A little white lie, mishandling of finances, and the uncontrollable urge to brag about your celebrity client. As a real estate agent and exam instructor, I am often cornered with the question, “How can a real estate agent lose their license?”
Today, I have decided to journal the common real estate license pitfalls I’ve witnessed. I’ll highlight the four main ways agents can lose their licenses and provide you with tips to avoid these land mines.
Read on to gain crucial knowledge that will help protect your career and equip you to navigate the complex world of real estate while maintaining a good professional standing.
1. Unethical and Illegal Behavior
As shocking as it may sound, unethical and illegal behavior are the leading reasons real estate agents lose their licenses. Behind some well-architectured walls are dark alleys paved with short-term gain and long-term consequences.
Unethical and illegal practices in the world of real estate can take many forms. They typically involve actions of dishonesty or deception, which lead to financial harm for clients. Some of the most common include actual fraud, forgery, mishandling of finances, and disclosing client information.
Unethical behavior is actions that constitute improper conduct. They may not warrant a date with a judge, but they can guarantee license revocation. One such practice that new agents may find themselves enwrapped in is failure to disclose their position and interest in a transaction.
Imagine for a moment you decide to represent both the buyer and seller in a transaction. The upside for you is financial gain. But with dual agency remaining a “black sheep” practice, your clients may not like this idea. In the interest of closing the sale, you withhold this information.
In most states, like New York, where dual agency is legal, failure to disclose this information is regarded as ethical misconduct.
But if an agent practices dual agency in some states like Florida and Texas, their case will not be a misconduct issue but a legal affair. Why? Because in eight U.S. states, including the two, dual agency is not only a black sheep practice, it is downright illegal.
The implications for these malpractices are severe and far-reaching. Agents who are found guilty may face hefty fines, imprisonment, revocation of their license, or all three, depending on the severity and frequency of their offenses. They also risk damaging their reputation within the industry, making future business endeavors difficult, if not impossible.
2. Failure to Maintain Continuing Education Requirements
With 87% of agents recorded to quit the industry within five years of embarking on their journey, real estate is a competitive and ever-evolving space. This is where Continuing Education comes into play. It’s a route to help agents stay updated with industry trends and legal changes.
Continuing Education courses offer agents an opportunity to enhance their professional skills and knowledge base. This boosts their marketability in the field. It provides insights into emerging market trends and legislative changes that could impact future transactions, allowing proactive adaptation rather than reactive scrambling on the job.
Each state has its unique set of requirements for maintaining a real estate license. For instance, California’s Continuing Education requirements demand that agents complete 45 hours of an approved course every four years, while New York mandates 22.5 hours every two years.
However, not all agents manage to fulfill these obligations on time or at all. The results are penalties that range from fines to suspensions. An inactive license status means an inactive real estate career and a limitation from operating within your state.
3. Lack of Professionalism
In any industry, real estate included, professionalism should never be a mere option but an essential requirement. It’s an intricate tapestry woven from several threads – communication, transparency, fairness, and respect.
Once you join the community of over 3 million real estate agents across the country, you become accountable to both your clients and your state. Think of your license as a detective’s badge. Sure, we don’t get bulletproof vests, and our badges won’t shine in the sun but we are still held to a level of integrity that must shine in our work.
Communication involves clear and concise exchange of information between all parties involved in a real estate transaction. This includes keeping clients informed about every step in the process and answering all their queries promptly. Transparency implies being open about one’s actions and decisions; it means no hidden fees or undisclosed conflicts of interest. Fairness entails treating everyone equally irrespective of their background or status, while respect underscores acknowledging others’ rights and considering their feelings.
In the quest for professionalism and equality, real estate agents are required to uphold the Fair Housing Act. The Department of Justice is rather clear on this matter: the level of service you offer to clients should never be influenced by their race, religion, or disability.
There have been unfortunate instances where agents lost sight of these principles. This led to professional misconduct that cost them their license.
Such unprofessional behavior impacts more than individual agents. It also tarnishes the reputation of the entire industry.
The damage caused by such misconduct goes beyond immediate monetary loss. It erodes public trust, leaving potential homebuyers and sellers questioning the industry. Maintaining professionalism isn’t only ethically right but also crucial for preserving credibility within real estate.
4. Failure to Disclose Convictions
In many states and jurisdictions, real estate agents are required to disclose any criminal convictions they may have had in the past. The disclosure requirements vary from one jurisdiction to another, with some demanding full disclosure of all past convictions while others only require information on felonies or crimes related to real estate.
Hiding criminal records risks substantial consequences for agents. These range from losing licenses to jail time based on the severity. Being truthful about your past mistakes doesn’t necessarily mean you’ll lose out professionally; instead, it may demonstrate integrity, which could set you apart from competitors.
Choosing honesty doesn’t end with past convictions. Agents who get involved in criminal activity while working in the field will have to disclose this information. I have to be upfront with you: in some states, this will guarantee an immediate license revocation. This is the type of damage that might take years or even decades to repair.
Prevention Tips for Real Estate Agents
Losing your real estate license is a frightening possibility. Without it, you cannot operate with your state. You run the risk of losing your income and flushing any prospect of growing your business.
Even if you recover from a license revocation, you will have the uphill battle of repairing a tattered reputation. My pro tip? Choose prevention over cure. Here are ways you can stay in your real estate commission’s good books:
Know Your Laws and Regulations
As a real estate agent, it’s crucial to be familiar with the various laws and regulations that govern your practice. This includes understanding federal, state, local, and association laws across different states and jurisdictions. For instance, you need to be aware of antitrust violations like price fixing and collusion among competitors.
To ensure compliance with these legalities, there are several sources you can refer to. These include the US Department of Housing and Urban Development (HUD), which enforces fair housing laws; the Federal Trade Commission (FTC), which tackles deceptive practices in commerce; as well as specific acts like the Real Estate Settlement Procedures Act (RESPA) governing mortgage loans.
Manage Your Finances Wisely
Avoid commingling funds by keeping personal finances separate from professional ones, and be meticulous when handling escrow accounts.
Sometimes, it may seem like a good idea to deposit client checks into your personal account, but it never ends well. If you are working under an agency, stick to the agency account.
The last tip as far as finances go is to stay current on tax payments. Failure to pay taxes is a violation that regulatory bodies don’t take lightly.
Stay Updated with Applicable Laws and Regulations
Being well-versed with state laws is only one layer of the cake. You will have to stay updated about changes concerning your real estate license maintenance.
A quick example: effective since Jan 1, 2023, Implicit Bias Training is mandatory for all first-time licensees and renewals in California.
One way you can stay updated is by following your real estate licensing agency’s website for updates on new enactments or revisions in existing policies. Social media platforms also serve as excellent channels for obtaining up-to-date information from authoritative sources.
Keep Impeccable Records
Keeping comprehensive records isn’t only good business practice but a legal requirement, too! Invest in tools that help organize customer data systematically while adhering strictly to privacy regulations within your jurisdiction.
Continuing Education Requirements
Most states require real estate agents to fulfill continuing education requirements for license renewal. Make sure you’re aware of these criteria and plan accordingly. There are numerous online platforms that offer accredited courses for real estate professionals, which can be a great resource.
Staying Above Board
Unethical and illegal behavior, failure to maintain continuing education requirements, lack of professionalism, and non-disclosure of criminal convictions are the four main ways real estate agents can lose their licenses. The impact is not only personal but also affects the trajectory of your entire career.
Familiarizing yourself with relevant laws and regulations governing your practice, keeping a close eye on your finances, and maintaining impeccable records for every transaction you handle are some of the ways you can safeguard your license.
Thoughts? Share them below! Have experiences or tips to avoid pitfalls? Let us know! Together, let’s foster an environment where integrity stands tall within our industry.