7 Common Real Estate Compliance Mistakes That Real Estate Brokerages Must Be Aware Of
Brokers don’t go into business with the intention of breaking the law, but mistakes happen all the time. A broker may think they're being compliant, only to find a warning from the Department of Real Estate, or worse, a fine. To stay in business, your practice needs to be legally diligent.
While most states have their own designated real estate board, like the Department of Real Estate in California, all brokers and agents must follow general real estate law and contract law.
7 Tips To Help Responsible Brokers Stay Legally Compliant
Compliance breaches can happen from the word go, so there are several real estate laws brokers need to know to keep their heads above water. Here are 7 common mistakes.
1. Keeping The Real Estate Board Constantly Informed
In the United States, brokerages have to report any changes in email address, mailing and office address, and phone numbers within 30 days of the change. If the brokerage changes the main or branch office location, they have to notify them by or on the next business day. That’s just the tip of the iceberg, as the board wants to be informed whenever you hire, fire, or report criminal activity. You’re also responsible for educating licensees about reporting protocol.
2. Avoid Using Fictitious Or Unlicenced Business Names
It seems obvious not to use a business name that isn’t yours in marketing, and most brokerages don’t. However, they often forget that shortening their name, abbreviating it, or using nicknames is illegal. Brokers must use their full names in all marketing materials to stay compliant. Another word used, “team,” can get you into trouble. If you want to say “team,” it has to include the surname of one of the licensed members. No nicknames or abbreviations are allowed.
3. Pay Attention To Individual Real Estate Agent Advertising
The law won’t just pay attention to your brokerage; they’ll also look at your agent’s websites. As with the “fictitious business names,” agents must disclose their full name, but they also need to state their real estate license number. License numbers must appear on marketing material. If the agent is distributing flyers, their license number can’t be smaller than the smallest font. If the real estate agent’s identity is exposed on signs, include the license number.
4. Never Allow Unlicensed Employees To Perform Licensed Duties
Real estate transaction coordinators and administrative assistants are integral to the smooth operation of any brokerage. But too often, brokers allow unlicensed employees to perform duties that should only be completed by agents. If you’re discovered, you’ll get a hefty fine. Education is important here because the real estate board is broad when it comes to the interpretation of unlicensed activity. Read your state’s State Statutes for more details.
5. Keep A Conversation And/Or Transaction For Your Brokerage
The details of your real estate transaction are essential. Not just to you but to the government, as well. If the real estate board investigates a complaint involving a transaction, they’ll request an entire summary. That’s why you must keep at least three years of transactions on file. Although conversation and/or conversation logs aren’t as widely used today, they can really save your business in a pitch. With an updated log, you could mitigate potential civil liberty.
6. Prioritise The Disclosure Of Material Real Estate Information
Most states enforce laws surrounding sales forms and contracts, so your local real estate board won’t charge you directly, but they will open up an investigation. If your brokerage commits fraud, false promises, misrepresentation, or dishonest dealings, the board will discipline you. Keep your business dealings transparent to avoid any investigation into your brokerage. That includes educating your staff on disclosure topics for contracts, payroll, invoices, and more.
7. Follow Proper Protocol When Handing Legal Trust Funds
It’s the broker’s responsibility to make sure the trust account is a “true” account and that all signatories have the broker’s written authority. Under real estate law, the broker must sign the trust. To sign the trust, they must be affiliated with the broker and a licensed real estate agent. In some states, an unlicensed employee affiliated with the broker can sign, but you need to check your laws before doing so. Signing a trust unlawfully is fraud and may void the trust.