Do You Know Who Your Clients Are?
| August 31, 2022
by James Porter, RECA Investigations Manager
The importance of licensees getting to know their clients cannot be overstated. Personally gathering the correct information from your clients ensures you are not in violation of any Real Estate Act Rules. This simple act is also a very important fraud prevention tool.
If something seems out of place with a client (e.g., they are unable to provide clear verification of identity), it could be a sign that criminal activity is taking place. Executing proper due diligence helps verify all aspects of a transaction are legitimate and protects both you and your clients from possible fraud.
Or, the client themselves may be acting legally, but a third party gathering the information may be operating fraudulently. RECA has seen instances where licensees are not speaking with their clients at all, instead relying on third parties to explain, disperse, and collect important documents. In some cases, clients’ signatures are being forged on important documents (such as a mortgage application) or the signature is legitimate, but the client doesn’t understand what they’re signing. The fraudsters then pass on these documents to licensees, who could in turn be at risk of submitting false information and participating in fraud.
Since 2014, real estate licensees in Alberta cannot represent a consumer—whether a seller or a buyer—as a client without a Written Service Agreement. Residential real estate licensees also have a regulatory requirement to present and discuss the Consumer Relationships Guide, with all consumers they are working with. These agreements are good for both clients and licensees, as they provide the opportunity to discuss obligations and responsibilities of both parties. Discussing the documents also acts as a conduit for licensees to get to know their clients better.
Tips for Getting to Know your Client and Protecting Yourself
- avoid working with a third party who is speaking on behalf of clients or gathering documents on behalf of clients
- make sure you are reviewing written service agreements first-hand with your clients. Do not delegate the signing to a third party or skip the review of any transaction documents with a client
Not only does skipping the step of getting to know your client put you at risk of fraud, in some cases, it can also be a violation of the Rules. Below are several examples of Real Estate Act Rules that could be breached in circumstances where document review and signing are not properly executed by licensees:
- a licensee must not delegate, assign, request, direct or in any way allow an unlicensed or unregistered assistant to perform tasks that must only be performed by a licensee [Rules s.46(2)]. The Consumer Relationship Guide and the Written Service Agreement must be reviewed and signed by the licensee and their client
- licensees must ensure the role of the licensee is clearly understood by their clients and third parties [Rules s.41(e)]. If third parties are being directed by clients, licensees cannot ensure their client/licensee role is well defined
- licensees must provide competent service [Rules s.41(b)]. Licensees must ensure their clients understand the documents that are presented to them
- licensees must not participate in fraudulent or unlawful activities in connection with the provision of services or in any dealings [Rules s.42(b)]. Using an unvetted third party to communicate with clients could put licensees at risk of involvement in fraudulent activity
While the use of a third party such as a client friend or other personnel may save time, licensees must not allow an unlicensed individual to perform tasks that require a licence. Completely relying on a third party to communicate and interact with clients, and process client documents takes away the opportunity for licensees to get to know their clients and may increase opportunities for fraud and Rules violations.
All licensees in all client relationships should know who they are dealing with. It is vital you take the time to get to know your clients.
Licensees who are unsure of any of your client relationships or dealings with a third party are encouraged to reach out to firstname.lastname@example.org to discuss their specific circumstances.