- September 19, 2018
- Posted by: Christopher Hanson
- Categories: Disclosures, DRE, Real Estate, Standard of Care
Note: Portions of this Blog were originally published by the Sacramento Assoc. of Realtors
All California real estate licensees are, for the most part, required to participate in continuing education classes both as a precondition to initial licensing as well as by the time of license renewal. These include classes on (1) Ethics, (2) Agency, (3) Trust Fund Handling, (4) Fair Housing, and (5) Risk Management. Real estate brokers are to take the additional class in (6) Management and Supervision. (I say “for the most part” because my 80 year old mother [who has been a broker for 50+ years, and is still active in the business] brags that she no longer has to take these courses…. Whether that’s a good thing or not, is another story.)
These core continuing education categories broadly include everything a licensee should do in representing a client… but merely taking a class does not in and of itself make you immune to a lawsuit.
The most common legal claim against brokers and agents is “Misrepresentation.”
Misrepresentation basically means misstating some material feature of a property or a transaction and it may also include breaching a fiduciary duty to a client. Misrepresentation can be (1) innocent (you didn’t know); (2) negligent (you didn’t know – but should have known; and (3) fraudulent (you did know – but lied to preserve a sale). While everyone knows that intentional misrepresentation can bring both legal liability as well as loss of your real estate license, negligent misrepresentation is what continuing education seeks to prevent – well, minimize.
Ethics rules are primarily standards, principles and guidelines for conduct, which are intended to elevate standards of competence and behavior. At the core, it is all about putting the client’s interest first.
Agency rules are the laws that create the fiduciary duty owed by the agent to the principal, a duty of highest loyalty. Those duties can include reviewing the Contract provisions, or the Inspection and Title Reports, or the Disclosures with the client, and clearly identifying any issues that need to be further explained. It is, again, putting the client’s interest first.
Trust Fund Handling rules mandate that client’s funds be kept separate and not be commingled with the agent’s funds – or anyone else’s. Has the agent timely deposited the client’s funds to the designated escrow or client Trust Account? Are property management receipts and expenditures properly accounted for? Shall we ask it again: Has the agent put the client’s interest first?
Fair Housing rules require that agents must be certain to provide all clients with fair and equal treatment in housing related issues. This means both setting aside any biases and protecting their client from discrimination by others in a transaction. Who comes first? The client.
Risk Management rules provide real estate agents with practices and procedures which, if followed, can reduce the risk of liability to clients and others in real estate transactions. If the agent suspects that a misrepresentation or some other legal claim may be arising, broker, agent and client should meet to look into and resolve the issue. It is putting the client’s interest first – AND minimizing the exposure the agent subjects themselves to.
Management and Supervision rules provide real estate brokers with practices and procedures to make sure that the broker and any real estate licensees working for them are complying with the law and not exposing the broker to legal liability. As many lawsuits have shown, the brokerage can be held liable for the wrongful acts of their agents regardless of whether or not the brokerage had any knowledge of the agent’s actions. “Risk management” is just that – the management of risk. The reduction of the risk of doing business.
There, unfortunately, is no way of absolutely eliminating all risk of getting involved in a lawsuit. The price of doing business is the exposure to potential litigation.
Routine participation in mandatory continuing education courses can, at a minimum, help reduce the risk associated with real estate transactions. So, Mom, even if you don’t HAVE to go to school – you should !