Q: We were recently advised that we need to keep all offers presented to Sellers on our listings, even those that were not accepted or even countered; and that we need to keep all offers that we prepare for our Buyers. We were also told that we need to keep emails and some text messages. Can you please clarify the scope of what is considered to be a “Transaction Document” that must be maintained in the Broker file and what text messages do not have to be put into the Broker file?
A: The legal requirements defining which documents must be in a Broker file are found in several places, and also govern which electronic communications must be filed with the Broker as well.
LEGAL REQUIREMENT RE DOCUMENTS: There are several sources in the law that describe which Transaction Files must be maintained by a Broker.
- “Documents which may have a material effect upon the rights or obligations of a party to the transaction.” Commissioners Regulation 2725
- “A licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required….“[t]his subdivision shall not be construed to require a licensed real estate broker to retain electronic messages of an ephemeral nature, as described in subdivision (d) of Section 1624 of the Civil Code.” B&P Code §10148
- Civil Code §1624(d) excludes any “. .electronic message of an ephemeral nature that is not designed to be retained or create a permanent record, including, but not limited to a text or instant message . .” or that “are not designed to be retained or to create a permanent record..”
Broadly stated, a Broker must maintain in the Broker file the following:
Any document that a Salesperson or Broker Associate prepares for or presents to an actual or prospective client (a Buyer or a Seller), and any document received by a Salesperson or Broker Associate which may have a material effect on the rights or obligations of a party, whether or not the document was ever signed by the client.
LEGAL REQUIREMENT RE ELECTRONIC COMMUNICATIONS: The requirement for a Broker to maintain electronic messages includes, of course, emails, but it also includes text messages, unless the electronic message is of an “ephemeral nature.” See Civil Code §1624(d), above.
In today’s world, much of the communication in real estate transactions is electronic because both sales professionals and their clients utilize mobile digital devices today. This is not only a convenience, but can be helpful since retrieved and stored electronic communications are a form of “writing” which can be used as evidence of what occurred in a transaction, as well as to provide a means for a Broker or Manager to supervise the activities of sales professionals and their transactions.
If the information that a sales professional wishes to convey is important, email is the preferred form of communication, because email is easier to edit prior to sending and there are no limitations on the number of characters which can be used. In addition, emails are also easier to store and retrieve as compared to other forms of communication.
PRACTICE TIPS
- The Broker file must contain ALL listing agreements, even if the property never sold; all disclosure documents; and all offers, counter-offers, addenda and amendments written or received by a sales professional, whether or not signed by the parties or become part of a closed transaction file.
- Emails from or to sales professionals need to be provided to their Broker in a timely fashion along with all other transaction documents.
- Text messages should not be used to relay significant information about real estate transactions.
- If text messages are used to relay “non-ephemeral” information which fits into the broad definition above, then the text messages need to be retrieved and stored in the Broker’s file.
- If sales professionals are using text messages to relay important information about real estate transactions, then the Broker or its sales associates should consider investing in an app which can recover messages from the type of phones and mobile devices used by the agents. Multiple products are available for iPhone and Android users. Broker Risk Management does not endorse any particular provider.
- If there is any question as to whether or not any given electronic communication should be put into the Broker file, the best practice is to err on the side of adding the communication to the file. It may not seem important now, but that communication may become crucial if there is a DRE investigation, claim or lawsuit.
- CAUTION: Remember that all emails and texts to and from any person involved in a listing or transaction, including your Broker/Manager and other agents, both in and outside of your brokerage, are discoverable by Subpoena.
DO NOT WRITE ANYTHING IN AN EMAIL OR TEXT THAT YOU DO NOT WANT TO SEE BLOWN UP TO SIX FEET HIGH IN A COURT ROOM.
This Weekly Practice Tip an attorney client privileged document and 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 2018 10/26/18