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Real Estate Law

DEFINITION

Segment within the California Business and professions Code that governs the licensing of agents, brokers, and salespersons and the laws that govern the practice of real property.

EXPLANATION

California puts forth laws via a series of legal codes. The purpose such codes is to establish standards that protect the public and the financial interests of the state.

The Civil Code of California is the full series of law in the state. Division 2 of the Civil Code deals primarily with real estate and covers a wide-ranging variety of subjects.

In the early 21st century, California became the first state to enact a codified conferment of rights to buyers and sellers. Among these rights was the requirement that all real estate representatives be legally certified. However, a lower court challenged the law and decided that a license requirement violated the Constitution. Two years later, the Supreme Court reversed the lower court’s ruling. It maintained that a licensing requirement was a valid use of policing power and upheld the law.

Modern law requires that every real estate agent and broker in the country be licensed by their respective states prior to conducting real estate activities. Regulations of real estate licensees are codified in the California Code of Regulation.

Complaints against real estate agent can occur. They can come from buyers, sellers, brokers, private groups, or different real estate associations.

Common complaints include:

Trust fund recordkeeping

Unlicensed activity

Illegal activity

Misrepresentation

Inaccurate documentation

Formal complaints must be made in writing. There must be factual documentation indicating the licensee’s wrongful action.

If the Real Estate Commissioner views the complaint as viable, he or she may choose to investigate. An investigation may include examining a licensee’s bank records, recent transactions, and other records that may validate or disprove the complaint.

The Real Estate Commissioner typically administers a verdict in an informal setting, unless the DRE believes a formal hearing in the presence of a judge is necessary.

Common Licensee Violations1.     Misrepresentation. This is the most common complaint filed against an agent/broker. It often involves an agent/broker misrepresenting the condition of a property and/or the details of the transaction. For example, an agent might misrepresent the presence of mold or damages on a property.

2.     False Statements. Like misrepresentation, false statements are used to misguide a client or an agent in a transaction.

3.     Undisclosed Dual Agency. This occurs when an agent does not inform a principal that he or she is representing both principals in a transaction. Both a buyer and a seller must approve dual representation.

4.     Listing Termination Date. Properties cannot be listed with an agent for an indefinite period of time; there must be a clear termination date. Both the agent/broker and the principal must agree to this date.

5.     Extra Profit. All profits and charges must be disclosed to both principals and agents in a transaction. It is illegal for an agent/broker to make an extra profit at the other party’s expense. For example, an agent cannot intentionally list a client’s property for below market value only to have a friend, family member, or the agent buy the property and resell it for a profit.

6.     Dishonest Practice. Agents and brokers cannot employ dishonest business practices. For example, it is illegal for an agent to represent an illegitimate “straw buyer” in an attempt to alter a property’s final sale price.

7.     Consent. Only a seller can approve a buyer. An agent/broker cannot obtain signatures from a buyer without the seller’s consent.

Reasons to Suspend or Revoke a Real Estate License1.     Fraudulent License. A real estate license was obtained through fraud or misrepresentation.

2.     Undisclosed Activities. A license holder failed to disclose previous criminal activity.

3.     False Advertising. A license holder provides false advertising with the intent of soliciting business. Distribution and circulation prove intent. False advertising includes misleading the public about the size or condition of a property or the details of a transaction and failing to disclose the agent’s name and licensing information (this is referred to as blind advertising). For example, an agent cannot claim that a property can be built up to 15 units if the building is not yet approved for the construction of 15 units.

4.     Misrepresentation of Organization. A licensee falsely claims that he or she is a member of a group or organization for the purpose of soliciting business. For example, an agent cannot claim that he or she is a member of the Realtor Organization if this is not true.

5.     Negligent Supervision. A license holder engages in carelessness and incompetence, whether intentional or not. For example, a broker’s lack of oversight over his or her agents.

6.     Government Trust. A license holder misuses access to government documents or information.

7.     Restricted License Violation. A license holder violates the terms of a restricted license.

8.     Emotion Selling. A license holder uses fear to convince people to make irrational real estate decisions (known as panic selling). A license holder cannot use race, ethnicity, religion, or market conditions to bait people into to buying or selling a property. For example, an agent cannot say: “Minorities are moving into your neighborhood. You should sell your house now before your property values goes down!”

9.     Mobile Home Violations. A licensed mobile home dealer fails to validate the certification of title for a mobile home or fails to provide it to the buyer; participates in the sale of a stolen mobile home; violates mobile home registration and transfer rules.

Specific Real Estate Law

Real estate law has specific rules and regulations when a broker or salesperson is acting from him or herself. When the licensee acts for him or herself, he or she is doing so as a principal. The law states that in such situations, the licensee owes a duty to other principals to act fairly, honestly, and in good faith. In the case of Katz v. Department of Real Estate (1979), Prichard v. Reitz (1986), California case law established that licensees are generally subject to additional defined duties when acting as principals for themselves or their own  benefit, rather than acting as just a special agent.

When agents are representing the interest of themselves, they are required to prepare and complete a seller financing disclosure statement for the other principal. According to civil code section 2079.13 (b), a higher standard of care is imposed upon the real estate licensee and upon the broker with whom the licensee is associated. An associate licensee is a salesperson that is employed by a real estate broker and works under broker’s supervision.

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