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Investigations Division

Frequently Asked Questions



What does the Department of Real Estate investigate?
The Department investigates violations of Arizona real estate law and Commissioner’s rules by licensed real estate brokers and salespersons, developers of subdivisions, membership campgrounds, timeshares, private cemeteries, and unlicensed real estate activity.


What does the Department NOT investigate?
The Department of Real Estate does not have the authority to investigate:

  • Landlord/Tenant Disputes – Most local jurisdictions (City or County) have a department that is responsible for these complaints. Please contact your local government for assistance.
    For City and County listings, click here: www.az.gov

  • Home Inspectors – Contact the Arizona State Board of Technical Registration, click here to contact them: www.btr.az.gov

  • Contract Issues – These are civil matters, it may be in your best interest to seek professional assistance by contacting a real estate attorney.
  • Construction/Contractors – Construction defects are addressed by the AZROC. Contact the Arizona Registrar of Contractors, click here to contact them: www.azroc.gov

  • Ethics Violations – Ethical issues are not necessarily illegal. For ethical issues contact the Arizona Association of Realtors®, click here: www.aaronline.com

  • Homeowners Association (HOA) violations – The ADRE administers the HOA Dispute Process. Click the "HOA Dispute Process" button on the Department's homepage for information. You may wish to seek legal advice. For attorney assistance, contact the Arizona Bar Association's AZ Law Help, click here to contact them: www.azlawhelp.org

  • CC&R Violations – Review information on the HOA Dispute Process on the ADRE homepage. Violations of CC&Rs are civil and may require civil action; contact your HOA or legal counsel. Visit www.azbar.org to find an attorney in Arizona.

  • Loan, Interest Rate, or Escrow Issues – The Arizona Department of Financial Institutions regulates Escrow and Mortgage institutions in Arizona. Click here to contact them: www.azdfi.gov

  • Title Insurance Issues – The Arizona Department of Insurance regulates Title Insurance institutions and transactions in Arizona. Click here to contact them: insurance.az.gov

  • Homeowner's Insurance – The Arizona Department of Insurance regulates Homeowner's Insurance institutions in Arizona. Click here to contact them: insurance.az.gov

  • Escrow Money Issues - For the holding or improper payment of escrow money by escrow/title companies, contact The Arizona Department of Financial Institutions at www.azdfi.gov

  • Commission Disputes with Broker/Licensees – These are civil disputes. You may wish to seek legal counsel or the Designated Broker of the Brokerage. Visit www.azbar.org to find an attorney in Arizona.

  • Criminal Actions (trespassing, assault, theft, etc.) – Contact your local law enforcement agency.


What if the Arizona real estate licensee has acted unethically?
Not all improper actions are illegal, however they may be unethical.  If you believe a licensee acted or is acting in an unethical manner, you may wish to file a complaint with the Arizona Association of REALTORS® at: www.aaronline.com.


How do I file a complaint with the Department of Real Estate?
To begin an investigation, the Department must determine two things:

  • That the complaint or information relates to possible violations of Arizona real estate statutes or rules.
  • That the individuals and/or entities involved are under the Department's jurisdiction.

A.R.S. § 32-2108 requires complaints filed with the Department be in writing and signed by the complainant. The complaint must allege conduct that violates Arizona real estate laws or rules.

If you file a complaint, include:

  • Your full name and address, and that of each individual or entity against whom the complaint is made (the "respondent").
  • A clear and concise statement, in detail, describing the facts surrounding the incident(s), including:
    • The time and place of occurrences;
    • Who was involved or present;
    • What activities occurred which you believe to be illegal;
    • The names, addresses and telephone numbers of any witnesses.
  • Legible copies of all transaction documents and related correspondence (contracts, closing documents, letters, memos, etc.).
  • Any other relevant information.

After I file a complaint, what is the process?
Each complaint within the jurisdiction of the Department of Real Estate is assigned to an Investigator for review. The Investigator sends each individual; entity or developer (respondent) involved a copy of the complaint and a request for a written response. The Investigator contacts witnesses, gathers evidence and may contact the complainant and/or the respondent(s) for additional information. After the assigned Investigator completes the investigation, the Department determines whether there is sufficient evidence to substantiate a violation(s) of Arizona real estate laws or Commissioner’s Rules. Based upon that determination, one of the following decision is made:

  • Close the file without action.
  • Close the case with a non-disciplinary letter of concern.
  • Refer the case to the Department’s Enforcement and Compliance Division for possible disciplinary action.

What are the possible disciplinary actions that may occur?
If the Auditing and Investigation Division forwards the case to the Enforcement and Compliance Division, it is reviewed to determine if there is sufficient evidence to pursue a disciplinary action. If there is evidence of a violation, but it is minor or technical in nature, the Department may issue a non-disciplinary Letter of Concern. Although non-disciplinary, a Letter of Concern remains in the file, and may be considered when determining future disciplinary actions.

  • When there is sufficient evidence to support a disciplinary action, the Department may resolve the case with a settlement offer (Consent Order) to a respondent. The respondent cannot appeal a Consent Order, as it is a voluntary agreement that becomes binding once signed by the Commissioner.
  • When a case cannot be resolved by settlement, the Department refers the matter to the Office of Administrative Hearings (OAH) where it is heard by an administrative law judge in accordance with the Administrative Procedures Act. A Notice of Hearing and Complaint is prepared which identifies statutes and rules violated and the sanctions sought by the Department. After the hearing, the administrative law judge issues a recommended order to the Commissioner who adopts, modifies or rejects the decision and issues a Commissioner’s Final Order. A Commissioner’s Final Order may be appealed to the Superior Court.
  • In certain cases, the violations are such that they require immediate action to protect the public. In those cases, the Department may issue a Cease and Desist Order or Order of Summary Suspension; both are effective immediately.
  • The Department forwards complaints and other appropriate matters to the Attorney General’s Office for future review and possible action. The Attorney General represents the Department in legal matters, including hearings at the Office of Administrative Hearings (OAH).

GENERAL INFORMATION FOR CONSUMERS:


Contracts:

  • Consumers should read and understand all documents before affixing their signature.
  • Everything that is important to the consumer must be expressly written in the contract.
  • Verbal agreements and/or understandings cannot be proven by the Department. Consumers should obtain all agreements in writing.
  • A purchase/sales contract is a civil matter unless there is a specific issue about a licensee’s performance, which may be brought to the Department’s attention via a complaint.
  • Consumers can submit a complaint by delivering a signed complaint form and supporting documentaiton to the Department by mail or through the online Message Center.

Disclosures in a Transaction:

In accordance with the Commissioner’s Rule, R4-28-1101 (B), a licensee participating in a real estate transaction must disclose in writing any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:

  • Any information that the seller or lessor is or may be unable to perform.
  • Any information that the buyer or lessee is or may be unable to perform.
  • Any material defect existing in the property being transferred.
  • The existence of a lien or encumbrance on the property being transferred.

In accordance with the Commissioner’s Rule, R4-28-1101 (E), a licensee shall not act directly or indirectly in a transaction without informing the other parties in the transaction, in writing and before the parties enter any binding agreement, of a present or prospective interest or conflict in the transaction, including that the:

  • Licensee has a license and is acting as a principal.
  • Buyer or Seller is a member of the licensee’s immediate family.
  • Buyer or Seller is the licensee’s employing broker, or owns or is employed by the licensee’s employing broker.
  • Licensee or a member of the licensee’s immediate family has a financial interest in the transaction other than the licensee’s receipt of compensation for the real estate services.

In accordance with the Commissioner’s Rule, R4-28-1101 (F), a licensee shall not accept compensation from or represent more than one party to a transaction without the prior written consent of all parties.

NOTE:  The above listed disclosure issues reflect only those requirements in the Commissioner’s Rules.  Refer to other Federal, State, County and/or City statutes or regulations, which may contain additional required disclosures relating to a real estate transaction.



Errors and Omissions Insurance (E & O):

  • Real estate brokers and salespersons are not required by statute or rule to carry E & O insurance.

Escrow Accounts:

  • All monies entrusted to the broker must be deposited into a neutral escrow depository in Arizona unless otherwise agreed to in writing by all parties to the transaction (A.R.S. § 32-2151).

Homeowners Association Boards of Directors (HOA):

  • The names of HOA Board Members are registered with the Arizona Corporation Commission (“ACC”) and are available via the ACC’s online database search of active corporations.

Listing Agreements / Buyer-Broker Agreements:

Consumers often call the Department because a broker refuses to cancel their listing agreement.

  • Consumers should read the agreement thoroughly and understand all terms before signing.
  • Listing agreements are usually cancelled only with the mutual consent of the involved parties. The Broker is not required to cancel the listing at the owner’s request.
  • The listing agreement may obligate the consumer monetarily after cancellation.
  • A listing agreement is a contract between the consumer and the Employing Broker (Entity). The consumer may opt to seek legal advice regarding the consumer’s obligations under the contract.

Marketing the Property on an Active Listing Agreement:

Property owners may ask that the broker take their property off the market temporarily and/or cease marketing the property. This request should be made in writing, and may not cancel the listing agreement or the parties' obligations under the listing agreement.



New Home Construction:

Scenario:  A consumer who bought a new home construction several months ago and now either doesn’t want the home or has had an appraisal and found the house did not appraise for the purchase price.

  • This involves contractual issues. Consumers should review the contract to determine their options, and seek legal advice if necessary.
  • Under certain circumstances, the developer may cancel the contract; however, it is at their discretion. If an emergent situation has occurred, speak with the developer and/or seek legal advice.
  • Earnest money may be refunded based on the terms of the contract. In some contracts, the buyer acknowledges the earnest money is being held by the developer, not in a trust account. The Department has no jurisdiction over earnest money disputes.
  • Consumers that visit a new home development without a representative may return with a representative; however, the representative may not receive a commission. Consumers may be represented by an Arizona real estate licensee after visiting a new home development after accepting representation from a new home developer, but the licensee may not be able to collect commission.
  • Consumers that visit a new home development without a representative and continue with the contract without a representative are NOT being represented by the developer’s agent. A dual agency situation does not exist in this situation.

Offer and Acceptance:

  • In the state of Arizona, no contract for real estate exists until the contract is offered and accepted in writing (A.R.S. §44-101.6).
  • The Department of Real Estate is prohibited by statute, from pursuing any issue relating to contractual disputes or who has the first position in contract negotiations.

Property Management:

  • A property manager or entity is required to have an Arizona real estate license to manage residential or commercial property for property owners and receive compensation for such activity. The broker or entity manages the property pursuant to a property management agreement (A.R.S. § 32-2173).
  • A community manager often called a "property manager" working on behalf of a Homeowners Association does not have to be licensed as a real estate salesperson or broker unless their duties include the sales or leasing of properties on behalf of individual property owners.
  • Residential leasing agents or on-site managers of residential rental properties are not required to be licensed as real estate salespersons or brokers if they conduct activity at only one location during their regular workday and receive no special compensation (A.R.S. § 32-2121(A)(6)).
  • A property manager for one nonresidential income property or for two or more contiguous nonresidential income properties that are under common ownership and is employed by the owner’s licensed management agent is not required to be licensed as a real estate salesperson or broker (A.R.S. § 32-2121(A)(8)).
  • A person engaging in short term rentals, i.e., occupancies of thirty-one or fewer days in a dwelling unit, is not required to be licensed as a real estate salesperson or broker.

Rebate of Commission:

  • A rebate or other monies paid on behalf of the licensee to their client should be paid through escrow upon specific written instructions of the broker.
  • The intent to pay such monies to a client should be reported to all parties involved.
  • Some loan programs do not allow such rebates.
  • “Cash Back” transactions are not appropriate unless the rebate is disclosed in the body of the contract; all parties (broker, loan officer, mortgage lender, title company, etc.) are fully aware of the monies being remitted to the client; and, the monies are clearly disclosed in the Closing Statement.

Referral or Finder’s Fees:

  • Referral or finder’s fees in residential sales or leasing may not be paid to an unlicensed person.
  • Only a licensee may receive compensation resulting from a real estate transaction and such compensation should be paid at the direction of the licensee’s Employing Broker.

Sale of Manufactured Homes/Trailers:

  • A real estate license is required only if the transaction involves the sale or lease of real property.
  • The sale of manufactured homes without land attached requires a license from the Arizona Department of Real Estate or the Arizona Department of Housing.


GENERAL INFORMATION FOR LICENSEES:


Abandonment of Office (A.R.S. § 32-2126 (A)):

  • Each employing broker shall have and maintain a definite place of business.
  • Change or abandonment of a business location without notice shall automatically cancel the broker’s license and shall sever the license of any employed agent.

Address Changes:

  • A licensee is required to update his personal information within ten (10) days of any changes made.

Advertising Requirements (Commissioner’s Rules R4-28-502 and 503):

  • The name of the Employing Broker must be displayed in a clear and prominent matter. “Clear and Prominent” is a subjective term, which may mean size or position. On a website, the name of the Employing Broker must be displayed on each and every web page.
  • Use of a Logo: A logo may not be used without also clearly and prominently displaying the name of the employing broker.
  • Telephone Number: There is no rule or statute requiring either a telephone number or an address of the employing broker in advertisements.
  • Promotions: All terms and conditions must be clearly disclosed in writing prior to a person participating in an offer. The advertisement must also contain an expiration date.
  • The Designated Broker is responsible for supervising all advertising by the brokerage and its employed agents.
  • If an agent wishes to advertise a property on which there is an existing listing agreement, they may advertise the property only if he clearly identifies the listing broker. The listing agent’s permission is not required.
  • A licensee advertising his/her own property for sale must use the term “Owner/Agent” in any advertisement, as well as disclose their status as a salesperson or broker.

Commission Disputes:

  • A.R.S. § 32-2152 (B) precludes the Department from entertaining complaints regarding purely civil disputes between licensees concerning the earning, splitting or nonpayment of compensation.

Compensation to Out-of-State Brokers or Salesperson:

  • Requires a written cooperation agreement between a licensed Arizona broker and the out-of-state broker in accordance with A.R.S. § 32-2163. A salesperson may not enter into such an agreement.
  • This does not preclude an out-of-state broker, with an out-of-state buyer and seller, from legally conducting real estate activity in the broker’s state of licensure.
  • An out-of-state broker may not advertise Arizona real estate to Arizona consumers without holding an Arizona real estate license.

Complaints filed against a licensee:

  • When a complaint is filed against a salesperson or associate broker, the Department also sends a notification to the licensee’s broker.
  • The licensee has 14 days to respond to the Department’s notice of an investigation being initiated.
  • The licensee's response should fully respond to the allegations made by the complainant, as well as provide a complete copy of the transaction file.

Disclosures in a Transaction:

In accordance with the Commissioner’s Rule, R4-28-1101 (B), a licensee participating in a real estate transaction must disclose in writing any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:

  • Any information that the seller or lessor is or may be unable to perform.
  • Any information that the buyer or lessee is or may be unable to perform.
  • Any material defect existing in the property being transferred.
  • The existence of a lien or encumbrance on the property being transferred.

In accordance with the Commissioner’s Rule, R4-28-1101 (E), a licensee shall not act directly or indirectly in a transaction without informing the other parties in the transaction, in writing and before the parties enter any binding agreement, of a present or prospective interest or conflict in the transaction, including that the:

  • Licensee has a license and is acting as a principal.
  • Buyer or Seller is a member of the licensee’s immediate family.
  • Buyer or Seller is the licensee’s employing broker, or owns or is employed by the licensee’s employing broker.
  • Licensee or a member of the licensee’s immediate family has a financial interest in the transaction other than the licensee’s receipt of compensation for the real estate services.

In accordance with the Commissioner’s Rule, R4-28-1101 (F), a licensee shall not accept compensation from or represent more than one party to a transaction without the prior written consent of all parties.

NOTE:  The above listed disclosure issues reflect only those requirements in the Commissioner’s Rules.  Refer to other Federal, State, County and/or City statutes or regulations, which may contain additional required disclosures relating to a real estate transaction.



Electronic Record Keeping:

The use of Electronic Record Keeping requires the following:

  • Transaction and employment records must be maintained in accordance with state statute.
  • Electronic records must have a back-up system that duplicates the records and stores them in a secure, offsite location and allows the records to be restored if the broker’s electronic data is destroyed.
  • The electronic records must be reproducible as a hard copy at the request of the Commissioner or the Commissioner’s representative for auditing, inspection or investigation purposes.
  • Electronic records must be legible and exact duplicates of the original documents.
  • The Broker shall maintain each real estate purchase contract or lease agreement and the electronic transaction folder in a chronological log or other chronologically systematic manner that is easily accessible by the Commissioner or the Commissioner’s representative.
  • If the electronic records are not stored at the broker’s licensed business location, the broker must inform the Commissioner in writing of the legal address of the entity responsible for storing such records.

Electronic Signature:

  • The broker’s statutory review of contracts and agreements maintained on a transaction management system must be recorded through a dated, secure electronic signature.
  • The broker must enforce a written supervision policy requiring personal computer security that, at a minimum, requires each person with electronic signature authority and capability to lock or sign off his/her computer every time he/she walks away from the computer.
  • The broker must have a back-up system defining how and when contracts and agreements are reviewed when the computers are down for an extended time.
  • The transaction management system must have the ability to create a secure history log of all activity for electronic signatures and broker review, which can be reviewed by the Department.

Errors and Omissions Insurance (E & O):

  • Real estate brokers and salespersons are not required by statute or rule to carry E & O insurance.

Escrow Accounts:

  • All monies entrusted to the broker must be deposited into a neutral escrow depository in Arizona unless otherwise agreed to in writing by all parties to the transaction (A.R.S. § 32-2151).

HOA’a and Real Estate Signs (A.R.S. § 33-1808):

  • An HOA may restrict an industry sign to 18” X 24” with a 6” X 24” rider.
  • Under the statute, an HOA is not authorized to determine the color scheme of the For Sale sign.

Independent Contractor:

  • “Independent Contractor” is an IRS designation for tax purposes only.
  • A salesperson or associate broker is authorized to perform real estate activities only on behalf of the Employing Broker under which he/she is licensed.
  • Unless otherwise specified, all sales contracts, leases and property management agreements belong to the employing broker.
  • A real estate broker may supervise and a salesperson or associate broker may conduct real estate activities on behalf of only one real estate entity at a time.

Out-of-State Brokers:

  • An out-of-state broker cannot receive a commission or referral fee for conducting real estate activities in Arizona unless they have a written cooperation agreement with an Arizona licensed broker.
  • They may not advertise the sale of Arizona property to Arizona residents without being licensed in this state.

Non-Resident Brokers:

  • Non-resident brokers are required to notify the Department of the address in Arizona where records are maintained.  This information is maintained by the Department’s Auditors.

Property Management:

  • A property manager or entity is required to have an Arizona real estate license to manage residential or commercial property for property owners, and receive compensation for such activity. The broker or entity manages the property pursuant to a property management agreement (A.R.S. § 32-2173).
  • A community manager often called a "property manager" working on behalf of a Homeowners Association is not required to be licensed as a real estate salesperson or broker unless their duties include the sales or leasing of properties on behalf of individual property owners.
  • Residential leasing agents or on-site managers of residential rental properties are not required to be licensed as real estate salespersons or brokers if they conduct activity at only one location during their regular workday and receive no special compensation (A.R.S. § 32-2121(A)(6)).
  • A property manager for one nonresidential income property or for two or more contiguous nonresidential income properties that are under common ownership and is employed by the owner’s licensed management agent is not required to be licensed as a real estate salesperson or broker (A.R.S. § 32-2121(A)(8)).
  • A person engaging in short term rentals, i.e., occupancies of thirty-one or fewer days in a dwelling unit, is not required to be licensed as a real estate salesperson or broker.

Real Estate Salespersons and LLC, Corporation and PLLC/PC:

PLLC / PC:  A salesperson may have a PLLC / PC for the purpose of commissions paid to an entity for tax or liability reasons.

  • The PLLC / PC established in the name of the salesperson and registered with the Department.
  • A broker may pay compensation to a salesperson through only a PLLC or PC.
  • A PLLC or PC may NOT be set up under a fictitious name.

LLC / Corporations:  An LLC / Corporation is required to have a broker and be licensed unless it qualifies as an exemption under A.R.S. § 32-2121(A)(17).

  • This statute requires that to receive a licensing exemption, the real estate activity (1) is only incidental to the business of the corporation and (2) the officers and employees engaged in the real estate activity do not receive special compensation or other consideration for the activity conducted.
  • A corporation set up for the purpose of buying and selling real estate is not conducting real estate activity incidentally to the business of the corporation.

Rebate of Commission:

  • A rebate or other monies paid on behalf of the licensee to his client should be paid through escrow upon specific written instructions of the broker.
  • The intent to pay such monies to a client should be reported to all parties involved.
  • Some loan programs do not allow such rebates.
  • “Cash Back” transactions are not appropriate unless the rebate is disclosed in the body of the contract; all parties (broker, loan officer, mortgage lender, title company, etc.) are aware of the monies being provided to the client; and, the monies are clearly disclosed in the Closing Statement.

Referral or Finder’s Fees:

  • Referral or finder’s fees for residential sales or leasing may not be paid to an unlicensed person.
  • Only a licensee may receive compensation resulting from a real estate transaction and such compensation should be paid at the direction of the licensee’s Employing Broker.

Renewal Notices:

  • The Department sends courtesy reminders to licensees via the licensees e-mail address entered on the on-line licensing system.
  • A licensee should check their Public Database Licensure Report and the on-line system to verify the information is correct and update as necessary.

Sale of Manufactured Homes/Trailers:

  • A real estate license is required only if the transaction involves the sale or lease of real property.
  • The sale of manufactured homes without land attached requires a license from the Arizona Department of Real Estate or the Arizona Department of Housing.

Signage at Broker’s Office (A.R.S. § 32-2126(B)):

Each broker shall cause a sign to be affixed at the entrance to the broker’s place of business:

  • In a place and position clearly visible to all entering the place of business.
  • With the name of the Employing Broker.
  • The name under which the broker is doing business if other than the broker’s given name, and
  • Sufficient wording to establish that the person is a real estate broker.

Trust Accounts:

Refer to Auditing FAQs for information on Broker Trust Accounts.



Unlicensed Activity (Inactive / Expired Licenses):

  • If a licensee conducts real estate activity after the expiration or inactivation of his/her license, the licensee has conducted unlicensed real estate activity.
  • Immediately upon determining unlicensed activity has been conducted, the licensee should notify their broker and contact the Department.

“Virtual Offices”:

  • A licensed broker may establish a location in which his employed agents may utilize the computer, telephone, fax machine, copy machine, etc.
  • This location must be licensed as a branch office if real estate activity is conducted from the location, including but not limited to meeting with clients, signing transaction documents, etc., or if the location is advertised as a place of business either by signage at the location, on business cards and letterhead or in other advertising.