Annual Compliance Review for Brokers

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 as it appears on their license from the DOS (middle names and middle initials may be omitted so long as doing so is not misleading). The exact designation on the individual's license should appear just below the name, Licensed Real Estate Broker, Licensed Real Estate Associate Broker and Licensed Real Estate Salesperson.  The term “Licensed” is not required and each license type may be abbreviated by using “RE” instead of “Real Estate”.  The bare minimum a licensee may use to identify their license type is RE Broker, RE Assoc. Broker and RE Salesperson.  The use of other titles and designations is permitted in addition to the license type.  The use of corporate titles such as “President”, “Vice President”, “Director” and “Manager” (other than an “Office Manager” as set forth in Real Property Law section 440(6)) may only be used by a Real Estate Broker.  Associate Brokers and Salespersons are prohibited from using corporate titles pursuant to a number of DOS opinions.

2. Licenses. Examine every license for every broker, associate broker and salesperson associated 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 executed. Brokers seeking “statutory independent contractor status” need to have the agreements signed every 12-15 months. We recommend the use of the NYSAR Independent Contractor Agreements.

4. Reference to Home Offices and Telephone Numbers. The Department of State permits licensees to reflect on their business cards or advertisements "Home", "Residence" or "Res.". If any phone number other than that of the broker’s main office number appears on your business cards, be certain that it is designated as such.  Example “C” for cellphone, “O” for office, “H” for home etc.

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. 
(1) the names and addresses of the seller and the buyer, 
(2) the broker prepared purchase contract or binder, or if the purchase contract is not prepared by the broker, then the purchase price and the amount of deposit (if collected by broker), 
(3) the amount of commission paid to broker, 
(4) the gross profit realized by the broker if purchased by him or her for resale, 
(5) any document required under Article 12-A of the Real Property Law and 
(6) the listing agreement or commission agreement or buyer-broker agreement. 
It should be noted that in some transactions, the broker may not be provided a copy of the documents required to be maintained. In such instances, the broker will not be found to have violated the regulation.

6. Compliance with Section 443 (The Agency Disclosure Law). 

a. Have you read and do you understand the Statutory Disclosure Notice Law? Every one of your associate brokers and 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, condominiums and cooperative units, every broker must "make clear for which party he is acting" (19 NYCRR § 175.7). It is useful to use the notice even though not required, when selling vacant land, commercial property, etc.

c. Are your associate brokers/salespersons clearly communicating to consumers what your office policy is with respect to agency roles? Each associate broker/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 and designated 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 associate brokers/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 associate brokers/salespersons fully and accurately filling out the Disclosure Notice? Is the associate brokers/saleperson's name inserted (the associate broker/salesperson presenting the form, not the Team Leader)?... 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 associate brokers/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 what to include when using the declaration?

h. Are you retaining all the signed Disclosure Forms for the three year required period either by hard copy or electronically?

i. If dual agency or designated 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 or designated agency role either in advance or when dual or designated agency occurs; and b) if your Agency Disclosure Form does not reflect your capacity as a dual or designated 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 or designated agency and that you have obtained the informed consent of both buyer and seller.  NYSAR provides a separate written acknowledgement for its members to use.

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.  This would also be a good time to coordinate the signing of new independent contractor agreements.

8. Visits from Investigators. DOS has communicated to its investigators that "appointments with licensees must be made 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.

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