01/26/1998 03:24 PM House L&C

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled

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HOUSE LABOR AND COMMERCE STANDING COMMITTEE January 26, 1998 3:24 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Bill Hudson Representative Joe Ryan Representative Tom Brice MEMBERS ABSENT Representative Jerry Sanders Representative Gene Kubina COMMITTEE CALENDAR HOUSE BILL NO. 33 "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 33 SHORT TITLE: REAL ESTATE LICENSING SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST Jrn-Date Jrn-Page Action 01/13/97 36 (H) PREFILE RELEASED 1/3/97

01/13/97 36 (H) READ THE FIRST TIME - REFERRAL(S)

01/13/97 36 (H) LABOR & COMMERCE, FINANCE 03/14/97 (H) L&C AT 3:15 PM CAPITOL 17 03/14/97 (H) MINUTE(L&C) 03/17/97 (H) L&C AT 3:15 PM CAPITOL 17 03/17/97 (H) MINUTE(L&C) 03/24/97 (H) L&C AT 3:15 PM CAPITOL 17 03/24/97 (H) MINUTE(L&C) 10/13/97 (H) L&C AT 1:00 PM ANCHORAGE LIO 10/13/97 (H) MINUTE(L&C) 10/23/97 (H) L&C AT 2:00 PM ANCHORAGE LIO 10/23/97 (H) MINUTE(L&C)

01/23/98 (H) L&C AT 3:15 PM CAPITOL 17

01/23/98 (H) MINUTE(L&C)

01/26/98 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER RUTH BLACKWELL, Chairman Real Estate Commission Division of Occupational Licensing Department of Commerce and Economic Development; Associate Broker Powell Realty, Incorporated 9040 Glacier Highway Juneau, Alaska 99801 Telephone: (907) 789-3888 POSITION STATEMENT: Testified as a private individual on HB 33. CATHERINE REARDON, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, Alaska 99811 Telephone: (907) 465-2534 POSITION STATEMENT: Testified on HB 33. ACTION NARRATIVE TAPE 98-5, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:24 p.m. Members present at the call to order were Representatives Rokeberg, Cowdery, Hudson and Ryan. Representative Brice arrived at 3:29 p.m. HB 33 - REAL ESTATE LICENSING Number 0045 CHAIRMAN ROKEBERG announced the first order of business a continuation of the public hearing on HB 33, "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." He noted this meeting's purpose would be to give the committee an opportunity to review HB 33 and take up a series of amendments. Number 0118 CHAIRMAN ROKEBERG stated that he would explain to the committee portions of HB 33 that require some further work. He noted he wished to consider another series of approximately four amendments at the next committee meeting, scheduled for January 28, 1998. Chairman Rokeberg stated he hoped the concerns of the committee members would be addressed in today's meeting. Number 0198 REPRESENTATIVE JOHN COWDERY asked the destination of HB 33 after the House Labor and Commerce Standing Committee. Number 0205 CHAIRMAN ROKEBERG answered that HB 33 was referred to the House Finance Standing Committee. He commented that the fiscal note had not been received; a small one is necessary due to the regulatory changes. Chairman Rokeberg commented that he would like to move HB 33 out of committee at the next meeting so that it could be calendared next week in the House Finance Standing Committee. Number 0267 CHAIRMAN ROKEBERG introduced proposed committee substitute 0- LS0197/P, Lauterbach, 1/16/98. Number 0276 REPRESENTATIVE COWDERY made a motion to adopt proposed committee substitute 0-LS0197/P, Lauterbach, 1/16/98, as a work draft. Number 0285 CHAIRMAN ROKEBERG, hearing no objections, stated that Version P was adopted for discussion purposes. Number 0321 CHAIRMAN ROKEBERG commented on the lengthy revision process HB 33 experienced during the past summer. He noted one of the bill's most controversial aspects, the endorsements concept, which would have required different educational endorsements resulting in specialization in four areas of the real estate business. Hearings occurred last spring and summer on this aspect. Number 0386 CHAIRMAN ROKEBERG stated that one of the purposes of the original task force appointed by the Real Estate Commission in conjunction with the Alaska Association of Realtors, Incorporated, was to bring community association management under the auspices of the real estate statute, in order to have a certain amount of control over that activity. The task force "believed that setting up this separate type of a licensing procedure would be the most applicable." Chairman Rokeberg noted, however, there was an enormous amount of negative feelings toward this procedure in the real estate community. The real estate community felt it would result in an extraordinary change from the way business was currently being conducted. The real estate community also felt implementation of this procedure would have been a burden on the Real Estate Commission. Chairman Rokeberg stated that there was not enough public support to continue with the endorsements concept. Number 0433 CHAIRMAN ROKEBERG continued, stating that the committee, in its work, has done two different things. It has kept an educational requirement recognizing the specialties within the educational requirements for continuing education. This requirement does not extend to pre-licensing education. These specialties, which he described as core areas, are: community association management, property management, sales, and commercial activities. These specialties are reflected in the core continuing education hours mandated by the Real Estate Commission under the existing statute. Number 0476 CHAIRMAN ROKEBERG stated that the types of courses eligible for continuing education credit have been expanded. For example, he noted the educational requirements to receive specialty designations has been recognized, under this bill, for inclusion in the continuing education hours. Specialty designation is a difficult and expensive process for individuals. Number 0511 CHAIRMAN ROKEBERG continued that there have been a number of other changes. He specifically noted the deletion in Version P of the provision for errors and omissions insurance. This issue has been strongly debated within the real estate community. Chairman Rokeberg stated it was felt that there was not enough public support for the continued adoption of this provision in HB 33 at this time. Number 0546 CHAIRMAN ROKEBERG noted that the errors and omissions insurance provision was a (indisc.) concept put forward by the Real Estate Commission. He stated the committee realizes its importance and recommends that every real estate business in the community carry this insurance, noting that many do already. He said the committee decided, after taking testimony from (indisc.) Hawaii and other areas that had adopted mandatory errors and omissions insurance, that this provision was not appropriate at this time. Number 0577 CHAIRMAN ROKEBERG stated that the most important new addition to HB 33 " has occurred in the last quarter of this year." He referred to the provisions in Section 33, on page 22, relating to "the real estate kick-backs, or the rebate situation." Chairman Rokeberg noted that this issue is causing a great deal of debate within the real estate industry. Number 0634 CHAIRMAN ROKEBERG stated that the language adopted in HB 33 is intended to clearly and specifically prohibit any form of kick-back or rebate from a licensee to a non-licensed person. He mentioned legal opinions that were requested by both himself and Representative Ryan: an October 23, 1997, memorandum from Tamara Brandt Cook, Director of the Division of Legal and Research Services, Legislative Affairs Agency; and a more lengthy opinion from legislative counsel. According to these legal opinions, existing statute prohibited kick-back or rebate activity. Number 0675 CHAIRMAN ROKEBERG noted, however, at the December 4, 1997, meeting of the Alaska Real Estate Commission there was testimony from Gayle Horetski, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, that put the previous legal opinions into question. Chairman Rokeberg said that the Attorney General's Office was not comfortable in recommending to the Real Estate Commission that this type of activity is forbidden under existing statute. Number 0702 CHAIRMAN ROKEBERG added that the Attorney General's Office further recommended to the Real Estate Commission that legislative action was necessary to make absolutely certain kick-back or rebate activity was prohibited. The committee is in receipt of that communication and has adopted this section into Version P. Number 0722 CHAIRMAN ROKEBERG also pointed out to the committee that the above provision and some related items are currently under review by a counsel hired by the Alaska Association of Realtors, Incorporated, and the Anchorage association of realtors. This action is meant to ensure that there are no loopholes in the existing statutes and regulations, and any changes thereto by HB 33. It is the intention of the chairman to bring up this reviewed provision at the next meeting in the form of an amendment to Version P. Number 0768 CHAIRMAN ROKEBERG stated that he was contemplating an amendment concerning the issue of "premitigation before a closing in a sale and post-litigation activity by a real estate licensee in dealing with his clients to fix a - a deal." He noted, referring to Representative Cowdery's question in a previous meeting, it is clear under the existing state statutes and customary practice that real estate commissions and compensation are not fixed in law, or elsewhere. These items are clearly open to bargain between any buyer and seller of real estate, and any broker involved in a transaction. Number 0809 CHAIRMAN ROKEBERG continued that, because of the prohibition language in Section 33, the members of the real estate community want to make sure that they are not restricted from mitigating any problem that could occur in the course of a transaction. He referred to "DFT," "the deal fell through" or "deal did not close," which is sometimes called the "refrigerator clause.". Chairman Rokeberg gave the example of a real estate broker buying a refrigerator for a house in order to avoid losing a sale. He noted that there is no intent to restrict that type of mitigation. Number 0853 CHAIRMAN ROKEBERG said, "We want to make sure that the brokers are able to mitigate prior to closing anything that occurs directly between the principal, that is to say the client in the transaction, and that particular licensee. And that should not be prohibited; we should let commerce take its course and let people be able to bargain for their activities -- and then also, if sometimes, if there is, after a closing, the potentiality for any litigation that they should be able to do that too -- make - have consideration, go forward -- it wouldn't be prohibited by the statute." This consideration would merely reflect the existing conditions in business practice today, he commented. It protects the consumer and the broker. Number 0903 CHAIRMAN ROKEBERG stated he also recommends that any gifts be limited to $100 in value. He noted that this restriction had been in the regulations until the Real Estate Commission had promulgated a controversial regulation the past summer. Number 0940 CHAIRMAN ROKEBERG stated that he was highlighting some of the major issues of HB 33. He noted he wanted to verify that the committee members had an understanding of the affinity group issue and were in agreement. He said, "I think this is consumer protection, we are - we are protecting the consumer from what I consider an injection of the middle man, and if we don't do this it completely defeats the entire purpose of having a regulated industry ...." Number 0975 CHAIRMAN ROKEBERG continued, "In other words, we need to maintain the integrity of our statute and the way the industry is regulated today, and that's the intention of that. And in the long run, that will be to the benefit of the consumer because we'll have a - more practitioners in the market being able to reasonably profit from their activities and provide selection and benefits to the consuming public from this activity." Number 1004 REPRESENTATIVE BILL HUDSON asked if HB 33 contained anything that restricted an individual from selling and handling all of their own personal real estate. Number 1018 CHAIRMAN ROKEBERG stated that there were no restrictions. He mentioned an amendment proposed for this meeting relating to self- management of community associations. He directed the committee's attention to the exceptions clause on page 27, Section 46, "We call it the O-900 area of the law." Number 1046 CHAIRMAN ROKEBERG referred to subsection (1), lines 21 to 23 ("a natural person who is not licensed under this chapter who manages or makes a real estate transaction with respect to real estate the person owns or on the person's own behalf;"), which, he said, is called "the FISBO (For Sale by Owner) exception" in the real estate business. It allows an individual to sell his or her own property. Chairman Rokeberg pointed out that there may be some slight changes in subsection (1). Number 1061 CHAIRMAN ROKEBERG commented that the wording "on the person's own behalf" has, in his opinion, been misinterpreted by the Attorney General. Chairman Rokeberg noted that he interprets the phrase to refer to a person buying real estate. Number 1115 REPRESENTATIVE JOE RYAN asked, for example, if he and another person who acted in partnership, and whose business involved, in part, the purchase and sale of property, would be required to engage a real estate agent to do the buying and selling. Number 1137 CHAIRMAN ROKEBERG commented that, by the inclusion of "natural person," it would seem to be the case. He noted that the prior statute did not have the designation "natural," and the point should be clarified. Number 1157 REPRESENTATIVE COWDERY referred to page 27, line 27, which is part of subsection (2) and reads, "such under this paragraph for more than two transactions in a calendar year." He noted that "transactions" had never been defined by the committee. Number 1180 CHAIRMAN ROKEBERG stated that "transaction" was defined on pages 30 and 31 ("'real estate transaction' (A) in sales, means the transfer or attempted transfer of an interest in a unit of real property, an act conducted as a result of or in pursuit of a contract to transfer an interest in a unit of real property, or an act conducted in an attempt to obtain a contract to market real property; (B) in property management, means the lease or rental of a unit of real property including collection of rent from a tenant of a unit of rented or leased real property, an attempt to rent or lease a unit of real property, an attempt to collect rent from a tenant of rented or leased real property, or an act conducted as a result of or in pursuit of a contract to manage a unit of leased or rented real property; (C) in community association management, means the collection or attempted collection of dues from a unit owner or an activity conducted as a result of or in pursuit of a contract with a community association to manage the affairs of a community association.") Number 1212 REPRESENTATIVE COWDERY stated he had a couple of concerns. He noted, for example, that a Fairbanks legislator owning rental property in Fairbanks would be required to go through a realtor for rent collection while in Juneau during the legislative session, instead of being able to make arrangements with a friend. He asked Chairman Rokeberg to review the situation that had caused the introduction of HB 33. Number 1273 CHAIRMAN ROKEBERG commented that the case involved $280,000 and the offender was prosecuted under state law. He said he would explain the exceptions to HB 33. Number 1332 REPRESENTATIVE HUDSON noted that he had worked briefly for Vintage Business Park (in Juneau) which is essentially owned by a family. He asked if there was anything in the bill that prevents the owner of that property from leasing or executing any kind of a holding that he has on any real estate in that personal property (indisc.). Number 1366 CHAIRMAN ROKEBERG noted that exception (1) specifically addressed that situation. Number 1373 REPRESENTATIVE HUDSON asked if the exception included negotiating bids and developing. Number 1378 CHAIRMAN ROKEBERG answered in the affirmative. He said that it was appropriate to revisit Representative Cowdery's question at this point. He drew attention to the two transactions a year limit and noted that power of attorney had to be given. Number 1455 REPRESENTATIVE COWDERY brought up his concern that testimony had not been heard from members of the general public regarding HB 33. He noted he had helped friends, at no fee, with real estate transactions as an unlicensed individual. Number 1501 CHAIRMAN ROKEBERG stated Representative Cowdery's actions were within the limits of the law as long as no fee was charged. Discussion ensued regarding the two transaction a year limitations and parts of Section 08.88.900, the exceptions. Specific reference was made to: subsection (16) on page 29, lines 2 and 3 ("a person who manages a total of four or fewer residential units for other persons;"); subsection (19) on page 29, lines 10 through 16 ("an attorney in fact who, for a relative, acts under a power of attorney that authorizes the consummation of a specific real estate transaction: in this paragraph, 'relative' means a spouse or a great grandparent, grand parent, parent, uncle, aunt, sibling, child, nephew, niece, grandchild, or great grandchild by the whole or half blood or by marriage but does not include a relative who is only related through a step relationship, such as a stepbrother or the child of a stepbrother, except that 'relative' includes a stepchild"); and subsection (12) on page 28, lines 22 through 25 ("a secretary or receptionist in a real estate office who accepts rent or association fees and provides a written receipt for the rent or fees when a tenant or community association member delivers the rent or fees to the real estate office;"). Number 1624 REPRESENTATIVE RYAN stated that he was not pleased with the language change from "real estate salesman" to "real estate salesperson" in HB 33. Number 1637 CHAIRMAN ROKEBERG said that former Real Estate Commissioner Ron Johnson had also brought the same subject up. Chairman Rokeberg noted that this change was the subject of national discussion; he referred to the world wide web page of the national real estate association. He noted that the designations "real estate broker" and "associate broker" have been retained, and that there has been an attempt to use the terms "licensee" or "real estate practitioner" throughout the bill. However, he said, there were certain areas where, because of construction, "salesperson," formerly "salesman," is used. Number 1727 REPRESENTATIVE RYAN stated that the term "sales" was more acceptable to him than "salesperson." He noted, however, that his major concern was giving the power to set fees to Department of Commerce and Economic Development for examination, licensing, courses and seminars offered by the Real Estate Commission, reinstatement of lapsed licenses, changes to (indisc.) information, course certification and recertification, and instructor approval and renewal approval. Number 1798 REPRESENTATIVE RYAN cited the increases in fees charged by government due to a law allowing the administration to set fees by regulation passed approximately five years ago. He specifically noted the increase in fees this year resulting from lawsuit by a pilot or snowboarder - he was unsure of the exact identity, being applied to all licenses throughout the agency. Number 1861 Some discussion ensued regarding the other legislation, the surety fund, and the concept of fee as tax. Number 1908 CHAIRMAN ROKEBERG noted that Representative Ryan wished to address his subject of concern with an amendment at a later time. Number 1915 REPRESENTATIVE TOM BRICE asked for clarification of exception (19) on page 29. He asked why the definition of relative did not include cousin. Some discussion ensued, resulting in the explanation that there was no specific reason the term had been omitted. Number 1975 CHAIRMAN ROKEBERG, at this time, stated for the record that he was a licensed real estate broker in the state of Alaska and therefore might potentially have a conflict of interest. He noted, however, due to his legislative duties, he has been too busy to practice real estate, although he has kept his license active. Number 1996 REPRESENTATIVE RYAN stated for the record that he also might potentially have a conflict of interest. REPRESENTATIVE RYAN also commented, "Regulating the people within an industry, and what they can do or cannot do, is one thing, but setting up a bill that tells people what they can do with their own real property and enhances the ability of a certain profession or trade association to make a living, is entirely another thing." He noted the risks involved in inhibiting the right of an individual to use or dispose of the individual's own real property without hiring members of a particular trade association. Number 2044 CHAIRMAN ROKEBERG responded that he believed, with the possible exception of some commercial activity, that the committee has broadened the ability of the public to participate in their own activities by expanding the list of exceptions from 10 to 19. He noted some of those additions related to association management. Number 2066 CHAIRMAN ROKEBERG said, "It's certainly been this committee's input into the bill to make sure that, notwithstanding the law previously and the law we're trying to reform, change and modify, that we're not - not going to impede commerce and individual property rights." Number 2079 CHAIRMAN ROKEBERG continued, "I think we've actually expanded the ability of people to manage and - and deal with their own properties by this bill, with the possible exception of -- and this speaks to what Representative Hudson was asking before, is in the rewording on subsection (9) on page 28, where the ability of a business that has real estate, like the Vintage Business Park out here. If they hire someone to do that business, I think, my intention here, that they have to be licensed if they're not doing it just incidental to their business. Number 2105 CHAIRMAN ROKEBERG stated, "It's one thing if you own a property, a building, and want to rent some suites in it ... that's incidental to your business, but if you develop a property and market it as - as a property development ..." Number 2116 REPRESENTATIVE HUDSON added that a license would be required. Some discussion followed that a license wouldn't be required if the owner developed the property himself. Number 2125 REPRESENTATIVE RYAN asked why the time requirement for a real estate salesperson to become a broker had been increased from two to three years. Number 2131 CHAIRMAN ROKEBERG noted that the requirement had not increased and the reference was to 24 out of 36 months. He referred to Section 08.88.171, entitlement to license, both subsections (a) and (b) on pages 8 and 9 ("... has had at least 24 months of active and continuous experience as a licensed real estate salesperson within the 36 months immediately preceding application for the broker license, ..."). Number 2239 CHAIRMAN ROKEBERG stated that the committee would take up Amendment 1, marked "Revised P.2". Amendment 1 read: Page 14, line 4: Delete "licensee's former employer" Insert "broker who previously contracted with or employed the licensee Page 16, line 4: Delete "employed" Insert "active" Page 16, line 5 Delete "licensee" Insert "salesperson or associate real estate broker" Page 16, line 7, following "employs" Insert "or contracts with" Number 2251 REPRESENTATIVE COWDERY made a motion to adopt Amendment 1 for discussion. Number 2259 CHAIRMAN ROKEBERG explained Amendment 1 to the committee, stating that the amendment was made at the request of the Alaska Association of Realtors, Incorporated. He noted that most real estate practitioners are contractors, not employees, and the changes to Version P in Amendment 1 relate to that change in nomenclature. Number 2299 The committee discussed Amendment 1, noting some direction back towards original language and touching on the employee-employer relationship as it related to real estate brokers and salespeople. Reference was made to page 30, line 18 (and 19), subsection 6 ("employed" includes being an independent contractor with an employer;"). It was stated that an upcoming amendment addressed this topic. Comment was made regarding the use of the term "salesperson" and the three different types of licenses. [TAPE 98- 5 changed to SIDE B, beginning with Number 0001, during this discussion] TAPE 98-5, SIDE B Number 0050 CHAIRMAN ROKEBERG asked if there was any further discussion of Amendment 1, or any objections to Amendment 1. Number 0054 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 1 had been adopted. Number 0062 CHAIRMAN ROKEBERG offered Amendment 2, 0-LS0197\P.3, Lauterbach, 1/21/98, to the committee. Amendment 2 read: Page 4, line 18: Delete "shall suspend [MAY" Insert "may suspend [" Page 16, lines 19 - 26: Delete all material and insert: "Sec. 08.88.341. Listings and management contracts. All real estate listings and management contracts must be in writing and must be signed by the broker [SELLER] or associated licensee [BY AN AGENT] of the broker and by the client or an authorized representative of the client for whose benefit the real estate licensee will act [SELLER]. All real estate exclusive listings and management contracts must have a definite expiration date that may be renewed or extended only by a written agreement signed by the client or the client's authorized representative." Page 19, line 4: Delete "or anticipated" Page 19, line 8: Delete "material" Insert "financial" Page 19, line 9: Delete "or anticipated material" Insert "financial" Number 0067 REPRESENTATIVE COWDERY made a motion to adopt Amendment 2 for discussion. Number 0079 CHAIRMAN ROKEBERG explained Amendment 2. The first change, he stated, was a change back to the original language. He noted that the Alaska Association of Realtors, Incorporated, had felt the mandate that the Real Estate Commission "shall suspend" carried too great a penalty, on a mandated basis. The association believed that the commission should have the power to make its own judgement. Number 0143 CHAIRMAN ROKEBERG explained that the next change amended Section 24 in its entirety. As background information, he commented on the controversy surrounding the term "personal service contract" which was introduced by a task force appointed by the Real Estate Commission and the realtors of the state. This contract would have mandated that everyone in the industry, in terms dealing with agency, have a written contract between the client and the licensee. He noted the origin of the idea in a "Creighton University Law Review" article. Number 0191 CHAIRMAN ROKEBERG stated that this amendment was at the request of the Alaska Association of Realtors, Incorporated, who wished a return to the original language which specified "listings" instead of "contracts." He noted, however, the intent to include property management contracts and community association management contracts. He said the language "real estate employment contract" alone is currently considered too much like "brokers-buyers" agreements, to which the real estate industry objects. Number 0226 CHAIRMAN ROKEBERG stated the intent to avoid any possibility of misinterpretation to explain the return to the terms "listing and management contracts." He noted the significant amount of interest and discussion this topic has generated in the hearings on HB 33. Number 0246 CHAIRMAN ROKEBERG referred to a meeting this summer with the legislative committees of the Alaska Association of Realtors, Incorporated, and the Anchorage association of realtors, with other real estate industry members also participating. Working from Version L, these groups wished to retain the conflict of interest language in HB 33 but proposed a few modifications for clarity. These are the changes that Amendment 2 proposes on page 19. CHAIRMAN ROKEBERG noted the industry believed the Real Estate Commission would have difficulty dealing with the aspect of "anticipated personal interest" and that it would be difficult to prove. Chairman Rokeberg stated that members of the Alaska Association of Realtors, Incorporated, are already covered through their association under a code of ethics which includes conflict of interest. Number 0340 REPRESENTATIVE RYAN asked if there were currently substantial problems with real estate industry members not covered by the realtors' ethics code. He described, as "sharp practices," situations in which one person, through advance knowledge or better understanding of market conditions, is able to profit over another person. Representative Ryan noted these practices have been common throughout history and he asked about the ethical and legal considerations of profiting in this manner. Number 0398 CHAIRMAN ROKEBERG replied that he thought those situations came under the realtors' code of ethics, and that the proposed changes related to conflicts of interest Number 0432 RUTH BLACKWELL, Chairman, Real Estate Commission, Division of Occupational Licensing, Department of Commerce and Economic Development; Associate Broker, Powell Realty, Incorporated, came forward to testify. She noted that she was speaking as a private individual. MS. BLACKWELL stated that it was not the practice in Juneau to undervalue a property and then have an agent buy the property; that would be considered unethical, both under the code of ethics, and under disclosure. She stated that the agent has an agency relationship with the seller, and as the seller's agent, an agent involved in this type of practice would be doing the seller an extreme disservice. She noted that this could be grounds for license revocation. Number 0509 CHAIRMAN ROKEBERG noted the two other proposed changes on page 19 in Amendment 2 were similar. Number 0539 CHAIRMAN ROKEBERG asked if there were any objections to Amendment 2. Number 0545 CHAIRMAN ROKEBERG, hearing no objection, stated that Amendment 2 had been adopted. Number 0552 REPRESENTATIVE COWDERY made a motion to adopt Amendment 3, marked "Revised P.4", for discussion. Amendment 3 read: Page 5, line 19, following "approval.": Insert "The Real Estate Commission shall approve each submitted contact hour of a course outline as one credit hour of continuing education. The fee for continuing education course certification under AS 08.88.221 shall be based on the hours approved for credit not hours submitted." Number 0564 CHAIRMAN ROKEBERG stated that Amendment 3 was requested by an individual who was an active realtor and a member of the Alaska Association of Realtors, Incorporated. The amendment was also requested by the Alaska association itself, because of a problem with submission of continuing education hours for credit to the Real Estate Commission. Chairman Rokeberg noted that courses have to be recertified every two years, and two years ago the Alaska Association of Realtors, Incorporated, submitted a substantial number of course hours for recertification that were disapproved. He noted that the fees have now gone from $5 an hour to $25 an hour for course certification. Number 0644 CHAIRMAN ROKEBERG stated that the purpose of Amendment 3 is to require the commission, if approving a course, to allow the full credit hours submitted for that course; and to charge recertification fees only for courses that are approved. He asked Catherine Reardon, Director of the Division of Occupational Licensing, if she wished to comment. Number 0737 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Commerce and Economic Development (DCED), came forward to testify. Number 0744 MS. REARDON commented that, because it is a closed financial system, someone will pay for the review time required for a course that is denied. She noted that if the person who applied for credit for that course does not pay, the other licensees, through their general license fees, or those whose courses were approved will pay. Number 0780 REPRESENTATIVE RYAN noted he felt it was the Real Estate Commission's responsibility to review the courses, not the DCED. He stated his fear of continually increasing license renewal fees. Number 0840 REPRESENTATIVE RYAN also commented on the problem discussed regarding the 60-day advance course notification requirement and national real estate association courses. Number 0851 CHAIRMAN ROKEBERG stated that this was already in the bill and that the national association was exempt from the fee. He also referred to discussion and testimony at the previous House Labor and Commerce Standing Committee meeting on January 23, 1998, regarding course attendance outside the state of Alaska. Number 0885 CHAIRMAN ROKEBERG noted that the provision in HB 33 for review by designee, rather than the full commission, should expedite the process and result in cost savings. Under the existing statutes the full commission had to rule on courses. Number 0915 CHAIRMAN ROKEBERG asked the committee if there were any objections to Amendment 3. Number 0928 REPRESENTATIVE BRICE stated he wasn't raising an objection, and that he liked the idea, but felt that there were some issues. Number 0951 CHAIRMAN ROKEBERG noted that he had rewritten the language received from the drafter and it was difficult to express the concept with the necessary wording while keeping the language short Number 0982 REPRESENTATIVE BRICE stated his only concern, "Are we establishing a situation where, to ensure that the commission is getting paid for the review that they're doing, that they're under a certain amount of burden to approve substandard courses?" Number 1003 CHAIRMAN ROKEBERG noted he appreciated Representative Brice's point, mentioning another upcoming amendment. He asked if there were any objections to Amendment 3. Number 1022 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 3 had been adopted. Number 1027 REPRESENTATIVE COWDERY made a motion to adopt, for discussion, Amendment 4, 0-LS0197\P.5, Lauterbach, 1/21/98. Amendment 4 read: Page 6, line 23: Delete "or community association management" Page 6, line 24, following "(4)": Insert "practice, or negotiate for a contract to practice, property management; (5) collect fees for community association management; (6) practice, or negotiate for a contract to practice, community association management; (7)" Page 6, line 27: Delete "(5)" Insert "(8) [(5)]" Page 6, line 30, through page 7, line 2: Delete all material. Page 7, line 3: Delete "(8)" Insert "(9)" Page 7, line 5: Delete "(9)" Insert "(10) [(6)]" Page 7, line 7: Delete "(10)" Insert "(11)" Page 11, line 18: Delete "AS 08.88.165(2)" Insert "AS 08.88.161(1) - (4), (7), or (8) or 08.88.165(2)" Page 31, line 13: Delete "AS 08.88.161(6)" Insert "AS 08.88.161(5) and (6)" Page 31, line 14, following "management": Insert "and may collect fees for community association management" Number 1042 CHAIRMAN ROKEBERG commented that this amendment came out of his wish to clarify required license areas, referring to the second page of Amendment 4. He noted that Section 10 of Version P, starting on page 10, sets up the grandfather clause for community association managers. The limited community association management license is intended to grandfather-in people currently working in the field, but it does not allow them to practice in other areas of real estate. Number 1212 CHAIRMAN ROKEBERG noted that Amendment 4 separates community association management and property management, which were included in one section in Version P. Property management is under the licensing law, and community association management, on a limited basis, will be under the limited license for the new licensees who will be grandfathered-in. Number 1241 CHAIRMAN ROKEBERG noted that page 11 specifies prohibited activities of the community association management limited licensees. Number 1338 REPRESENTATIVE RYAN asked how subsection (3) on page 6, lines 22 and 23, which would read as amended, "collect rent for the use of real estate or collect fees for property management;" related to Representative Cowdery's previous question regarding the hypothetical situation of a Fairbanks legislator with Fairbanks rental property having a friend collect rent while the legislator was in Juneau. Number 1376 CHAIRMAN ROKEBERG referred to the exceptions listed at the back of HB 33. He commented that the section currently under discussion covered activities for which a license is required. Number 1489 CHAIRMAN ROKEBERG stated that the proposed change to Version P on page 31 in Amendment 4 related to the transitional licensing period for community association managers. Number 1508 REPRESENTATIVE RYAN asked how the public is being harmed by community association management by unlicensed individuals. He asked where the demand for these changes is coming from. Number 1531 CHAIRMAN ROKEBERG referred to testimony from the previous committee meeting of January 23, 1998. He noted this action was at the request of the statewide association of community association managers. Chairman Rokeberg also stated that the public has indicated the necessity of this change because of criminal activities that have occurred in the last couple of years. He further noted that the community association management association wants their activities to be regulated. Number 1573 REPRESENTATIVE RYAN stated, "They're asking to be legitimized by being licensed." Number 1578 CHAIRMAN ROKEBERG agreed. He said public protection comes from oversight by the Real Estate Commission, the surety fund and other factors. He asked if there were any questions on Amendment 4. Number 1592 CHAIRMAN ROKEBERG asked if there were any objections to Amendment 4. Number 1596 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 4 had been adopted. Number 1607 CHAIRMAN ROKEBERG offered Amendment 5 to the committee. Amendment 5 read: Page 11, line 15, after "chapter." Insert A person issued a limited license to practice community association management under this section may not use the terms "broker" or "associate broker" for any business purpose. Number 1619 REPRESENTATIVE COWDERY made a motion to adopt Amendment 5 for discussion. Number 1626 CHAIRMAN ROKEBERG commented, under the limited license provision for community association managers, that these individuals are allowed to enter the statute as brokers or associate brokers so that they can have, or can start, their own business. Because the limited license granted to these individuals prohibits them from engaging in other real estate activities, this amendment is intended to prevent community association managers from using the designations "broker" or "associate broker" in advertising to mislead the public. He noted that restrictions in use of specific language was not an unusual practice in other licensed professions. Number 1809 CHAIRMAN ROKEBERG asked if there were any objections to the adoption of Amendment 5. Number 1813 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 5 had been adopted. MS. REARDON suggested that community association managers could still be able to call themselves "salespeople." Number 1916 MS. BLACKWELL suggested the language, "They shall use the term 'community association manager.'" Number 1960 CHAIRMAN ROKEBERG answered that there would still be problems if that wording was used. Number 1974 CHAIRMAN ROKEBERG proposed an amendment to Amendment 5, inserting "'salesperson,'" after the word "terms". Number 2000 CHAIRMAN ROKEBERG asked the committee if there were any objections to the amendment to Amendment 5. Number 2030 CHAIRMAN ROKEBERG, hearing no objections, stated that the amendment to Amendment 5 had been adopted. Number 2024 CHAIRMAN ROKEBERG asked if there were any objections to Amendment 5 as amended. Number 2030 CHAIRMAN ROKEBERG, hearing no objections, stated that the amended version of Amendment 5 had been adopted. Number 2056 REPRESENTATIVE RYAN referred to page 12 of Version P, Section 12 ("(a) The real estate examinations may include questions on ... nonprofit corporation creation and operation, ..."). He asked why knowledge of nonprofits would be important to anyone except community association managers. Some discussion followed regarding the endorsement concept contained in previous versions of HB 33 and the burden this nonprofit knowledge requirement placed on members of the real estate profession. Number 2334 CHAIRMAN ROKEBERG commented that there was an upcoming amendment on the section under discussion and perhaps Representative Ryan's concerns could be addressed at that time. Chairman Rokeberg then offered Amendment 6 to the committee. Amendment 6 read: Page 30, lines 18-19: Delete current language Insert as new (6) "employ", "employing", "employs", "employed", "employee", "employees", "employment" include being an independent contractor with an employer. Number 2348 REPRESENTATIVE COWDERY made a motion to adopt Amendment 6 for discussion. Number 2359 CHAIRMAN ROKEBERG stated that Amendment 6 responded to a request from the realtors to change employment wording in the entire bill. He noted that this amendment to the definitions section on page 30 was intended to satisfy that request. Number 2444 CHAIRMAN ROKEBERG asked if there were any objections to Amendment 6. Number 2456 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 6 had been adopted. TAPE 98-6, SIDE A Number 0001 REPRESENTATIVE COWDERY made a motion to adopt Amendment 7 for discussion. Amendment 7 read: Page 5, Line 18: After "which" insert "complete" Page 11, Line 31: After "bond" insert "and the granting of exemptions" Page 12, Line 8: After "community association management" insert "operations and" Page 13, Line 19: After "lapsed" Delete "," Insert "." Page 13, Line 20: Delete entire line. Page 29, Line 4: After "(17)", delete "an" Insert "a resident" Page 29, Line 5: After "community association" insert ";" and delete remainder of line 5 and lines 6-7 Number 0028 CHAIRMAN ROKEBERG stated that Amendment 7 was something of a "clean-up" amendment. He informally called the first proposed change in Amendment 7 on page 5, line 18, "Mrs. Blackwell's Amendment." The 30-day rule set forth in this section on page 5 has been controversial, he said. This amendment clarifies that a complete application for course approval to the Real Estate Commission, not requiring any further submissions, is necessary in order for the 30-day rule to apply. Number 0170 CHAIRMAN ROKEBERG commented that he was working with the community association management industry for further clarification of the fidelity bonding requirements, but he wished to make the second change in Amendment 7 in the event HB 33 was moved forward without further amendment to the section concerning those requirements. Amendment 7 allows the Real Estate Commission, in establishing whatever fidelity bonding requirements that it might under (b) of Sec. 08.88.173, to also grant exemptions. Number 0205 CHAIRMAN ROKEBERG explained that the Alaska Housing Finance Corporation (AHFC) has two standards for fidelity bonding certification. He said, "Also, the (indisc.) law that has this in there provides that there be exemptions." He commented that the fidelity bonding has been a difficult issue and would be discussed later. Number 0260 CHAIRMAN ROKEBERG noted that the suggested change to page 12 was to the section concerning the real estate examinations Representative Ryan had previously referred to. Chairman Rokeberg proposed an amendment to Amendment 7: deleting on page 12, line 9, the wording "nonprofit corporation creation and operation,". Number 0314 REPRESENTATIVE RYAN made a motion to adopt the amendment to Amendment 7. Number 0320 CHAIRMAN ROKEBERG stated that Amendment 7 had been amended to include the deletion of "nonprofit corporation creation and operation,". Number 0352 CHAIRMAN ROKEBERG noted, in explanation, that the Real Estate Commission and the examiner could cause that topic to be included in their presentation; a statutory requirement was unnecessary. Chairman Rokeberg also pointed out on page 12, line 2, that the operative word was "may". Number 0382 REPRESENTATIVE RYAN commented that a separate criteria could be created for community association management. Number 0481 CHAIRMAN ROKEBERG stated that concept had previously been in HB 33 and he regretted that it was no longer there. He said anyone new engaging in community association management activity will have to be a real estate licensee. Chairman Rokeberg noted that the public had not accepted Representative Ryan's suggestion. Number 0507 REPRESENTATIVE RYAN said, "(Indisc.) are grandfathered." Number 0513 CHAIRMAN ROKEBERG stated that the next change to Amendment 7, a punctuation change on page 13, line 19, removed an unintended double penalty created by the following change in Amendment 7: page 13, the deletion of line 20. Number 0554 REPRESENTATIVE BRICE clarified that it was not the Real Estate Commission's intention to implement a double penalty. Number 0560 CHAIRMAN ROKEBERG agreed. He then noted that the last two changes proposed in Amendment 7 were a major concession. He informally called these changes on page 29 the "Stephen Vlahovich Amendment," commenting that Mr. Vlahovich had testified before the committee on at least four occasions requesting the change allowing a self- managed community association to pay a small fee to a resident unit owner acting as a manager. Chairman Rokeberg stated that this also "freed up some of the concerns that Representative Cowdery had before." Number 0681 CHAIRMAN ROKEBERG commented that community association management group had agreed to these changes. Number 0695 REPRESENTATIVE RYAN noted that he was late for an appointment. Number 0709 CHAIRMAN ROKEBERG asked the committee if there were any objections to Amendment 7. Number 0710 CHAIRMAN ROKEBERG, hearing no objections, stated that Amendment 7 had been adopted (Representative Ryan left for his appointment). Number 0735 CHAIRMAN ROKEBERG explained the last amendment, a conceptual amendment, to the remaining committee members. He commented that the amendment concerned the reserve accounts of the associations. He noted he was leaning toward clarification of the fidelity bond portion. Number 0768 CHAIRMAN ROKEBERG stated that it was his hope to take up an amendment clarifying and defining the reserve accounts and all relating accounts at the next meeting. Additionally, he noted, revisions relating to the fidelity bond issue would be addressed. Number 0787 CHAIRMAN ROKEBERG said, finally, that a report was expected on the "affinity/kick-back" issue from an attorney representing the Alaska Association of Realtors, Incorporated, with possible amendment recommendations. Other proposed amendments might also be addressed at that time. Number 0820 Chairman Rokeberg indicated that HB 33 would be held over. He noted it was his desire to move the bill out of committee at the next meeting. ADJOURNMENT Number 0830 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 5:10 p.m.

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