(SOURCE: DPOR Update: Death or Disability of a Broker, by Laura Farley, General Counsel)
During the 2022 Session, the Virginia General Assembly passed a law updating what happens in the event of the death or disability of a sole proprietor or sole broker at a real estate firm.
The new law requires sole proprietors and sole brokers to designate another broker to take over in the event of the death or disability of the broker. This ensures that not only a real estate licensee, but a broker who is aware of the laws and regulations related to real estate licensees is overseeing transactions to protect the public.
This law goes into effect January 1 and states that the designation shall be made at the time of application for a broker license or at the renewal of a current license.
Why has this new law passed?
NVAR and Virginia REALTORS® advocated for this policy to pass, as it safeguards our industry and clients. During the COVID-19 pandemic, Virginia REALTORS® received several calls from different parts of the state where the only broker at a firm died or went into the ICU. The agents at the firm, and clients with pending transactions, were thrown into a state of uncertainty.
Without a broker to supervise, a firm’s license is no longer valid. Without a valid firm license, all of the agents’ licenses are also no longer valid. Without realizing it, agents could end up practicing without a valid license.
Providing DPOR with the name of another broker who will intervene in the event of your death or disability does not negate any other business continuity plans you may have in place. In fact, you should incorporate the new designation requirement into your business continuity plan and make sure that the broker you designate is aware of your plans and is willing to follow them.
FAQs - Some of the questions we have received through the Virginia REALTORS® Legal Hotline:
1. What if I’m a sole proprietor and do not have any agents working for me? Do I still have to fill out this form?
Yes, the law requires all sole proprietors and sole brokers to fill out and return the form, regardless of whether there are any other agents at the firm. This is to ensure that the public is protected in the event that something happens to you mid-transaction.
2. What if I’m not the only broker at the firm? I got a copy of the letter and form from DPOR, does that mean I have to do something?
If there are other brokers at the firm, you do not need to take any action at this time.
3. What happens if I don’t designate another broker? I have a business continuity plan that lays out someone who is not a broker to handle wrapping up my business?
The law says that “any licensed broker who is engaged in a sole proprietorship or who is the only licensed broker in a business entity shall designate another licensed broker to carry on the business for up to 180 days for the sole purpose of concluding the business of such designating broker’s death or disability.” This means that you must designate someone on the form provided by DPOR, but you should have a conversation with the other broker, which is memorialized in writing, that can address that there is someone else you want involved in business decisions while wrapping up the business.
Like with any other legal requirement under the law, if you fail to comply, the Real Estate Board has the ability to discipline you. The law does not specify what the discipline would be, which means that the Real Estate Board has the authority to issue any discipline available to them.
4. Do designated brokers get paid for their services?
There is no legal requirement for the designated broker to get paid. When talking to brokers about naming them as designated brokers, you should discuss whether, how much, and how they will get paid for taking over, if necessary. You should then memorialize the agreement in a contract that can include payment, obligations, and assignments of liability.
5. If I am the designated broker, do I have any liability during the time I am overseeing the firm for the dead or disabled broker who designated me?
Yes, upon the death or disability of the other broker, you become the supervising broker for that firm and have all the same responsibilities as any other supervising broker. Best practices would include informing the insurance carriers for both the designating broker and designated broker of the designation.
6. If I designate another broker on this form, do I have to make the designated broker a signatory on my escrow account? Otherwise, how will the designated broker be able to handle any pending transactions where I am holding escrow funds?
Virginia REALTORS® is working with the banking industry to determine how to handle this. There is no requirement that you make the designated broker a signatory on your escrow account at this time.
Need more information? Please visit the original Virginia REALTORS® Post