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NEW JERSEY REGISTER
VOLUME 34, NUMBER 19
MONDAY, OCTOBER 7, 2002
RULE PROPOSAL
LAW AND PUBLIC SAFETY
DIVISION OF CONSUMER AFFAIRS
STATE BOARD OF REAL ESTATE APPRAISERS
MIXED PRACTICE; CONFLICT OF INTEREST

 

Proposed New Rule: N.J.A.C. 13:40A-7.5

Authorized By: State Board of Real Estate Appraisers, Dr. James Hsu, Executive Director.

Authority: N.J.S.A. 45:14F-8.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2002-347.

Submit written comments by December 6, 2002 to:

Dr. James Hsu, Executive Director
State Board of Real Estate Appraisers
PO Box 45032
124 Halsey Street
Newark, New Jersey 07101

The agency proposal follows:

Summary

Pursuant to its rulemaking authority set forth in N.J.S.A. 45:14F-8(g), the State Board of Real Estate Appraisers (the Board), is proposing a new rule regarding mixed practice and conflicts of interest for licensed or certified real estate appraisers holding both real estate brokers and/or salespersons licenses.

The Board is proposing new rule N.J.A.C. 13:40A-7.5 to delineate restrictions applicable to any licensee who engages in mixed practice as an appraiser and a real estate broker and/or salesperson. The proposed new rule delineates transactions in which a licensee, who also maintains licensure as a real estate broker or salesperson, shall not participate as an appraiser because of the potential conflict of interest that may exist in such transactions.

More specifically, N.J.A.C. 13:40A-7.5(a) defines a real estate licensee as any natural person licensed as a real estate broker, broker-salesperson or salesperson pursuant to N.J.S.A. 45:15-1 et seq. and a transaction as the buying, selling, leasing, mortgaging, auctioning or exchanging of real estate. N.J.A.C. 13:40A-7.5(b)1 prohibits a licensee, who is also licensed as a real estate licensee or who is employed as an appraiser by a licensed real estate broker, from preparing an appraisal of a property while the licensee is acting in the capacity of the real estate licensee for any party with respect to any transaction involving the property to be appraised. N.J.A.C. 13:40A- 7.5(b)2 forbids a licensee from preparing an appraisal upon a property while the employing broker of the licensee is acting as the real estate licensee for any party with respect to any transaction involving the property to be appraised. Additionally, N.J.A.C. 13:40A-7.5(b)3 prohibits a licensee from preparing an appraisal upon a property while any real estate licensee who is working for the employing broker of the licensee acts as the real estate licensee for any party with respect to such transaction.

Proposed new N.J.A.C. 13:40A-7.5(c) provides that a sale or buy transaction is considered closed at the time the closing is completed and title has passed from the seller to the buyer; a lease transaction is considered closed at the time the lease is fully executed and delivered to the parties or, if there is no written lease, at the time of occupancy of the leased premises by the tenant; a mortgage transaction is considered closed at the time a mortgage document is executed by the mortgagor and delivered to the mortgagee; and an exchange is considered closed at the time the closing has been completed and title has passed between the parties. Therefore, the prohibitions listed in proposed new subsection (b) continue until the transaction closes.

Proposed new N.J.A.C. 13:40A-7.5(d) provides that notwithstanding proposed new subsection (b), a licensee, acting in the capacity of a real estate licensee, is not precluded from giving or offering to give, for a fee or otherwise, counsel and advice on the pricing, listing, selling, renting and use of real property, directly to a property owner or prospective purchaser if the counsel or advice is solely for the individual knowledge of or use by the property owner or prospective purchaser or lessee and not by any third party. Proposed new subsection (d) also requires that when providing such counsel or advice, a licensee, who is acting in the capacity of a real estate licensee, shall disclose, in writing, to the property owner or prospective purchaser or lessee that such counsel and advice is not a "certified appraisal" or a "licensed appraisal." The Division has determined that the comment period for this proposal shall be 60 days; therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, this proposal is excepted from the rulemaking calendar requirement.

Social Impact

Proposed new rule N.J.A.C. 13:40A-7.5 will have a positive impact on the welfare of consumers by precluding licensees from engaging in mixed practice where certain defined transactions can create potential conflicts of interest. The new rule will ensure that the interests of consumers will be protected in real estate transactions where a licensee is both a real estate appraiser and a real estate broker or salesperson. The proposed new rule specifies those transactions which may pose conflicts of interest for real estate appraisers and which must be avoided to ensure that each licensee functions as an impartial and independent professional to further the best interests of the consumer.

Economic Impact

Proposed new rule N.J.A.C. 13:40A-7.5 will have some economic impact upon licensees who engage in mixed practice. The proposed new rule permits the licensee to receive compensation or consideration during a single transaction for either acting in the capacity of a real estate licensee or functioning as a real estate appraiser licensee. Pursuant to the proposed new rule, the real estate appraiser licensee cannot perform an appraisal upon a property and act in the dual capacities of real estate appraiser and broker and/or salesperson, be employed by the broker or work with any salesperson who works for the employing broker. Any negative economic impact associated with the proposed new rule is strongly outweighed by the positive effect of the rule upon the consumer. However, proposed new subsection (d) may have a positive economic impact on licensees because it allows a licensee who is acting in the capacity of a real estate licensee to give or offer to give, for a fee or otherwise, counsel and advice on the pricing, listing, selling, renting and use of real property, directly to a property owner or prospective purchaser if the intended use of the counsel or advice is solely for the individual knowledge of or use by the property owner or prospective purchaser or lessee and not by any third party.

Federal Standards Statement

A Federal standards analysis is not required because the proposed new rule is dictated by State statute and is not subject to Federal requirements or standards.

Jobs Impact

Proposed new rule N.J.A.C. 13:40A-7.5 may impact jobs to the extent that the proposed new rule may limit the number of appraisals a licensee, who is also a real estate licensee or who is employed as an appraiser by a licensed real estate broker, may perform. The restrictions imposed by the new rule will likely have an impact on jobs because a licensee must decide whether to act in the capacity of a real estate appraiser or a broker or salesperson on a particular transaction. However, any negative affect upon a dual licensee is strongly outweighed by the protection the restrictions afford to the public. Agriculture Industry Impact The Board believes this proposed amendment will have no impact upon the agriculture industry in New Jersey.

Regulatory Flexibility Analysis

If, for the purposes of the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. (the Act), any of the approximately 2,830 real estate appraisers licensed by the Board who may engage in mixed practice are deemed "small businesses," then the following analysis applies. The Act requires the Board to set forth the reporting, recordkeeping and other compliance requirements of the proposed new rule, including the kinds of professional services likely to be needed to comply with the requirements. The Act further requires the Board to estimate the initial and annual compliance costs of the rule, to outline the manner in which it has designed the rule to minimize any adverse economic impact upon small businesses and to set forth whether the rule establishes differing compliance requirements for small businesses.

The proposed new rule does not impose reporting or recording requirements upon licensees. It does, however, impose compliance requirements. Proposed new rule N.J.A.C. 13:40A-7.5 imposes compliance requirements since it imposes restrictions upon a licensee who engages in mixed practice in order to avoid possible conflicts of interest. Under the new rule, a real estate appraiser, who is also a real estate licensee or who is employed as an appraiser by a licensed real estate broker, is prohibited from acting in the capacity of the licensed real estate broker or salesperson for any party with respect to any transaction involving the property to be appraised.

The new rule sets forth that a transaction is considered closed when a sale or buy transaction is completed and title has passed from the seller to the buyer; a lease transaction is considered closed at the time the lease is fully executed and delivered to the parties or, if there is no written lease, at the time of occupancy of the leased premises by the tenant; a mortgage transaction is considered closed at the time a mortgage document is executed by the mortgagor and delivered to the mortgagee; and an exchange is considered closed at the time the closing has been completed and title has passed between the parties. Therefore, the new rule requires that licensees comply with its provisions to avoid being involved with prohibited mixed practice. The proposed new rule, however, provides that notwithstanding the prohibition, a licensee may give or offer to give advice about the pricing, listing, selling, renting or use of property to a property owner or prospective purchaser or lessee. Ultimately, any negative impact upon a dual licensee is strongly outweighed by the protection the restrictions afford to the public. In order to ensure that these protections are afforded to all consumers, the Board believes that the proposed new rule must be uniformly applied and has not provided differing compliance requirements for any licensees based on the size of the business.

No additional professional services will be needed to comply with the proposed new rule.

Smart Growth Impact

The Board does not believe that the proposed new rule will have any impact upon the achievement of smart growth or upon the implementation of the State Development and Redevelopment Plan.

Full text of the proposed new rule follows:

<< NJ ADC 13:40A-7.5 >>

13:40A-7.5 << -(Reserved)->> << +Mixed practice; conflict of interest+>>

<< +(a) For the purposes of this section, "real estate licensee" means any natural person licensed as a real estate broker, broker-salesperson or salesperson pursuant to N.J.S.A. 45:15-1 et seq. and "transaction" means the buying, selling, leasing, mortgaging, auctioning or exchanging of real estate.+>>

<< +(b) A real estate appraiser, who is also a real estate licensee or who is employed as an appraiser by a licensed real estate broker, shall not prepare an appraisal upon a property while:+>>

<< +1. The real estate appraiser also is acting in the capacity of a real estate licensee for any party with respect to any transaction involving the property to be appraised;+>>

<< +2. The employing broker of the real estate appraiser is acting as a real estate licensee for any party with respect to any transaction involving the property to be appraised; or+>>

<< +3. Any real estate licensee who is working for the employing broker of the real estate appraiser acts as a real estate licensee for any party with respect to such transaction.+>>

<< +(c) The prohibitions listed in (b) above shall continue until the transaction closes.+>>

<< +1. A sale or buy transaction is considered closed at the time the closing has been completed and title has passed from the seller to the buyer;+>>

<< +2. A lease transaction is considered closed at the time the lease is fully executed and delivered to the parties or, if there is no written lease, at the time of occupancy of the leased premises by the tenant;+>>

<< +3. A mortgage transaction is considered closed at the time a mortgage document is executed by the mortgagor and delivered to the mortgagee; and+>> << +4. An exchange is considered closed at the time the closing has been completed and title has passed between the parties.+>>

<< +(d) Notwithstanding (b) above, this section shall not be construed to preclude a real estate appraiser who is also a real estate licensee, acting in the capacity of a real estate licensee, from giving or offering to give, for a fee or otherwise, counsel and advice on the pricing, listing, selling, renting and use of real property, directly to a property owner or prospective purchaser if the intended use of the counsel or advice is solely for the individual knowledge of or use by the property owner or prospective purchaser or lessee and not by any third party. When providing such counsel or advice, the licensed real estate appraiser, acting in the capacity of a real estate licensee, shall disclose, in writing, to the property owner or prospective purchaser or lessee that such counsel and advice is not a "certified appraisal" or a "licensed appraisal."+>>

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Posted October 7, 2002