Front Lines of California Real Estate Transactions:

A Snapshot of the California Department of Real Estate’s (“DRE’s”) and Department of Financial Protection and Innovation’s (“DFPI’s”) Joint Bulletin

On June 30, 2025, the DRE and DFPI  posted a Joint Licensee Advisory to real estate and escrow licensees in the state concerning “Real Estate Commission Disbursements” (the “Advisory”). The main thrust of the Advisory was to warn real estate and escrow licensees regarding certain practices that have developed over the use of the Commission Disbursement Authorization form (the “CDA”). The CDA is the form that provides the instructions for disbursement of funds from escrow including the payment of the broker’s commission. The DRE and DFPI noted they were concerned about practices where CDA’s were being used to direct escrow funds to pay “personal or business expenses or … unlicensed entit[ies] or individual[s] who may have engaged in activity requiring a license in a real estate transaction.” (California Department of Real Estate, Licensee Advisory, Licensee Advisory.)

What triggered the Advisory? The DFPI and DRE note in the Advisory that:

The DFPI has found many independent escrow companies that have issued checks from their trust account to disburse a real estate broker's commission to pay third parties for the broker's personal or business expenses. These expenses include credit card bills, car payments, medical expenses, college tuition, entertainment, office rent, and utilities. Independent escrow companies made these payments following a brokers request in the CDA. (Ibid.)

At its core, the Advisory notes that the DRE and DFPI are seeking to protect consumers by underscoring the fact that it is only the principals to a real estate transaction in escrow that have the authority to alter escrow transactions. In the context of a real estate transaction, the principals in the transaction are the buyer and seller and/or the lender and borrower—not the agent or broker. In order to alter the escrow instructions, the principal must be the one to issue the instruction, and the escrow agent is obligated to follow instructions issued jointly or individually by the principal.

Now, it is not hard for most licensees to understand it is inappropriate for escrow funds to be paid to a third-party to pay the broker’s personal or entertainment expenses. Most licensees should agree that it is wrong and unlawful to use a CDA to funnel escrow funds for broker commissions to third-parties unaffiliated in any way with the transaction or to the broker’s own personal expenses or entertainment budget—especially where the principal has not provided the instruction or is even aware that this is happening. That said, the lack of precision of the language used in the joint Advisory has raised concerns among brokers about the potential overbreadth and lack of clarity as to how it will be enforced and what conduct is prohibited. This lack of clarity underscores a fundamental issue in the real estate industry: How are licensees expected to change their practices and conduct when the policies or regulations themselves are not clear?

When the Advisory was first issued, brokers and agents inundated us with questions about what specific conduct was prohibited and how enforcement of the Advisory was going to be handled. Our discussion below highlights some of the key points that were raised by brokers across the board. But before we head down the mine shaft, please note, the situation with the Advisory is fluid, and both DRE and DFPI have indicated they are working to bring clarity and structure to the Advisory in the coming weeks. Given the fluidity of the situation, you as the reader may find more questions than answers in this article, because there is much still to be determined on how the regulations and rules will play out. As more information is provided by the DRE and DFPI in the coming weeks, we will be sure to pass it along with future updates and programs. For now, here are some examples of pressing questions that have been raised by the Advisory.

Practical/Mechanical Questions:

What are proper expenses escrow can pay? Can escrow pay agents directly? Does the agent need to be part of the transaction being concluded? Can the commissions be paid to the agent’s corporation? Does the agent’s corporation need to be wholly owned? What if the agent’s spouse or other shareholder is or is not licensed?

Escrow can pay agents directly when they are a part of the transaction being concluded. When it comes to commissions paid to an agent’s corporation, escrow can pay to that corporation when it is wholly owned by the agent. It is not clear, however, whether it is permissible to pay the corporation when there are other unlicensed shareholders. This will be clarified soon.

How does the Advisory impact Teams?

What about teams, exactly how do disbursements to teams need to be documented? What if a team includes non-licensees? Does a team need to have a written agreement amongst the team members? With the broker? Does it matter?

When it comes to teams, DRE has indicated it is currently looking into this and will have more guidance forthcoming.

Transaction Coordinators:

Transaction Coordinators (“TCs”) are commonplace in the industry as they help brokers with all manner of administrative/clerical tasks related to closing a transaction. TCs are a mixed bag when it comes to whether they are licensed or not (TCs are only required to maintain a license if performing activities that require a real estate license). Given TCs are commonplace, some questions the Advisory raises are:

Does the TC need to be licensed? What if the license is with a “non-involved” broker? What if the TC is independent? What if the TC is unlicensed but an employee of the involved brokerage?

Where the transaction coordinator is licensed to the broker in the transaction, escrow will be permitted to pay them for activities requiring a license and for activities that don’t require a license. Where a licensed TC is independent in the transaction and is licensed to another broker not included in the transaction, it is unlikely escrow pay them for licensed activities. Where the TC has a sales license, but is not licensed to a specific broker, i.e., unsupervised, they likely can only be paid for activity that does not require a license. Similarly, an unlicensed TC can only be paid by escrow for activities that do not require a license. All of this will be further clarified by the DRE in the coming months.

Examples of activities that TCs engage in that do not require a license, include, but may not be limited to: cold contacting of potential prospects; organizing open houses; comparative market analysis; communicating with the public; arranging appointments; access to property; advertising; preparation of documents; delivery and signing of documents; trust funds; communicating with principal; and document review.

Examples of activities that TCs engage in that do require a license, include, but may not be limited to: entering into a listing agreement; taking part in negotiations that may lead to a real estate transaction; discussing and/or negotiating the terms of a contract; discussing the condition of a property; discussing and/or negotiate conditions of a transaction; discussing the legal content of a document; soliciting a specific property, transaction, or product; and inducing a prospective client into a transaction.

Third-Party Vendors

It is common practice for many third-party vendors to be paid out of the escrow funds: how will they be impacted by the Advisory? Questions raised on this issue include:

What about vendors such as inspectors, repair folks, and others involved in the transaction? How far do we go? Lawyers Tax Experts? Stagers? AI consultants? Do the payees need to be licensed if a license is required? If so, who checks?

Generally, these questions still need to be clarified by the DRE. However, where the third-party vendor is properly licensed by the appropriate regulatory body, it is likely that escrow will be able to pay them.

More to Come

All these questions (and more) are impacted by the Advisory.  Governing and regulating an industry as large and diverse as real estate is no small (or easy) task, and the DRE and DFPI will not get it perfect every time. Given the initial wave of concerns we heard from leaders in the industry about the Advisory, there is definitely some clarification needed. Our office has been in contact with the DRE about the concerns being raised and DRE has indicated it intends to provide more guidance in the forthcoming weeks. As guidance and clarity is issued, we will be sure to provide updates and answer questions such as those discussed here where we can.