Annual Compliance Review for Brokers

By Edward I. Sumber, Esq.

The beginning of each new year is the perfect time for brokers to review their compliance check lists. The following is a compliance summary:

1. Business Cards. The business card of every broker and salesperson should be examined. Each card should reflect the full name of the licensee (no nicknames or abbreviations are appropriate unless the license is issued that way). The exact designation on the individual's license should appear just below the name, If the license indicates "Licensed Associate Broker", it is not permissible to use "Broker Associate".

2. Licenses. Examine every license for every broker, associate broker and salesperson affiliated with your office. Be certain that all are current and that each individual is licensed to your firm and not to any predecessor corporation or entity.

3. Independent Contractor Agreements. Review all independent contractor agreements and be certain that they are fully signed. Have them re-executed as of January 1, 1994. The law requires that the agreements be signed "within fifteen months". We recommend the use of the Board-approved contract.

4. Reference to Home Offices and Telephone Numbers. The Department of State recently changed is position and now permits licensees to reflect on their business cards or advertisements "Home", "Residence" or "Res.". If your home number appears on your business cards, be certain that it is designated as such.

5. Recordkeeping and Supervision. Make a careful review of Sections 175.21 and 175.23 of the Department of State's Rules and Regulations. Be certain that all information required by the Regulations is included in your file, i.e. a) name and address of the seller, the buyer and the mortgagee; b) the address of the property; c) the price; d) the down payment; e) the commission, to whom it was paid and who it was paid by.

6. Compliance with Section 443 (The Agency Disclosure Law). The Agency Disclosure Law is now permanent. The State Association's Risk Reduction Committee has outlined a compliance checklist:

a. Have you read and do you understand the Statutory Disclosure Notice Law? Every one of your salespersons should be asked to make a presentation to the principal broker so that everyone can articulate and explain the content of the disclosure statement.

b. Even though Section 443 of the Real Property Law only applies to residential transactions involving one to four family units, every broker must "make clear for which party he is acting" (Reg 175.7). It is useful to use the notice even though not required, when selling vacant land, commercial property, condos and co-ops, etc..

c. Are your salespersons clearly communicating to consumers what your office policy is with respect to agency roles? Each salesperson is responsible for communicating about the choices your firm offers, the potential for conflict with other seller clients and if you serve as a buyer broker, the conflict inherent in consensual dual agency.

d. Have you made your role clear at the outset of your dealings with consumers? The disclosure form must be acknowledged by the seller prior to entering into the listing agreement. If you are acting as a buyer broker, it must be acknowledged at the time you agree to represent the buyer. When dealing with other brokers, you must make clear that you are either representing the buyer or the seller at the time of the first substantive contact.

e. Do your salespersons review the Section 443 Disclosure Notice with consumers and answer their questions? It is not sufficient for brokers to simply hand the form to consumers and ask them to read it and sign it. The theoretical risks of vicarious liability must be discussed. Are your salespersons prepared to do so?

f. Are your salespersons fully and accurately filling out the Disclosure Notice? Is the saleperson's name inserted?... your firm name inserted?... your agency role accurately reflected? Does your office policy clearly indicate that when a broker is representing a friend, relative, personal attorney or a person with whom there is already a relationship of trust and confidence, that it is inappropriate to work with that person as a "customer". There are instances such as these when it is inappropriate to be anything other than the person's agent.

g. Do your salespersons know to obtain the consumer's signature on the Disclosure Notice at the time of the "first substantive contact" and to provide a copy to the consumer at that time? If the consumer refuses to sign, do your salespersons know how to use the declaration?

h. Are you retaining all the signed Disclosure Forms for the three year required period?

i. If you are the listing agent, have you confirmed that your authorized selling agent has utilized the Disclosure Notice? While the law doesn't require that you monitor your cooperating broker, if your cooperating broker has failed to obtain the Disclosure Notice, it may lead to the rescission of the transaction and the loss of your commission.

j. If dual agency becomes the methodology for you to complete an in-house transaction, you must a) obtain the informed consent of the buyer and seller to the dual agency role; and b) if your Agency Disclosure Form does not reflect your capacity as a dual agent, a new Section 443 notice must be executed. In addition, we recommend that you obtain a separate written acknowledgement that you have fully explained dual agency and that you have obtained the informed consent of both buyer and seller.

k. Have you made appropriate notations in your file regarding the names of the attorneys for both "buyer and seller" so that it is not necessary to obtain the second signing (the "Acknowledgement of the Parties to the Contract")?

7. Annual Meetings With Your Staff. All sales associates should be invited and encouraged to attend an annual meeting to review all of the foregoing. A review of the Fair Housing Laws should take place and every salesperson and broker should be required to acknowledge the firm's office policy with respect to Fair Housing.

8. Visits from Investigators. A significant improvement has occurred in the relationship between real estate brokers and the Department of State during the past year. DOS has communicated to its investigators that "appointments with licensees must be made at least 24-hours in advance." In addition, investigators have been told that "rudeness on the part of the investigative staff will not be tolerated." "Request for files or copies of documents should be confined to those necessary to obtain the objective of the case. There is no point in requesting extraneous mater ... " "A licensee has the right to have his/her attorney present during an interview." While lawyers are required to execute a "record of appearance", it is the responsibility of the investigator to provide the forms and collect the completed copies. Sales associates should be encouraged to have counsel present and the principal broker should be fully involved.

Reprinted with permission of the Westchester County Board of REALTORS, Inc.
Mr. Sumber serves as counsel to WCBR

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