4.2 License Law Violations & Discipline
Key Takeaways
- SDREC is created by SDCL 36-21A-13 with five governor-appointed members (three brokers and two public members), and it investigates complaints and disciplines licensees.
- Common violations include misrepresentation, trust account mishandling, undisclosed dual/limited agency, disclosure failures, and unlicensed activity.
- Discipline ranges from reprimand and fines to suspension and revocation; SDREC cannot jail anyone — imprisonment requires a separate criminal case.
- Licensees have due process rights: written notice of charges, a hearing, the right to counsel, the right to present evidence, and the right to appeal to court.
- The state portion of the South Dakota exam has 52 questions, a 120-minute limit, and a 75% passing score, and PSI is the testing vendor.
The Commission and Its Authority
The South Dakota Real Estate Commission (SDREC) is created by SDCL 36-21A-13. It has five members appointed by the Governor: three must be active real estate brokers and two are public (non-licensee) members, and they may not all belong to the same political party. The Commission licenses practitioners, writes administrative rules, investigates complaints, and imposes discipline.
Common Violations
Misrepresentation and Fraud
| Violation | Description |
|---|---|
| Material misrepresentation | A false statement about an important fact a buyer or seller relies on |
| Negligent omission | Failing to disclose a known material defect |
| Fraud | Intentional deception for gain |
| False advertising | Misleading marketing, bait-and-switch, or unauthorized claims |
Trust Account Violations
| Violation | Description |
|---|---|
| Commingling | Mixing client funds with brokerage funds |
| Conversion | Using client funds without authorization (creates a shortage) |
| Late deposit | Not depositing by the first legal banking day after acceptance |
| Failure to reconcile | Skipping the monthly three-way reconciliation (SDCL 36-21A-80) |
Agency, Disclosure, and Unlicensed Activity
| Violation | Description |
|---|---|
| Undisclosed limited agency | Representing both sides without written, informed consent |
| Disclosure failure | Omitting a required property condition disclosure |
| Undisclosed self-interest | Buying/selling for own account without telling the principal |
| Unlicensed practice | Performing licensed acts without an active license |
| Paying the unlicensed | Splitting a commission with an unlicensed person |
Warning: Practicing real estate without an active license is a serious offense, and a licensee who pays an unlicensed person for licensed activity commits a separate violation.
The Disciplinary Process Step by Step
The state exam expects you to know the order of events and the licensee's protections at each stage.
Investigation
- A complaint is filed with SDREC, or SDREC opens its own investigation.
- SDREC staff gather evidence — documents, interviews, and trust account audits.
- SDREC decides whether the facts justify formal charges. If not, the matter is dismissed.
Hearing
If SDREC proceeds, the matter becomes a contested case under South Dakota administrative procedure.
| Step | Description |
|---|---|
| Notice | The licensee receives written notice of the specific charges |
| Hearing | A formal hearing is held before the Commission |
| Evidence | Both sides present documents and witnesses |
| Decision | The Commission issues a written decision and order |
| Appeal | The licensee may appeal the decision to circuit court |
Due Process Rights
Before SDREC may take adverse action, the licensee is entitled to:
- Notice of the charges,
- a hearing before the action takes effect,
- representation by an attorney,
- the chance to present evidence and cross-examine witnesses, and
- the right to appeal an unfavorable decision to court.
Worked example: SDREC audits a broker, finds a $500 shortage, and wants to suspend the license. It cannot suspend on the spot. It must serve written notice of the charge, hold a hearing where the broker may bring counsel and evidence, then issue a written decision the broker can appeal.
Sanctions SDREC Can — and Cannot — Impose
SDREC's powers are administrative. It controls the license; it does not run a courtroom.
| Sanction | What it does |
|---|---|
| Reprimand | Formal written warning on the record |
| Fine | Monetary penalty |
| Probation | Keeps the license but adds conditions/monitoring |
| Required education | Orders remedial coursework |
| Suspension | Temporary loss of the license |
| Revocation | Permanent loss of the license |
| Denial | Refusal to issue or renew a license |
Exam trap: SDREC cannot imprison anyone. Jail time requires a criminal prosecution brought by a prosecutor in court. On the exam, "imprisonment" is always the wrong answer to "which sanction can the Commission impose?"
Factors That Set the Penalty
| Factor | Effect on penalty |
|---|---|
| Severity of the violation | Worse conduct = harsher sanction |
| Prior disciplinary history | Repeat offenders face stricter action |
| Harm to consumers | Real consumer loss raises the penalty |
| Cooperation and restitution | May reduce the penalty |
| Remediation / rehabilitation | Voluntary fixes can mitigate |
Grounds for Denying a License Application
| Ground | Description |
|---|---|
| Criminal conviction | A crime bearing on honesty or fitness |
| Fraud on the application | False statements or material omissions |
| Prior revocation | License revoked in any jurisdiction |
| Untrustworthiness | A pattern of dishonest conduct |
Reporting Duties and Reinstatement
What Licensees Must Report to SDREC
| Event | Reporting duty |
|---|---|
| Criminal conviction | Report to SDREC |
| Discipline in another state | Report to SDREC |
| Trust account changes | Written notice (bank, title, or number) |
| Address or name changes | Update with SDREC |
After Revocation
Reinstatement is not automatic. A person whose license was revoked generally must reapply, may have to retake the required pre-license education and the state exam, and must pass a new background check; SDREC weighs the original violation and any rehabilitation.
Exam Logistics You Must Know
The South Dakota licensing exam is administered by PSI at test centers in Sioux Falls, Rapid City, and Madison. The exam has a national portion and a South Dakota state portion.
| Item | South Dakota state portion |
|---|---|
| Number of questions | 52 |
| Time limit | 120 minutes |
| Passing score | 75% (about 39 of 52 correct) |
| Vendor | PSI |
| Combined state + national fee | $105, paid to PSI at registration (valid 12 months) |
The state portion tests three areas defined by PSI's content outline: statutes governing licensee activities, Commission duties and powers, and licensing requirements. The heaviest weight by far is on statutes governing licensee activities — agency, disclosures, trust accounts, and prohibited conduct — so concentrate your review there.
Exam tip: Memorize the 52 questions / 120 minutes / 75% combination for the state portion, and remember PSI (not Pearson VUE) is the South Dakota vendor.
How many members serve on the South Dakota Real Estate Commission, and who appoints them?
Which sanction can SDREC NOT impose on a licensee?
What must happen before SDREC suspends a broker's license over an audit finding?
What are the South Dakota state portion exam parameters?