What is a Broker Self Audit?

In 2012 — at the state Association’s urging — the General Assembly passed a new law: Instead of having the Virginia Real Estate Board conduct random compliance inspections, brokerages are now required to audit themselves as if they were about to receive a random inspection. Principal and supervising brokers are required to conduct a self-audit at least once during each firm license term (and sole practitioners at least once during each license term) prior to renewal to ensure compliance with VREB regulations.

§ 54.1-2106.2. Certification of audit on renewal of firm or sole proprietorship license.

When submitting a renewal of any firm or sole proprietorship license, the principal broker or supervising broker of the firm shall certify that he has audited or has caused to be audited the operations, policies, and procedures of the firm to assure compliance with the provisions of this chapter and with regulations adopted by the Board. Such audit shall be conducted at least once during each term of licensure, and the completed audit form developed by the Board, signed by the principal or supervising broker, shall be kept on the premises of the firm or sole proprietorship and shall be produced for inspection or copying upon request by an authorized agent of the Board.

How is an audit done? Simple: There’s a VREB form to fill out. You can download a copy of the self-audit form, aptly named Firm/Sole Proprietor Audit Form (v07/28/2014), from DPOR’s website or you can click here to download.

Where do I find the Broker self-audit form?

You can download a copy of the self-audit form, aptly named Firm/Sole Proprietor Audit Form (v07/28/2014), from DPOR’s website or you can click here to download.

When do I have to complete the Broker Self Audit form?

This form should be completed prior to renewing your Firm license, or your own license if you are a sole practitioner. Although you are not required to submit this form to DPOR, you should keep the completed, signed form onsite and readily available if requested by a DPOR agent.

What is covered in the broker self audit?

In a sense, it’s a clear, simple checklist to make sure you’re in compliance with Virginia’s laws and regulations governing real estate brokerage. Some sample questions:

  • Is the supervising broker available to all licensees under his/her supervision in a timely manner?
  • Does firm hold down payments, earnest money deposits, rental payments, rental security deposits, moneys advanced, or other escrow funds received on behalf of its client or any other person? If yes,Is the account maintained in the firm’s licensed name?
    Is the account in a federally insured depository?
    Is the account labeled “escrow” on the account name, checks, and bank statements?
  • How many property management clients does the firm have?
  • Were any notes, nonnegotiable instruments, or anything of value not readily negotiable, accepted as a deposit on a contract, offer to purchase, or lease? If yes, was its acceptance acknowledged in the agreement?
  • Was all advertising under the direct supervision of the principal broker?
  • Did all advertising contain the firm’s licensed name?

Keep in mind that while there aren’t random inspections anymore, if the Board gets a complaint it will investigate, and it will demand a copy of the audit. So you had better be sure that you’ve verified your answers.

Further (and this should be obvious, but you never know), as a principal/supervising broker you’re also responsible for ensuring that the answers not only are true, but stay true. i.e., certifying that all your escrow accounts are in order on January 1 doesn’t excuse you if something goes wrong on January 2.

The final line might be the most important. That’s where you sign that

“As the principal broker or supervising broker, I have personally completed or personally overseen the completion of this audit and have personally reviewed and verified the responses in the audit.”

In other words, this is a legal document — an affidavit. Which means you shouldn’t forget where the buck stops.

Do I send the completed audit form into DPOR with my firm renewal?

No, but it should be kept on file onsite and available should you be requested to produce it.

Agent moves from one company to another and leaves pending deals. Can the former broker legally pay the former agent directly on those deals when they close - or does the payment have to flow through the new broker?

The agent’s former broker can pay the agent directly. The new firm is a stranger to the deal, has no relationship with the clients, or entitlement to any of the money. The “broker” to whom the regulation refers is the broker of the firm where the deal was handled and who was paid the commission. The obligation is to the agent, and not the other firm. So, pay the agent.

An experienced property manager wants to join my firm and head a new property management division. I am the broker and do not have any experience with property management – is it safe to allow this new practice?

I would be very cautious in moving forward. The supervising broker is responsible for ensuring that brokerage services are carried out competently and in accordance with the law. If the broker is unfamiliar with the area of practice it will be very difficult for her to ensure compliance with the law.

I recommend that the broker educate herself about property management through training and closely monitor all activities of the property manager. Also, please remember Code of Ethics Article 11:

The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/10)

I am the Principal Broker escrow agent; what if my agent forgets to give me the EMD within five business banking days. In other words, the funds are not deposited until the 6th day?

You must report this violation to the Real Estate Board within three business days. In fact, any escrow violation must be reported. Brokers who fail to report escrow violations face a violation of the regulations themselves.

Please note that the Real Estate Board needs the broker to report the violation in writing either by regular mail or e-mail (complaintsanalysis@dpor.virginia.gov). The Board also needs to know the name of the licensee and license number, when the deposit was due and when it was received.

How long do the Real Estate Board Regulations require my firm to keep documents?

You should always consult with your accountant and/or firm attorney to determine whether you should keep these documents longer. The regulations state that brokers should retain the following:

  • Documents to be retained for three years from the date of execution:
    • Brokerage agreements; and
    • Dual and designated agency disclosures and consents.The disclosure of brokerage relationship to an unrepresented party form must be retained for three years from the date provided to the party.
  • Documents to be retained for three years from the date of closing or from ratification, if the transaction fails to close:
    • Executed purchase contracts;
    • Any executed release from a contract;
    • Executed lease agreements;
    • Executed property management agreements; and
    • Each settlement statement.

It is a violation to fail to maintain a complete and accurate record of such receipts and their disbursements for moneys received on behalf of others for a period of three years from the date of the closing or termination of the sales transaction or termination of a lease or conclusion of the licensee’s involvement in the lease.

Am I responsible for ensuring my salespeople are licensed?

Yes. Under the 2015 regulations, supervising brokers must now ensure licensees have active, current licenses and must monitor the license status of those they supervise. This may require each firm to designate an individual responsible for checking periodically to determine that all licensees affiliated with the firm still have active licenses. A helpful resource to accomplish this is DPOR’s License Lookup Site: http://www.dpor.virginia.gov/LicenseLookup/. Also be aware that a licensee who submits an activate application to the board is not able to conduct business with the real estate firm or sole proprietorship set forth in the application until the application is processed and the license is issued by the board. The regulations also make clear that a licensee is prohibited from practicing real estate after his license expires even though DPOR’s system lists him as Active for 30 days after expiration.