5 Real Estate Compliance Pillars Brokers Must Know In 2023

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Real estate compliance is complex. The laws are confusing and unclear—and federal, state, and local laws all impact transactions.

Every state presents its laws differently, and while most brokers understand the main concepts, many fail to meet all real estate compliance requirements.

Real estate compliance issues can lead to legal action being taken against you; some will result in failing an audit, and others may lead to a criminal conviction. 

The good news is there are general principles each state follows. If you adhere to these principles, it will be easy to comply with regulatory bodies. 

These principles can be broken into five pillars:

  1. Time
  2. Conduct
  3. Storage 
  4. Completeness
  5. Review

We’ve written this guide to help brokers follow these principles and meet their primary obligations. 

💡 Pro Tip: Ensure compliance using a reliable online transaction management system like Paperless Pipeline. This ensures that you’re audit-ready and helps you to avoid real estate compliance breaches. Look for features such as unlimited users, monthly data backups, and transaction history logs to avoid unlicensed activity. 

Which Real Estate Laws Are Most Often Violated?

Before we explore these five pillars, let’s look at the most common reasons brokers breach real estate laws:

  • Trust fund violations: Brokers responsible for handling monies commingle funds or don’t maintain adequate records.
  • Failure to supervise: This happens when a real estate broker doesn’t oversee an agent’s activity.
  • Unlicensed activity: If a broker allows an unlicensed person to undertake activities that require a license.
  • Misrepresentation: If material facts are misrepresented during a transaction, this can involve either a lack of disclosure or erroneous disclosure.

5 Principles of Real Estate Compliance 

Let’s look at each pillar in detail. We’ll explain the regulations brokers must meet and how Paperless Pipeline can help you achieve this. 

Pillar 1: Time 

A series of deadlines govern transactions, from initial offer to closing. 

It’s essential to understand the process in your state and make sure your agents and coordinators are aware of the deadlines and can meet them at each stage.

A poorly managed transaction can lead to a deal stalling, which can result in problems like finance falling through. 

A good agent will spot issues before they arise—but not every agent is experienced and no one makes zero mistakes. 

By implementing a process that automatically schedules and sends deadline reminders you ensure that deals stay on track.

Here are some key deadlines that often catch out brokers: 

Offer accepted: Only the first step

The first time-bound issue an agent has to manage is the offer process.

A seller typically has 72 hours to accept, counter, or ignore an offer. Once a seller accepts the buyer’s offer, the property is “under contract”.

When a transaction becomes under contract it activates many deadlines which each party is responsible for meeting. Real estate checklists are useful for tracking these.

Many brokerages come unstuck because their agents are great at building relationships and selling, but not so good at the process of completing a transaction.

Once an offer is accepted, a process needs to be implemented that leads all parties seamlessly through the deal and necessary regulations. 

Depositing funds and securing a mortgage

Your client being refused for finance is a common reason why fall through. Real estate professionals should be proactive in getting buyers to obtain financing as early as possible. 

An earnest money deposit is often required to take the property off the market while finance is prepared. 

This can activate passive contingencies that can obligate buyers when a date lapses. 

What is a contingency?
A contingency is a way for buyers to get out of a contract. Typical contingencies include inspection, financing, and appraisal. Once all contingencies are removed, the buyer is “locked in” to an agreement. 

There are two main ways to remove contingencies: passive and active.

Passive contingency removal is when a deadline passes and the contingency automatically expires. Active removal is when parties are notified once a condition has been reached. 

If the seller backs out without meeting one of these contingencies or backs out after they have lapsed, the earnest money generally goes to the seller as compensation.

It’s important that you and your agents understand all contingencies involved in a transaction.

A mortgage contingency gives buyers 30 to 60 days to secure loan approvals. If finance isn’t secured within the timeframe, the deposit can be returned.

Other contingencies 

There are several time-bound contingencies in the transaction process that need to be tracked, and missing any one of these can see a deal stall or collapse. Here are a few: 

  • The home inspection.
  • The seller disclosing any known problems with the home.
  • The pest inspection not revealing any infestations or damage to the home.
  • The seller completing agreed-upon repairs.

Real estate transactions and regulatory compliance can easily break down on these points, so brokers must manage this process proactively. 

Know contract date terminology

Poor timeliness is one of the main reasons real estate deals collapse and contract dates are often confusing. 

Instead of specific dates being identified, the terminology used refers to days after and days prior. 

It’s worth clarifying these terms and brokers should make sure agents are comfortable with these definitions:

  • Days: This refers to calendar days. This is the last day for completing an action, and it can’t be a weekend or public holiday. 
  • Days After: This refers to the days after a specific event; day one counts as the day after the event. 
  • Days Prior: The days before a specific event, not including the day of the event.

💡 Pro Tip: Save time with automatic checklists, due dates, and task reminders in Paperless Pipeline. See how it works → 

Pillar 2: Conduct

Real estate agents are regularly presented with ethical dilemmas, where the unethical approach can lead to making more money.  This can cause misaligned incentives. 

Withholding offers, failing to disclose financial information, or fabricating offers to get a listing are all possible tactics. 

The National Association of Realtors (NAR) lays out a code of ethics, and they take professional standards seriously. Read the full NAR Code of Ethics to learn more. 

NAR members are required to attend a course on ethics every four years. Although it’s not required for real estate agents or brokers to be members, most of them are—the association had 1.5 million members as of August 2023.

Its code of ethics is regarded as the gold standard for real estate compliance, and following it will keep you on the right track. 

The problem for real estate brokers is policing their agents; it’s hard to monitor everything agents are doing.

💡 Pro Tip: Paperless Pipeline helps real estate brokers promote professional behavior and ethical practices. See how it works →

Can real estate agents be penalized for unethical behavior?

Yes. Real estate agent behavior isn’t just a case of upholding patriotic values—fiduciary duty governs the conduct of agents.

Fiduciary duty requires agents to act in the best interest of buyers and sellers at all times. Punishment for violating these duties ranges from loss of commission to damages and, in extreme circumstances, criminal charges.

The most significant penalty is to reputation—agents and brokers seen to act dishonestly are unlikely to be successful in the real estate business. 

Here is a reminder of the core fiduciary duties:

  • Loyalty: Agents should protect their clients’ interests over anyone else when transacting.
  • Confidentiality: A real estate professional must not disclose clients’ personal information. 
  • Obedience: Agents need to follow instructions unless those instructions break other laws.
  • Competence, care, and diligence: An agency must act with care, and if they don’t have the level of competence for specific tasks, they need to disclose this information.
  • Accounting: Agents must disclose exactly how funds are being used during the transaction.

💡 Pro Tip: Paperless Pipeline gives brokers clear oversight regarding how their agents are operating with received email capture, activity logs, and permission settings. See how it works →

Pillar 3: Storage

Keeping records is a critical real estate compliance requirement for brokers. However state laws are complicated because they weren’t written with technology in mind. This leaves brokers unclear on whether their storage methods are compliant.

Here the areas that trip up real estate brokers:

  1. They don’t record the correct information.
  2. The storage methods don’t satisfy state regulators.

First, let’s briefly review number 1 (we’ll go into more detail in Pillar 4). 

This article on the Washington Realtors’ website lists the information brokerages need to retain.

The article reminds brokers to keep informal communication like text messages or social media conversations.

The Washington Realtors list is typical, as the information you need to keep is fairly consistent between states. 

But how you store information is less clear, and the next section looks at why.

Storage in 2023 

Storage requirements vary between states. Some states require a hard copy, while others are happy to see review evidence through a software platform.

When data is kept remotely in the cloud, it can be hard to satisfy regulations written with filing cabinets in mind. 

For example, we work with agents in Arizona that have to give Paperless Pipeline’s address to satisfy regulators on the storage location. 

Most states stipulate the storage of documents for three years, but it’s good practice to keep documentation for ten years—or indefinitely.

💡 Pro Tip: Paperless Pipeline makes recordkeeping easy. Every plan includes unlimited storage, your transactions are stored for 10 years from the day they’re created, and every customer is provided with free monthly data backups for local storage options. See how it works →

Pillar 4: Completeness

You need to retain a complete paper trail from listing the property to closing the sale. 

Real estate brokers and transaction coordinators have no room for error here. Real estate laws are clear on what documentation is required.

Here are the file requirements for the Arizona Department of Real Estate and the Colorado Department of Regulatory Agencies.

The principles are consistent, but some of the specifics may change—for example, the format for storing documents or the communication log.

Here are some key areas typically covered:

  1. Filing system: All records must be stored systematically in one place and often must be accessible in real time.
  2. Responsibility: Important actions such as document and offer reviews are often legally required for brokers or real estate compliance and conveyance officers. A time-stamped record showing who completed an action must be recorded.
  3. Brokerage relationship: A licensed real estate broker must often prove that the rights of their clients and the necessary disclosures are in place and correct. 
  4. Sales transaction folder: To include contracts, escrow receipts, settlement statements, etc.
  5. Inspections: Any reports or declarations.

💡 Pro Tip: Use Paperless Pipeline to ensure completeness.

  • Customized transaction checklists ensure your team won’t miss anything.
  • Setting critical due dates and daily reminders ensure deals are completed on time.
  • Set filters like closing soon and overdue, as well as custom reports to manage large numbers of transactions with custom reports.
  • Get instant notifications when documents are uploaded; review these key documents on any device.
  • Customize locations so each office or team sees information relevant to them, while you maintain a whole-company view. 
  • Connect your account to 1,500 apps, including Gmail, Google Docs, Trello, and Salesforce.

Pillar 5: Review 

Designated brokers or associate brokers with delegated broker duties need to review key documents, like listing and purchase agreements.

Failure to demonstrate documents have been reviewed by an appropriate person can result in a failed real estate compliance audit. 

Plus, if problems are identified, regulatory compliance issues can be avoided, which helps to prevent clients from suing you.

Today, electronic document reviews are becoming more common. But many brokerages still use pen and paper to review documents.

This manual process is:

  • Difficult to track.
  • Slow and cumbersome.
  • Missing a central view.

Using software to review documents is a huge step forward. At a glance, brokers can see which documents need to be reviewed and mark them as completed. 

If there are any issues, these can be noted and sent back to the agent.

If you are using software, the activity log must reliably demonstrate who has completed the review.  

💡 Pro Tip: Make document review simple, easy, and quick. With Paperless Pipeline you can review documents, send notes, and approve from anywhere and on any device. Ensure that you’re able to maintain compliance with review permissions, and a time and date record on every document. See how it works →

  • See all unreviewed documents in one place.
  • Mark a document as reviewed with one click.
  • Time and date stamp approvals to prove who completed the review.
  • Download evidence quickly and easily for an audit. 
  • Filter the documents you want to prioritize. 
  • Add comments and immediately notify the relevant agent.

Help Your Real Estate Business Maintain Compliance with Paperless Pipeline

Real estate compliance can be confusing, especially if you operate across multiple states. 

But Paperless Pipeline gives you the tools to build regulatory compliance into your transaction management processes—so you can rest assured your brokerage meets regulations. 

Get a free trial and find out for yourself. It’s simple, powerful, and 100% free to try without a credit card.

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