Suppose you are a real estate broker and one of your agents engages in some pretty serious violation of real estate regulations. Suppose the behavior is clearly intentional and is part of a pattern. You would probably fire him or her. But what then? If they go to another broker, it is unlikely (a curious fact about the real estate business) that you will be called for a reference. You could report the agent's actions to your state Department of Real Estate; but would you?

If you are a California real estate broker, it is extremely unlikely that you would engage in such reporting. Even though the law pretty clearly says that you should. California Business and Professions Code §10178 reads in part: "When any real estate salesman is discharged by his employer for a violation of any of the provisions of this article [real estate regulations] prescribing a ground for disciplinary action, a certified written statement of the facts with reference thereto shall be filed forthwith with the commissioner by the employer… ."

The spirit, if not the exact wording, of the law is this: "If you get rid of an agent because they engage in illegal behavior, we want to know about it. We don't want them to just go on doing it somewhere else. We want you to tell us about it so that we can stop them."

So, why are California brokers not likely to report serious misbehavior by their agents? Because their attorneys advise them not to. And why do the attorneys do that? Because they know that, whether or not an ensuing investigation ever results in a finding against the bad agent, it can almost be assured that the investigation will cost the broker time, money, and the aggravation of having to defend himself against charges (typically, having failed to properly supervise the bad agent).

Thus it was that, recently, at meetings of the California Association of Realtors® (CAR) in Sacramento, Real Estate Commissioner, Jeff Davi, addressed a gathering of attorneys who represent real estate brokerages as well as boards and associations. Commissioner Davi acknowledged the problem: When the Department of Real Estate (DRE) receives notice that an agent has been dismissed for serious misbehavior, they routinely open a case that quickly includes charging the broker. Regardless of the type of violation alleged, the investigation will probably include an audit of the brokerage's entire operations. If any problem is found – whether or not related to the agent's doings – the broker will wind up paying for the audit. Should there be charges against the agent, there will probably also be charges against the broker. Even if the agent is found guilty and the broker is exonerated, there will have been the time and cost of a defense. Who needs such grief?

The reason for the Commissioner's appearance was to announce a pilot "benefit-of-the-doubt" program for brokers who reported badly-behaving agents. Charges would not routinely be filed against the broker. That would only happen if a review – at a higher level than the investigating official – indicated that the broker was complicit in the law-breaking. Moreover, the investigation would focus only on circumstances related to the violation. Reporting an agent's participation in a mortgage scam wouldn't necessarily lead to an audit of the broker's advertising program.

It was significant that Commissioner Davi chose to unveil the program to real estate attorneys. He understands full well that their buy-in to the program is crucial. If they aren't convinced that the department is sincere about this, they will continue to advise their clients (brokers) not to report serious violations by their agents. They will just fire those agents; and the bad guys will go on to another broker and continue to do what they were doing.

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