HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 24, 1997 3:23 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Bill Hudson Representative Jerry Sanders Representative Joe Ryan Representative Tom Brice Representative Gene Kubina MEMBERS ABSENT All members present 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 03/17/97 (H) MINUTE(L&C) 03/24/97 (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. 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. SCOTT CONNELLY, President Kachemak Board of Realtors 331 East Pioneer Avenue Homer, Alaska 99603 Telephone: (907) 235-6183 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. 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. DWIGHT BOWDEN, Broker ERA Professional Real Estate 2331 Sues Way Anchorage, Alaska 99516 Telephone: (907) 562-3300 POSITION STATEMENT: Testified regarding HB 33. PAT STEPHEN, Broker Polar Realty, Incorporated 1101 East 76th Avenue Anchorage, Alaska 99508 Telephone: (907) 349-7681 POSITION STATEMENT: Testified 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. KRISTAN TANNER, Broker Associate RE/MAX of Wasilla 1590 East Financial Drive, Suite 200 Wasilla, Alaska 99654-8237 Telephone: (907) 376-4515 POSITION STATEMENT: Answered question related to HB 33. DAVID GARRISON, Associate Broker AAR Investments P.O. Box 190727 Anchorage, Alaska 99519 Telephone: (907) 277-3446 POSITION STATEMENT: Testified regarding HB 33. WILEY BROOKS, CPM and Broker Wiley Brooks Company, Incorporated 2525 Blueberry Road, Suite 204 Anchorage, Alaska 99503 Telephone: (907) 277-2484 POSITION STATEMENT: Testified regarding HB 33. ACTION NARRATIVE TAPE 97-28, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:23 p.m. All members were present at the call to order: Representatives Rokeberg, Cowdery, Hudson, Sanders, Ryan, Brice and Kubina. HB 33 - REAL ESTATE LICENSING Number 0024 CHAIRMAN ROKEBERG announced the committee would continue the public hearing on House Bill No. 33, "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." Number 0085 REPRESENTATIVE JOHN COWDERY informed members that amendments B.2 and B.3, presented the previous week by his staff, had been intended for discussion, not introduction. CHAIRMAN ROKEBERG acknowledged receipt of those and said the Anchorage Legislative Information Office (LIO) had copies. Although the committee would respect Representative Cowdery's wishes and not introduce them, they would address those issues. CHAIRMAN ROKEBERG advised members that Janet Seitz would explain changes in the latest bill version, 0-LS0197\F, Lauterbach, 3/18/97. It wasn't his intention to move the bill that day. In addition to public testimony, there was correspondence from real estate groups and individuals to consider. Number 0279 CHAIRMAN ROKEBERG said the bill is broader and bigger than perhaps originally intended. This "F" version is not the final working draft of the committee; his intention following that day's hearing was to put it into a "de facto subcommittee," which he would work on, then hold another public hearing before coming up with a final version. He wanted to provide everyone in the real estate community an opportunity to make suggestions about the bill. Number 0388 REPRESENTATIVE BILL HUDSON made a motion to adopt 0-LS0197\F, Lauterbach, 3/18/97, as a work draft. There being no objection, it was so ordered. Number 0426 JANET SEITZ, Legislative Assistant to Representative Norman Rokeberg, explained changes (references to amendments are from those adopted at the previous hearing). On page 7, lines 9 and 10, Amendment 1 had added new language regarding the Building Owners and Managers Association. On page 8, lines 8 through 13, there is new language, subsection (b), relating to commercial services brokers, which the legislative drafter had suggested. Number 0518 CHAIRMAN ROKEBERG said this is one of the more controversial areas. He intends to add a conceptual amendment here to exclude anything under a four-plex, so that a real estate sales practitioner without a commercial endorsement could sell up to a four-plex, notwithstanding its valuation. He indicated the desire for additional testimony regarding this. Number 0586 MS. SEITZ advised members the next change is on page 9, line 3. Subsection (e) begins, "Unless licensed as a commercial real estate broker"; that is new language. Section 13, which starts on page 9, line 17, and continues through page 10, line 13, is also new language, from Amendment 4. She explained, "The only difference is it didn't get to the drafter that small subsection (b) should be `Before issuing' instead of `After providing'. So, ... that would be changed." CHAIRMAN ROKEBERG said it is a civil penalty clause. There are a number of different citations to penalties in this chapter. Once the basic draft is done, he wants to review those and try to minimize them. Number 0669 REPRESENTATIVE HUDSON suggested perhaps using a graph to indicate the complex changes, which had worked well elsewhere. Number 0691 MS. SEITZ advised members that Section 16, beginning on page 14, line 3, and continuing to page 15, is entirely new and contains commercial broker language. On page 17, Amendment 1 had deleted a section regarding the commission's adoption of a system for reevaluation of examinations; it would have occurred after line 2. In version B, it had been on page 14. MS. SEITZ continued. On page 17, line 25 now reads, "60 days or less"; line 29 now reads, "more than 60 days". Those were from Amendment 1. On page 18, line 23 now reads, "may reactivate the license"; it had been awkward language, cleaned up by Amendment 1. One page 21, line 28, the word "exclusive" is dropped between "All" and "real estate personal services contracts". MS. SEITZ referred to page 22, lines 3 through 6, and said, "This is where we had the duplicative `for at least three years' language, and that's been cleaned up. So, we only have reference one time to `for at least three years.' And on line 7, the language, `upon request to any principal in a transaction,' was added." Number 0882 MS. SEITZ advised members that on page 24, after line 16, another section, relating to disclosure of agency, had been dropped. In version B, it had been Section 37, on page 22. CHAIRMAN ROKEBERG specified that the agency disclosure section would have been just before Section 38, page 24, of version F. MS. SEITZ referred to page 35. On lines 2 and 3, the drafter had added, "including a commercial real estate services broker". On lines 9 and 10, the definition of "commercial real estate services broker" is new language. And on lines 18 and 19, the definition, "`employed' includes being an independent contractor" is also new language. Number 1062 GRAYCE OAKLEY, Executive Administrator, Real Estate Commission, Division of Occupational Licensing, Department of Commerce and Economic Development (DCED), testified via teleconference from Anchorage, saying she was mainly available to answer questions. She stated, "I do have a little bit of concern on the section of the F draft on page 9, where the `commercial' is added in line 3, because it seems like that section is the same ... section (b) on the previous bill, that was referring back to all of the different endorsements. And by putting it in this way, it would limit it to just the commercial endorsement, and I'm not sure that's what you want to do." She asked that the committee look carefully to ensure that "commercial" is appropriate there. MS. OAKLEY referred to page 15, line 11. She said testimony the previous Monday indicated the language about insurance requirements would be changed so that premium payments wouldn't come to the Real Estate Commission; however that hadn't been incorporated. In addition, she'd sent suggested language regarding the phrase, "the commission or the designee," because of a concern raised within the DCED about its possibly applying to people who aren't state employees. That hadn't been incorporated, either, although she acknowledged the committee may have reasons for that. Number 1187 REPRESENTATIVE HUDSON asked where that is in the bill. MS. OAKLEY said the designee language is located in a couple of places: page 2, line 15, and page 15, line 30. Number 1224 CHAIRMAN ROKEBERG stated, "We do have an opinion on that; so, we will be looking at that." He said he'd asked the drafter to totally redraft the section on errors and omissions (E&O) insurance. He then asked how much activity the commission had conducted to try to educate and inform members of the real estate community that this would be happening. Number 1278 MS. OAKLEY answered that at the time the task force made its recommendations to the Real Estate Commission, one issue of the real estate newsletter, which went through it section by section, was mailed to every licensee, active or inactive. After the change in commission membership, they wanted time to digest it; she believed about a year had lapsed since it was published. Number 1323 CHAIRMAN ROKEBERG asked when the task force report was prepared. MS. OAKLEY said the summer of 1995. It was discussed at the convention in Fairbanks last year, right after the commission adopted it. She stated, "It was taken to the board of directors of AAR, and then I reported on it at the general membership meeting." She said there was a chance for people to contact her afterwards, but it wasn't gone through section by section. CHAIRMAN ROKEBERG requested that Ms. Oakley provide a memo setting forth that time frame and efforts to disseminate information. He'd received complaints about this catching people by surprise. Although the committee had sent out more than 75 copies, to all property management firms and to many major brokers in the state, it didn't mean they had contacted everyone, which concerned him. Number 1407 MS. OAKLEY said she'd misspoken; it was the summer of 1996 that it was published in the newsletter. She would provide that newsletter article to the committee, along with the requested memo. In September 1996, the new commission had indicated they needed more time to digest this. CHAIRMAN ROKEBERG asked whether the commission took action on it before that. MS. OAKLEY replied, "Yes, they did take action." CHAIRMAN ROKEBERG requested a copy of that or related minutes. MS. OAKLEY agreed to provide that. Number 1509 SCOTT CONNELLY, President, Kachemak Board of Realtors, testified via teleconference from Homer. CHAIRMAN ROKEBERG asked whether Mr. Connelly had received his letter. MR. CONNELLY said yes. He stated, "I'm really, really pleased with the reaction that I'm getting from everybody. And the answers that I got at the last teleconference went a long, long way to assuaging a lot of people's fears down here." MR. CONNELLY discussed three points from comments he'd heard. First, people don't like the concept of mandatory E&O insurance. Although he believes there would be excellent participation if there was a reasonable price, people seem to have a problem with the word "mandatory." Second, he has the feeling that people don't want criteria for certifying the commercial endorsement tied into National Association of Realtors (NAR) classes. MR. CONNELLY referred to page 8, lines 8 through 13, and indicated the final point relates to real estate with an anticipated market value over $500,000 unless there is a residential dwelling. He acknowledged Chairman Rokeberg's discussion of adding terminology about four-plexes, then stated, "The way that I read that is that without the commercial endorsement, I couldn't sell a piece of raw land with a value of over $500,000. And I guess that just confuses me. It strikes me that that could be, most definitely, a noncommercial sale, even in that price range." Number 1599 CHAIRMAN ROKEBERG said that is a good point. The $500,000 is not entirely arbitrary but started as a base line for discussion, with the thinking that a dollar amount makes it easier to determine whether a transaction is commercial or noncommercial, rather than having a whole litany of different classifications. He expressed interest in hearing opinions on that. He stated, "And as we get into this whole discussion further, I think the importance of having that endorsement will become more evident to everybody." CHAIRMAN ROKEBERG pointed out that E&O insurance would only be mandatory if it were obtainable for a premium of $200 or less a year. He stated, "And I will not myself support any kind of mandatory E&O insurance unless it's a universally-available policy at a very low rate. And that particular portion of the bill CS has not been updated. I've asked the drafter to try to reduce it, even down to about a paragraph or so, and allow the commission to try to find that insurance, and if they do find it, to make sure that it is available." He emphasized that it would be mandatory in order to obtain lower premiums, which is the reason for considering a premium cap. MR. CONNELLY replied that he appreciated the fact that with better participation, there would be better rates. He said he'd love to be able to get E&O insurance for $200 a year. CHAIRMAN ROKEBERG stated, "I thought everybody would. That's why we even raised it from $100 to $200." MR. CONNELLY said he'd noticed that; even $200 is very reasonable. He commented that everyone there is comfortable that they'll have an opportunity to address any future bill versions. "And, again, thank you for that, for making us feel at ease," he concluded. Number 1764 CHAIRMAN ROKEBERG noted that Eric Dyrud had sent a letter dated March 23. He inquired about the rationale behind his suggestions. ERIC DYRUD, Associated Brokers Incorporated, testified via teleconference from Anchorage. He explained his first recommendation, regarding composition of the Real Estate Commission. As he read the current language, the commission could have contained no associate brokers or brokers. However, he believes it is important that at least two members be either associate brokers or brokers, because oftentimes brokers look at things differently than sales people do, as far as responsibility. Number 1820 CHAIRMAN ROKEBERG commented that he'd asked the drafter to put the brokers back in. He'd like to hear from commission members later about why they removed that. He agreed with Mr. Dyrud 100 percent on that point, because they need experienced people in those slots. He noted that it only takes two years to get a broker's license. Number 1835 MR. DYRUD said next was a suggestion on the language under duties of the commission. He believes the current statute calls for just a summary of the disciplinary action. However, he believes it is important to the industry, and would be educational, to have a little more information in there on exactly what the problem was. CHAIRMAN ROKEBERG said that's a good idea and they'd look at it. MR. DYRUD referred to page 5, Section 5, relating to AS 08.88.081, commission regulations, and said he had some real concerns. He recommended deleting (1), which calls for setting ethical standards and minimum standards of professional conduct. He believes if those exist, they should be spelled out ahead of time and subject to review, rather than empowering the Administration or the board to do that. MR. DYRUD also expressed concern that if the commission developed its own code of ethics, different from the NAR's code, an agent or licensee might be in the situation of having to violate one code or another. Having two separate codes could create confusion and problems in the industry and with the public. Number 1924 CHAIRMAN ROKEBERG agreed and said he'd asked several questions about that; he believes it needs further debate. MR. DYRUD referred to page 6, Section 6, and recommended substituting "identify" for "provide". He explained, "I'm not sure that it's proper for the Real Estate Commission or the administrative staff to get into training of instructors. I think that adds a whole new dimension. It would be my recommendation that it would be proper for the commission or the executive secretary to identify those courses that are required, but that we should not have to pay those out of license fees. And if they felt there was no other way to do it, other than to put on a course, that the instructor should fully pay for that course, because they, in turn, turn around and charge all the people that go to the courses, to pay for it." MR. DYRUD emphasized that his two concerns here were that they were getting into the educational business with the commission, as far as instructors, and that they were inadvertently creating a situation where the surety fund or a portion of the fees are used to train instructors, who would then turn around and bill students. Number 1995 REPRESENTATIVE JOE RYAN agreed. He stated, "We're asking the brokers and the sales persons to upgrade their skills by getting these endorsements. It would seem only reasonable that a person who's teaching the course, if they wanted to expand their ability to make a living, that they should bear the cost of that themselves." CHAIRMAN ROKEBERG said they'd take that and all of these under consideration. Number 2016 MR. DYRUD referred to page 8, Section 12, under "license required"; page 10, Section 14; and page 14, Section 16 "and other." These refer to the requirement for an endorsement and for the limitations that would be established on dollar amounts or types of properties. He suggested that Ron Johnson could comment if he was on teleconference. MR. DYRUD stated, "It was my understanding, and his comments to the Alaska Association legislative committee, that the primary thrust of this change was to ensure we had appropriate education for those people who might, the commercial sales, who might do leasing and might do property management. But I think the intent of it is, it's to create a class of licensees and a class of brokers. And I think there's some real problems with that, and I don't believe that that's beneficial to the public or to the industry." MR. DYRUD continued, "I had a couple of sub-items on that, and I think it's particularly crucial in small towns and communities, that it would be very difficult for them to maintain these various endorsements, and that we might inadvertently push buyers and sellers to do their own transactions because an individual would not have that kind of endorsement. So, if they didn't, they would either have to bring a real estate licensee in, turn to an attorney, or do without a licensee to complete the transaction." CHAIRMAN ROKEBERG said those are philosophical issues that the committee needs to discuss. Number 2110 MR. DYRUD suggested they pull that whole issue out of this bill. Although there might be a philosophical disagreement and he might be in the minority on that, he believes it is important that the industry understands what is intended and what will be done under that. He also believes it could be added later. "I think at this point, there are not enough people at the grass roots level, if you will, that understand what's coming down," he concluded. CHAIRMAN ROKEBERG responded that the major thrust of the bill was originally to incorporate community associations. It added the endorsements as a method of reaching that point, and then differentiating in the education. He stated his understanding that Mr. Dyrud believes the educational considerations could be done by the commission, providing regulations for that. Number 2154 MR. DYRUD mentioned mandatory training, suggesting someone selling houses would want to take a residential course, not a commercial one. CHAIRMAN ROKEBERG said if it is mandatory, everybody must take it, if there isn't a different endorsement or a differentiation in the types of licenses. MR. DYRUD suggested, "Well, if you had 10 or 12 hours of mandatory courses, and an individual could collect, maybe, one of three of those mandatory courses, maybe one's geared to commercial, one's residential and one's property management, you've still taken your ... mandatory education, and the licensee has had the opportunity to select which one of those mandatory courses, out of maybe three choices, that would foot the bill." Number 2190 CHAIRMAN ROKEBERG submitted they may not be mandatory if a person selects which ones to take. MR. DYRUD pointed out that a commercial broker might deal with a trust account differently than a property manager would. Therefore, there might be two trust account courses, for example, one geared towards residential and one towards commercial or property management. A person could take either to fulfill the mandatory requirement for that course block. MR. DYRUD next referred to page 15, Section 08.88.173. CHAIRMAN ROKEBERG noted that it is discussed on page 4 of Mr. Dyrud's letter. MR. DYRUD explained the suggestion: If the commission offers mandatory E&O insurance to licensees, the $125 currently charged for licensing and designated for the surety fund should be eliminated. Because the E&O insurance would protect the public for any wrongs that may have occurred, the surety fund would be a duplication. CHAIRMAN ROKEBERG said the committee would take that up. However, there is a distinction between limitations under the surety fund and deductibles and limitations on E&O insurance. They don't want to be party to anything that would inhibit commerce in the state by putting undue burdens on individual licensees. Number 2280 MR. DYRUD referred to "I." on page 4 of his letter, a conceptual amendment which read: "The real estate surety fund shall be removed from the general fund and placed in an interest bearing account." He suggested that would be beneficial to potential claimants and licensees, as it would increase the size of the surety fund. CHAIRMAN ROKEBERG advised Mr. Dyrud that there is a constitutional prohibition against dedicated funds. He noted that there is "cash management" in the general fund. MR. DYRUD asked whether "cash management" means it earns interest. Number 2309 REPRESENTATIVE HUDSON explained that most of the funds deposited to the general fund accrue interest, but it accrues to the state. MR. DYRUD agreed. To him, this is a special fund, paid for by the industry to protect the public. He believes there should be a way to put it in an interest-bearing fund to increase it. Number 2329 REPRESENTATIVE HUDSON stated, "I think we can write language calling for interest to accrue to the account and separate accounting." CHAIRMAN ROKEBERG suggested in that case, they may have to rewrite "the whole surety fund area." He mentioned concerns of Representative Ryan about that, as well as the current cap where "everything lapses to the general fund over $500,000." He expressed appreciation for the comments about E&O insurance in particular, mentioning possibly having the surety fund provide the deductible of a lower-premium E&O insurance, for example. Number 2360 MR. DYRUD suggested if the $500,000 sitting around could be put in a bank at 4 or 5 percent, even, that would result in a tidy sum to add to the surety fund. CHAIRMAN ROKEBERG indicated that about $200,000 per year is expended for educational functions of the commission, which Mr. Dyrud could ask Ms. Oakley about. Number 2376 MR. DYRUD referred to page 17, Section 20. His suggestion, found on page 4, item "J." of his letter, is that for subsequent exams, individuals only are required to retake and pass the portion they'd failed, whether it was the "general" or the "law" portion. MR. DYRUD referred to item "K." of his letter, relating to page 22, Sections 33 and 34. He recommends changing the phrase "complete record" to read "all records". He believes the intent is that the broker provide all records, and he would hate to get into an argument after the fact of what a complete record should have been. CHAIRMAN ROKEBERG said they'd have the drafter look at that. Number 2429 MR. DYRUD referred to page 29, Section 43. Item "L." in his letter suggests adding a new subsection (e) to read: "In the event of a claim from association against a licensee, said association shall be required to show that its board of directors employed reasonable fiduciary responsibility on the part of the association to protect its interests and moneys. In cases where the association failed to exercise reasonable care, the amount due claimant shall be reduced by one-half of the normal amount." MR. DYRUD explained that all of these associations have boards of directors which have responsibilities. "And I'm not sure it's fair if they don't exercise that right that they look to the surety fund for being made whole," he said, suggesting if an association's board didn't exercise proper fiduciary responsibility, it may enhance a problem. REPRESENTATIVE RYAN replied, "We are constantly talking about personal responsibility and how the state shouldn't pick it up if somebody else would pick it up. I think it's a very good point, putting responsibility where it lies." He noted that the board sets membership requirements for an association. TAPE 97-28, SIDE B Number 0006 CHAIRMAN ROKEBERG said when trying to determine whether the board had exercised reasonable fiduciary responsibility, there is a question of law that is a matter of interpretation. He stated, "You could spend more money on litigating the interpretation of that law than you would be paying the claims. So, I would ask if we could have the commission look at that and see if they can make some recommendations along those lines, because I think it's an excellent comment." REPRESENTATIVE RYAN indicated perhaps a good definition was needed. CHAIRMAN ROKEBERG replied, "But it still is a matter of evidentiary proof, if there's a breach of fiduciary responsibility on the part of the board. And ... should they or shouldn't they have been looking over this guy's shoulder more? And ... that is a matter of evidence, I think." MR. DYRUD commented, "I think some of us out in the profession get the feeling that we have this pot of money and everybody is trying to get a part of it. ... If somebody in the industry has wronged somebody, I don't have a problem with that. But on the other hand, I think they also have a responsibility ... to do normal business practices to serve their interests." CHAIRMAN ROKEBERG said he couldn't agree more. Number 0057 MS. OAKLEY requested confirmation that on that last point, Mr. Dyrud was speaking of community associations, not just any association. MR. DYRUD affirmed that. CHAIRMAN ROKEBERG turned the gavel over to Vice Chairman Cowdery. Number 0077 RON JOHNSON, Broker and President, Kenai Board of Realtors, testified via teleconference from Kenai. He had sent a letter addressing the possibility of protecting the commission appointee's position so that the commission could not as readily be changed. Under the current governor, five members were replaced all at once, leaving the commission with members who didn't know a lot about what had happened in the past. He likened that to this bill; many people don't know what the bill said, or what the intent of the original task force was, because they weren't there. MR. JOHNSON suggested changing "employed" and "employee" to "associated" and "associate" throughout the bill. MR. JOHNSON advised members he has a copy of the state of Washington's recently-rewritten license law, which has specific definitions relating to the concept of agency. He said, "And I think that while the state requires that we disclose our agency position, the law doesn't address ... the limitations of agency under common law, as it were, or the definitions under common law; and perhaps that might be beneficial to someplace put that in there." He suggested they look at defining agency, perhaps using the Washington license law as an example. Number 0175 VICE CHAIRMAN COWDERY asked Mr. Johnson to fax a copy of that to the committee at 465-2040. MR. JOHNSON suggested passing the request on to Ms. Oakley, from whom he'd obtained his copy. Number 0185 REPRESENTATIVE RYAN said he'd found that people in real estate are skeptical of dual agency, even though the option is there. He'd worked in brokering commodities internationally, where it is a common practice. He explained, "You have something to sell at a price, and then you find a buyer who is willing to pay that price, and you get paid at both ends. And I don't really understand in real estate why people have this much of a problem with this." He asked Mr. Johnson's opinion on why there is a problem. Number 0225 MR. JOHNSON replied that he is certified by the commission to teach agency courses and had taught 60 to 80 hours of agency using various course outlines. It still amazes him how the concept of agency is misunderstood, which he suggested is partly due to there being so many concepts of agency. For example, there are agents for football players, insurance agents, brokerage agents and real estate agents. He suggested defining specific agency relationships relative to the real estate business and common law. MR. JOHNSON believes the courts like to put real estate people into an agency position through making determinations based on their actions. He stated, "If it walks like an agent, talks like an agent and acts like an agent, it's an agent." Unfortunately, some actions "under the fair-dealing-and-honest-practices-type-of-a- thing" make buyers and sellers believe that real estate people are their agents. Mr. Johnson believes that has created a problem, multiplied by the fact that the agency concept in real estate is unique to real estate. CHAIRMAN ROKEBERG, who had resumed chairing the meeting, called on Jerry Adams in Fairbanks; however, Mr. Adams had had to leave. Chairman Rokeberg asked whether anyone else had time constraints. He then called on Dwight Bowden. Number 0326 DWIGHT BOWDEN, Broker, ERA Professional Real Estate, testified via teleconference from Anchorage. Licensed for real estate in Alaska since 1968, he'd been a broker since 1970. He endorsed most of Eric Dyrud's comments and recommendations, but he took exception to the suggestion that there be at least two brokers or broker associates on the Real Estate Commission. However, he sees no reason why the real estate representatives shouldn't be either brokers or associate brokers, because it only takes two years to get a broker's license; if someone isn't experienced enough to do that, he believes they probably shouldn't be on the commission. MR. BOWDEN said the commercial real estate endorsement will require much more work; he tends to doubt that such an endorsement is necessary. The original intent of the bill was to cover some problems they'd had with property management and association management. Mr. Bowden suggested if they gave all of their attention to that particular portion of it, that would be most helpful and difficult enough to accomplish. MR. BOWDEN indicated Mr. Dyrud's comments on the E&O insurance and the surety fund were excellent. They wouldn't need the surety fund except for the deductible if everyone in the business had E&O insurance, which he believes should be the case. MR. BOWDEN endorsed the civil penalties for unlicensed persons doing business where a license is required; that has been missing for a long time. However, he believes this bill will add layers to the bureaucracy for licensing. The commission doesn't have the ability to investigate current complaints. He asked how they can investigate even more complaints resulting from this bill. Number 0470 MR. BOWDEN mentioned Ron Johnson's comments regarding agency. Mr. Bowden believes that if licensees understand consensual dual agency, the situation is certainly workable. He has a small office, and at last count, they are selling 40 percent of their own listings. They explain the consensual dual agency to the seller at the time they list a property, and they explain it to the buyer the first time they meet. They've had no problems to date. He believes it will work provided that people know how to explain it. Number 0514 REPRESENTATIVE RYAN asked whether Mr. Bowden believes the civil penalties associated with operating without a license should reflect the cost of becoming a licensed broker or sales person. MR. BOWDEN replied that he'd endorse that and it is probably appropriate. The only problem is with people who manage their own property. This bill specifies no more than four units to manage oneself or for another; Mr. Bowden believes that is probably too low. They need to really go after the people with whom they've had the most property management problems, involving embezzlement by both licensed and unlicensed people. Being too strict gets people who manage a few units. Although he's unsure what "a few units" is, he believes four is too few for this bill. Number 0602 CHAIRMAN ROKEBERG noted Mr. Bowden's indication that he is in favor of most of Mr. Dyrud's recommendations. He asked whether Mr. Bowden is skeptical of the need for a commercial endorsement. MR. BOWDEN said yes. CHAIRMAN ROKEBERG asked whether he'd change his mind on that if he felt there was going to be "a different provision for agency laws relating to the commercial agents, versus residential agents." MR. BOWDEN said he'd keep an open mind. Number 0637 PAT STEPHEN, Broker, Polar Realty, Incorporated, testified via teleconference from Anchorage. Like Mr. Bowden, he believes what Eric Dyrud has done and the study he's put into it have been pretty good. He believes the commercial endorsement is more for the protection of commercial agents than for the public. In commercial deals, the higher the dollar value gets, the more the client, not the agent, has control of that deal. Such clients have their own lawyers standing by, and they are much more knowledgeable than many agents who call themselves commercial brokers. MR. STEPHEN, who is in the commercial business, said he has no desire to limit who can sell commercial property. He worries more about commercial brokers selling a home. He asked, "Ever see a commercial broker try to write a home deal? And I see no restriction in here about that." CHAIRMAN ROKEBERG pointed out that there had been testimony from more than one source about the incompetency of commercial brokers relative to house sales. He asked that Mr. Stephen mull over "the commercial endorsement in the realm of agency." Number 0769 CAROL MEYER, State President, Alaska Association of Realtors (AAR), testified via teleconference from the Mat-Su LIO, saying she'd been fielding numerous phone calls on this. Indications are that those people fairly much agree with other testifiers that day. Mandatory E&O insurance would be a big problem; her guess is if it remains, the bill may go nowhere unless some things are changed regarding that. She indicated she and Ron Johnson had talked about whether they want agency in there, as there is a question as to whether including it would help or not. Even after all the education, there is still much discussion about what agency is. "And many of us still can't understand why there's such a misunderstanding of agency," she added. MS. MEYER continued: "The commercial, yeah, pretty much they're all saying they would prefer to see, at this point, at least, the commercial left out of it, at least until further examination, and probably going over maybe some education and what continued education is going to be on some of these things." Number 0854 MS. MEYER said as state president, she is trying to find a way to communicate what is going on. In January 1997, this bill was brought in front of the state board; each of the local board's presidents sits on that board. They'd "fairly supported" the bill as it was then, with reservations on a couple of items. She'd assumed those local presidents would inform their boards and legislative chairs about what was happening. "And I think part of this was already out there; so, they could have gotten their hands on at least ... what was being presented to you, Representative Rokeberg," she stated. MS. MEYER said at the state convention in September (1996), it was explained to quite a few people. There were 80 or 90 members present, and several committee chairs and their local presidents were there. It bothers her a bit that all of a sudden they're hearing that the larger brokers and some other members are not hearing about this. She asked for suggestions from any of them on better getting this information to them. Number 0948 MS. MEYER referred to discussion of "education being paid for out of the surety fund for instructors." She believes the commission has mandated that instructors be re-educated every two years, even though evaluations from those taking the exams show they are pleased with the instructors. It costs at least $400 for that instructors' class every two years; out-of-state classes would add to that cost. What will happen if suddenly they're looking at only instructors who can afford to teach continuing education and mandatory education classes? There are fewer instructors; they are already seeing the same instructors over and over again. Ms. Meyer pointed out that just because people take classes every two years, it doesn't mean they'll instruct well; she knows of a couple of instructors who still instruct the same as always, regardless of which classes they've taken. MS. MEYER asked: Who are they trying to protect, the consumer or the realtor or real estate agent? Referring to property management and association management, she said one reason they were supporting HB 33 was because of horror stories that the commission, brokers and agents were hearing. She cited an occurrence involving a renter who was given two-weeks' notice to move after a house was sold, contrary to the landlord-tenant act that provides for 30 days' notice. She said the problem seems to come more from owner- managers than realtors who manage property. MS. MEYER acknowledged that if she owned property, she may not want to need a license to manage it. However, renters, who are also the public, are being harmed because owners don't take classes or read the landlord-tenant act, resulting in problems with improper withholding of security deposits or property and inadequate notice about moving. She asked the committee to seriously look at what they're doing with this bill. She emphasized that many renters can't afford to hire attorneys to help with these problems. She asked how they can protect the public. Number 1165 CHAIRMAN ROKEBERG responded, "Well, there is an amendment before the committee, and I'd like you to consider it in your legislative committees, of expanding the ability of family members to manage the properties of other family members, which would expand the definition of the existing statute now. So, I'd like everybody down-line to consider that in our further deliberations, because I know there is an amendment before us. So, we've pulled back for further review, but we are going to be taking that issue up." MS. MEYER thanked Representative Rokeberg and indicated everyone was asking that the process be lengthened a bit so that they'd have a chance to read it more thoroughly. Number 1200 CHAIRMAN ROKEBERG restated that version F is not even the final version for mark-up. They would work that week on further amendments, considering testimony from that day; he hoped to come up with the first really good draft within a week or ten days. He would be in Anchorage the following Friday, March 28. He asked Ms. Tanner about the meeting scheduled that day. Number 1237 KRISTAN TANNER, Broker Associate, RE/MAX of Wasilla, responded via teleconference from Anchorage. She said there was a teleconference scheduled with all the legislative chairs. She invited Chairman Rokeberg to join them. CHAIRMAN ROKEBERG asked where that would be held. MS. MEYER joined in, saying she'd let him know. Number 1264 DAVID GARRISON, Associate Broker, AAR Investments, testified via teleconference from Anchorage, saying he has no problems with agency; he is a single-agency company, the number one buyers' agency. He believes the bill is trying to do too much. He suggested starting on page 1, line 1, and "eliminate it to just trying to handle the licensing of property management and community association management, instead of leaving this out as a blank check, for everybody to make all the changes to every part of the law that they can think of." Number 1336 MR. GARRISON agreed with Eric Dyrud's synopsis of the bill. However, the Anchorage Association of Realtors legislative committee was "kind of caught in between meetings here, ... on being able to get together and work on this piece of legislation," and he was glad to hear there would be opportunity for input later. Number 1373 CHAIRMAN ROKEBERG responded to the suggestion that they focus on just property management and community association management. He said the methodology selected by the task force and the commission at the time was to go the endorsement route for the differentiation. He is prepared to press forward to recognize the differentials in those various specialties, particularly as they relate to education, both for entry and continuing education. However, if anybody has a better suggestion, he is willing to take that up, and he believes the committee is also willing. Number 1442 MR. GARRISON continued. He doesn't want to see limitations on four-plexes. In the past five years, those have been from 5 to 10 percent of their income properties, which are multi-family properties. He doesn't get into what he calls "commercial," which includes lease spaces, commercial buildings, and things of that nature, as that isn't what he does best. He cited as an analogy the engineering profession, where civil engineers don't design automobiles. Similarly, he doesn't try to do property management, except for his own property, nor association management. He believes people can limiting themselves to real estate licenses for what they know best and are able to handle. CHAIRMAN ROKEBERG asked Mr. Garrison how many properties larger than a four-plex he handles. MR. GARRISON said four or five a year. Number 1506 CHAIRMAN ROKEBERG specified he was talking about five-plexes up to hundreds of units. He asked whether that wasn't commercial real estate. MR. GARRISON explained that he doesn't call that commercial real estate as long as it is residential rentals. He commented that 800 units may be 200 four-plexes. The only difference above a four- plex is the type of financing available. CHAIRMAN ROKEBERG stated his understanding that it is different from residential financing. MR. GARRISON replied, "Up to four-plexes, yes, because of -- FHA cuts off there. But Alaska Housing's ... talks about going to a little bit higher units, too." Number 1588 REPRESENTATIVE RYAN mentioned demonstrating competency for people engaged in various subdivisions of the profession. He said numerous other professional associations demand that someone successfully pass an original course of study, with continuing education in a specialty to maintain currency. Those requirements could be added here easily, without necessarily having the hurdles of an endorsement, to obtain the same objective. CHAIRMAN ROKEBERG suggested for an initial licensee, there would be a different exam. REPRESENTATIVE RYAN agreed there would need to be basic licensing to establish a benchmark. CHAIRMAN ROKEBERG submitted that it is what they do now. He asked whether Mr. Brooks wished to comment. Number WILEY BROOKS, CPM and Broker, Wiley Brooks Company, Incorporated, testified via teleconference from Anchorage. Head of his company, he does a combination of all they'd been discussing, including commercial real estate. He'd been part of the task force and worked on this probably two years before; much effort and thought was put into it. In the process of trying to differentiate between areas of real estate, it had involved into the endorsement idea. The original focus and concern was more professionalism and protection relating to those who practice property management, to bring them under the umbrella of the Real Estate Commission, "not to break out a separate occupational licensing," and yet provide the public protection. They hadn't wanted to create a new bureaucracy. They'd found that most of the states where they checked were bringing property management under the umbrella of the real estate laws. CHAIRMAN ROKEBERG asked, "And do you mean by that also community associations?" MR. BROOKS concurred, noting that over the years there had been some embezzlement cases. Number 1766 CHAIRMAN ROKEBERG asked whether the existing real estate statute doesn't cover property management. MR. BROOKS replied that it covers community association management and it covers property management "if you're in the business of collecting rents." CHAIRMAN ROKEBERG said, "But not association management." MR. BROOKS agreed. There is no statute governing association management, and that is needed very much. MR. BROOKS discussed the commercial requirement in the bill, saying the task force had discussed "additional break-outs." There could be no end to those specialties, which could include industrial, development and office buildings, for example. The distinction they'd wanted to make was that many community association people have no intention or desire to sell. Their education requirements are quite different from those of the rest of the industry, one reason they'd wanted to break them out. At this point in time, Mr. Brooks believes the committee would be well-advised "to take this commercial thing out of there." He believes it is a bit divisive, and the sales people will object to it. MR. BROOKS had observed that it takes care of itself for the most part. For example, in Anchorage only 10 or 12 people make much money in office building sales; the public goes to them with listings because people know it is their area of expertise. He restated his suggestion to drop this, saying he doesn't want it to hold up the legislation. Number 1967 CHAIRMAN ROKEBERG asked, "Would you consider your comments on the commercial endorsement in light of the change in the agency law? Would that have any influence on your thinking there?" MR. BROOKS replied, "No, I don't think so." Number 2000 MR. JOHNSON again testified from Kenai. He stated, "When I first got on the Real Estate Commission, a gentleman by the name of John Benson (ph) was a champion of how to fix the unlicensed activity problem. And at the time, my exposure to unlicensed activity was knowing that a few people managed four-plexes for friends and that sort of thing. His big charge was that there's a tremendous amount of major commercial deals that are done in this state without licensees participating in it." MR. JOHNSON said he's not a commercial broker, although he does some work in that area. He then stated, "But I think that maybe the commercial brokers should band together, as it were, and address it from that perspective, because I think that was the original concept of this licensing and this license change, is to deal with unlicensed activity. And because of ... Mr. Benson's influence on me, I think that there may be reason to maintain this commercial thing." Number 2093 CHAIRMAN ROKEBERG provided a wrap-up. He would make himself available Friday. He hoped to have made progress by then, taking into consideration comments made that day and in letters received. He'd already asked the legislative attorney who drafted the bill to significantly reduce "the size and the intent of the E&O policy." He believes testimony indicates almost universal consensus that all they really want to do is authorize the commission to seek that E&O insurance, making it mandatory only if they can obtain it, and simplify it greatly. CHAIRMAN ROKEBERG submitted that this statute is probably read more than any other in Alaska; everyone taking the real estate examination must learn it. Therefore, the language and intent of the statute should be as clear and concise as possible. CHAIRMAN ROKEBERG suggested there is a feeling among people in the commercial area that they are the "step-children" of the business and inadequately represented in the make-up of boards, commissions and other governing bodies of the industry. He commented that it is partly their own faults because they're too busy making money. He said the "issue that revolves around the agency dispute and the (indisc.) case," are very much on his mind when giving that further consideration. He agreed with Mr. Johnson's comment about not wanting to hurt the prospects of this bill. Number 2354 MR. DYRUD asked whether Chairman Rokeberg had received the input from the Anchorage legislative committee regarding brokers who commit a felony. An unidentified woman on teleconference said, "Monday." CHAIRMAN ROKEBERG said they hadn't yet. He mentioned a communication from Ms. Tanner and a number of other letters and faxes relating the bill; all those issues would be considered. He'd try to provide the next level of draft to Anchorage by Friday, if possible, and it would probably be at least the middle of the following week before they had a real working-draft model. Any comments at the Friday meeting could also be added to that. (HB 33 was held over.) ADJOURNMENT TAPE 97-29, SIDE A Number 0006 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 4:58 p.m.