December 2nd, 2024 at 1:30 pm
Multiple Choice Question: Can a salesperson charge a buyer with an advance fee as described above? Pick the best answer:
A. Yes.
B. Yes, if, among other requirements, the salesperson submits the advance fee agreement to the Department of Real Estate for approval.
C. Yes, if, among other requirements, the advance fee is placed in the salesperson’s trust account.
D. No, an advance fee is illegal.
Answer: Answer A is the best answer, but merely as an attempt to pique your interest for educational purposes only. In our day-to-day practice, advance fees are usually a lot more trouble than they are worth, as further discussed below.
Answer B is wrong. One of the requirements for advance fees is for the broker, not salesperson, to submit the advance fee agreement and other materials to the DRE for approval. The advance fee agreement must specify the service to be provided, as well as comply with many other requirements. For additional details, see C.A.R.’s Advance Fee Agreements Q&A (password-protected for C.A.R. members only).
Answer C is wrong. An advance fee must be placed in the broker’s trust account, not salesperson’s trust account. The funds must also be refundable to the client to the extent they are not expended for the services specified in the agreement (with special rules for loan modifications and short sales). The broker must also provide the client with verified accountings of the funds, as specified by law. See the above-mentioned C.A.R. Q&A for more information.
Answer D is wrong. Advance fees are not illegal. However, we cannot tell from the Fact Pattern whether the other brokerage charging advance fees is actually complying with all the onerous DRE requirements.
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