The California Bureau of Real Estate (CalBRE) reports a surge in complaints from buyers suspicious their offers were not submitted to the seller for consideration. A recent CalBRE publication, dissected by first tuesday, highlights in great detail a licensee’s duty to promptly submit all offers to their principal. Period.
This article is Part II in a series of two. For more on the ins and outs of the agent’s duty to present reviewed in the CalBRE publication, see Part I, “Complaints prompt CalBRE to stress: present every offer.”
Prevent investigation: respond to all offers received
Consider the following hypothetical situation: You’re a seller’s agent, and a buyer’s agent has just submitted an offer you feel is not up to snuff for your seller. Maybe it’s too far beneath your seller’s asking price, or you perceive the buyer is financially unqualified; maybe it’s not on the type of form your broker insists on using; or maybe you sense it won’t pass muster with the short sale lender.
But, dutiful real estate professional that you are, you present it to your seller. As suspected, the seller isn’t interested. You store the purchase agreement form in your client file for this seller, as required, and carry on marketing the property. [See first tuesday Form 520 and 521; Stevens v. Hutton (1945) 71 CA2d 676]
Later, that buyer’s agent leaves you a voicemail inquiring about your seller’s disposition of their buyer’s offer. Since you are not duty-bound to respond to an offer to purchase and your seller flatly rejected the offer in no uncertain terms, the call goes unreturned. You are busy, after all.
Some weeks later, the California Bureau of Real Estate (CalBRE) notifies you they’ve received a complaint alleging you violated the Real Estate Law. The CalBRE investigator contacts you, asking you to turn over your recent transaction records, seeking proof you’ve fulfilled your fiduciary duty and presented all offers to your seller. [California Business & Professions Code §10148]
Are you able to prove it?
This is the situation a seller’s agent risks when offers to purchase go unacknowledged. Even though there was no wrongdoing in the situation described above, the seller’s agent still found themselves in the crosshairs of a CalBRE investigation in response to the rejected buyer’s complaint.
Handling a purchase offer: best practices
Even though it is not required, CalBRE recommends providing written acknowledgment of the submission of every offer. No surprise here. It’s a matter of sound practice to mitigate the risk of complaints with thorough (and documented) communication.
Better yet, written communication improves the public image of the brokerage community and the services offered. It’s also a courtesy to all parties involved — including CalBRE, who will thank you for the swift disposition of an unnecessary investigation.
The buyer’s agent assists in fostering a habit of response in seller’s agents by insisting on it. If the seller is not going to accept the buyer’s offer, urge the seller’s agent to have the seller sign either a counteroffer or formal rejection and return it.
A rejection of an offer best occurs by:
- returning a signed, written rejection stating no counteroffer will be forthcoming [See first tuesday Form 150; Rejection of Offer, page five]; or
- preparing and submitting a counteroffer, using either a counteroffer form or another purchase agreement on different terms. [See first tuesday Form 180 and 150]
For CalBRE auditing purposes, a copy of any document handled in a transaction needs to be kept for a minimum of three years. This includes all offers to purchase a seller’s agent receives, even if the seller did not accept or respond to them. Get the seller to initial the offer as a rejection and put it in the client’s property file. Remember, the three-year record retention is required by law. [Calif. Bus & PC §10148]
Documents are easily scanned and stored electronically on hard storage discs or drives. Thus, space and expense are not excuses, and an agent has time to comply with best practices.
Further, it’s prudent practice to maintain an activity log in a file opened for every seller and buyer, noting all phone calls, emails and documents received and the disposition of each. You will ultimately reach better results when you take time to reflect on what has just transpired and summarize the activity with a brief entry in the file. [See first tuesday Form 520]
Upon notification from the CalBRE, these transaction records are to be surrendered to investigators for inspection and photocopying in the course of an investigation. If you’ve fulfilled your obligations and dutifully presented all offers to your seller, handing copies of your records to the CalBRE satisfies your burden of proof then and there. End of story.
The buyer’s agent takes action on lack of response
If you represent a buyer and suspect their offer has not been submitted to a seller, several channels for action are available. [Calif. Bus & PC §10176(g)]
First, insist the seller and their agent respond to the offer with a written rejection or formal counteroffer. We’ve covered both of those above, but remember: the seller is by no means compelled to do this.
However, when a seller’s agent outright refuses to submit an offer you have handed to them, or refuses to communicate the seller’s disposition of the offer for whatever reason, confirm this discussion in writing by mail or email. That way, as the buyer’s agent, you have proof you submitted the offer to the seller’s agent and your business record entry reflects the seller’s agent’s refusal to process the offer.
If you still strongly suspect a seller’s agent is not submitting an offer to their seller after you have communicated your concerns, file a formal CalBRE complaint on behalf of your buyer. This is accomplished by completing CalBRE’s Licensee/Subdivider Complaint Form, or by using the new Enforcement Online Complaint System (EOCS). [See CalBRE Form 519]
Summarize the concerns for your buyer with the following guidelines in mind:
- start from the beginning and describe the events as they occurred;
- be specific about what was said and who said it;
- state who was present during these conversations or acts; and
- explain when and where these conversations/acts took place.
Attach photocopies or upload scans of all available documentation. This is especially important to CalBRE’s process for evaluating the legitimacy of complaints and determining whether to begin an investigation. These documents include:
- MLS listings;
- purchase offers;
- counteroffers and rejections;
- written correspondence; and
- transaction logs and activity files.
Be aware that, although CalBRE evaluates every complaint received, not all are deemed actionable and thus an investigation is not guaranteed.
The investigative and disciplinary process
If CalBRE determines an investigation is in order, investigators take action as quickly as within 24 hours, depending on potential risk to the public. High-priority cases involve ongoing perils to the public, such as allegations of:
- embezzlement; or
- fraudulent brokerage schemes.
Complaints for failure to present offers are less urgent and response times are longer depending on investigative caseloads, up to six months.
A CalBRE investigator is assigned to every complaint which becomes a case, serving as the point of contact for the filer. Investigators review complaints and, if necessary:
- request additional documentary evidence;
- inspect documents; and
- take statements from involved parties.
If investigators determine the subject of the complaint has violated real estate law, CalBRE’s legal department files an Accusation describing the facts and basis for action with the California Office of Administrative Hearings (OAH). The accused licensee has the opportunity to respond with a Notice of Defense, after which the case proceeds to a hearing before an OAH Administrative Law Judge (ALJ).
If the accused licensee does not respond with a Notice of Defense, the Real Estate Commissioner (Commissioner) evaluates the circumstances of the case and files a Default Decision and determines disciplinary action to be taken.
If the licensee does intend to defend themselves at hearing, CalBRE has the burden of proving the charges brought before the ALJ. Once the arguments have been made and the evidence examined, the ALJ sends a proposed ruling to the Commissioner for final decision.
The Commissioner can adopt or reject and reduce the proposed disciplinary action submitted by the ALJ. If the Commissioner wishes to enhance the ALJ’s proposed consequences, they are required to personally review the facts before issuing their Decision After Rejection.
Disciplinary actions handed down to licensees are weighted based on the facts of the case and the harm to the client or any other party involved in the complaint. Penalties range from fines to license suspensions and revocations.
For the licensee subject to discipline who wishes to contest the Commissioner’s decision, an appeals process is available. They are able to petition the Commissioner for reconsideration, or take their appeal to the appropriate Superior Court, Court of Appeals or California Supreme Court.
CalBRE Winter 2006 Real Estate Bulletin, “An Overview of the Administrative Disciplinary Process”
Further, now that CalBRE is part of the Department of Consumer Affairs (DCA), disciplinary actions even include civil claims or criminal charges against the offending licensee through the Attorney General’s office. The Real Estate Recovery Fund is available to compensate aggrieved parties in the event a seller’s agent, found to have caused money losses by failing to present all offer, is unable to pay. [Calif. Bus. & PC §10176.5]
But remember: all of this is avoided when the seller’s agent:
- presents every single offer;
- acknowledges the seller’s disposition; and
- maintains accurate, thorough records.
Don’t get caught up in the hassle of an unnecessary CalBRE investigation. Do yourself, your client and all prospective buyers and their agents a favor: present every offer, every time.
This article is Part II of a series on a seller’s agent’s duty to present every offer to purchase to their seller. For more on the requirements of the agency relationship and fiduciary duty for the seller’s agent, see Part I, “Complaints prompt CalBRE to stress: present every offer.”