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Real Estate Compliance: A Foolproof Guide for Brokers

The rules governing real estate brokerages seem to get more complex and onerous every year. And without a comprehensive strategy for meeting all the requirements, brokers face the risk of non-compliance – including fines and even the risk of loss of license.

Just like any other industry, real estate is governed by a series of rules that are designed to protect the parties involved and to reduce fraud, corruption and other risks. Every real estate transaction involves a great deal of legal paperwork, and often large sums of funds may be held in trust by a brokerage – thus the imperative for a strong protective framework. Having a compliance strategy is important for every brokerage because it can reduce your risks of facing stiff penalties for an accidental breach.

As a broker, it’s vital to understand your responsibilities and to have a plan to meet them. This foolproof guide provides a solid foundation for this important subject.

What Are the Rules for Brokers?

Compliance regulations for brokers are designed to ensure fairness and transparency to clients on both sides of a real estate deal. In the U.S., such laws are governed at the state level, with different policies and mechanisms for triggering an audit from jurisdiction to jurisdiction.

In most U.S. states, a business entity must first register with their state’s real estate commission before commencing services. Next, they must apply for a real estate brokerage license; if your brokerage has different branches, you will need separate licenses for each office location. Fees and renewal schedules for brokerage licenses vary by state, as will the specific compliance regulations to which brokers are subject.

Rules for brokers dictate practices for everything from marketing to transaction management. As the body responsible for all regulatory practices, the state real estate commission is the best first source for understanding the exact rules around these and all other matters for your jurisdiction.

Preventing Compliance Violations

Once you are up to speed on the requirements, it’s important to develop a strategy for ensuring that they are met and that no lapses occur. But accountability is every bit as important as following the rules. When an audit occurs, it is the broker’s responsibility to prove that the correct documents have all been properly filled out, executed, and reviewed. Even if you’ve done everything else right, a failure to retain complete and comprehensive records can get you dinged.

With dozens of forms attached to every real estate transaction – and a requirement to hold onto those records for three to seven years after a transaction closes, depending on the state – efficient, consistent method of record-keeping is often the best tool at brokers’ disposal for preventing compliance violations.

As you plot out your strategy, make sure it includes these best practices:

1. Create a compliance checklist to guide you through every transaction.

While brokers are subject to state rules, real estate transactions themselves are subject to a patchwork of rules, which may include local, state and federal laws. These rules will vary based on the location and type of property. It is important to define the requirements of every transaction upfront based on these factors. Compiling these into a checklist format can ensure that no step gets missed and no document goes unsigned.

But you shouldn’t need to create a new checklist every time you’re involved in a new sale. Instead, you can identify the types of transactions you typically handle and create templates based on the requirements of each one. As rules may change over time, it’s important to revisit the requirements on an annual basis – and then update your templates as needed. While this can be difficult if you’re formatting your checklists as PDFs or another static format, a workflow tool like Paperless Pipeline allows you to flexibly update and refine your lists whenever you need to.

2. Have a system for archiving transactions.

Having a secure, organized system for retaining transaction records, as exact duplicates of the originals, is crucial in the event of an audit. Your transaction files should contain fully executed versions of all of the required documents, including an unalterable timestamp of the process, and proof of delivery when applicable. But holding onto all those records on paper can be a mess to keep organized – and incur major storage fees for busy brokerages. Creating virtual transaction files that are backed up into the cloud and which be retrieved at any time and from any device means you can rest assured that you won’t receive a serious citation simply for bad bookkeeping. 

3. Familiarize yourself with potential risky areas.

Representing both the seller and buyer can make transactions even more profitable for brokerages, but these dual-sided transactions can add risk for the agency if confidentiality to each side is not a top priority. This includes the sort of accidental access to information that can occur simply from sharing an office and records storage systems. But in states where such deals are within the rules, brokers have added responsibilities around protecting client information on each side of the deal. This requires a transaction management and records storage system that keeps each set of documents completely discrete in order to protect against accidental sharing or breaches. Paperless Pipeline stores each transaction file and its associated documents separately from every other transaction record within your agency’s files, reducing the risk of accidental violations and keeping you compliant with this strict requirement.

4. Conduct periodic compliance audits.

Even with the best of intentions, good habits can lapse over time – which is why it’s important to conduct periodic compliance audits. In addition to reviewing new rules and updating checklists, from time to time, review completion rates for checklists and complete transaction files. This will help to ensure that every individual within your brokerage who is involved with transactions is following the process, reducing risks for the entire team.

Still unsure if your brokerage’s process is 100% compliant? 

Our software is used by the country’s top brokerages and real estate teams to help them stay compliant with document-tracking checklists, on-demand transaction logs, and complete monthly backups of all your closed deals. Use custom checklists to keep track of which documents are complete and which ones are still missing and let Paperless Pipeline replace your filing cabinets and overly-complicated online systems. Our simple real estate transaction software is easy to use, works alongside the tools that staff are already using, and is accessible anywhere

Try Paperless Pipeline with a 100% free trial today and see how simple it is to track contract-driven and compliance-driven due dates as well as other time-sensitive tasks so nothing falls through the cracks across any transaction. 

Or, request a live demo to see how Paperless Pipeline can improve the workflow at your office, and let us help you create checklists and workflows that help you close more deals!