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Working in real estate compliance often feels like the movie Groundhog Day starring Bill Murray, where every day seems to repeat itself. You certainly don’t mind reliving the good days — when an agent demonstrates they acted in their client’s best interest, a broker learns that a regulatory investigation has been finally closed, or a company passes a government audit without any legal or financial consequences.
However, the bad days serve as stark reminders that real estate professionals must be extremely proactive, careful and thoughtful in the performance of their licensed services, and prioritize compliance at all times. Even unintentional mistakes can have severe repercussions, including damaging reputations and formal license discipline.
It is against this compliance backdrop that we factor in the current real estate climate. At present, the industry is grappling with numerous commission litigations, the National Association of Realtors’ (NAR) proposed settlement, which has only received preliminary court approval, and potential new rules and practice changes for licensed professionals.
Real estate licensees aiming to adapt and move forward successfully must thoroughly understand the implications of the commission suits, grasp the new practice requirements and evolve accordingly.
Part of this evolution involves how agents present their value propositions and discuss real estate commissions with their clients. Additionally, it will impact how they collaborate and communicate with other agents. Significant changes include the introduction of buyer representation agreements in areas where this practice was previously uncommon and the negotiation of new terms and conditions regarding real estate commissions and concessions, both orally and in writing.
From a compliance perspective (and as someone who views everything through this lens), I see this changing landscape in a dual light. On one hand, it presents an opportunity for agents to excel and better serve their consumers, potentially leading to greater success.
On the other hand, I am concerned about the consumer experience. I wonder how these changes will manifest in real-world scenarios and whether we will see an increase in regulatory complaints as agents confront this unfamiliar terrain. Will the trial and error phase remain private, or will it escalate to the regulatory level?
This article aims to address these concerns by providing important tips for licensees to consider. These insights may help avoid consumer complaints and minimize regulatory scrutiny.
What to know about consumer complaints
My go-to warning to licensed clients, which I can’t entirely claim as my own, is that even when they do everything right, they might still find themselves in trouble with the law. Why? Because everything a real estate professional does is subject to review and evaluation.
This critique starts with the consumer at the ground level and can gradually, and sometimes rapidly, intensify to the regulatory tier. In other words, if a consumer feels wronged by their agent in any way, they can take action by filing a complaint with the state Department of Real Estate or the regulatory entity responsible for enforcing and overseeing real estate licensees.
It’s worth noting that not all consumers who feel wronged by their agents take action. Some may opt against filing a complaint due to concerns about the effort or time required, skepticism about the outcome, or discomfort with going “on the record” against their agent.
To address this inertia, some regulators have streamlined the complaint process with online systems and portals, promising a quicker and more convenient filing experience than ever before. The introduction of online complaint submissions has also accelerated the processing of complaints and the commencement of investigations by regulatory bodies.
Now, it’s important to emphasize that not all consumer complaints are of equal merit. Drawing from my experience as a former California Department of Real Estate Investigator, expert witness and compliance consultant, I’ve encountered numerous complaints lacking substance throughout my career.
Even when baseless complaints are filed though, the silver lining is that regulators are obligated to rigorously assess witnesses and compile solid evidence to substantiate legal violations and pursue enforcement actions against licensees.
However, the downside is that all complaints, regardless of merit, will necessitate some kind of regulatory review or investigation, exposing some licensees to government inspections, audits, and the accompanying stress.
Now that we’ve covered these fundamentals, let’s shift our focus to minimizing consumer complaints in this new post-NAR settlement era.
Tips to help prevent consumer complaints and reduce regulatory risk
1. Understand rules and your regulatory audience
Every real estate compliance checklist should begin with a crucial reminder: real estate licensees must fully understand the totality of regulations they face to avoid non-compliance and potential complaints.
One challenge that may not always be recognized is that agents and brokers are subject to a variety of regulations from different enforcement sources. I recently wrote an article dedicated to this topic because I have found this to be a blind spot for some licensees. Licensees must investigate and comprehend the following:
- State laws
- Multiple Listing Service (MLS) rules
- Standards of practice and requirements enforced by NAR, along with local and/or state associations, covering licensed members
The latter category is particularly relevant with the proposed NAR settlement, which will introduce new practices and standards regarding buyer representation agreements and real estate commission structures. However, these new rules might not necessarily align with state law. If I were practicing real estate today, I would ensure I understand where different requirements intersect and diverge.
For example, in California, buyer representation agreements are not presently mandated by state law nor required before touring a property with a home buyer. However, this is one of the major practice changes that are forthcoming for Realtors and MLS Participants under NAR’s proposed settlement.
Given the potential inconsistencies in regulations, creating detailed checklists outlining all requirements is advisable. Compliance professionals favor comprehensive checklists, which can help agents navigate varying requirements and ensure their practices satisfy every rule enforced by each regulatory body.
It’s important to note that while a consumer complaint filed at the state level might be outside the state regulator’s jurisdiction, it doesn’t mean the complaint will disappear. Consumers are often redirected to the proper enforcement authority or legal counsel. Moreover, agents and brokers must adopt a thorough and sometimes multi-pronged approach to their real estate practice to prevent complaints from being filed with any regulatory source.
2. Know the importance of broker supervision in real estate compliance
Real estate agents typically operate under the supervision and management of a responsible broker. This means agents, especially those with less experience, don’t have to maneuver the complexities of the changing industry norms alone. They have a leader invested in their success, helping them become more effective, successful and compliant practitioners. In my compliance playbook, this support is a significant advantage, particularly as agents prepare for and implement oncoming practice changes.
Agents should seek guidance and direction from their responsible brokers. In turn, experienced and competent brokers will have established policies and procedures, compliance checklists, and vetted forms and agreements to help licensees comply with new practice guidelines due to various commission suits.
The reality is, agents and brokers need each other to excel, particularly in terms of compliance. Agents who follow their broker’s rules will also remain compliant with state laws and standards of practice. Likewise, responsible brokers who provide clear guidance, leadership, and supervision help agents achieve regulatory compliance and bolster their professionalism.
Conversely, an agent who disregards their broker’s policies can quickly become a “rogue agent,” operating outside the broker’s scope and rules. Trust me, stories involving rogue agents usually don’t end well. Similarly, responsible brokers who fail to provide proper guidance, leadership, and supervision over their salesforce may be viewed as absent or “rent-a-brokers,” neglecting their supervisory duties. Both scenarios can lead to disciplinary action in the regulatory arena.
Bottom line, when agents and brokers collaborate, they help prevent consumer complaints and reduce the risk of civil litigation. In the event that an unfounded complaint is filed, agents and brokers will have the necessary evidence to demonstrate that they adhered to statutory duties and practice standards, ultimately protecting their clients’ best interests.
3. Master antitrust commission suits and practice changes
To ease into the new real estate practice changes, especially regarding buyer representation agreements, handling of real estate commissions, and the prohibition of cooperative compensation via the MLS, it’s fundamental to completely digest and ideally master these issues. Understanding them deeply can considerably boost an agent’s comfort level and readiness to address and achieve compliance with new guidelines.
Here’s how agents can prepare and stay ahead:
- Master antitrust commission litigation: Review the myriad court cases and become more knowledgeable about the core issues affecting both home sellers and buyers.
- Review NAR’s proposed settlement: Read the actual settlement and consult their website for comprehensive FAQs, continuously updated.
- Understand the Department of Justice’s (DOJ) position: Study their statements of interest filed in commission suits.
- Attend training: Participate in classes focused on agency and representation agreements, adapting to new commission structures.
- Know broker policies: Familiarize yourself with your broker’s procedures as you are expected to comply with them when operating under the scope of your broker’s license.
- Stay informed: Keep up with updates on antitrust commission lawsuits and court rulings.
- Role play scenarios: Practice with colleagues to anticipate and effectively address client concerns about new practices.
- Update your listing and buyer presentations: Enhance your presentation materials to effectively showcase your expertise and demonstrate your value and knowledge to clients. A polished and informative presentation plan or kit is essential for making a strong impression and building client confidence.
While change can be daunting, embracing it with knowledge and preparation builds confidence. As agents delve into the details, they gain a deeper insight and expertise needed to effectively modify their conduct. Ultimately, this understanding not only enhances their professional capability but also benefits their clients significantly.
4. Enhance consumer experience and clarity
Achieving seamless synergy between agents and clients throughout their engagement, leading to successful transactions, hinges on clear, transparent, and effective communication. On the flip side, when agents and clients misread each other, leaving communications with differing perceptions, client misunderstandings escalate, potentially prompting complaints to regulatory bodies.
Hence, it is vital for practitioners to prioritize the consumer experience from start to finish by consistently delivering accurate and aligned messages to clients. Oral communications must mirror written agreements to prevent discrepancies. For example, if an agent’s representation agreement specifies that commissions are negotiable and not fixed by law, but they convey a different message orally, it can create complications for both agents and their brokers.
Another significant discrepancy that can lead to consumer complaints occurs when the disclosed compensation to clients does not align with the commission actually paid to real estate licensees. Incidentally, regulators favor such cases because the paper trail makes them easier to substantiate.
It’s noteworthy that many brokers and agents, affiliated with NAR and its state and local affiliates, are relying on these associations for legally vetted representation agreements and disclosures compliant with NAR’s proposed settlement. Efforts are underway to finalize and make available such agreements by August 17th, the adoption date for new practices. However, delays, as seen recently in California due to a DOJ inquiry, may affect the availability of these forms.
As agents await reliable and vetted documents, it’s essential to approach new representation agreements with a consumer-centric mindset. Agents and brokers should scrutinize these agreements in their entirety, ensuring they clearly understand the language. If they don’t comprehend the details, neither will their clients. Additionally, when consumers file complaints about documents they have been asked to sign, regulators will be the final judge regarding the clarity of the contract and whether the provisions were written in a clear and unambiguous fashion.
Keep in mind that changes aren’t just limited to real estate practices; they also affect consumer perceptions. The public is closely following the unfolding antitrust class-action commission suits and various speculations from different sources.
Therefore, it’s more important than ever for agents to enhance their knowledge, craft and communication skills. By doing so, they can reduce the risk of consumer confusion and minimize the likelihood of regulatory complaints.
5. Document and retain all communications
The importance of documenting and retaining all communications cannot be overstated, especially amidst ongoing changes in the real estate industry. An agent’s effectiveness often hinges on their meticulous paper trail: the documents used and executed with clients, the completeness and compliance of transaction files, handwritten or digital notes from client discussions, and a treasure trove of electronic communications involving all parties in a real estate transaction.
In California, real estate brokers are mandated to retain all electronic communications related to licensed real estate activities, except those of an ephemeral nature. Even in states without such specific requirements, maintaining electronic communications is considered a fundamental best practice. Agents and brokers understand that emails and text messages often reveal the true story of a real estate transaction, documenting negotiated terms or issues, disclosed information and exchanged pertinent documents.
Electronic communications can serve as key evidence that exonerates agents and brokers from false allegations made by dissatisfied clients. If a client claims they were never informed about something or that an issue was misrepresented, documented evidence can be akin to compliance gold, providing indisputable support for the agent’s actions.
Given the ongoing commission lawsuits and heightened attention on agent conduct and adaptability, it would be wise for licensees to meticulously document every action, strictly adhere to compliance checklists, follow established policies and procedures, and maintain clear records of communications with clients. A complete and detailed paper trail not only speaks volumes but also acts as a potential shield, helping to prevent consumer complaints or effectively resolving frivolous claims and allegations during regulatory investigations.
Closing thoughts
While this article does not claim to provide a cure-all for preventing consumer complaints and regulatory examination of real estate licensees, licensees would be wise to double-check their own practice rulebooks to ensure they encompass these basic tips.
Savvy practitioners employ a diverse array of tools, skills, and real-world experience to enhance their professionalism, customer service, and adherence to regulations. Amid ongoing industry controversies, both real and speculative, it is important for all licensees to carefully assess their practices, identify areas for improvement and strive to elevate their standards.
This proactive approach not only prioritizes consumer interests but also ensures that clients receive exemplary service and representation in all real estate transactions.
In the real estate industry, every action is closely observed and evaluated by clients, colleagues and regulators alike. Fortunately, a satisfied client and a seamlessly executed transaction typically result in fewer consumer complaints, regulatory interventions, and legal disputes.
Summer Goralik is a real estate compliance consultant. The opinions, suggestions or recommendations contained in this article are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate, and must not be considered legal advice or relied upon as legal advice. Licensed real estate professionals should consult with appropriate legal counsel for further clarification.
