Broker supervision of salespersons and written broker-salesperson agreements

Responsibility stays with the broker

California requires a responsible broker to exercise reasonable supervision over salespersons and broker associates acting in the capacity of salespersons. Bus. & Prof. Code § 10177(h) makes failure to exercise reasonable supervision a disciplinary ground. It also addresses the designated corporate broker officer's failure to supervise and control the corporation's licensed activities.

What supervision covers

Under 10 CCR § 2725, reasonable supervision includes, as appropriate, policies, rules, procedures and systems to review, oversee, inspect and manage:

• Transactions requiring a real estate license.
• Documents that may materially affect a party's rights or obligations.
• Filing, storage and maintenance of those documents.
• Trust fund handling.
• Advertising of services requiring a license.
• Familiarizing salespersons with federal and state prohibitions against discrimination.
• Regular and consistent reports of licensed activities by salespersons and broker associates acting as salespersons.

For example, supervising a purchase negotiation does not resolve separate oversight issues involving a material amendment, its storage, a deposit or an advertisement.

The form and extent of these systems must consider the number of retained salespersons and broker associates acting as salespersons, and the number and location of branch offices. The regulation does not prescribe one universal reporting interval or document review schedule. The responsible broker must establish a system to monitor compliance. A manual without monitoring is insufficient. Associate brokers and salespersons may assist in administering supervision, but the responsible broker must retain overall responsibility.

Put the relationship in writing

Under 10 CCR § 2726, the broker must have a written agreement with each salesperson, including a broker under a broker-salesperson arrangement. It must be dated and signed by the parties and cover material aspects of their relationship, including supervision of licensed activities, duties and compensation. A signed commission split alone does not cover the required subjects.

The agreement describes the relationship; the supervision system implements and monitors oversight. Neither replaces the other.