Digital advertising: A compliance hot spot for brokers
While a real estate broker must manage and oversee myriad areas of compliance, there is definitely one “hot spot” lurking amongst them that will quickly garner the attention of the California Department of Real Estate (DRE). That hot spot is digital advertising. A broker’s digital advertisements are out there, everywhere, and can be quickly viewed and analyzed by the DRE at any time.
Digital marketing refers to advertising materials that rely on the internet and online based technology to promote real estate services and products. This type of advertising includes, without limitation, websites, social media platforms (e.g., Facebook, Instagram), and electronic solicitations. It is precisely this type of technology-fused marketing which real estate brokerages and agents heavily depend upon in order to build their brand, reach consumers, and hopefully expand their business.
Low-hanging fruit for DRE Investigators
Although the world of digital media has transformed the real estate space in so many ways, ultimately bringing brokerages and the buying and selling public together in a more expedient and efficient fashion, it has not been without some drawbacks. As a former DRE Investigator, I have seen countless examples of real estate licensees running afoul of the Real Estate law, ranging from minor non-compliance to major violations. In turn, I can tell you that a broker’s digital advertising is “low-hanging fruit” for DRE and may lead to investigations that could have been avoided.
Within just a few minutes, DRE Investigators can examine and discover a broker’s non-compliance on the world wide web, without ever leaving their desks or calling a witness. A problematic digital footprint, which is not always easy to unwind, is all the DRE needs to open an enforcement case, gather supportive evidence in connection with an existing complaint, or even further a larger investigation against the broker involving more serious violations. And with Covid-19 shutting the government’s doors and some DRE Investigators now stationed at home or no longer in the field, I imagine that desk investigations are the current status quo across the state.
Challenges in the digital realm While a brokerage can prioritize and control the compliance of their “online” presence, ensuring that all of their advertising is 100% compliant, the real challenge seems to be making sure their entire salesforce is doing the same. For example, a corporate broker’s digital advertising is typically being prepared, reviewed, supervised, and essentially controlled from a central source. But how does the responsible broker of the corporation review, supervise and/or monitor all of their agents’ digital media? I picture agents’ advertising like tentacles sprawled out from the corporate center, each one representing potential liability for the brokerage.
If you have one or two agents, this is likely an easy task to accomplish. And honestly, you have no real excuse but to get it right. But, it's the larger brokerages that find themselves, or rather, their agents, in hot water with DRE due to some bad marketing.
There are some common denominators when it comes to advertising non-compliance in the digital space. Agents’ digital marketing often reveals their use of unlicensed fictitious business names, unlawful team names and advertising, lack of required licensing disclosures, unlicensed branch offices, or worse, the solicitation or engagement of activities which are altogether illegal.
When digital media is not properly reviewed and filtered for compliance, it can expose both agents’ disregard for DRE’s advertising requirements and a broker’s failure to establish or enforce policies and procedures in this area. If the responsible broker of a firm is not acting as the gatekeeper for compliance in the advertising arena, then I shudder to think what other compliance issues are also being missed.
Going back to how I started this piece, digital media is always on display. If it’s not your local real estate competitor [but it often is], or third-party watchdog, it might be a well-informed consumer who takes notice of your questionable advertising and raises concerns with the DRE. A bad digital ad will get the DRE in the door, and as I often warn brokers, they might be inclined to stay awhile depending on what they find.
So how do you avoid all of this compliance trouble in the first place? Here are some tips:
1. In order to make sure your advertising is DRE-compliant, beware of the baseline requirements:
a. All “first point of contact materials” must disclose the licensee’s name, DRE license identification number (and Nationwide Mortgage Licensing System and Registry (“NMLS”) unique identifier, if you are a mortgage loan originator) and responsible broker identity. Regarding the latter, responsible broker identity means the name under which the responsible broker is currently licensed by the DRE and conducts business in general or is a substantial division of the real estate firm, or both the name and the associated license identification number.
b. If you advertise your real estate services in any newspaper or periodical, or by mail, you must also disclose your license designation (e.g., broker, agent, Realtor).
c. The type size of your DRE license identification number shall be no smaller than the smallest size type used in the solicitation material.
d. Please refer to California Business and Profession Code (B&P) 10140.6 for more information, including the coverage of exceptions regarding “for sale”, “open house”, rent, and directional signs.
e. Because these areas deserve special attention, if you are advertising a team name, salesperson-owned fictitious business name, or engage in mortgage loan activities, please refer to the DRE’s website and guidelines for specific advertising requirements.
2. Except for lawful team names (see B&P 10159.6 and 10159.7), no broker or agent may ever use or advertise any name in the course of licensed real estate activity that is not first properly licensed by the DRE. If the name is not printed on the broker’s license certificate [and/or reflecting on the broker's online DRE public license record], it is not licensed by the DRE.
3. Putting the “fine print” aside, one of the most important topics for discussion is broker supervision. As I always say, broker supervision is everything and I promise you that I am not wrong. If the responsible broker has an organized system of review and supervision in place, to ensure that all digital advertising is compliant before being published, or “going live”, on the internet, then you can successfully filter out flawed ads. You might even catch or prevent other unlawful activity too.
Or, a broker may opt for establishing advertising templates which agents can safely use for all of their real estate advertising needs. Regardless of how you get it done, the ultimate idea here is that broker supervision is required and an effective plan outlining what you are going to do, as well as how and when you are going to do it, are warranted.
A broker’s investment in advertising compliance, with special attention on digital marketing, is not futile. And while some argue that DRE advertising inquiries are generally harmless and short-lived, thanks to the timely correction of issues by licensees, some cases do lead to other layers of investigation and headache.
Bottom line: If you focus your efforts on compliant digital media, this is surely one way to limit your regulatory exposure and prevent unwanted DRE scrutiny.
About the Author
Summer Goralik is a Real Estate Compliance Consultant and licensed Real Estate Broker (#02022805). Summer offers real estate brokers a variety of consulting services including assistance with California Department of Real Estate (DRE) audit preparation, mock audits, advertising review, and training. She helps licensees evaluate their regulatory compliance and correct any non-compliant activities. Summer has an extensive background in real estate which includes private sector, regulatory and law enforcement experience. Most recently, she worked for the Orange County District Attorney's Office as a Civilian Economic Crimes Investigator in their Real Estate Fraud Unit. Prior to that, Summer worked for the DRE for six years as an Investigator. Among many achievements, she wrote several articles for DRE, four of which were co-authored with former Commissioner Wayne Bell. Before she embarked on her career in government and law enforcement, Summer also worked in the escrow industry for nearly five years, for both an independent escrow company and broker-controlled escrow division. Finally, Summer is currently an Instructor for the Escrow Training Institute.