By Summer Goralik
Property managers are a group of licensed professionals that often keep me up at night. One only needs to glance at the California Department of Real Estate's (DRE) annual audit statistics to understand why: property management consistently emerges as the most audited area of real estate, yielding the highest trust fund shortages and most violations of the law.
As a real estate compliance consultant, I field countless calls and inquiries from licensed brokers engaged in property management. These inquiries range from brokers seeking proactive assistance to licensees panicking about impending audits they know they're unprepared for. While some apprehension is normal, others are genuinely concerned as they realize they've been handling trust funds in violation of real estate law.
Licensed and Aspiring Brokers
In light of the DRE's track record in regulating property management, I have a few suggestions for both licensed and aspiring real estate brokers.
For real estate brokers previously audited by the DRE and who received a non-compliance summary identifying violations, it's crucial to rectify all discovered infractions. The DRE will return for another audit, and repeated violations could result in severe consequences, especially if no formal discipline was issued following prior violations.
For real estate licensees experienced in property management but have never been audited by the DRE, conducting a proactive self-audit or hiring a consultant to review compliance is imperative. Waiting for a DRE audit to identify mistakes or violations is risky; proactive measures can mitigate potential issues and ensure compliance.
For aspiring real estate brokers planning to open a brokerage firm engaged in property management, thorough preparation and compliance before commencing operations are paramount. Utilize this pre-launch period to absorb knowledge and ensure readiness, as once operations begin, activities are subject to DRE jurisdiction and scrutiny.
Key Questions for Aspiring Property Management Brokers
To aid aspiring property management professionals and firms in this preparation, here are some key questions to address before operating under the DRE:
1. Am I experienced in, or do I need to take educational courses covering, property management, landlord and tenant issues, and trust fund handling laws and regulations?
2. If operating as a corporation, is it registered and in good standing with the California Secretary of State?
3. Do I have a definite place of business in California where my office will be located, transactions conducted, and broker license will be displayed?
4. Do I have a bank account properly set-up and designated as a trust account in the name of the brokerage?
5. Is the designated officer of the corporate brokerage, or responsible broker of a sole proprietorship, a signatory on the trust account?
6. Have I vetted property management agreements, lease agreements, rental applications, disclosures, and other documents for compliance?
7. Do I have a licensed, experienced, and competent person to handle negotiations, document preparation, and consumer engagement?
8. Do I understand how to handle trust funds and maintain compliant and accurate trust account records?
9. Do I have DRE-compliant advertising in place, including signage for rental properties?
10. If employing or retaining multiple licensees, as well as non-licensed individuals, do I have a system of supervision in place, including the establishment of written policies and procedures, to review and oversee, among other requisite areas, licensed activity, advertising, and trust fund handling?
While more questions and details exist, this serves as a starting point to prompt critical thinking in the property management realm. Sometimes, not asking the right questions leads to incorrect practices. Therefore, thorough preparation is key to starting property management on the right foot.
In conclusion, do your homework and embark on property management with diligence and compliance from the outset.
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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 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.