Arkansas Real Estate Broker Exam — All Questions

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."