FACTS: A broker conducts a listing appointment for an older home in a desirable neighborhood. During the meeting, the broker discusses the price, fees, disclosures, marketing, and other listing considerations.
The broker produces a comparative market analysis (CMA) with an estimated listing price range of $250,000-$262,000. The seller agrees to a $259,000 list price and signs a listing agreement and the required disclosures. Prior to publicly posting the listing of the property, the broker contacts the seller-client with a potential investor who would be interested in the property.
The investor is shown the property and submits a cash offer of $225,000. The seller-client is not interested in the low offer. The broker attempts to pressure the seller-client into accepting the offer since the offeror is not asking for any inspections and will close quickly.
The seller-client accepts the offer and completes the transaction. A few months later, the property is back on the market for $320,000. Upon further research, the seller learns that the investor who bought the property is the father-in-law of the listing broker; the CMA was purposefully inaccurate; and the broker intended to profit from the subsequent sale.
ISSUE: Did the broker comply with the License Law and Commission rules?
ANALYSIS: No. Brokers owe fiduciary duties to their clients. These fiduciary duties prohibit brokers from self-dealing. Commission Rule 58A .0104(p) specifically requires listing brokers who want to purchase their client’s property to disclose in writing their conflict of interest and to advise the seller-client that they may want to seek independent counsel. Before the listing broker contracts to purchase the property, they must disclose to the seller-client in writing that the seller has a right to terminate the listing. If the seller does not terminate the listing, the listing broker must still transfer the listing agreement to another broker affiliated with the firm.
The North Carolina Real Estate Commission has long made clear the implications regarding brokers and self-dealing. When a principal engages a real estate broker as their agent, they are entitled to loyalty and obedience. This means that the broker must prioritize the interests of the principal above their own personal, business, or familial concerns. The principal’s interests take precedence, and the broker must refrain from engaging in any actions that may compromise or dilute this loyalty. In this case, the broker misrepresented the probable selling price and pressured the seller-client into accepting an under-value offer made by a family member.
Furthermore, North Carolina General Statute 93A-6(a)(4), (8) and (10) gives the Commission authority to discipline brokers who act for more than one party without the knowledge of all parties for whom they act (here, the seller-client and the family member), who are unworthy or incompetent to act as a real estate broker in a manner as to endanger the interest of the public, and for conduct which constitutes improper, fraudulent, or dishonest dealing.
The Commission determines whether a broker acted competently by analyzing documents, interviewing witnesses, and reviewing written correspondence. The Commission uses the Reasonableness Standard to evaluate a broker’s expected competency. A broker must exercise the degree of skill, care, and diligence that a reasonably prudent real estate broker would exercise under similar circumstances.
N.C.G.S. § 93A-6(a)(15) states 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 violating any rule adopted by the Commission.
As a result of this fraudulent self-dealing and the potential violations of License Law and Commission rules, the broker may be subject to disciplinary action by the Commission.
RESOURCES:
N.C.G.S. § 93A-6(a)(8), 93A-6(a)(10), and 93A-6(a)(15)
License Law and Commission Rules: Rule 58A .0104
Articles: NCREC Bulletins – Self-Dealing
2021-2022 General Update Course – Broker Fiduciary Duties