- August 14, 2019
- Posted by: Hanson Law Firm
- Categories: DRE, Real Estate, War Story Wednesdays
Inspired by the Department of Real Estate’s recent decision to file against eXp Realty of California for a number of simple, eye-wateringly easy to avoid violations, why don’t we run through some of the most common ways people run afoul of the DRE so we can all start paying attention and stop losing money and credibility… and so I can let my blood pressure tick back down to normal.
eXp being a cloud-based brokerage, its mistakes were mainly in the realm of internet marketing and associated dealings, so today’s article will avoid more general slip-ups like lax bookkeeping and trust fund shenanigans. Just to keep it manageable.
Let’s start with B&P Code Section 10140.6/Regulation 2773, which marries well with 10159.5/2731. The former requires a broker to disclose that they’re acting in a professional capacity if they write about or advertise their business in a newspaper or letter, by including their license number. The latter forbids the use of a name different from the one on your legal IDs unless you’ve registered this fictitious name as the one on your real estate license, which is totally possible if you’ve registered that name as your dba (doing business as) with the county and then registered your license under the same name. The problem arises when there’s a discrepancy between the name on the license and the name used to promote aspects of your business.
It’s easy to see how this can be problematic online – many of us use a fake name on Facebook or similar websites, be it for a mistaken sense of privacy, some anonymity from clients, or just as a hi-larious joke between friends. But start doing business with this profile when it doesn’t match your license name, or without even disclosing that you’re a broker? Bad move.
eXp actually got written up for an adjacent section, 10159.6, which requires the disclosure of your team name when advertising/doing business, if you’re part of a company. The team name must be displayed in a “conspicuous and prominent manner,” along with the licensed name and number of at least one member of the team. This includes using the company’s full name. eXp got cited for frequently using eXp Realty instead of the full name eXp Realty of California, for instance. Again, it’s easy to slip up and forget to include all of this when writing online. There’s still a sense of implied informality that makes the inclusion of all of this feel clunky, but the rules are there for a reason. Better to break the flow than to be accused of being deceptive.
Sort of related, there’s 10159.2/2725, which states that a broker must “exercise reasonable supervision” over their salesperson. Reasonable supervision means “the establishment of policies, rules, procedures and systems to review, oversee, inspect and manage” essentially all aspects of real estate work, like filing documents or making transactions. So many people work from home now that it’s never been easier to slip up here. A broker might assume “common sense” will prevail and their workers will obey the regulations – but what we call common sense is just what we’re taught to do, socially. If a broker doesn’t establish ground rules, they can hardly blame their workers for straying. Be diligent.
Another policy that’s easy to forget or interpret incorrectly is 10163. It states that every branch office needs a license for each separate location. In a physical location, this is a no brainer, but many businesses like eXp operate mostly or entirely on a cloud basis, i.e., from home or remote offices. Put the work into figuring out the exact licensing requirement for your workspaces and avoid another easy penalty.
One aspect of new, start-up businesses, apart from their mercurial nature, is a tendency to boom and bust pretty fast. There’s a quick employee turnaround. 10161.8 requires that the hiring, firing, or retiring of a real estate worker must be communicated ASAP to the DRE. eXp’s explosive growth meant they often neglected to tell the Department about the goings-on inside the company. Don’t make the same mistake.
To round off this list, let’s close on 10176(e). A broker can’t commingle their own money or property with the assets that they receive or hold for clients. Depositing trust funds in a general business account or even a private account might save time and be super convenient, but it’s also super illegal. People sometimes want to avoid paying a trust account bill, or they might just not know about credit report and appraisal fees for trust funds. Not an excuse.
Now, eXp hasn’t been convicted of DRE violations. Investigations are ongoing. But they’ve made some simple blunders that can be avoided with just a little preparation. Read through the Business and Professions Code, then read through it again, find the relevant passages, and print ‘em out and stick ‘em up on the wall if you have to. You’ll thank me later.