Alabama Appendix. In addition to formal applications this includes invoices for lists, copy fees and Commission Orders.

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1 Alabama Appendix A-1. Receipt of Funds Policy Revision November 7, 2003 Authority: (b)(1)(2)(c)(e)... on a form prescribed by the Commission, (g) The Commission shall prescribe a form, which shall accompany renewal fees (b)(1)(2)(c)(e) (b-e) Rules 790-x-.10(1) and 790-X-1-.12(1). Rule 790-X-1-.01(2) which states "All applications and reuests for which the Commission has prescribed the form must be made on the prescribed form, copies of which may be obtained from the Alabama Real Estate Commission, 1201 Carmichael Way, Montgomery, AL and/or the Commission's Web site at POLICY: It shall be the policy that all fees must be accompanied by the appropriate corresponding application or form for which the fees are being submitted. The amount of the fees must be exact as set out in the statute and as reflected on the most recently revised prescribed application or invoice form. Failure to comply in either case will result in the check or application / form being returned. The return will contain information regarding the specific nature of the deficiency and provide 10 business days from the date of return for receipt of the transaction to accommodate any crossed deadlines. Rationale: The application and forms instruct applicants and licensees regarding the fee amounts. Likewise, commission staff is instructed as to the disposition of the funds remitted and the intended purpose. Failure to follow the above policy places staff in a position of not knowing the proper identity of the funds for whom they have been remitted and often for the purpose as well. Implementation and adherence to the above policy will better enable the commission to comply with the funds receipt deposit system established in conjunction with the Examiners of Public Accounts. In addition to formal applications this includes invoices for lists, copy fees and Commission Orders. A-2. Audit Checklist - Real Estate Licenses - R.E.C.A.D. Office Policy (*Acknowledgement of policy signed by all licensees) - Location of closted contracts for past three (3) years - All pending sales files - Location of all lease contracts, management agreements and rental records - Copies of past six (6) months bank statements with cancled checks for all escrow accounts - Copies of latest bank reconciliation performed on all escrow accounts, if available - Checkbook and or computer check register for all escrow accounts

2 - Duplicate deposit tickets with validated bank receipt for all escrow accounts - Any lists or ledgers documenting the funds held for escrow purposes Note: "Escrow Funds" include sales binders, security deposits, rent receipts and or any other funds held for members of the public. A-3. Office Inspection Suggestions / Rental Property Bookkeeping Suggestions Office Inspection Suggestions 1. Balance escrow account checkbook as soon as possible after the receipt of each statement 2. Tape canceled checks back into the checkbook adjacent to the stub so you will have a complete record of the check and not have to search statement envelopes for the check in question. 3. Prepare for a continuous list of pending contracts with the amount of earnest money involved. Mark off each transaction as it closes, the money is refunded, or it is forfeited by purchaser or seller. 4. If the bank imposes a service charge, the charge should be deducted from the account before the remainder of the commission is removed to prevent overdraft charges. The Commission has ruled that additional designated funds may by deposited into the account to cover bad checks, service charges, etc. 5. Keep all pending contracts separate from closed contracts. 6. Maintain a separate escrow account for rental or leased property to distinguish it from sales contracts which do not have repairs, owner's payments, etc. 7. Keep written receipts for all funds received, whether by cash or check, as a means of internal control. Rental Property Bookkeeping Suggestions - Maintain at least three separate accoutns to track funds received and disbursed. 1) security deposits. 2) rent receipts; and 3) company operating funds. The first two accounts are to contain no funds other than those for which they are designated - A security deposit is to remain in the appropriate account for as long as there is no reason to refund it or charge any cost against it - A rental receipt should be deposited the appropriate account before the rental management company takes its commission or fee - Deposit funds promptly, preferably daily, into the proper account(s). Disburse funds promptly when due - Duplicate deposit tickets should be retained in company records to verify deposit dates, amounts and sources of funds

3 - All check stubs should have an explanation of the purpose of that check. Checkbooks should be balanced regularly with dated deposits noted on the check stubs - Any interest earned should be transferred to the general account, as it is earned - A list of funds being held for others should be maintained and should be consulted and marked with any changes insuring an accurate knowledge of the amount needed in the trust accounts - Lease files should contain a copy of the management agreement between the company and the owner of the property, copies of the statements to the owners as to records of rent received and disbursed and maintenance bills - Maintain separate cards for each property with the information on security deposits, rent receipts and disbursements to owners, or mortgage payments made on behalf of owners A-4. Advertising Advisory Opinion May 21, (6)... It shall be a violation to publish or cause to be published any advertisement which deceives or which is likely to deceive the public, or which in any manner tends to create a misleading impression or which fails to identify the person causing the advertisement to be placed as a licensed broker or salesperson. Additional reference: Code of Alabama (5), & (15) pages Alabama Real Estate License Law 18th edition - Real estate companies, brokers or salespersons must advertise by using the name in which they are legally licensed to do business - "Team", "Associate" or "Group" advertising can be acceptable and will not result in violations when in compliance as follows: When using a "Team", "Associate" or "Group" name, which is not a legally licensed name, a name of a licensee, in addition to the name of the qualifying broker or company, to which the broker associate(s) or salesperson(s) in the "Team", "Group" or "Association" are licensed, must also be included as they are legally licensed to do business. The appropriate size of letter correlation as required in (15) must also be satisfied. For example, if Sam and Sally Salespersons form "Team S and S Associates" and advertise as such, at least one licensee member of the "Team or Association" must appear and you must make sure your name or company name appears as required by law. Paragraph (6) sets a stringent standard for avoiding even the likelihood of deceiving the public or in ANY manner that would tend to create a misleading impression. Any given ad you place may not be cited in a formal complaint but if a member of the public is misled, this would likely result in a formal complaint being filed against you and your company. A-5. Advisory Trust Account Guidelines

4 (1) The goal of all trust fund records of the Qualifying Broker shall be to identify, individually and collectively, the total amount of all trust funds held for others and where those funds are being held by the Qualifying Broker at the time of a monthly account reconciliation of trust accounts. (a) The Qualifying Broker should reconcile all trust accounts within 30 days of receiving their statement from the financial institution in which trust funds are held. The account must be designated as a "trust account" or "escrow account". (b) The Qualifying Broker, as part of their accounting of trust funds, should once monthly or within 30 days of receiving or disbursing trust funds, withdraw from the trust funds all commissions earned, rental management fees earned, interest earned, and other company or Broker monies that maybe maintained. In any given trust account, the amount in excess of trust monies should not exceed $1,000 above the minimum balance required by the financal institution for the account. (c) One or more continuous and current logs or ledgers, computerized or manual, of all funds held in trust for others should be maintained. The records should be able to identify or reference the name for which the funds are being held along with property identification for which funds are held, the type of funds (i.e.: rents, escrow, earnest, money, security deposits, etc.) and the dollar amount of these funds. In the event escrows, earnest monies or security deposits are held by sellers or landlord, the records should reflect same. (d) The qualifying Broker should not: 1. Use trust or earnest money funds for transaction expenses (i.e.: credit reports, surveys, appraisal fees, repairs, or other transaction expenses) without written consent of all parties to the transaction. 2. Use security deposits during the duration of a tenancy unless authorized by written agreement between the landlord and tenant. 3. At the time of the bank or trust account reconciliation, offset a balance due the Qualifying Broker from a client/customer with funds being held on behalf of another client/customer. The means repair or other items of expense may not be disbursed from the account unless each individual owner has enough funds to cover his or her expense. The general balance in the account cannot be used to make repairs or pay other expenses of any individual owner, unless that owner has funds in the account to cover the expense. If the owner does not have enough funds and a payment is made anyway, the account will have a shortage of funds and this is a violation of the Alabama Real Estate License Law. (e) The funds of a property owner association, when collected, maintained, or disbursed by a licensee of the Commission, are trust funds and should be treated as such. (f) The detail, type and style of the Qualifying Broker's records shall be at the discretion of the Alabama Real Estate Commission, taking into account the broker's size and sophistication as long as adequate funds are available to cover all monies required by the Qualifying Broker to be held in trust for others. A-6. ARELLO Best Practices Internet Guidelines By D. Philip Lasater, Executive Director

5 The following Best Practices guidelines represents a departure from a "negative no you can't police action" angle to a positively stated "this is how you can best comply with real estate regulation" while advertising and conducting business online via the Internet. Real Estate regulators from across North America just recently approved theses cross-jurisdictional guidelines. Alabama Commissioners strongly concur with this approach and encourage understanding and adherence to these guidelines as companies develop their respective online policies for doing business. A very important aspect of these guidelines is that of its cross-jurisdictional nature. Since the Internet is by nature crossjurisdictional, when you comply with these guidelines in Alabama you can have reasonable assurance you are in compliance in any jurisdiction where an online opportunity may lead you. Specifically, "Best Practices" was designed to: - Create a framework of real estate consumer protection against online fraud, misrepresentation and deceptive practices and services from licensed and unlicensed and firms; - Provide regulatory guidelines that each jurisdiction can use to create any specific regulations concerning online real estate activities that it deems necessary, in a manner consistent with the operation and nature of the Internet and that will minimize cross-jurisdictional regulatory conflict, confusion and inefficiencies - Provide standards of online behavior for all licensees and licensed firms that, when followed, will enhance online real estate consumer protection; and - Provide a framework for licensed firms to create their own internet policies and procedures that addresses and enforces appropriate online licensee behavior. An example of Jurisdictional Intent is that a provision for monitoring of service providers who are also known as "relo fishers". Common to their practice is failing to disclose where they are actually located in order to solicit business in an area and to then collect a referral fee. Web sites that engage in this activity imply to consumers they are licensed to do business in an area and they may not be licensed to procure prospects in that jurisdiction. The online experience will continue to generate discussions and instances for clarity and definition. These guidelines will serve well for us all navigating the exciting opportunities that online business brings to licensees and consumers. NOTE: For all the remainder of this article, the term "licensed entity" refers to both licensees and licensed firms. As used in this document, the term: "Active Communication" means the intent of contacting specifically identifiable individuals or groups of individuals. "Active Solicitation" means active communication with consumers about real estate services with intent to form a brokerage relationship. "Advertising" means all forms of representation, promotion and solicitation disseminated in any manner and by any means of communication to consumers for any purpose related to licensed real estate activity.

6 "Jurisdictional Intent" means a reasonable body of evidence which points to intentional activity on the part of a legal entity or individual to perform services or offering to perform services requiring a real estate license in a jurisdiction. "Licensed Firm Disclosure" means advertising or messaging that contains the following information: a. the firm's name as registered with the regulatory agency of the jurisdiction(s) that licensed it to do business (abbreviations not permitted). b. the city and state / province in which the firm's main office is located, and c. the states / provinces in which the firm holds a real estate brokerage license. "Licensee Disclosure" means advertising or messaging that contains the following information: a. the licensee name b. the name of the firm with which the licensee is affiliated as that firm's name is registered with the regulatory agency of the jurisdiction(s) that licensed it to do business (abbreviations not permitted) c. the city state / province in which the licensee's office is located, and d. the states / provinces in which the licensee holds a real estate license. "Messaging" means all forms of communication in any manner and by any means of communication to the public for any purpose, other than advertising, related to licensed real estate activity. "Passive Communication" means communication available to the general public with no intent to contact specifically identifiable individuals or groups of individuals. 1. Jurisdictional Intent Since the Internet is cross jurisdictional in nature, it is important to address the issue of what constitutes online licensable activity from a jurisdictional standpoint. It centers on the concept of "jurisdictional intent". For example, jurisdictional intent may occur when an individual or company uses the Internet to solicit relocation customers in the hopes of referring them to licensed entities, for a fee, in other jurisdictions. Jurisdictional intent probably exists in cases where multiple Web sites are used to attract consumers moving to many different parts of the country. This activity is distinct from the casual referral fee common in the industry when a consumer (whether a visitor to a licensed entity's Web site or not) contacts a licensed entity for a recommendation as to which broker they should use when moving to another area. A. Regulatory "Spirit" of Determining Jurisdiction Any online activity meeting the test of jurisdictional intent is subject to the laws of the jurisdiction(s) in question. B. Jurisdictional "Best Practices"

7 An appropriate license is required for each jurisdiction in which licensable online activity meets the test of jurisdictional intent. 2. Licensee and Licensed Firm Disclosure Licensed entities can use the internet in multiple ways to contact consumers about real estate services and to advertise. More are likely to be invented. "Licensee" and "Licensed Firm" disclosure will help to ensure that online consumers know when they are dealing with licensed entity, who they are, and where their primary business office is located. NOTE: for the rest this section the term "full disclosure" refers to both "licensed firm disclosure" and "licensee disclosure". A. Regulatory "Spirit" of Online Disclosure All Internet related advertising that consumers can view or experience as a separate unit (for example, messages or Web pages) should require full disclosure. At some point during an exchange of direct online messages (of any nature) between consumers and a licensed entity, the licensed entity should make full disclosure in some written form that is understandable and easily available to the recipient prior to providing, or offering to provide, licensable services. The burden of proof of such prior disclosures falls on the licensed entity when addressing a consumer complaint. B. Online Disclosure "Best Practices" a. The Web Whenever a licensed entity owns a Web "page" or controls its content, every viewable page should include (or link to) a full disclosure. (A "viewable page" is one that may or may not scroll beyond the borders of the screen and includes the use of framed pages.) b. , Newsgroups, Discussions Lists, Bulletin Boards Such formats should include a full disclosure at the beginning or end of each message. c. Instant Messages Full disclosure is not necessary in this format if the licensed entity provided the written full disclosures via another format or medium (e.g. or letter) prior to providing, or offering to provide, licenseable services. d. Chat Full disclosure prior to providing, or offering to provide, licensable services during the chat session or in text visible on the same Web page that contains the chat session if the licensed entity controls the Web site hosting the chat session. e. VON (Voice Over Net) Advertising - "audible" full disclosure prior to the advertising message or disclosure text visible on the same web page that contains the VON session (if applicable).

8 Messaging - "audible" full disclosure is not necessary if full written disclosure was provided via another medium (i.e. , letter) prior to providing, or offering to provide, licensable services. f. Multimedia Advertising (e.g. Web based, executable attachments, etc.) Full disclosure should be visible as part of the advertising message. g. Banner Ads Should link to a Web page that has full disclosure, unless the banner ad has said disclosure. 3. Active Solicitation Licensed entities can contact consumers about real estate services in multiple ways on the Internet, any of which could reasonably be considered "active solicitation." A. Regulatory "Spirit" of Online Active Solicitation "Active Solicitation" occurs whenever a licensed entity establishes active online communication with a consumer about real estate services with the intent to form a brokerage relationship. Active online communications methods include , chat, VON, instant messaging, and any other form of contact with specifically identifiable individuals or groups of individuals. Other forms of online communications (such as Web pages, discussion lists, bulletin board, banner ads, and multimedia advertising) are usually not considered "active solicitation" because they are forms of "passive" communication. B. Online Active Solicitation "Best Practices" Jurisdictional active solicitation regulations apply anytime a licensee establishes active online communication with consumers about real estate services with intent to form a brokerage relationship. 4. Listings The primary issue with online listing information centers around currency (i.e. keeping one or more online sources of the same listing information current and consistent), and advertising of other licensed entity s listing information. A. Regulatory Spirit of Listings Advertising Online a. Online listing should be consistent with the property description and actual status of the listing. When a licensed entity controls the online site, material changes to the listing status authorized by seller or property description shall be updated in a timely manner. b. When a third party online listing service (e.g. REALTOR.com or Homeadvisorcom) controls the Web site displaying the listing information, licensed entities to whom the listing belongs should make timely requests (e.g. , online forms, or fax) for updates reflecting material changes to the listing status or property description in a timely manner.

9 c. All listing information should indicate in a readily visible manner the date that the information was last updated. d. Licensed entities should not advertise other licensed entitites listings without written permission, and if given, should not alter the online display or any informational part of the listing without written permission of the listing owner. B. Online Advertising of Listings Best Practices Online listing information is to be consistent with the property description and actual status of the listing. Material changes to the listing status or property description in a timely manner. All online listing information includes readily visible language indicating when the listing information shown was last updated. Written permission should be obtained to display other licensed entities listing information as well as displaying any material changes to the display or nature of said information. The Internet offers tremendous opportunities to streamline, enhance, and create efficiencies in the real estate services arena for both consumers and licensed entities. ARELLO is committed to staying abreast of how the Internet can impact the real estate industry today, as well as tomorrow. These "best practices" guidelines will be modified from time to time to reflect the rapid evolution of the Net. This is so we can continue to provide jurisdictions with guidelines to adequately protect online consumers and avoid encumbering licensed firms and individuals with unnecessary, burdensome, and inconsistent regulatory constraints.