Brokers Duty to Supervise Agents

Brokers' Duty to Supervise:

Ignorance is NOT Bliss

Brett M. Woodburn, Esquire

In today's business world, it seems that a guiding principle is to "work smarter, not harder". In the real estate industry, competition is ever-increasing, and with the shift in the marketplace, competition can be downright brutal. As the size of real estate offices increases and the number of agents increases, the realities of hands-on management and supervision of licensed salespeople become ever more challenging. Can a broker really be expected to know everything that goes on in his or her offices?

Consider the following situation, taken from real life. A consumer contacts a salesperson directly. The salesperson accepts a modest deposit, but asks the consumer to make it out to the agent's wife - who is not licensed. When the consumer later prepares a written offer, the agent identifies the first deposit to be a non-refundable fee to be given to the broker and deducted from the sales price. The consumer makes an additional deposit on the property. Ultimately, the transaction falls apart, and the consumer, who never signed a business relationship agreement with the broker, demands all of the money to be returned. The agent returns the second deposit, but refuses to return the first deposit.

A subsequent investigation by the State Real Estate Commission ("SREC") established that the agent never delivered the first deposit to the broker, never provided the broker with any documentation to identify the consumer or the potential transaction, and never told the broker about the deal at all. As a result of its investigation, the SREC charged the broker with multiple accounts of failure to supervise and recommended a substantial monetary fine and suspension of his brokers' license. (The agent received a larger fine and longer suspension of his license.) The broker appealed this sanction to the Commonwealth Court and argued that his license should not have been suspended because he did not actually know about the agent's conduct until several months after the transaction had fallen apart.

In upholding both the fine and the suspension, the Commonwealth Court stated that a broker has a "responsibility to review all of the documents pertaining to the sale, and the broker's ignorance of the salesman's misconduct stemmed from his failure to supervise the salesman. The Court found that the broker's self-professed lack of knowledge established the SREC's determination. The Court held that a broker has a duty to keep himself or herself informed of his agents' activities.