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

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.

Case Study: Working With Real Estate Agents Disclosure

FACTS: A broker routinely works with members of their own congregation. The broker has deep personal relationships with the members who are from the same culture and/or nationality as the broker.

While working with a married couple interested in purchasing a residential property, the broker mentions the Working with Real Estate Agents Disclosure. The couple informs the broker that due to their personal, trusting relationship, there is no need to review the disclosure or provide them with a written document. Further, when the couple expresses their interest in purchasing a specific property, they inform the broker that there is no need for a written employment agreement. The couple expresses their satisfaction verbally with the broker and indicates that a written employment agreement is not necessary in their culture.

Later, unrelated problems arose in connection with the buyers’ purchase transaction, resulting in a complaint to the Commission. During the investigation, the clients indicated they were satisfied with the representation the broker had provided to them during the transaction and felt that signing documents to evidence the agreement was unnecessary.

ISSUE: Did the broker comply with Rule 58A .0104, Agency Agreements and Disclosures?

ANALYSIS:  No. Rule 58A .0104(a) requires every agreement for brokerage services between a broker and a buyer to be express and in writing and signed by the parties not later than the time one of the parties makes an offer to purchase, sell, rent, lease, or exchange real estate to another. In this scenario, the buyer agent did not enter into a written buyer agency agreement prior to the clients making an offer to purchase the property. The broker did not review the Working With Real Estate Agents Disclosure with the couple at first substantial contact as required under Rule 58A .0104(c).

Rule 58A .0104(c) states that in every real estate sales transaction, a broker shall at first substantial contact with a prospective buyer or seller, provide the prospective buyer or seller with a copy of the publication, “Working With Real Estate Agents,” set forth the broker’s name and license number thereon, review the publication with the buyer or seller, and determine whether the agent will act as the agent of the buyer or seller in the transaction.

Even if a broker believes that they are trusted and that the culture or tradition of consumers with whom they are working, does not require disclosures or written agreements, there is no exception within Commission Rules for such circumstances. The basic requirements of agency disclosure apply to all cultures, religions, and nationalities equally.

Further, it is irrelevant that the client did not want to sign any agreements or review documentation. The Commission expects all brokers to adhere to Rule 58A .0104, Agency Agreements and Disclosure.

Resources:

N.C.G.S. § 93A-6(a), 93A-6(a)(8), § 93A-6(a)(10); and § 93A-6(a)(15)

License Law and Commission Rules 58A .0104, 

Articles:

WWREA Disclosure Form Webinar

Introducing a *NEW* WWREA Disclosure Form-Updated

Working With Real Estate Agents Disclosure – Update

The Balancing Act: North Carolina Real Estate License Law and Commission Rules and Cultural Norms

North Carolina has a diverse population that is inclusive of various cultural backgrounds, each with their own unique norms, values, and traditions. It is imperative that brokers follow License Law and Commission rules while also respecting the cultural differences of consumers when conducting brokerage activities.

Brokers should be sensitive to the cultural norms of consumers; however, the sensitivity brokers display should not affect their ability to adhere to:

• License Law and Commission rules while conducting brokerage activity;
• their fiduciary responsibilities while in an agency relationship; and/or 
• honesty and fairness while working with a consumer in a transaction.

Balancing cultural sensitivity and compliance with Commission rules may present a challenge to some real estate brokers. However, there are some best practices that brokers may implement to be successful, such as:

• becoming culturally competent:
  • Brokers should take workshops/trainings to gain an understanding of various traditions, norms, and practices of the communities they serve.
• participating in open, continuous communication:
  • Brokers should establish effective communication with consumers/clients including educating them on their mandatory duties under License Law and Commission rules and their roles in the transaction. Additionally, the communication should also assist brokers with determining the specific needs and concerns of their clients and consumers.
• seeking advice:
  • Brokers may encounter situations where cultural norms conflict with License Law and Commission rules; therefore, seeking guidance from the Commission and/or legal counsel regarding License Law and Commission rules would be in the brokers’ best interest. Despite sometimes conflicting cultural expectations, brokers must follow the law and rules.

Although brokers may encounter consumers/clients with varying cultural norms, it is possible for the broker to be sensitive to the individuals’ cultural traditions while also adhering to License Law and Commission rules. Brokers who comply with Commission rules while also respecting cultural norms can build a strong, trusting relationship with the individuals in their community.

If you have questions about License Law and Commission rules and cultural norms, please contact Regulatory Affairs at regulatoryaffairs@ncrec.gov. For more information, read the Case Study in this edition of the e-Bulletin.

Reminder: Code of Ethics Requirement

Do Commission rules require Code of Ethics Training?

No. The Commission does not require Code of Ethics training. Code of Ethics requirements are set by the National Association of REALTORS® (NAR) for their members. Not all brokers are members of NAR. Brokers who are members of NAR are required to complete Code of Ethics Training once every triennial in order to remain in good standing as a REALTOR®.

The course must include at least 2.5 hours of instructional time and is offered in distance format, via synchronous courses, or in-person. These courses are offered through REALTOR® associations. Some of these courses, if they are at least 4 hours long, may also provide Commission CE elective credit, but only if the course was submitted and approved for CE elective credit with the North Carolina Real Estate Commission. Although a course may have awarded a broker CE credit, NCREC does not certify or approve that the course will be satisfactory to the REALTOR® Association for ethics credit. NCREC does not track or monitor compliance with the ethics requirement.

The only way for a REALTOR® to know if a particular course is sufficient or meets the requirements of the National Association of REALTORS® is to contact your local REALTOR® association.

Team Scenario: Setting Up a Team Inside a Firm

XYZ Realty is a large brokerage. Betty is the broker-in-charge and has 20 affiliated brokers in the office. Bill Starr is an affiliated broker, and he would like to recruit other brokers to work with him on transactions. Bill does not create a business entity for the team. Bill and all of his team members will advertise the team as “Bill Starr of XYZ Realty.” The team will continue to work from the office of XYZ Realty.

Question: Does Bill’s team need a firm license?

Answer: No, because there is not a separate entity for the team.

Question: Does Bill’s team need a designated BIC?

Answer: No, because there is not a separate entity for the team. Betty is already the BIC of XYZ Realty and will be the broker-in-charge of the team.

Question: Commission records will show that team members are affiliated with which brokerage(s) and with which BIC(s)?

Answer: All team members will be affiliated with XYZ Realty, with Betty as the BIC.

Question: Who will be responsible for supervising team members?

Answer: Betty is the BIC of XYZ Realty, she is responsible for supervising all brokers affiliated with the office.

Question: What company name will team members use when completing agency agreements and disclosures with consumers?

Answer: In most cases, XYZ Realty is the agent for all agency agreements with consumers including property management agreements, listing agreements, buyer agency agreements, and dual agency agreements.

Question: How may the team name be advertised?

Answer: The team’s advertising (e.g. signs, business cards, websites, etc.) must always include the name of the brokerage with which the agents are affiliated (XYZ Realty). Example: “The Bill Starr Team of XYZ Realty”

Question: Must the team name be registered as an assumed name (d/b/a)?

Answer: No, because the team name is only being used for branding. There is no change in the name of the licensed and registered entity, XYZ Realty.

Question: Is it legal for a provisional broker (PB) to be a part of The Bill Starr Team of XYZ Realty? Why or Why not?

Answer: Yes, because all team members are affiliated with XYZ Realty, at the brokerage, under the supervision of Betty BIC. As noted above, Betty BIC is responsible for supervising all the provisional brokers affiliated with the office, including those PBs who are on teams.

Question: If a PB is on the team, how/by whom must the PB receive compensation for brokerage activities performed on behalf of the team?

Answer: As required by N.C.G.S. § 93A-6, a PB may only be compensated for brokerage activities by the PB’s supervising BIC. Thus, only Betty may legally pay the PB for brokerage activities.

If you would like to review additional case scenarios about teams that are licensed business entities, please review “Provisional Brokers on a Team” on the Commission’s website.

If you have additional questions about how to advertise as a team, please contact Regulatory Affairs at regulatoryaffairs@ncrec.gov.

December is HERE! Do you need to reinstate your license?

Brokers who failed to renew their license by June 30^th, had an expired license on July 1^st. As of July 1^st, brokers with an expired license were required to cease all brokerage activities. But the good news for those who didn’t mean to allow their license to expire is that they have until December 31^st to reinstate their license without additional education requirements. The bad news? December 31 is coming up fast, and if the license isn’t reinstated by then, it will too late to reinstate without additional steps.

What steps must a broker take to reinstate an expired license?  That answer depends on how long the license has been expired.

To reinstate a license expired for less than 6 months:

1. Go to the Commission’s homepage (www.ncrec.gov);
2. Click on Reinstate your License;
3. Enter your license number and PIN (last 4 of your SSN unless you have changed it); 
4. Answer required questions; and
5. Pay $90 reinstatement fee.

NOTE: Following expiration, a broker’s license is reinstated on inactive status. To regain active status, a License Activation / Affiliation form (REC 2.08) also must be submitted.

To reinstate a license expired for 6 months but no more than 2 years

1. Successfully complete one 30-hour Postlicensing course (course must be completed within 6 months prior to submitting reinstatement application); and
2. Submit a reinstatement application with $90 application fee and all required documentation, including criminal background report;

-OR-

1. Submit a reinstatement application with $90 application fee and all required documentation, including criminal background report; and
2. Pass the National and State sections of license exam.

NOTE: Following expiration, a broker’s license is reinstated on inactive status. To regain active status, a License Activation / Affiliation form (REC 2.08) also must be submitted.

To reinstate a license expired for more than 2 years:

1. Successfully complete the 75-hour NC Broker Prelicensingcourse;
2. Submit a license application with the $100 original application fee and all required documentation, including criminal background report; and
3. Pass the National and State sections of license exam.

NOTE: When a license has been expired for more than two years and is reinstated, brokers are licensed as a provisional broker and are subject to the 90-hour Postlicensing education program. To gain active status, a License Activation/Affiliation form (REC 2.08) also must be submitted.

For more information, review Commission Rule 58A .0505 or visit the “Reinstate your License” page on the Commission’s website. You may also contact the Commission’s Education & Licensing Division at ls@ncrec.gov or 919-875-3700.

Disciplinary Actions

CHAUNCEY LYNN CALLAWAY (OAK RIDGE) – Following a hearing, the Commission the revoked the broker license of Callaway effective October 4, 2023, with no right to reapply for reinstatement for a period of two years. The Commission found that Callaway acted as a dual agent and received commissions from both sides in a transaction without the written authorization from all parties.  Despite being warned in a previous matter to timely respond to Commission letters of inquiry, Callaway failed to timely respond to the Commission’s investigation in this matter.

STEPHANIE EHRET HARRELSON (WENDELL) – Following a hearing, the Commission the revoked the broker license of Harrelson effective October 4, 2023, with no right to reapply for reinstatement for a period of two years. The Commission found that Harrelson regularly engaged in activity requiring an active real estate broker license as an assistant property manager during the years 2021-2022, when her license was on inactive status.

PHYLLIS G. MENTO (HAVELOCK) – The Commission accepted the permanent voluntary surrender of the real estate license of Mento, effective November 8, 2023. The Commission dismissed without prejudice allegations that Mento violated provisions of the Real Estate License Law and Commission Rules. Mento neither admitted nor denied misconduct.

MENTO REAL ESTATE SERIVCES, INC. (HAVELOCK) – The Commission accepted the permanent voluntary surrender of the real estate license of Mento Real Estate Services, Inc., effective November 8, 2023. The Commission dismissed without prejudice allegations that the firm violated provisions of the Real Estate License Law and Commission Rules. The firm neither admitted nor denied misconduct.

DAN CALVIN CRITCHER JR. (MEBANE) – The Commission accepted the permanent voluntary surrender of the real estate license of Critcher effective November 8, 2023. The Commission dismissed without prejudice allegations that Critcher violated provisions of the Real Estate License Law and Commission Rules. Critcher neither admitted nor denied misconduct.

DAVID A KILPATRICK (CHARLOTTE) – By Consent, the Commission suspended the broker license of Kilpatrick for a period of 3 years, effective October 31, 2023. The Commission found that Kilpatrick, a broker-in-charge, failed to supervise the maintenance of the trust account and records pertaining thereto for the firm.  Kilpatrick also failed to timely account to a tenant regarding retention of their security deposit for damages claimed by the owner but instead included this information in a portal available to the tenant.  

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

Tech Corner: A Guide to Avoiding Pitfalls When Submitting a Firm License Application

Have you created a business entity to conduct brokerage activity? Are you interested in receiving compensation through your business entity?

According to Rule 58A .0502 every business entity other than a sole proprietorship must apply for and obtain from the Commission a firm license before engaging in business as a real estate broker receiving brokerage compensation. To complete a firm license application, the applicant must:

• provide the registered legal and assumed names for the business entity;
• provide the SOSID assigned by the NC Secretary of State (not applicable for partnerships);
• provide physical and mailing addresses for all office locations;
• designate a Qualifying Broker (QB); and
• designate a Broker-in-Charge (BIC) for each office location.

Commission staff has noticed that there are five common mistakes that brokers make while completing the firm license application. These mistakes can lead to a firm license application being marked incomplete or a broker being designated as a BIC of a firm inadvertently.

To assist brokers with avoiding these five common mistakes, Commission staff recommends review of Rules 58A .0110 and 58A .0502 before submitting a firm license application. Doing so will help ensure that brokers do not:

• designate their affiliated brokerage as the new firm’s Qualifying Broker (QB);
  • The firm license application provides an explanation for a Qualifying Broker. A Qualifying Broker must be a principal that holds a broker license on active status in good standing or a licensed business entity if the Qualifying Broker-entity has as its QB a natural person who is a licensed broker. A common mistake is including the broker’s current brokerage as the QB in the application when their affiliated brokerage will not serve as the QB for the new firm.
• designate their current BIC as the new firm’s BIC;
  • According to Rule 58A .0110(c), a licensed real estate firm does not have to designate a BIC if the entity is organized for the sole purpose of receiving compensation, is treated as a pass-through business by the United States Internal Revenue Service, has no principal branch office, and no licensed person associated with it other than its QB. However, applicants are designating their current BIC as the new firm’s BIC. This  can cause their current BIC to be removed as BIC from the current firm.
• affiliate licensed brokers with the legal business entity and not designate a BIC for the new firm;
  • This issues arises due to multiple licensed brokers being associated with the legal business entity. If licensed brokers are associated with the legal business entity, the QB must indicate that there are other licensed brokers affiliated with the firm which will require the QB to designate a BIC for the firm.
  • Remember, a BIC is required for a licensed business entity to conduct brokerage activity or receive compensation if there will be any other licensed individuals affiliated with the firm other than the QB.
• complete the application inaccurately (e.g. include email address in the wrong field, include an incomplete postal address).

Also, the firm license application must include an operating agreement or written description of the rights and duties of the managers, and the name of each manager if the business entity is a limited liability company. If the operating agreement or written description is not included, Commission staff will mark the firm license application as incomplete.

To apply for a firm license, go to www.ncrec.gov and click on Apply for a Firm License. If you have any questions about the firm licensing process, contact the Education and Licensing Division at 919.875.3700.