Have you ever considered the many ways you could lose your real estate license?
There are all sorts of things agents do to either lose their licenses, face stiff penalties, or find themselves in court.
Although they overlap, these activities fall into three categories:
- Legal violations
- Code of Ethics violations
- Fair Housing and ADA violations
Deliberate dishonesty
Some of those ways to lose your real estate license involve deliberate dishonest activity – such as knowingly
misrepresenting a property. This could be by falsifying documents, lying about known defects, or failing to disclose material defects in the property. And don’t think you’d be off the hook if the seller filled out the property disclosure and lied. No, if you know the facts, you are liable for disclosure.
By the way, the term “material defects” varies from state to state. You should know whether you are obligated to disclose a death or suicide on the property, or whether you must mention paranormal activity.
Do be careful. I know of two instances in which the selling agents relied on or repeated information provided by the listing agent – much to their detriment. They were sued, and they lost. The listing agents were not even reprimanded. (Which seemed a bit fishy.) In one case it was a zoning issue. It turns out that land was NOT commercially zoned. The other was about the condition of a roof. The buyer knew it needed to be repaired and told the buyer’s agent that was what he planned to do, but his agent still ended up paying for the repairs.
Be careful. If you pass along what someone else says, be sure that it is in writing and signed by all parties. And if it is something you can verify, such as zoning, do it.
Money is often a source of trouble.
One of the most serious infractions involves money – the co-mingling of funds. Why do agents and brokers do that when they know the odds of being caught are high? In case you haven’t run into that one yet – you co-mingle funds when you mix a client’s earnest money with your operating funds.
Money can also get you into trouble accidentally. Each state has rules for handling earnest money and they must be followed exactly. In other words, you mustn’t pick up a client’s earnest money check on Friday afternoon and “forget” to take it to the office until Tuesday. Whether it is to be held in a file pending acceptance or deposited immediately, it is imperative to follow procedure.
Failure to disclose issues don’t stop with the property itself.
You can get yourself in hot water by failing to disclose that you have an interest in the property being sold or that you are the potential buyer. In fact, you also must disclose if the buyer or seller is related to you.
If you’d like to get in trouble with the FCC, you can…
…begin texting to people who have not given you permission to do so. Even if the phone numbers were in your database from a few years back, you do need permission to send text messages. To text without permission is to risk both legal and financial consequences.
The same goes for email, although you’d never know it from the volumes of spam we all receive each day.
The REALTOR® Code of Ethics should serve as a guide for staying out of trouble.
Unfortunately , few agents memorize it, and thus can violate rules without even knowing it. Some violations will get you a reprimand. Others could result in fines or temporary suspensions. The most serious violations will result in loss of license and could also lead to court proceedings.
Common Code of Ethics violations include:
Failing to cooperate with other agents.
This could be refusing to arrange for an agent to show a home or refusing to answer questions about the status of a “pending with conditions” listing.
Failing to deliver offers to a seller in a timely fashion.
A “for instance” would be when you or a co-worker have an offer on your listing and you receive another from a competing agent, so you delay presenting the second offer in hopes that the seller will accept the first one. It could also be when you delay presenting an offer because you hope your own client will make an offer.
Interfering with another agent’s client.
Your client tells you about a friend who is frustrated with their agent for some reason. They might feel that they aren’t being well represented or they might be upset because the agent isn’t answering their questions.
Your client asks you to give them some advice. So you call. This is in direct violation of Article 16 of the Realtor Code of Ethics.
You must instead tell your clients that if their friends call you, you will tell them what you can do for them after their agreement with the other agent expires or is terminated. You can’t tell them their agent is doing a bad job and you can’t advise them while they are under contract with another agent.
The same is true whether the people are buying or selling. If they’ve signed a representation agreement, you must keep hands off.
(And yes, I know – it’s hard when you can see that they are NOT getting good service.)
Fair Housing Violations have serious consequences, so be careful.
The consequences range from a letter of warning to mandatory schooling, fines, probation, and suspension. In
addition, violators may be assessed with a civil penalty of over $21,000 for a first violation and more than $100,000 if violations are repeated. These civil penalties are in addition to actual damages, attorney’s fees, and costs that a court could award to someone who has been damaged by discrimination.
Violations of the Americans with Disabilities Act also carry severe penalties – such as a $75,000 fine for the first violation.
Losing your real estate license could be the least of your worries!
Some Fair Housing violations might surprise you.
There are some that I thought would instead fall only under the Code of Ethics. For instance:
You are searching MLS for the perfect home for your buyers and find it! BUT upon reading, you learn that it is listed with a discount brokerage and the percentage offered to buyer agents is lower than you’d earn if you sold something else. So you fail to the show the house. That’s a Fair Housing Violation.
Another situation, which on first glance seems harmless, is allowing your buyers to write “love letters” to sellers. If sellers choose those buyers because of something in that love letter – and if there’s a way to make that letter or their choice seem discriminatory – then you and the sellers can be sued for a Fair Housing Violation.
What could be discriminatory? It could be something as simple as “We know our children will love playing in this yard.”
Next, not only must you avoid discrimination in advertising and your own behavior, you must refuse to answer some questions.
Questions you must not answer:
“Is this a safe neighborhood?”
Don’t answer that! You can give them links to websites where they can learn crime statistics and see if there are registered sex offenders living nearby. But that’s all. Not only could you lose your real estate license if that “buyer” happened to be a tester instead – you could be sued. Why? Because if they buy the house you said was in a safe neighborhood and then get mugged in the driveway, it will be YOUR fault!
What churches are nearby?
Advise them to drive around to see, or give them links to church directories.
Any question about the makeup of the neighborhood.
Fair housing prohibits discrimination based on race, color, religion, sex, gender identity, sexual orientation, familial status, national origin, and disability. And in their dictionary, answering questions constitutes discrimination.
The one exception is with regard to age. You can tell prospective buyers where to find an “Over 55” community.
How Fair Housing affects advertising…
Once upon a time, in an era we might call the “bad old days,” the words we could use in advertising were severely restricted. People were being sued and fined for using words like “master bedroom,” “walk-in-closet,” and “Christmas.”
I remember one agent being sued for having a picture of an Easer Bunny in an ad.
That insanity has ceased. So while there are still restrictions, they are now more reasonable. Here are the compliance guidelines: Fair Housing Advertising – Guidelines To Compliance (fairhousinginstitute.com)
Because consequences can be severe..
I suggest reviewing the Code of Ethics annually, and paying special attention to any of the articles and standards of practice that might affect your business. You’ll find it here: 2024 Code of Ethics & Standards of Practice (nar.realtor)
I also suggest reading through the Fair Housing Regulations, which you’ll find here: Civil Rights Division | The Fair Housing Act (justice.gov). The Americans with Disabilities Act prohibits discrimination based on any mental or physical disability that limits one or more major life activities. As such, it covers far more than housing.
Be safe. Know the rules so you can follow them.
If you’re like me, you disagree with some of the rules. For instance, I think it should be perfectly fine to alert homeowners if their agent is “doing them wrong.” And some agents do that!
Friends of mine were suspicious of their agent, so had a family member call to inquire about their house. And guess what? Their own listing agent told the caller that she’d like another property better.
When you know things like that are going on, it’s hard to keep quiet. And sometimes, as an agent, you do know.
As for discrimination… I don’t think it is discrimination if a young couple want to move into a neighborhood with other young families, if people of a specific ethnic background would like to live near others who are like them, or if an avid churchgoer wants o leave near a church of his or denomination.
But my opinions don’t count, and neither do yours. You might be morally right, but if you don’t want to lose your real estate license (and your money), follow the rules.
