Oops! Part 2 - Trends Show DOL Compliance is Easier Than Discipline
The Washington State Department of Licensing (“DOL”) regulates real estate brokers and disciplines licensees for non-compliance with statutory and regulatory requirements. DOL disciplinary trends reveal the most common mistakes brokers are making. Violations are often the result of inadvertence or ignorance of the law rather than intentional misconduct. Coming into compliance with the requirements will be far easier for brokers than enduring the time- consuming, expensive and license-threatening disciplinary process.
This article is the second of two articles examining the most common, non-trust account violations for which DOL disciplined brokers in 2015. You can find the first article in the Summer 2016 edition of RE Magazine. Typically, compliance requires nothing more than a broker changing basic practices.
DISCLOSURE of Agency:
DOL investigations reveal an industry wide misunderstanding of how agency is created and who a broker represents. The Agency Law dictates who broker represents in each transaction and there is no room for debate. In every transaction, broker must accurately disclose the party broker represents. Completion of the statewide forms prompts broker to make the disclosure. The problem DOL sees is not that brokers are failing to disclose the relationship but that brokers are incorrectly identifying the party broker represents.
An understanding of the Agency Law, as it defines creation of agency relationships, is necessary for an accurate disclosure of Agency. A simple rule facilitates understanding:
Every broker, in every transaction, represents buyer UNLESS broker has a written agency agreement with seller in which case broker represents seller exclusively UNLESS broker also has a written agency agreement with buyer, in which case broker is a dual agent.
Technically, the agency agreement is executed between the consumer and the firm (listing agreement or buyer agency agreement) and the firm then appoints the broker to represent the consumer. But, this simple rule will prove to be instructive for most brokers in most situations.
Broker must accurately identify the party or parties broker represents and then disclose that agency relationship in the purchase agreement.
CONTINUING Education:
The continuing education requirements imposed on each broker must be completed before licensing renewal. This includes completion of the CORE requirement. Too often, brokers are submitting license renewal applications, attesting to completion of all required continuing education, when broker has not yet completed the courses. The fact broker has registered for a continuing education course is not sufficient. Broker is required to have completed all required continuing education before submitting broker’s renewal application. Submitting a renewal application claiming completion of required courses when that is not true constitutes a material misrepresentation and can form the basis for license revocation.
COOPERATION with DOL:
Brokers are statutorily required to cooperate with DOL investigations by responding to inquiries and making files available for review. Often, a broker’s refusal to cooperate overcomes the underlying allegation. While it can be overwhelming and intimidating to receive a notification of complaint from the Department of Licensing, failing to respond is the very worst response a broker can make. The complaint will not go away if broker ignores it. Rather, it will expand. The complaint will grow from the allegations made by the complaining party to include claims asserted by the department regarding broker’s failure to cooperate.
Statistically, brokers should take heart. Of all the complaints filed against brokers, the vast majority are dismissed after DOL review. Brokers must respond timely and completely to the DOL request and to all follow up requests.
ADDITIONAL Duties:
A broker is not required to perform any duties other than those specified in the Agency Law. However, when a broker voluntarily takes on additional duties, the duties must be performed competently and completely. Brokers must be cautious about making promises to perform work that broker may be unable or unwilling to perform. If the consumer is injured as a consequence of the broker’s failed promise, DOL will discipline.
For example, brokers should be careful about making promises to conduct investigations for clients regarding future use of the property, development potential, availability of permits, status of permitted work, neighborhood or property conditions, future use of surrounding properties, quality of schools, law enforcement statistics within a community and any other issue. Instead, brokers should assist the client by encouraging the client to personally consult with experts who can assist the client in gaining the information client seeks.
ADVERTISING & Compliance:
The Licensing Law requires brokers and firms to advertise in the firm’s name as licensed and requires that the firm’s licensed name be included in all advertising in a clear and conspicuous manner. There is hardly a firm in the state that is fully compliant with these advertising requirements. Too often, the entire firm name, as licensed, is not used in advertising and if it is, it is too small to be considered “clear and conspicuous.” Many firms misunderstand that using a franchise name, in the absence of a licensed firm name, is not sufficient.
Moreover, teams and individual brokers sometimes advertise in the complete absence of their firm’s licensed name. A broker or team may advertise without reference to the firm’s licensed name ONLY if the broker or team advertises under an assumed name license. An assumed name license can only be procured by a firm and is then owned by the firm.
DELEGATION Agreements:
The Licensing Law mandates that all delegations of authority be in writing from designated broker to a managing broker. While designated brokers are able to delegate most duties to a managing broker, the delegation of authority is not complete unless and until it is put into writing, signed by both the designated broker and the managing broker. Oral delegations of authority do not successfully delegate authority.
Moreover, many designated brokers are under the impression that a delegation of authority is also a delegation of responsibility. That is not true. When a designated broker delegates authority to a managing broker, the managing broker is “authorized” to take action that is otherwise required, pursuant to the Licensing Law, of the designated broker. However, if managing broker fails to act or fails to act responsibly to fulfill the delegated act, then designated broker remains responsible, based on the Licensing Law, to perform the required act. For example, if a designated broker properly delegates authority to a team leader to supervise the brokerage services of a team member who is licensed less than two years, and team leader fails to exercise proper supervision, designated broker remains responsible to the Department of Licensing for that failure of oversight.
COMPENSATION:
Compensation may lawfully be paid from a consumer, only to a firm. Much of the reason for this is to insure that a firm is aware of and provides responsible supervision for the real estate brokerage services provided by its licensees. Some brokers attempt to eliminate the firm from compensation paid in a transaction which necessarily means that the firm is also eliminated from the consumer protection role required of the firm in the form of oversight, document review, file retention and the like. Brokers can be disciplined individually for their bad actions. Firms, however, need to be on the watch for these actions from brokers. While the compensation issue is the legal issue, it is often just the warning flag of greater consumer protection violations.
TRANSACTION Log:
Every firm must maintain a transaction log identifying ALL real estate brokerage activity. This includes, at a minimum, all listings, sales and broker price opinion’s. The log must identify the real estate service provided, the name of the licensee providing the service, identification of the parties or property and the name of the reviewing managing broker in the event of a broker within the first two years of licensing. It is not necessary to log individual documents within a transaction. Rather, the transaction itself must be logged. Using the log as an index, designated broker or a DOL auditor should be able to locate a transaction file and then review the transaction file for all details related to documentation.
All of these potential disciplinary issues are avoidable with development of good practices. If brokers need assistance in developing a better approach to any of these potential problems, brokers should work with their managing broker.
Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. If you’d like to submit questions to the Legal Hotline, e-mail them to legalhotline@warealtor.org. Please have your NRDS number ready when you e-mail the Hotline with your question. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.