While the majority of real estate professionals operate within a code of personal and professional ethics, there are some who push the boundaries of decency, both in how they treat their clients and how they conduct business with potential leads.
The past decade has seen a number of disturbing allegations leveled against those in the real estate industry, from the Long Island controversy uncovered in three years of investigative reporting by Newsday to the systemic racism at the heart of American housing law chronicled in Richard Rothstein’s The Color of Law.
Real estate agents and brokers are looking more carefully than ever to determine whether common practices are the same as best practices. Below, we’ll take a look at some of the behaviors that can get real estate professionals into trouble, and what exactly can happen if you’re sued.
You worked hard to get your real estate license. Don’t let a stupid mistake (or a deliberate one) lead to disciplinary proceedings that could result in the loss or suspension of your license.
How the agent ended up in disciplinary proceedings
There are almost as many ways to violate it as there are agents and transactions. However, many agents who have their licenses revoked or face disciplinary action do so for reasons such as:
fair housing violations
This is one of the most serious breaches and one we hear about frequently. Under federal, state, and local fair housing laws and ordinances, agents and brokers may violate them through a variety of actions, whether intentional or inadvertent.
From marketing and property descriptions that favor families and religious groups to outright discrimination, these violations undermine the integrity of the real estate industry and the legitimacy of the housing market as a whole.
Even seemingly innocuous acts like a buyer’s love letter – a tactic long favored in the hot market – have come under fire for their tendency to expose issues of race, religion, gender, family status and sexual orientation. This paves the way for discriminatory practices and decision-making.
compensation and cooperation
You need to be upfront about the terms of your contract with customers, including how and when payment will be made. If you are representing the interests of other parties to a transaction, it is your responsibility to ensure that all parties involved are fully aware of that fact and are provided with the opportunity to seek other parties if necessary.
Additionally, we must cooperate with other agents and brokers without exhibiting discrimination, favoritism or unequal access. From the comments you post on the MLS to the conversations you have with colleagues, you need to be consistent and follow the guidelines your client has agreed to.
Disclosure E&O and Misrepresentation
If you misrepresent material facts about a property, such as providing personal opinions or inaccurate information, you can be charged with misleading buyers’ customers or hindering the sale of a home. Be wary of questions the client asks that require you to give a subjective opinion about the property or surrounding area, or that require expertise you don’t have.
Similarly, misrepresentation of market conditions can also be the basis for a seller complaint, especially if you claim that your advice led to the property being priced or sold unfairly.
Every seller wants to get top dollar for their home, but it’s your job to give them a realistic appraisal based on market value and warn them about the pitfalls of overpricing a property.
If there is no written consent
Gone are the days when business was done through handshakes. It is important to have all agreements in writing, including any changes that may occur during the transaction.
Additionally, you need to properly explain the terms of the written contract to your client so that they understand what they are signing and what it means for their interests.
breach of contract
It’s also important not to interfere with other people’s agreements, such as targeting listings that are already subject to a brokerage agreement or customers who are already represented by another agent. This is true for casual conversations and requests for advice from friends and acquaintances, as well as for current listings before they expire.
financial fraud
Even with the best of intentions, you can run into trouble if you spend your client’s funds too quickly and too loosely. Failure to properly handle escrow funds, whether intentional or not, can result in disciplinary action.
Of course, it goes without saying that intentional theft or fraud is subject to disciplinary action and, in some cases, civil or criminal prosecution.
How the disciplinary process works
The Association of Real Estate License Law Officials (ARELLO) is an international professional association that promotes collaboration and sharing of best practices between jurisdictions, certifies the national portion of the real estate exam, and provides access to information for consumers using national disciplinary and practitioner databases.
nick lord
According to former CEO Nick Lord, ARELLO is not a government agency but a public service provider comprised primarily of individuals appointed to North American real estate regulators, state and government administrators, and state real estate commissions.
Lord said that while each jurisdiction is different, disciplinary proceedings typically begin when a consumer files a complaint with the state Attorney General’s (AG) office.
If the AG determines that there is a potential violation, the office will send a letter to the licensee notifying the licensee of the complaint, along with a request for information within a certain number of days.
The first thing to do at this point, Lord says, is to have a conversation with a real estate professional and attorney. Typically, this is an attorney who specializes in licensing law, rather than a criminal defense attorney or real estate attorney. This type of legal work handles cases for professionals with all types of qualifications, from doctors to beauticians.
While the licensee provides explanations, necessary information, and background, the AG’s office can investigate, review records, and conduct administrative investigations. If the AG determines that a violation has occurred, an administrative complaint may be filed. At that point, claim documents are submitted to the Real Estate Commission.
Once the charges are filed, the licensee has the option of negotiating a settlement or going to trial before the real estate commission, Lord said. This type of hearing is very similar to a court trial with an attorney present, but the procedures may differ slightly. For example, hearsay is not admissible in court, but it may be admissible in administrative litigation.
Once the process is complete, the governing body has the option of dismissing the case or adjudicating it and imposing disciplinary action. “What makes enforcement different is that these cases are adjudicated by peers,” Lord said.
“These decisions are not made by individuals who are not well-versed in real estate practice,” Lord said. It means that your “jurors” are not bureaucrats or employees of state agencies and have sufficient knowledge of the practice of the profession.
Licensees may appeal the Real Estate Board’s decision. Depending on the state, appeals may be sent to the supreme court of the county in which the state capital is located or to the superior court of the county in which the licensee resides.
Lord said an appeal could be filed based on failure to follow proper procedures, for example, if the AG’s office did not provide adequate notice or did not provide notice in the correct manner. As a result, the case could be sent back to the commission or the judge could overturn the case on appeal.
Alternatives to license revocation
Not all disciplinary proceedings result in permanent license revocation. For minor violations, the least restrictive option is a letter of censure or reprimand, Lord said.
“You might find out about a minor advertising violation or if you did 29 hours of CE instead of 30,” Lord said. This type of disciplinary action gives the licensee an opportunity for self-correction.
Following these entry-level options is a trial period. This allows the licensee to continue practicing with restrictions. “For example, you may be told that you can only do X amount of trades per month, that you need to work under the supervision of a broker, or that you have to wait until you take a certain CE course,” Lord said. “It could last just a few months, at which point it would be subject to reassessment.”
Your license can then be suspended for a period of time without the right to apply for reinstatement until the end of the probationary period. You may be required to complete additional training or education during this time.
If officially revoked, you may be able to apply for reinstatement after 5, 10, or 15 years. However, please note that just because a real estate agent or broker has obtained permission for a restoration application, it does not mean that it will be approved.
When administrative proceedings become criminal proceedings
Lord said it’s not uncommon for criminal activity to occur related to someone’s license. “Sometimes a consumer complains about something and during the investigation a crime is discovered,” Lord said. “The commission does not have criminal adjudication powers, so it must be referred to the appropriate jurisdiction.”
If no administrative charges have been filed and an arrest has been made for a crime against a person or a financial crime, the AG may petition the Commission for an emergency suspension.
In this case, to avoid an immediate threat or danger to the public, the license could be suspended for 30 to 90 days without a hearing, Lord said.
After the emergency suspension period, the AG may file a motion for an extension to allow the investigation process to continue or file a permanent lawsuit against the licensee. This administrative process is separate from any pending criminal or civil proceedings against the licensee.
The most important thing real estate agents and brokers can do is inform and educate about best practices and take their role as fiduciaries seriously. Creating a fair, equitable and honest working environment is everyone’s responsibility and is the foundation for restoring trust to our industry.
Editor’s note: This information is derived from previously published content, and market regulatory systems may operate differently. Always check with your managing broker or legal advisor for details.
