Rhode Island Real Estate Broker Exam — All Questions

What does R.I. Gen. Laws § 5-20.5-7 require of a resident licensed Rhode Island broker?

• a.Any mailing address in this state, with the records maintained electronically
• b.A fixed office in this state, with the business records kept at any location
• c.A fixed office in this state, with the business records kept on its premises✓
• d.An office in any New England state in which the broker holds a valid license

R.I. Gen. Laws § 5-20.5-7 provides that “each resident licensed real estate broker must maintain a fixed office within this state” and that “all business records relating to real estate transactions and to the management of that office must be kept on the premises of the fixed office location.” The same section requires the broker's original license and the original license of every affiliated salesperson to be prominently displayed in the office, and requires the broker to communicate any change of office location to the director immediately upon or prior to the change. A nonresident broker is treated differently: § 5-20.5-10(a) excuses a nonresident who maintains a definite place of business and a license in a reciprocating state from keeping a Rhode Island office. 230-RICR-30-20-2 § 2.4(E)(6) makes the principal broker responsible for the retention and maintenance of those records.

How must a Rhode Island principal broker reconcile the brokerage escrow account?

• a.Annually, filing a certified public accountant's audit at each renewal
• b.Only when the Department asks to inspect the brokerage's escrow records
• c.Quarterly, sending a summary letter to every client whose deposit is held
• d.Monthly, on a worksheet showing ledgers, journals and statements agree✓

230-RICR-30-20-2 § 2.20(B)(6) requires that “ledger sheets and journals or check stubs must be reconciled to the escrow account bank statements on a monthly basis” and that “to be sufficient, records of escrow monies must include a worksheet for each such monthly reconciliation showing the ledger sheets, journals or check stubs, and bank statements to be in agreement and balance.” R.I. Gen. Laws § 5-20.5-26(a)(1)(i) says the same in statute: each broker or office supervisor “shall maintain a monthly report as to the status of that office's escrow account and is responsible for its accuracy.” No annual audit is required, and no periodic client letter. Waiting for the Department is not an option either: § 2.20(C) makes all escrow records available on demand, and § 5-20.5-26(a)(1)(i) makes them available to the commission and the department on demand.

What is a Rhode Island broker's duty toward the licensed activity of affiliated salespersons?

• a.To do nothing further, because each salesperson holds a license of his own
• b.To guarantee that every listing the office takes sells within thirty days
• c.To exercise adequate supervision over that activity under this chapter✓
• d.To assist only those salespersons who ask the broker for guidance first

R.I. Gen. Laws § 5-20.5-14(16) makes it a ground for discipline where a broker licensee fails “to exercise adequate supervision over the activities of his or her licensed salesperson within the scope of this chapter,” and 230-RICR-30-20-2 § 2.4(A) requires the principal broker to act in a supervisory capacity for every real estate transaction in which an affiliated licensee participates. Note the limit that candidates often overshoot: § 5-20.5-15(b) provides that an unlawful act by a salesperson “is not cause for the suspension or revocation of the license of the broker with whom he or she is affiliated unless it appears ... that the broker had knowledge of the unlawful act or violation” — so the broker answers for his own supervisory failure, not automatically for the salesperson's wrong. Licensure is what places a salesperson under the broker, and supervision concerns conduct rather than a promised market result.

For whose compliance with the real estate law is a Rhode Island principal broker made responsible?

• a.Affiliated licensees only, since unlicensed staff answer to the office manager
• b.Affiliated brokers only, since salespersons answer to their own team leader
• c.Affiliated licensees and the brokerage's non-licensed employees alike✓
• d.Nobody but himself, once each affiliated licensee has been duly licensed

230-RICR-30-20-2 § 2.4(B) makes the principal broker “responsible for the compliance of his or her affiliated licensees with the Rhode Island General Laws pertaining to real estate licensure and this Regulation,” and § 2.4(C) extends the identical responsibility to “his or her non-licensed employees.” The list in § 2.4(E) fills it out: adequate supervision of each affiliated licensee and each office, the proper display of all licenses, verification that every affiliated licensee is in good standing at the start of each renewal term, retention of transaction records, and all real estate activities of teams, including maintaining the brokerage escrow account and monitoring team advertising. A team leader supervises nothing in law; under § 2.2(A)(13) a team works under the supervision of the same principal broker.

A Rhode Island brokerage dissolves. What must the principal broker do?

• a.Notify the Department in writing and return his license within ten days✓
• b.Notify the Real Estate Commission and hold his license until it expires
• c.Notify the Department in writing and return his license within sixty days
• d.Notify the affiliated licensees only, who then transfer their own licenses

230-RICR-30-20-2 § 2.11 provides that “the principal broker shall notify the Department in writing of the dissolution of the brokerage and return his or her license to the Department within ten (10) days,” and requires every affiliated licensee to transfer to another brokerage or return the license for cancellation within the same ten days. Notice runs to the Department, which issues and cancels licenses, rather than to the Real Estate Commission, whose role under R.I. Gen. Laws § 5-20.5-12 is advisory and policy-making. One duty outlives the firm: § 2.4(E)(7) makes the principal broker responsible for the preservation and safekeeping of transaction and escrow account records until a new principal broker has been designated.

May a Rhode Island principal broker keep any of his own money in the brokerage escrow account?

• a.Yes, up to ten percent of the total client funds the account is holding
• b.Yes, a nominal sum to keep the account open or meet bank service charges✓
• c.No, any of the broker's own funds in the account amounts to commingling
• d.Yes, but only during the thirty days after the account has been opened

230-RICR-30-20-2 § 2.18(A)(7) provides that “the maintenance of nominal amounts of the licensee's funds in escrow accounts solely to provide continuity in such accounts or to meet bank service charges shall not be construed to be commingling,” and § 2.18(A)(9) adds a second exception where a statute or regulation compels a fixed balance. Those are narrow carve-outs from a strict rule: R.I. Gen. Laws § 5-20.5-26(a)(1)(i) forbids a broker or salesperson to commingle deposit money or other customers' funds with his or her own, or to use a customer's funds as his or her own, and requires client funds to sit in a separate account at a federally insured Rhode Island institution. There is no percentage allowance and no grace period, and moving escrow funds to a company or personal account before a closing is unlawful appropriation under § 5-20.5-26(c).

What must a Rhode Island broker do with earnest money received on a transaction?

• a.Keep it in the broker's personal checking account until a closing date
• b.Hold it in the office safe as cash and record the amount in a ledger
• c.Lend it to the seller against the equity the sale is expected to release
• d.Deposit it in an escrow account separate from the broker's own funds✓

R.I. Gen. Laws § 5-20.5-26(a)(1)(i) requires every real estate firm to maintain an escrow account under the supervision of the qualified broker, and requires all funds paid to a salesperson or directly to a broker to be “segregated on the broker's books and deposited in an account in a recognized federally insured financial institution in Rhode Island separate from any account containing funds owned by the broker.” The records must show to whom the money belongs, the date deposited, the date of withdrawal and to whom paid, and must be kept for three years. 230-RICR-30-20-2 § 2.18(A)(2) requires the financial institution, the deposit tickets, the checks and the monthly statement all to carry the words Trust Account or Escrow Account. A personal account destroys the segregation the statute demands, cash in an office is not an account at all, and lending the deposit to the seller is a use the broker has no authority to make.

Buyer and seller dispute a deposit a Rhode Island broker holds and neither will sign a release. What must the broker do?

• a.Hold it in escrow indefinitely until the parties resolve their dispute
• b.Deposit it with the general treasurer within one hundred eighty days✓
• c.Pay it to whichever party the broker believes is entitled to receive it
• d.Return it to the buyer once sixty days have run from the first demand

R.I. Gen. Laws § 5-20.5-26(a)(1)(iv) provides that “whenever the ownership of any deposit monies received by a broker or salesperson pursuant to this section is in dispute by the parties to a real estate transaction, the broker or salesperson shall deposit the monies with the general treasurer within one hundred eighty (180) days of the date of the original deposit,” to be held in trust until the dispute is mediated, arbitrated, litigated or otherwise resolved. Indefinite holding is therefore not an option, which is what makes it the tempting wrong answer. 230-RICR-30-20-2 § 2.19(C)(2) requires the broker to warn the parties by letter, in prescribed words, at least thirty days before transmitting the funds, and to send the Department's Escrow Deposit Transmittal Form with them; the parties may extend the deadline by written agreement. Paying out disputed funds without complying is a ground for discipline under § 5-20.5-14(28).

A Rhode Island buyer defaults and the broker judges the deposit forfeited. What notice must precede releasing it to the seller?

• a.Certified mail to the buyer, stating the release will occur in ten days
• b.Certified mail to the buyer, stating the release will occur in sixty days✓
• c.Certified mail to the seller, stating the release will occur in twenty days
• d.No notice at all, because the purchase and sale agreement fixes forfeiture

230-RICR-30-20-2 § 2.19(A) allows a principal broker to release a deposit to a seller or landlord only after three steps: a good faith determination that the buyer or renter forfeited the right to its return; written notice to the buyer or renter “by certified mail, return receipt requested, of his or her intent to release the deposit to the seller or landlord sixty (60) days from the date of receipt of the written notice”; and the buyer's failure to dispute ownership in writing within that sixty-day period. The mirror-image rule in § 2.19(B) runs the other way with a shorter clock — twenty-one days' certified-mail notice to the seller or landlord before returning a deposit to the buyer. A contract term cannot displace the procedure, because any written dispute converts the matter into the general treasurer process of § 2.19(C).

Who may hold an ownership interest in a Rhode Island real estate brokerage firm?

• a.Any licensee, including a salesperson affiliated with that same firm
• b.Any investor, provided a licensed broker runs the firm from day to day
• c.Only a person or entity that holds a valid Rhode Island broker's license✓
• d.Any person, provided the firm registers the owner with the Department

R.I. Gen. Laws § 5-20.5-27 provides that “no person, firm, or corporation shall have an ownership interest in a real estate brokerage firm nor participate in the operation of the real estate brokerage firm unless the person, firm, or corporation holds a valid real estate broker's license, issued pursuant to the provisions of this chapter.” The bar therefore reaches passive investors and salespersons alike, and no registration with the Department cures it. Section 5-20.5-8 completes the picture for entities: a broker's license issued to a corporation, partnership or association designates one principal active officer for whom it is valid, and every other active broker or salesperson of that entity must hold an individual license. 230-RICR-30-20-2 § 2.24 separately forbids a licensee from lending his name or license to another person or to circumvent the licensing laws.

How long does a Rhode Island licensee have to appeal an adverse decision of the Department?

• a.Ten days from service of notice of the Department's action
• b.Sixty days from service of notice of the Department's action
• c.Thirty days from service of notice of the Department's action✓
• d.Six months from service of notice of the Department's action

R.I. Gen. Laws § 5-20.5-16(b) gives any person aggrieved “the right of appeal from any adverse ruling, order, or decision of the department of business regulation to a court of competent jurisdiction in the county where the hearing was held within thirty (30) days from the service of notice of the action of the department upon the parties to the hearing.” Two further mechanics matter: § 5-20.5-16(d) provides that a final administrative decision does not take effect until the time for appeal has expired, and § 5-20.5-16(e) requires the appellant to post a one-thousand-dollar bond for costs. Twenty days is the interval at the earlier stage — § 5-20.5-15(a)(1) gives a licensee twenty days to request a hearing and requires at least twenty days' notice of the hearing date — and a hearing officer must decide within sixty days of the final hearing.

What is the largest administrative penalty the director may levy for a violation of the Rhode Island real estate law?

• a.Two thousand dollars✓
• b.Five thousand dollars
• c.Ten thousand dollars
• d.Five hundred dollars

R.I. Gen. Laws § 5-20.5-14(b) provides that “the director is authorized to levy an administrative penalty not exceeding two thousand dollars ($2,000) for any violation under this section or the rules and regulations of the department of business regulation.” The penalty sits alongside the other sanctions in § 5-20.5-14(a): refusal of a license for cause, suspension, revocation, or probation “for a period not to exceed one year.” Different figures belong to different provisions and are the reason the distractors read plausibly: § 5-20.5-17(a) makes unlicensed activity a misdemeanor punishable by a fine of one hundred to five hundred dollars for an individual and one thousand to two thousand for a corporation, rising to two thousand to five thousand for a corporation on a second offense.