Title of Regulation: 18VAC135-20. Virginia Real Estate Board Licensing Regulations (amending 18VAC135-20-80, 18VAC135-20-120, 18VAC135-20-140, 18VAC135-20-370).

Statutory Authority: §§ 54.1-201 and 54.1-2105 of the Code of Virginia.

Public Hearing Information:

January 3, 2024 - 10 a.m. - Department of Professional and Occupational Regulation, Perimeter Center, 2nd Floor Conference Room, 9960 Mayland Drive, Richmond, Virginia 23233.

Public Comment Deadline: February 2, 2024.

Agency Contact: Anika Coleman, Executive Director, Real Estate Board, 9960 Mayland Drive, Suite 400, Richmond, VA 23233, telephone (804) 367-8552, FAX (866) 826-8863, or email reboard@dpor.virginia.gov.

Basis: Section 54.1- 2105 of the Code of Virginia enumerates the legal authority for the Real Estate Board to administer the licensure program for real estate licensees. Further, § 54.1-113 of the Code of Virginia requires all regulatory boards of the Department of Professional and Occupational Regulation to establish fees adequate to support the costs of the board's operations and a proportionate share of the department's operations.

Purpose: The board must establish fees adequate to support the costs of the board operations and a proportionate share of the department's operations. Current fees do not provide adequate revenue for those costs. The Department of Professional and Occupational Regulation (DPOR) is funded entirely from revenue collected for license applications, renewal, examination fees, and other licensing fees and receives no general fund money. DPOR is self-supporting and must collect adequate revenue to support its mandated and approved activities and operations, which include the board's primary mission to protect the safety and welfare of the citizens of the Commonwealth by prescribing requirements for minimal competencies, by prescribing standards of conduct and practice. and by imposing penalties for not complying with the regulations. Fee revenue collected on behalf of the various boards funds the department's authorized special revenue appropriation. The board has no other source of revenue from which to fund its operations.

Substance: The proposed amendments raise board fees based on projected revenues and expenses to meet the requirements of the applicable statutes while being the least burdensome to the regulant population.

Issues: The advantage of this amendment to the public is that the board will continue to be financially solvent. There are no disadvantages to the public or the Commonwealth in raising the board's fees as proposed.

Department of Planning and Budget's Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia (Code) and Executive Order 19. The analysis presented represents DPB's best estimate of these economic impacts.¹

Summary of the Proposed Amendments to Regulation. The Real Estate Board (board) proposes to increase the license application and renewal fees charged to brokers and salespersons, firms, branch offices, business entities, schools, and instructors so that projected revenues are sufficient to cover projected expenditures.

Background. Section 54.1-2105 of the Code of Virginia provides for licensure requirements for real estate brokers and salespersons and § 54.1-2106.1 of the Code of Virginia requires real estate firm licenses, business entity salesperson's licenses, and branch office licenses.² In addition, § 54.1-2105.02 authorizes of the Code of Virginia the board to regulate real estate schools and instructors, and requires board regulations to include a procedure for processing applications of educational institutions, real estate professional associations, or related entities, to provide continuing education courses.

In general, § 54.1-201 A 4 of the Code of Virginia imposes a duty on professional boards to "levy and collect fees for certification or licensure and renewal that are sufficient to cover all expenses for the administration and operation of the regulatory board and a proportional share of the expenses of the Department of Professional and Occupational Regulation (DPOR)." In addition, § 54.1-113 of the Code of Virginia, known as the Callahan Act, newly requires DPOR boards to distribute excess revenue to current regulants and reduce the fees when "unspent and unencumbered revenue exceeds $100,000 or 20% of the total expenses allocated to the regulatory board for the past biennium, whichever is greater."³ The Callahan Act previously required DPOR boards, as well as those administered by the Department of Health Professions, to adjust fees in situations in which "expenses allocated to [the board] for the past biennium [are] more than ten percent greater or less than money collected on behalf of the board."

Lastly the Appropriation Act was amended in 2019 to require DPOR to hold funds in reserve to "offset the anticipated, future costs of restructuring its organization, including additional staffing needs and the replacement or upgrade of the Department's information technology systems requirements." The most recent version of this language appears in Item 369 of the 2022 Appropriation Act.⁴

DPOR reports that the board last increased fees in 2004 to comply with the Callahan Act requirements.⁵ DPOR reports that all costs have increased in the interim, and that the number of licenses issued by this board fluctuates significantly in response to economic conditions in general and to real estate market conditions in particular.⁶ DPOR also noted that expenses have consistently exceeded revenue since 2012. Based on DPOR's projections for board revenues and expenditures at the current fee levels, the board indicates that its fees are no longer sufficient to cover expenses in accordance with applicable statute.

The proposed fee increases are expected to increase the board's revenues by approximately $1,700,000 per year.⁷ The fee changes are summarized in the following table:

Estimated Benefits and Costs. DPOR reports that the Board had a balance of $1,956,311 at the end of the 2020-2022 biennium.⁸ If fees remain unchanged, the board's balance is projected to be -$127,000 (a deficit) at the end of the current biennium (2022-2024) and -$2,996,000 at the end of the following biennium (2024-2026). DPOR projections indicate that the fee increases would bring in an additional $1.7 million in annual revenue, and the board anticipates that the new fees would become effective in fiscal year 2024.⁹

The proposed changes would increase fees for real estate brokers, salespersons, and instructors, as well as firms, business entities, branch offices, and proprietary schools. Thus, individuals and businesses that are currently licensed, as well as individuals and businesses who seek licensure in the future, would incur additional costs. As detailed, individuals and businesses would face fees that would be 16% to 64% higher than they currently are.

Businesses and Other Entities Affected. DPOR reports that as of July 1, 2022, there were 11,400 brokers, 54,795 salespersons, 6,015 firms, 787 branches, 4,193 business entities, 210 proprietary schools, and 497 instructors, amounting to a total of 77,897 licensees.¹⁰ The proposed amendments would also affect new applicants for these professional designations. DPOR did not provide estimates for the number of new individuals and businesses seeking licensure each year, but noted that the number of licensees fluctuates significantly from year to year, and is sensitive to the overall volume of real estate activity taking place.

The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.¹¹ An adverse impact is indicated if there is any increase in net cost or reduction in net revenue for any entity, even if the benefits exceed the costs for all entities combined. Because the proposal raises fees, an adverse impact is indicated.

Small Businesses¹² Affected.¹³

Types and Estimated Number of Small Businesses Affected. DPOR reports that most of the 6,015 firms and 4,193 business entities mentioned above are considered small businesses and would be affected by the higher fees. However, the Board does not collect information regarding the size of firms or business entities, and does not charge different fees to those that are small businesses and those that are not.

Costs and Other Effects. Firms and business entities that are small businesses would face increased application, renewal, and reinstatement fees, as detailed in the table.

Alternative Method that Minimizes Adverse Impact. If the board collected information on the size of the firm or business entity at the time of license application and renewal, they could charge different fees accordingly. This scenario may minimize adverse impact on small businesses, but larger businesses would have to pay higher fees to make up the difference, so that the board still receives adequate revenues. On the whole, the board cannot increase its revenues without increasing fees.

Localities¹⁴ Affected.¹⁵ Localities would not be directly affected by the proposed fee increases and local governments would not incur new costs.

Projected Impact on Employment. As mentioned previously, employment as a real estate broker or salesperson is largely driven by the level of activity in the real estate market. Considering the relatively robust real estate market in Virginia in the 2020-2022 biennium, the proposed fee increases are unlikely to impact employment.

Effects on the Use and Value of Private Property. Real estate firms, business entities, and schools are all privately owned and would face increased costs due to the higher fees. However, the potential increase in cost would not likely be large enough to substantively affect the actions and value of these private businesses. The proposed amendments do not affect real estate development costs as the fee increases are too small relative to overall real estate development costs to significantly impact builders' or developers' incentives.

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¹ Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

² Firm licenses are for limited liability corporations, partnerships, and associations. A firm license requires every managing member or officer of a corporation who participates in the firm's brokerage business to have an active broker's license and for every employee or contractor who acts as a salesperson to hold a salesperson's or broker's license. There is no separate license for sole proprietorships as long as the proprietor holds a broker's license and does not operate the business under a fictitious name. Real estate teams, consisting of licensed brokers and/or salespersons, must obtain a business entity salesperson's license. Branch office licenses are required if any principal broker maintains more than one place of business.

³ See https://law.lis.virginia.gov/vacode/title54.1/chapter1/section54.1-113/ for the full requirements of the Act. The new requirements regarding unspent revenue took effect on July 1, 2022; these changes were made by Chapters 517 and 697 of the 2019 Acts of Assembly.

⁴ See https://budget.lis.virginia.gov/item/2022/2/HB30/Chapter/1/369/. Under Item 4-13.00 of the Appropriation Act, "the provisions of this act shall prevail over any conflicting provision of any other law, without regard to whether such other law is enacted before or after this act." Consequently, if a situation were to arise where the Appropriation Act conflicted with the new provisions of the Callahan Act, the language in the Appropriation Act would apply.

⁵ See https://townhall.virginia.gov/l/ViewAction.cfm?actionid=1172.

⁶ Email from DPOR dated August 26, 2022. DPOR noted that there were around 80,000 licensees in 2008 and only around 62,000 licensees in 2012.

⁷ Agency Background Document (ABD), page 6. See https://townhall.virginia.gov/l/ GetFile.cfm?File=91\5711\9705\AgencyStatement_DPOR_9705_v1.pdf.

⁸ Email from DPOR dated August 26, 2022.

⁹ Based on the projected deficits, this increase would not be sufficient to trigger the new Callahan Act requirements to reduce fees or redistribute revenues to regulants.

¹⁰ ABD, page 6.

¹¹ Pursuant to Code § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

¹² Pursuant to § 2.2-4007.04, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

¹³ If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

¹⁴ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

¹⁵ Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to Economic Impact Analysis: The Real Estate Board concurs with the economic impact analysis prepared by the Department of Planning and Budget.

Summary:

The proposed amendments adjust license application, renewal, and reinstatement fees for real estate licenses and certificates to conform with the requirements of § 54.1-113 of the Code of Virginia.

18VAC135-20-80. Application fees.

A. All application fees for licenses are nonrefundable and the date of receipt by the board or its agent is the date that will be used to determine whether it is on time.

B. Application fees are as follows:

C. The fee for examination or reexamination is subject to contracted charges to the board by an outside vendor. These contracts are competitively negotiated and bargained for in compliance with the Virginia Public Procurement Act (§ 2.2-4300 et seq. of the Code of Virginia). Fees may be adjusted and charged to the candidate in accordance with these contracts.

18VAC135-20-120. Fees for renewal.

A. All fees for renewals are nonrefundable, and the date of receipt by the board or its agent is the date that will be used to determine whether it is on time.

B. Renewal fees are as follows:

18VAC135-20-140. Failure to renew; reinstatement required.

A. All applicants for reinstatement must meet all requirements set forth in 18VAC135-20-101. Applicants for reinstatement who want to activate their license must have completed the continuing education requirement in order to reinstate and activate the license. Applicants for reinstatement of an inactive license are not required to complete the continuing education requirement for license reinstatement.

B. If the requirements for renewal of a license, including receipt of the fee by the board, are not completed by the licensee within 30 days of the expiration date noted on the license, a reinstatement fee is required as follows:

C. A license may be reinstated for up to one year following the expiration date with payment of the reinstatement fee. After one year, the license may not be reinstated under any circumstances and the applicant must meet all current educational and examination requirements and apply as a new applicant.

D. A licensee may not perform activities defined in §§ 54.1-2100 and 54.1-2101 of the Code of Virginia with an expired license. Any real estate activity conducted subsequent to the expiration date may constitute unlicensed activity and be subject to prosecution under Chapter 1 (§ 54.1-100 et seq.) of Title 54.1 of the Code of Virginia.

18VAC135-20-370. Fees.

A. The application fee for an original certificate for a proprietary school shall be $190 $220.

B. The renewal fee for proprietary school certificates expiring every two years from the last day of the month in which they were issued shall be $90 $145.

C. If the requirements for renewal of a proprietary school certificate, including receipt of the fee by the board, are not completed within 30 days of the expiration date noted on the certificate, a reinstatement fee of $135 $220 is required. A certificate may be reinstated for up to one year following the expiration date with payment of the reinstatement fee. After one year, the certificate may not be reinstated under any circumstances and the applicant must meet all requirements and apply as a new applicant. If the renewal requirements are not completed within 30 days of the expiration date noted on the proprietary school approval, the proprietary school shall no longer offer board-approved courses.

D. The application for an original prelicense education instructor certificate shall be $190 $220.

E. The renewal fee for a prelicense instructor certificate expiring every two years from the last day of the month in which it was issued shall be $75 $120.

F. If the requirements for renewal of an instructor certificate, including receipt of the fee by the board, are not completed within 30 days of the expiration date on the certificate, a reinstatement fee of $110 $180 is required. A certificate may be reinstated for up to one year following the expiration date with payment of the reinstatement fee. After one year, the certificate may not be reinstated under any circumstances and the applicant must meet all requirements and apply as a new applicant.

G. The board in its discretion may deny renewal of a certificate for the same reasons it may deny initial approval.