Part of success in real estate is being familiar with what’s lawful and what’s not. Here are a few examples of real-life disciplinary actions against real estate agents who strayed in California.

Troy Palmquist is an indie broker in California with more than a decade of experience. His regular column, which covers a range of helpful tips for agents and op-eds on industry happenings, publishes Thursdays on Inman.

So you finally obtained your real estate license? Congratulations! You are now part of one of the most exciting housing and sales professions out there. And while the real estate industry is certainly challenging and requires hard work, the opportunity for success is both tangible and rewarding. 

However, part of that success is always knowing right from wrong. Being a licensed real estate professional comes with its own share of caveats and it would be prudent to understand what not to do from the outset and not before it is too late. In other words, if you want to keep your license, invest in your compliance now and take careful stock of situations you need to avoid. 

If you’re in California, and are not familiar with the various activities which can result in revocations or other disciplinary action from your Department of Real Estate (DRE), this article is for you. Together, with the help of respected real estate compliance consultant and former California DRE Investigator Summer Goralik, we will outline key examples of behavior that merits formal disciplinary action against salespeople and provide a roadmap of mistakes to abstain from in the course of licensed real estate activity. 

In an effort to provide current and relevant information, we researched specific examples of disciplinary action from our local DRE in California over the past six months.

What we found was a clear pattern of misconduct which rose to the level of formal disciplinary action. Many of the regulatory actions centered around property management activities. 

Among the unlawful actions we noted:

  • Misrepresentation
  • Failure to disclose and fraud
  • Secret profit
  • Unlicensed broker activities 
  • Mishandling of trust funds

The above unlawful activities are explored further in the following eight examples of disciplinary actions.

1. Pocketing a client’s good faith deposit

A broker associate, acting as a dual agent, accepted the buyer’s good faith deposit. While the check was written out to him, it was only to be held, uncashed, until acceptance.

At the time of acceptance, the licensee failed to deliver said funds to his brokerage or the neutral Escrow Holder and instead cashed the check.

The licensee was charged with trust fund mishandling, secret profit, misrepresentation, and fraud. The license of the broker associate was revoked.

2. Fraud

A real estate salesperson, not affiliated with any broker, advertised and engaged in a pattern of activity where she demanded and collected advance fees from several timeshare owners, promising the cancellation of timeshare debt.

The salesperson failed to perform any service in exchange for the payments, and when refunds were demanded, she did not return the money to the principals.

The salesperson was charged with acting as a broker without a license, unlawful retention of compensation, and for using an unlicensed fictitious business name. The license of the salesperson was revoked.

3. Agent doing property management activities without supervision

A real estate salesperson, using an unlawful team name performed property management activities without any broker supervision. The licensee was charged with acting as a broker without a license, willful disregard for the law, and negligence.

Regarding the unlawful name, the name did not comply with DRE’s team name requirements, including but not limited to include the term “team,” “group,” or “associates” in the team name, and required DRE license disclosures in advertising.

In this case, it appears that the supervising broker may have had knowledge of the salesperson’s activities, but failed to supervise them. Both the salesperson and broker were revoked with the right to a restricted license and also suspended pending payment of the DRE’s enforcement costs.  

 4. Not operating through normal procedures

A real estate salesperson, acting as a seller and licensee, induced the buyer’s broker, under duress, to release the buyer’s funds held in the buyer’s brokerage trust account to the seller prior to close of escrow.

After an issue came up on the seller’s end, delaying the close of escrow, the salesperson acting as the seller failed to refund the prematurely released funds upon demand.

The salesperson was charged with fraud and dishonest dealing, and eventually their license was revoked. Even after a petition of reconsideration, the DRE found no reason to reverse the disciplinary action.

5. Acting outside the scope of a broker

A real estate salesperson engaged in property management activities without the authority or knowledge of the affiliated broker. The licensee collected trust funds  from tenants in connection with the rental of real property, and charged and received property management fees directly from the landlord.

The licensee was charged with unlicensed activity (for acting outside the scope of a broker), willful disregard of the law, and negligence. The salesperson’s license was revoked and they were ordered to pay enforcement costs.

The salesperson was punished for two different activities: Unlicensed activity — for performing licensed acts with an expired license; and unlawful employment and compensation since at one point, the salesperson was employed by one broker but was performing licensed acts and compensated for those activities by the second broker.

6. Operating without updated and current licensed affiliations

A real estate salesperson, while affiliated with one broker, negotiated lease agreements as well as performed property management activities in exchange for compensation on behalf of a different broker. At times, the licensee engaged in said activities while holding an expired license.

The salesperson was charged with unlicensed activity, willful disregard for the law, negligence, unlawful employment and compensation. The licensee was revoked with the right to a restricted license, and suspended pending the payment of the Department’s enforcement costs.

7. Operating with an expired license

A real estate salesperson, while holding an expired license, engaged in property management activities and was charged with performing services requiring a real estate broker license without a license. In addition to unlicensed activity, the licensee was charged with willful disregard for the law and revoked.

8. Not providing all the legally-required information to the buyers

A real estate salesperson, acting as a buyer’s agent, provided her clients with an incomplete Real Estate Transfer Disclosure Statement (TDS) which did not contain her agent inspection notes.

The clients signed the incomplete TDS. Although the salesperson updated the TDS with her inspection notes, including disclosure about noted water damage, she failed to provide her buyers with a copy of the updated TDS.

When the DRE requested a copy of the file, the transaction documents submitted to the department did not contain the original TDS, but only the updated one.

The salesperson also engaged in real estate activities without notifying the DRE of her broker affiliation. The licensee was charged with fraud and dishonest dealing, willful disregard for the law, negligence and incompetence. The department accepted her voluntary surrender of license.

The lessons

In reviewing the above unlawful real estate salesperson activities and corresponding discipline, the following messages should be abundantly clear:

  • Never engage in licensed real estate activities without a license, with an expired license or are not properly affiliated with or employed by a licensed broker
  • Never perform licensed real estate activities without the supervision, direction and knowledge of your broker
  • Never handle trust funds without broker approval and supervision. Make sure you know and abide by the laws on the handling of these funds
  • Never misrepresent or fail to disclose material facts or information
  • Never engage in property management activities without your broker’s knowledge, approval and supervision

We hope the above examples have shed light on where others have failed and the ease by which your real estate license can be subject to regulatory discipline and/or outright revoked.

Staying informed of these violations will not only help you avoid costly mistakes but will keep you sharp when dealing with other brokers and representatives who don’t play by the rules. 

Have you ever encountered a sales infraction or situation like any of the above? If so, we would love to hear about your experience in the comments.

The authors’ opinions, suggestions or recommendations contained in this article are based on their experience in the real estate field, as well as Summer Goralik’s experience working for the California Department of Real Estate. Therefore, any opinions, suggestions or recommendations expressed herein must not be considered legal advice, and it is recommended that you consult with appropriate legal counsel for further clarification.

Summer Goralik is a Real Estate Compliance Consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.

Troy Palmquist is the founder and broker of The Address in Southern California. Follow him on Facebook, or connect with him on LinkedIn.

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