Joe Wilson's Silicon Valley Real Estate Blog

The seminar was conducted by the Santa Clara County Association of Realtors (SCCAOR) and was titled "Surviving a DRE Audit".  DRE is the California Department of Real Estate and is the regulatory organization for all real estate related matters including mortgage lending within California.  I like to keep up on these things and it seemed like this might be a fruitful use of my time for the two hours that it took.

What an eye opener! As a longtime practicing Realtor, I'm of course familiar with the DRE's regulations regarding ethical practice, disclosures, record keeping, etc. but what I didn't realize before this morning is that the number of DRE audits of brokers and agents is up dramatically and a DRE audit can be as thorough and intimidating as an IRS audit. Has the audit frequency exploded because there's a sudden increase in unethical practices among real estate practitioners? Not really, although the slowdown has pushed a lot of the "fast buck artists" out of the business. No, it's apparently that many homeowners who lose their homes due to a foreclosure look for some way to blame their mortgage lender or real estate agent in an attempt to recoup their loss.  After contacting an attorney, the attorney then names everyone who may have played a role in the transaction in the lawsuit including both brokers, both agents, the mortgage lender and the escrow company and oh yeah...that also triggers the DRE's audit.

So why bother to bring this up in my blog? Well I often find myself apologizing to my clients for the tremendous amount of disclosure documentation and other required paperwork. I even had one client get mad at me for trying to "cover my butt" with so much seemingly useless disclosures. Did you know that we have a Market Condition Advisory to warn Buyers that markets go up but they also go down? We also have a Methamphetamine Lab disclosure where you have to disclose if the home you're selling was ever used as a meth lab. And then of course there's the Earthquake Hazards report where Sellers have to state whether their home contains cripple walls and if their foundation is constructed of unreinforced masonry. Say what?? Can you answer those questions?

It gets worse and it's getting worse every month as the DRE invents new statutory disclosure forms to protect Buyers and Sellers from each other. Trust me, I don't invent this stuff, but as a licensed Realtor and member of CAR, NAR, SCCAOR and other real estate regulatory organizations I do have an obligation to follow all the seemingly self-serving rules and regulations. Not only do I have to protect my Buyers and Sellers from each other but I have to protect myself and my brokerage. As the fallout from the mortgage mess continues I expect disclosure requirements will only increase.