Brian Heath, Consumer Protection Officer, spoke at Coldwell Banker HPW on May 7.
Bruce Rinne, Information Officer, spoke at BlueCoast Realty Corporation on May 21.
In the Commission’s December 2023 eBulletin Diversity, Equity, and Inclusion update, we reported on our efforts to engage with and attract diverse groups of young professionals to the real estate industry. Over the last year the Commission’s Diversity, Equity, and Inclusion (DEI) Officer has worked in collaboration with state and local REALTOR® associations and various industry organizations to establish partnerships with Historically Black Colleges and Universities (HBCUs) throughout the state.
Through these partnerships, the Commission has been able to engage with students at five of the ten North Carolina HBCUs at events such as career fairs, luncheons, guest lecture series, panels, and other campus sponsored events. Students were exposed to a variety of professional opportunities in real estate, expanded their professional networks, and gained access to scholarship and internship opportunities. Through this initiative, the Commission established an internship program and has hired two summer interns for 8 weeks, with one intern in the Accounting Division and one intern in the Education and Licensing Division.
The Commission is continuously working to expand our programming under this initiative, with plans to include high schools, other colleges, and consumers in our efforts. If you would like to be a part of our programing, please contact us here and Commission staff will be in contact with you.
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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
Please help Commission staff respond more quickly and accurately to your emails, voice messages, and letters by fully identifying yourself in the communication. Providing your broker license number and your full legal name vs. your nickname allows us to locate your records that contain the answers to most of your questions. If your parents gifted you with a name that contains a suffix, such as Jr., III, or the Great, be sure to include the suffix. We do have some brokers that share very similar names. Help us … so we can help you more efficiently!
Do you know the CE deadline is June 10, 2024? If so, did you take the appropriate CE course?
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Commission-approved instructors are required to complete six hours of real estate instructor educational program each license year prior to the renewal of their instructor approval. The Guidelines for Instructional Educational Requirement (Form REC 3.78) explain the rule requirements, list some of the education options, and provide links to those resources. Renewal of instructor approval should be submitted as soon as possible before June 30th to ensure timely processing.
If you have any questions, please review the Commission’s website.
Did you know that you can check your continuing education records on www.ncrec.gov prior to calling the North Carolina Real Estate Commission?
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A material fact is ANY fact that could affect a reasonable person’s decision to buy, sell, or lease real property. All brokers have a duty to discover and disclose material facts, as established by North Carolina General Statute section 93A-6(a)(1) and by Commission Rule 58A .0114(c). Failure to disclose material facts continues to be the most common complaint from consumers.
How do I disclose material facts? The legal requirements do not specify a method for disclosing. However, a prudent broker would disclose in writing and retain such written disclosure with other transaction documents for three years.
Many listing agents disclose material facts within their listings in a Multiple Listing Service (MLS). However, this can be problematic when the material facts are contained in an area exclusively for brokers called “agent only.” An unrepresented buyer, or a buyer represented by a broker who is not a member of the listing agent’s MLS, cannot access these material fact disclosures. In this situation, the listing agent has not disclosed material facts to that buyer. The same is true for tenants. One best practice would be to disclose material facts via email, as that would ensure receipt and create an online paper trail.
When do I disclose material facts? A broker must disclose material facts in a timely manner, i.e., in enough time for the disclosure to be meaningful in connection with the consumer’s decision-making. If a material fact is known prior to contract formation, then the broker must disclose the material fact prior to contract formation. If a material fact is discovered after contract formation, then the broker must disclose the material fact immediately. The broker cannot decide to wait for a party to ask about the material fact or refrain from disclosing the material fact to any party because they believe that the material fact was common knowledge.
To whom do I disclose material facts? The disclosure of material facts is mandatory and must be volunteered freely to all parties in a transaction without regard to whom the broker represents. This includes buyers, sellers, landlords, and tenants.
This article was printed in the February, March, April, and May eBulletin The Important Note below is new.
IMPORTANT NOTE FOR OUT OF STATE BROKERS: As discussed in this article, you are no longer exempt from taking North Carolina CE. To renew your North Carolina license on active status, you must take the appropriate NC Update Course and a North Carolina elective course. These courses are available online as well as in person.
Pursuant to Rule 58A. 1702, North Carolina brokers must complete eight credit hours of real estate continuing education each license year. The eight hours consist of:
All brokers without BIC-Eligible status and provisional brokers must attend the General Update Course (GENUP) and all Brokers-in Charge and BIC Eligible Brokers must attend the Broker-in-Charge Update Course (BICUP). A broker is required to complete eight credit hours of continuing education by June 10th at 11:59 PM EST to remain eligible for active license status. This requirement begins upon the second renewal following initial licensure and upon each subsequent annual renewal.
In the past, Rule 58A .1708 permitted brokers to request equivalent credit for a course that was not approved by the North Carolina Real Estate Commission by submitting a $50 fee, course outline and completion certificate. On July 1, 2023, the availability of equivalent credit was removed for all brokers, except an instructor who either authored or taught an approved course. Therefore, there is no equivalent credit offered for a course that is not currently approved by NCREC. A broker who previously submitted courses for equivalent continuing education credit should take the required Update course and an approved North Carolina elective prior to the June 10th deadline.
Rule 58A .1708 was changed to ensure that all North Carolina brokers are required to take North Carolina approved courses. The change also eliminates the need for brokers to pay additional fees, especially when courses were not approved for equivalent credit.
Rule 58A .1711 previously exempted brokers who were licensed in another state from the continuing education requirements in North Carolina. On July 1, 2023, the Commission repealed that Rule. All brokers licensed in North Carolina must meet the same eight hour continuing education requirement. The prevalence of online courses means that this is no longer an unreasonable burden for licensees living outside North Carolina.
These rule changes were intended to make things simpler for brokers and to assure that all brokers in North Carolina obtain the same education regarding North Carolina rules, statutes, and information to ensure the competence of brokers practicing in the state. If you have questions about the status of your continuing education, you can login and check your continuing education record on the Commission’s website.