential real property.
Section 1. Short title. This Act may be cited as the Residential Real Property Disclosure Act.
Section 5. As used in this Act, unless the context otherwise requires the following terms have the meaning given in this section:
"Residential real property" means real property improved with not less than one nor more than four residential dwelling units; units in residential cooperatives; or, condominium units including the limited common elements allocated to the exclusive use thereof that form an integral part of the condominium unit.
"Seller" means every person or entity who is an owner, beneficiary of a trust, contract purchaser or lessee of a ground lease, who has an interest (legal or equitable) in residential real property. However, "seller" shall not include any person who has both (i) never occupied the residential real property and (ii) never had the management responsibility for the residential real property nor delegated such responsibility for the residential real property to another person or entity.
"Prospective buyer" means any person or entity negotiating or offering to become an owner or lessee of residential real property by means of a transfer for value to which this Act	s.

Section 10. Except as pro of beneficial interest, lease wit
Section 15. The pro
(1) Transfers pursuant fers between spouses resulting fro
by a trustee in bankruptcy, transfers by

on 15, this Act applies to any transfer by sale, exchange, installment land sale-contract, assignment ase, ground lease or assignment of ground lease of residential real property.
not apply to the following:
, including, but not limited to, transfers ordered by a probate court in administration of an estate. transent of	ion of marriage or legal separation, transfers pursuant to an order of possession, transfers ransfers resulting from a decree for specific performance.

(2)	Transfers from a mortgag	deed in lieu of foreclosure or consent judgement, transfer by judicial deed issued pur‑
suant to a foreclosure sale to the successfu	isnitgnee )f. a certificate of sale, transfer by a collateral assignment of a beneficial interest of
a land trust, or a transfer by a mortgagee or a su	the mortgagee's secured position or a beneficiary under a deed in trust who has
acquired the real property by deed in lieu of fo	ent or judicial deed issued pursuant to a foreclosure sale.
(2)	Transfers by a fiduciary in the cours o e a	istr ion of a decedent's estate. guardianship, conservatorship, or trust.
(4)	Transfers from one co-owner to one or
(2)	Transfers pursuant to testate or intestate sue
(2)	Transfers made to a spouse, or to a person or	.f consanguinity of one or more of the sellers.
(2)	Transfers from an entity that has taken title to re	om a seller for the purpose of assisting in the relocation of the
seller, so long as the entity makes available to all prospective bu	a c	of disc sure form furnished to the entity by the seller.
(2)	Transfers to or from any governmental entity.
(2)	Transfers of newly constructed residential real property	t h.	ed.
Section 20. A seller of residential real property shall complete all a	the disclosure document described in Section 35 of
this Act. The seller shall deliver to the prospective buyer the written disclosure sta	ired by this Act before the signing of a written agree‑
ment by the seller and prospective buyer that would, subject to the satisfaction o	tated contingencies, require the prospective buyer to accept
a transfer of the residential real property.

omissi 

accur

accu - ,	o pis:

.o+	co

Section 25. Liability of seller. (a) The seller is not liable for any error,	of any information delivered pursuant to
this Act if (i) the seller had no knowledge of the error, inaccuracy, or omission, (ii) the	ission was based on a reasonable belief
that a material defect or other matter not disclosed had been corrected, or (iii) the error,	n was based on information provided
by a public agency or by a licensed engineer, land surveyor, structural pest control operat	tor about matters within the scope of the
contractor's occupation and the seller had no knowledge of the error, inaccuracy or omissio
(b)	The seller shall disclose material defects of which the seller has actual knowledg
The seller is not obligated by this Act to make any specific investigation or inquiry in an effort to complete the disclosure statement.
Section 30. Disclosure supplement. If prior to closing, any seller has actual knowledge of an error, inaccuracy, or omission in any prior disclosure document after delivery of that disclosure document to a prospective buyer, that seller shall supplement the prior disclosure document with a written supplemental disclosure.
Section 35. Disclosure report form. The disclosures required of a seller by this Act, shall be made in the following form: [form on reverse side]
Section 40. Material defect. If a material defect is disclosed in the Residential Real Property Disclosure Report, after acceptance by the prospective buyer of an offer or counter-offer made by a seller or after the execution of an offer made by a prospective buyer that is accepted by the seller for the conveyance of the residential real property, then the Prospective Buyer may, within three business days after receipt of that Report by the prospective buyer, terminate the contract or other agreement without any liability or recourse except for the return to prospective buyer of all earnest money deposits or down payments paid by prospective buyer in the transaction. If a material defect is disclosed in a supplement to this disclosure document, the prospective buyer shall not have a right to terminate unless the material defect results from an error, inaccuracy, or omission of which the seller had actual knowledge at the time the prior disclosure document was completed and signed by the seller. The right to terminate the contract, however, shall no longer exist after the conveyance of the residential real property. For purposes of this Act the termination shall be deemed to be made when written notice of termination is personally delivered to at least one of the sellers identified in the contract or other agreement or when deposited, certified or registered mail, with the United States Postal Service, addressed to one of the sellers at the address indicated in the contract or agreement, or, if there is not an address contained therein, then at the address indicated for the residential real property on the Report.