In an industry replete with regulations, you might find yourself facing hefty fines for rules you were unaware of or simply forgot about. Here are five ways agents get fined that can hamper their bottom line.
A fine is like a kidney stone: painful to get rid of, nobody wants one, but plenty end up with some, and in retrospect, it was probably preventable. A capable real estate agent conducts an intricate symphony of sales, psychology and finance — all challenging enough without the encumbrance of fines.
However, in an industry replete with rules and regulations, you might find yourself facing hefty fines you were unaware of or simply forgot about. Here are five ways agents can get fined — and hamper their bottom line.
1. Accepting gifts
Because cultivating relationships is critical to success in real estate, it wouldn’t be surprising for gifts to be exchanged. However, a Realtor should always stare a gift horse in the mouth: Accepting one from a settlement service party as unearned payment potentially violates the Real Estate Settlement Act (RESPA).
Kickbacks aren’t always as sinister as a bribe or pay-off but could simply be an unearned referral fee split — it could include things like gift cards or paid-for services and events.
If in doubt, evaluate the terms. Was actual work done that would be comparable to the value of the gift at fair-market rate? Does the gift defray agent expenses?
In many circumstances, there’s a good chance it violates RESPA, infractions rife with fines.
2. 99 problems with your ads
Undoubtedly, effective advertising is an integral pillar of any Realtor’s business. But without proper execution it’s more of a double-edged sword than a helpful tool. Online marketing has proven to be the lifeblood for many real estate professionals, so too can it be the most common source of fines.
Even seemingly minor discrepancies like omission of broker affiliation explicitly on the online ad cost a Virginia agent $450 when he was anonymously reported and found to be in violation of the National Association of Realtors Code of Ethics.
In New York, as part of a “clean data” initiative, the Real Estate Board of New York (REBNY) recently prohibited agents from including personal contact information in a listing’s description field, amounting the practice to unauthorized solicitation.
Even the most well-intentioned efforts on behalf of a client can potentially backfire. According to NAR, any for-sale or for-lease sign must be permitted by the owner before posting, otherwise a fine can be levied against the offending agent.
These many advertising-related fines underline the significance of staying organized and maintaining a streamlined workflow.
3. Disclosure and privacy
Perhaps the most frequent lapse, inadvertent or otherwise, in fiduciary responsibility is some failure of disclosure. It’s tempting to expedite standard proceedings simply to not bore a disinterested client, but there’s a crucial difference between streamlining processes and oversimplifying legally mandatory procedures.
As codified by the NAR’s Citable Offenses and Schedule of Fines, it’s crucial to explain to clients where all parties’ interests lie. New York law, for example, dictates any complaint resulting in failure to furnish an agency disclosure form can lead to a $1,000 fine. This is a practice meant to protect consumers.
Purchasing a property or applying for an apartment also requires a client to share a lot of personal information and sensitive data. The Fair and Accurate Credit Transactions Act of 2003 (FACTA) states that failure to uphold client confidentiality with reasonable care, such as improper disposal of records, can lead to penalties.
4. Giving your opinion
A profession in real estate generally fosters friendliness and a desire to be as helpful as possible. However, because every agent has personal biases, there are many instances where sharing your personal opinions can get you hit with a fine if in violation with Fair Housing laws.
Realtors can’t make statements to represent, disenfranchise or otherwise discriminate against the seven federally protected classes in any way, and many states, like California, have additional protected classes.
“Is this neighborhood safe?”seems like a question that’s innocuous enough, but because safety is ultimately a subjective concept, agents can point buyers to the local police department for information but not otherwise disclose their own opinions or personal experiences.
Realtors should only be concerned with disclosing material facts, and failing to do so can get NAR members fined up to $15,000 for a code of ethics violation as well as getting suspended for six months.
5. Giving legal advice
“Well I’m not a lawyer, but … ” is one of those phrases better reserved for wine and cheese party anecdotes and while watching crime scene investigation procedurals.
Although their spheres of knowledge might often intersect with lawyers, Realtors are strictly prohibited from giving counsel on any legal matter or drafting legal papers — doing otherwise constitutes unauthorized practice of law. Not to mention, giving bad legal advice can also get agents in legal trouble.
It would be remiss to assume every Realtor has an eidetic encyclopedic knowledge of their state’s latest regulations, so for up-to-date guidelines, confer with your Department of State, real estate policy governing bodies and available compliance hotlines.
The premise of most of the aforementioned pitfalls should already be familiar to any well-informed Realtor. Often, fines don’t result from a lack of knowledge but rather a dearth of reasonable care when complacency makes way for negligence.
Helping people find their next home is an important responsibility that all real estate professionals should undertake with due deference.