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Thousands of real estate professionals lose their license every year—some through dishonest dealings, others through incompetence, and still others as the victims of circumstance. Your license is your lifeblood in this business. Keep it safe by avoiding these 10 mistakes.

1. Playing with other people's money. Money mistakes—sloppy bookkeeping, fund shuffling, "borrowing" clients' funds—represent the fastest ways to lose your license. Bill Titter, an enforcement officer for the Texas Real Estate Commission, recalls a broker who agreed to hold $18,479 until closing so the buyer wouldn't spend it. The broker cashed the buyer's check and put the money in his own safety deposit box, then deducted expenses related to the deal without the buyer's knowledge. The broker's license was revoked. "If the money isn't yours, put it in escrow or in a trust account," says Titter.

2. Misrepresentation. Embellishing, obfuscating, omitting, or just plain fibbing. Don't do it. Misrepresentation and failure to disclose are the most common causes of lawsuits against licensees, says NAR General Counsel Laurie Janik. Those lawsuits most often relate to inaccurate disclosure or nondisclosure of property condition. Know your state law, but no matter where you live, follow this simple rule: "When in doubt, disclose, and do it in writing," says William Moran, chief of enforcement for the California Real Estate Commission.

3. Mortgage fraud. Say the buyers are short of cash for the down payment, and the salesperson arranges for them to borrow a little extra by fudging appraisal figures. It may seem like an innocent fix, but it's illegal to trick a lender into lending too much money against an overvalued property. Even if you don't lose your license in such a scheme, you can jeopardize your livelihood, according to Jon Goodman, a Colorado real estate attorney who answers questions for the state's legal hotline. The U.S. Department of Housing and Urban Development is known to stop dealing with licensees simply because they were implicated in mortgage fraud, Goodman says.

4. Criminal conviction. Being a convicted criminal may affect your ability to obtain or keep a real estate license, depending on the crime and the state in which you work. In Texas, for example, crimes such as rape, murder, robbery, and embezzlement result in an instant license revocation, says Titter. A more common conviction, driving under the influence of alcohol or drugs, will not. In Arizona, the Department of Real Estate will give someone convicted of DUI a provisional license but require another licensed broker to sponsor the licensee and report on the person's sobriety.

5. Not cooperating with investigators. If your real estate commission questions you, don't stonewall. "When licensees won't talk to us or provide us with records we've requested, that's a failure to cooperate with the investigation," says Bruce Stuart, attorney for licensing services for New York's Department of State. "Usually, it's a sign they've done something wrong."

6. Incompetence. This category is a catchall of professional screw-up. "We look for a pattern of conduct or a single act that's so serious it demonstrates that the licensee lacks professional competence," says New York's Stuart. A typical example: A property manager forgets to make tax or mortgage payments for an owner.

7. Forgetting who hired you. Undisclosed dual agency is a particular problem in states where buyer's agents are uncommon. "Listing brokers can get too close to the buyer and become a de facto dual agent," explains Keith Stack, deputy secretary of state of New York. "In such cases, licensees forget whose interests they're supposed to be looking out for."

8. Acting like a lawyer. In some states, drafting or significantly altering sales contracts may constitute the unauthorized practice of law. But it's not always clear to brokers how far they can go. New York, for example, allows brokers to prepare simple purchase and lease contracts—not complex contracts. But what's the gauge for complexity? "In this day and age, we never see a simple contract," says New York's Stuart. "Assume all contracts are complex." The conservative thing to do is to consult an attorney whenever an issue comes up that's outside the language of the form contract. The other risk of drafting a contract yourself is that you may do it wrong. In Oregon, real estate commissioner Scott Taylor says he regularly sees contracts in which either the practitioners didn't say what was intended or the grammar was so poor it was impossible to determine the intent. The most typical mistakes occur when practitioners leave blanks, because they're in a hurry, says Taylor.

9. Not meeting license requirements. It's the silliest reason to lose a license and the easiest to avoid. According to Titter, two or three Texas licensees each month forget to pay their renewal fees, and a few more fail to complete their continuing education requirements. Not bad for a state with more than 100,000 licensees. Although salespeople should be responsible for staying on top of licensing requirements, supervising brokers need a system in place to make sure their licensees know and follow through on what's required. Brokers who let associates' licenses or education lapse risk disciplinary action or even a civil lawsuit.

10. Letting salespeople run rampant. Likewise, brokers must remember they have a duty to supervise the actions all of their salespeople. Often it's not incompetence but inexperience that gets a salesperson in trouble—something that might have been avoided if the broker had only been paying closer attention. A supervising broker has a great responsibility, says California's Moran. "Too often, brokers don't take this responsibility seriously, and the public suffers."

Factoid: 80%
When NAR supports litigation, financially or through filing briefs, the NAR-supported side wins about 80 percent of the time.
Source: NAR's Legal Action Committee

Reprinted with permission from REALTOR Magazine Online. ©Copyright 2003 by the NATIONAL ASSOCIATION OF REALTORS. All rights reserved. This item can’t be reproduced, reprinted, or retransmitted without express consent of REALTOR Magazine and RealtorMag Online.