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Audits by the Department of Real Estate

An internal directive has been issued by the California Department of Real Estate (“DRE”) to begin conducting broker office surveys.  These surveys, which are effectively an audit of the brokerages activities and files, are schedule to commence in early 2013.   The broker office surveys will involve unannounced and unscheduled visit to brokers’ offices at which time the DRE will ask to see records from random transactions.  Amongst other things, the DRE is expected to investigate transaction files, trust fund handling, record keeping methods, and a host of the procedures and documents.

While it has always been a good idea for a real estate brokerage to have an outside source conduct an Advisory Audit of its policies and files, given the aforementioned internal directive by the DRE,  it is particularly advantageous to have such an audit this year.


In addition to checking a broker’s trust fund records and trust log, an independent Advisory Audit can also provide guidance with regard to DRE record retention rules.  It is important that the brokerage properly maintain transaction files and follow the rules relative to electronic file storage.  There are mechanisms for converting paper files to electronic files, and then destroying the originals, but such actions should be handled properly to avoid potential regulatory and civil risks.

Since Standard Forms used in real estate are constantly changing, an Advisory Audit can also verify that the brokerage is using the most current forms available and can provide a list of recommended forms for the various types of real estate transactions.

In addition, an independent audit could review agent personnel files to verify that the Independent Contractor Agreements and related Addendums are in compliance with current law and provide protection for the brokerage as well as its agents.

With all the various forms of insurance needed to effectively run a real estate company, an Advisory Audit can provide important information regarding available sources of Errors and Omissions Insurance, General Liability Insurance, Worker’s Compensation Insurance, and the all too seldom purchased Employment Practices Insurance.

All brokerages should have an Office Policy Manual and all agents should have a copy of this Manual.  The Advisory Audit can review your current Office Policy Manual and make any appropriate recommendations for updating or revising said Policy Manual.

Recently, Senate Bill 510 was passed pertaining to the Appointment of Branch Managers for a brokerage with multiple offices.  There are specific procedures and forms recommended for usage that would assist the Responsible Broker in properly supervising the operation of the company.  An Advisory Audit could provide recommendations in this area as well.

In addition to the above, an Advisory Audit could provide guidelines for compliance with the Federal Do Not Call law, Fair Housing Compliance Issues, required Sexual Harassment training and other matters relating to the day to day operation of the brokerage.

While such an Advisory Audit cannot assure a brokerage that it is fully protected from risks related to the areas reviewed, it can certainly help management to more successfully manage the risks and resulting hardships related to the areas being reviewed.   In addition, to minimizing risk, an Advisory Audit can maximize both the efficiency of the brokerage as well as the quality of services that brokerage provides to its agents and clients.  This is a great example of the axiom that an ounce of prevention is worth a pound of cure.

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