HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 17, 1997 3:31 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Jerry Sanders Representative Joe Ryan MEMBERS ABSENT Representative Bill Hudson Representative Tom Brice 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): REPRESENTATIVE(S) ROKEBERG BY REQUEST JRN-DATE JRN-PG 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 WITNESS REGISTER JANET SEITZ, Legislative Assistant to Representative Norman Rokeberg Alaska State Legislature Capitol Building, Room 24 Juneau, Alaska 99801 Telephone: (907) 465-6547 POSITION STATEMENT: Presented amendments to HB 33. CATHERINE REARDON, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, Alaska 99811-0806 Telephone: (907) 465-2534 POSITION STATEMENT: Explained Amendment 4 and answered questions regarding HB 33. CAROL MEYER, State President Alaska Association of Realtors 951 Hermon Road Wasilla, Alaska 99654 Telephone: (907) 376-2448 POSITION STATEMENT: Testified regarding HB 33. RON JOHNSON, Broker and President Kenai Board of Realtors 610 Attla Way, Number 6 Kenai, Alaska 99611 Telephone: (907) 283-4372 POSITION STATEMENT: Testified regarding HB 33. ERIC DYRUD Associated Brokers Incorporated 2509 Eide Street, Number 4 Anchorage, Alaska 99503 Telephone: (907) 258-8888 POSITION STATEMENT: Testified regarding HB 33 on behalf of the Anchorage Board of Realtors' legislative committee. TERRY YAGER 412 East Pioneer Avenue Homer, Alaska 99603 Telephone: (907) 235-0699 POSITION STATEMENT: Testified regarding HB 33. STEPHEN VLAHOVICH, Associate Broker Associated Brokers Incorporated 2509 Eide Street, Number 4 Anchorage, Alaska 99503 Telephone: (907) 258-8888 POSITION STATEMENT: Testified regarding HB 33. SCOTT CONNELLY, President Kachemak Board of Realtors 331 East Pioneer Avenue Homer, Alaska 99603 Telephone: (907) 235-6183 POSITION STATEMENT: Testified regarding HB 33. BILL McNALL, Attorney at Law McNall and Associates, PC 921 West 6th Avenue, Suite 100 Anchorage, Alaska 99501 Telephone: (907) 276-2571 POSITION STATEMENT: Testified in support of HB 33. CHRIS STEPHENS, President Bond, Stephens and Johnson 3000 A Street, Suite 200 Anchorage, Alaska 99503 Telephone: (907) 563-7733 POSITION STATEMENT: Testified regarding HB 33. KRISTAN TANNER, Broker Associate RE/MAX of Wasilla 1590 East Financial Drive, Suite 200 Wasilla, Alaska 99654-8237 Telephone: (907) 376-4515 POSITION STATEMENT: Testified regarding HB 33. GRAYCE OAKLEY, Executive Administrator Real Estate Commission Division of Occupational Licensing Department of Commerce and Economic Development 3601 C Street, Suite 722 Anchorage, Alaska 99503-5966 Telephone: (907) 269-8197 POSITION STATEMENT: Testified regarding HB 33. ACTION NARRATIVE TAPE 97-23, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:31 p.m. Members present at the call to order were Representatives Rokeberg, Cowdery, Sanders and Ryan; there was a quorum. Representatives Hudson, Brice and Kubina were absent. HB 33 - REAL ESTATE LICENSING Number 0127 CHAIRMAN ROKEBERG announced the committee would hear House Bill No. 33, "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." They would consider amendments before hearing public testimony. CHAIRMAN ROKEBERG declared a potential conflict of interest: He is a commercial real estate broker licensed under Alaska law. Number 0249 REPRESENTATIVE JOE RYAN said he also has a real estate salesman's license and therefore has a potential conflict of interest. Number 0273 CHAIRMAN ROKEBERG announced they would consider Amendment 1, which read (original punctuation and capitalization provided): Page 7, lines 8 & 9 Delete after (1) the current language Insert following: courses required to earn professional designations sponsored by National Association of Realtors, Building Owners and Manager Association, or other recognized national organizations; Page 12, lines 9 and 10: Change "limited liability company" to "limited liability company" (drafting) Page 12, line 29 Change "limited liability company" to "limited liability company" (drafting) Page 14, line 28, through Page 15, line 2: Delete entire Section 18 and renumber following sections accordingly Page 15, Line 25: Delete "for less than" before "60" After "60 days" insert "or less" Page 15, Line 29: After "60" delete "or more" Insert before "60", the words "more than" Page 16, line 23: After "reactivate the license" delete "to" After "[BECOME]", delete "active status" Page 19, line 28: After "All" delete "exclusive" Page 20, Lines 3 and 4 Delete after "OF THE BROKER]", the language "for at least three years," Page 20, line 7 After "provide" insert following: "upon request to any principal in a transaction" Page 22, lines 16-25 Delete current section 37. Renumber remaining sections accordingly. Number 0332 CHAIRMAN ROKEBERG said the change relating to page 7 mandates the commission to introduce these particular professional designations, and the courses that revolve around them, into their educational regulations. Apparently there had been resistance before. He called on Janet Seitz to explain the remainder of Amendment 1. Number 0409 JANET SEITZ, Legislative Assistant to Representative Norman Rokeberg, said the portions relating to page 12 correct drafting errors; specifically, the addition of "limited liability company" had not been in bold type or underlined. The change beginning on page 14, line 28, would leave the current language in the statute, allowing the commission to adopt by regulations a system for reevaluation of an exam that an applicant had failed. Number 0454 REPRESENTATIVE RYAN asked for confirmation that they were addressing version LS-0197\B. CHAIRMAN ROKEBERG confirmed that. REPRESENTATIVE RYAN said he didn't find the changes on page 12. MS. SEITZ apologized and said those were on page 8. CHAIRMAN ROKEBERG advised members to change the two references to "Page 12" to "Page 8" on Amendment 1. Those were drafting errors. Number 0575 MS. SEITZ continued with Amendment 1. Page 15, line 25, currently reads, "for less than 60 days". The amendment would change it to "60 days or less", making it more clear that a person whose license has lapsed for 60 days or less is eligible for reinstatement by providing the required application, licensing fees and applicable late fees. Page 15, line 29, changes the current "60 or more" to read "more than 60". This is for someone whose license has lapsed for more than 60 days but less than 24 months. MS. SEITZ explained that the amendment on page 16, line 23, clears up cumbersome language that currently reads, "may reactivate the license to active status by applying for"; it changes it to read, "may reactivate the license by applying for the active license and paying the required fees". On page 19, line 28, the amendment deletes "exclusive" between "All" and "real estate personal services contracts". The intent was to cover all contracts, not just exclusive real estate personal services contracts. On page 20, line 4 should begin, "keep a complete record for at least three years". Therefore, the initial phrase, "for at least three years," on line 4 would be deleted by the amendment. CHAIRMAN ROKEBERG added that it was redundant language. Number 0700 MS. SEITZ said page 20, line 7, currently reads, "provide an accounting", but it doesn't say to whom. With the amendment, it would read, "provide upon request to any principal in a transaction an accounting". Number 0741 CHAIRMAN ROKEBERG discussed deletion of Section 37, beginning on page 22, line 16. It is part of the issue relating to agency and disclosure of agency, and he finds it cumbersome and impractical. He referred members to page 22, line 24, which says, "disclosure and receipt of the form must be acknowledged in writing by the prospective client or customer". He stated, "In other words, before you can even enter into negotiations to represent via a listing agreement and/or a[n] agency agreement as a buyer's broker, you'd have to have a fully notarized, acknowledged agreement that everybody understood the rules of the game as it relates to agency." CHAIRMAN ROKEBERG said he believes the existing statute, as problematic as it is, is still more workable than trying to put into place a situation where a form must be developed by the commission and everybody must be party to it. It sets up a whole process change, an addition, in the course of practical business. He pointed out that Section 38, which follows, outlines responsibilities relating to agency. With the changes in Section 38, he doesn't believe they need to go that extra step and recommend a change in Section 37; he'd just as soon delete it. Number 0867 REPRESENTATIVE RYAN asked whether there isn't similar language in the listing agreement itself. CHAIRMAN ROKEBERG agreed that many of those agreements now have that. He emphasized the importance of clarifying, from a consumer- protection standpoint, the agency relationship between the salesperson and the client. This opens up a "Pandora's box of agency," which they would revisit shortly. Unless he heard compelling arguments to the contrary, he preferred to delete that section, which to him is a further obstacle to business. Number 0923 REPRESENTATIVE JOHN COWDERY made a motion to adopt Amendment 1. There being no objection, it was so ordered. Number 0941 CHAIRMAN ROKEBERG made a motion to adopt Amendment 2, which read: CONCEPTUAL AMENDMENT. Wherever in the bill the language "employed" is used, add "or contracted" after "employed" or change the definition of "employed" to include employees and independent contractors. CHAIRMAN ROKEBERG explained that this resulted from a communication from a major real estate broker who felt that without this change, it would "diminish the stature in our ongoing battle with the IRS as to the status between independent contractors and employed people." Not wanting to give the Internal Revenue Service further ammunition with which to pick on independent contractors, Chairman Rokeberg asked that Amendment 2 be approved and forwarded to the drafter for insertion into the bill on all 37 pages. CHAIRMAN ROKEBERG asked whether there was any objection to Amendment 2. There being none, it was adopted. Number 1037 CHAIRMAN ROKEBERG made a motion to adopt Amendment 3, which read: CONCEPTUAL AMENDMENT: Add commercial broker endorsement. Commercial broker license includes all activities under sales or property management. Commercial broker education requirements: to be decided by Commission as with other endorsement educational requirements. Limit all other sales transactions accomplished by real estate services licensee to sales transactions of $500,000 or less unless the transaction involves a residential dwelling. Number 1049 CHAIRMAN ROKEBERG brought to members' attention a letter in the packets from Kristan Tanner of RE/MAX of Wasilla, who had testified the previous Friday. She was on the task force, and the letter explained that the task force hadn't taken up a commercial endorsement because they'd felt it wasn't within the scope of their charge. Chairman Rokeberg said he'd had communications with a number of people, and he believed Mr. Stephens had also testified about this the previous Friday. CHAIRMAN ROKEBERG said based on that, to bring this to a discussion level, he was offering this conceptual amendment to create an endorsement for commercial brokers, associate brokers and sales practitioners under the new bill; to include all activities under sales and property management presently; to require that the educational requirements be set by the commission, as all the other endorsement provisions are now; and to define a commercial broker's endorsement at a sales transaction level of $500,000 or less, unless it involves a residential dwelling. Number 1129 CHAIRMAN ROKEBERG specified he is asking that this be drafted to allow a property management endorsee to be able to still rent and lease property of value over $500,000. This also allows the commercial broker to do the leasing or renting; under the bill as first written, a commercial lease broker would need both a sales endorsement and a property management endorsement to operate. This way, only a commercial endorsement is needed. CHAIRMAN ROKEBERG stated, "So, the intention here is to clarify the fact that there is a commercial brokerage area with different educational requirements and classes to be offered, which is the testimony we heard on Friday, as well as setting up a level that they can operate somewhat differently, in terms of education and so forth, and ... also minimize the requirement that that practitioner is going to get multiple endorsements, unless they wanted to do that. I think this will simplify that." CHAIRMAN ROKEBERG emphasized that this is a conceptual amendment. He expressed interest in hearing testimony about whether $500,000 is an adequate break-point to define what a commercial broker or practitioner is. Number 1249 REPRESENTATIVE RYAN noted that they had adopted Amendment 1, recognizing national organizations. He suggested tying that into the education requirements, rather than having the commission set requirements. If educational programs were recognized by the organizations and the commission, it seemed that the commission would say that someone who completed a specific course would be qualified for that aspect. REPRESENTATIVE RYAN indicated they may need some small additional requirement "because we do things so differently here in Alaska than the rest of the country does." However, he believes the basis of the education should reflect what the national organizations have found through years of existence and dealing with this problem. It would also help Alaska remain more uniform for people who want reciprocity to do work elsewhere. Number 1306 CHAIRMAN ROKEBERG said Representative Ryan had eloquently made the chairman's case for why this commercial endorsement is needed, as well as for the relevant portion of Amendment 1; by adding that new subsection on page 7, they were mandating, by the word "must" on line 5, that the regulations for continuing education requirements allow the following types of courses to qualify. CHAIRMAN ROKEBERG emphasized that although this would allow those designated courses, the hours required and how they fit together would be up to the commission to determine by regulation. This also recognizes courses from an accredited college or university. Number 1358 REPRESENTATIVE RYAN said his concern is that it doesn't become burdensome financially or too time-consuming. CHAIRMAN ROKEBERG indicated they would hear testimony on that. He understood there would be cross-utilization of hours so that for multiple endorsements, one needn't take everything two or three times. Chairman Rokeberg pointed out that the educational requirements on page 7 cover all licensees, not just commercial brokers. He hoped that would assuage any concerns. CHAIRMAN ROKEBERG asked whether there was any objection to conceptual Amendment 3. There being none, it was adopted. Number 1420 CHAIRMAN ROKEBERG noted that conceptual Amendment 4 would be presented by the department. It read (numbers at left are line numbers on original version): Delete page 5, lines 2-3 page 9, lines 5-9 Insert: new sections 6 Sec. 08.88.162. Violations and penalties. An unlicensed person who performs acts listed in AS 08.88.161 as those for which a license is required, or a person using or attempting to use the license of another, or a person who gives false or forged evidence of any kind to the commission or to a representative of the commission in obtaining or attempting to obtain a license, or a person who impersonates an applicant, or a person who knowingly uses or attempts to use an expired, suspended, revoked or nonexistent license certificate, or a person who falsely claims to be licensed and authorized to practice under this chapter, or a person who violates any of the provisions of this chapter, is guilty of a misdemeanor, and upon conviction, is punishable by a fine of not more than $10,000, or by imprisonment of not more than one year, or by both. 14 Sec. 08.88.163. Civil penalty for unlicensed or unauthorized practice. (a) In addition to penalties prescribed by any other provision of law, if a person practices or offers to practice real estate as defined in this chapter without being licensed or authorized to practice in accordance with the provisions of this chapter, the commission may enter an order levying a civil penalty. 18 (b) A civil penalty levied under this section may not exceed $5,000, or the amount of gain realized plus $5,000, whichever is greater, for each offense. In levying a civil penalty, the commission shall set the amount of the penalty imposed under this section after taking into account the seriousness of the violation, the economic benefit resulting from the violation, the history of violations, and any other facts the commission considers relevant. 22 (c) After providing a person written notice of an order issued under this section, the commission shall grant a 30 day period during which the person may request a hearing on the record. 24 (d) In connection with proceedings under (a) and (b) of this section, the commission may issue subpoenas to compel the attendance and testimony of witnesses and the disclosure of evidence, and may request the department to bring an action to enforce a subpoena. 27 (e) A person aggrieved by the levy of a civil penalty under this section may file an appeal with the superior court for judicial review of the penalty under AS 44.62.560. 29 (f) If a person fails to pay a civil penalty within 30 days after entry of an order under (a) of this section, or within 10 days after the court enters a final judgement in favor of the commission of an order stayed pending an appeal under (e) of this section, the department may initiate other action to recover the amount of the penalty. 32 (g) An action to enforce an order under this section may be combined with an action for an injunction under AS 08.88.037. Number 1444 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Commerce and Economic Development (DCED), explained that conceptual Amendment 4 was the DCED's hasty response to some issues concerning the civil fining authority in the bill. She believed Representative Ryan had expressed concerns about this. MS. REARDON informed members that the sheet she'd distributed contained what she believed was the initial language proposed by the task force. It is nearly identical to language in AS 08.48.295 relating to the State Board of Registration for Architects, Engineers and Land Surveyors. It says the Real Estate Commission may charge someone with unlicensed real estate activity; allow that person a hearing to defend himself or herself against the charges; and if the person is found to have practiced illegally, fine the individual. The right of appeal is to the superior court. Number 1513 MS. REARDON explained that the only difference in language is in item (c) on line 22 of the conceptual amendment, which says, "after providing a person with written notice of an order, the commission shall grant a 30 day period in which a person may request a hearing." In contrast, the architects, engineers and land surveyors law says, "before issuing a person a written notice" that this opportunity for a hearing occurs. Ms. Reardon said she would be comfortable with either, although perhaps it would be more comfortable if the hearing opportunity came before the issuing of the order; that is more in line with the way the department does all of its other disciplinary types of activities. MS. REARDON stated her belief that this would be an improvement over language in the proposed committee substitute on page 9, line 5, and on page 5, line 2, for which it would substitute. It is also similar to language that passed the House the previous year but didn't make it through the Senate before adjournment. CHAIRMAN ROKEBERG asked whether that was on the "architects bill." MS. REARDON replied that it was for all division activities. They had a civil penalties authority bill that made it to the Senate Finance Committee. By Representative James, it got caught up with an issue of attorneys practicing without licenses. Nonetheless, Ms. Reardon believed the concept was generally acceptable to the previous year's House. She asked whether that addressed concerns expressed the previous Friday. Number 1613 CHAIRMAN ROKEBERG asked whether Ms. Reardon's conversations with the Department of Law had led to this. MS. REARDON said yes. It is language in statute, as well as language that they had signed off on in last year's bill that didn't pass. She said it seemed comfortable to that department. Number 1620 CHAIRMAN ROKEBERG referred to inquiries made the previous Friday about procedural aspects and responsibilities. MS. REARDON explained, "The way this would work is similar to when the department charges a license holder with a violation of their license law. First, there's an investigation. And if the department feels like there is sufficient evidence, we show the evidence to the attorney general's office. If they agree that there's sufficient evidence of a violation of the law to proceed, we file what we call an `accusation.' It's a charging document saying, `We accuse you of the following.' And that would be what would occur under ... paragraph (c), if you substituted `before issuing' instead of `after providing.' We issue this accusation; the person has a hearing, which is given under the Administrative Procedure Act, to defend themselves, to say, `No, I'm not breaking the law.'" MS. REARDON continued, "The hearing officer issues a finding and a recommendation, and the Real Estate Commission makes the ultimate decision about whether the person is or isn't breaking the law and whether the fine or other penalty that the hearing officer recommends is warranted. The commission is not permitted under the Administrative Procedure Act to increase the fine or the penalty over what the hearing officer recommended unless they decide to hear the whole case themselves a second time. The appeal is not to the very same commission that made the decision; the appeal is to superior court. That is where all appeals of division disciplinary actions, or board or commission disciplinary actions, take place, under our entire occupational licensing law." Ms. Reardon noted that license denials are a different issue. Number 1721 CHAIRMAN ROKEBERG asked Ms. Reardon to address line 13, "punishable by a fine of not more than $10,000." He stated his understanding that there are limits in the bill of $5,000. MS. REARDON replied that the centralized licensing statute governing her division contains a fining ability of $5,000 for licensees who violate the law. This $10,000 threshold would be for unlicensed activity. She indicated she was checking to see where that came from, then stated, "Personally, I think I would be happy with any amount you were willing to allow." Number 1808 CHAIRMAN ROKEBERG announced his intention to address amendments and take public testimony that day, after which they would create a new committee substitute. An additional public hearing would be held Monday, March 24. If committee members or the public wished to recommend changes, he would hear them meantime. Number 1855 MS. REARDON advised members that the $10,000 had come from the architects, engineers and land surveyors model. CHAIRMAN ROKEBERG stated his understanding that the task force had recommended $5,000. He said he would amend conceptual Amendment 4 to say $5,000, indicating they could later revisit it if they wanted to. He specified that was on line 13. Number 1882 MS. REARDON stated, "I believe also, as a conforming amendment for this, that on page 24, line 3, Section 29, you may need to delete one of the misdemeanor references there. In AS 08.88.401(d), you'll see that it lists another misdemeanor penalty for violations of .161." She explained that conceptual Amendment 4 already says, "a violation of 08.88.161 is this misdemeanor punishable by a $5,000 fine now, under your change; so, we'd have two different misdemeanors going to the same violation of .161, unless you get rid of the one on page 24. But that's ... kind of a `draft thing.'" Number 1937 CHAIRMAN ROKEBERG agreed and said they would make sure it fits. Number 1979 REPRESENTATIVE RYAN asked whether there was similar licensing for automobile dealers and their sales people. CHAIRMAN ROKEBERG indicated there is a bill addressing that topic. Number 1979 REPRESENTATIVE RYAN said he could see making it this stiff for architects or engineers, because a building's collapse could do physical harm. However, for misbehavior by someone peddling a piece of property, rather than "whacking them so hard," he'd be interested in forever banning them from that discipline, keeping them from ever getting a license. He asked the chairman's opinion. CHAIRMAN ROKEBERG deferred to Ms. Reardon. Number 2018 MS. REARDON explained that the issue here is unlicensed activity; there are no licenses to take away. The offense is already a class A misdemeanor. The problem is that the district attorneys' office has many priorities higher than unlicensed occupational licensing activity. MS. REARDON stated, "We're saying, `Let's also have the option of just a fine ... by the commission, because since we have laws that say you have to have a license, when you operate without a license, if there's no penalty ever - because the DA's office never really can take those cases - people who do bother to get licenses resent it. And so, we were looking for a way, keeping it out of the courts, that we could do some enforcement of unlicensed activity." Number 2065 REPRESENTATIVE RYAN noted Ms. Reardon's indication that she didn't care whether they used "Before" or "After" on line 22 of conceptual Amendment 4. He said he'd feel more comfortable being a little more proactive, using "Before" rather than "After", which may stop some of this activity without going through the whole procedure. CHAIRMAN ROKEBERG asked whether Representative Ryan was saying they should know more about the circumstances and notify a person who was being accused. Number 2101 REPRESENTATIVE RYAN replied that if the commission has enough information to issue an order, they could call the offender and tell them. He stated, "And if the person says, `Well, fine, I'll go away and sin no more,' then we save ourselves a lot of money on all the process we have to go through to issue orders and enforce them. So, I would be more comfortable with `Before'." Number 2125 CHAIRMAN ROKEBERG agreed. He suggested striking "After providing" and inserting "Before issuing" on line 22 of the amendment. Number 2142 REPRESENTATIVE RYAN moved that as an amendment to conceptual Amendment 4. CHAIRMAN ROKEBERG asked whether there was any objection. There being none, the amendment to conceptual Amendment 4 was adopted. Number 2156 CHAIRMAN ROKEBERG announced he wanted to split the amendment. Conceptual Amendment 4(A) would be lines 6 through 13. Conceptual Amendment 4(B) would be lines 14 through 33, as amended. He wanted to hold off on 4(A) for now and see how it fits with the bill. Number 2192 CHAIRMAN ROKEBERG asked whether there was any objection to adopting conceptual Amendment 4(B), as amended. There being no objection, it was so ordered. Number 2205 REPRESENTATIVE COWDERY expressed concern about unlicensed people who help others sell or manage properties, including large tracts of acreage, valuable lake-front property, apartment complexes and warehouses. For example, it could be on behalf of one's mother. In spite of past abuses, he was concerned that the legislature not close the door to people who want to assist in a situation like that, tying those people into violations and penalties. He suggested working out another exception addressing such situations. Number 2280 CHAIRMAN ROKEBERG informed listeners that in the committee substitute to be drafted, the area that mandates errors-and- omissions (E&O) insurance would be changed to make any mandate for E&O insurance contingent upon the state's and the commission's finding an insurance carrier that will issue a policy for $200 or less a year. In addition, the commission had indicated they don't want to actually collect those premiums and so forth. "And we're going to be fixing that," Chairman Rokeberg said. "And rather than bring it as a conceptual amendment, I'll just inform you." Number 2316 CHAIRMAN ROKEBERG referred to the "brokerage sign deal." He said that there had been some miscommunication with the drafter and that the committee would change that. There were also some problems in terms of the subdivision of out-of-state lands and the ability of an owner to market those under the existing law. He stated, "Now we've opened up the law. We're going to take a look at these things. And anybody that knows why the subdivided land of an ... owner is restricted out-of-state, they'll let us know." The final area was one Representative Cowdery had mentioned: The committee would look at making sure that the public and the commerce of the state are protected as far as restrictions go; that may include looking at the family members of a property owner. Number 2355 MS. REARDON suggested it may help Representative Cowdery to refer to page 31, line 21, which refers to attorneys in fact, which she believes are people with powers of attorney, being excluded from the licensing requirements if they have fewer than two sales transactions a year. "I don't know whether that will take care of a situation like the family situation you're describing or not, but it could possibly," she stated. MS. REARDON suggested when thinking about minor clean-up amendments that might be useful from the department's point of view, several places in the bill refer to the commission's ability to assign or designate some of its tasks; it might be helpful if it said they could designate them to the department or to department employees. When it just says "designate or assign," it could be to anyone. Number 2400 CHAIRMAN ROKEBERG replied that he'd looked into that. He explained, "We're concerned that because those provisions are in the examination portion of the title, that we need to be able to designate an examining contractor or contractee to be able to do some of those tasks. So, that's the rationale there." He indicated they would look at that further. CHAIRMAN ROKEBERG announced that on teleconference were the Anchorage, Homer, Kenai and Mat-Su Legislative Information Offices (LIOs). He asked that testimony be limited to three minutes. Number 2426 CAROL MEYER, State President, Alaska Association of Realtors, testified via teleconference from the Mat-Su LIO. Referring to a comment at the previous hearing that indicated her organization had adopted and approved this bill, she stated, "That is not the case as of today. A legislative committee will be meeting Friday, the 21st of March, and we will be going over this with all of the legislative chairs within all of the boards." She expressed appreciation that there would be another hearing March 24. CHAIRMAN ROKEBERG indicated Ms. Seitz would provide an outline or the new committee substitute for the March 21 meeting. He asked where that would occur. MS. MEYER said it would be at RE/MAX in Anchorage at 11:30 a.m. She requested that information be provided before that day. TAPE 97-23, SIDE B Number 0006 CHAIRMAN ROKEBERG requested that anyone wanting a copy provide a fax number. He asked Ms. Meyer's personal opinion on whether the committee was headed in the right direction with this bill. MS. MEYER replied that from the looks of it, it is pretty much what they've looked at for the past three years and therefore is "pretty well right on line." She'd had several calls to her office that morning regarding mandatory E&O insurance. She noted that someone else would be addressing that. "That would be the only controversy that I might see coming up; so, we'll just have to work that one out," she concluded. Number 0046 CHAIRMAN ROKEBERG asked whether Ms. Meyer would inquire about the creation of a commercial endorsement at her organization's coming meeting. MS. MEYER agreed to do so and said she liked the idea. CHAIRMAN ROKEBERG asked whether Ms. Meyer had any problem with mandating that regulations adopted by the commission include the "professional-designated curriculums" for educational requirements. Number 0067 MS. MEYER responded, "No, I think that is great." She noted that the National Association of Realtors (NAR) has gone over those guidelines for agents to get those designations. They are not easy, and there are many hours involved with them, with excellent educators. Ms. Meyer herself is a "GRI, ... headed for a CRS." MS. MEYER stated, "I don't think we need to duplicate efforts to have the Real Estate Commission also adopt their outlines, when it's already been adopted by NAR and the other designees that are doing it. So, I really am glad to see this in there, as well as the technology. There's been problems with the technology, continued education, before. As we all know, though, with technology, our kids know more about how to do this stuff than us. ... I think for us to continue to do the type of business and to be able to service the customer out there, our clients or customers, we must have this information also. They're the ones that are demanding it of us." Number 0113 CHAIRMAN ROKEBERG said he'd like to get a reading later on the deletion of Section 37, regarding disclosure of agency information. MS. MEYER indicated they would discuss that at Friday's meeting. CHAIRMAN ROKEBERG asked Ms. Meyer to explain the designations she had mentioned. MS. MEYER explained that "GRI" stands for Graduate Residential Institute. There are three separate weeks of courses covering residential topics as well as some commercial topics and a little property management and investment. She said "CRS" stands for Certified Residential Specialist; it relates to "residential specializing as far as selling property for investment sources." Number 0180 RON JOHNSON, Broker and President, Kenai Board of Realtors, testified via teleconference from Kenai. A former member of the Real Estate Commission for two full terms, he'd served as chairman for more than two years and had served under three governors. MR. JOHNSON said AS 08.01.035 outlines the terms of appointment and how the commission is formed, but there is no provision for removal. He stated, "In the past two years, a couple of the ... governor changes have caused the Real Estate Commission to be severely cut, you might say, politically. And it has created some problems. I would recommend that the committee look to the possibility of requiring that the only way you get off once you're appointed is if ... you die or resign or something such as that." In addition, the real estate law requires disclosure of agency but doesn't define what "agency" is; he'd like to see that addressed. Number 0242 MR. JOHNSON asked the committee to consider putting the Real Estate Commission under banking, securities and insurance. He explained, "Banking, securities and insurance is what we do. We deal with paper, we deal with money, and we deal with insurances, and the fact that we do have a surety fund that carries quite a bit of money around in it. I think the Real Estate Commission, because of the sureties fund, has that unique ability that ... would benefit the general public and the licensed industry if they had a commission that was a little bit more stable. If the governor was allowed one appointment per year, that would give him four seats on ... the commission by the end of a four-year term, and I think ... the public would be better served." Number 0283 CHAIRMAN ROKEBERG asked that Mr. Johnson fax recommendations regarding removal of real estate commissioners to 465-2040, noting that the committee hadn't addressed that issue. He expressed hope that the industry would resolve the agency issue that coming summer and that it could be brought back next session, but he acknowledged that may be optimistic. MR. JOHNSON said he believes a single paragraph specifically outlining what agency is would suffice. Although there is a legal requirement to disclose to a principal that a person is an agent of the seller or buyer, a limited dual agent, et cetera, a good share of the membership doesn't understand the concept of agency. He cautioned that although the realtor organization is indeed the leader in offering educational programs, for example, perhaps only 50 percent of licensees in the state are members of realtor organizations. He wouldn't want to limit the ability of non- realtor licensees to get the same education, at the same level. CHAIRMAN ROKEBERG requested that Mr. Johnson provide suggestions. He pointed out that there is a statutory reference to, and acceptance of, the principle of dual agency in this bill. He drew Mr. Johnson's attention to Sections 37 and 38. Number 0418 ERIC DYRUD, Associated Brokers Incorporated, testified via teleconference from Anchorage on behalf of the Anchorage Board of Realtors' legislative committee. They are pleased they'll be able to review changes at the next hearing. Mr. Dyrud referred to AS 08.88.071 and said one recommendation is suspending the license of a broker convicted of a felony or other acts. "He could still be a salesman," he stated. "But if you'll note, there's enacting language in there that says he cannot get a license if he applies for it, if he's convicted of forgery, theft, extortion, conspiracy, et cetera. But there is nothing in the legislation that says if he is a broker that he's subject to the same limitations." CHAIRMAN ROKEBERG asked where that is in the bill, version B. MR. DYRUD said it starts on page 9, line 31, continuing to page 10. They recommend that if someone with a broker's license is convicted of a felony or those similar acts, that license would be revoked. As he understands it, if he were a broker now and convicted of forgery, that would not be grounds to remove his broker's license. CHAIRMAN ROKEBERG said they'd look at that. He suggested that Mr. Dyrud check with Ms. Oakley and others on the task force for input, then forward suggestions to the committee. He asked him to provide a fax number, in order to provide a copy of the next committee substitute or inform him where it could be obtained. MR. DYRUD said the fax is (907) 276-5696. Number 0599 TERRY YAGER testified via teleconference from Homer, saying he is a sales person speaking as a licensee. He and his peers in the industry have concerns regarding the new subsections, insurance regulations, endorsements, and the terminology about service licensees. On March 13, a sponsor statement was faxed to his office. He and his peers have numerous questions and would like to see a broader sponsor statement as to what direction the committee is ultimately heading with the bill, specifically regarding the service licensee terminology. MR. YAGER said he sees what is possibly a shifting of liability, and the surety fund seems to be a concern with the E&O insurance addition and the endorsement additions. "We are all, I think, in favor of making our job more professional and certainly protecting the citizens of Alaska, but I think our concern is with protecting us as licensees," he stated. Again expressing concern about the general direction this is going, he asked, "Is it going to go into something long-term, like the state of Colorado, for example?" CHAIRMAN ROKEBERG said he appreciates some of those concerns. They would take their time with the bill to ensure that everyone affected had the opportunity to look it over and react to it. He suggested that those wanting a copy of the committee substitute could fax a request or obtain a copy from their local LIO office. Number 0848 STEPHEN VLAHOVICH, Associate Broker, Associated Brokers Incorporated, testified via teleconference from Anchorage, saying he'd received the bill that day. His initial response to conceptual Amendment 3: "I think it stinks." He finds it to be an insult to professionalism. He has 20 years' business experience and has been involved in many transactions in excess of $500,000; he believes that he is qualified. These commercial brokers endorsements would have to be held by the agent involved in the transaction, as well as the broker. To him, this "looks like restraining trade or kind of shutting the door behind you once you're in." He asked whether property management firms hold brokers licenses at this time. An unidentified speaker on teleconference said yes. MR. VLAHOVICH asked, "Okay, so you would have to have a broker's license to be on the commission. And now we've changed the language to read just `licensee,' which means any sales person could serve on the commission?" Number 0946 CHAIRMAN ROKEBERG explained, "It's just a language situation. Brokers, associate brokers and sales people, if you will, the practitioners, ... they're the service licensees now, because of the different endorsements. So, all those designations that we are traditionally used to still remain in the law; it's just that ... they're a slight change in terminology." He said a service licensee would have to have an endorsement in their specialty. MR. VLAHOVICH asked whether that person would have to be a broker. CHAIRMAN ROKEBERG said no. He stated, "It's like a salesman now. You'd just be a service licensee then. It's the same thing." He encouraged Mr. Vlahovich to notify them of any further concerns. Number 1001 SCOTT CONNELLY, President, Kachemak Board of Realtors, testified via teleconference from Homer, saying some of his questions and concerns had already been voiced. He expressed curiosity as to why "real estate services practitioner" is repeatedly being inserted. In addition, he sees the term "personal services contract" replacing the term "listing." This lingo harks back to the Real Estate Commission's task force, and he felt that some of their recommendations had been slipped in, to one degree or another here. MR. CONNELLY stated, "Whether that's good, bad or indifferent I don't want to get into today. But it brings up some questions if we're not generating listings anymore, we're generating personal services contracts, as a sort of a second avenue to an agency relationship with a seller." He said later sections about agency disclosure need more definition and seem to mix terminology. If he had a personal services contract with the seller, how could he possibly be a dual agent if he wasn't actually an agent of the seller? He needed a little more definition along those lines. MR. CONNELLY read from the first paragraph of the sponsor statement sent on March 13th: "Licensure of property managers and community association managers is needed". He understood that property managers are already required to be licensed, although there may be a need for a tighter rein to avoid abuse. He also isn't happy with the concept of mandatory E&O insurance, although he believes a person would be foolish not to have it, if it is affordable. MR. CONNELLY agreed with Ron Johnson that passing legislation that requires membership in a national organization is probably a mistake. He explained, "NAR offers excellent courses. They're probably not a bad benchmark to look to for the commercial designations. However, there's a lot of people that are not members of NAR that may not have access to those courses. And what if NAR ... changes their courses in the future to be in conflict with the legislation, and all of a sudden, we're in the position of having to respond to a private organization in our legislation?" Number 1174 CHAIRMAN ROKEBERG responded to Mr. Connelly's concerns. The term "practitioner" was previously "sales person", "salesman" or "sales agent". Now there are property managers and community association managers, who are not sales people. That is the only reason for that nomenclature change. CHAIRMAN ROKEBERG referred to the suggestion that the term "personal services contract" sounds like the agency task force. When he'd first read the bill, he'd had the same opinion. However, it was pointed out that "personal service contract" already exists in the statute; this basically is where listing or a sales agreements are. There are various contracts entered into between practitioners and the public that are personal service contracts, not strict listings. In the prior statute, the word "listing" was used a number of times. But because they are expanding the scope to include property managers and community association managers, the term "listing" would not be inclusive enough for those contractual agreements. He assured Mr. Connelly that the use of "personal service contract" has absolutely nothing to do with an existing task force considering agency right now. Number 1266 CHAIRMAN ROKEBERG stated, "And you're right that property managers are now required to be licensed. However, community association managers are not. And if you picked up on the conceptual amendment I made about deleting the mandated E&O insurance for anybody, only if it was readily available, as contemplated by the commission, and available ... to the practitioners of the state for under $200 per annum, would it even be made available; and at that time, it would be mandated. The only reason it's mandated is the commission believes, and I agree with them, that to obtain a very low premium for everybody, we'd have to bring everybody on board. In other words, you have to have an economy of scale to get a low premium. So, I agree with you: I would not support any mandating of it unless there was an extremely low premium that's approved by the commission." Number 1314 CHAIRMAN ROKEBERG said finally, the recognition that the NAR offers courses doesn't mandate that anyone become a realtor. He agreed that only perhaps 50 percent of those licensed to do business are actually realtors in this state. He said, "The point is that the commission, via their regulations, would now be required to give certain elective course credit for those courses which heretofore have not been given any course credit, when a person could spend several thousands of dollars traveling in and out of the state, for example, to take these courses, which are very arduous and many of which have examinations after the end, are not now granted any credit under elective or continuing education. So, that's what those things do, and hopefully that answers your questions." Number 1362 BILL McNALL, Attorney at Law, McNall and Associates, PC, testified via teleconference from Anchorage. He has been a director and president of the local chapter of the community association institute in Anchorage, which he helped found 12 years before. He has taught numerous community association management classes, as well as many agency classes. He was on the task force that created this legislation. He noted that the legislation preceded the agency task force proposals by probably a year. MR. McNALL stated, "I think that the bill is a good one. I think it is absolutely necessary. As you are well aware, the standards by which we judge community association managers and property managers really don't exist very much. We haven't done a lot of education; we haven't looked at other places for those standards. And it kind of leaves us guessing sometimes ... what the rules really are. And, of course, we all know that if we don't have rules, the court is always happy to supply them. And we're trying to avoid that. And I think this bill goes a long way to helping us create those regulations and rules, so we all know ... what we're supposed to be doing." MR. McNALL expressed some concern about members' apparent response to mandatory E&O insurance. Referring to information in the packets regarding the embezzlement of $500,000 by Ronald Thornton from ten condominium associations, he said without a surety fund or insurance, there is no recourse for low-end condominium owners who cannot afford litigation; Mr. Thornton had neither. There is also potential liability because managers may not handle an association's fund properly. Mr. McNall concluded, "So, it's one of those Catch-22s that I think certainly will be addressed with the educational process, and I really applaud you for bringing this bill forward." Number 1522 CHAIRMAN ROKEBERG asked whether Mr. McNall had questions about the proposed deletion of Section 37, page 22, beginning at line 16. MR. McNALL responded that this represents the rules to follow when advising people that one may wind up being a dual agent. He stated, "And the consensus that I had, and people in the legal end of this business come to, is you want to make that disclosure early-on, so you're not surprising them later. And the problem, of course, is if you really, truly disclose that right up-front, before you establish much of a relationship, it's kind of a meaningless contact. The idea is: How do you establish that at the appropriate time?" He does a lot of real estate work in his practice, defending some brokers and pursuing others; most have no clue about what a dual agent is or when that begins. Anything to help that situation would be laudable. Other than that, he didn't know whether he could comment further on this section. CHAIRMAN ROKEBERG noted that in Section 38, they were recognizing in statute the existence of dual agency in Alaska. He asked whether Mr. McNall's concern was the timing of that. MR. McNALL said yes. CHAIRMAN ROKEBERG indicated the committee would look at that. Number 1643 MR. McNALL and CHAIRMAN ROKEBERG discussed the idea of eliminating liability for dual agency, including its providing immunity for real estate dealers and its relationship to consumer protection. CHAIRMAN ROKEBERG requested the citation for a Minnesota case relating to that, "the Dyna (ph) Realty case," which he said was causing legislative changes in Alaska. MR. McNALL said he didn't have it with him but could obtain it. Number 1792 REPRESENTATIVE RYAN referred to the scenario mentioned by Representative Cowdery, with a family member managing property for an elderly mother, for example, without a license or endorsement. He asked, "Do you have any problems of anybody doing this under a statutory power of attorney or ... power of attorney in fact?" MR. McNALL indicated he had no particular problem unless it entailed violating rules about conveying property when getting on in years or inadequate estate planning. Although it may look like a fraudulent conveyance later on, the simple answer would be no, let them do it with a power of attorney. "An attorney in fact can do all that good stuff," he concluded. Number 1879 CHAIRMAN ROKEBERG noted that the existing statute limits it to two transactions a year, which he believes is a defect now that they are talking about expanding community association and property management. Two transactions a year would be like renting a one- bedroom unit in a 12-plex owned by one's mother. MR. McNALL agreed there would be circumstances where one would want that power of attorney to be broad in scope, in order to turn over management responsibilities to one's child. Number 1920 REPRESENTATIVE COWDERY cited the example of a family member spending the winters in Arizona and wanting someone they trust to take care of things while they're gone. Estate planning would be a separate issue. He believes this kind of situation is fairly common in Alaska, and he wouldn't want to close the door on that. Sometimes people use powers of attorney, but sometimes they just ask a family member. CHAIRMAN ROKEBERG indicated the committee would review the number of power-of-attorney and attorney-in-fact transactions. That may take care of concerns registered by members. Number 1999 MR. McNALL commented, "One of the things that I've seen is folks using that exact tool, if you will, to avoid the regulations of any duties of a power of attorney and will do 20 or 30 transactions a year. And at some point, they do get caught. But ... because it takes a lot of work on the commission's part to pursue those, they basically can get away with it. It would be nice to have some guidelines that would be fairly clear about when you can do that and what the circumstances are." CHAIRMAN ROKEBERG asked whether Mr. McNall would recommend giving the holder of an attorney of fact unlimited capabilities under the statute to conduct transactions. MR. McNALL suggested Chairman Rokeberg didn't want to open that door as broadly as he might be implying. CHAIRMAN ROKEBERG asked whether a better approach might be having the level of relationship be the first level of bloodline. MR. McNALL replied that the most egregious situation he could think of involved two brothers. It might be better to have the person granting the power of attorney explain it to the commission and have the commission decide whether the reason is adequate. He said if his mother needed to go outside for medical reasons and he was going to rent out her house or manage her (indisc.) for her, he should be able to do that. However, that could be done with a (indisc.) statement or affidavit. Number 2120 REPRESENTATIVE RYAN asked whether they weren't stretching this concept of a fee for service to an extreme, to try to tell people what they can do with their individual property. He proposed an example where he owns real property and chooses to have his brother or best friend look after it. He has the right to do what he wants with it, as long as he doesn't break the law. He stated, "And yet, here's a Real Estate Commission, who are a bunch of people who hire out to do me a service, telling me they want to restrict my options in what I can do with my property and whom I can have look after it. And I find that to be a little offensive, because you have absolutely no interest in the property whatsoever." Number 2240 MR. McNALL responded, "I don't know that that's what this does, sir. It seems to me that what we're saying is ... you can use this tool, a power of attorney in fact or power of attorney, to have anybody you want to manage the property in your absence. I think the only question is, is should we put some upper limit on that. I'm sure you'd give somebody a power of attorney to allow them, say, to rent out your property or manage your property; you'd probably limit it so they couldn't just sell your property. But assuming ... that they're doing what you want them to do, that's not a limitation on what you do with your property." REPRESENTATIVE RYAN replied, "No, but you expressed a concern, sir, that pretty soon we'd have a bunch of people out here managing property illegally, inasmuch as they would be out of the grasp of the Real Estate Commission, as though a person who owns a piece of property and wants to have a friend or relative do something with it is going to make that illegal. Perhaps I missed a connection there, but that's the way it appeared to me." Number 2309 MR. McNALL clarified that it wasn't a desire to make it illegal. Rather, the issue is what to do when someone tries to avoid regulations and rules about being a licensed personal service contract provider to do certain things, rather than acting in good faith. For example, if someone has 30 rental units and doesn't want to pay a commission, hire real estate licensees, or do the work himself, he may bring in relatives to assist, operating outside the law. It isn't a good-faith violation of the rules but conspiring and scheming to avoid the regulations. If people are allowed to do 20 transactions a year, some would do it for reasons that aren't the nice reasons Representative Ryan described. Number 2389 REPRESENTATIVE RYAN responded, "You will find a lot of immigrant families who come to America and in 10 or 15 years are doing quite well, just because of the familial relationships of everybody working very hard and pooling their resources to get ahead, something that perhaps some of us who have been in America for 300 or 400 years should go back and revisit. And these people do the things you have just described. And by working very hard and having family members do things, they prosper in this country and take care of the American opportunity. We start limiting these sort of things to someone with a license and we're taking away part of the opportunity. I think there's a fine line we have to find here. And I'd thank you much for your comments, sir." Number 2444 MR. McNALL replied, "It seems to me if I'm going to leave town and have somebody competent to take care of my property for me, I'd much rather turn it over to a licensed real estate agent, where there's adequate E&O insurance and a surety fund, so in case there's a problem, I have some recourse when I come back, as opposed to trying to figure out how my Aunt Sue might take care of my property, when she really doesn't have a clue about what she needs to be doing." REPRESENTATIVE COWDERY commented about different family relationships. TAPE 97-24, SIDE A Number 0025 CHRIS STEPHENS, President, Bond, Stephens and Johnson (commercial real estate brokerage firm), testified via teleconference from Anchorage, indicating he'd testified at the previous hearing regarding the commercial endorsement. He strongly supports it and thinks the need for it is abundantly clear. He doesn't believe the education requirements are burdensome, nor is it unreasonable to obtain additional education to gain expertise in the area in which one will practice. He believes it is necessary for the protection of the public. Mr. Stephens pointed out that one doesn't have to be a NAR member to take their courses, at least the commercial courses with which he is familiar. Although there is a different fee structure for nonmembers, anybody may take them. MR. STEPHENS said Section 37 highlights the differences, perhaps, between commercial and residential. Lines 23 and 24 talk about getting a commercial services contract before one can do anything. However, anyone who does commercial real estate learns quickly that many companies would never sign such a document. It would be shipped to a corporation's legal department, and it would never be seen again. In the commercial sector, that isn't practical, as well-meaning as it is. Number 0191 MR. STEPHENS believes the amendment relating to leasing commercial property makes sense. As he understood the bill was drafted originally, it required a property management endorsement to lease commercial property. In Anchorage, at least 90 percent of commercial leasing is done by brokers, not by property managers. It doesn't make sense to have commercial brokers get property manager endorsements for something they've already been doing for a long time. Therefore, he applauds that change. MR. STEPHENS noted two problems with using a dollar amount to define "commercial." First, over time, inflation will cause the dollar amount to mean something different. And second, for those without a commercial endorsement, it could be a strong economic incentive to make sure that a transaction is below $500,000, which gives an unwanted incentive. He suggested defining "residential" with language such as, "the sale or lease of single-family houses and rental units up to four units, and unimproved single-family lots," thereby staying away from dollar definitions. Number 0339 CHAIRMAN ROKEBERG explained that as he conceived drafting the commercial endorsement, a duly-endorsed property manager would be able to let premises for above the $500,000 mark. He wanted to set it up so that a property manager could do the leasing or renting as set forth in the bill, but a commercial endorsee also could do it without having a property management endorsement. The issue then becomes whether a property management endorsee could lease something with a value over $500,000, such as a gross aggregate of rental receipts. CHAIRMAN ROKEBERG concurred about limiting the definition monetarily, suggesting if that were retained, it should be related to the Consumer Price Index (CPI). However, not putting a value on it may be problematic without going into a mass of definitions. He expressed the desire for input from the entire real estate community, to come up with an acceptable definition that will do the job without placing a burden on anyone. Number 0496 MR. STEPHENS said he agreed, stating, "I think the property managers on the commercial side, they do commercial leasing, and that should be part of the ... property management endorsement on the commercial side, and I think that brokers do, too." He commented in his experience, real estate values don't necessarily follow the CPI. Therefore, hooking the dollar amount in the bill to the CPI may not achieve what they are trying to achieve. CHAIRMAN ROKEBERG said he appreciated that. He suggested they may need a periodic review. Number 0552 KRISTAN TANNER, Broker Associate, RE/MAX of Wasilla, testified via teleconference from the Mat-Su LIO, specifying that she is a licensee with the "CCIM" designation also held by Chris Stephens. MS. TANNER said the task force agreed with Representatives Cowdery and Ryan that there are definitely situations that need to be excepted from the present law, because currently in statute, there is no remedy or exception for the mother-in-law who gets sick and goes out of state. Their desire was to create a number of exceptions; she mentioned exceptions listed on pages 29 through 33, some of which are currently available and some of which aren't. MS. TANNER explained, "We truly tried to expand it because we agreed that there were different times when the law obviously created a situation where somebody was in violation and truly that was not the spirit of the people that were participating in a specific transaction." She suggested if the committee reviewed all those exceptions, they'd find that the majority of concerns would fall within those, with the one exception that the power of attorney may need to be expanded to a different number. MS. TANNER offered to answer questions regarding endorsements and how the hours for continuing education would cross over. CHAIRMAN ROKEBERG reported that Ms. Tanner had submitted written testimony, received that day. He expressed appreciation for that. Number 0731 REPRESENTATIVE RYAN asked about the time and expense involved in obtaining endorsements through continuing education. MS. TANNER explained the idea behind the task force: Someone who wants a sales endorsement and a property management endorsement would need eight hours of core requirements for each endorsement, which totals 16, plus four more for continuing education. For a third endorsement, one would use those four additional elective continuing education hours and then pick up four more, for a total of 24 hours. They had tried to design it so as not to be overly burdensome in terms of either hours or cost. In contrast, for one endorsement currently, eight hours of core classes and 12 hours of continuing education are required, for a total of 20 hours. Number 0883 CHAIRMAN ROKEBERG asked whether Ms. Tanner was aware of the draft regulations, separate from this bill, about continuing education. He asked whether she had been involved in any of those. MS. TANNER replied, "Briefly. I was not involved with them." CHAIRMAN ROKEBERG said he'd ask Ms. Oakley about that. He asked Ms. Tanner what "CCIM" stands for. MS. TANNER replied, "Certified Commercial Investment Member." Number 0934 CHAIRMAN ROKEBERG mentioned the exceptions and said an existing area of law is vexing the committee and the staff. He referred to page 30, lines 2 and 3, and said, "It's in the existing statute now, where it refers to `unless the transaction involves land defined in'. And this is the subdivision statute; that is not in Alaska. ... And that's also picked up in the next, .900, section." He asked whether the task force had considered that and requested an explanation. MS. TANNER said she wasn't sure she could explain it. She stated, "You look on page 31, line 17; it's put back in there." She indicated Mr. McNall may be able to answer specifically. CHAIRMAN ROKEBERG asked whether an individual would receive credit from the commission for having a degree in economics or business. MS. TANNER asked whether that was regarding a new license. CHAIRMAN ROKEBERG said either a new license or any continuing education course. MS. TANNER replied that currently, if someone wants credit for a university class that they will take, it must be approved by the commission. She's not aware of any approval for a course that was taken previously. Ms. Tanner does agree with the bill regarding real estate courses that can be taken through the university for continuing education. CHAIRMAN ROKEBERG responded, "Right. If they're approved by the commission and the amount of hours granted (indisc.) would be by regulation by the commission, but they specifically provide for credit of those courses, which has been absent to date." Number 1072 MR. McNALL stated, "The section that you are asking questions about is related to the interstate land sale practices act, which is federal and controls the area. And I don't think we'd pass a law that would contradict that area." CHAIRMAN ROKEBERG said there is a "definition reference" in the Alaska statute, as far as land sale subdivisions. MR. McNALL said he believes that is correct. CHAIRMAN ROKEBERG continued, "And we were curious about the antecedents to it. The best I could come up with was ... the sales of property, very much like the residential-type promotions, the ... general development corporation sales of Florida tidal flats that went on for a number of decades and the like. ... But there has been some concerns expressed that if a person did happen to own out-of-state property and they wanted to subdivide that land, why couldn't they sell that property? So, that's the nature of the inquiry. This is in the existing statute." MR. McNALL said he couldn't answer further but perhaps Ms. Oakley could. Number 1156 GRAYCE OAKLEY, Executive Administrator, Real Estate Commission, Division of Occupational Licensing, Department of Commerce and Economic Development, responded via teleconference from Anchorage, "I believe that there are, in the fine print of the law, of the interstate land sales practices act, there are a number of things where if there's a building on a lot or something like that, it doesn't have to be done through a licensee. ... That law was put in place for the large subdivisions of vacant lots that were being marketed as ocean-front lots in Arizona, or wonderful places to go, and that were really swamp land in Florida or something like that. And as you mentioned, they were the type of thing that was by a general development corporation. And it was an attempt to keep people from being taken unfair advantage of. It was a consumer- protection bill to keep people from being hoodwinked by the fast- talking promoters of those kinds of properties." MS. OAKLEY continued, "One other thing that I would like to mention that was touched on briefly by Catherine Reardon with regard to the use of the term `designee,' and I know we haven't had a chance to discuss this very much, but the reference on page 2, line 15, is much broader than just having to do with testing. It says the commission may assign or designate, and we would say designate to just department employees, the ability to issue licenses and endorsements to certified courses under this chapter, to approved instructors, to negotiate the terms of a repayment when somebody (indisc.) shouldn't have to pay back the surety claim, unless they do it on an installment contract. Those kinds of things are all encompassed in there; it's not restricted to the testing service employees." MS. OAKLEY continued, "And the one on page 14, line 24, that does refer specifically to the testing service, says at the beginning, `If the commission authorizes the department to contract with a national testing service', then they can delegate that this designated person shall review the examination or approve its contents. And so, I would like to urge you to take another look at that language with regard to the designee, because it could, from a personnel standpoint, ... create or present some potential problems with regard to people who are not employees of the state being designated to do certain tasks." Number 1310 CHAIRMAN ROKEBERG asked whether Ms. Oakley could make a recommendation about the designee to clear up that matter. MS. OAKLEY said she'd be glad to address each one. Number 1335 REPRESENTATIVE RYAN said he didn't know whether it was just the organization hired by the Real Estate Commission to administer the test, but he'd spent a lot of time as a training officer in aviation; one basic concept of testing is to sample an individual's knowledge to see how comprehensive it is regarding the subject being tested and to determine what will bring that person's proficiency up to 100 percent. REPRESENTATIVE RYAN stated, "Yet this organization will tell you either you passed or you failed; they will not tell you what areas that you need for further study. And if you successfully pass one portion of the test, either the national or the Alaska state, and you fail another, you have to come back and retake both portions again." He saw no purpose for that, other than keeping people out of the profession, and he wanted to hear a justification. Number 1451 MS. OAKLEY agreed when people pass the test, they receive no grade. But when a person fails, there is a bar graph on the score report form that shows the areas in which the person did or didn't do well enough. The reason for taking the whole test again after failing one part is that otherwise, there would be two different time lines going, leading to problems of getting the application in within six months of passing the exam. Ms. Oakley concluded, "And that's just a call that the commission has made. It's something that could be, I suppose, looked at again. But that's what has been in place for more than the ten years that I have worked for the commission." Number 1513 REPRESENTATIVE RYAN said he didn't recall anyone getting a failing grade that provided some idea of the "level of incompetency." MS. OAKLEY replied that if the score is failing, below 75, the person receives the score. REPRESENTATIVE RYAN asked whether that had been true in the last couple of years. MS. OAKLEY said it had been true as long as she'd been there, and certainly the whole time they'd been with ASI (ph) as a testing service. REPRESENTATIVE RYAN asked that Ms. Oakley check to ensure that is actually happening, as that hadn't been his own experience. He'd had to retake the test but hadn't received a score, nor did he remember a bar graph. Number 1564 REPRESENTATIVE COWDERY asked Ms. Oakley's views regarding the concerns he had mentioned earlier, involving family situations and executors as well. MS. OAKLEY replied, "With regard to a person acting as a receiver or trustee, administrator, executor or guardian, that's already in one of the exceptions listed on page 30. And as far as the family member exemption, that one is one that I think the task force spent a lot of time and probably a lot of rationale, both pro and con, on whether family members should be able to step in and do, without having the benefit of a license. And I have to say I can see both the pros and the cons of that, too." MS. OAKLEY continued, "But if we are to look at the ultimate mission of the Real Estate Commission being that of protecting the consuming public, as opposed to looking out for the benefit of the licensees, basically a consumer-protection (indisc.) that we have licensing for in the first place, and so, the vast majority of the family use that you are talking about, I think the vast majority of those instances would come within the exception of the four units or less. And that was one of the main reasons that they established that level of exceptions in the proposed bill." MS. OAKLEY continued, "Beyond that, it is certainly arguable, but ... it was the feeling of the task force that that did need to be licensed activity, simply because of the number of tenants involved and the amount of money collected in security deposits. And when you ... think about the numbers that I gave you last Friday of dollars that we have paid out on surety claims, where there were security deposits that had evaporated and not gotten to where they really belonged, that was an overriding concern and the reason that they felt that anything more than four units did need to have the protection that is afforded through the surety fund that a licensed real estate agent has as a recourse to ... their clients." Number 1724 CHAIRMAN ROKEBERG asked Ms. Oakley to provide the committee with minutes from the task force on that topic, particularly relating to management of properties by family members. Although that is existing statute in large part, they want to take a hard look at that whole section relating to exceptions. In addition, he stated, "Also, I'd be kind of curious now about looking at the term `as a vocation' that's on page 31, line 31, what that really means; I think it's in the existing statute, and it's reenacted as that, as a vocation or for compensation." MS. OAKLEY responded, "That's all within the bit of whether there should be an exemption for corporations or not." CHAIRMAN ROKEBERG asked whether anyone else wished to testify. He thanked participants, invited further comments and advised listeners that the new committee substitute would be issued as soon as it could be drafted. The bill would be heard again March 24. ADJOURNMENT Number 1861 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 5:37 p.m.