Published 08/08/2012 04:17 PM | Updated 08/08/2012 04:17 PM Show How long does a broker have to keep business records? A broker is required to maintain legible records of all transactions, financial records, etc. for a period of five years. If any record has been subject to litigation or used as evidence, it must be maintained until at least two years after the litigation has concluded. All such records of a brokerage are subject to review by the department's real estate investigators during normal business hours. Reference:F.S. 475.5015 All Articles Requirements for Firms and Brokers Washington law is clear: firms must maintain a copy of all transaction folders for a minimum of three years (WAC 308-124C-110(2)) and brokers are responsible for timely submitting records to the firm (RCW 18.85.275(2)). What is often confusing to brokers and firms alike, however, is which records must be stored and when broker is required to deliver those records to the firm. Most brokers are familiar with the easy part of this requirement. All transactional documents must be given by broker, to broker’s managing broker, within two days of mutual acceptance of the document. (WAC 308-124C-135(C) and 140(C).) But what about documents that are never mutually accepted or that require the signature of only one party? And, what other documents must a firm retain in a transaction folder? Other than transaction folders, what records must the firm retain related to delivery of brokerage services? This article will attempt to answer all of these questions. A transaction folder must be retained for all transactions. “Transaction” as used in this context, has been defined by an administrative law judge and the Department of Licensing to include closed transactions, sale failed transactions, offers that were never accepted, delivery of a broker price opinion and delivery of a letter of intent (unless delivery of the BPO or the letter of intent are part of a larger “transaction”). This means that a firm must maintain a transaction file on all “transactions” as the Department of Licensing defines that term … meaning that a firm must maintain a transaction file, for a minimum of three years, on not only closed transactions but also on sale failed transactions, offers that never reached mutual acceptance, broker price opinions and letters of intent, when the BPO or letter of intent is the only RE Brokerage Service provided for the subject property. If this seems contrary to prior information you received, it may be. The Department changed its regulatory policies in response to a finding by an administrative law judge that “transaction” includes sale failed transactions and rejected offers. The DOL is enforcing this requirement broadly, that firms retain transaction folders on ALL of these categories of transactions. What then, must be retained in a transaction folder? A “transaction folder” must include: “all agreements, receipts, contracts, documents, leases, closing statements and material correspondence….” (WAC 308-124C-105(2)(c).) The Department defines “documents” and “material correspondence” to include advertising. Thus, a transaction folder must include, at a minimum: all agency agreements (listing agreements, buyer agency agreements); all transaction documents (PSA including all addenda, regardless of when the addendum was mutually accepted and even if the addendum was never mutually accepted, notices from either party); receipts showing broker’s handling of earnest money and/or the deposit of earnest money to the holder identified in the PSA; leases for any occupancy of the property by a non-owner of the property (in a traditional sale transaction, this may include a pre or post-closing rental agreement); a settlement statement showing, at a minimum, the settlement of funds for the party represented by the firm; all material correspondence (addressed more fully below); and all advertising (addressed more fully below). If any of the identified documents do not exist in a transaction or were never provided to broker, there is no requirement to retain those documents. For example, if broker represented the buyer but buyer never signed a buyer agency agreement, there will be no agency agreement in the buyer broker’s firm’s folder. Similarly, if buyer deposited earnest money directly to escrow, bypassing buyer’s broker, there will be no receipt showing buyer broker’s handling of the earnest money in either the listing or the selling firm’s file, but there should be a receipt showing delivery of the funds to escrow in the transaction folder for both firms. Brokers are often surprised to learn that correspondence must be retained in a transaction folder, considering that in today’s world, correspondence happens by many varieties of telephonic and electronic means. Is it truly necessary to save hand written notes, text messages, emails, chats and social media conversations? The answer is unconditionally “yes” if the conversation surrounded an issue material to the brokerage services provided. For many brokers, this means that you will have to start printing or otherwise preserving conversations that you never contemplated saving. How will you save a conversation that you had in a social media format or by text message? If you are unable to convert the conversation to a format that can be preserved, then you must cease using the format for material communications. It is up to the broker to determine if correspondence is material but the safest approach, when uncertain, is to retain the correspondence. As a starting point, any time a broker advises a client to seek the advice of another expert (inspector, contractor, lawyer, title officer, etc.) it is a material communication and should be preserved. Broker should be mindful that material correspondence may include correspondence with broker’s client and with people who are not broker’s client. For example, broker could have a material communication with an inspector, escrow officer, lender, the other real estate broker, broker’s managing broker, the party on the other side of the transaction and many others. If the conversation has anything to do with the transaction, chances are that the communication is material and copies of the correspondence must be retained in the firm’s transaction folder. Additionally, although oral communications do not fall under the definition of “correspondence,” when material communications occur in oral conversation, broker should document the transaction folder with evidence of that conversation so that if necessary, broker can later prove the conversation occurred. Advertising must be retained in the transaction folder. For print ads, this is an easy task. A copy of all print ads, along with the MLS listing printout, must be retained in the transaction folder. For radio ads, a transcript of the ad should be retained. For larger ads (such as a billboard), a picture of the ad may suffice. When must documents be delivered to broker’s managing broker?All documents that become effective, based on the mutual acceptance of the parties, must be delivered by broker to broker’s managing broker, within two days of mutual acceptance. All other transaction folder documents must be delivered as required by broker’s firm’s policy. Each firm should establish requirements related to how and when brokers must deliver transaction folder materials to broker’s managing broker. The Department will not scrutinize a firm’s requirements so long as the requirements result in a complete transaction folder for each transaction handled by the firm not later than closing of the transaction or some other reasonable date if the transaction never closes. In addition to a transaction folder, every firm must maintain a transaction log that serves as an index for all of the transaction folders retained by the firm. For example, when a firm takes a listing, that listing should be entered on the firm’s transaction log. The firm’s DB should then be able to access a transaction folder supporting that entry on the log. Similarly, when an offer is made or a letter of intent is delivered or a broker’s price opinion is given, each of those actions should result in an entry on the firm’s transaction log and each entry should be supported by a transaction folder. If the offer or the letter of intent results in a binding purchase agreement, the transaction folder will naturally expand. If the offer or letter of intent is rejected, then the transaction folder may be thin. Similarly, if the broker’s price opinion leads to a listing, the transaction folder will evidence the required accumulation of documents that accompany a listing. The log should include reference to: the property address, party name(s), the brokerage service provided, the broker who provided the service and the managing broker responsible for review of all brokerage service contracts involving any broker of the firm licensed for less than two years. It should be noted that in most situations where the designated broker is a dual agent, there will be two log entries. There will be a log entry related to the listing and there will be a separate log entry for the brokerage services provided on behalf of the buyer. Whether there will be two transaction folders or only one transaction folder that includes both sides of the transaction will be up to each individual firm. In an office where brokers are allowed access to the firm’s transaction folders, there should be two separate folders and each broker should be allowed access only to the folder that contains the broker’s client’s information. If the transaction folders are held confidentially by the designated broker, then it may be possible to have a single transaction folder for a transaction where the DB is a dual agent. The purpose of the transaction log is two-fold. The log allows the Department’s auditor to easily view the transactions that occurred within a firm during a given time. The log should also serve as a management tool for the designated broker. Since the log should serve as a tool for the DB, the Department of Licensing does not dictate the form that the log must take, so long as the log includes all of the information identified above, for each entry. The log may be created electronically or manually. With respect to storage, all required records must be stored either electronically or physically. Physical storage requires that the records are maintained on-site at an office where the real estate firm is licensed. For transactions that have been closed or where activity in the file has ceased for at least one year, those records may be maintained at one off-site facility, so long as the facility is located in Washington. Transaction folders that are stored off site must be available upon demand. A listing of all transaction folders that are stored off-site must be maintained at the firm’s licensed office. (WAC 308-124C-110(2).) Records that are stored electronically must be indexed and must be immediately retrievable at the firm’s licensed office, allowing for viewing and printing of all documents. Finally, firms that maintain a trust account must maintain carefully detailed records related to that trust account. Trust account record keeping requirements are detailed at WAC 308-124C-105. If these record retention requirements seem burdensome or unnecessary, chances are you have never been sued. While it is true that the Department of Licensing requires this record retention as a matter of regulatory policy, it is equally true that if you ever find yourself in a law office, named as a defendant in a lawsuit, your lawyer is also going to want to see all of these documents. In most cases, your transaction folder will hold the key to your defense. In most cases, you communicated risks and options and advice to seek counsel from experts, to your client and your client made their own choices…choices that may have resulted in unwanted outcomes. But, if you cannot prove that you communicated risks, options and good advice to your client, then your communications cannot protect you. This is equally true with transactions that closed and with client relationships that ended without a closed sale. While the DOL record retention requirements allow DOL to conduct its required regulatory over-sight, the DOL record retention requirements may be the reason you are able to successfully defend any complaint or lawsuit. For that reason, firms should consider retaining the required records for longer than three years. Just how long records should be retained is something that each designated broker should discuss with his or her own lawyer. What is a record FINRA?WHAT ARE BOOKS AND RECORDS? In general, books and records are the books, accounts, records, memoranda, correspondence and other documentation or information that firms have to make and preserve in accordance with the federal securities laws, MSRB rules, FINRA rules and all other applicable laws, rules and regulations.
Which of the following must be kept for the life of the firm?The following records must be maintained for the life of the firm: Articles of incorporation. Corporate stock certificate books. Minute books from meetings of the board of directors.
What are securities records?It can seem like a detail, but a stock record is actually a very critical piece of information used by a brokerage firm. The stock record is the information about who owns securities and where they are held, as well as exactly what positions are held.
What are trade confirmations?Trade confirmations contain key trade details. These include the date and time of the transaction, price at which you bought or sold a security and the quantity of shares bought or sold.
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