MENU North Carolina
Real Estate Commission

Bulletin Search

Self-Dealing

A Regulatory Affairs Case Study

By Rob Patchett

As fiduciaries, brokers are required to place their clients’ interests above their own interests. This also means that brokers are prohibited from engaging in self-dealing. In one case, a broker went to great lengths to attempt to purchase a condominium from her client at well below market value.

Respondent Broker was the qualifying broker and broker-in-charge of her solo firm. Her husband’s lease on a condominium was approaching its termination and the owner contacted Respondent Broker and her husband to see if they would purchase the condo at the end of the tenancy. Respondent Broker and her husband decided not to purchase the condominium, but Respondent Broker offered to list the condo for the owner. Respondent Broker represented to the owner-seller she knew investors who were interested in purchasing a condominium. The owner-seller and Respondent Broker executed a six-month exclusive listing agreement with a 5% commission at a list price of $226,000.

After several weeks, Respondent Broker informed her seller-client that the potential investors were not interested in making an offer on the condominium, but her husband had renewed interest in purchasing the condominium. The seller-client spoke directly to Respondent Broker’s husband who offered $215,000 to purchase the condominium; the seller rejected his offer. At this time, Respondent Broker had never publically advertised the condominium for sale.

Suspicious, the seller spoke to another broker about the sale of his condominium. This broker was shocked to hear the list price was so low. He informed the seller that his condominium should be listed between $250,000 and $270,000 based upon recent sales. After learning this information, the seller-client emailed Respondent Broker asking to terminate the listing agreement. The broker refused to terminate the agreement.

A few weeks later, Respondent Broker emailed her seller-client a letter purportedly from Respondent Broker’s attorney. The letter demanded the seller-client accept the husband’s offer because it was a “full-price” offer. The seller-client was given two options for accepting the offer. He could sell the condominium to the husband for $215,000 and not pay Respondent Broker a commission or sell the condominium for $226,000 and pay a 5% commission. The letter was unsigned and contained several factual and typographical errors. During the course of the Commission’s investigation, the Commission’s Consumer Protection Officer confirmed that the attorney did not draft, sign, or send the letter to the seller. Evidence tends to indicate that either Respondent Broker or her husband drafted the letter purporting to be an attorney.

The seller-client rejected all of the husband’s offers. Respondent Broker then demanded her seller-client pay her commission for bringing a “ready, willing, and able buyer” that he rejected. The seller-client declined to pay Respondent Broker’s commission. Several months later, the seller-client sold his condominium for $269,000.

In this case, Respondent Broker’s only concern was for her personal gain. She attempted to buy her client’s condominium below market value by misrepresenting the fair market value to her client. She also attempted to force her seller-client into selling by sending a fictitious attorney demand letter. Finally, she attempted to collect a commission by claiming she brought a legitimate “ready, willing, and able buyer” to her seller-client. Following the investigation, the broker surrendered her license and that of her firm.

Brokers owe fiduciary duties to their clients. These fiduciary duties prohibit brokers from self-dealing. Commission rule 58A .0104(p) specifically requires listing brokers to disclose in writing conflicts of interest, transfer or terminate listing agreements, and notify the seller-client that they may terminate the listing agreement prior to entering into a contract for a property that the listing broker or firm is listing. Furthermore, North Carolina General Statute 93A-6(a)(8) and (10) gives the Commission authority to discipline brokers who are unworthy or incompetent to act as real estate brokers in a manner as to endanger the interest of the public and for conduct which constitutes improper, fraudulent, or dishonest dealing, respectively.

Postlicensing Education Deadline


This article from the February eBulletin is republished here to remind brokers of the new Postlicensing Education requirement effective July 1, 2020.

Beginning July 1, 2020, Rule 58A .1902 will require a Provisional Broker to complete all three 30-hour Postlicensing courses within 18 months of initial licensure in order to maintain active license status. 

If you were licensed anytime during 2018, you must complete all your Postlicensing courses by July 1, 2020. If you have been licensed in 2019, you will have at least 18 months from your date of licensure to complete the courses.

Example #1: Licensed on February 1, 2018

Example #2: Licensed on March 17, 2019

Additional information about this important change is provided in the General Update (GENUP) and Broker-in-Charge (BICUP) courses throughout the year. Also, if you are a provisional broker, be on the lookout for email communications from the Commission about the changing education deadlines.

If you have further questions regarding this rule change, please contact the Education and Licensing Division at 919.875.3700.

How to apply for a Firm License

Have you created an LLC, corporation, partnership, or other type of business entity for your brokerage business or compensation? If so, you need to apply for a firm license.

To complete a firm license application, you must:

*Commission Rule 58A .0502 dictates that a firm must have one principal who holds a broker license on active status in good standing; that broker must serve as the qualifying broker (QB).  The QB is responsible for:

To apply for a firm license, go to www.ncrec.gov and click on Apply for a Firm License.

If you have further questions about the firm licensing process, contact the Education and Licensing Division at 919.875.3700.

Licensee Count as of February 1, 2020


Commission Spotlight: Corean Hamlin

Corean Hamlin has been employed by the Commission since April 2014 and has served as the Director of Education and Licensing since December 2016.

Hamlin holds a Master’s Degree from UNC-Greensboro and a baccalaureate from UNC-Chapel Hill. She holds the Distinguished Real Estate Instructor (DREI) designation from the Real Estate Educators Association (REEA) and the Certified Distance Education Instructor (CDEI) certification from the Association of Real Estate License Law Officials (ARELLO).

After a decade as a professional educator in other industries, Hamlin entered the real estate business, joining her family’s Asheville-based real estate firm as a residential sales broker in 2003. From 2007-2014, Hamlin served as an Instructor, Education Director, and Communication Director for the Asheville Board of REALTORS®, and she taught real estate prelicensing, postlicensing, and continuing education courses at Cumbie and Trull School of Real Estate. She also volunteered as a community mediator with The Mediation Center in Asheville and Hendersonville.

As Director of Education and Licensing, Hamlin plans and directs the Commission’s education, examination, and licensing programs on a statewide basis.

Use Good Judgment: A Regulatory Affairs Division Case Study

by Stephen L. Fussell, Chief Consumer Protection Officer

The Complaining Witness in this case was a seller who listed his property with a broker. The Respondent was a buyer agent who showed the seller’s property. The seller had a doorbell camera which records persons approaching his front door. The camera recorded the Respondent buyer agent as he and his buyer-clients approached the seller’s front door.  The buyers brought their dog on a leash, and, while the buyers were inside the property, the dog urinated on the floor. The buyer agent and the buyers left the property without cleaning up the mess.  There were three additional showing appointments that day.  The next agent who showed the property noticed the “accident,” cleaned up the mess, and reported it to the listing agent, who informed the seller. The seller was justifiably upset that the Respondent had allowed his clients to bring a dog into the property without authorization and then failed to clean up after the dog.

In a written response, the Respondent claimed he asked the buyers to leave their dog in the car, but they said it was too hot. This incident occurred in September, so it may have been too hot to leave the dog in the car.  The Respondent claimed the buyers assured him the dog was “well-trained.” The Respondent had other options, including rescheduling the showing or asking one client to stand outside with the dog while the other client viewed the interior of the home and then the clients could have traded places so that both clients could have viewed the interior of the house with the Respondent. Only with the seller’s permission should the Respondent have allowed his clients to take a dog into the seller’s home.  

When a seller lists his/her property with a broker, the seller understands that other real estate brokers will show the seller’s property to prospective buyers. The seller should be able to trust that the brokers who show the seller’s property will use good judgment and take reasonable steps to safeguard the seller’s property. When a broker is inside someone else’s home, the broker is generally responsible for what occurs.  Therefore, each broker who shows a listed property must exercise reasonable skill, care and diligence to ensure that no damage will be done to the seller’s property during a showing. When a broker leaves a listed property after a showing, the broker should make sure he/she leaves it in the same condition as before it was shown.

With regard to the above-referenced case, the Commission’s Regulatory Affairs Division issued a letter of caution to the buyer agent instructing him to exercise greater care in the future to safeguard the properties he shows to prospective buyers. We sent copies of the letter to the seller and to the buyer agent’s broker-in-charge.  Moreover, the Commission retains complaints in a permanent database for review and reconsideration in the event that a similar complaint is filed in the future.

Proposed Rulemaking

The Commission is currently considering two proposed rule changes, one concerning Education Providers, and a separate Annual Rulemaking on various topics. Text for the proposed rules under consideration may be found on the Commission’s website under ‘License Law and Rule Changes.’ Changes to the proposed rule text are reflected by underlining text that will be added and striking through text that will be deleted.  All proposed rules have a proposed effective date of July 1, 2020.

The Commission is accepting public comments on these rules beginning February 3, 2020 until April 5, 2020.  Members of the public may submit written comments on any of the proposed rules by contacting the Commission’s Rulemaking Coordinator, Melissa Vuotto, or by attending the public hearing on the proposed rules to be held at the Commission’s office, located at 1313 Navaho Drive, Raleigh, North Carolina, on Wednesday, March 18, 2020, beginning at 9:00 a.m. 

The Commission will review all public comments before reaching its final decision on April 15, 2020. Once the final rule text is approved by the Rules Review Commission, the Commission will publish the approved rules.   

If you would like to receive notifications of rulemaking proceedings, please join the Commission’s mailing list.

Appearances

Tracy Sease, Information Officer, spoke at Smart Choice Realty’s event in Raleigh.

Postlicensing Education Deadline



This article from the January eBulletin is republished here to remind brokers of the new Postlicensing Education requirement effective July 1, 2020.

Beginning July 1, 2020, Rule 58A .1902 will require a Provisional Broker to complete all three 30-hour Postlicensing courses within 18 months of initial licensure in order to maintain active license status. 

If you were licensed anytime during 2018, you must complete all your Postlicensing courses by July 1, 2020. If you have been licensed in 2019, you will have at least 18 months from your date of licensure to complete the courses.

Example #1: Licensed on February 1, 2018

Example #2: Licensed on March 17, 2019

Additional information about this important change is provided in the General Update (GENUP) and Broker-in-Charge (BICUP) courses throughout the year. Also, if you are a provisional broker, be on the lookout for email communications from the Commission about the changing education deadlines.

If you have further questions regarding this rule change, please contact the Education and Licensing Division at 919.875.3700.

Disciplinary Actions

CHERIE L SCHULZ (Richlands) – By Consent, the Commission reprimanded Cherie L Schulz effective January 2, 2020. The Commission found that Respondent failed to respond to letters of inquiry issued by Commission staff within fourteen days of receipt. Respondent was warned in a previous case to timely respond to such letters.

CHERIE SCHULZ REALTY FIRM INC. (Richlands) – By Consent, the Commission reprimanded Cherie Schulz Realty Firm Inc. effective January 2, 2020. The Commission found that the firm’s broker-in-charge failed to respond to letters of inquiry issued by Commission staff within fourteen days of receipt. The broker-in-charge was warned in a previous case to timely respond to such letters.