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When Was Your Last Due Diligence Audit for Your Real Estate Brokerage?

Real estate brokers are always telling their clients to do their due diligence when it comes to real estate transactions. But, when was your last due diligence audit within your real estate brokerage?

Brokers need to be proactive and undertake regular internal audits to review compliance, risks, and processes within their business. In this blog, we explore what your internal audits should cover, and how often they’re necessary. 

Why Are Due Diligence Audits So Important For Brokers?

The main benefit of maintaining regular due diligence audits within your brokerage is that any potential risks will be flagged earlier. If you can identify these vulnerabilities early enough, you can prevent them from becoming major problems in the future.

Compliance is so important when it comes to running a successful real estate business. If you fail to comply, there can be legal ramifications that can have significant consequences, including financially and with potential damage to your reputation.

Due diligence audits will also help your brokerage to continuously improve and increase efficiency and effectiveness, which can boost your bottom line. 

What Your Internal Audit Should Cover

It’s important to tailor your internal audit to specifically suit your real estate brokerage. However, audits typically cover these areas:

Compliance and Legal Issues

Check your brokerage’s compliance with all applicable laws and regulations (local, state, and federal). For example, the Fair Housing Act, RESPA, advertising and licensing requirements. 

Review disclosure statements, contracts, and agreements, and highlight any potential problems or areas for improvement. 

Assess Your Financial Management Records

Dive into your financial management records to ensure that all property transactions comply with professional accounting standards. Auditing your finances can also confirm that all financial records are true and correct. 

Review IT Systems Security

Scammers and hackers are finding new, more sophisticated ways to penetrate IT systems. With home sales being high-value transactions, real estate brokers need to have secure IT systems in place to prevent these cyber attacks. Review your IT systems security and assess the risks associated with permissions and accessibility, loss of data, backups, and recovery strategies.

Review your policies for employees and agents in terms of cybersecurity. Periodically reiterate processes for safer email, including:

  1. Never click on an attachment from an unknown sender. If you receive a document from a real estate licensee you don’t know, look them up online (do not call the phone number listed in their email). Call the online number and verify who the document is from.
  2. Encourage all of your licensees to avoid using gmail addresses to communicate with clients. It is too easy for anyone to create a Gmail account that looks like someone else’s email, and fool one of your clients into divulging sensitive information, changing wire instructions, and more.
  3. Always use a secure VPN if your licensees must use public Wi-Fi.

Learn more about the latest real estate phishing scams and what to do if you receive an offer like this one.

Review Your Internal Policies and Controls

Highlight any gaps where policies or controls need to be amended, or where new ones must be created. It can be useful to review and compare, where possible, against industry best practices and other benchmarks. 

Our ClaimPrevent® Summaries summarize critical points for licensees to know about property management, offers, showing property, contracts, seller disclosures, and more.

Review Your Insurances

It can be useful to review your insurances when undertaking an internal audit. Ensure you have the right coverage for all of the services you provide within your brokerage (property management, mortgage brokerage, appraisal, etc.). You also need to make sure the level of coverage is sufficient. 

And be sure your business is protected by a Business Owner’s Policy or General Liability policy. See our Insurance Checklist for Real Estate Offices.

Assess Strengths and Opportunities

Internal audits aren’t just about highlighting the problems. They offer a fantastic opportunity to identify what your brokerage’s strengths are so you can build on those and create new opportunities in your business. 

How Often Do You Need To Audit Your Brokerage?

The frequency of internal audits will differ, depending on the size of your real estate brokerage and the breadth of your services. At a minimum, real estate brokerages should undertake annual audits. Financial management, legal compliance, and data compliance may require closer and more frequent attention. 

Who Should Be Involved In Your Due Diligence Audit?

It’s impossible to do an audit completely independently as a real estate broker. You may want to enlist a team within your brokerage to help you. There is also great value in involving external auditors or other professionals and subject-matter experts. Some brokerages will involve accountants, lawyers, or other consultants in the auditing process. Having experts involved can help to give you objective and independent perspectives about your business, highlighting key areas for improvement, and potential strategies that can mitigate any concerns. 

The Outcomes of Your Audit

Any areas of concern across your entire business should be noted and reported so you can take appropriate actions to rectify the problem and continuously improve. Ideally, you will also have recommendations or ‘corrective actions’ listed against any concerns which can help guide you and your team to take appropriate actions and fix any problems. 

Implementing Corrective Actions

Once you’ve completed your internal audit, it’s time to get started on implementing corrective actions. First of all, brokers need to allocate responsibilities. Identify who needs to do what and when. Ensure you have regular monitoring processes in place so you can track progress. This might be monthly meetings with your team, your accountant, or other stakeholders. 

Protect Your Real Estate Business

If you would like to have a confidential discussion with the CRES team, we’re here to help you protect your real estate business. From E&O insurance to a Business Owner’s Policy, CRES can offer you a tailored insurance policy that will protect your brokerage and the risks that are relevant to your individual business. 

We’ve specialized in protecting real estate professionals for more than 25 years. As part of one of the largest insurance brokers in the world, we have access to more insurance options for real estate brokers than just about anyone (especially if you’ve used smaller insurance brokers whose access to policy options tends to be limited).

Call us at 800-880-2747 for a confidential discussion today.

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