Arkansas Real Estate Broker Exam — All Questions

The four elements that must be present for a property to have value in the appraisal sense are:

• a.supply, zoning, access, and improvements
• b.demand, utility, scarcity, and transferability✓
• c.cost, price, income, and depreciation
• d.demand, location, condition, and financing

The four elements of value, often remembered as DUST, are demand (a desire to own coupled with the ability to pay), utility (the capacity to satisfy a need), scarcity (limited supply relative to demand), and transferability (the ability to convey title reasonably freely). All four must be present; remove any one and there is no value in the appraisal sense. Cost, price and value are distinct ideas: cost is what was spent to create the improvement, price is what a particular buyer paid, and value is an opinion of what the property should bring under stated conditions.

In appraising an owner-occupied single-family residence, an appraiser ordinarily gives the most weight to the:

• a.sales comparison approach✓
• b.gross rent multiplier method
• c.cost approach less depreciation
• d.income capitalization approach

The sales comparison approach analyzes recent sales of similar properties and adjusts each comparable for differences from the subject, and it is the primary approach for owner-occupied residences because that is how the market for those properties actually behaves. The income capitalization approach is the primary method for income-producing property. The cost approach, which is reproduction or replacement cost less depreciation plus land value, carries the most weight for new construction and for special-purpose buildings with few comparable sales. The gross rent multiplier is a rough screening tool for small residential rentals, not a full approach to value.

Ark. Code Ann. § 17-42-110(d) provides that a broker's price opinion or market analysis issued by a licensee shall not contain the terms:

• a."list price," "asking price," or "offering price"
• b."comparable," "adjustment," or "capitalization rate"
• c."estimate," "opinion," or "probable selling price"
• d."market value," "appraised value," or "appraisal"✓

Section 17-42-110(d) is one sentence: "A broker's price opinion or market analysis issued by a real estate licensee shall not contain the terms 'market value', 'appraised value', or 'appraisal'." Regulation 10.15(a) adds that using any of those terms "shall be presumed to be in violation of Ark. Code Ann. § 17-42-110(d) and subject to appropriate sanctions," and highly recommends avoiding other general references to value. Section 17-42-110(a) is the enabling provision, letting a licensee prepare and charge for a price opinion for a seller, a buyer, a third party performing due diligence, or a lienholder, notwithstanding the Arkansas Appraiser Licensing and Certification Act.

Regulation 10.15 requires a written broker's price opinion report to carry a prescribed disclaimer set in:

• a.at least 8-point capital letters
• b.at least 14-point bold type✓
• c.at least 12-point italic type
• d.at least 10-point bold type

Regulation 10.15(a)(8) requires the report to include, "in at least 14-point bold type," the prescribed disclaimer beginning "Notwithstanding any preprinted language to the contrary, this opinion is not an appraisal of the market value of the property. If an appraisal is desired, the services of a licensed or certified appraiser must be obtained." Seven other elements must also appear: a description of the property, the basis used, any assumptions or limiting conditions, disclosure of any interest of the preparing licensee, the names and signatures of the licensee and the supervising broker, the firm name, and the date of issuance.

Regulation 10.15(a) distinguishes a market analysis from a broker's price opinion by saying a market analysis is usually limited to:

• a.the capitalization of the property's net operating income over ten years
• b.an estimate of the cost to rebuild the improvements at today's prices
• c.an inspection of the property's condition by a licensed home inspector
• d.comparison with other real property currently or recently on the market✓

Regulation 10.15(a) defines a broker's price opinion as an estimate detailing the probable selling price with varying detail about condition, market, neighborhood and comparable sales, then says a market analysis "is similar to a broker price opinion but is usually limited to comparison to other real property currently or recently in the market place; whereas, the preparer of a broker price opinion may utilize other basis for the report." Both are subject to § 17-42-110(d), so neither may use the words market value, appraised value, or appraisal, and Regulation 10.15(b) requires copies of every price opinion report to go to the principal broker or designated executive broker for the file.

An ad valorem real property tax is calculated on the basis of:

• a.the original cost of construction
• b.the property's assessed value✓
• c.the seller's net sale proceeds
• d.the owner's annual rental income

Ad valorem means according to value, so the tax is the assessed value of the property multiplied by the tax rate, expressed as a millage or as dollars per hundred of assessed value. Assessed value is derived from market value by an assessment ratio and may be reduced by exemptions or credits before the rate is applied. A tax on the seller's proceeds would be a transfer or documentary tax, a tax on rental income would be an income tax, and original construction cost is one input to the cost approach to value rather than the tax base itself.

Which is an essential element of a valid real estate contract?

• a.A licensed broker's signature
• b.A recorded legal description
• c.An earnest money deposit
• d.Legally competent parties✓

A valid contract requires competent parties, mutual assent shown by offer and acceptance, consideration, a lawful object, and, for an interest in land, a writing signed by the party to be charged under the statute of frauds. Capacity is one of those elements: a contract signed by a minor or by a person adjudicated incompetent is voidable or void. A broker's signature is not an element, since owners may contract directly. Earnest money is customary evidence of good faith but is not required for a contract to be binding, and recording affects notice to third parties rather than validity between the parties.

An option to purchase real estate is a unilateral contract because:

• a.both parties are bound but only one may sue for performance
• b.only the optionor is bound; the optionee may choose not to buy✓
• c.neither party is bound until the option money is deposited
• d.only the optionee is bound; the optionor may sell to anyone

In an option, the optionor sells the optionee a right to buy on stated terms within a stated time. The optionor is bound to keep the offer open and to convey if the option is exercised; the optionee has no obligation to buy and loses only the option consideration by walking away. That one-sided obligation is what makes it unilateral. A sales contract, by contrast, is bilateral, because each side has promised something: the buyer to buy and the seller to sell, and either may sue for breach.

Regulation 10.10(a) makes an Arkansas licensee responsible for seeing that the exact agreement of the parties is in writing and that:

• a.the principal broker keeps the only signed original in the file
• b.the parties receive copies of those agreements signed by all parties✓
• c.the agreements are filed with the Commission within thirty days
• d.the agreements are recorded in the county where the property lies

Regulation 10.10(a) provides that a licensee "shall see that the exact agreement of the parties regarding real estate is in writing" and "shall also see that clients and other parties to the transaction with whom the licensee deals receive copies of such agreements signed by all parties," naming exclusive agency agreements, real estate contracts, closing statements, lease agreements, management agreements and financial commitments as examples. It strongly recommends obtaining written acknowledgment that copies were received. Regulation 10.10(b) adds that non-exclusive agreements are strongly recommended to be in writing as well. Recording and Commission filing are not required.

When a firm holds an exclusive listing, Regulation 10.13(a) requires a selling licensee who receives an offer to present it to the listing firm not later than:

• a.forty-eight hours after the buyer signs the written offer
• b.the close of the next business day after receiving the offer✓
• c.the next regularly scheduled meeting of the two brokers
• d.the close of the third business day after receiving the offer

Regulation 10.13(a) provides that "any offers received by the selling licensee shall be presented to the firm holding the exclusive listing contract not later than the close of the next business day after receipt of the offer. Likewise, all earnest moneys and deposits shall be forwarded to the listing firm for deposit in the listing firm's trust account." The same rule bars the selling licensee from contacting the seller about showing or negotiating without permission from the listing firm; the selling licensee may accompany the listing licensee when the offer is presented, but only with that licensee's permission.

Earnest money delivered with an offer to purchase in Arkansas is:

• a.trust funds belonging to others until the contract directs otherwise✓
• b.a nonrefundable option fee that the buyer forfeits in every instance
• c.the seller's property from the moment the offer is delivered to them
• d.the listing broker's commission, earned when the offer is accepted

Regulation 10.8(a) defines trust funds as "money or other things of value not belonging to the principal broker but which are received by the principal broker or any of the principal broker's licensees in connection with a real estate transaction or real estate activity, including, without limitation, clients' moneys, earnest moneys, rents, advance fees, deposits," and provides that any funds deposited in a broker's trust account are presumed to be trust funds. Regulation 10.7(a)(1) requires a licensee to deliver such money to the principal broker immediately, and Regulation 10.9(a) forbids disbursing it contrary to the contract under which it was received.

A financing contingency in a sales contract protects the buyer by:

• a.extending the closing date automatically until financing is arranged
• b.obligating the lender to fund the loan at the contract interest rate
• c.permitting the buyer to cancel if the stated loan cannot be obtained✓
• d.requiring the seller to carry the balance if the lender declines

A contingency is a condition that must be satisfied or waived before a party's duty to perform arises. A financing contingency describes the loan the buyer will seek, usually by type, amount, maximum rate and a deadline, and if that loan cannot be obtained within the deadline the buyer may terminate and, under the contract's terms, recover the earnest money. It does not bind the seller to provide financing, does not obligate any lender, and does not extend the closing date by itself; an extension requires a written amendment signed by both parties.

Buyer and seller both demand the earnest money after a contract falls through. Regulation 10.9(c) lets the Arkansas principal broker resolve the standoff by:

• a.paying the funds to whichever party first makes a written demand
• b.filing an interpleader action in a court of competent jurisdiction✓
• c.holding the funds until the licenses of both agents are renewed
• d.applying the funds to the firm's commission and refunding the rest

Regulation 10.9(c)(5) lists the filing of an interpleader action in a court of competent jurisdiction as one of the circumstances in which a broker has properly discharged the duty to account for and remit trust funds. The broker deposits the disputed money with the court and lets the court decide who is entitled to it. Regulation 10.9(c) also permits disbursement upon a written agreement signed by all parties having an interest in the funds, or upon a court order. Paying whoever asks first, or taking the commission out of disputed funds, would violate Regulation 10.9(a) and (b).

Ark. Code Ann. §§ 17-42-317(c) and 17-42-318(c) both provide that nothing in those sections permits a licensee to:

• a.present an offer directly to a seller who is represented by counsel
• b.perform any act or service that constitutes the practice of law✓
• c.accept compensation from a party other than the principal broker
• d.prepare a comparative market analysis for a prospective seller

Sections 17-42-317(c) and 17-42-318(c) each read: "This section does not permit a licensee to perform any act or service that constitutes the practice of law." The line matters in Arkansas because Regulation 10.10(c) requires real estate forms used in the regular course of business to be approved by a licensed Arkansas attorney before use, following Pope County Bar Association, Inc. v. Suggs. Presenting offers is expressly required by § 17-42-317(a)(2), preparing a market analysis is authorized by Ark. Code Ann. § 17-42-110 subject to the limits in subsection (d), and the compensation restriction comes from Regulation 8.3(b), not from these subsections.

The statute of frauds affects real estate practice by requiring that a contract for the sale of an interest in land be:

• a.in writing and signed by the party to be charged✓
• b.notarized and recorded in the county land records
• c.reviewed by an attorney before either party signs it
• d.supported by earnest money of at least one percent

The statute of frauds makes certain agreements unenforceable unless there is a written memorandum signed by the party against whom enforcement is sought. Contracts for the sale of land or an interest in land are the classic category, along with leases longer than a stated term. The writing must identify the parties, the property and the essential terms. Notarization and recording relate to acknowledging and giving public notice of an instrument, not to enforceability between the parties; and neither earnest money nor attorney review is required by the statute, though AREC Regulation 10.10(c) does require attorney-approved forms.

Regulation 10.12(a) requires that all offers received on a specific property be:

• a.presented to the seller in the exact order the offers were received
• b.presented to the seller only if they meet or exceed the list price
• c.promptly presented to the seller by the listing firm or its designee✓
• d.presented to the seller only after the earnest money check clears

Regulation 10.12(a) provides that "all offers received on a specific property shall promptly be presented to the seller by the listing firm or other licensee designated by an authorized representative of the listing firm." There is no low-offer exception and no waiting for funds to clear. The duty is reinforced by Ark. Code Ann. § 17-42-317(a)(2), which requires the seller's agent to accept delivery of and present offers in a timely manner regardless of whether the property is already under contract, and by Regulation 10.13(a), which routes offers received by a selling licensee to the listing firm by the close of the next business day.

Under Ark. Code Ann. § 17-42-107(b), a salesperson or executive broker suing to recover a commission may bring that action only against:

• a.the principal broker with whom the licensee is or was licensed✓
• b.the closing agent who disbursed the funds at settlement
• c.the buyer who agreed in writing to pay the licensee's fee
• d.the seller who signed the listing contract with the firm

Section 17-42-107(b) provides that "no salesperson, executive broker, or associate broker may sue in his or her own capacity for the recovery of fees, commissions, or compensation for services as a salesperson, executive broker, or associate broker unless the action is against the principal broker with whom he or she is licensed or was licensed at the time the acts were performed." Section 17-42-107(a) is the companion rule for the firm side: no action for compensation may be brought at all unless the plaintiff held an active principal broker or property management broker license, or owned the firm that performed the acts through such a licensee, at the time.

In a mortgage loan, the instrument that creates the borrower's personal promise to repay the debt is the:

• a.promissory note✓
• b.mortgage instrument
• c.satisfaction piece
• d.deed of trust

Two instruments are executed at a residential closing. The promissory note is the borrower's written promise to repay a stated sum on stated terms, and it is the evidence of the debt. The mortgage, or in title-theory practice the deed of trust, is the security instrument: it pledges the property as collateral and gives the lender the right to foreclose if the note is not paid. A satisfaction or release is recorded after the debt is paid to clear the lien. A note without a security instrument is an unsecured debt; a security instrument without a note secures nothing.

In a fully amortizing fixed-rate mortgage, each scheduled payment:

• a.rises each year while the interest rate stays fixed for the whole term
• b.covers interest only, leaving the full principal due at the maturity date
• c.is level, with the interest share falling as the principal share rises✓
• d.is level, with the interest share rising as the principal share falls

In full amortization the periodic payment stays level and is split between interest and principal. Interest is charged on the outstanding balance, so as the balance falls the interest portion of each payment falls and the principal portion grows, and the loan reaches a zero balance at maturity. A payment that rises on a schedule describes a graduated payment mortgage, and a loan that pays interest only leaves a balloon balance due at maturity. Negative amortization is the opposite case, where the payment does not even cover accrued interest and the balance grows.

A due-on-sale clause in a mortgage gives the lender the right to:

• a.release part of the security when the balance falls
• b.raise the interest rate when market rates increase
• c.demand the full balance when the property is sold✓
• d.collect a penalty when the borrower repays the loan early

A due-on-sale or alienation clause lets the lender accelerate the loan and call the entire unpaid balance due if the borrower transfers the property without the lender's consent. Its practical effect is that most modern conventional loans cannot be assumed. An escalation clause changes the rate; a partial release clause frees individual parcels from a blanket mortgage as the balance is paid down; and a prepayment penalty charges the borrower for paying early. Under Regulation Z, adding a prepayment penalty after the Closing Disclosure has been delivered is one of the three changes that restart the three-business-day waiting period.

Private mortgage insurance on a conventional loan protects:

• a.the property against fire and storm damage
• b.the lender against loss if the borrower defaults✓
• c.the borrower against loss if the lender fails
• d.the borrower's family if the borrower dies

Private mortgage insurance is bought by the borrower but indemnifies the lender, covering part of the lender's loss on default. It is typically required on a conventional loan when the loan-to-value ratio exceeds eighty percent, which is why a twenty percent down payment avoids it. Mortgage life insurance pays off the balance if the borrower dies, and hazard or homeowners insurance covers physical damage to the property. FHA charges its own mortgage insurance premiums, and VA charges a funding fee rather than mortgage insurance.

A lender requires flood insurance on a home because the home is:

• a.within one mile of a river, lake, or other body of water
• b.in a special flood hazard area shown on a FEMA flood map✓
• c.built before the National Flood Insurance Program began
• d.financed with a loan exceeding eighty percent of its value

Federal law requires flood insurance as a condition of a federally regulated or federally related mortgage when the improved structure sits in a special flood hazard area, the zone with roughly a one percent annual chance of flooding, as delineated on FEMA's Flood Insurance Rate Map. The lender documents the finding on a standard flood hazard determination form. Proximity to water is not the legal test, since the mapped zone is what governs; the age of the structure affects rating rather than the requirement; and the loan-to-value ratio is what triggers private mortgage insurance, not flood coverage.

The seller has paid the full calendar-year property tax and the sale closes on June 30. At settlement the buyer ordinarily:

• a.receives a credit for the remaining half of the year
• b.pays nothing, because the seller's payment covered the year
• c.reimburses the seller for the entire year's property tax
• d.reimburses the seller for the remaining half of the year✓

Prorating divides a recurring expense between seller and buyer according to who owned the property during the period the expense covers. Because the seller has already paid taxes covering the rest of the calendar year, the buyer must reimburse the seller for the portion running from the closing date to year end. On the settlement statement that appears as a debit to the buyer and a credit to the seller. The mirror case is a tax paid in arrears: there the seller credits the buyer for the part of the period the seller owned the property.

In a judicial foreclosure, the lender obtains a court decree and the property is then:

• a.transferred to the county for sale at the next tax auction
• b.conveyed directly to the lender without any sale being held
• c.returned to the borrower once the arrearage has been cured
• d.sold at a public sale, with the proceeds applied to the debt✓

Judicial foreclosure is a lawsuit. The lender proves the default, the court enters a decree of foreclosure, and the property is sold at a public sale conducted under the court's authority, with the proceeds applied first to costs and then to the secured debt. If the sale brings less than the debt the lender may seek a deficiency judgment where state law allows one; if it brings more, the surplus goes to junior lienholders and then to the borrower. Conveying the property directly to the lender without a sale describes a deed in lieu of foreclosure, which is a voluntary alternative.

In Arkansas, funds a brokerage collects while managing rental property for an owner must be:

• a.kept in the managing salesperson's own personal bank account
• b.deposited in the firm's trust account and accounted for to the owner✓
• c.held in cash by the tenant until the owner requests payment
• d.paid to the principal broker as personal income at each closing

Regulation 10.8(a) defines trust funds to include rents, deposits and advance fees received in connection with a real estate transaction or real estate activity, and Regulation 10.8(b) forbids the principal broker to commingle them with personal or other non-trust funds. Regulation 10.8(c) makes the principal broker solely responsible and accountable for all trust funds the firm receives. Regulation 10.7(b)(2) requires complete records of property managed for others, and Regulation 10.22(g) requires a report of all receipts and disbursements to the owner at least once a month.

Under a gross lease, the tenant pays a fixed rent and the landlord pays:

• a.nothing beyond the mortgage on the leased premises
• b.a share of the tenant's gross sales above a stated figure
• c.only the property taxes, with the tenant paying the rest
• d.the taxes, insurance, and maintenance on the property✓

In a gross lease the tenant pays one stated rent and the landlord absorbs the operating expenses of ownership, including real property taxes, insurance and maintenance. In a net lease the tenant pays base rent plus some or all of those expenses; a triple net lease passes taxes, insurance and maintenance to the tenant. A percentage lease, common in retail, adds rent calculated on the tenant's sales above a breakpoint. A ground lease is a long-term lease of land on which the tenant builds.

Regulation 10.20(b) lists what each residential lease an Arkansas property manager writes must contain. One required item is:

• a.the property owner's home address and personal telephone number
• b.the location where or entity by whom the security deposit will be held✓
• c.a copy of the property management agreement signed by the owner
• d.the appraised value of the unit as of the start of the lease term

Regulation 10.20(b) lists eight required contents: the name and business address of the property manager and firm; the tenant's name, address and contact information; the mailing address or unit number of the property; payment conditions, amounts and the lease term; the amount of and reason for all funds paid at the outset, including rent, security deposits and other fees; "the location where or entity by whom security deposits will be held"; the method by which the tenant will be notified if the management agreement terminates, including handling of the deposit; and the signatures of the property manager or executive broker and the tenant. Regulation 10.20(a) forbids leasing managed property without a written tenant agreement at all.

AREC Regulation 10.19(a) forbids a principal broker or designated executive broker to manage residential rental real estate without:

• a.a signed lease with every tenant then occupying the property
• b.an escrow agent approved by the Commission for the rent account
• c.a written, current property management agreement with the owner✓
• d.a separate property management license issued by the Commission

Regulation 10.19(a) provides that a principal broker or designated executive broker "must not engage in the management of residential rental real estate without a written, current property management agreement between the owner and the property manager," then lists ten required contents, among them the parties' duties, the authority given by the owner, every form of compensation and when it is earned and paid, a description of the monthly accounting statements, the duration and any rollover or renewal provisions, how the agreement may be terminated, both signatures and the date. Regulation 10.19(b) requires prompt delivery of a legible copy of the fully executed agreement and any amendments to the owner.

Regulation 10.22(g) requires an Arkansas property manager to give the owner a report of all receipts and disbursements for the owner's account:

• a.at least once each month✓
• b.at least once each quarter
• c.only when the owner asks
• d.at least once each year

Regulation 10.22(g) provides that "at a minimum, once each month, a report showing all receipts and disbursements for the account of the owner must be provided to the owner," and a copy or electronic version of each report must be available through the property manager's records system. Regulation 10.22(a) requires at least one separate owner's ledger for each property management agreement, recording every deposit with its amount, purpose, payer, check or receipt number establishing an audit trail, date and running balance, and every disbursement with its date, amount, check number, payee, purpose and running balance.

Regulation 10.23(a) requires an Arkansas property manager to keep at least one tenant's ledger for each unit from which funds have been received:

• a.only when the unit is rented on other than a nightly basis
• b.only after the tenant has signed a written rental or lease agreement
• c.only if the tenant paid those funds in cash rather than by check
• d.whether or not the tenant has yet signed a written rental agreement✓

Regulation 10.23(a) requires a ledger for each unit from whom the property manager "has received any funds under a property management agreement, whether or not the tenant has executed a written rental or lease agreement at the time of payment of funds to the property manager." Regulation 10.23(e) offers one alternative: in lieu of an individual ledger, the manager may keep a separate record of funds received from prospective tenants who never become tenants. Regulation 10.22(b) separately requires a distinct ledger account for any property used for nightly rentals, identifying each occupant, the dates of occupancy and the amounts paid.

If an Arkansas property manager accepts cash, Regulation 10.24(a) requires the written receipt to be:

• a.written only for cash amounts of one hundred dollars or more
• b.consecutively pre-numbered and printed in at least duplicate form✓
• c.filed with the Commission at the end of each calendar quarter
• d.countersigned by the principal broker before the tenant gets it

Regulation 10.24(a) requires a legible written receipt for any cash received under a property management agreement or from a prospective tenant, with a copy kept in the manager's records. The receipts "must be consecutively pre-numbered, be printed in at least duplicate form" and must show the date, the amount, the reason for the payment, the property, the tenant's name, the payer if different from the tenant, the payee, and the name and signature of the individual who actually received the cash and prepared the receipt. There is no dollar floor and no filing requirement.

Regulation 10.20(d) forbids an Arkansas property manager to spend a tenant's security deposit on:

• a.cleaning after move-out, unless the tenant agrees to it in writing
• b.expenses or fees the tenant's rental agreement does not allow✓
• c.unpaid rent, which must instead be pursued in small claims court
• d.any repair the tenant did not cause, even if the lease allows it

Regulation 10.20(d) provides that "a property manager may not expend any tenant security deposits for payment of any expenses or fees not otherwise allowed by the tenant's rental or lease agreement." The lease is the measure, so a charge the lease authorizes is permissible and a charge it does not authorize is not, whatever the manager thinks is fair. That is why Regulation 10.20(b)(5) requires the lease to state the amount of and reason for every sum the tenant pays at the outset. Regulation 10.8(h)(1) separately requires security deposits under a rental or lease agreement to be deposited in the principal broker's trust account.

A tenant refuses to sign the lease an Arkansas property manager prepared. Under Regulation 10.20(c), that refusal:

• a.requires the property manager to report the tenant to the Commission at once
• b.makes the property manager liable for a citation of two hundred fifty dollars
• c.does not put the property manager out of compliance with the rule✓
• d.voids the property management agreement between the manager and the owner

Regulation 10.20(c) provides that "a tenant's refusal to sign the lease agreement shall not constitute noncompliance by the property manager with the terms stated herein." The rule requires the manager to prepare a conforming written agreement and offer it; it does not make the manager the guarantor of the tenant's signature. Regulation 10.20(a) still forbids leasing managed property without a written agreement with the tenant, so the practical answer is that the unit is not leased rather than that the manager is sanctioned. The $250 citation in Ark. Code Ann. § 17-42-312(d)(1)(B) applies to expired-license activity and to advertising violations.

Security deposits on property owned by a licensee affiliated with an Arkansas firm must go into the principal broker's trust account unless the licensee:

• a.has a written agreement with the tenant allowing a separate account✓
• b.manages fewer than seven residential units in the licensee's own name
• c.holds the deposit in a personal savings account at an insured bank
• d.reports the arrangement to the Commission before the lease begins

Regulation 10.8(h)(1) requires all security deposits made under a rental or lease agreement to go into the principal broker's trust account, "including those deposits made on property owned by any licensee licensed under the principal broker unless the licensee who owns the property has a written agreement with the tenant providing that the licensee may keep the security deposit in the licensee's separate account. A copy of any such agreement shall be furnished to the principal broker by the licensee." Regulation 10.8(h)(2) then protects the principal broker, who is not answerable for an affiliated licensee's failure to comply so long as the broker is meeting the supervision duties of Regulation 10.4.

Regulation 10.21(b) requires an Arkansas property manager to disclose to the owner in writing the manager's use of employees, or of a business in which the manager has a pecuniary interest:

• a.to advertise the owner's property for lease or rent
• b.to provide billable services to the owner's property✓
• c.to screen the tenants who apply for the owner's units
• d.to prepare the annual accounting for the owner's units

Regulation 10.21(b) provides that "the property manager shall disclose to the owner, in writing, the property manager's use of any employees or a business in which the property manager or any persons licensed under him has a pecuniary interest to provide billable services to the owner's property." The trigger is the billing: the owner is entitled to know when money charged to the property is flowing to the manager or to an affiliate. Regulation 10.21(a) requires deposit records traceable to the owners' and tenants' ledgers and records identifying the amount and purpose of each disbursement entered in them.

Regulation 10.18 defines an "occupant" in Arkansas property management as a person who rents a property:

• a.on a yearly basis
• b.on a weekly basis
• c.on a nightly basis✓
• d.on a monthly basis

Regulation 10.18(b) defines an occupant as "a person who rents a property on a nightly basis," and Regulation 10.18(c) defines a tenant as "a person who rents a property on other than a nightly basis," so weekly, monthly and yearly renters are all tenants. The distinction drives recordkeeping: Regulation 10.22(b) requires a separate ledger account for any property used for nightly rentals, with each occupant identified along with the dates of occupancy and the amounts paid. Regulation 10.18(a) defines the audit trail those records must create as "a documented history of a financial transaction by which the transaction can be traced to its source."