The 5 Most Frequently Asked Questions by Brokers in December

By Tiffany Ross, Consumer Resource Officer and Bruce Rinne, Information Officer

The North Carolina Real Estate Commission is contacted daily with questions from brokers about various topics. The responses to the five most frequently asked questions are below.

Question #1:  Once a buyer has sent the termination form to the seller, can I change the property back to active in the MLS, or do I have to wait for the buyer and seller to agree in writing on the disposition of the earnest money? 

This response depends on the status of the current transaction, which termination form was used, and the local MLS rules.  Therefore, a broker should review the transaction with their BIC and ask for guidance on the transaction. Depending upon the geographic location, each MLS may have different rules and regulations, and brokers should review these rules prior to changing the status.  If a broker uses the Offer to Purchase and Contract, Standard Form 2T, there are 4 standard termination forms created by NC REALTORS®/NCBA; therefore, it is important to use the correct form to terminate the transaction. 

The contract may be terminated:

1. at any time from the effective date to any time after the last agreed upon closing date by using either Form 390-T TERMINATION OF CONTRACT BY MUTUAL AGREEMENT WITH RELEASE OF EARNEST MONEY DEPOSIT or Form 391-T TERMINATION OF CONTRACT BY MUTUAL AGREEMENT WITHOUT RELEASE OF EARNEST MONEY DEPOSIT.
2. by the Buyer during the Due Diligence Period by using Form 350-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO SELLER FROM BUYER.
3. by the Seller should the Buyer fail to deliver the Due Diligence Fee or initial Earnest Money Deposit after the Seller has demanded payment by using Form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER . Once the seller has demanded payment using Form 355-T, and payment has not been made as required, the seller can terminate using Form 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER.
4. by the non-delaying party 7+1 days past the last agreed upon closing date (unless there is an agreement to shorten that time from 7 days to 4 days per Form 4-T AGREEMENT TO AMEND in which case the Buyer can use Form 350-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO SELLER FROM BUYER. The Seller may also use 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER.

Further, failure to close does not automatically terminate a standard contract.  It becomes voidable by the non-delaying party, but a termination form should be used to ensure it is properly terminated.

Question #2:  Can I do business under a team name “powered by” my firm’s name, without having a business entity created in that team name?

A broker may advertise in their firm name, and even a team name, if the correct entities and/or the correct assumed business name certificate for the company is in place.  Brokers may review this article published in the March 2022 eBulletin for more details: A Rose By Any Other Name – Names, Name Changes and Assumed Names.   The Commission has several other resources to assist brokers with advertising their brokerage business, such as Team Scenario: Setting Up a Team Inside a Firm. 

Question #3:  How much time does a firm have to pay me my earned commission?

The Commission does not dictate the method/process BICs use to disburse commission /referral fees. Brokers should review their Independent Contractor Agreement that they signed with their firm. This agreement should specify the timing and method for payment of funds to the broker at the conclusion of the transaction. As a reminder, NCREC does not handle commission disputes.

Question #4:  Property Management / Tenant Security Deposit Questions.

The Commission expects brokers to possess competency in the areas of brokerage in which they choose to practice. Further, if a broker chooses to practice residential property management, they must be competent in federal and state fair housing laws, the North Carolina Tenant Security Deposit Act, Residential Rental Agreements Act, and the Vacation Rental Act (if applicable), and License Law and Commission rules.Just as in sales transactions, Brokers engaged in property management are required to disclose material facts and treat consumers with honesty and fairness.    

Question #5:  When is the due diligence fee due?  What can my seller/client do if it is not paid?

If your clients are using the Offer to Purchase and Contract, Standard Form 2-T, the due diligence fee is due immediately on the effective date of the contract, which is the date the contract is signed by all parties, and acceptance is communicated back to the offering side.  If the buyer fails to deliver the due diligence fee on the effective date of the contract, the buyer could be in breach of the contract.  Also, the buyer’s failure to provide the funds within one banking day of written notice can result in the contract being terminated by the seller. Moreover, the seller may be entitled to all monies due per the contract, including the due diligence fees, and any earnest money paid or due to be paid.

In the Offer to Purchase and Contract, Standard Form 2-T, if a buyer fails to deliver the Due Diligence Fee and Earnest Money Deposit, the Seller has the right to terminate the contract. However, the contract does not specify a means by which they must formally request the money. The Seller can use Form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER and provide it to the Buyer. The Buyer will then have until the end of the next banking day to provide the Due Diligence and/or Earnest Money Deposit to the Escrow Agent as Cash, Official Bank Check, Wire Transfer or Electronic Transfer. If the Buyer does not deliver the monies, the Seller can then use Form 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER and check the box.

Once the seller submits Form 352-T, they have unilaterally terminated the contract which allows the seller to place the residential property back on the market for sale. Additionally, it may allow the Seller to sue the Buyer for not only the Due Diligence Fee but the Earnest Money Deposit as well. We recommend brokers advise their clients to seek the advice of legal counsel if they have questions about terminating a contract.

If the Offer to Purchase and Contract, Standard Form 12-T for vacant land is used, the process is similar. The Seller would use form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER. If the Buyer fails to comply to the demand for the monies, the Seller would then use Form 353-T TERMINATION OF CONTRACT (FORM 12-T– VACANT LOT/LAND) BY NOTICE TO BUYER FROM SELLER. Next, the seller may place the property back on the market to sell and speak to an attorney about the prospects of suing the Buyer for the Due Diligence and Earnest Money Deposit. If you have questions or comments regarding any information in this article, contact Regulatory Affairs at 919.719.9180.

Announcement: The Commission names new Assistant Directors of Regulatory Affairs and Education and Licensing

Kristen Fetter was named the Assistant Director of Regulatory Affairs for the North Carolina Real Estate Commission in October 2023. Ms. Fetter graduated from North Carolina State University with degrees in Political Science and Spanish Language and Literature. She received her law degree from the Norman Adrian Wiggins School of Law at Campbell University in 2006.

Since graduating from law school, Kristen has spent the majority of her career working in the court system. Kristen was the Trial Court Administrator in Wake County for 3 years. She served as a criminal prosecutor for nearly 12 years and is licensed to practice law in North Carolina, Arizona, and Virginia. Kristen joined the Commission’s Regulatory Affairs staff in November 2021.

As the Assistant Director of Regulatory Affairs, Kristen’s duties involve prosecuting complaints before the Commission, conducting settlement negotiations of contested cases, representing the Commission on appeal, and responding to inquiries relating to the License Law, Commission rules, and real estate transactions, generally.

Kizzy Crawford Heath was named the Assistant Director of Education and Licensing for the North Carolina Real Estate Commission in December 2023. Ms. Heath graduated from Elizabeth City State University with a degree in Criminal Justice and a minor in Pre-law. She received her Masters in Adult Education degree from the University of Phoenix in 2004, and her law degree from North Carolina Central University School of Law in 2010.

Since graduating from law school, Kizzy was on the faculty at North Carolina Wesleyan University and Wake Technical Community College where she taught Legal Environment, Criminal Law, Constitutional Law, Court Procedure and Evidence, and Ethics. Ms. Heath authored supplemental instructional resources for the education and publishing company, Pearson Education, prior to joining the Commission. As the former Legal Education Officer at the Commission, she wrote various educational material, the mandatory Update Course for real estate brokers each license year, and co-authored the North Carolina Real Estate Manual.

As the Assistant Director of Education and Licensing, Kizzy’s duties involve overseeing the development of educational materials for consumers and real estate brokers, licensure of brokers and business entities, responding to inquiries relating to License Law, Commission rules, and educational programs, generally.

Case Study: Material Facts

FACTS: A provisional broker located a property for their buyer client. The description of the property indicated that the driveway encroached on the adjacent lot.

The provisional broker did not disclose the encroachment to their buyer client, inquire with the listing agent about the encroachment, or ask to view the property survey. After the provisional broker informed the buyer client about the property, the buyer client expressed an interest in viewing it.

After viewing the property, the buyer client asked the provisional broker to submit an offer on their behalf. The seller accepted the buyer’s offer and the parties went under contract for the property.

The contract allowed for a due diligence period for the buyer to conduct inspections on the property. During the due diligence period, the buyer hired vendors to conduct a home inspection and a survey. At the conclusion of the survey, the buyer was notified by the surveyor that the driveway of the property encroached on the adjacent lot.

The buyer asked the provisional broker about the encroachment. The provisional broker indicated that it was the duty of the listing agent to disclose the encroachment to all parties in the transaction. Subsequently, the buyer terminated the contract during the due diligence period.

ISSUE: Did the provisional broker comply with N.C.G.S. §93A-6(a)(1)?

ANALYSIS:  No. N.C.G.S. §93A-6(a)(1) indicates that the Commission has power to suspend or revoke at any time a license issued under the provisions of this Chapter, or to reprimand or censure any licensee, if following a hearing, the Commission adjudges the licensee to be guilty of making any willful or negligent misrepresentation or any willful or negligent omission of material fact. 

A material fact is any fact that could affect a reasonable person’s decision to buy, sell, or lease. Therefore, a broker has an affirmative duty to discover and disclose material facts to all parties in a transaction. Additionally, brokers are expected to take reasonable steps to discover all pertinent facts that are necessary to serve their clients’ interest. In this scenario, the driveway encroaching on the adjacent lot is a fact about the property that the provisional broker should have timely disclosed to their buyer client.

Further, the Commission assesses whether or not a broker knew the existence of a material fact by analyzing documents and reviewing written correspondence. Essentially, the Commission uses the Reasonableness Standard to evaluate a broker’s duty to discover and disclose material facts. This standard dictates that a broker has a duty to discover and disclose any particular material fact if a reasonably knowledgeable and prudent broker would have discovered the fact during the course of the transaction and while acquiring information about the property.

In this scenario, the provisional broker was made aware via the property description that the driveway of the property encroached on the adjacent lot. Therefore, the provisional broker was aware of the existence of the encroachment prior to informing their client about the property’s availability and viewing it. Further, the provisional broker did not act like a reasonably prudent broker because theyfailed to ask additional questions about the encroachment or the property survey.

In this case, the provisional broker had a duty to investigate the encroachment and should have assisted the buyer-client in obtaining any information related to the encroachment and property. The provisional broker’s assertion that the discovery of the encroachment was the duty of the listing agent is incorrect. Every broker must exercise reasonable care and diligence in discovering and disclosing all material facts to all interested parties in a timely manner in adherence to N.C.G.S. §93A-6(a)(1). Lastly, Rule 58A .0506 indicates that a provisional broker must be supervised by a broker-in-charge in order to conduct brokerage activity. The provisional broker failed to adhere to N.C.G.S. §93A-6(a)(1) and as a result, the provisional broker and broker-in-charge may be subject to disciplinary sanction by the Commission.

RESOURCES:

N.C.G.S. § 93A-6(a)(1), 93A-6(a)(8), and 93A-6(a)(10)

License Law and Commission Rules: Rule 58A .0506

Articles: What is Common Knowledge?

Material Facts: Speak Up!

Staff Appearances

Brian Heath, Consumer Protection Officer, spoke at Coldwell Banker Howard, Perry, and Walston on December 5.

Steve Fussell, Chief Consumer Protection Officer, spoke at Fonville Morisey Realty-Cary on December 5.

Bruce Rinne, Information Officer, spoke at Burlington-Alamance County Association of REALTORS® on December 14.

Tech Corner: The Commission’s Tech Study Group Investigates New Technology Uses

The Commission’s Tech Study Group, led by Vice Chair T. Anthony Lindsey, is excited to share new technology that is being investigated by the Commission. You can hear more about the Tech Study Group by watching the video below.

If you have any additional questions about the Tech Study Group, please visit our website at www.ncrec.gov.

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

Happy New Year!

As we bid farewell to the old year, the North Carolina Real Estate Commission extends warm wishes to all of our dedicated real estate brokers. As you embark on the New Year, it is important to take a moment to celebrate your accomplishments in your real estate career; your dedication and professionalism contributed to the success of real estate brokerage in North Carolina.

During this New Year, the North Carolina Real Estate Commission wishes you a year of prosperity and opportunity. We will continue to support you on your real estate journey by providing educational resources and guidance on regulatory compliance. To that end, while navigating the real estate market, we encourage you to stay informed on License Law and Commission Rules. This will safeguard your professional reputation and demonstrate to the consumer that you possess the knowledge and competency to practice real estate brokerage.

If you have questions about License Law and Commission Rules and permissible brokerage activity, contact Regulatory Affairs at regulatoryaffairs@ncrec.gov or 919.719.9180.

May the coming year bring you joy and success with your real estate endeavors!

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:

• Individuals and entities that do not possess a real estate license and are engaged in real estate brokerage activity in violation of North Carolina General Statutes, and
• Licensed individuals and entities that are engaged in prohibited real estate brokerage conduct with individuals and entities that are not licensed.

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:

• Soliciting and marketing to sellers that the wholesaler will purchase a property for cash when the wholesaler has no intention of personally purchasing the property, but instead plans to secure buyers for a fee, to purchase directly from the seller;
• Misrepresenting their ownership interest in the property;
• Collecting, handling and delivering due diligence fees and earnest money deposits on behalf of third parties (e.g., the sellers);
• Negotiating purchase contracts between a seller and a buyer;
• Acting on behalf of an investor entity, when the wholesaler is not an officer or W2 employee exempt from licensure under General Statute §93A-2(c)(1);
• Soliciting and marketing of buyers generally, unconnected to the transfer of a specific assigned purchase contract.

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.