Current Stats: Monthly Licensee Count as of March 1, 2021

The NCREC 2021 Virtual Educators Conference

After a hiatus – the result of the 2020 Educators Conference having been a casualty of COVID-19 – the North Carolina Real Estate Commission was excited to welcome real estate instructors and various education provider officials to its 2021 Spring Educators Conference on Tuesday, March 23, 2021.  With mass gatherings still discouraged, this year’s event was conducted via Zoom technology, and highlighted the theme, Back to the Future.

In order to assure a positive experience for attendees and to minimize bandwidth issues, registration for this first ever virtual conference was limited to 150 participants.  However, the entire day’s presentations were recorded and are being fashioned into an asynchronous distance presentation which will be available in early April.  Thus, even those who could not attend the live virtual event will benefit from the information shared.

Sandra O’Connor, Commission Chair, opened the conference at 8:30 with a welcome to all the attendees.  Following the welcome, Ms. O’Connor announced the creation of a new Commission award: The Industry Champion Award, which was presented posthumously to Garth Dunklin. The award was accepted by Helen Dunklin, Garth’s wife, and his children, Macy and Garth Jr., were also in attendance.

After the welcome, the day-long event featured the following presentations by Commission staff members:

• State of the Commission by Miriam Baer, Executive Director
• Updates from the Education & Licensing Division by Corean Hamlin, Director of Education and Licensing
• The *NEW* WWREA Disclosure by Stephen Fussell, Chief Consumer Protection Officer, and Janet Thoren, Director of Regulatory Affairs
• 2021 EP and Instructor Renewal by Jake Gore, Chief Technology Officer, and Diana Carnes, Systems Administrator
• The Real Estate Manual; 2021-22 Update Course Topics by Kizzy Crawford Heath, Legal Education Officer
• Updates to Prelicensing and Postlicensing Syllabi; License Examination by Deborah Carpenter, Education and Examination Officer
• Compare and Contrast:  Schools/Sponsors vs EPs by Deborah Carpenter, Education and Examination Officer, and Pamela Rorie, Continuing Education Officer
• Course Approval Process by Christine Cox, Education Course Review Officer, and Pamela Rorie, Continuing Education Officer
• Student Engagement by Len Elder, Education and Development Officer

The conference culminated with the presentation of the 2021 Larry A. Outlaw Excellence in Education Award to George Bell by Commission Chair O’Connor. The Commission established the Larry A. Outlaw Excellence in Education Award in 2016 to honor the Commission’s late former Director of the Education and Licensing Division. As this year’s recipient of the Larry Outlaw award, Mr. Bell demonstrated ongoing excellence in and outstanding contributions to real estate education in North Carolina.

The conference concluded with a final wrap-up/Q&A session moderated by Ms. Hamlin. The Commission thanks North Carolina’s real estate education community for its continued interest and support, and congratulates George Bell on his award.

Getting Agency Representation Right: Clarifying the Practice of Seller Subagency

The Basics of Representation Agreements

Under North Carolina licensing statutes and rules there is no such thing as a “default” form of representation or acting in a real estate transaction as a broker for neither party. All representation is required to be by express consent of the consumer. The provisions of Rule 58A .0104(a) state that:

Every agreement for brokerage services in a real estate transaction and every agreement for services connected with the management of a property owners association shall be in writing and signed by the parties thereto. Every agreement for brokerage services between a broker and an owner of property to be the subject of a transaction shall be in writing and signed by the parties at the time of its formation. Every agreement for brokerage services between a broker and a buyer or tenant shall be in writing and signed by the parties thereto not later than the time one of the parties makes an offer to purchase, sell, rent, lease, or exchange real estate to another.

NCREC has long made clear the implications regarding listings and sellers. No broker may undertake to provide any brokerage services to a seller without a written listing agreement. A broker who engages in advertising, holding open houses, or acting on behalf of a seller in the absence of a written express agreement with the owner of the property operates in violation of Rule 58A .0104.

Alternately, a broker may begin working with a buyer without a written agreement, but the broker must do three things in order for representation to be properly conducted under the law and Commission rules, as follows:

1. comply with the mandatory agency disclosure provisions of Rule 58A .0104(c) using the Working With Real Estate Agents (WWREA) publication at first substantial contact;
2. obtain the express authority of the buyer to act on their behalf under an oral agreement of representation in accordance with Rule 58A .0104(a); and
3. reduce the oral agreement to writing prior to the presentation of an offer in accordance with Rule 58A .0104(a).

Practicing oral buyer agency still requires express consent of the buyer. Moreover, Rule 58A .0104(a) places limitations on oral buyer agency agreements, as follows:

However, every agreement between a buyer or tenant that seeks to bind the buyer or tenant for a period of time or to restrict the buyer’s or tenant’s right to work with other agents or without an agent shall be in writing and signed by the parties thereto from its formation.

Working with a Buyer Who Refuses to Give Authorization for Representation

Because a broker may not represent a buyer without express authorization, either orally prior to presenting an offer or in writing by the time an offer is presented, when a buyer refuses to consent to representation, the broker’s only option to remain involved in the offering of brokerage services is for the broker to act as seller’s subagent. This is NOT an automatic default position. It is still a form of representation and requires the written consent of both parties.

A broker’s status as a seller subagent must be disclosed to the buyer on the WWREA disclosure form at first substantial contact.  Brokers should confirm that the seller has authorized the cooperation with subagents in the listing agreement, or that such consent is obtained in a separate writing, because Rule 58A .0104(a) requires all agency agreements with an owner of a property to be in writing.

It is important to remember that if a broker with written consent of both parties is truly acting as a subagent of the seller, then the broker owes all fiduciary duties to the seller and must communicate to the seller or the listing agent confidential, financial, or motivational information provided by the buyer.

Many brokers showing properties listed outside of their brokerage to buyers may incorrectly believe they are automatically practicing subagency. Brokers cannot properly practice subagency without adhering to the above rules. If brokers are not in compliance with these provisions and they have not obtained at least a buyer’s oral consent to representation, they cannot provide brokerage services to the parties in the transaction.

Using Brokers from Another Firm to Hold an Open House for the Owner

When a seller signs a written listing agreement, the seller authorizes the firm and all of its affiliated brokers (subagents of the firm) to act on its behalf.

When a broker affiliated with a different brokerage company wants to host or participate in the holding of an open house on behalf of the seller, the only agency option for the broker who is affiliated with the other company is to act as a subagent of the seller.

As discussed above, such a practice requires compliance with the rules of subagency.  Here are relevant questions to consider:

• Has the seller authorized the cooperation with subagents (those of another firm) in the written listing agreement or a separate written agreement as required by Rule 58A .0104(a)?
• Is proper disclosure of this role being disclosed to buyers with use of the WWREA publication as required by Rule 58A .0104(c)?
• Is the subagent broker fulfilling their fiduciary duties to the seller by communicating all relevant information obtained from buyers attending the open house?
• If the broker subsequently wishes to represent one of the buyers encountered at the open house did they get the seller’s permission to switch from seller subagency to buyer representation?

For all of these reasons, Brokers-in-Charge should carefully review office policies and procedures on allowing brokers who are not members of the brokerage with whom the listing agreement is signed to hold open houses for the seller. Rule 58A .0110(g)(7) obligates a designated BIC to:

(7) supervise all brokers employed at the office with respect to adherence to agency agreement and disclosure requirements.

When crafting office policies and procedures for such a practice, Brokers-in-Charge should confirm compliance with License law and Commission rules. Brokers-in-Charge should also explore whether involvement by a subagent from another firm is covered under any existing errors and omissions policy. Such policies often limit E&O coverage only to those brokers who are affiliated with the company.

-Len Elder, Education & Development Officer

Do you have questions about agency practice? Contact Regulatory Affairs at regulatoryaffairs@ncrec.gov or 919-719-9180.

Introducing a *NEW* WWREA Disclosure Form – Updated

The Commission is pleased to introduce a new version of the Working with Real Estate Agents (WWREA) disclosure form. 

The new disclosure form is one page, double-sided, with one side for sellers and one side for buyers.  The Commission believes the new form will be quicker and simpler for brokers to use and easier for buyers and sellers to understand than the current brochure.

The criteria set forth in Rule 58A .0104(c) is not changing.  Per that rule, brokers are required to

• provide and review the WWREA publication
• with all prospective buyers and sellers
• at first substantial contact.

The new disclosure form is now posted on the Commission’s website (see link above), and brokers may begin using it immediately.  All brokers must begin using the new form on July 1, 2021.

 The current brochure has been converted into a Q&A brochure, with expanded content and visual aids. The Commission recommends that brokers continue to provide consumers with a copy of the Q&A brochure along with a copy of the new disclosure form.

Commission staff members will provide a Zoom webinar regarding the new form on Monday, April 26, from 2:00 – 3:30 pm. Connection instructions will be posted on the Commission’s homepage prior to the webinar on the 26th. That webinar will be recorded and subsequently posted on the Commission’s website. Also, a detailed explanation of the new form and a review of Commission rule 58A .0104(c) will be included in the 2021-22 Update course.

Questions about the new form should be directed to Regulatory Affairs at regulatoryaffairs@ncrec.gov or 919-719-9180.

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.

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.

Current Stats: Monthly Licensee Count as of February 1, 2021

Current Stats: Open Cases as of January 31, 2021

*Beginning March 2020, these case numbers also reflect all applications subject to character review.

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Disciplinary Actions

MICHAEL ANTHONY BOWMAN (CHARLOTTE) – The Commission accepted the voluntary surrender of the broker license of Mr. Bowman effective February 1, 2021. The Commission dismissed without prejudice allegations that Mr. Bowman violated provisions of the Real Estate License Law and Commission rules. Mr. Bowman neither admitted nor denied misconduct.

BOWMAN REAL ESTATE LLC (CHARLOTTE) – The Commission accepted the voluntary surrender of the broker license of Bowman Real Estate LLC effective February 1, 2021. The Commission dismissed without prejudice allegations that Bowman Real Estate LLC violated provisions of the Real Estate License Law and Commission rules. Bowman Real Estate LLC neither admitted nor denied misconduct.

EMSLEY A. LANEY, III (WILMINGTON) – Following a hearing, the Commission permanently revoked the broker license of Mr. Laney effective December 31, 2020. The Commission found that Mr. Laney failed to maintain and retain trust account records. Mr. Laney also failed to safeguard and account for trust monies resulting in trust account shortages.

LANEY REAL ESTATE CO. (WILMINGTON) – Following a hearing, the Commission permanently revoked the firm license of Laney Real Estate CO. effective December 31, 2020. The Commission found that Laney Real Estate CO failed to maintain and retain trust account records. Laney Real Estate CO also failed to safeguard and account for trust monies resulting in trust account shortages.

DAVID MOSELEY PROCTOR (KINSTON) – By Consent, the Commission permanently revoked the broker license of Mr. Proctor effective January 15, 2021. The Commission found that Mr. Proctor failed to enter into an agency agreement with a buyer-client prior to submitting an offer to the seller. Mr. Proctor also failed to enter into an agency agreement before representing a seller-client. Mr. Proctor misrepresented to his seller-clients that his buyer-client did not want to purchase a second lot from the sellers. Mr. Proctor’s misrepresentation induced his seller-clients to sell the lot to him for $1.

CARMEN WHITLEY SHAW (NORTH MYRTLE BEACH) – By Consent, the Commission reprimanded Ms. Shaw effective January 1, 2021. The Commission found that Ms. Shaw, whose license has been on inactive status since July 1, 2016, was employed as an administrative assistant at a firm. In July, 2020, Ms. Shaw’s broker-in-charge made an appointment to show a property in Carolina Shores, NC, which included in the MLS that “Sellers require everyone entering home to wear mask and gloves” due to COVID-19. Instead of the broker-in-charge, Ms. Shaw showed the property to potential buyers, who were members of her family, and, while at the subject property, did not follow the directive of the seller that that masks and gloves needed to be worn at all times.

TEAM ANDERSON REALTY (HOLLY SPRINGS) – By Consent, the Commission reprimanded Team Anderson Realty effective February 1, 2021. The Commission found that the firm falsely advertised the square footage of a home in the MLS when the affiliated listing agent included a basement area with no heat source in the living area, contrary to the professional measurer’s description.