• Summer Goralik

Stay on the straight and narrow with these real estate compliance tips

Updated: Oct 26

By Summer Goralik


If you are a real estate licensee, let’s talk shop for a minute. The California Department of Real Estate (“DRE”) does not care about your financial success. They only care about your compliance. And in my opinion, compliance means more now than it ever did.


When I worked at the DRE as an Investigator back in 2008, I had a caseload of complaints a mile high. I was forced to triage my cases by priority, meaning, I worked on the most egregious complaints involving misrepresentation and fraud first. This also meant that any complaints alleging minor or technical violations of the law, which did not harm the public, were not as urgent.


As a former DRE investigator turned real estate compliance consultant, I can personally tell you that times have changed. While the DRE still receives and rightfully prosecutes complaints alleging fraud, misrepresentation, and other dishonest and willful acts committed by real estate licensees, they are also bringing disciplinary actions against agents and brokers for other non-compliance such as the use of unlicensed fictitious business names and advertising violations.


I realize that this observation might garner different reactions, but the primary message here is quite simple. If you are a real estate professional, you either prioritize compliance now, or you will likely pay for your non-compliance, in some shape or form, later. By “pay”, I am referring to potential citations and fines (up to $2,500 per licensee) levied by the Department, or more hefty monetary penalties and enforcement costs in connection with a DRE enforcement action. Also, some real estate licensees who neglect compliance incur significant legal defense fees in order to resolve such regulatory matters and avoid license discipline.


Of course, let us not forget that licensees will continually “pay” for any misdeeds with the DRE through the public disclosure of their disciplinary action on the Department’s website. Additionally, a licensee with prior discipline or a “restricted licensee” may continue to be on the DRE’s radar.


Given the stakes, the right path for real estate licensees is to invest in compliance upfront. Here are some compliance tips and reminders to help keep real estate brokers and agents on the straight and narrow.



TIP #1: Keep your real estate license active and current


While it sounds like this may not be worthy of a reminder, trust me, it is. I wrote a whole article on this subject last year since I was noticing that this seemingly simple task was causing a lot of licensees some problems. Surprisingly, real estate licenses lapse and expire all of the time, and agents and brokers will continue to perform licensed activities with an inactive license, also known as “unlicensed activity”. The reality is, this mistake, innocent or not, could be a costly one as the DRE has pursued enforcement actions against licensees for this type of activity.


What do I mean by “active and current”?

  • Renew your real estate license on time and prior to your license expiration date;

  • Keep the DRE informed of your updated contact information, including office or mailing address, phone number and email address; and

  • If you are a licensed real estate corporation, in addition to the above requirements, please make sure your corporate status with the California Secretary of State is in good standing and reflects an “active” status. Corporations who experience suspensions with the State for unpaid fees or taxes and continue to perform licensed activity actually subject their real estate license to potential DRE discipline.



TIP #2: A real estate salesperson can only work for one broker


If you are an agent, then you may only affiliate your license with one broker at one time to perform licensed work. Put another way, this means that you cannot work for more than one broker. If you are a real estate salesperson, but have multiple jobs, then just know, only one of those jobs can utilize and rely upon your real estate license. For example, if a real estate agent is a dentist during the week, but an active agent on the weekends, that activity does not run afoul of the law. However, if a real estate agent works for “brokerage A” during the week and “brokerage B” on the weekends, then you are violating the real estate law and may be subject to discipline.



TIP #3: Real estate commissions flow from the brokerage to the agent


Real estate salespeople and broker associates, acting as salespeople for other brokers, may only be compensated for licensed activities by their affiliated brokerage. They may not claim, receive or accept any fees, commissions or other payments for licensed activity directly from their clients.


It should be noted that there is a known exception here. The DRE has said that a broker may authorize or direct the escrow holder to disburse an agent’s commission directly to him or her, but only as long as the broker is in control and involved with the disposition of commissions earned.


A great article published by the DRE on this subject, which I am always referring clients to, can be found in the Spring 2012 Real Estate Bulletin (starts at the bottom of page 1). If interested, this article explores other potential lawful activities related to this subject.



TIP #4: Know the law before you advertise


These days, advertising compliance is more important than ever! An agent and firm’s real estate advertising, especially digital advertising, is on continual display for all to see and critique. This means the DRE is only a few “mouse” clicks away from immediately assessing your advertising compliance. If you are interested, you may refer to an article that I wrote on digital advertising a while back.


I constantly tell my clients that compliant advertising is like a good gatekeeper for the entire brokerage. If you keep your advertising clean and compliant, you might avoid unnecessary consumer or competitor complaints and DRE investigations. By doing so, you might even do yourself a bigger favor by potentially avoiding a full-blown DRE audit or broker office survey.


So, let’s break this tip down:

  • Your name, DRE license number, and responsible broker identity should always be disclosed on all advertising material and/or what the DRE refers to as “first point of contact material”. However, I say, regardless of purpose, format or medium, please make sure it is everywhere, including email signature plates;

  • Do not use unlicensed fictitious business names. In other words, do not get creative when it comes to advertising or branding yourself unless you are using a licensed name in connection with your brokerage;

  • If you are an agent, please obtain your broker's approval for the use of a salesperson-owned fictitious business name or team name. These activities come with a lot of requirements, which will not be recited here, but please know this is an area that requires attention to detail. Please refer to the DRE’s FAQs on fictitious business names and team names on their website; and

  • If you are a broker with agents working under your license, you are required to supervise and monitor all real estate advertising. My suggestion is to move this surveillance to the top of your internal watch list because by doing so, you might save yourself a lot of trouble and regulatory risk.

Aside from required DRE licensing disclosures, please be aware that another integral part of advertising compliance is making sure that advertising is never false or misleading. There have been plenty of complaints filed against licensees for bad advertising in this regard.



TIP #5: Trust accounts require 100% compliance and commitment


Anything less than 100% won’t work. It is not acceptable to be “sort of compliant” when it comes to the operation and maintenance of a real estate broker’s trust account. It’s a constant commitment and effort to ensure, without limitation, that:

  • The trust account is being reconciled on a monthly basis and is in balance at all times;

  • The required trust account records are being maintained and in the correct format; and

  • All trust account activity and records are accurate, complete and compliant.

Bottom line, if the above tasks and requirements are not being met, your real estate license is at risk and you will have zero fun when the DRE finally audits you.


So what should you do if you are only “sort of compliant” in this area? Take action or seek help now. Please do not wait for the DRE to come in and assess your compliance. You can start by referring to the DRE’s publication called “Trust Funds” on their website. This is an excellent starter pack to understand what you need to do as a broker who engages in trust account activities. If you still need assistance, then it might be time to hire someone to help you understand the law, assess your compliance, and correct any non-compliant activities.



TIP #6: Agents and their brokers must work together to get it right


Broker supervision is everything. I say it all of the time and wrote about it several years ago. A broker is required by law to establish and enforce policies, rules, procedures and systems to review, oversee, inspect and manage all licensed real estate activity.


An effective broker, who properly supervises their agents and activities, will help provide their agents with the tools to ensure regulatory success. A good broker is actually a good leader and mentor, and assists agents through guidance, resources and training.


And guess what, agents play an important part too. A good agent, who knows and complies with their brokerage policies along with the law, can actually evidence a broker’s supervision. Their activities and compliance exemplify that a broker is doing their job. Without that compliance, and absent that evidence, a broker might be hard pressed to prove that they are satisfying their supervision duties. Interestingly enough, a good agent can even help a broker do their job.


For example, a good agent will sound the alarms when a dispute occurs in the middle of a real estate transaction. They will inform their broker right away and include him or her in the process of trying to resolve it. By doing so, the agent gives the broker an opportunity to be aware of an issue, to provide direction or feedback, and actually take action to hopefully avoid bigger issues like a civil or regulatory complaint.


As a consultant, I see a lot of DRE complaints involving agents who didn’t advise their brokers of transactional disputes in an immediate or timely manner. It’s not until the broker receives a DRE inquiry that they are learning about the issue for the first time. By the way, something like this can lead to an audit or investigative survey, where not only are the agent’s activities on the examination table, but a broker’s supervision will be tested too.


So, brokers and agents should be able to count on one another to do the right thing, but to effectively do that, they need to work together. The broker needs to set the agent up for success by prioritizing compliance, supervision and risk management, and the agent needs to strictly abide by the brokerage policies and keep the broker aware of any real or potential issues. If these two things work in concert, real compliance is possible.



Final Note

I hope these tips are good reminders of what should be happening, or maybe help jump start a new lease on compliance. As I said, compliance is more important than ever. Don’t wait around for the DRE to tell you that you are out of compliance. This is a financial hassle and regulatory risk that you can certainly help avoid by taking proactive steps now.



About Summer

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 investigations and audit preparation, mock audits, brokerage compliance guidance, 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. Prior to opening her consulting business in 2016, she worked for the Orange County District Attorney's Office as a Civilian Economic Crimes Investigator in their Real Estate Fraud Unit. Before that, Summer was employed as a Special Investigator for the DRE for six years. Among many achievements, she wrote several articles for the DRE, four of which were co-authored with former Real Estate Commissioner Wayne Bell. Prior to her career in government and law enforcement, Summer also worked in the escrow industry for nearly five years. For more information about Summer's background and services, please visit her website, www.expertdrecompliance.com.





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