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.