Delegated supervision, not agency
A sales agent employed by a broker is the agent of the broker. In turn, the broker is the agent of the client.
As an agent representing the broker, a real estate sales agent is authorized to prepare:
- sales documents;
- disclosure sheets; and
- other documents on behalf of the broker.
The broker employing agents is required under the California Department of Real Estate’s (DRE’s) supervisory scheme to reasonably supervise sales agents’ activities. Reasonable supervision includes establishing policies, rules, procedures and statements to review and manage:
- transactions requiring a real estate license;
- documents having a material effect upon the rights or obligations of a party to the transaction;
- the filing, storage and maintenance of documents;
- the handling of trust funds;
- advertisement of services that require a license;
- sales agent’s knowledge of anti-discrimination laws; and
- reports of the activities of the sales agents. [Department of Real Estate Regulation §2725]
The broker may employ other licensees, such as an office manager or transaction coordinator, to carry out their supervisory responsibility to review documents and maintain files.
The review of documents and file maintenance is not just a mechanical function. It comprises a meaningful review of the activities of every employed licensee regarding:
- location of errors, such as in mathematical computations, and in contract and escrow provisions; and
- completeness, accuracy and timeliness of disclosures.
The broker, office manager or transaction coordinator reviewing documents ensures the sales agent cures any unacceptable documentation at the earliest possible moment.
Without corrective activity, the broker is exposed to liability for money losses caused by others through an error committed by their agents.
A written agreement to carry out the broker’s responsibility for oversight and management of their sales agents’ activities in sales, leasing and mortgage transactions will be entered into between the broker and the licensed office manager or transaction coordinator they employ. [See RPI Form 510]
While the office manager or transaction coordinator is assigned administrative duties, their primary responsibility is to review all correspondence and documents made or received by the agents on behalf of the broker.
No liability avoided by delegating oversight
Even though the broker employs the services of an office manager or transaction coordinator, the broker retains the overall supervisorial responsibility. Thus, the broker is to ultimately review the acts of the office manager, transaction coordinator, and in turn, each sales agent. [DRE Reg. 2725]
The actions of a sales agent or broker in the employ of a broker are considered the acts of the employing broker. [Calif. Civil Code §2079.13(b)]
Sales agent employment agreement
A real estate broker is to have a written employment agreement with each of their sales agents and brokers employed to act under their license.
The agent employment agreement, usually an independent contractor employment form, provides for:
- the supervision of the agent’s activities;
- fulfillment by the sales agent of the duties owed by the broker to clients and the public; and
- the sales agent’s compensation. [See RPI Form 506]
The broker is mandated to perform constant and substantial supervision over their sales agents. Failure to do so subjects the broker to suspension or loss of their license. [Bus & P C §10177(h)]
Supervision of non-licensed individuals
A broker employed as a property manager of a multi-unit residential property may employ non-licensed individuals to perform administrative property management duties.
Under the supervision of a licensed real estate broker, a non-licensed employee of the broker may:
- show rentals;
- provide and accept preprinted rental applications;
- accept deposits, fees and rents;
- give information about the rental schedule and provisions contained in the rental/lease agreement, underwritten instruction from the broker; and
- receive signed rental/lease agreements from prospective tenants. [Bus & P C §10131.01]
The broker may employ others to carry out their responsibility to supervise the activities of their non-licensed employees, including:
- another licensed real estate broker; or
- a licensed sales agent employed by the broker, if the sales agent has at least two years full-time experience as a sales agent during the preceding five-year period. [DRE Reg. §2724]
The broker’s delegation of the responsibility to supervise their non-licensed employees will be included in a written agreement with the manager or transaction coordinator hired.
Office manager and transaction coordinator liability
Office managers and transaction coordinators are employees representing the broker. Like a sales agent, the office manager represents the broker and will be licensed by the DRE. [DRE Reg. §2724]
While acting as an office manager or transaction coordinator, the office manager or transaction coordinator owes the employing broker a duty to supervise. It is the broker who, in turn, is responsible to the client for any breach in agency duty caused by the office manager’s or transaction coordinator’s failure to supervise and correct an agent’s errors or omissions.
However, the office manager or transaction coordinator may have to indemnify the broker for failure to supervise as agreed. [Walters v. Marler (1978) 83 CA3d 1]
While most supervisory responsibility may be assigned to an office manager or transaction coordinator, the agency duty the broker owes to a client in a transaction may not be delegated to others. The broker’s agency obligations to the public cannot be avoided. [Barry v. Raskov (1991) 232 CA3d 447]