STATE OF WEST VIRGINIA

PRELIMINARY PERFORMANCE REVIEW OF THE

Real Estate Commission

Proactive Enforcement Appears to
Decrease Disciplinary Activity
The Commission Should Limit Future
Expenditure Increases in Response
to Falling Revenues
The Commission has Developed an
Easy to Use Web Site


Background

    The West Virginia Real Estate Commission, created in 1937, has the principal purpose of protecting the public against unscrupulous practices of real estate agents. The Commission is composed of three members, two of whom are to have been employed as real estate brokers or salespersons for at least ten years. The third member is a representative of the general public. Members are appointed by the governor by and with the consent of the Senate. They serve four-year terms. The Commission meets on a monthly basis. Members are compensated at a rate of one hundred dollars per day while conducting Commission business. Members routinely receive compensation for between three and five days per month. The Commission has six employees including an executive director, a deputy director, an education director, an investigator, and two secretaries.
 

The program of this agency can be generally classified into administration and enforcement. The administration functions include the categories:
 

The Commission conducts written examinations for real estate license applicants which include reading, writing, spelling, elementary arithmetic, a general knowledge of the statutes relating to real property, deeds, mortgages, agreements of sale, agency contract, leases, ethics, appraisals and the provisions of WVC Chapter 47 Article 12. All licenses issued to brokers or salespersons expire on the thirtieth of June.
 

All fees collected by the Commission are paid by the executive director at least once a month into the State Treasury fund designated as the Real Estate License Fund. These fees pay for salaries and expenses including the printing of an annual directory of licensees and for educational purposes. The Commission's expenditures cannot exceed the revenue it collects.
 

Willful failure to pay any of the fees is just cause for revocation of or refusal to issue or renew a license. The last fee increase took effect in FY 1994 when eight of the twelve fees collected were raised. The Commission charges the following license fees:

Table 1

License Fee Schedule


 
Type of Fee Amount
Examination Fee $25, with no additional fee for second examination
Investigation Fee $10
Broker's License $80
Salesperson's License $40
Broker's Renewal Fee $80, payable by the thirtieth day of June each year
Salesperson's Renewal Fee $40, payable by the thirtieth day of June each year
Branch Office Fee $80
Renewal of Branch Office License $80
Transfer of Salesperson's License $10
Duplicate License or Certification $10
Change of Name $10
Change of Office $10

 

The Commission can refuse a license for reasonable cause and can revoke or suspend a license for unethical conduct as defined in §47-12-11. Upon its own motion or the receipt of a verified written complaint, the Commission determines the facts and if warranted holds a hearing for the suspension or revocation of a license. Any applicant or licensee, or aggrieved person has the right to appeal any adverse ruling within thirty days of the service of notice of the action of the Commission.
 

The Commission does not act upon certain types of complaints. A statement on the Commission's Web site describes the types of complaints in which it will and will not act.
 

The Real Estate Commission regulates real estate licensees. The Commission is not empowered to enforce, interpret, modify, rescind or cancel listing agreements, purchase and sale agreements or any other contract, or to order the return of earnest money, award damages, settle real estate commission fee disputes or otherwise settle claims. If a licensee is found guilty of a violation of the Real Estate License Law or Administrative Regulations, the Commission has the authority to take disciplinary action against that licensee.

The Commission is authorized to conduct or to assist other entities in conducting real estate courses for applicants. It may incur any expenses in connection with these courses. The Commission also approves continuing education courses for licensees. WVC §47-12-7A requires each licensee to complete seven hours of continuing education, with each hour equal to fifty minutes of instruction.
 

Issue Area 1: The Commission's Proactive Enforcement by its Full-Time Investigator Appears to Decrease Disciplinary Activity When Compared to Surrounding States's Real Estate Licensure Agencies.
 

Table 2 illustrates the number of complaints received by the West Virginia Real Estate Commission and disciplinary actions taken. The category of complaints labeled "tabled" include four from 1996 which were tabled indefinitely. Two of these involved on-going litigation and any action by the Commission was delayed for that reason. The complaint that was tabled in 1998 required additional information and was acted upon in January 2000. The complaints dismissed by the Commission frequently deal with the terms of a real estate contract which are dealt with through the court system or otherwise fall under the categories of complaints that the Commission does not act upon. There is no provision in §47-12 of the West Virginia Code which authorizes the Real Estate Commission to enforce, interpret, modify rescind or cancel listing agreements, purchase and sale agreements or any other contract. Other complaints dismissed by the Commission include those that, upon investigation, clearly involve no violations of the Code or administrative regulations.

Table 2

Number of Complaints and Disciplinary Actions in West Virginia


 
Calendar Year Complaints Received Complaints Dismissed Complaints Tabled Complaints Acted upon Cease and Desist Consent Decree Reprimands
1996 31 22 4 5 2 0 3
1997 25 21 0 4 1 0 3
1998 19 13 1 5 0 4 1
1999 19 15 0 4 0 3 1

As Table 3 illustrates, the West Virginia Real Estate Commission consistently takes fewer disciplinary actions in proportion to the number of licensees in the State than its counterpart licensure agencies in surrounding states. Table 3 lists the numbers of both complaints and disciplinary actions per 1,000 licensees for each year from 1996 to 1999. These ratios show that West Virginia's Real Estate Commission ranks last among the States listed in the number of disciplinary actions taken each year, while at the same time, the Commission consistently receives the smallest proportion and number of complaints regarding its licensees. These data indicate that there appears to a lower level of demand for disciplinary actions in West Virginia than in surrounding states given the State's much smaller numbers of licensees and complaints.
 


Table 3

Comparison of Disciplinary Actions Between West Virginia and Surrounding States


 

 

Complaints

1996 State

Population

Licensees Total Received Investigated Number

Dismissed

Resulting in Disciplinary Actions Ratio of 

Actions Per 1,000/

Complaints Per 1,000

Penn. 12,038,008 43,086 480 450 N/A  108 2.5/11.1
Ohio 11,187,032 45,552 280 280 276 52 1.1/6.2
Kentucky 3,881,051 13,598 205 135 148 15 1.1/15.1
Virginia 6,665,491 12,548 481 448 281 N/A N/A
Maryland 5,057,142 39,987 566 487 214+ 64 1.6/14.2
West Virginia 1,818,983 9,198 22 22 18 3 0.3/2.4
1997
Penn. 12,015,888 43,053 735 646 N/A 87 2.0/17.1
Ohio 11,212,498 45,673 260 260 180 56 1.2/5.7
Kentucky 2,616,339 13,528 204 179 68 22 1.6/15.1
Virginia 6,732,878 37,833 418 418 370 N/A N/A
Maryland 5,092,914 34,579 559 359 N/A 81 2.3/16.2
West Virginia 1,815,588 9,094 28 28 17 4 0.4/3.1
1998
Penn. 12,002,329 45,661 691 1,009 N/A 69 1.5/15.1
Ohio 11,237,752 44,413 304 304 172 53 1.2/6.8
Kentucky 3,934,310 13,557 234 179 145 30 2.2/17.3
Virginia 6,789,225 36,210 731 731 337 117 3.2/20.2
Maryland 5,130,072 34,579 583 375 202 47 1.4/16.9
West Virginia 1,811,688 8,787 26 26 21 5 0.6/3.0
1999
Penn. 11,994,016 39,999 344 657 N/A 59 1.5/8.6
Ohio 11,256,654 41,878 289 289 256 70 1.7/6.9
Kentucky 3,960,825 13,590 159 96 118 19 1.4/11.7
Virginia 6,872,912 44,217 731 731 337 117 2.7/16.5
Maryland 5,171,634 27,029 485 540 162 30 1.1/17.9
West Virginia 1,806,928 8,533 19 19 16 4 0.5/2.2
Data Source: The Association of Real Estate License Law Officials (ARELLO) Digest of Real Estate License Laws and data received from The Maryland Real Estate Commission and The West Virginia Real Estate Commission

Compliance Reviews Conducted by the Commission
 

While disciplinary statistics may appear to suggest a lower level of activity in West Virginia than in surrounding states, it must be recognized that the Commission makes considerable efforts to be proactive in its enforcement activities. The investigator employed by the Commission makes 300-400 compliance reviews of licensed brokers each year. These reviews include audits of the brokers' Trust Fund Accounts, which are maintained by brokers with all funds entrusted to them in the course of real estate transactions. The investigator also examines compliance with other requirements of the Code and administrative rules. Most infractions discovered during these reviews are minor in nature such as failure to display licenses, the use of improper signs to mark the business, and minor discrepancies in the broker's Trust Fund Account. These reviews may be an important reason why there are so few complaints made against licensees in West Virginia. The Commission's proactive approach to enforcement may serve as a deterrent to ethical and legal violations. The familiarity with brokers around the State that the completion of these reviews gives the Commission may also reduce the need for lengthy investigations after complaints have been filed. Since the Commission ensures that brokers are familiar with the legal requirements under which they must operate, the incidence of severe violations may also be reduced. This may explain why there are so few disciplinary actions per 1,000 licensees in West Virginia than in surrounding states.
 

Conclusion
 

When compared with the levels of disciplinary activity maintained by surrounding states, the Commission takes fewer disciplinary actions. West Virginia consistently maintains a lower level of disciplinary activity in proportion to the number of licensees in the State. At the same time, West Virginia's Real Estate Commission receives fewer complaints than corresponding agencies in surrounding states. While the Commission takes fewer disciplinary actions per 1,000 licensees than surrounding states, this may be the result of a determined and proactive enforcement effort, since the investigator employed by the Commission conducts 300-400 compliance reviews among licensed brokers annually.
 

Issue Area 2: The Commission Should Limit Future Expenditure Increases in Response to Falling Revenues and to Maintain its Self-Sufficiency.
 

Expenditure patterns for the Commission have changed considerably during the period from FY 1994 to FY 1999. As Table 4 illustrates, total revenues have decreased slightly, but steadily each year. At the same time, total disbursements have risen sharply each year.
 


Table 4

Real Estate Commission Revenues and Disbursements


 
FY Total Revenues Total Disbursements Excess Revenues Over Disbursements
1994 $489,525 $265,993 $223,532
1995 $481,755 $303,726 $178,029
1996 $473,545 $356,376 $117,169
1997 $464,430 $378,308 $86,122
1998 $451,075 $504,257(1) ($53,182)
1999  $435,225 $404,439 $30,786

 

Increases in expenditures have resulted, in large part, from new staff members and increased salary expenses during the period examined. An education director, an investigator, and a secretary were hired after the Legislature approved staff increases in 1993. A ruling from the Human Rights Commission later required the Real Estate Commission to increase the salary level of one employee. It must be recognized that during 1999, the last year examined in this review, expenditure levels were greatly reduced from the previous year, but were slightly more than in 1997. This indicates that the growth in expenditures was the result of the hiring of new staff and unusual circumstances, particularly in 1998.
 

Declining Numbers of Licensees
 

Table 5 illustrates the decline in the numbers of real estate brokers and salespersons currently licensed and in the number sitting for examinations. Since FY 1994, the total number of licensees has fallen by almost 1,000 or nearly 10%. The number of applicants sitting for the salesperson examination in FY 1998 (802) was 22% fewer than in FY 1994 (1,028). Given the historical trend towards decreasing numbers of licensees and the fact that the fewest number of applicants over the period studied sat for exams in FY 1999, the Real Estate Commission should be prepared for further decreases in total revenues. The Commission should, therefore, take steps to ensure that the historic trend towards sharply increasing expenditures does not continue in future years.
 


Table 5

Numbers of Current Licensees and License Applicants


 
FY Total Licensees Broker Examinations (% passed) Salesperson Examinations (% passed)
1994 9,476 97 (39%) 1,028 (65%)
1995 9,367 108 (44%) 956 (62%)
1996 9,198 70 (51%) 1,020 (48%)
1997 9,094 50 (48%) 841 (71%)
1998 8,787 64 (52%) 802 (58%)
1999  8,533 62 (63%) 691 (71%)

 

The Commission has Adequate Funds for the Needs of the Immediate Future
 

An examination of the funds currently maintained by the Commission in the State Treasury indicates that while annual license fee revenues continue to fall, the budget surplus maintained in previous years has enabled the Commission to save a considerable amount of money. At the end of Calendar Year 1999, the Commission had a cash balance of nearly $955,000 in its Real Estate License Fund. The Commission, therefore, has a comfortable reserve of funds available to it for management purposes. This provides flexibility when presented with unexpected expenses such as the costs of legal representation which the Commission had to incur in FY 1998. It will also permit the Commission to operate with the current schedule of license fees for several years, even if the Commission's expenditures somewhat exceed revenues. These excess funds should not, however, be viewed as a permanent solution to the long-term decrease in license fee revenue.
 

As was mentioned earlier, the Commission's expenditures were reduced to $404,439 during FY 1999, which was nearly the same amount as in FY 1997, after rising considerably to $504,257 in FY 1998. If expenditure levels remain constant in future years, as it appears they may, the danger posed by decreasing revenues will be greatly reduced.
 

Although the Commission currently has adequate funds to compensate for possible budget shortfalls over the next few years, it would not be wise to allow the growth of expenditures to routinely exceed revenues. If this trend were to continue, eventually a license fee increase would be required, when the excess funds currently held by the Commission were exhausted. Careful planning and management of the Commission's budget at the present time may avert a future crisis.
 
 
 

Conclusion
 

Expenditure patterns for the Commission have changed considerably during the period from FY 1994 to FY 1999. Total revenues have decreased slightly, but steadily each year. At the same time, total disbursements have risen sharply each year. Since FY 1994, the total number of licensees has fallen by almost 1,000 or nearly 10%. This has led to a corresponding decrease in licensure revenue.
 

At the end of Calendar Year 1999, the Commission had a cash balance of nearly $955,000 in its Real Estate License Fund. This reserve of excess funds permit the Commission to operate with the current schedule of license fees for several years, even if the Commission's expenditures somewhat exceed revenues. These excess funds should not, however, be viewed as a permanent solution to the long-term decrease in license fee revenue. If the growth in expenditures continues, eventually a license fee increase will be required.
 
 
 

Recommendation 1:
 

The Commission should take measures to limit the growth of future expenditure levels in response to falling revenues.
 

Issue Area 3: The Commission Has Developed an Easy to Use Web Site With Links to a Wide Range of Information Relevant for Real Estate Brokers and Salespersons.
 

In addition to containing the West Virginia license law and administrative regulations, the Web site has links to general information on the Commission including its authority with respect to the filing of complaints and directions to the Commission's office and the testing site. The public is directed to contact the Commission in order to obtain complaint forms as they are not available on-line. The Web site also provides links to information necessary for obtaining a license such as exam application deadlines and testing dates as well as a description of testing procedures. Another set of links provides information on pre-licensing education and continuing education requirements, as well as education providers. Downloads available include application forms needed by different classes of licensees, as well as other forms needed by licensees. The availability of these documents on-line greatly facilitates licensees' adherence to the various reporting and documentation requirements of the Code. The Commission has clearly sought to make maximum use of the Internet to provide information to its licensees.
 
 
 

Recommendation 2:
 

The Commission should continue to maintain the wide range of information and documents currently available on its Web site.
 

Recommendation 3:

The Commission should enhance its web site by adding a printable complaint form to it.

1. During FY 1998, a claims disbursement of $55,184 was incurred. This legal action associated with this disbursement is on-going. This situation, coupled with unusually large information systems disbursements of $32,850 largely account for the increase in total disbursements for this year.