All records of an agent’s activities on behalf of a client during the listing period are retained by the agent’s broker for three years. [Calif. Business and Professions Code §10148]
The three-year period for retaining the buyer’s or seller’s activity file for review by the Department of Real Estate (DRE) begins to run on the closing date of a sale or from the date of the listing if a sale does not occur. Upon notice, the records will be made available for inspection by the Commissioner of Real Estate or their representative, or for an audit the Commissioner may order. [Bus & P C §10148]
How can brokers avoid storage costs related to bulky transaction files and other real estate documents? Nix the paper and file them digitally.
The DRE requires brokers to retain real estate documents for three years if the documents were:
used in a transaction requiring a real estate broker’s license; and
executed or obtained by the broker or broker’s agent.
Upon notice by the DRE, these records need to be made available for examination, inspection, and copying by a DRE representative.
As an alternative to paper, brokers may use electronic image storage media to retain and store copies of all documents executed by the broker and their agents in connection with any transaction performed under the broker’s license.
Electronic image storage media
Copies of real estate documents (i.e. listings, purchase agreements, deposit receipts, canceled checks, trust fund records, etc.) may be stored on an electronic image storage media if the following requirements are met:
the electronic storage is non-erasable and does not allow changes to the stored document or record;
the stored document is made or preserved as part of the regular course of business;
the original record was prepared by the broker or the broker’s employees at or near the time of the event reflected in the record;
the custodian of the record is able to identify the stored record, the mode of its preparation, and the mode of storing it;
the electronic storage contains a reliable indexing system that provides ready access to a desired document or record, appropriate quality control of the storage process, and date-ordered arrangement of stored documents; and
records copied and stored are retained for three years. [DRE Regs. §2729(a)]
Brokers also need to maintain a means of viewing these stored documents at their office, and provide a paper copy of any document or record requested by the DRE. [DRE Regs. §2729(b)]
Planning for digital storage
The first step in converting to digital storage is to digitize files and record keeping. To avoid scanning closed files and converting them from paper to digital formats, maintain files in digital format from the beginning. Otherwise, brokers can convert paper documents into digital format as the transaction progresses, creating a digital file as they go.
As part of planning for electronic storage of records, brokers first need to determine where and how their records will be stored. The three most common options are:
It is good practice to select appropriate media and systems for maintaining records for the required period of time. Thus, files may need to be refreshed, transferred to new media, or migrated to a different format.
To get started, all paper files need to be converted to digital format. This is best accomplished by either:
scanning documents; or
adapting a paperless system of forms and using electronic signatures.
Online storage allows immediate access to stored files on the internet. Properly secured online storage provides access to authorized users only.
A popular method of online storage is known as cloud storage. Files “on the cloud” are stored by a third-party and accessed through their web service.
However, as with any outside provider, it is important to do some research regarding possible accessibility issues and the security of confidential files. It is best to ask questions about cloud provider policies and procedures for storing, preserving and providing access to files and records.
In addition, be cautious, as cloud networks can go down causing delays in accessing files. Also, most cloud storage requires payment of monthly or annual fees.
Another method of electronic storage includes offline media, such as storage area networks (SANs). SANs allow access to remote drives with the same convenience of internal hard drives. These files can also be easily accessed by any authorized user within the network.
Removable media are files that cannot be accessed immediately. These files are stored offline. This type of media includes:
external hard drives;
SD cards; and
However, using removable media can be risky.
This method requires safe keeping so data does not become corrupt by any external influence, such as excessive heat or demagnetizing.
Even when properly cared for, all digital and electronic storage media and hardware have limited life expectancy. Hardware and software may also be replaced by rapid advances in technology. Therefore, careful planning is imperative depending on the length of time a file is to be stored.
Maintain backup copies of all stored materials preferably in an off-site, geographically different location that does not share the same disaster threat.
Create policies and procedures for backing up files. Develop procedures for labeling storage media. Each external label is to contain information unique to what is stored.