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Brokers & Consumers Should Beware of Unlicensed Activity in North Carolina

By Len Elder, JD, DREI, Director of Education & Licensing and Janet Thoren, JD, Director of Regulatory Affairs

The North Carolina Real Estate Commission (NCREC) takes its obligation to protect the public from unlicensed activity seriously. Generally, unlicensed activity can be divided into two categories:

The provisions of North Carolina General Statute § 93A-1 prohibit any person or entity from directly or indirectly engaging in the business of real estate brokerage without first obtaining a license. The definition of a real estate broker is contained in §93A-2(a):

Any person…or entity who for a compensation or valuable consideration or promise thereof lists or offers to list, sells or offers to sell, buys or offers to buy, auctions or offers to auction, or negotiates the purchase or sale or exchange of real estate, or who leases or offers to lease, or who offers to sell or offers to sell leases of whatever character or rents or offers to rent any real estate or the improvement thereon, for others.

The General Assembly considers the offense of engaging in unlicensed activity to be serious enough that violation of the statute is a Class 1 Misdemeanor. That status is only one step below a felony. Upon receipt of any complaint regarding unlicensed brokerage activity the Commission’s Regulatory Affairs Division will investigate the matter. The Commission first tries to get unlicensed persons or firms licensed. If that does not work, staff seeks cease and desist consent agreements with those who may be violating state statutes. If Regulatory Affairs is not able to reach such an agreement, enforcement action may be necessary. In civil enforcement cases, NCREC is represented by the Attorney General’s Office to seek an injunction in Superior Court. Criminal enforcement actions are handled by the local District Attorneys’ offices.

Examples of unlicensed activity that may involve these kinds of legal actions would include the following:

1 – Managing Properties Belonging to Another Without a License

A licensed person has become a super host utilizing AirBNB to market and promote their short term vacation rental property. Two friends have asked the super host to market and manage the friends’ AirBNB property as well, and agree to pay the superhost a percentage of the rental bookings.

The advertising, marketing and management of a property belonging to another for compensation requires an active real estate license in North Carolina under General Statute § 93A-2(a). Such activity also requires a signed written property management agreement under Commission Rule 58A .0104.

2 – Wholesaling Brokerage Activities

A real estate license is not required in North Carolina for a bona fide buyer to assign their rights and interests in a purchase contract to a third party. However, the wholesaler may be engaged in unlicensed brokerage activity in violation of the General Statutes if their conduct involves the following activities:

There appears to be a belief that working with “investors” or “cash buyers” is somehow exempt from the General Statutes requiring licensure. The statutes make no licensing distinction for a “cash buyer” or an “investor” and create no such exemption for them.

The second major category of unlicensed activity involves licensees engaging in prohibited conduct with unlicensed individuals or entities. General Statute § 93A-6 grants the Real Estate Commission the power to discipline a broker by reprimand, suspension or revocation when the broker engages in prohibited conduct. 

Examples that may involve these kinds of prohibited actions would include the following:

1 – Payment of Referral or “Finders” Fees to Unlicensed People or Entities

A broker receives a business referral from a past client who does not have a real estate license. What can the broker legally provide to the past client? A thank you card. It is illegal for the client to receive anything of valuable consideration for the referral and it is illegal for the broker to provide anything of value. Certainly, any type of cash or monetary payment is in violation of the General Statutes, but so is the receipt of a gift card, free movie tickets, a dinner gift certificate or any item that is valuable consideration.

Brokers who share fees with wholesalers based on the wholesaler “representing” or referring/providing a buyer or seller to a licensee can also involve the broker paying unlawful compensation to unlicensed individuals and entities.

2 – Licensees Directing Unlicensed People To Solicit Business

A broker is using an assistant to contact home sellers and potential buyers and to develop leads. The solicitation of buyers and sellers in conjunction with the purchase and sale of real estate that belongs to another person requires a license.

Brokers are permitted to utilize unlicensed assistants for administrative tasks that do not require a license. Prospecting, making cold calls and gathering financial, motivational and confidential information from consumers requires an active license. Such activity rises to the level of first substantial contact as defined in Commission Rule 58A .0104(c), requires the mandatory use of the Working with Real Estate Agents Disclosure, and must be performed by a licensed broker.

3 – Brokerage Services Provided by Inactive or Expired Brokers

When a broker’s license becomes inactive or expired, the broker is required to immediately cease all brokerage activities. A broker whose license status has changed from active status may not continue to work with consumers, even to complete a pending transaction or advise existing clients. The Commission’s database allows for both licensees and the public to check the current license status of a broker.

Brokers-in-charge should adopt policies and procedures that require regularly checking the status of all affiliated broker’s licenses. Those policies should also confirm the status of any licensee prior to the payment of any compensation, including referral fees.

The Commission, in protecting and promoting the interests of the public, needs the help of both licensees and consumers to meet that goal. If you are aware of or concerned about unlicensed activity, you can file a complaint using this link to the NCREC.gov website: https://www.ncrec.gov/complaintform or contact Regulatory Affairs directly at 919-719-9180.

Current Stats: Monthly Licensee Count as of November 1, 2023

Staff Appearances

Len Elder, Director of Education and Licensing, and Kizzy Crawford Heath, Legal Education Officer, spoke at Canopy REALTOR® Association on November 3.

Dee Bigelow, Consumer Protection Officer, spoke at Greensboro Regional REALTORS® on November 7.

Janet Thoren, Legal Counsel, and Christy Evans, Consumer Protection Officer, spoke at Roanoke Valley Lake Gaston Board of REALTORS® on November 17.

Miriam Baer, Executive Director, spoke at Land of the Sky Association of REALTORS® on November 17.

Brian Heath, Consumer Protection Officer, spoke at Keller Williams Realty Fayetteville on November 28.

Tech Corner: Agent Safety

Working in the field of brokerage can be very rewarding; however, brokers must be diligent about maintaining their safety while practicing brokerage activities. This article will provide brokers with some examples of technology that can be instrumental in aiding broker safety.

Wearable Technology

Communication Applications/Platforms

Drones

The Commission does not endorse the use of specific technology; however, brokers may conduct research or speak with other professionals to determine what technology, if any, may meet their safety needs. Further, when technology is used appropriately, it can allow brokers to remain connected with their professional networks, which can be vital to helping ensure their safety.

If you would like to read more about agent safety, review this resource entitled, “North Carolina Real Estate Agent Safety Guide.”

Diversity, Equity, and Inclusion Updates

Over the last several years the demographic makeup of the real estate consumer has become increasingly more diverse. The North Carolina Real Estate Commission recognizes the need to cultivate a diverse and inclusive real estate industry.

The Commission is developing programs as a part of our ongoing efforts to engage with and attract diverse, and often times underrepresented, groups of professionals to the real estate industry. One of those programs is a college outreach program in which the Commission is partnering with Historically Black Colleges and Universities (HBCUs) in North Carolina. The primary goal of these partnerships is to expose students to, and increase their awareness of, the many career opportunities available in real estate. With the support of other industry entities and organizations, we will accomplish this goal by hosting campus guest speaker series, campus career fairs and other networking opportunities, mentorships, and internships. As the Commission works to develop and implement additional programs, we are always open to your feedback and ideas. If you would like to provide feedback or if you would like to be a part of our programing, please contact us here and Commission staff will be in contact with you.  

Case Study: Working With Real Estate Agents Disclosure

FACTS: A broker routinely works with members of their own congregation. The broker has deep personal relationships with the members who are from the same culture and/or nationality as the broker.

While working with a married couple interested in purchasing a residential property, the broker mentions the Working with Real Estate Agents Disclosure. The couple informs the broker that due to their personal, trusting relationship, there is no need to review the disclosure or provide them with a written document. Further, when the couple expresses their interest in purchasing a specific property, they inform the broker that there is no need for a written employment agreement. The couple expresses their satisfaction verbally with the broker and indicates that a written employment agreement is not necessary in their culture.

Later, unrelated problems arose in connection with the buyers’ purchase transaction, resulting in a complaint to the Commission. During the investigation, the clients indicated they were satisfied with the representation the broker had provided to them during the transaction and felt that signing documents to evidence the agreement was unnecessary.

ISSUE: Did the broker comply with Rule 58A .0104, Agency Agreements and Disclosures?

ANALYSIS:  No. Rule 58A .0104(a) requires every agreement for brokerage services between a broker and a buyer to be express and in writing and signed by the parties not later than the time one of the parties makes an offer to purchase, sell, rent, lease, or exchange real estate to another. In this scenario, the buyer agent did not enter into a written buyer agency agreement prior to the clients making an offer to purchase the property. The broker did not review the Working With Real Estate Agents Disclosure with the couple at first substantial contact as required under Rule 58A .0104(c).

Rule 58A .0104(c) states that in every real estate sales transaction, a broker shall at first substantial contact with a prospective buyer or seller, provide the prospective buyer or seller with a copy of the publication, “Working With Real Estate Agents,” set forth the broker’s name and license number thereon, review the publication with the buyer or seller, and determine whether the agent will act as the agent of the buyer or seller in the transaction.

Even if a broker believes that they are trusted and that the culture or tradition of consumers with whom they are working, does not require disclosures or written agreements, there is no exception within Commission Rules for such circumstances. The basic requirements of agency disclosure apply to all cultures, religions, and nationalities equally.

Further, it is irrelevant that the client did not want to sign any agreements or review documentation. The Commission expects all brokers to adhere to Rule 58A .0104, Agency Agreements and Disclosure.

Resources:

N.C.G.S. § 93A-6(a), 93A-6(a)(8), § 93A-6(a)(10); and § 93A-6(a)(15)

License Law and Commission Rules 58A .0104, 

Articles:

WWREA Disclosure Form Webinar

Introducing a *NEW* WWREA Disclosure Form-Updated

Working With Real Estate Agents Disclosure – Update

Reminder: Code of Ethics Requirement

Do Commission rules require Code of Ethics Training?

No. The Commission does not require Code of Ethics training. Code of Ethics requirements are set by the National Association of REALTORS® (NAR) for their members. Not all brokers are members of NAR. Brokers who are members of NAR are required to complete Code of Ethics Training once every triennial in order to remain in good standing as a REALTOR®.

The course must include at least 2.5 hours of instructional time and is offered in distance format, via synchronous courses, or in-person. These courses are offered through REALTOR® associations. Some of these courses, if they are at least 4 hours long, may also provide Commission CE elective credit, but only if the course was submitted and approved for CE elective credit with the North Carolina Real Estate Commission. Although a course may have awarded a broker CE credit, NCREC does not certify or approve that the course will be satisfactory to the REALTOR® Association for ethics credit. NCREC does not track or monitor compliance with the ethics requirement.

The only way for a REALTOR® to know if a particular course is sufficient or meets the requirements of the National Association of REALTORS® is to contact your local REALTOR® association.

The Balancing Act: North Carolina Real Estate License Law and Commission Rules and Cultural Norms

North Carolina has a diverse population that is inclusive of various cultural backgrounds, each with their own unique norms, values, and traditions. It is imperative that brokers follow License Law and Commission rules while also respecting the cultural differences of consumers when conducting brokerage activities.

Brokers should be sensitive to the cultural norms of consumers; however, the sensitivity brokers display should not affect their ability to adhere to:

Balancing cultural sensitivity and compliance with Commission rules may present a challenge to some real estate brokers. However, there are some best practices that brokers may implement to be successful, such as:

Although brokers may encounter consumers/clients with varying cultural norms, it is possible for the broker to be sensitive to the individuals’ cultural traditions while also adhering to License Law and Commission rules. Brokers who comply with Commission rules while also respecting cultural norms can build a strong, trusting relationship with the individuals in their community.

If you have questions about License Law and Commission rules and cultural norms, please contact Regulatory Affairs at regulatoryaffairs@ncrec.gov. For more information, read the Case Study in this edition of the e-Bulletin.

December is HERE! Do you need to reinstate your license?

Brokers who failed to renew their license by June 30th, had an expired license on July 1st. As of July 1st, brokers with an expired license were required to cease all brokerage activities. But the good news for those who didn’t mean to allow their license to expire is that they have until December 31st to reinstate their license without additional education requirements. The bad news? December 31 is coming up fast, and if the license isn’t reinstated by then, it will too late to reinstate without additional steps.

What steps must a broker take to reinstate an expired license?  That answer depends on how long the license has been expired.

To reinstate a license expired for less than 6 months:

  1. Go to the Commission’s homepage (www.ncrec.gov);
  2. Click on Reinstate your License;
  3. Enter your license number and PIN (last 4 of your SSN unless you have changed it); 
  4. Answer required questions; and
  5. Pay $90 reinstatement fee.

NOTE: Following expiration, a broker’s license is reinstated on inactive status. To regain active status, a License Activation / Affiliation form (REC 2.08) also must be submitted.

To reinstate a license expired for 6 months but no more than 2 years

  1. Successfully complete one 30-hour Postlicensing course (course must be completed within 6 months prior to submitting reinstatement application); and
  2. Submit a reinstatement application with $90 application fee and all required documentation, including criminal background report;

-OR-

  1. Submit a reinstatement application with $90 application fee and all required documentation, including criminal background report; and
  2. Pass the National and State sections of license exam.

NOTE: Following expiration, a broker’s license is reinstated on inactive status. To regain active status, a License Activation / Affiliation form (REC 2.08) also must be submitted.

To reinstate a license expired for more than 2 years:

  1. Successfully complete the 75-hour NC Broker Prelicensingcourse;
  2. Submit a license application with the $100 original application fee and all required documentation, including criminal background report; and
  3. Pass the National and State sections of license exam.

NOTE: When a license has been expired for more than two years and is reinstated, brokers are licensed as a provisional broker and are subject to the 90-hour Postlicensing education program. To gain active status, a License Activation/Affiliation form (REC 2.08) also must be submitted.

For more information, review Commission Rule 58A .0505 or visit the “Reinstate your License” page on the Commission’s website. You may also contact the Commission’s Education & Licensing Division at ls@ncrec.gov or 919-875-3700.

Team Scenario: Setting Up a Team Inside a Firm

XYZ Realty is a large brokerage. Betty is the broker-in-charge and has 20 affiliated brokers in the office. Bill Starr is an affiliated broker, and he would like to recruit other brokers to work with him on transactions. Bill does not create a business entity for the team. Bill and all of his team members will advertise the team as “Bill Starr of XYZ Realty.” The team will continue to work from the office of XYZ Realty.

Question: Does Bill’s team need a firm license?

Answer: No, because there is not a separate entity for the team.

Question: Does Bill’s team need a designated BIC?

Answer: No, because there is not a separate entity for the team. Betty is already the BIC of XYZ Realty and will be the broker-in-charge of the team.

Question: Commission records will show that team members are affiliated with which brokerage(s) and with which BIC(s)?

Answer: All team members will be affiliated with XYZ Realty, with Betty as the BIC.

Question: Who will be responsible for supervising team members?

Answer: Betty is the BIC of XYZ Realty, she is responsible for supervising all brokers affiliated with the office.

Question: What company name will team members use when completing agency agreements and disclosures with consumers?

Answer: In most cases, XYZ Realty is the agent for all agency agreements with consumers including property management agreements, listing agreements, buyer agency agreements, and dual agency agreements.

Question: How may the team name be advertised?

Answer: The team’s advertising (e.g. signs, business cards, websites, etc.) must always include the name of the brokerage with which the agents are affiliated (XYZ Realty). Example: “The Bill Starr Team of XYZ Realty”

Question: Must the team name be registered as an assumed name (d/b/a)?

Answer: No, because the team name is only being used for branding. There is no change in the name of the licensed and registered entity, XYZ Realty.

Question: Is it legal for a provisional broker (PB) to be a part of The Bill Starr Team of XYZ Realty? Why or Why not?

Answer: Yes, because all team members are affiliated with XYZ Realty, at the brokerage, under the supervision of Betty BIC. As noted above, Betty BIC is responsible for supervising all the provisional brokers affiliated with the office, including those PBs who are on teams.

Question: If a PB is on the team, how/by whom must the PB receive compensation for brokerage activities performed on behalf of the team?

Answer: As required by N.C.G.S. § 93A-6, a PB may only be compensated for brokerage activities by the PB’s supervising BIC. Thus, only Betty may legally pay the PB for brokerage activities.

If you would like to review additional case scenarios about teams that are licensed business entities, please review “Provisional Brokers on a Team” on the Commission’s website.

If you have additional questions about how to advertise as a team, please contact Regulatory Affairs at regulatoryaffairs@ncrec.gov.