In the 2022 Session, the 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.
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Without a broker to supervise, a firm’s license is no longer valid. Without a valid firm license, all of the agents’ licenses are also no longer valid.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.
Currently, if a sole proprietor or sole broker at a firm dies or becomes disabled and unable to manage the firm, the VREB must appoint someone from a list of five categories of individuals to wrap up the business over the following 180 days. VREB must go down that list in order, and it is not until the fifth category of individuals that a real estate licensee affiliated with the firm is able to be appointed.
To ensure 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, 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.
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.
Some of the questions we have received through the Legal Hotline:
1. 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.
2. 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.
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. 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.
5. 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.
6. 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.
7. By when do I have to designate another broker? The letter says December 31st.
The law requires that you designate another broker at the time of license application – this means that you must designate another broker no later than when you renew your license. We encourage you to do the designation as soon as possible as part of your business continuity planning.
8. Does the designated broker have to be a principal broker, or can it be an associate broker?
The statute specifies a licensed broker, so any licensed broker can be designated.