Arkansas Real Estate Broker Exam — All Questions

Arkansas license law recognizes several license classes. Which class holds ultimate responsibility for a real estate firm and its trust account?

• a.Executive broker
• b.Salesperson
• c.Associate broker
• d.Principal broker✓

Regulation 10.4(a)(1) makes the principal broker "generally responsible for all business conducted by the broker's firm and for all of the real estate activities of all of those licensed under or associated with the principal broker," and Regulation 10.8(c) makes the principal broker "solely responsible and accountable for all trust funds received by the firm and all deposits to or disbursements from the trust account." An executive broker holds a broker license and may supervise, but Regulation 10.4(a)(3) says designating one "does not absolve the principal broker of general responsibility." Ark. Code Ann. § 17-42-103(1)(B) says an associate broker has no supervisory authority, and § 17-42-103(15) puts the salesperson under supervision.

Under AREC Regulation 10.4(a)(2), a principal broker designates an executive broker by:

• a.filing a designation form with the Commission signed by both brokers✓
• b.noting the designation in the firm's written policy and procedure manual
• c.recording the designation in the firm minutes and notifying the affiliates
• d.issuing the executive broker a duplicate license at the firm's main office

Regulation 10.4(a)(2) provides that "for each executive broker so designated, the principal broker must complete and file with the Commission an appropriate designation form signed by both the principal broker and the designated executive broker. The designation of an executive broker is effective when filed with the Commission." An internal manual entry, a duplicate license, or firm minutes do not create the designation. Once designated, the executive broker may sign offer and acceptance forms as supervising broker, may instruct and supervise licensees, and may be delegated administrative duties such as signing transfer applications.

AREC Regulation 10.4(e) provides that a broker who is gainfully employed or engaged in a non-real-estate field may not:

• a.accept a listing on property located outside the broker's county
• b.hold an active Arkansas real estate broker's license at all
• c.employ any licensee to work under that broker's license✓
• d.supervise more than five affiliated licensees at any one time

Regulation 10.4(e) provides that "no broker who is gainfully employed, or who is engaged in a non-real estate related field, may employ any licensee to work under the broker's license issued to such broker," and a broker employed in any other field is presumed to be so engaged. The presumption may be overcome by proof that the other work is in a real-estate-related field and is conducted in the same office as the broker's real estate business. The rule limits whom a part-time broker may supervise; it does not bar the broker from holding a license, from listing outside a county, or set any numeric supervision cap.

If a principal broker learns that an affiliated licensee has been doing real estate business independently without permission, Regulation 10.1(a) requires the principal broker to:

• a.report the matter to the local board of REALTORS for an ethics hearing
• b.immediately terminate the licensee and withhold all pending commissions
• c.immediately notify the Commission in writing and forward the license✓
• d.document the incident in the firm file and review it at annual renewal

Regulation 10.1(a) makes it "the duty of the principal broker or executive broker to immediately notify the Commission in writing and forward such licensee's license to the Commission." Regulation 10.1(b) adds that the licensee who dealt independently "shall be presumed to be in violation of A.C.A. § 17-42-311 and subject to appropriate sanctions." The same immediate-notification duty appears in Regulation 10.15(d) when a licensee prepares a broker's price opinion independently. Internal documentation, a commission holdback, or a private trade association complaint does not satisfy the rule.

Regulation 10.11 requires a licensee who buys, sells, rents, or leases property for the licensee's own account to disclose that fact:

• a.in writing, before the sale, rental, or lease contract is entered into✓
• b.in writing, at any time before the transaction actually closes
• c.orally, before the licensee makes or accepts the first written offer
• d.in writing, only when the other party is not represented by counsel

Regulation 10.11 forbids licensees to buy, sell, rent or lease property for themselves, or for an entity in which they have an interest, "without first making full disclosure to the buyer or seller, as the case may be, of the exact facts that they are licensed as a real estate broker or salesperson and are buying, renting or leasing the property for their own account or have an interest in the property." It then fixes both the form and the deadline: "All such disclosures must be made in writing before the sales, rental or lease contract is entered into." Closing is too late, an oral statement does not comply, and the duty does not turn on whether the other side has a lawyer.

Under Ark. Code Ann. § 17-42-104(a)(6), an unlicensed salaried employee working for a licensed principal broker may:

• a.negotiate the rent and lease term with a prospective tenant for the owner
• b.accept a share of the lease commission for each tenant the employee signs
• c.deliver a lease application and receive a rent payment payable to the broker✓
• d.set the security deposit amount for a unit at the employee's own discretion

Section 17-42-104(a)(6) exempts a person "employed only at a salaried or hourly rate" who performs only listed clerical functions: delivering a lease application, lease, or amendment; receiving one for delivery to the broker or owner; receiving a security deposit or rental payment "for delivery to and made payable to the principal broker, real estate firm, property management broker, or owner"; acting under direct written instructions to show a unit or assist in executing a preprinted lease on terms the broker set; and conveying information the broker prepared. Negotiating terms, being paid a commission, or exercising discretion over deposit amounts all fall outside the exemption and require a license.

Arkansas license law describes an associate broker or salesperson as a person who is employed by a principal broker or:

• a.associated with a principal broker as an independent contractor✓
• b.engaged by the firm's owner rather than by the principal broker
• c.operating under a temporary license issued for a single transaction
• d.associated with two or more principal brokers by written consent

Ark. Code Ann. § 17-42-103(1)(A) defines an associate broker, § 17-42-103(7)(A)(ii) an executive broker, and § 17-42-103(15)(B) a salesperson, each as a licensee who "is employed by a principal broker, or is associated with a principal broker as an independent contractor." The chapter is indifferent to which arrangement the firm uses; both are recognized, and the supervision duties in Regulation 10.4(b) apply either way. Section 17-42-311(9) makes it a violation to represent a broker other than the one the licensee is affiliated with, so a licensee cannot be attached to two principal brokers at once.

Regulation 10.4(b) makes Arkansas principal brokers and executive brokers responsible for:

• a.instructing their licensees in practice, ethics, and changes in the law✓
• b.certifying to the Commission each year that their licensees are competent
• c.paying for the pre-license education of anyone they sponsor for a license
• d.providing seven hours of continuing education to each affiliated licensee

Regulation 10.4(b) provides that principal brokers and executive brokers "have the duty and responsibility to instruct those brokers and salespersons licensed under them with regard to the fundamentals of real estate practice and the ethics of the profession, and to keep them informed and abreast of all changes and developments pertaining to the Arkansas Real Estate License Law and Commission Regulations. They shall also exercise strict supervision of the real estate activities of all those licensed under them." Regulation 10.4(c) then lists the factors used to judge whether that duty was discharged: frequency and manner of contact, type and frequency of educational activities, and method and frequency of monitoring. The rule does not make the broker the licensee's continuing education provider or paymaster.

Regulation 10.8(g)(1) requires trust funds delivered to the principal broker to be deposited, delivered to an escrow agent, or handled under the parties' written agreement no later than:

• a.ten days after both seller and buyer execute the contract
• b.three days after the principal broker first receives the funds
• c.three days after both seller and buyer execute the contract✓
• d.the next banking day after the offer is presented to the seller

Regulation 10.8(g)(1) sets the clock from execution, not from receipt: "no later than three (3) days following the execution of a real estate contract by both seller and buyer, all trust funds delivered to the principal broker shall be either deposited in the trust account, delivered to an escrow agent, or deposited pursuant to a written agreement by the seller and buyer." Funds delivered pending performance of some other act carry the same three-day limit. If the third day is a Saturday, Sunday, or legal holiday, it extends to the next day that is not. The broker must keep an accounting of all funds and a signed receipt for anything handed to an escrow agent.

Regulation 10.8(c) requires a principal broker's real estate trust account to be:

• a.non-interest bearing, named with "trust" or "escrow," and held out of state
• b.non-interest bearing, named with "trust" or "escrow," and federally insured✓
• c.non-interest bearing, named for the principal broker, and privately bonded
• d.interest bearing, named with "trust" or "escrow," and federally insured

Regulation 10.8(c) provides that "except as authorized by Regulations 10.8(i) and 12.2, the trust account shall be non-interest bearing. The name on the account shall include either 'trust' or 'escrow' and must be located in an institution insured by either the FDIC or some other insuring agency of the federal government." The exceptions are narrow: an interest-bearing account is allowed when required by law or valid regulation of a government agency, or while the broker participates in the voluntary Interest on Real Estate Brokers' Trust Account program under Ark. Code Ann. § 17-42-601 et seq. That program is voluntary with each broker, and § 17-42-602 requires a posted notice of at least four inches by seven inches when a broker takes part.

A principal broker may keep the broker's own clearly identified funds in the trust account to cover bank service charges in an amount not exceeding:

• a.three months of service charges
• b.one month of service charges
• c.six months of service charges✓
• d.twelve months of service charges

Regulation 10.8(b) forbids commingling as a general matter, and Regulation 10.8(d) allows only two narrow exceptions for the broker's own money, both requiring that it be clearly identified as the broker's deposit: the minimum balance the bank requires to keep the account open, and a reasonable amount to cover a required service charge "provided, however, that such amount shall not exceed the total of six (6) months service charges." Under Regulation 10.9(b), apart from those amounts the account balance must at all times equal the total of the trust funds for which the broker is accountable.

Which is NOT one of the circumstances in Regulation 10.9(c) under which an Arkansas principal broker may properly disburse trust funds?

• a.Upon the filing of an interpleader action in a court of competent jurisdiction
• b.Upon the buyer's oral instruction given to the listing agent by telephone✓
• c.Upon the rejection of an offer to buy, sell, rent, lease, or option real estate
• d.Upon a written agreement signed by all parties having an interest in the funds

Regulation 10.9(c) lists seven circumstances that discharge the broker's duty to account: rejection of an offer; withdrawal of an offer not yet accepted; the closing of the transaction; a written agreement signed by all parties having an interest in the funds and separate from the contract; the filing of an interpleader action; the order of a court of competent jurisdiction; and a reasonable interpretation of the contract that directed the deposit. An oral instruction from one side appears nowhere on that list. Regulation 10.9(d) adds that when the broker disburses without the express written agreement of all parties to the contract, the broker must immediately notify all parties in writing.

Regulation 10.8(g)(2) requires an Arkansas principal broker to reconcile trust account bank statements in writing:

• a.at least annually, keeping the reconciliations for at least three years
• b.at least quarterly, keeping the reconciliations for at least three years
• c.at least monthly, keeping the reconciliations for at least three years✓
• d.at least monthly, keeping the reconciliations for at least ninety days

Regulation 10.8(g)(2) provides that "all trust account bank statements shall be reconciled in writing at least monthly and balanced to the total amount of trust funds deposited in the account which have not been disbursed. Copies of such reconciliations shall be kept by the broker for at least three (3) years or for such time as may be required by law, whichever is greater." Regulation 10.8(g)(3) makes all trust fund records, including the reconciliations, open to inspection by the Commission's investigative staff at the firm's office or another location the Commission designates.

An Arkansas principal broker must maintain the firm's transaction records and trust-account records:

• a.only until the transaction closes, then discard
• b.for three years, and open to Commission inspection✓
• c.for ninety days after the transaction closes
• d.indefinitely, at the salesperson's home office

Regulation 10.7(b)(3) is specific: all records required by Regulation 10.7 "shall be maintained by the principal broker for three (3) years or such time as may be required by law, whichever is greater, and shall be open to inspection by and made available to the investigative staff of the Commission." Trust-account reconciliations carry the same three-year floor under Regulation 10.8(g)(2). Discarding files at closing would gut the requirement, since complaints and audits arrive after closing; ninety days falls far short. And the records are the firm's, not a salesperson's: Regulation 10.7(c) makes the last principal broker remaining with a firm responsible for them even after the firm ceases business.

Regulation 10.7(b)(1) requires a separate file for each transaction containing signed copies of the documents prepared for it. Those documents include:

• a.the listing contract, agency contract, offers, contracts, and closing statements✓
• b.the licensee's showing notes, marketing plan, and comparable-sales worksheets
• c.the listing contract and closing statement only, because offers are working papers
• d.the buyer's loan application, credit report, and the lender's underwriting approval

Regulation 10.7(b)(1) requires each principal broker to maintain complete records of all real estate business the firm handles, in separate files for each transaction containing signed copies of "(i) listing contract, (ii) agency contract, (iii) offers, (iv) offer and acceptance contracts and (v) closing statements, along with any additional documents as may be necessary to make a complete record of each transaction." Offers are named in the list, so they are not optional working papers. Regulation 10.7(b)(2) adds a parallel duty for property managed for others, and the records may be kept electronically if copies can be produced.

Regulation 7.1 provides that AREC will issue no principal broker's license where the proposed firm name is confusingly similar to another firm's, is misleading, or would confuse the public. Inquiring about a proposed name's acceptability is the duty of:

• a.the firm's attorney
• b.the Secretary of State
• c.the listing licensee
• d.the principal broker✓

Regulation 7.1 ends with the assignment of responsibility: "It shall be the duty of the principal broker to inquire of the Commission concerning the acceptability of the proposed firm name." Registering a name with the Secretary of State does not clear it with AREC; the two reviews are separate. Once a firm name is approved, Regulation 10.5(b) requires the principal broker and every licensee with the firm to advertise and conduct brokerage business only under the name in which the principal broker's license was issued, and Regulation 10.8(f)(1) and (2) require written notice to the Commission of the trust account details on firm name approval and on any change of firm name.

AREC Regulation 7.3(a) requires a principal broker's place of business to display:

• a.a building directory listing the firm name and each affiliated licensee's name
• b.a permanently attached sign with the firm name and words such as "real estate"✓
• c.a window decal with the firm name and the principal broker's license number
• d.a permanently attached sign with the principal broker's own name and address

Regulation 7.3(a) requires the principal broker to maintain a place of business displaying "a permanently attached sign bearing the name under which the principal broker conducts his/her business, and the words 'real estate,' 'realty,' 'REALTOR,' 'REALTIST' or other words approved by the Commission which clearly indicate to the public the principal broker is engaged in the real estate business." Ark. Code Ann. § 17-42-309(a) states the same requirement. Photographs of the sign must be furnished to the Commission, and the principal broker must also display his or her own license and the licenses of every executive broker, associate broker and salesperson at the place of business.

A duplicate license will not be issued for an Arkansas branch office at which licensees are assigned unless the principal broker has:

• a.opened a separate trust account for the branch office's earnest money
• b.filed a lease showing the branch is a permanent place of business
• c.designated an executive broker to supervise the licensees there✓
• d.obtained written approval of the branch location from the Commission

Ark. Code Ann. § 17-42-309(b)(2) provides that "a duplicate license shall not be issued for a branch office at which licensees are assigned unless the principal broker establishing the branch office has designated an executive broker to supervise the licensees." Regulation 7.4(a) adds that the designated executive broker is responsible for the licensees there under a written designation filed with the Commission and may not be gainfully employed in a non-real-estate field. A branch may but need not have its own trust account; Regulation 7.4(b) makes the principal broker responsible for any trust funds the branch receives either way.

Regulation 8.5(a) states that a licensee's obligation of absolute fidelity to the client's interest is primary, but does not relieve the licensee of:

• a.the duty to disclose the client's confidential information upon request
• b.the obligation to represent both sides of a transaction when asked to
• c.the duty to obtain the highest possible price for every listed property
• d.the equally binding obligation of dealing honestly with all parties✓

Regulation 8.5(a) provides that "in accepting employment as an agent, a licensee pledges to protect and promote the interests of the client or clients. This obligation of absolute fidelity to the interest of the client or clients is primary, but does not relieve a licensee from the equally binding obligation of dealing honestly with all parties to the transaction." Ark. Code Ann. § 17-42-316(b)(2)(J) runs the other way on confidences, requiring the licensee to refrain from disclosing confidential information. Nothing obliges a licensee to guarantee a price or to take on dual representation, which under Regulation 8.3(a) requires the written consent of every party.

When the buyer and seller select a third party to close the transaction, Regulation 10.4(d)(2) requires the principal broker or designated executive broker to:

• a.hold the earnest money until the closer returns a signed disbursement receipt
• b.attend the closing in person and sign the settlement statement as a witness
• c.select a replacement closer from the Commission's list of approved agents
• d.give the closer written closing instructions and review the client's statement✓

Regulation 10.4(d)(2) provides that if the buyer or seller selects a third party to close, the principal broker or designated executive broker, or their assigned licensee, "must provide written closing instructions, on behalf of their client(s), to the third party closing the transaction, and review the client's closing statement, if reasonably available, to insure that the closing is conducted in accordance with the agreement of their client." The rule also strongly recommends advising the client to ask the closing agent or title insurer about closing protection. Regulation 10.4(d)(1) separately requires that instruments prepared in connection with a rental or sale, and the closing of a sale by a licensee, be performed by or under the specific supervision of the principal broker.

Regulation 10.5(a) provides that a licensee may not advertise any property for sale or rent, or display a real estate sign, without including:

• a.the licensee's own name and Arkansas real estate license number
• b.the name of the firm with which that licensee is licensed✓
• c.the name and telephone number of the property's record owner
• d.the equal housing opportunity logo and fair housing statement

Regulation 10.5(a) provides that "a licensee may not advertise any property, including the licensee's own property, for sale or rent, or display a real estate sign without including in that advertisement or sign the name of the firm with whom that licensee is licensed." The phrase "including the licensee's own property" is the part most often missed. Regulation 10.5(b) bars conducting brokerage business under any name other than the one on the principal broker's license, and Regulation 10.5(c) warns against letting licensees use individual names or telephone numbers unless the connection with the broker is obvious. Ark. Code Ann. § 17-42-312(d)(1)(B)(ii) allows a citation of up to $250 for advertising in violation of the chapter or rules.

Under Arkansas license law, a salesperson or executive broker may lawfully accept compensation for a real estate transaction:

• a.directly from the seller's attorney
• b.from any party who offers it
• c.directly from the buyer in cash
• d.only from their principal broker✓

Regulation 8.3(b) is categorical: "a licensee shall not accept a commission, rebate, profit, payment, compensation or other valuable consideration in connection with a real estate transaction or real estate activity from any person or entity except the licensed principal broker under whom the licensee is licensed." Ark. Code Ann. § 17-42-311(8) makes accepting compensation from anyone other than that principal broker a ground for discipline. Ark. Code Ann. § 17-42-107(b) closes the loop in court: a salesperson, executive broker or associate broker may not sue in his or her own capacity for a commission except against the principal broker with whom he or she is licensed.