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In recognition of this need, a large number of States (25, I believe) have enacted quite similar laws providing for the licensing of real-estate brokers and salesmen. These States include Alabama, Arizona, California, Delaware, Illinois, Iowa, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin. The District of Columbia, however, does not have any law which particularly inhibits fraudulent real-estate transactions, or which sets up any definite standard to be exercised in licensing real-estate brokers or salesmen. The District does collect a $50 annual license fee from real-estate brokers.

A number of complaints have been made to the Members of the Senate and members of the subcommittee, based on the alleged misleading or fraudulent conduct of real-estate brokers and salesmen or persons engaged in the business of loaning money on real estate. The Washington Real Estate Board, an_organization composed of persons engaged in the real-estate business in the District of Columbia, for several years past have urged upon Congress the need for a licensing system similar to that set up in numerous States.

In an article published in the Washington Post, September 22, 1929, Mr. John A. Petty, secretary of the Washington Real Estate Board, made this statement:

"Visions of quick profits, mistaken ideas of requirements and the simple procedure necessary to embark in the real-estate business brings to this field of endeavor many misfits and failures from other walks of life and not infrequently those of questionable reputation.

"No business, perhaps, offers more temptation to slip off the track of honor and straight dealing. In its very nature the real-estate business is such that competency and honesty are absolutely necessary to insure the measure of protection the public has a right to expect and to receive.

"To the average layman customs and procedure in real-estate practice are little known. Many phases in the purchase, sales, or renting of real estate, are involved and complicated. One seeking or requiring service in such matters frequently is entirely dependent on the advice and guidance of a real-estate man in protecting his rights and safeguarding his interests. In addition to acquiring advantages one entering a real-estate transaction almost always assumes definite obligations. Thus the matter is of vital personal importance and the interested party is entitled to a reasonable measure of assurance that those who engage to advise and direct him have some accountability for their act.'

It is hardly possible to pick up any volume of reports of decisions of the various courts throughout the country without finding ample evidence of the need for legislation to protect the public from the operation of negligent, ignorant, or dishonest real-estate brokers and salesmen. It is not unreasonable to assume that persons who have been disqualified as real-estate agents or brokers in States having protective laws have established themselves in the District of Columbia and other places where no examination as to character or competency is provided.

In the District of Columbia, a previous investigation by the Senate District Committee has shown very clearly the need for legislation to protect the public from dishonest practiecs of some of those engaged in the real-estate business. No further investigation along this line has been made, other than a study of the complaints made by various individuals who have written to or otherwsie communicated with the subcommittee, particularly in view of the fact that the realestate organization previously referred to, not only has mentioned but specifically called attention to the evils existing in the conduct of the real-estate busimess in the District of Columbia.

Furthermore, the United States attorney for the District of Columbia, Hon. Leo A. Rover, wrote to the chairman of the Senate District Committee on October 3, 1929, as follows:

"A short while ago, at the request of the Washington Real Estate Board, I studied the provisions of Senate bill No. 1716, providing for a real estate license law in this District and pursuant to the request of the board, to express my opinion as favorable to the enactment of this legislation.

"At their request I am writing to say that I believe this legislation would be a further protection for the residents of this city and would have a tendency to further control unscrupulous real-estate salesmen.

"Anything you are able to do in causing this bill to be enacted into law will be very much appreciated."

regulating real estate men.

Altogether there are about 25 States that have such laws and all the laws are quite similar in those States, and they all follow the general lines of this bill.

In some States the administration of the bill was placed under a State official; that is, the Secretary of State in New York, and in Pennsylvania; also, I believe, the Secretary of State acts as the commissioner in charge of the licensing.

In Wisconsin, however, and in some of the other States they have a real-estate commission, and I have followed that plan here. But in general this follows the line of the laws in all the other States, and there is no departure of consequence from it.

Senator BLAINE. Wisconsin has a separate real estate board.
Mr. BRINKMAN. Yes.

Senator BLAINE. There is an organization which is officially known as the Commissioners on Uniform State Laws. Did you take the matter up with them or study their proposal?

Mr. BRINKMAN. They have no proposal on this so far as I can discover. They have not drafted anything of this kind.

Senator BLAINE. I see.

Mr. BRINKMAN. The National Association of Real Estate Boards has gone over this bill, I think, and has no objection to it, so far as as I know.

It is along the general lines of the legislation they have favored. The bill, however, differs from the previous bill, introduced by Senator Capper, in that it eliminates the possibility of any real estate trust or monopoly here. That is, it provides that anyone who is competent and honest can be licensed, and there can be no charge that there is an undue limitation to license in the interest of those who are in the business.

The hearings on any application are open, and a record is made, and there can be no refusal of a license unless there is good ground to refuse it, on the ground of fraudulent conduct or action.

Senator BLAINE. Now, in connection with Mr. Brinkman's statement I might suggest that Mr. Brinkman made a report to the subcommittee on the bill, and I will ask that that be incorporated in the record.

REPORT TO THE SUBCOMMITTEE ON INSURANCE AND BANKS OF THE DISTRICT OF COLUMBIA COMMITTEE, UNITED STATES SENATE, WITH RELATION TO THE MATTERS AND THINGS CONTAINED IN SENATE RESOLUTION 58, SEVENTY-FIRST CONGRESS-SECTION II

REGULATING REAL-ESTATE DEALERS AND TRANSACTIONS

Hon. JOHN J. BLAINE,

Chairman Subcommittee on Insurance and Banks,

District of Columbia Committee, United States Senate. DEAR MR. CHAIRMAN: I have the honor to submit the following as the second section of my report on the work assigned to me by you in connection with Senate Resolution 58, Seventy-first Congress, first session, this section of the report dealing with that part of the resolution reading as follows:

"(b) No law prohibiting unethical, unfair, and unscrupulous real-estate and finance operators.'

For a number of years there has been generally recognized throughout the United States the need of legislation to protect the general public from loss or injury resulting from the incompetence, misrepresentation, fraud, or unprincipled conduct of a considerable number of persons engaged in what is generally termed the real-estate business.

In recognition of this need, a large number of States (25, I believe) have enacted quite similar laws providing for the licensing of real-estate brokers and salesmen. These States include Alabama, Arizona, California, Delaware, Illinois, Iowa, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin. The District of Columbia, however, does not have any law which particularly inhibits fraudulent real-estate transactions, or which sets up any definite standard to be exercised in licensing real-estate brokers or salesmen. The District does collect a $50 annual license fee from real-estate brokers.

A number of complaints have been made to the Members of the Senate and members of the subcommittee, based on the alleged misleading or fraudulent conduct of real-estate brokers and salesmen or persons engaged in the business of loaning money on real estate. The Washington Real Estate Board, an_organization composed of persons engaged in the real-estate business in the District of Columbia, for several years past have urged upon Congress the need for a licensing system similar to that set up in numerous States.

In an article published in the Washington Post, September 22, 1929, Mr. John A. Petty, secretary of the Washington Real Estate Board, made this statement:

"Visions of quick profits, mistaken ideas of requirements and the simple procedure necessary to embark in the real-estate business brings to this field of endeavor many misfits and failures from other walks of life and not infrequently those of questionable reputation.

"No business, perhaps, offers more temptation to slip off the track of honor and straight dealing. In its very nature the real-estate business is such that competency and honesty are absolutely necessary to insure the measure of protection the public has a right to expect and to receive.

"To the average layman customs and procedure in real-estate practice are little known. Many phases in the purchase, sales, or renting of real estate, are involved and complicated. One seeking or requiring service in such matters frequently is entirely dependent on the advice and guidance of a real-estate man in protecting his rights and safeguarding his interests. In addition to acquiring advantages one entering a real-estate transaction almost always assumes definite obligations. Thus the matter is of vital personal importance and the interested party is entitled to a reasonable measure of assurance that those who engage to advise and direct him have some accountability for their act.

It is hardly possible to pick up any volume of reports of decisions of the various courts throughout the country without finding ample evidence of the need for legislation to protect the public from the operation of negligent, ignorant, or dishonest real-estate brokers and salesmen. It is not unreasonable to assume that persons who have been disqualified as real-estate agents or brokers in States having protective laws have established themselves in the District of Columbia and other places where no examination as to character or competency is provided.

No

In the District of Columbia, a previous investigation by the Senate District Committee has shown very clearly the need for legislation to protect the public from dishonest practiecs of some of those engaged in the real-estate business. further investigation along this line has been made, other than a study of the complaints made by various individuals who have written to or otherwsie communicated with the subcommittee, particularly in view of the fact that the realestate organization previously referred to, not only has mentioned but specifically called attention to the evils existing in the conduct of the real-estate busimess in the District of Columbia.

Furthermore, the United States attorney for the District of Columbia, Hon. Leo A. Rover, wrote to the chairman of the Senate District Committee on October 3, 1929, as follows:

"A short while ago, at the request of the Washington Real Estate Board, I studied the provisions of Senate bill No. 1716, providing for a real estate license law in this District and pursuant to the request of the board, to express my opinion as favorable to the enactment of this legislation.

"At their request I am writing to say that I believe this legislation would be a further protection for the residents of this city and would have a tendency to further control unscrupulous real-estate salesmen.

"Anything you are able to do in causing this bill to be enacted into law will be very much appreciated.'

The bill referred to, drafted by the real-estate organization, and introduced at their request, is generally similar to the laws now in force in many States, as previously mentioned.

In some respects, howevver, the bill differs from laws which have been in successful operation. Furthermore, the bill is technically or legally defective in some respects.

I have deemed it advisable, therefore, to draft another bill, a copy of which is attached to and made a part of this report. The bill drafted is in its general purposes and principles the same as the bill presented by the local real-estate organization and similar to the laws effective in the various States. However, changes have been necessary to bring the bill into accord with the peculiar form of government of the District of Columbia, and to meet specific conditions which have been shown to prevail here detrimental to the public interest.

The basic principle of all the State laws I have examined, the bill sponsored by the local real estate organization, and the bill I have drafted, is the regulation in the public interest of real-estate brokers and real-estate salesmen by a licensing system, with provision for withholding or revocation of licenses upon proof of dishonest or fraudulent conduct, with the right of appeal to the court. In some States provision is made for a test of the competency of the applicant for a license to handle transactions involving other peoples' property and money.

For the convenience of the subcommittee in comparing the bill I have drafted with that sponsored by the local real estate organization (S. 1716) I now detail the principal changes and differences.

S. 1716 made the act effective July 1, 1930. There can be no certainty, of course, when the bill shall pass Congress and be approved by the President; furthermore, the inclusion of a specific date may not give the real estate commission set up by the bill sufficient time to prepare rules, regulations, forms, etc. Furthermore, it is not to be expected that the commission can begin to issue licenses the very day the act takes effect; and, under the bill as drawn, there would necessarily be many technical violations of the law before the commission could begin to function, such violation resulting in loss of compensation under the last paragraph on page 14 of the bill as drafted by the real estate organization.

In the draft bill the acts prohibited are made unlawful 60 days from the date of approval of the act. Under the bill, as I have drafted it, the real estate commission must be appointed within 30 days after approval of the act, and therefore it will have a period of at least 30 days in which to organize, issue the original licenses, etc.

The bill, S. 1716, section 2 defines the term real-estate broker and real-estate salesman and excepted from the provisions of the act persons, firms, corporations, etc., who sold, rented, leased property, when such property was owned by the person performing the act, or the person was acting under power of attorney from the owner.

I believe that these exceptions would have largely destroyed the value of the act. There are many firms and corporations owning houses, apartments, and other real estate in the District of Columbia, who employ a sales manager and a staff of salesmen or rental agents, and who would have been exempted by the provisions of S. 1716. Such employees of the owner, not being under license, could make false representation, or do any of the other things prohibited by the law, without fear of prosecution or the loss of license. Furthermore, the "power of attorney" clause would have afforded a loophole for evasion of the law.

To overcome these defects, I have used in the draft bill the definition of realestate broker and salesman found in the New York State law and which has withstood tests in the courts.

Similarly, there have been incorporated in the draft bill the exemption of the New York law, so that the provisions of the bill will not apply to receivers, referees, administrators, executors, guardians, or other persons appointed by or acting under the judgment or order of any court, or public officers while performing their official duties, or attorneys at law in the ordinary course of their practice. An added exemption has also been made for trustees and auctioneers disposing of property under power of sale contained in a mortgage or deed of trust.

The result is that any ordinary owner of real estate may sell or offer it for sale, or rent, lease, or exchange; but if he employs others to do those things for him, such others must be licensed as real-estate brokers or salesmen. A builder, for instance, who owns a number of houses can secure a broker's license for his sales manager and salesmen's license for those in subordinate selling positions.

ADMINISTRATION OF ACT

S. 1716 places administration in a real-estate commission consisting of three persons appointed by the Commissioners of the District of Columbia "whose vocation for a period of at least 10 years prior to the date of their appointment shall have been that of a real-estate broker or a real-estate salesman within the District of Columiba.

In a number of States, administration is placed in existing State departments, not composed of real-estate men; while other States have provisions similar to that quoted.

Because there is, without doubt, a feeling of distrust in the minds of many people in the District of Columbia concerning the local real-estate dealers' organization which has often been denominated as a "real-estate trust" and a feeling even in some official circles that the act might be used to limit competition, changes of importance have been made in the draft bill as to the personnel of the commission.

The draft bill provides that not more than two of the three commissioners "shall have been actively engaged in or closely connected with the business or vocation of real-estate brokers or real-estate salesmen within five years prior to the enactment of this act."

The result is that there will be at least one "lay" member of the board, and, in addition, the District assessor will serve as a member of the board, ex officio, and without additional compensation. Furthermore, I have included in the draft bill this provision: "The Commissioners of the District of Columbia may remove members of the real-estate commission at any time, for cause." was no such provision in S. 1716.

There

S. 1716 provided that "each member of the commission shall receive as full compensation for each day actually spent on the work of said commission the sum of $10."

This, of course, provided no limitation, practically, on the compensation. Each member of the commission might have spent 365 days a year on its work, or might have been required to spend an entire day on the work before being entitled to compensation to the amount of $10.

If men of ability are to serve on the board without too great a sacrifice they should be paid more than $10 a day. The draft bill provides that each member shall receive as full compensation for each day the greater part of which is actually devoted to work of said commission, the sum of $15; but no member shall receive in any one year a greater sum than $2,000. If each of the commissioners devotes two full days a week to the work of the commission, his compensation in a year's time will not exceed the limitation imposed. The work of the commission should not require more than two or three days a week, and perhaps, one full day a week will suffice, inasmuch as the secretary of the commission will handle details and a clerical staff is also provided.

Instead of giving the commission authority to obtain office space, furniture, etc., as provided in S. 1716, the District Commissioners are required to furnish what is necessary.

S. 1716 provided that all expenses incurred by the commission shall be paid out of the funds created by license fees and charges and "that the total expenses for every purpose incurred shall not exceed the total fees and charges collected." This is believed to be an unwise provision, as it makes the work of the commission more or less dependent upon the sufficiency of the fees received. The work of the commission might be seriously hampered by such a provision. The draft bill, therefore, makes available for the needs of the commission the fund created by collection of fees and also such additional appropriation as may be made by Congress.

LICENSES

Section 4 of S. 1716 provided that no license as a real-estate broker or salesman should be issued to a person who can not read or write or can not understand the English language, nor until the applicant has given proof that he is "trust-worthy and competent" in such a manner as to safeguard the interest of the public.

This provision has been retained in the draft bill with the addition of a requirement in the Wisconsin and New York laws as follows:

"In determining competency, the commission shall require proof that the applicant for a broker's license has a fair understanding of the general purpose

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