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Arizona Audit Shows Errors in Real Estate Charges

Real estate agent for sale signA recent audit in the state of Arizona has revealed serious issues with overcharging and undercharging customers. The audit of the Arizona Department of Real Estate says that there were deficiencies in their cash collections, as well as a serious problem with reporting processes.

The department was reviewed as a part of routine checkups from the Office of the Auditor General and took place between March 2014 and February 2015. The results of the audits were released toward the end of September on their website.

“These are very routine reviews,” said Kathleen Wood, who is a financial audit manager at the auditor general’s office. “We do them periodically with various state agencies.”

As the overseer of real estate educators, brokers, and the activities of their licensees, the Department of Real Estate is there to regulate real estate sales while also providing other services. According to their website, they received $3.9 million in revenue during the time of the audit.

State statutes and requirements in Arizona hold the agency to certain standards, many of which are not being followed, the audit reported. For example, requirements on how the agency is to receive, record, and reconcile receipts were not followed.

One Arizona state law requires that “the department charge $250 for applications to amend public disclosure reports for unsubdivided land.” But between July 2010 and July 2014, the DRE had been charging $500 for applications. This caused the department to receive more than $2,750 in extra money before they adjusted them in July 2014.

Another example, this time demonstrating undercharging, was evident in real estate license renewals. Between November 2012 and December 2014, they were charging $10 less than the minimum of $60 asked by the state. The DRE would have received up to $7,400 more if they had been charging correctly.

However, Judy Lowe, the department’s Commissioner, said the department had good reason to lower the fees for renewals, citing the turbulent economy during the years in question.

“I think (the Department of Real Estate) actually do a pretty darn good job,” said Rep. Mark Finchem, R-Oro Valley, and an associate broker with Long Realty. “I’m not a fan of regulation, but I do recognize that there are certain industries that need to be watched.”

The other major issue shown by the audit was a lack of logs keeping track of mailed cash receipts, meaning they weren’t able to reconcile all of them. Customer receipts were also updated with no reviews of each account.

The IT systems of the DRE are also a source of issues, as they do not issue and maintain customer receipts.

Lowe said that the department is following recommendations and changing their operations. They are updating and examining their process and logging to ensure that they are in accordance with the law.

“We don’t have any legal enforcement … but we do follow up on findings if we’re doing a performance audit report,” Wood said. “This is a procedure review, so we likely will not follow up until we do another procedure review.”

The real estate market in Arizona has been slowly becoming a more sought after market with the available housing in Phoenix rapidly shrinking. Trends show that 78% of consumers buy homes with garages, but there is also a huge uptick in city living within the state. The numbers show all trends going up.

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