As busy professionals, brokers often get caught up in managing daily business activities, and overlook the basic building blocks of their profession – policies, procedures, contracts, and independent contractor relationships. This article will outline steps brokerages should take to 1) ensure compliance with Oregon Revised Statutes, Oregon Administrative Rules, and Oregon Real Estate Agency guidelines and 2) ensure that all brokers associated with the brokerage are committed to proper business practices.
Many documents control how brokers operate their licensed professional real estate activities. These include the obvious – transaction documentation, to the overlooked – independent contractor agreements. A fundamental building block for any brokerage is its policies and procedures manual. A carefully drafted policies and procedures manual is crucial to the success of a brokerage, as it guides how a brokerage operates, and what policies brokers must follow in listing and selling properties.
Another important building block for a brokerage is its independent contractor agreement. As we review clients’ documentation, we have occasionally noticed this important step – having a broker sign an independent contractor agreement – is either overlooked or informally done. In addition, we often see instances where brokers initially signed an independent contractor agreement with a brokerage, but the independent contractor agreement has expired and was not renewed. Informal relationships or lack of documentation of an independent contractor relationship often lead to disputes as to what the relationship entailed. For instance, how was the independent contractor to be paid? If the independent contractor were to leave the brokerage, how are his or her listings and pending sales to be handled? And how much commission will an independent contractor earn after leaving from listings and pending sales which were active when he or she was still with the brokerage?
Another fundamental building block for a brokerage is its forms, whether they be drafted by OREF or generated internally. Are brokers using the correct forms, and filling them out properly? Many times, brokers may use incorrect forms because they are in a hurry, and do not have time to find the correct form or fill it out properly. However, informal and/or hurried deals lead to problems, such as what the parties meant when they drafted an addendum. In addition, brokerages must ensure that brokers understand the meanings and proper usage of all forms, have access to them, and use them religiously. Forms must be periodically reviewed to ensure they are consistent with current laws, rules and regulations.
Errors and omissions insurance coverage is also an important building block for a brokerage. Insufficient coverage or a lack of coverage can significantly harm a brokerage’s livelihood, as well as the livelihoods of the brokers involved in a dispute. Accordingly, you should regularly review your errors and omissions insurance policy to ensure that you are adequately protected. For example, does your insurance policy cover mold or brokers listing and selling their own properties? If not, does your office policy deal with these subjects?
Brokerages will benefit from evaluating whether their documents comply with state laws, rules and regulations. In addition, brokerages must evaluate whether their documents still make sense – i.e., whether they still fit the business model of the brokerage. Consequently, brokerages should invest their own time in reviewing their documents and procedures on a regular basis – a “self audit,” and adequately train brokers in the significance and use of its documents.
A number of brokerages also engage legal counsel to periodically conduct an informal audit of the brokerage – a “legal checkup.” Counsel should be well versed in real estate laws, rules and regulations, and how they govern policies and procedures manuals, independent contractor agreements, transaction documentation, and risk assessment. In addition, counsel should be able to inexpensively determine whether a brokerage has adequate forms and systems in place, and what, if anything, needs to be done in order to fix any potential problems.
Although a legal checkup or self audit may involve expending resources such as time and money, they will be well spent. Many real estate disputes result from, or are unnecessarily complicated by, a lack of documentation or improper use of documents. A periodic checkup and audit will help ensure that a brokerage is complying with laws, rules and regulations, and that adequate documentation is being used.
This column contains general information only and must not be construed as legal advice.
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