Broker Self-Audit Review

BROKERAGE

·        Signage must be properly affixed at the main entrance to the brokerage office and each branch office.

·        The signage must be in “clearly visible” lettering (recommended at least 1” letters

·        The employing broker (if applicable) and the designated broker license certificates must be “prominently displayed.”

·        Salesperson and associate broker license certificates must be “readily available.”

·        All salesperson’s and associate broker’s licenses must be current, the license certificates reflect the correct office address out of which each licensee works, and the certificate information matches the information in the licensee database on the Department’s web site.

·        The brokerage name(s), main office address and addresses for any branch offices must be the same as the names and addresses listed by the Department in its licensee database on the Department’s web site.

·        If records are stored off-site, the Department must be notified in writing of its location in Arizona

·        Transaction records must be kept for 5 years after termination of transaction.

·        All employee records must be kept for 5 years after termination.

·        If records are kept by electronic means, the broker must be able to reconstruct the records in the event of the destruction of the originals, and legible copies must be provided to the Department on request.

·        A current record must be maintained of the brokerage’s agents who advertise and market their services as “teams“ or “groups,“ and the information must match the information provided to the Department.

 

BROKER REVIEW

·        The designated broker must review, date and initial all employment agreements, sales contracts, leases (as applicable) and similar documents within 5 days of their execution.

·        The designated broker must review and approve all advertising of the brokerage and its agents prior to use.

·        The designated broker must check the backgrounds of individuals owning 10% or more of the brokerage and of those who exercise control in the brokerage.

 

EMPLOYMENT AND COMPENSATION

·        Broker must pay compensation only to actively and properly licensed salespersons, associate brokers and brokerages.

·        No compensation must be sent to an agent’s corporation, LLC or general partnership, other than a properly licensed professional corporation (PC) or professional limited corporation

·        All salespersons and associate brokers must be licensed and receive compensation only as natural licensees,

 

·        Broker must authorize in writing for escrow agents to pay compensation directly out of escrow to the broker’s licensees.

·        Brokerage and licensees must not be paid for negotiating loans, unless properly licensed as a mortgage broker or lender.

·        Broker’s agents must secure the written permission of consumers to receive legal rebates, compensation sharing or profit participation.

·        All legal real estate related rebates, compensation sharing or profit participation must be paid through the brokerage.

·        The agents of the brokerage work exclusively for this brokerage and, absent an agreement between the brokerages, do not represent another brokerage, either through substituting for a vacationing agent of another brokerage, the use of another brokerage’s transaction coordinator or continuing the service of a transaction after leaving a former brokerage, or similar activity.

·        Unlicensed personal assistants and other unlicensed employees receive compensation based on their work, unrelated to the success of a transaction.

·        Any unlicensed telemarketers are in the employ of the brokerage.

 

DISCLOSURES

·        The broker or the broker’s agents must disclose their status as licensees in their ads and signage.

·        Consumers’ written permission must be obtained by licensees before accepting a rebate, compensation sharing or profit participation as a result of a referral of the consumer to a goods or services provider.

·        Written permission must be obtained from the owners before the transfer or assignment of listings or property management agreements to another brokerage.

·        Written permission must be obtained from owners before the broker or the broker’s agents profit from the transfer or assignment of listings or property management agreements to another brokerage.

·        The broker or broker’s agents must disclose agency relationships to parties at the earliest practical time, prior to providing services.

·        The broker or broker’s agents must obtain informed consent of the parties before representing more than one party to a transaction OR RECEIVING COMPENSATION FROM MORE THAN ONE PARTY.

·        The broker or broker’s agents must obtain written permission prior to acting outside of their area of expertise.

·        Disclosures must be made by the broker or broker’s agents to parties to a transaction, in writing, and in a timely manner and meaningful way.

·        Material information must be disclosed to parties when the broker or broker’s agents knew or should have known.

·        The broker or broker’s agents must explain to clients the purpose and effect of important documents and provisions of those documents.

 

SALES/LEASE TRANSACTION RECORDS

·        Broker must maintain legible copies of transaction documents required by law to be kept for 5 years after termination (close) of a transaction.

·        For 5 years after every terminated transaction, a copy of all documentation handled by the brokerage or its agents must be available to the Department on request.

·        Nonresidential leases must be kept for 5 years from termination.

·        Rejected offers must be kept for 1 year or 5 years if a binding contract ultimately results.

·        Broker transaction files must be kept chronologically or by other systematic means.

 

EARNEST DEPOSITS

·        Agents of the brokerage must promptly place all cash, checks or other items received as payment in connection with a real estate transaction in the care of the designated broker.

·        The broker immediately places all funds entrusted to the broker in a neutral escrow or trust account.

 

SALES/GENERAL TRUST ACCOUNT AND ESCROW

·        If a Broker maintains one or more general trust accounts, they must identify bank information: [NOTE: BANK ACCOUNT INFORMATION IS REQUESTED SEPARATELY ON PAGE 11. THE DEPARTMENT TREATS THIS INFORMATION AS CONFIDENTIAL AND DOES NOT INCLUDE IT IN A PUBLIC RECORDS INSPECTION REQUEST.]

·        A descriptive receipt must be maintained showing the disposition of all funds handled on behalf of a principal, identifying or showing the transaction, date, amount and the parties

·        Trust account records must include a properly descriptive receipts and Disbursements Journal and Client Ledger for each transaction.

·        Trust account journals and client ledgers must be in balance with each other and are reconciled monthly with bank statements.

·        Interest earnings in a trust account must be removed at least every 12 months.

·        Any amount in excess of $500 of the broker’s money in a trust account must be removed immediately.

·        Authorized signers on trust account are limited to licensees in the employ of the broker.

 

DELEGATION OF AUTHORITY

·        The designated broker (DB) keeps a file of current delegations of authority.

·        A copy of each employee delegation of authority must be in the employee’s file.

·        If a broker delegates authority, there must be a current and properly detailed delegation letter in both the employee’s and DB’s files for each appropriate person, acting on behalf of the DB, to: Review, date and initial employment agreements, contracts and similar documents.


 

BROKER SUPERVISION & CONTROL

·        Effective August 8, 2002 reasonable supervision and control was clarified to require each brokerage to have a written Broker Supervision Policy addressing certain policies, rules, procedures and systems, plus a system for compliance monitoring of the Broker Supervision Policy. Specifically: The Broker Supervision Policy addresses how the DB reviews and manages:

·        Transactions requiring a salesperson’s or broker’s license.

·        Use of disclosure forms and contracts, including employment agreements, if applicable.

·        The Broker Supervision Policy addresses how the DB manages:

§         Filing, storage and maintaining transaction disclosure documents affecting the rights or obligations of principals.

§         Handling of trust funds.

§         Use of unlicensed assistants by a salesperson or broker.

·        The Broker Supervision Policy addresses how the DB oversees the delegation of authority to others to act in the DB’s behalf.

·        The Broker Supervision Policy addresses how the DB familiarizes the agents with the requirements of state, federal and local laws relating to the practice of the brokerage and its agents.

·        The Broker Supervision Policy addresses how the DB reviews and inspects:

·        Disclosure documents affecting the rights or obligations of principals.

·        Advertising and marketing of the brokerage and its agents and others.

·        The  Broker Supervision Policy establishes a system for monitoring compliance with the broker’s policies, rules, procedures and systems contained in the Broker Supervision Policy, and the DB has implemented the system for monitoring compliance with the Broker Supervision Policy.

 

PROPERTY MANAGEMENT AGREEMENTS

·        must be drafted in clear and unambiguous language.

·        Specifies a beginning and ending date.

·        must be executed by the appropriate parties.

·        States all material terms and conditions of the property management firm’s services, obligations, duties and responsibilities to the property owner.

·        Contains mutually agreeable cancellation terms.

·        Provides for the manner of disposition of all owner’s monies collected by the broker.

·        States the terms and conditions of broker compensation.

·        Specifies the type and frequency of reports to the owner.

·        States the amount and purposes of monies held by the broker as an operating reserve for emergency and other purposes

·        If applicable, includes an automatic renewal with at least 30 days advance written notice.

·        If applicable, provides for reasonable liquidated damages for early termination of the agreement

·        If applicable, identifies the licensees and unlicensed persons in the broker’s direct employ who are authorized signers on the property management trust account.

·        If applicable, requires more than one signature on the property management trust account.

 

PROPERTY MANAGEMENT RECORDS

·        All financial records must be kept for 3 years from their date.

·        Property management agreements must be kept for 5 years from their termination. Residential leases are kept for the earlier of 1 year from termination of the lease, or until turned over to the owner or owner’s broker at termination of the property management agreement.

·        Nonresidential leases must be in individual folders filed chronologically or by other systematic manner.

·        Property management agreements must be filed using an orderly system easily accessible to the Department.

·        Records of finder fees paid must be kept for 3 years from their date.

 

PROPERTY MANAGEMENT TRUST ACCOUNT

·        If the Broker maintains one or more property management trust accounts, broker must identify bank information: [NOTE: BANK ACCOUNT INFORMATION II REQUESTED SEPARATELY ON PAGE 11. THE DEPARTMENT TREATS THIS INFORMATION AS CONFIDENTIAL AND DOES NOT INCLUDE IT IN A PUBLIC RECORDS INSPECTION REQUEST.]

·        A descriptive receipt must be maintained showing the disposition of all funds handled on behalf of a principal, identifying or showing the transaction, date, amount and the parties.

·        Trust account records must include a properly descriptive Receipts and Disbursements Journal and Client Ledger for each transaction.

·        Trust account Journals and Client Ledgers must be in balance with each other and must be reconciled monthly with bank statements.

·        Interest earnings in a trust account must be removed at least every 12 months.

·        Any amount in excess of $500 of the broker’s money in a trust account must be removed immediately.

·        Authorized signers on trust account must be limited to licensees and unlicensed persons in the direct employ of the broker.

·        Broker must deposit owner’s monies within three banking days into the property management trust account or directly into the owner’s account.

·        All trust accounts are descriptively designated as trust accounts.

·        Only the designated broker and the broker’s authorized employees may have access to the trust account.

·        A final accounting of a terminated property management agreement must be provided to the owner.