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NEW Working With Real Estate Agents Disclosure Is Available
In January 2020, the Consumer Federation of America (“CFA”) published a report entitled, “Why Required Real Estate Agent Disclosures about Representation Fail and How They Can Be Improved.” The report contains a list of recommendations for improving agency disclosure forms.
The Commission’s Working With Real Estate Agents brochure has been used for approximately 25 years. Although it contains good information, changes in technology, communication methods, and the faster pace of real estate transactions have made its format less user friendly.
The Commission has created a new disclosure form (“Working With Real Estate Agents Disclosure”) which will make agency disclosure quicker and easier for brokers and more understandable for buyers and sellers. The form is just two pages in length, with one page dedicated to sellers and one page dedicated to buyers. A broker explaining agency to a seller need only review the seller side of the form; likewise, a broker disclosing agency relationships to a buyer need only review the buyer side.
The new form replaces the old Working With Real Estate Agents brochure as the form that brokers must review with prospective buyers and sellers at first substantial contact. The new disclosure form is now available on the Commission’s website (ncrec.gov) under the “PUBLICATIONS” tab.
The Commission encourages brokers to begin using the form immediately. Effective 7/1/21, brokers will be required to use this form in all commercial and residential sales transactions.
On 4/26/21, the Commission hosted a 60-minute webinar introducing this new form. A recording of the webinar is available for viewing on the Commission’s website.
This form will be translated into Spanish and will be discussed in the 2021-2022 GENUP and BICUP courses. Aside from the introduction of this new form, there has been no change to the rule which requires agency disclosure (A .0104(c)) and no change in the types of agency relationships that brokers may offer. The only change is in the form that brokers use to explain agency relationships.
Disciplinary Actions
CHARLOTTE BAUGHER (Raleigh) – The Commission accepted the voluntary surrender of the broker license of Ms. Baugher effective March 17, 2021. The Commission dismissed without prejudice allegations that Ms. Baugher violated provisions of the Real Estate License Law and Commission rules. Ms. Baugher neither admitted nor denied misconduct.
YU PEI CHOOI (Cary) – The Commission accepted the voluntary surrender of the broker license of Ms. Chooi effective April 21, 2021. The Commission dismissed without prejudice allegations that Ms. Chooi violated provisions of the Real Estate License Law and Commission rules. Ms. Chooi neither admitted nor denied misconduct.
C MILLER PROPERTIES INC. (Hickory) – The Commission accepted the voluntary surrender of the firm license of C. Miller Properties effective March 17, 2021. The Commission dismissed without prejudice allegations that C. Miller Properties violated provisions of the Real Estate License Law and Commission rules. C. Miller Properties neither admitted nor denied misconduct.
GATEWAY REALTY SERVICES (Cary) – The Commission accepted the voluntary surrender of the firm license of Gateway Realty Services effective April 21, 2021. The Commission dismissed without prejudice allegations that Gateway Realty Services violated provisions of the Real Estate License Law and Commission rules. Gateway Realty Services neither admitted nor denied misconduct.
ROBERT C. MILLER (Hickory) – The Commission accepted the voluntary surrender of the broker license of Mr. Miller effective March 17, 2021. The Commission dismissed without prejudice allegations that Mr. Miller violated provisions of the Real Estate License Law and Commission rules. Mr. Miller neither admitted nor denied misconduct.
SANDRA C. MOORE (Hickory) – The Commission accepted the voluntary surrender of the broker license of Ms. Moore effective March 17, 2021. The Commission dismissed without prejudice allegations that Ms. Moore violated provisions of the Real Estate License Law and Commission rules. Ms. Moore neither admitted nor denied misconduct.
ANNA M. PAPP (Cary) – The Commission accepted the voluntary surrender of the broker license of Ms. Papp effective March 17, 2021. The Commission dismissed without prejudice allegations that Ms. Papp violated provisions of the Real Estate License Law and Commission rules. Ms. Papp neither admitted nor denied misconduct.
BEVERLY D. OSBORNE (Rock Hill, SC) – Following a hearing, the Commission permanently revoked the broker license of Ms. Osborne effective March 16, 2021. The Commission found that Ms. Osborne failed to self-report her South Carolina real estate license revocation and to communicate with Commission staff.
GROVER F SHUGART JR (Winston Salem) – The Commission accepted the voluntary surrender of the broker license of Mr. Shugart Jr. effective March 17, 2021. The Commission dismissed without prejudice allegations that Mr. Shugart violated provisions of the Real Estate License Law and Commission rules. Mr. Shugart neither admitted nor denied misconduct.
SHUGART MANAGEMENT (Winston Salem) – The Commission accepted the voluntary surrender of the firm license of Shugart Management effective March 17, 2021. The Commission dismissed without prejudice allegations that Shugart Management violated provisions of the Real Estate License Law and Commission rules. Shugart Management neither admitted nor denied misconduct.
OLUREMILAKUR WILLIAMS (Raleigh) – The Commission accepted the voluntary surrender of the broker license of Mr. Williams effective April 21, 2021. The Commission dismissed without prejudice allegations that Mr. Williams violated provisions of the Real Estate License Law and Commission rules. Mr. Williams neither admitted nor denied misconduct.
Appearances
Steve Fussell, Chief Consumer Protection Officer, spoke at Weaver Street Realty’s Sales Meeting on April 7.
Sheryl Graham, Consumer Protection Officer, spoke at Realty Executives of Hickory’s Agent Training on April 8.
Sheryl Graham, Consumer Protection Officer, spoke at Salisbury Rowan Association of REALTORS’s Are You Prepared Panel on April 22.
Updated Investment Policy – Investment in MDIs
As part of its commitment to racial equity, the Commission has updated its internal Investment Policy to provide that a significant portion of its own funds are deposited in minority-owned depository institutions (MDIs).
MDIs are defined by the FDIC as institutions where (1) 51% or more of the voting stock is owned by minority individuals, or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority. Ownership must be by U.S. citizens or permanent legal U.S. residents to be counted in determining minority ownership. The term “minority” is defined as any “Black American, Asian American, Hispanic American or Native American.”
Under the new policy, Commission funds are deposited in U.S. financial institutions where they are either FDIC insured, regulated by the Office of the Controller of Currency or the Federal Reserve, or collateralized in accordance with guidance issued by the NC Department of State Treasurer. This ensures that the funds are protected at all times. The policy sets out target goals for the Commission’s funds, including certain North Carolina institutions and MDIs. The target range for MDIs is 20 – 40 %. In other words, the Commission seeks to keep between 20 and 40% of its funds in minority-owned institutions at all times, with a preference for institutions in North Carolina or the Southeast region.
Current Stats: Total Disciplinary Cases as of February 28, 2021
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The Pitfalls of Using Escalation Clauses
By Stephen L. Fussell, Chief CPO
In an effort to gain a competitive advantage, some prospective buyers may ask their agents to include escalation clauses in their offers. An escalation clause is one in which a prospective buyer expresses their willingness to pay a specific amount more than the highest competing buyer. The escalation clause may or may not indicate a maximum amount that the prospective buyer is willing to pay.
The Commission discourages the use of escalation clauses, but does not prohibit them. Commission Rule A .0115 reads as follows: “A broker shall not disclose the price or other material terms contained in a party’s offer to purchase, sell, lease, rent, or to option real property to a competing party without the express authority of the offering party.” Therefore, in the unlikely event that a buyer consents to allow a broker to share the price and terms specified in their offer with another prospective buyer, then and only then may the broker do so.
Pitfalls of escalation clauses:
- If a buyer submits an offer containing an escalation clause without knowing the price and terms of the other offers and without specifying a maximum price, the buyer may end up paying much more for the property than desired.
- If a buyer includes a maximum price in an escalation clause, the seller will immediately know the buyer’s top price thereby compromising the buyer’s bargaining position.
- An offer containing an escalation clause may not become enforceable until a specific price is entered into the contract and the buyer sees the price the seller has specified.
- The seller may fabricate a fictitious offer in order to drive up the sales price for a buyer who uses an escalation clause.
- Real estate brokers are prohibited from drafting escalation clauses, because doing so would constitute the unauthorized practice of law. Hiring an attorney is recommended, but will increase the buyer’s costs. The seller should also have an attorney review an offer containing an escalation clause to protect the seller’s interests.
- If multiple buyers were to include escalation clauses in their offers, a bidding war may follow. If no buyer is willing to commit to a specific price, then no contract is ever formed and no property is sold.
- Since the use of an escalation clause implies that a prospective buyer is willing to pay more than other buyers, it may motivate sellers to seek higher prices, a disadvantage to the buyer using the escalation clause.
- While the use of escalation clauses may lead to higher sales prices, a benefit to the sellers, they could also discourage buyers who do not want to use escalation clauses. The use of escalation clauses may also lengthen the negotiation process, a potential disadvantage to sellers and buyers.
- The buyer who is unsuccessful in a negotiation where a competing buyer used an escalation clause may feel that they were treated unfairly. The perception of unfair treatment may discourage the buyer from purchasing property in the future and may lead the buyer to file complaints against the brokers involved in the transaction.
- A broker who discloses the price/terms of an offer without the buyer’s consent or otherwise gives one party an unfair advantage over another risks disciplinary action by the Commission.
A seller’s best response in a multiple offer situation where one or more of the buyers is using an escalation clause will likely be to invite all buyers to make their highest and best offers. That way, each buyer is given an opportunity to buy the property at the price and terms he or she is willing to pay and the seller will receive the best offer from each buyer rather than an incremental offer from a buyer who wants to offer slightly more than a competing buyer.
Escalation clauses tend to focus on price. Listing agents should exercise care to advise seller-clients to consider more than the sales price in an offer. An offer from a well-qualified buyer who offers a lesser amount may be a wiser choice than a higher offer from a less-qualified buyer. Similarly, an offer from a buyer who has visited the property may be preferred over one who offers a high price sight unseen.
Brokers who choose to use escalation clauses should proceed with extreme caution. Real estate transactions are complex even without such clauses. Real estate transactions in busy markets with low inventory can be even more frantic. The use of such clauses may introduce confusion, anxiety, frustration and fraud. For these reasons, the Commission discourages their usage and the disclosure of the terms of competing offers even when authorized by buyers.
Appearances
Peter Myers, Information Officer, spoke at NC Best Practices Meeting on March 10.
Danielle Alston, Consumer Protection Officer, spoke at FM Realty Sales Meeting on March 16.
Fred Moreno, Chief Deputy Legal Counsel, spoke at the Materiality of Nearby Concentrated Animal Feeding Operations discussion on March 19.
Dee Bigelow, Consumer Protection Officer, spoke at the URE-QC Presents – Straight Talk with the NCREC on March 30.
Disciplinary Actions
KRISTINE YATES BOURGEOIS (RALEIGH) – By Consent, the Commission reprimanded Ms. Bourgeois effective March 10, 2021. The Commission found that Respondent acted as the buyer’s agent in the purchase of residential real property. After going under contract, the listing agent sent Ms. Bourgeois a text stating “new main water line will be installed due to slow leak somewhere in the main line.” Ms. Bourgeois failed to confirm that the water line was replaced prior to closing. The subject property closed without the water line being replaced.
JOHN CARL CARMENATE (BURLINGTON) – By Consent, the Commission reprimanded Mr. Carmenate effective March 10, 2021. The Commission found that Mr. Carmenate, acting as the qualifying broker and broker-in-charge of a firm, failed to renew the Firm’s license with the Commission and failed to keep its Certificate of Authority active with the Secretary of State. Following expiration of the Firm’s license, Mr. Carmenate continued to manage properties in North Carolina and failed to respond to Letters of Inquiry and other communications from Commission staff.
STEPHANNIE ANNETH CHESLEY (MOORESVILLE) – By Consent, the Commission reprimanded Ms. Chesley effective March 10, 2021. The Commission found that Ms. Chesley acted as a co-listing agent for residential real property. The first buyer (“Buyer 1”) terminated the contract after having a home inspection performed. This inspection report was given to Ms. Chesley and noted certain material issues throughout the home. She took the home off the market while the sellers had their insurance company fix the leak in the kitchen and make extensive repairs to that area of the home as well as the crawlspace then placed the property back on the market and it went under contract with another buyer (“Buyer 2”). Buyer 2’s home inspection revealed some of the same material issues noted in Buyer 1’s inspection report. Buyer 2 terminated the contract and gave a copy of their inspection report to Ms. Chesley. The sellers addressed some, but not all, of the material issues noted in Buyer 2’s inspection report. Ms. Chesley placed the property back on the market and a few days later, it was under contract with another buyer (“Buyer 3”). Buyer 3 terminated before the end of the due diligence period and did not provide a copy of their inspection report to Ms. Chesley. She then placed the property back on the market and a few weeks later, it was under contract with another buyer (“Buyer 4”) who ultimately purchased it. Ms. Chesley failed to disclose the material issues noted on previous home inspection reports or other inspections performed, not corrected by the sellers, to Buyer 2, Buyer 3, and Buyer 4 or their agents at the time the offers were made. Ms. Chesley failed to advise her seller-clients to update their original answers on the property disclosure form.
MENATALLA EFFAT (CHARLOTTE) – The Commission accepted the voluntary surrender of the broker license of Ms. Effat effective February 17, 2021. The Commission dismissed without prejudice allegations that Ms. Effat violated provisions of the Real Estate License Law and Commission rules. Ms. Effat neither admitted nor denied misconduct.
JENNIFER PEARL GALLAGHER (RALEIGH) – By Consent, the Commission suspended the broker license of Ms. Gallagher for a period of twelve (12) months effective January 31, 2021. The Commission required the first sixty (60) days to be active and stayed the remainder of the suspension effective April 1, 2021, and placed Ms. Gallagher on probation until January 30, 2022. The Commission found that Ms. Gallagher was showing a residential property to her buyer-client and entered the subject property prior to her buyer-client arriving. A camera inside the subject property captured Ms. Gallagher consuming alcohol from some of the property owner’s bottles. Ms. Gallagher later sent a letter of apology to the property owner and has replaced the bottles. The Commission notes that Ms. Gallagher is remorseful for her actions.
STANLEY B MARTIN (HIGH POINT) – By Consent, the Commission reprimanded Mr. Martin effective March 9, 2021. The Commission found that in May 2018, Mr. Martin acting as the qualifying broker and the broker-in-charge for a firm, misrepresented the square footage for a property he listed. Mr. Martin listed the property as having 2,150 square feet. In fact, the property was only 1,590 square feet, a difference of approximately 36%.
LANE FRANKLIN MCKINNEY (MOORESVILLE) – By Consent, the Commission reprimanded Mr. McKinney effective March 10, 2021. The Commission found that Mr. McKinney acted as a co-listing agent for residential real property. The first buyer (“Buyer 1”) terminated the contract after having a home inspection performed. This inspection report was given to the co-listing agent and noted certain material issues throughout the home. The home was taken off the market while the sellers had their insurance company fix the leak in the kitchen and make extensive repairs to that area of the home as well as the crawlspace then the property was placed back on the market and it went under contract with another buyer (“Buyer 2”). Buyer 2’s home inspection revealed some of the same material issues noted in Buyer 1’s inspection report. Buyer 2 terminated the contract and gave a copy of their inspection report to the co-listing agent. The sellers addressed some, but not all, of the material issues noted in Buyer 2’s inspection report. The property was placed back on the market and a few days later, it was under contract with another buyer (“Buyer 3”). Buyer 3 terminated before the end of the due diligence period and did not provide a copy of their inspection report to Mr. McKinney. The property was then placed back on the market and a few weeks later, it was under contract with another buyer (“Buyer 4”) who ultimately purchased it. Mr. McKinney failed to disclose the material issues noted on previous home inspection reports or other inspections performed, not corrected by the sellers, to Buyer 2, Buyer 3, and Buyer 4 or their agents at the time the offers were made. Mr. McKinney failed to advise his seller-clients to update their original answers on the property disclosure form.
TIFFANY ADAMS MYERS (FAYETTEVILLE) – The Commission accepted the permanent voluntary surrender of the broker license of Ms. Adams Myers effective February 17, 2021. The Commission dismissed without prejudice allegations that Ms. Adams Myers violated provisions of the Real Estate License Law and Commission rules. Ms. Adams Myers neither admitted nor denied misconduct.
NRT CAROLINAS LLC (CHARLOTTE) – By Consent, the Commission reprimanded NRT Carolinas LLC effective February 17, 2021. The Commission found that the acting broker-in-charge (“BIC”) failed to supervise two provisional brokers (“PB’s”) who acted as co-listing agents where they failed to ensure that their seller-clients had either repaired all material items identified on home inspection reports or updated their answers on the property disclosure form. The PB’s also failed to disclose any remaining material items to buyers at the time offers were made. The Commission notes that Respondent has updated their policy manual to include increased supervision and training of PB’s.
PIEDMONT REALTORS LLC (HIGH POINT) – By Consent, the Commission reprimanded Piedmont Realtors LLC effective March 9, 2021. The Commission found that in and May 2018, the firm misrepresented the square footage for a property it listed. Piedmont Realtors LLC listed the property as having 2,150 square feet. In fact, the property was only 1,590 square feet, a difference of approximately 36%.
RIVER WALK PROPERTIES (HAW RIVER) – The Commission accepted the permanent voluntary surrender of the broker license of River Walk Properties effective February 17, 2021. The Commission dismissed without prejudice allegations that River Walk Properties violated provisions of the Real Estate License Law and Commission rules. River Walk Properties neither admitted nor denied misconduct.
VICKI SMITH STOWE (WILMINGTON) – By Consent, the Commission reprimanded Ms. Stowe effective March 10, 2021. The Commission found that Ms. Stowe acted as the listing agent in a residential transaction where the seller had a home inspection performed prior to listing the property for sale, a copy of which was given to her. This inspection revealed material issues with the property. No repairs were made to the property and the RPOAD was completed by the seller with no issues noted. A few months later, Buyer #1 went under contract to purchase the subject property and had a home inspection performed. Ms. Stowe failed to disclose all material issues to Buyer #1. Similar material issues were noted on Buyer #1’s inspection report as were noted on the pre-listing inspection report and a copy of Buyer #1’s report was given to Ms. Stowe. Buyer #1 later terminated the contract. The seller addressed some, but not all, material issues noted in the previous inspection reports such as issues with the HVAC system and electrical. The next month, Buyer #2 went under contract to purchase the subject property and had a home inspection performed. Ms. Stowe failed to disclose all material issues to Buyer #2. Similar material issues were noted on Buyer #2’s inspection report as were noted on Buyer #1’s inspection report and the pre-listing inspection report. Buyer #2 terminated the contract and a copy of his inspection report was given to Ms. Stowe.
THE KEY GROUP ENTERPRISES INC. (FAYETTEVILLE) – The Commission accepted the permanent voluntary surrender of the broker license of The Key Group Enterprises Inc. effective February 17, 2021. The Commission dismissed without prejudice allegations that The Key Group Enterprises Inc. violated provisions of the Real Estate License Law and Commission rules. The Key Group Enterprises Inc. neither admitted nor denied misconduct.
HUD Announcement on Fair Housing Act Enforcement
On February 11, 2021, The Department of Housing and Urban Development (HUD) announced that it will begin enforcement of the Fair Housing Act to prohibit housing discrimination based on sexual orientation and gender identity in addition to enforcement of discrimination based on previously identified protected classes including familial status, race, ethnicity, sex, handicap, color, religion, and national origin.
The memo notes that State and local jurisdictions which enforce the Federal Fair Housing Act also will be required to administer those laws to prohibit discrimination because of sexual orientation and gender identity. Additionally, regional offices and jurisdictions have been advised to review allegations of discrimination because of gender identity or sexual orientation that had been received since January 20, 2020, and notify persons who alleged such discrimination that their claims may be timely for filing.
In addition, the recent sunset of “House Bill 2” effectively means that local governments may now choose to adopt non-discrimination ordinances. Licensees should be aware of any local ordinances in their market areas that address housing discrimination.
The HUD memo is available at: https://www.hud.gov/press/press_releases_media_advisories/hud_no_21_021
Homeowner Protection Extensions
On February 16, 2021, the White House announced the following extensions of COVID-19 protections for homeowners:
- the foreclosure moratorium for homeowners is extended through June 30, 2021
- the enrollment window for borrowers who wish to request mortgage forbearance is extended through June 30, 2021; and
- borrowers who entered forbearance on or before June 30, 2020 may have up to six months of additional mortgage payment forbearance in three-month increments.
Homeowners and renters can visit consumerfinance.gov/housing for more information on relief options.
The announcement is available at: