Hawaii Real Estate Broker Exam — All Questions

A bank that took a Hawaii house back at foreclosure resells it and tells the buyer which escrow company to use. HRS section 667-52:

• a.permits the direction, because the seller selects escrow in Hawaii
• b.forbids requiring a particular title insurer or escrow depository✓
• c.requires the buyer to use the escrow that handled the foreclosure
• d.forbids the resale until the mortgagee has held title for one year

Section 667-52(a) applies to a judicial foreclosure or a foreclosure by power of sale of residential property improved by four or fewer dwelling units, and provides that no foreclosing mortgagee, or mortgagee who acquires the property through the foreclosure, "shall require, directly or indirectly, as a condition of selling the property, that the buyer purchase an owner's title insurance policy covering the property or escrow service in connection with the sale of the property from a particular title insurer or escrow depository." Recommending is still allowed, but only if "written notice of the right to make an independent selection of those services is first provided to the buyer." The remedy is specific and expensive: section 667-52(b) makes the mortgagee liable to the buyer for "three times all charges incurred in the purchase of the title insurance or escrow service." Section 667-52(c) preserves the transaction itself, which is not invalidated solely by the breach. No holding period is imposed on the mortgagee, and no rule of Hawaii practice gives the seller the escrow choice as of right.

On a Hawaii closing statement, the conveyance tax imposed by HRS chapter 247 is charged to:

• a.the parties in equal shares, unless the contract provides otherwise
• b.the buyer, and is due at the moment the deed is recorded
• c.the escrow depository, out of its own fee for the closing
• d.the seller, and is due within ninety days of the transaction✓

Section 247-4(a) allocates the tax by statute rather than by custom: it "shall be paid by the grantor, lessor, sublessor, assignor, transferor, seller, conveyor, or any other person conveying realty," with one reversal, where a federal, state or county body is the conveyor and the tax then falls on the grantee. Section 247-4(b) fixes timing: the tax is "due and payable no later than ninety days after the taxable transaction, and in any event prior to the imprinting of the seal or seals as provided by section 247-5," so in practice escrow pays it at recording to obtain the certificate, well inside the outer deadline. Penalties and interest attach under section 231-39. Parties can and do allocate closing costs between themselves by contract, but that private allocation does not change whom the Department of Taxation looks to, which is why the line appears on the seller's side of a Hawaii settlement statement. The escrow depository handles the payment; it does not bear it.

Before a Hawaii escrow depository's license takes effect, HRS section 449-9 requires it to give the commissioner:

• a.a surety bond in the penal sum of not less than $100,000✓
• b.a fidelity bond of $500 for each escrow the company opens
• c.proof of errors and omissions cover of at least $1,000,000
• d.a deposit of one year's escrow fees held in a state account

Section 449-9 requires a bond "in the penal sum of not less than $100,000 executed by a surety insurer authorized in this State," conditioned that the depository "will honestly, faithfully, and with diligence apply all funds, other consideration, or property and instruments affecting title in accordance with the instructions under which the same were deposited with it, and will promptly account for the same," and that it will satisfy judgments recovered against it under the chapter. The aggregate liability of the surety cannot exceed the penal sum, and cash, a letter of credit or securities acceptable to the commissioner may be deposited in lieu of a bond. Section 449-13 protects the arrangement from quiet cancellation: sixty days' written notice to the commissioner is required for bonds or deposits and thirty days for insurance, and the license is suspended on cancellation or withdrawal. The $500-per-unit figure belongs to a different bond entirely, the condominium hotel operator's fidelity bond under HRS section 467-30, which runs from a $20,000 minimum to a $100,000 maximum.

A Hawaii principal broker requires floor time and weekly meetings of salespersons who are independent contractors. HRS section 467-1.5 provides that:

• a.a licensee who is subject to the firm's schedule becomes an employee by law
• b.a broker may not direct an independent contractor's activities at all
• c.the Commission decides each licensee's employment status on request
• d.chapter 467 and its rules do not create an employer-employee relationship✓

Section 467-1.5 exists so that regulatory supervision does not silently convert every affiliation into employment: "Nothing in this chapter or in any of the rules adopted to implement this chapter shall be deemed to create an employer-employee relationship between a real estate broker and the broker's licensees; provided that the commission shall have all power necessary to regulate the relationships, duties and liabilities among real estate brokers and real estate salespersons in order to protect the public." The Hawaii Supreme Court has read the plain language to mean that statutorily mandated control cannot create an employment relationship. HAR section 16-99-2 assumes both arrangements exist, defining a broker-salesperson as an individual broker licensee who associates that license with a firm "as an employee or independent contractor." What does not vary with the label is supervision: HRS section 467-1.6(a) gives the principal broker "direct management and supervision of the brokerage firm and its real estate licensees" either way, and the Commission does not adjudicate tax or employment status on application.

A Hawaii principal broker delegates day-to-day supervision to two brokers-in-charge. Under HRS section 467-1.6 the principal broker:

• a.remains responsible for the written policies, their enforcement and records✓
• b.must obtain the Commission's approval before delegating any supervision
• c.may delegate trust account duties but not supervision of the licensees
• d.is relieved of all responsibility for the offices those brokers now supervise

Section 467-1.6(c) permits the delegation and then keeps the responsibility where it started: the principal broker "may delegate management and supervision duties to one or more brokers in charge subject to the principal broker's written policies and procedures," and "shall be responsible for the education, enforcement, and records required of such policies and procedures." Section 467-1.6(b) lists what the principal broker answers for in the first place, including the client trust accounts and disbursements from them, the firm's records, contracts and documents, all real estate contracts of the firm and their handling by associated salespersons, developing policies and procedures covering transactions and licensee conduct, setting a continuing education policy, ensuring every associated license and the firm license are current and active, and establishing and maintaining a training program. No Commission approval is required to delegate, and there is no category of duty that may be delegated while supervision may not; the difference is that delegation moves the work, not the accountability.

An Oahu brokerage opens an office on Hawaii Island. Under HAR sections 16-99-2 and 16-99-3 the firm must:

• a.register the branch and have a broker-in-charge for that office✓
• b.register the branch, though a senior salesperson may run it
• c.designate a second principal broker for the neighbor island
• d.obtain a separate brokerage firm license for that neighbor island

Two rules combine. HAR section 16-99-2 defines a branch office as a place of business other than the principal place of business from which real estate business is conducted and provides that "branch offices located on an island different from the principal place of business shall be registered with the commission," while registration is not required for another place of business on the same island. The same definition covers supervision: the principal broker may designate one or more brokers-in-charge, "provided that there shall be at least one broker-in-charge of each branch office," and one broker-in-charge may be designated to more than one branch. HAR section 16-99-3(m) states the requirement operationally, calling for a principal broker or one or more brokers-in-charge at the principal place of business and one or more brokers-in-charge at a branch office "who shall be immediately responsible for the real estate operations conducted at that place of business." A salesperson cannot fill that role, a firm has "one, and only one, principal place of business," and the branch does not need its own firm license.

HAR section 16-99-4 tells a Hawaii brokerage what to do with entrusted funds. A firm that does not immediately place them in a neutral escrow depository must:

• a.deliver the funds to the seller's attorney by the end of the next business day
• b.hold them as a cashier's check in the firm's own office safe until it closes
• c.keep a trust fund account in this State naming the principal broker trustee✓
• d.deposit them in the firm's operating account and keep a separate ledger

The rule opens by describing two lawful routes and then spelling out the second. Section 16-99-4(a): "Every brokerage firm that does not immediately place all funds entrusted to the brokerage firm in a neutral escrow depository, shall maintain a trust fund account in this State with some bank or recognized depository, which is federally insured, and place all entrusted funds therein. The trust fund account shall designate the principal broker as trustee." Sending the money straight to a neutral escrow depository is therefore not a violation; it is the alternative the sentence is built around. Section 16-99-4(d) governs speed and location: trust funds must reach a neutral escrow depository or a trust fund account "by the next business day following their receipts," and the neutral escrow depository "shall be located in the same state where the property is located." Records go back three years, are kept in Hawaii, and are open to inspection by the Commission under section 16-99-4(b). Depositing client money in the operating account is commingling however carefully it is logged, and a check in a safe leaves the accounted-for system altogether.

HAR section 16-99-4 forbids commingling but identifies three things that are not commingling. One of them is:

• a.keeping earned commissions in the client's account for a month or two
• b.maintaining a minimum amount in the client's account to keep it open✓
• c.paying an office electricity bill from the client's account by mistake
• d.holding a rent receipt in the broker's personal account for a single day

Section 16-99-4(h) states that the principal broker or broker-in-charge "shall not commingle client's funds with other moneys; provided, however, it shall not constitute commingling to: (1) Hold an uncashed check until acceptance of an offer when directed to do so by the buyer or offeror; (2) Hold an uncashed check after acceptance of an offer when directed to do so by the seller or offeree; or (3) Maintain a minimum amount in the client's account to keep the account open." The second exception carries a condition, that holding the check uncashed be specifically disclosed in writing to the seller before acceptance. The same subsection then names the trap in the first distractor: commingling "shall include, but not be limited to, keeping undisputed commissions, management fees, and other fees in the brokerage firm's client trust account beyond a reasonable time after those commissions, management fees, and other fees have been earned." HAR section 16-99-2 defines commingling as mingling or mixing "such as a deposit of client's funds in the broker's personal account," and HRS section 467-14(15) and (16) make commingling and conversion of other people's money grounds for discipline whatever the duration.

A Hawaii licensee advertises a leasehold townhouse for sale on a listing portal. HAR section 16-99-11 requires the advertisement to:

• a.state how many years remain on the ground lease
• b.give the lease rent and the next renegotiation date
• c.identify the property with the word "leasehold"✓
• d.name the fee owner and give a mailing address for it

Section 16-99-11(d) is one sentence: "A leasehold property advertised for sale in any medium shall be identified by the word 'leasehold'." The rule commands the word itself, not a computation. Remaining term, current lease rent and the next renegotiation date all matter enormously to a buyer and belong in the disclosure conversation, but the advertising rule does not require them, and the fee owner's identity is not an advertising item at all. The rest of the section supplies the other advertising duties a Hawaii broker is examined on: subsection (a) requires all advertising and promotional materials to include the firm's legal name or a trade name registered with the business registration division and the commission; subsection (b) forbids a licensee to advertise "For Sale by Owner," "For Rent by Owner," "For Lease by Owner" or "For Exchange by Owner"; subsection (e) requires material naming an individual licensee to identify the associating or employing firm and to specify broker (B), salesperson (S), Realtor (R) or Realtor-Associate (RA).

A Hawaii salesperson whose license is on inactive status advertises her own house for sale. HAR section 16-99-11 requires her to:

• a.disclose her status as a real estate licensee in the advertising✓
• b.advertise only through the firm she was last associated with
• c.omit any reference to the license while she is on inactive status
• d.obtain the Commission's written consent before advertising at all

Section 16-99-11(c) reaches inactive licensees by name: "Current individual real estate licensees, whether active or inactive, shall disclose the licensee's status as a real estate licensee in all advertising and promotional material." Inactive status stops a person transacting real estate business, since HAR section 16-99-2 defines inactive as a current license whose holder "cannot transact any real estate business until the license status is changed to 'active' status," but it does not stop the public from being entitled to know it is dealing with someone who knows the business. There is a second trap in this fact pattern: section 16-99-11(b) forbids any licensee from advertising "For Sale by Owner," so writing the advertisement in owner-sale terms is itself a violation even though she does own the house. HAR section 16-99-3(g) meanwhile requires a licensee offering property the licensee owns to inform the principal broker and to reveal the interest to the purchaser in writing before accepting any offer. No Commission consent is required and no former firm has to be routed through.

Hawaii's broker experience requirement, in HRS section 467-9.5 and HAR section 16-99-19.2, is:

• a.two of the past four years as a licensee, with no hours requirement
• b.five continuous years of licensure and one hundred closed transactions
• c.three of the past ten years, the last of them in a supervisory post
• d.three of the past five years full-time, averaging forty hours a week✓

The statute supplies the years and the rule supplies the intensity. HRS section 467-9.5(a)(4)(B)(iii) requires the broker candidate to have "experience as a full-time Hawaii-licensed real estate salesperson associated with a Hawaii-licensed real estate broker for at least three years of the five-year period immediately prior to the submission of the experience certification application," certified by the principal broker or broker-in-charge. HAR section 16-99-19.2(b) defines the term the statute leaves open: "'Full-time' means averaging at least forty hours a week devoted to real estate salesperson activity. No pro rata credit shall be given to part-time real estate salesperson activity." Section 16-99-19.2(c) denies credit for any period when the license was inactive, forfeited, suspended, revoked or terminated, and section 16-99-19.2(d) allows an equivalency for three years of full-time out-of-state salesperson experience or a current unencumbered out-of-state broker license. The certificate is valid two years under section 16-99-19.2(f) and must be produced at the examination appointment. No transaction count appears anywhere, and the broker prelicense course is eighty class hours under section 16-99-36.

Hawaii real estate licenses expire on December 31 of each even-numbered year. A licensee who renews on time but has not completed the required continuing education:

• a.keeps an active license and has six months to complete the hours
• b.has the license renewed but placed automatically on inactive status✓
• c.is fined by the Commission but keeps the license on active status
• d.forfeits the license on January 1 of the following odd-numbered year

Two different failures carry two different consequences, and the exam separates them. HRS section 467-11(b) deals with not renewing: all real estate licenses expire on December 31 of an even-numbered year, and failure to pay the biennial renewal fee and submit a completed renewal application "shall constitute a forfeiture of the license as of January 1 of the subsequent odd-numbered year." HRS section 467-11.5(a) deals with renewing without the education: the licensee must show "proof of having attended at least twenty hours of continuing education or its equivalent as determined by the commission during the two-year period preceding the application for renewal," and "failure to satisfy the continuing education requirement by the license expiration date shall result in the renewed license being automatically placed on an 'inactive' status." Section 467-11.5(b) reactivates it on proof of the hours, a complete application and the fee. HAR section 16-99-90 adds that the evidence must cover a mandatory core course where the commission designates one. There is no grace period and no fine-instead-of-inactive option.

Hawaii's fair housing statute, HRS section 515-3, protects several classes that federal law does not. Among them are:

• a.sexual orientation, gender identity or expression, age and marital status✓
• b.military service, union membership, credit score and one's country of birth
• c.profession, employer, length of residence in the State and income level
• d.student status, vehicle ownership, pet ownership and smoking status

Section 515-3(a) makes it a discriminatory practice for an owner, any other person engaging in a real estate transaction, or a real estate broker or salesperson to act "because of race; sex, including gender identity or expression; sexual orientation; color; religion; marital status; familial status; ancestry; disability; age; or human immunodeficiency virus infection." Compared with the federal Fair Housing Act, Hawaii adds sexual orientation, gender identity or expression, marital status, age, ancestry and HIV infection, which is why a Hawaii licensee cannot rely on a national course outline here. Several of the prohibited acts are also broader than the federal list: section 515-3(a)(5) reaches failing to bring a property listing to a person's attention and steering; section 515-3(a)(7) forbids requiring an HIV test as a condition of a transaction; and section 515-3(a)(9) governs assistance animals, providing that possession of a vest, tag or online registration document "shall not constitute valid verification." HRS section 467-14(13) makes violating chapter 515 an independent ground for discipline.

A Hawaii licensee's listing on a distressed property expires unsold, and four months later the licensee wants to buy it personally. HRS section 467-14 treats acquiring that interest as:

• a.a ground for discipline within 365 days of the listing ending✓
• b.permitted, because the listing agreement has already expired
• c.permitted if the seller signs a written consent to the purchase
• d.a ground for discipline only if the licensee resells at a profit

Paragraph (21) of section 467-14 lists as a cause for revocation, suspension or fine "acquiring an ownership interest, directly or indirectly, or by means of a subsidiary or affiliate, in any distressed property that is listed with the licensee or within three hundred sixty-five days after the licensee's listing agreement for the distressed property has expired or is terminated." Because the period runs from the end of the listing rather than during it, expiry is the start of the restricted window rather than the end of it, and four months later is squarely inside. HRS section 480E-2 defines distressed property broadly: residential real property in foreclosure or at risk of it because a secured loan is more than sixty days delinquent, property carrying a lien for unpaid taxes, lease assessments, association fees or maintenance fees, property at risk of such a lien where payments are more than ninety days delinquent, property securing a loan for which a notice of default has been given or that has been accelerated, and property that is the subject of a mortgage assistance relief solicitation. Neither the seller's consent nor an absence of profit is written into the paragraph as a cure.

Hawaii requires a licensee to disclose whom the licensee represents. Under HAR section 16-99-3.1, the disclosure to the buyer is due:

• a.at or before the licensee's first substantive contact with the buyer
• b.prior to preparing any contract between the buyer and the seller✓
• c.within thirty days after the transaction has closed and recorded
• d.only after the seller has accepted the buyer's written offer to buy

Hawaii's trigger is a document, not a conversation. Section 16-99-3.1(c) provides: "Prior to preparing any contract between the buyer and the seller, the following disclosure shall be made at least once to the buyer, in writing or orally," and section 16-99-3.1(d) mirrors it on the other side, "prior to presenting a contract between the buyer and the seller to the seller." There is no first-substantive-contact rule in Hawaii, which is one of the commonest cross-state mix-ups on this exam. Nor must the initial disclosure be written: section 16-99-3.1(e) provides that it may be written or oral and that "no particular disclosure language is required." What must be written is the confirmation, in a separate paragraph of the contract titled "AGENCY DISCLOSURE" in no less than ten-point bold print, and HRS section 467-14(12) makes it a ground for discipline when a licensee "fails to obtain on the contract between the parties to the real estate transaction confirmation of who the real estate broker represents." The one genuinely early trigger sits in section 16-99-3.1(h): a licensee representing a buyer must disclose that agency to the seller or the listing brokerage firm "before negotiations are initiated." A disclosure after acceptance, or thirty days after closing, arrives after every decision it exists to inform.

A Hawaii licensee proposes to represent both the buyer and the seller. HAR section 16-99-3.1 permits this only where the written consent of both parties:

• a.is countersigned by the licensee's principal broker as well
• b.is filed with the Real Estate Commission before the offer is presented
• c.describes the type of representation the licensee will provide✓
• d.states simply that the licensee represents buyer and seller

Section 16-99-3.1(g) sets a content requirement, not merely a signature requirement: "A licensee may not be the agent for both the buyer and the seller without obtaining the written consent of both the buyer and the seller. The written consent shall state that the licensee made a full disclosure of the type of representation the licensee will provide and shall briefly describe the type of representation the licensee will provide to the buyer and to the seller. A general statement in the consent signed by the buyer and seller that the licensee represents both buyer and the seller is not sufficient." That last sentence disposes of the bare acknowledgment, which is exactly the form a busy office is tempted to use. HRS section 467-14(4) reinforces the rule from the statute side, making it a cause for revocation, suspension or fine to act for both parties, or to collect or attempt to collect compensation from both, "without first having obtained the written consent to do so of both parties." Nothing is filed with the Commission and no principal broker countersignature is required, though HRS section 467-1.6(b) leaves the principal broker responsible for the firm's contracts and for the policies that govern them.