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Annual Compliance Review for Real Estate Salespersons

By Edward I. Sumber, Esq.

Every licensed salesperson should in January of each year, review the following compliance checklist in order to be certain that you are fully aware of your obligations as a licensee:

1. Rules Regarding Listing Agreements. Regulation 175.24 of the New York State Department of State requires that when a salesperson takes a listing in the name of the broker that: a) the listing agreement provides the definitions of Exclusive Right to Sell and Exclusive Agency; b) the homeowner be offered an option as to whether the listing broker or the selling broker is authorized to submit offers to the owner.

Failure to comply with the regulations may result in the inability of the broker to obtain a commission. Forms utilized in your broker's office should be examined. Sufficient copies of the MLS Membership List should be obtained so that they can be annexed to the copy of the Listing Agreement and the Section 443 Disclosure Statement.

2. Property Condition Disclosure. It is recommended that you request every seller to review and sign such a form at the time you take a listing. Brokers have a duty to make diligent inquiry about property conditions. The standards applicable to the broker and salesperson may be different than the standards which apply to sellers. Sellers are still protected in New York under the doctrine of "Caveat Emptor" although exceptions exist. Salespersons are required to inquire about property conditions and to disclose known conditions at the time the property is shown to prospective purchasers. The use of a "Property Condition Disclosure" statement provides proof of your diligence. Having a purchaser acknowledge the receipt of a copy of the seller's disclosure statement is proof that you have acted with competence and treated all parties in the transaction honestly.

3. Business Cards. Your business card should be examined to be certain that it reflects your full name (without nicknames or abbreviations) and that the designation on the license, i.e. "Licensed Associate Broker" or "Licensed Salesperson" is the designation reflected on the business card.

4. License Renewals. Licenses should be examined to ascertain that the license has been renewed and to also be certain that you are licensed to the specific entity which will be paying your commissions. Failure to do so may result in your inability to collect commissions.

5. Independent Contractor Status. In general, salespersons who are affiliated with real estate brokers consider themselves independent contractors and file Income Tax Form 1040C "Profit or Loss Form From Business". Salespersons traditionally take various deductions for expenses incurred in connection with the production of real estate commissions. The Internal Revenue Code requires that in order for a salesperson to be an independent contractor, such person must have a written agreement with the employing broker. New York law requires that such an agreement be signed "within 15 months". Accordingly, you should be certain that the written Independent Contractor's Agreement has been signed and updated and that preferably, the State Association or Board-suggested form was used.

6. If your home telephone number appears on your business cards, be certain that you place a notation on the card alongside the number indicating, "Home", "H", "Residence" or "Res.". In the past, if a broker wanted to utilize a home number on business cards, it was necessary to register the home address as a branch office. This is no longer a requirement provided that the business card clearly designates the home number.

7. Compliance with Section 443 of the Real Property Law (The Agency Disclosure Law)
Procedures for handling the Agency Disclosure Forms should be reviewed once again so that:

A. You are able to understand and articulate the content of the Disclosure Notice.

B. You can make a presentation to a seller or buyer regarding the content of the Disclosure Statement and your specific role. (The Department of State has taken the position that merely presenting the form to a prospective purchaser or seller is insufficient. A salesperson must explain the nature of agency disclosure options and those specifically available from the salesperson's office).

C. The Disclosure Form is signed by the seller prior to entering into a Listing Agreement. 

D. If you are acting as a Buyer Broker, the buyer signs the Disclosure Form before entering into a written agreement with you or if the Disclosure Form before entering into a written agreement with you or if the agreement if verbal, the buyer signs at the time you agree to represent her or him.

Also:
E. Review of all your files to be certain that you have fully and accurately completed the Disclosure Notices, that the salespersons names and firm names have been properly inserted and that your agency role was properly reflected.

F. Be certain to obtain the Disclosure Notice signatures at the time of "the first substantive contact".

G. Section 443 and DOS Regulations require that copies of all documents signed by consumers be provided to them. Have you done that in every instance? If the client or customer's copy is still in your file, it should be forwarded to the client of customer immediately.

H. Be certain that your broker is retaining copies of the signed Disclosure Forms. The law requires that they be retained for a period of three years.

I. If your office was the listing agent, confirm that the selling broker has utilized the Disclosure Notice. While the law doesn't require that you monitor the cooperating broker, the failure on the part of the cooperating broker to use the Disclosure Notice may result in the recision of the transaction and the loss of your commission.

J. Remember that the second signing, i.e. the "Acknowledgement of the Parties to the Contract" is no longer required if attorneys represent both buyer and seller. In such instances, you must make an appropriate notation of the names of the buyer's and seller's attorneys and maintain same as part of your filed.

8. Anti-Trust Review. It is never appropriate to discuss your office policies regarding commissions with brokers or salespersons from other offices. In anti-trust matters, there are "no innocent conversations about commission rates". When discussing commissions with brokers in other firms such conversations should be limited to the amount of compensation which your firm will receive as a cooperating broker. General discussions should be avoided under all circumstances.

9. Personal Dealings. If you want to buy your own listing or a listing taken by your office, you may do so only after making full disclosure to your client, disclaiming and terminating your agency relationship and if you wish to receive compensation, you may do so only as buyer's broker. It is permissible to receive from the seller, compensation in your role as a buyer's broker even if you are both the purchaser (principal) and the buyer's broker. You may not, however, act as the buyer (principal) and the seller's agent in the same transaction. No amount of disclosure or written waivers by the seller will suffice.

10. Review of the REALTOR Code of Ethics The Code of Ethics has undergone some major revisions during the past several years and now presents comprehensive guidelines for the conduct of REALTORS in their dealings with the public and with each other. The failure to know the ethical rules under which you must conduct yourself as a REALTOR can only lead to energy consuming hearings and the embarrassing need to justify your behavior before a panel of your peers. In particular, the Code of Ethics will remind you to:

A. Communicate for whom you are acting to cooperating brokers at the time of the first substantive contact with cooperating brokers;

B. Remind you to clarify any modifications in compensation which you are offering;

C. Remind you to communicate fully if you are acting as a principal in the purchase of a listed property or if you are a co-owner of property you are offering for sale.

These and provisions regarding advertising, "Sold" signs, the duty to arbitrate and other significant articles of the Code of Ethics should be reviewed annually. Practices differ from area to area. It is easy to forget ethical rules which are often secondary to your desire to serve your clients in fulfilling their objectives to purchase, sell, rent or lease property.

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

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