The Texas Real Estate Commission (TREC) adopts amendments to 22 TAC §535.50, regarding Definitions; §535.51, regarding General Requirements; §535.53, regarding Corporations and Limited Liability Companies; §535.55, regarding Education Requirements for a Salesperson License; and §535.56, regarding Education and Experience Requirements for a Broker License. Sections 535.50, 535.51, and 535.55 are adopted without changes to the proposed text as published in the August 19, 2011, issue of the Texas Register (36 TexReg 5185). Section 535.53 and §535.56 are adopted with changes to the proposed text and will be republished.

The difference between §535.53 as proposed and as adopted is that subsection (b) is rewritten for additional clarification. In addition, a typographical error in Form BL-B, adopted by reference in §535.56, indicating "250 points" for a closed purchase or sale of a farm and ranch property is changed to "300 points" to track the rule. The "Farm and Ranch, Unimproved Lot" section of Forms BL-A and BL-B, adopted by reference in §535.56, is changed to clarify that experience credit for closed sales of any unimproved lot, whether farm and ranch, commercial or residential, should be noted under "Farm and Ranch, Unimproved Lot." Finally, an effective date provision of January 1, 2012 was added to §535.56.

The revisions to the rules as adopted do not change the nature or scope so much that they could be deemed different rules. The rules as adopted do not affect individuals other than those contemplated by the rules as proposed. The rules as adopted do not impose more onerous requirements than the proposed versions and do not materially alter the issues raised in the proposed rules. The changes in the rules reflect a nonsubstantive variation from the proposed rules to make the affected rules consistent with other rules.

The amendments implement and further explain the relevant provisions of Senate Bill 747, 82nd Texas Legislature, Regular Session (2011). In relevant part, Senate Bill 747 amends Texas Occupations Code, §1101.401 to expand from six months to one year the period of time in which an applicant may satisfy an examination requirement from the date the application is filed. In addition, the application and renewal requirements for business entities were changed in §1101.355 and §1101.453 to require that business entities applying for and renewing a broker license must provide proof that the entity maintains errors and omissions insurance with a minimum annual limit of $1 million if the designated broker owns less than 10 percent of the entity. Finally Senate Bill 747 amends Chapter 1101 to delete the exemption from licensing for partnerships in which a general partner is a broker and requires licensure as a broker for any business entity as defined in §1.002 of the Business Organizations Code. Because the effective date of the relevant provisions of Senate Bill 747 is September 1, 2011, the commission simultaneously took emergency action to amend §§535.50, 535.51, and 535.53 to be consistent with Senate Bill 747.

The amendments to §535.50 amend the list of definitions to define a designated broker of a business entity, to clarify that the designated broker must be an officer of a corporation, a manager of a limited liability company or a general partner of a partnership, and to incorporate the relevant provisions regarding the new broker responsibility continuing education course required under amendments to §1101.458. The amendments to §535.51 clarify that an applicant must meet education and experience requirements before the applicant may take a qualifying examination. The amendments to §535.53 change the title of the rule to apply to all business entities, not just corporations and limited liability companies, to add partnerships to the types of business entities that must be licensed, and to address the requirement that business entities must maintain errors and omissions insurance if the designated broker owns less than 10 percent of the entity.

Regarding the amendments to §535.55 and §535.56, the commission has the authority under §1101.362 of the Act to waive some or all of the education and experience requirements for someone who has been licensed within the six years preceding the date the application is filed. Under current §535.55, the commission has waived the education required for a salesperson license for an applicant who was licensed in the preceding six years and otherwise meets the requirements of the section. The amendment to §535.55 changes the period from six years to two years so that an applicant who was licensed as a salesperson or broker in the preceding two years and otherwise meets the requirements of the section regarding mandatory continuing education (MCE) could apply for a salesperson license. Similarly, under current §535.56(a), the commission has waived the education and experience required for a broker license for a broker who was licensed in the preceding four years and otherwise meets the requirements of the subsection. The amendments to the rule change the period from four years to two years and delete the reference to a salesperson so that a broker who had an active license in two of the preceding four years and otherwise meets the requirements of the section regarding MCE could apply for a broker license without meeting the new experience requirements.

In addition, amendments to §535.56 add the rules required by amendments to §1101.356(b-1) of the Act to establish active experience requirements to apply for a broker license under §1101.356 and §1101.357 of the Act. An applicant is required to establish that the applicant has obtained 3,600 points of active experience with documentary evidence and a statement from the applicant's sponsoring broker at the time the experience was earned. Certain types of transactions are worth a certain number of points and the applicant is required to use the forms adopted by reference in the rule to summarize the transactions. An applicant may continue to gain experience after an application has been submitted until such time that the applicant meets the total number required but before the applicant may take the qualifying examination. Experience earned after the application is submitted is to be reported on a different form adopted by reference in the rule. If an applicant is unable to obtain sufficient documentation and/or the signature of the sponsoring broker, the applicant is required to use an affidavit adopted by reference in the rule to describe the applicant's efforts to obtain the documentation and/or signatures. In addition, the applicant is required to provide two additional affidavits each signed by a different individual familiar with the applicant's circumstances and attesting to the applicant's efforts to obtain the appropriate documentation. The application forms and affidavits are adopted by reference in the rule. Finally, the rule gives the commission the discretion to request additional documentation, rely on the documentation provided under this subsection, or utilize any other information provided by the applicant to determine whether the applicant has sufficient experience as required by §1101.356 of the Act and §535.56.

The reasoned justification for the amendments is to have consistency between the Texas Occupations Code, Chapter 1101 and 22 TAC Chapter 535 and to meet the statutory requirement of adoption of rules to establish active experience for purposes of applying for a broker license.

As of September 27, 2011, four comments were received on the amendments as proposed, including a comment from the MetroTex Association of Realtors.

Comment: One commenter agreed with and expressed approval of the point system for measuring active experience.

Comment: One commenter agreed with the point system but suggests an additional line item for "closed purchase or sale - unimproved" in the residential section of the forms.

Response: The recommendation will be submitted to the Broker Responsibility Working Group for consideration on October 3, 2011.

Comment: One commenter had concerns about releasing confidential information to TREC if an applicant is asked to provide documentary proof of transactional experience, such as copies of contracts and HUD 1's.

Response: The commission understands the concerns about the release of confidential information, but notes that licensees are already required to provide such information upon request by agency staff during the investigation of complaints.

Comment: One commenter believes that the statutory requirements of active experience are allegedly a restraint of trade for salespersons wishing to create their own real estate business. The commenter appears to be advocating for single licensure as the commenter points out that insurance agents and securities agents only have one license type.

Response: The commission is bound by the statutory requirements for salesperson and broker licenses and is unable to provide for single license types without a change to the statute. As to the restraint of trade argument, salespersons may currently own their own real estate business; however, if the company is a "domestic entity" as defined in the Business Organization Code, the business entity would need to be licensed as a broker and would be required to have a designated agent who is a licensed broker in active status and good standing.

The amendments are adopted under Texas Occupations Code, §1101.151, which authorizes the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties and to establish standards of conduct and ethics for its licensees in keeping with the purpose and intent of the Act to ensure compliance with the provisions of the Act.

The statutes affected by this adoption are Texas Occupations Code, Chapters 1101, 1102, and 1303; and Texas Property Code, Chapter 221. No other statute, code or article is affected by the amendments.