Running Your Business

Warren Buffett was interviewed once and was asked for his advice on the best way to run a small business. He listed several important and valuable hints, but the one that caught my eye was “Keep out of trouble.” How appropriate that memory of his interview was when I was asked to write this column about “Running Your Business.” Keep out of trouble with the DRE was the first thing that came to my mind. If you don’t stay out of trouble with your regulator and other required state agencies, you won’t have a business to run.

As the broker of record of your company it is your responsibility to know the rules and regulations of the DRE and to make sure that your agents and staff are following the rules every day, in every way. Over the years I have seen many brokers lose their licenses by assuming that their agents and staff were conducting the business in a legal manner, meeting all the rules and regulations, but not supervising enough to realize that not only were they not in compliance but that the agents and staff weren’t trained enough to even know what to do. The broker of record position epitomizes the old adage of “The Buck Stops Here.”

The following bullet points are (at a minimum) those areas that need to be monitored and tested to make sure you are, indeed, running your business in a DRE-compliant manner:

  • All company licenses must be current and in good standing with the DRE (and the Secretary of State, if applicable);
  • All salesperson and broker-associate licensees must be properly licensed under your corporate or personal broker license (whichever is applicable to their licensed activities, and be sure you have submitted the new DRE form RE-215 for all broker-associates);
  • All licensees (including spouses, if applicable) must have a written contract and commission agreement between themselves and the broker;
  • Any fictitious business names being used by the broker or corporation must be filed with the county and the DRE and renewed with the county every five (5) years;
  • All branches used by the company must be properly filed with the DRE;
  • All advertising for the company and/or any licensees must be approved by the broker of record;
  • All advertising must have the proper disclosures of license numbers/broker affiliation;
  • All transactions must have the proper disclosures (and with private money, there are many!);
  • The broker of record must be familiar with all Fair Housing and Fair Lending laws and have a system in place that shows the agents are trained in these laws;
  • All reports (state for DRE and federal for NMLS, if applicable) must be filed no later than the due date;
  • Any trust accounts must be properly set up in a bank that offers broker trust accounts (many do not) and the broker of record must be a signer on the trust accounts;
  • Additional signers on trust accounts must meet DRE requirements for signing;
  • Trust accounts must be reconciled correctly to DRE standards (easier said than done) on a monthly basis;
  • The broker of record must review and sign off on all reconciliations;
  • Unclaimed funds/uncleared checks in the trust account must be escheated to the State Comptroller’s Office after three (3) years;
  • Any team names used by agents must meet the DRE requirements for team names;
  • For a corporation, the Statement of Information must be filed with the Secretary of State each year prior to the end of the month of original incorporation;
  • All records must be retained by the broker for no less than three (3) years.
      • Even though there is no way I could list all of the laws and regulations that exist under California real estate law, if you meet the minimum supervision requirements in each of the areas I have listed here, you are going a long way toward fulfilling your duties. How would you do if you were tested in each of these areas?

      Pam Strickland is a compliance consultant who helps brokers/corporations prepare for DRE audits. Contact her before they call you! pam@pamstrickland.com.