With a new year approaching, it’s a good time to start thinking about your goals for 2019. If you are a licensed real estate broker or salesperson, it would be wise to set a few goals aside which focus on compliance. By “compliance”, I mean regulatory compliance with the laws and regulations enforced by the California Department of Real Estate (“DRE”). The DRE is the regulatory authority responsible for the issuance of real estate licenses, regulation of real estate activities, and enforcement of the California Real Estate law.
Because I consult with real estate brokers and salespeople for a living, I can tell you that when it comes to compliance, there is always room for improvement. However, I have noticed that when real estate practitioners get busy, compliance is an area that tends to get downgraded in priority very quickly.
The purpose of this post is two-fold. First, I am going to provide you with a few compliance tips to help keep you off the DRE’s enforcement radar and on the right track in 2019.
Second, I hope this article gets you thinking about regulatory compliance. As a real estate licensee, you always have an opportunity to re-evaluate your activities for compliance with the law, correct any problematic or non-compliant issues, implement a “best practices” approach, and start fresh. But there’s never a better time to do this than at the beginning of the year.
So let’s begin. When I speak at local real estate board meetings, I often tell licensees, “it’s all about your advertising and transactions”. These are the two major areas of compliance in which your licensed real estate activities will be evaluated, and hopefully exemplify your satisfaction of legal requirements. Therefore, the following tips will focus on those specific areas:
Real Estate Advertising
If all of your advertising were placed in a hat and one piece was selected at random, would it meet the DRE’s licensing disclosure requirements? If not, then here are a few things to remember:
a.) All “first point of contact materials” must disclose your 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.
Also, one stipulation that tends to get forgotten, the law states that when 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).
b.) As outlined in the Real Estate law, first point of contact materials are designed to solicit the creation of a professional relationship between the licensee and a consumer. Hence, when it comes to advertising compliance, I always tell my clients that if you disclose the necessary and required information on every material, whether it’s considered a “first point of contact” material or not, then you needn’t worry about DRE’s advertising requirements. 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.
c.) The type size of your DRE license identification number shall be no smaller than the smallest size type used in the solicitation material. This appears to be a fairly common violation, but the good news is, this is an easy compliance requirement to get right.
d.) Advertising violations are “low-hanging fruit” for the DRE, especially with the visibility of your websites, Facebook accounts, and other social media. With advertising on the internet, DRE Special Investigators can quickly investigate your activities and any potential violations right from their desks. But don’t worry, it’s not a lost cause. Just as advertising compliance is low-hanging fruit for the DRE, it should also be treated in the same fashion by you. This is an area that you can prioritize, quickly review, and easily correct to ensure compliance.
Moreover, before the new year, it would be prudent to review all of your advertising materials and make sure that they properly disclose the required licensing information. Please note, if you are a licensed mortgage loan originator, please refer to DRE’s website for more information about licensing disclosure requirements in mortgage loan advertising.
Real Estate Transactions
The other important area of regulatory compliance are your real estate transactions. Here are some key elements to bear in mind regarding your transaction files and compliance:
a.) All real estate transaction records must be retained for three years. Per B&P 10148, a licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transaction for which a license is required.
These record retention requirements also include electronic communication (e.g., emails, texts) associated with any licensed activity. In my experience, it is often your electronic communication which contains the evidence that exemplifies your compliance in various areas. It may also help unravel a complaint filed against you with DRE in your favor, and/or dismiss or mitigate other administrative or legal actions.
b.) Your transaction files should contain fully executed documents and all required records, including evidence of delivery of important records and written receipt by the appropriate parties. Conversely, if your file does not include required records, fully executed documents or written evidence of material disclosure, then your file will likely become a paper trail of non-compliance and potential issues.
Your file should always capture the entire history of a sales transaction, pertinent communication between the parties, important chronological events, and evidence your regulatory compliance.
c.) Although it might seem antiquated, there is real value in recording the events of any real estate transaction through a written transaction log or by some other method. When the DRE investigates a real estate complaint, they usually ask you for a chronological summary of the subject real estate transaction or activity. If a transaction closed more than year ago (or longer), it may be hard to provide a thoughtful and valuable response to the DRE or address any of their specific questions without such a historical record in writing.
It is important to note that even when you believe that you have complied with the law and have done everything correctly, you still must be able to support your belief and provide written evidence to the DRE.
d.) Based upon my experience, it seems that most real estate licensees use and/or refer to a file checklist when it comes to the review and management of their real estate transactions. A checklist is a great tool by which licensees can make sure their files contain all of the requisite documents needed prior to closing, and equally useful for brokers in order to verify that their agents’ real estate transactions are being conducted in accordance with their office policies and the law.
For those licensees that do not employ a transaction checklist, you might consider adding that item to your compliance goals in 2019. If you already utilize one, please be sure it is accurate, complete and annually updated to account for new laws and requirements.
In closing, while the above list could be much longer and more comprehensive, I hope it helps set the stage for, and inspires the compilation of, your own compliance “to do” list and goals. One of my goals is to write another post soon geared only towards real estate brokers and some suggested compliance tips for the new year.
Please remember, although prioritizing compliance is arguably important all year-round, setting some tangible goals and rules for yourself at the beginning of the year may help you fully commit to these efforts and achieve compliance faster. Based upon what I have seen, both as a former DRE Investigator and a compliance consultant, the sooner you take the time to review, assess, and correct your compliance, the better off you will be if you are ever summoned by the DRE (or involved in a civil lawsuit).
Finally, if you have neglected compliance in the past, it is never too late to change things around. For example, if you are ever the subject of a DRE inquiry and a violation is discovered, any evidence that you can show which illustrates your good faith and diligence in discovering and correcting the violation on your own, may help mitigate the matter. In other words, there’s always time to do the right thing and start fresh.
Happy New Year!
About the Author
Summer Goralik is a Real Estate Compliance Consultant and Broker with six years experience working as an Investigator for the California Department of Real Estate ("DRE"). She offers myriad consulting services which aim to assist real estate licensees with DRE compliance matters. Please check out Summer's website for more information about her background and services: