The California Department of Real Estate (CDRE) is accusing eXp Realty in California of a large number of state regulations violations over display names, social media pages, business names and in one case an agent conducting business without a license.

The California Department of Real Estate (CDRE) is accusing eXp Realty in California, which has 1,941 sales agents in the state, of 72 state regulations violations over display names, lack of supervision, social media pages, business names and in one case an agent conducting business without a license.

The complaint, filed on March 20, 2019, accuses the fast-growing virtual real estate brokerage of a lack of supervision under the guidance of Ray Marquez, the state broker for California.

An eXp Realty spokesperson told Inman that the company is aware of the complaint but can’t comment on an open investigation. Marquez did not respond to a separate Inman request for comment.

The complaint accuses five eXp California teams of not displaying eXp Realty as prominently as their team name, 17 agents or brokers of listing office addresses that were not registered with the CDRE and 22 agents or brokers of failing to list a license number on advertising. It further accuses eXp Realty of failing to notify CDRE it hired five new licensees.

The complaint also notes that Marquez and eXp Realty never registered “eXp Realty” as a trade name in the state and that 26 agents or brokers were using it improperly.

It further states that in one case, an agent’s state license expired in May 2018 and was not renewed until January 2019. While the license was expired, the agent still conducted real estate activity on a number of properties, according to the complaint.

“Marquez failed to exercise reasonable supervision and control over the real estate activities of [eXp Realty of California],” the complaint reads. “In particular Marquez permitted, ratified and/or caused the conduct described above, to occur, and failed to take reasonable steps including but not limited to handling of trust funds, supervision of employees and the implementation of policies, rules, and systems to ensure compliance of the business with the real estate law and regulation.”

Pamela Strickland, independent compliance consultant for real estate and mortgage companies told Inman she’s never seen a company hit with so many violations in her 25 years as a consultant.

“This is egregious,” Strickland, a past president of California Association of Mortgage Brokers, told Inman. “This is a lot of violations. These violations were easily obtainable. All someone had to do was check websites, it’s not like they had to do a big investigation.”

“Everything that you see here, the advertising, the use of the team names, even the one person who was unlicensed for a certain amount of time, which is a very serious offense, all of those could have been handled had there been policy, procedures, supervision and oversight in place,” Strickland added. “You’re going to have to establish that there is oversight and everything that’s here indicates it’s not.”

An industry source who owns a rival brokerage in California, and agreed to speak to Inman under condition of anonymity, said this number of violations is almost unprecedented. The source particularly zoned in on the company not registering for the fictitious trade name (“doing business as,” or “DBA”) eXp Realty. “Fictitious trade name” is the term designated for a business using a name that is not the company’s legal name.

“For one of my companies, I literally have 35 DBA’s,” the source said. “And the fact that they don’t have a DBA for their main company name is shocking.”

Stephen M. Lerner, the assistant commissioner for the legal affairs department for CDRE told Inman that the department does not comment on active investigations.

Lerner outlined possible disciplinary actions that could be taken against Marquez, including, a corrective action letter, public reproval, suspension, restriction and revocation.

“If the violation is less egregious, we also have the ability to issue a citation and fine the licensee up to $2,500 per violation,” Lerner added. “For non-licensees and salesperson licensees conducting licensed activities requiring broker’s license, the department can issue a desist and refrain order or a bar order.”

Lerner told Inman that the department often sees advertising and supervision violations. The department publicly compiles a monthly summary of all enforcement actions on its website.

Read the full complaint below:

The department’s spring bulletin, published after the complaint was filed against eXp Realty, features an editorial written by Jeff Oboyski, assistant commissioner of enforcement, titled, “Technology and Supervision in the Real Estate Industry.”

In the piece, Oboyski specifically discussed the challenges of running a virtual real estate business in the state.

“Although there is no statute in the real estate law that specifically prohibits ‘virtual brokerages’ in California, licensees who engage in such a business model when offering real estate services should be aware they must make sure they continue to comply with all the applicable real estate laws and regulations,” Oboyski writes. “One of the provisions of the law … states that every licensed real estate broker shall have and maintain a definite place of business in California that serves as his or her office for the transaction of business.”

Oboyski spoke broadly with Inman about the department’s aggressive plans to make sure virtual brokerages are compliant with state regulations.

“Our biggest concern is, what systems do they have in place — and this isn’t just about eXp Realty it’s about all virtual brokerages — to ensure that their agents are being properly supervised,” Oboyski said.

“As complaints come in about these companies, we’re going to review them and we’re going to investigate them,” Oboyski added. “This is something that I’m concerned with as the assistant commissioner of enforcement and we will continue to look at all of these companies as we receive complaints and to ensure compliance with real estate law.”

Speaking specifically to the eXp accusations, Oboyski said what you see is a lot of technical violations, where the issue is more the sum of its parts. He couldn’t recall any brokerage violations that mirrors the sheer number of accusations.

“It builds up to, what is the broker doing?” Oboyski said. “Where’s the supervision?”

A cursory search of real estate licenses for a number of other large brokerages in the state like Compass, Redfin, larger Keller Williams and Realogy-affiliated brokerages, as well as tech-focused and newer brokerages like Side, Reali and Purplebricks, found no violations in the last decade.

Strickland, who has also served on a number of CDRE committees in her career, echoed Oboyski’s comments that the rise of technology-focused brokerages is leading to an increase in these types of violations.

“I think with these technology brokerages, they don’t even know the people that are working for them,” Strickland said. “They just sign them up, as many as they can.”

“Without proper procedures and policies, there’s no way you’re going to control all those people,” Strickland added. “Then they sell it by saying, you have your own company, you can run your own business. That’s not how it works in California.”

Email Patrick Kearns

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