Q: I helped a Buyer acquire a single family home last year. She will be on a temporary work assignment in another state for over a year. She does not want to sell her home; she just wants to rent it out while she is gone. I have already told her that my brokerage does not provide Property Management Services, but she wants me to advertise her home for rent and to screen all potential applicants for her as a courtesy. She is willing to pay me a small flat fee to cover my costs, but she does not want to enter into a Listing Agreement. Are there any issues that I need to be aware of when performing this service for my client?
A: There are many issues involved in this situation, not the least of which is that since you will be performing licensee activities when you market the Property for lease or rent, you will need to have a Listing Agreement – without that signed document, you do not have the legal authority to market the Property for any purpose.
I. BROKER AUTHORIZATION
There is no such thing as a “courtesy” listing to market property. Agents who are advertising rental property must have their Broker’s approval on a signed Rental Listing Agreement such as the CAR Lease Listing Agreement (“LL”). The compensation paid for advertising the Property will need to be paid to your Broker as required by California law and your Broker will need to approve the amount of the compensation that is to be paid, including whether or not to agree to a flat fee.
Another issue is whether your Brokerage will allow you to take a rental listing if you are going to screen the tenants. Many Brokers have limited (or no) E&O coverage for Property Management Services and if there is a claim arising from your activities in screening tenants, there may not be coverage. Thus, before performing any actions on behalf of the Property Owner, you need to discuss all of the relevant issues with your Broker.
II. COMPLIANCE WITH LICENSE DISCLOSURE REQUIREMENTS
Any advertisement to rent property that is placed by an Agent and/or provides the Agent’s name or contact information, must comply with DRE regulations. The ad must clearly identify that you are a real estate licensee. You need to use the term “Agent” or, if true, REALTOR®, and your license number can be no smaller than the smallest print in the advertisement.
III. FAIR HOUSING REQUIREMENTS
Rental ads have come under strict scrutiny for years by “Testers” (generally non-profit entities) who try to assess whether or not Landlords and their Agents are treating rental applicants fairly in compliance with state and federal law. People who feel that they have been treated unfairly can file a complaint under their local fair housing laws or they can file a complaint with the California Department of Fair Employment and Housing (“DFEH”), the entity that is charged with enforcing the state fair housing laws. Californians who file a federal fair housing complaint with the Department of Housing and Urban Development (“HUD”) are usually notified that their claim has been transferred to the DFEH for investigation.
Wherever the claim is filed, most complaints about rental property ads are settled but the amounts of those settlements are generally multiple times the size of the commission that could be earned.
Do NOT specify any owner requirements or preferences regarding the type of Tenant (e.g., “Adults only,” or “students preferred”) or any owner requirements such as “No Pets” in any rental advertisement. These are red flags for Testers who frequently check rental ads to see if there is even the possibility that a protected Group could be discriminated against.
Do NOT discuss (orally or in any email communications) any owner requirements or preferences regarding the type of Tenant or any owner requirements with any potential Tenants in any rental advertisement. Any mention of the Seller’s preferences could create a fair housing claim.
See Weekly Practice Tips:
Overview of New DFEH Fair Housing Regulations – Protected Classes (02/14/2020)
Overview of New DFEH Fair Housing Regulations – Assistance Animals (02/28/2020)
Overview of New DFEH Fair Housing Regulations – Criminal Records (03/14/2020)
PRACTICE TIPS:
- There is no such thing as a “courtesy” rental listing; either you are the listing Agent with a Listing Agreement in place or you should not be involved in any aspect of promoting, marketing, or facilitating a rental listing.
- Screening Tenants is potentially crossing the line into Property Management work. The best practice is for the Agent to order a Tenant Screening Report and turn that report over to the Owner to do the screening of all Tenants and making the final determination.
- Aside from creditworthiness, any other criteria that an Owner may want to use could create potential liability for the Owner and the Agent. The Owner’s preferences and requirements should be reviewed by the Owner with the Owner’s own local Landlord-Tenant Attorney. Agents should not advertise or discuss any of the Owner’s preferences or requirements and must abide by the California Fair Housing Regulations.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2021 10/22/21