How not to lose your real estate license: Inman Handbook

Christy Murdock

4 years ago

There’s so much noise out there on how to navigate a challenging market. This April, let Inman help you cut through the clutter to make smart business decisions in real time. All month long, we’re taking it Back to Basics and finding out how real estate pros are evolving their systems and investing personally and professionally to drive growth.

This article was last updated April 4, 2023.

While the vast majority of real estate professionals operate within the bounds of both personal and professional codes of ethics, others push the boundaries of decency, both in the way that they treat their own clients and in the way that they operate with potential leads.

As we’ve seen in recent years, there have been a host of disturbing allegations leveled at members of the real estate industry, from the Long Island controversies revealed by Newsday’s three-year investigative reporting to the systemic racism at the heart of U.S. housing laws as chronicled in Richard Rothstein’s The Color of Law.

More than ever before, real estate agents and brokers are taking a close look at whether common practices are the same as best practices. Below, we’ll look at the behaviors that get real estate professionals into trouble and exactly what it looks like if charges are filed.

You worked hard for your real estate license. Don’t let a foolish mistake (or purposeful error) result in disciplinary proceedings against you — resulting in the loss or suspension of your license.

Table of contents

How agents end up in disciplinary proceedings
How the disciplinary process works
Alternatives to license revocation
When administrative proceedings become criminal proceedings

How agents end up in disciplinary proceedings

There are almost as many ways to transgress as there are agents and transactions. That said, many agents who lose their licenses or face disciplinary action do so for the following reasons:

Violations of fair housing

This is one of the most serious breaches and one that we hear about frequently. Based on federal, state, and local fair housing laws and ordinances, agents and brokers may be in violation through a variety of actions, intentional or inadvertent.

From marketing and property descriptions that favor families or religious groups to blatant discrimination, these violations undermine the integrity of the real estate profession and the legitimacy of the housing market as a whole.

Even some seemingly innocent practices like buyer love letters — long a favored tactic in hot sellers markets — have come under fire for their tendency to disclose matters of race, religion, sex, familial status and sexual orientation. This paves the way for discriminatory practices and decision-making.

Compensation and cooperation

You need to be upfront about the terms under which you are working with your clients, including how you will be paid and when. If you are representing the interests of another party to the transaction, it is up to you to ensure that everyone involved is fully aware of that fact and that they are offered the opportunity to seek other representation, if desired.

In addition, you must work with other agents and brokers without discrimination and without showing favoritism or unequal access. From the comments you put in the MLS to the conversations you have with colleagues, you must remain consistent and follow the guidelines to which your clients have agreed.

Disclosure E&O and misrepresentation

Misrepresenting material facts about a listing, including offering personal opinions or incorrect information, can open you up to charges of misleading a buyer client or undermining the sale of a home. Watch out for client questions that require you to give a subjective opinion about a property or neighborhood or that call for expertise you don’t have.

Similarly, misrepresenting market conditions can be grounds for seller complaints, especially if they argue that your advice led them to price or market their property improperly.

While we’ve all had sellers who want top dollar for their home, it’s your job to give them a realistic valuation based on market value and to warn them of the pitfalls of overpricing their property.

Failure to agree in writing

The days of doing business on a handshake are over. It is vital for you to put all agreements in writing, including any changes that may come about during the course of a transaction.

In addition, you need to ensure you’ve properly explained the terms of written agreements to your clients so that they know what they are signing and what it means for their interests.

Breaching agreements

It is also important not to interfere with the agreements that others have in place, including targeting listings that are already the subject of a brokerage agreement or clients who are already being represented by another agent. This applies to casual conversations and requests for advice from friends and acquaintances as well as targeting current listings before they expire.

Financial irregularities

Even with the best of intentions, you can end up in trouble if you play fast and loose with client funds. Failure to properly handle escrow funds, whether intentional or not, can result in disciplinary action.

Of course, it goes without saying that purposeful theft or fraud will result in both disciplinary action and potentially, a civil or criminal complaint.

Additional resources:

How the disciplinary process works

The Association of Real Estate License Law Officials (ARELLO) is an international professional association that promotes cooperation and sharing of best practices between jurisdictions, accredits the national portion of the real estate examination, and provides access to information for consumers with a national disciplinary database and practitioner database.

Nick Rhoad

According to CEO Nick Rhoad, ARELLO is not a government agency but a public service provider comprised of primarily North American real estate regulatory agencies, state and government administrators, and individuals who have been appointed to their states’ real estate boards.

While each jurisdiction is different, Rhoad said that the disciplinary process generally begins when a consumer files a complaint with the Attorney General’s (AG) office in their state.

If the AG determines that there is a possible violation, the office sends a letter to the licensee notifying them of the complaint along with a request for information within a certain number of days.

The first thing that should take place at this point, according to Rhoad, is a conversation between the real estate professional and their attorney. Typically, this would not be a criminal defense attorney or real estate attorney, but one who specializes in license law. This type of legal practice will handle proceedings for all types of licensed professionals, from physicians to cosmetologists.

While the licensee provides an explanation, needed information and context, the AG’s office has the ability to investigate, review records, and conduct an administrative investigation. If the AG believes a violation has taken place, he or she can file an administrative complaint. At that point, a charging document is filed with the real estate commission.

Once charges have been filed, according to Rhoad, a licensee can negotiate a settlement or choose to go to trial in front of the real estate commission. This type of hearing looks much like a court trial, with attorneys present, though it may operate somewhat differently procedurally. For instance, while hearsay is not allowed in a court trial, it may be allowed in an administrative proceeding.

Once the proceeding has been completed, the governing body has the option to dismiss the case or adjudicate it and impose disciplinary measures. “The thing that makes enforcement different is that these cases are adjudicated by their peers in the profession,” Rhoad said.

“These decisions are not being made by individuals who are unfamiliar with the practice of real estate,” Rhoad said. That means that your “jury” is highly informed in the practice of the profession, not a bureaucrat or an employee of a state agency.

Licensees have the option to appeal the decision of their real estate commission. Depending on the state, appeals may go to the supreme court of the county in which the state capital is located or to the superior court in the county where the licensee lives.

According to Rhoad, appeals may be argued based on a failure to follow proper procedures — for example, if the AG’s office did not provide proper notice or did not provide notice in the right way. That may result in a remand of the case back to the commission, or the judge may overturn the case on appeal.

Additional resources:

Alternatives to license revocation

Not all disciplinary procedures end up in permanent license revocation. According to Rhoad, in the case of minor infractions, the least restrictive option would be censure or a letter of reprimand.

“You might see that from a minor advertising violation or when someone does 29 hours of CE instead of 30,” Rhoad said. This type of disciplinary action gives the licensee the opportunity to self-correct.

Following these entry-level options is probation. This allows the licensee to continue to practice but with restrictions. “For example, they could say you can only do X-number of transactions a month or you must operate under broker supervision or you have to wait until you take a particular CE course,” Rhoad said. “That could just last a few months at which time they would be eligible for reevaluation.”

After this, the license can be suspended for a specific period of time without the right to petition for reinstatement until the end of the probationary period. During this time, you may have to complete additional training or education.

In the case of official revocation, you may be able to petition for reinstatement in five, 10 or 15 years. It is important to remember, however, that just because a real estate agent or broker receives permission to request reinstatement does not mean that it will be granted.

Additional resources:

When administrative proceedings become criminal proceedings

According to Rhoad, it’s not uncommon for there to be criminal activity tied to someone’s license. “There are times when a consumer may complain about something and during the course of the investigation a crime is uncovered,” Rhoad said. “The commission does not have criminal adjudication authority so they have to refer it to the proper jurisdiction.”

If administrative charges have not been filed and you are arrested for a crime against a person or a financial crime, the AG can file a petition for emergency suspension with the commission.

In this case, there would be a period of 30 to 90 days during which the license could be suspended without a hearing in order to avoid an immediate threat and danger to the public, said Rhoad.

Following the period of the emergency suspension, the AG can either file a petition for an extension, allowing the investigatory process to continue, or file for permanent action against a licensee. This administrative process takes place separately from any pending criminal or civil proceedings against the licensee.

Additional resources:

The most important thing that real estate agents and brokers can do is to inform and educate themselves about best practices and take seriously their fiduciary role. Creating a fair, equitable and honest professional environment is everyone’s responsibility and the foundation for bringing trustworthiness back to the industry.

Christy Murdock is a freelance writer, coach and consultant and the owner of Writing Real Estate. Connect with Writing Real Estate on Instagram and subscribe to the weekly roundup, The Ketchup.