Legal Talk: What in the World is FIRPTA?

BY RICHARD S. POE
PARTNER, LANCASTER, TROTTER AND POE, PLLC

From Insight Magazine, a publication of NC REALTORS®

The following is a fictional (but very plausible) conversation between Betty Broker and Larry Lawyer:

BETTY: Hello, Larry. This is Betty. I hope your New Year is going well, and you and your family are dodging COVID so far.

LARRY: Thanks, Betty! How can I help you today?

BETTY: Well, I have a closing coming up with you in a few weeks in which I am the listing agent for Manuel and Consuela Ramirez, a lovely couple from Ecuador. They plan to return to Ecuador after selling their home here, and a friend recently told them that part of the sales price might be withheld from them at the closing. Why would that be?

LARRY: Well, Betty, there is a law known as the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). In certain circumstances, a settlement agent is required to withhold a portion of the sales price from the seller at closing if the seller is not a U.S. citizen. There are many possible scenarios and many exceptions to the general rule, but it might be required.

BETTY: How do my folks find out if there will be withholding on their transaction?

LARRY: I am not a tax lawyer, so the Buyer and the Seller in this situation should be advised to seek tax advice from a qualified tax professional. However, here are several basic rules:

1. If the seller is selling to a buyer who intends to occupy the property as his or her principal residence and the purchase price is $300,000 or less, no withholding is required.
2. If the seller is a resident alien (holder of a green card), he or she is treated the same as a U.S. citizen and no withholding is required regardless of the purchase price.
3. If the seller applies for and obtains a FIRPTA Withholding Certificate from the IRS prior to closing, no withholding is required. Eligibility for a Withholding Certificate would be determined by a tax professional.

BETTY: Well, my sellers do not have green cards, and the house is selling for $500,000, so does that mean they will not get part of their proceeds following closing?

LARRY: Probably so, unless they qualify for a Withholding Certificate for some reason. But even if they do qualify, it’s unlikely the IRS would issue a Certificate in time for a closing in a few weeks. So, in all likelihood, I am going to have to withhold 10% (or $50,000) of the purchase price from the sellers’ proceeds and send it to the IRS. Once the sellers file the last tax return they are required to fi le, my understanding is they can apply for a refund of any of the withheld amount that exceeds their final tax liability.

BETTY: Wow! So, what do I need to put on my checklist so I adequately warn my clients in the future?

LARRY: Here are the questions that you need to know the answers to every time:

1. Is the seller a citizen of another country?
2. If so, does the seller have a green card?
3. Is the buyer going to use the property as his or her principal residence? If so, is the purchase price $300,000 or less?
4. Is the buyer going to use the property as investment property? In this case, if the seller is a citizen of another country and doesn’t have a green card, withholding is required no matter the price.
5. Does the seller qualify for a FIRPTA Withholding Certificate in the opinion of a tax professional?

BETTY: Thanks for the heads up. This is definitely going on my checklist. Is the anything else I should know?

LARRY: Just a couple of things to keep in mind:

1. If the sales price exceeds one million dollars and withholding is required, the withholding increases to 15% of the sales price.
2. The way the law is written, the buyer is responsible for making sure the withholding is done properly. So, if the withholding is not done properly or not delivered to the IRS within 20 days from closing, the buyer will be penalized and charged with late fees by the IRS. As a practical matter, since closing attorneys usually represent buyers, this liability would fall on the closing attorney.
3. Buyers and sellers in this situation are both advised to seek professional tax advice and not simply depend on your real estate attorney unless he is also a qualified tax expert.

Have a great 2021, and stay safe and well!!!

‘Everything Changed the Minute I Opened the Door’

by Melissa Dittmann Tracey

Debbie Morrisette, a real estate broker with the Morrisette Group in North Carolina, thought she had followed all the safety protocols prior to showing properties to a potential buyer. She first met with the buyer—a man in his 20s—in a conference room at her brokerage, screened his interest in properties and asked a lot of questions about his background. The only thing she now regrets is not trusting her instinct as she approached the home’s front door alone to show him the home.

“Everything changed the minute I opened the door,” Morrisette said as she recalled that day two years ago while speaking to attendees during a recent REALTOR® Safety Program webinar, “Prospect or Predator?” “I had this feeling that I just knew I was in trouble.”

The man was hesitant to move throughout the house once inside and not touring the home as freely as other buyers usually did. Morrisette tried to not get trapped in a room by making him lead. But after about 10 minutes into the tour, he grabbed her arm, admitted he had lied about his name and what he does, and proceeded to ask her uncomfortable, inappropriate questions.

“I knew this was fight or flight—it was one or the other,” Morrisette recalled. She was able to escape through a sliding glass door and run to a neighbor’s house to call the police. The man was arrested the next day. But that day still haunts her. Morrisette has been in the real estate business for 17 years. “I’ve always been such a trusting person and always love what I do and meeting new people,” she said. “I couldn’t fathom that anyone would want to harm another human being … and to come up with all these lies and take so much time to cook up a situation to intimidate someone else.”

Two years later, she still won’t do a showing by herself.

Nearly a quarter of REALTORS® say they’ve experienced a situation that made them fear for their personal safety or the safety of their personal information, according to the National Association of REALTORS®’ 2020 Member Safety Report, conducted by the National Association of REALTORS®. The top agent fears centered around conducting open houses and showings as well as meeting new clients at a secluded property.

“These are not opportunistic crimes—although many people assume that they are,” said Lee Goldstein, CEO at Real Safe Agent, who also spoke during the REALTOR® safety webinar. Most of the crimes committed against real estate professionals are predatory in nature, said Goldstein. The perpetrator tends to have a motive of wanting power or control over their victim, not burglary or theft. In these crimes, predators search for some perceived weakness or vulnerability in their victims and have the intent of committing crimes like assault, rape, and murder. These criminals are drawn to real estate professionals because they know they tend to work alone and they believe they have a better chance of isolating you, he said.

The Timeline of Predatory Crimes

Goldstein walked webinar attendees through the timeline of predatory crimes, which revealed a lengthy cycle of “victim shopping” and investing time in preparatory actions that lead to meeting the victim and the actual crime. At first, the predators will focus on photographs, websites, and social media channels to compile personal information about their potential victim. Once they’ve researched their victim, they’ll insert that victim’s actual life into what Goldstein called a “fantasy stage” as they visualize their crime.

“The more information and subservient you are, and the more you provide them on social media, the more likely they are to stay focused on you and not to move on to someone else,” Goldstein said. For example, David Legaz, a real estate broker and 2021 president of the New York State Association of REALTORS®, advised attendees to watch the photos they use and always ensure they’re professional. Avoid full body photos, use headshots at or above the shoulders, and avoid showing any flashy jewelry. Have a professional smile with eyes fully open and look directly into the camera–no head tilts, which can show vulnerability, Legaz said.

As part of the predatory crime timeline, predators will try to arrange for a meeting to get you isolated from others. This meeting is your first opportunity to show your strength, as they’ll be looking for weakness or vulnerability. Have an empowered greeting. Arrive at the property early and from the front porch step, for example, reach down to greet them—a nonverbal gesture to show empowerment. Set expectations (e.g., “We will be spending no more than 15 minutes at the showing as the sellers will be returning at 5:45 p.m.”), Legaz added.

Predators tend to pay careful attention to “stage setting” for their crimes, Goldstein said. They will try to isolate you in places away from people and exits, like in bathrooms, basements, or attics. Always walk behind prospect: “Direct them—don’t lead them,” Legaz said.

Watch for these common attack scenarios, Goldstein said:

• Attempts to lure you into a room. For example, they may be in a home’s bathroom and tell you, “There’s a leak”—in an attempt to get you to enter the bathroom to look. Instead, stay outside the door and tell them you’ll notify the sellers.
• Watch hallways. Hallways are another prime area for an ambush since you’re away from exits. Walk behind them and always maintain a safe distance, particularly as the person in front stops to approach bedroom doors.
• Don’t get distracted. With a “look-up” type attack, they may try to get you to focus on something above as a distraction tactic.

The Best Ways to Prevent an Attack

To prevent an attack, Goldstein urged real estate professionals to use active listening during the initial meetings. Focus on the prospect and ask open-ended questions to help pinpoint any potential red flags. For example, look for inconsistencies in their story (for Morrisette, the man she met with said he earned $25 million last year from his company, yet his car didn’t match up to that wealth). Ask questions follow-up questions, and be skeptical of any stumbles or discrepancies in their story.

Trust your instinct. Many victims say they had “a feeling that something just wasn’t right,” when asked to recall the situation afterward, Legaz said. “Don’t discount that feeling, whether it’s a strange feeling after the initial call, while at the front door, or as you approach a home. … Your body is trying to warn you. If you have that feeling—exit. Stop the appointment. Tell them your family just called and there’s an emergency.”

Bring a coworker, family member, or friend with you to showings as much as possible, particularly in these situations, Legaz said:

• When there is poor cellphone service at the property.
• The property is vacant.
• You have an uncomfortable feeling prior to the appointment.

Always keep personal safety at the forefront of your day-to-day activities, said Carl Carter Jr., a real estate professional and founder of the Beverly Carter Foundation, who also spoke during the webinar. Carter’s mother Beverly Carter, a real estate pro in Little Rock, Ark., was kidnapped while showing a property to a man and woman who were posing as home buyers in September 2014. After a nationwide search, she was found dead days later. “In reliving the horror, I tell my mother’s story because I hope you will listen,” Carter said. “We’re all working so hard that it can be easy to lose sight that there is bad that walks among us.”

Reprinted from REALTOR® Magazine by permission of the National Association of REALTORS®. Copyright April 30, 2021. All rights reserved.

https://magazine.realtor/well-being/safety/article/2021/04/everything-changed-the-minute-i-opened-the-door?AdobeAnalytics=ed_rid%3D6759234%26om_mid%3D4534%7CMembersEdgeNews_2021_05_06_Brokers%26om_ntype%3DMEMBER%27S%20EDGE%20%28news%29

Appearances

Fred Moreno, Chief Deputy Legal Counsel, spoke at the Mobile Monday Session on June 7.

Miriam Baer, Executive Director, and Janet Thoren, Director of Regulatory Affairs, spoke at the NC Realtors’ BIC Talks Session on June 23.

Effective July 1st: NEW WWREA Disclosure is required!

If you have already begun using the Commission’s new Working With Real Estate Agents Disclosure, keep up the good work! If you have not begun using the new WWREA Disclosure, now is the time! Effective July 1st, you must begin reviewing the new form with all prospective commercial and residential buyers and sellers at first substantial contact.

The new disclosure form is available on the Commission’s website (ncrec.gov) under “PUBLICATIONS.” Click on “Publications” and then “Disclosure Forms.” We recommend that you give every prospective buyer and seller a copy of (or a link to) the new “Questions and Answers on: WORKING WITH Real ESTATE AGENTS” brochure as a supplement to answer questions commonly asked by buyers and sellers

On April 26, 2021, the Commission hosted a 60-minute webinar introducing these two new publications. A recording of the webinar is available for viewing on the Commission’s website. The new WWREA Disclosure will be discussed in the 2021-2022 GENUP and BICUP courses. Aside from the introduction of these new publications, there has been no change to the rule which requires agency disclosure (A .0104(c)) and no change in the types of agency relationships that brokers may offer. The only change is in the form that brokers use to explain agency relationships.

Disciplinary Actions

MICHELLE BARNETT ANDREWS (CHARLOTTE) – By Consent, the Commission suspended the broker license of Ms. Andrews for a period of 6 months effective June 10, 2021. The Commission then stayed the suspension in its entirety. The Commission found that Ms. Andrews acted as the co-listing agent for residential property which she knew had been extensively renovated. Ms. Andrews failed to verify that permits were pulled as required for some of the renovation work and failed to disclose that they were not pulled before the buyer made an offer. Once Ms. Andrews discovered, during the due diligence period, that permits were not pulled, she notified the buyers’ agent. The buyers closed on the property after being informed that the seller entity was in the process of obtaining the proper permits. In another residential sales transaction, Ms. Andrews again acted as the co-listing agent. This transaction included four previous buyers, who terminated for various reasons, and a 5th buyer who ultimately purchased the property. During the course of the listing, three buyers shared their home inspection reports with Ms. Andrews who shared them with the seller. The seller made some, but not all of the repairs noted in the reports but Ms. Andrews failed to discover and disclose the uncorrected material defects to subsequent buyers.

BEE HOME SOLUTIONS INC. (CHARLOTTE) – By Consent, the Commission suspended the broker license of Bee Home Solutions Inc. for a period of 12 months effective June 10, 2021. The Commission then stayed the suspension in its entirety. The Commission found that Bee Home Solutions Inc. listed a residential property for sale. The property was owned by the firm’s broker-in-charge, through another business entity. The seller entity had made extensive renovations to the subject property but failed to ensure that all required permits were pulled. Bee Home Solutions Inc. and its agents failed to disclose this before the buyer made an offer, however, once the Firm’s listing broker discovered, during the due diligence period, that permits were not pulled, she notified the buyers’ agent and the buyers closed on the property after being informed that the seller entity was in the process of obtaining the proper permits. In another residential sales transaction, Bee Home Solutions Inc. again acted as the listing firm for property owned by an entity owned by its broker-in-charge. This transaction included four previous buyers, who terminated for various reasons, and a 5th buyer who ultimately purchased the property. During the course of the listing, previous buyers shared three of their home inspection reports with the firm’s employee who shared them with the broker-in-charge. The seller entity made some, but not all of the repairs noted in the reports but Bee Home Solutions Inc., and its agents, failed to disclose the uncorrected material defects to subsequent buyers.

KENT ALLEN DAUDERMAN (SPRUCE PINE) – By Consent, the Commission suspended the broker license of Mr. Dauderman for a period of 18 months effective April 1, 2021. The Commission then stayed the suspension in its entirety. The Commission found that Mr. Dauderman managed properties for others through his sole proprietorship. A review of his trust account records found that Mr. Dauderman failed to perform monthly reconciliations, failed to maintain a trial balance, failed to include the proper identifying information on deposited checks, and failed to maintain journals and ledgers. Mr. Dauderman also allowed deficit spending leading to a shortage in the accounts.

MARION DENISE EDWARDS (KINGS MOUNTAIN) – By Consent, the Commission reprimanded Ms. Edwards effective June 10, 2021. The Commission found that Ms. Edwards acted as the agent of the buyers for the purchase of residential buyers informed Ms. Edwards that they wanted closing to take place at the end of July and Ms. Edwards communicated that the seller would not wait that long so the buyers executed a contract with a June closing date. Ms. Edwards and the listing agent disagree as to whether or not this request was communicated to, and considered by, the sellers. Nevertheless, during the due diligence period, Ms. Edwards forwarded a Due Diligence Request and Agreement (“DDRA”) to the listing agent without going over the specifics of the request with her buyer-client and which lacked their signature. The sellers agreed to the repairs noted on the DDRA and signed the document which was then sent to buyers. The buyers were unhappy that all of their repair requests were not addressed on the DDRA, but ultimately signed the document. The Commission notes that after closing, all repairs requested by the buyers have been completed to their satisfaction.

EITHIEL LYNN SMITH ESTES (BURLINGTON) – By Consent, the Commission reprimanded Ms. Estes effective June 15, 2021. The Commission found that Ms. Estes acted as a buyer agent for a residential purchase. The buyer had a home inspection performed which noted issues with floor joists, footings, girders, piers, windows, and electrical, among others. The home inspector also recommended a general contractor, engineer, plumber, and electrician visit the property for further evaluation. The buyer purchased the property after some repairs were made to the electrical system and received a credit of $2,200 to make additional repairs. The next year, Ms. Estes acted as the listing agent for the sale of the subject property, representing her former buyer client as seller. The seller failed to complete all questions on the property disclosure form, but Ms. Estes provided the incomplete form via the MLS. Ms. Estes was informed by the seller prior to listing the property, that certain repairs had been completed, but failed to inquire further or request documentation. The final buyer’s home inspection report noted some of the same issues as noted in the previous report obtained by the seller at the time of his purchase of the home.

LAURIE L JARRETT (HAW RIVER) – By Consent, the Commission reprimanded Ms. Jarrett effective June 10, 2021. The Commission found that Ms. Jarrett as the qualifying broker/broker-in-charge, of a licensed firm providing property management services, failed to identify the purpose for all checks, failed to maintain ledgers or journals in compliance with Commission rules, and failed to perform monthly reconciliations. Ms. Jarrett also failed to maintain copies of all transaction related documents for a period of three years as required by Commission rule. Ms. Jarrett and the firm have now ceased managing properties and turned over all monies to the property owners or their new management companies.

LAKE NORMAN CORNELIUS NC LLC (CORNELIUS) – By Consent, the Commission suspended the broker license of Lake Norman Cornelius NC LLC for a period of 12 months effective May 1, 2021. The Commission then stayed the suspension in its entirety. The Commission found that in and between May 2015 and August 2015, Lake Norman Cornelius NC LLC failed to properly account for trust money in its trust account and failed to create, maintain, and retain trust account records.

WILLIAM D MORGAN (MOORESVILLE) – By Consent, the Commission suspended the broker license of Mr. Morgan for a period of 12 months effective June 8, 2021. The Commission then stayed the suspension in its entirety. The Commission found that in and between May 2015 and August 2015, Mr. Morgan as the qualifying broker/broker-in-charge of a licensed firm, failed to properly account for trust money in the firm’s trust account, and failed to create, maintain, and retain trust account records.

MICHAEL TIMOTHY MOULTON (CHARLOTTE) – By Consent, the Commission suspended the broker license of Mr. Moulton for a period of 12 months effective June 10, 2021. The Commission then stayed the suspension in its entirety. The Commission found that Mr. Moulton was qualifying broker/broker-in-charge of a licensed firm which listed a residential property for sale, which was owned by a company also owned by Mr. Moulton. Mr. Moulton, through the seller entity, made extensive renovations to the subject property but failed to ensure that all required permits were pulled, and failed to disclose this before the buyer made an offer. Once the listing broker discovered, during the due diligence period, that permits were not pulled, they notified the buyers’ agent. The buyers closed on the property after being informed that the seller entity was in the process of obtaining the proper permits. In another residential sales transaction, Mr. Moulton’s firm again acted as the listing agent for property owned by his other company. This transaction included four previous buyers, who terminated for various reasons, and a 5th buyer who ultimately purchased the property. During the course of the listing, the previous buyers shared three of their home inspection reports with the listing broker who shared them with him. Mr. Moulton made some, but not all of the repairs noted in the reports and failed to disclose the uncorrected material defects to subsequent buyers.

KHUONG M NGUYEN (CHARLOTTE) – By Consent, the Commission suspended the broker license of Mr. Nguyen for a period of two years effective February 1, 2021. The Commission then stayed the suspension after a four month active suspension period. The Commission found that Mr. Nguyen, acting as the qualifying broker/broker-in-charge of a firm, failed to maintain trust accounts and trust account records in compliance with Commission rules, failed to enter into and retain agency agreements with his property management client, and failed to retain leases and other transaction documents in compliance with Commission rules.

MATTHEW M REYES (MOORESVILLE) – By Consent, the Commission suspended the broker license of Mr. Reyes for a period of 12 months effective June 8, 2021. The Commission then stayed the suspension in its entirety. The Commission found that in and between May 2015 and August 2015, Mr. Reyes as the qualifying broker/broker-in-charge, of a licensed firm, failed to properly account for trust money in the firm’s trust account, and failed to create, maintain, and retain trust account records.. Mr. Reyes self-reported the trust account shortage to the Commission.

WENDY D SMITH (MOORESVILLE) – By Consent, the Commission suspended the broker license of Ms. Smith for a period of three months effective June 8, 2021. The Commission then stayed the suspension in its entirety. The Commission found that in and between May 2015 and August 2015, Ms. Smith as the qualifying broker/broker-in-charge of a licensed firm, failed to properly account for trust money in the firm’s trust account, and failed to create, maintain, and retain trust account records.

THE CHARLOTTE REAL ESTATE FIRM LLC (CHARLOTTE) – By Consent, the Commission suspended the broker license of The Charlotte Real Estate Firm LLC for a period of two years effective February 1, 2021. The Commission then stayed the suspension after a four month active suspension period. The Commission found that The Charlotte Real Estate Firm LLC failed to maintain trust accounts and trust account records in compliance with Commission rules. The Charlotte Real Estate Firm also failed to enter into and retain agency agreements with its property management client, and failed to retain leases and other transaction documents in compliance with Commission rules.

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

Renew Your License Now

Renew your license by June 30, even if you haven’t completed CE. If you don’t renew by 11:59pm on June 30, your license will expire.

How do I renew?

1. Go the Commission’s homepage, www.ncrec.gov.
2. Click on Renew My Broker License.
3. Enter your license number and PIN (password). Your PIN will be the last four digits of your Social Security number unless you have changed it.
4. Verify your contact information, and update information if needed.
5. Provide the “Employee Misclassification” disclosure and certification.
6. If you are a Broker-in-Charge, you will be required to disclose information regarding your trust account(s) and any criminal convictions or disciplinary actions that have occurred within the previous year, if applicable.
7. Pay the $45 renewal fee by Visa, MasterCard, Discover, American Express, or PayPal.

What if information in my license record needs to be updated?*

During renewal, be sure to verify that the information in your license record is current. You may update your basic contact information (e.g., email address, home address, and telephone number) during step #1 of the renewal process. However, in order to change other information, e.g., name change, firm affiliations, etc., you will need to submit a form to the Commission.

Question: What form do I submit if my name has changed?

Answer: If your name has changed, you must submit Form 1.22, Request BROKER Name Change And/Or Request To Replace BROKER License/Pocket Card.

Question: I am no longer affiliated with the firm listed in my license record. What form do I submit to terminate the affiliation?

Answer: To terminate your affiliation with a firm or sole proprietorship, submit Form 2.22, Request to Terminate Your Affiliation with a Firm or Sole Proprietorship.

Question: I recently affiliated with a new firm. What form do I submit to add the affiliation?

Answer: If you are a provisional broker, your BIC must submit Form 2.08, License Activation and Broker Affiliation. If you are a full broker, your BIC or you may submit Form 2.08.

Questions regarding the renewal process, license record changes, or forms? Contact the Education and Licensing Division at LS@ncrec.gov or 919.875.3700, x772.

*Per Commission Rule 58A .0103(b): Every broker shall notify the Commission in writing of each change of personal name, firm name, trade name, residence address, firm address, telephone number, and email address within 10 days of said change. A broker notifying the Commission of a change of legal name or firm name shall also provide evidence of a legal name change for either the individual or firm, such as a court order or name change amendment from the Secretary of State’s Office.

Employment Opportunities Available

Are you interested in joining the staff of the North Carolina Real Estate Commission? From time to time, employment opportunities become available. They are posted on the Commission’s website under the “About Us” tab. Click here for more information.

What Was Old Is New Again!

The old Working With Real Estate Agents brochure published by the Commission for the last 25+ years has been renamed and converted into a Q&A format (“Questions and Answers on: WORKING WITH REAL ESTATE AGENTS”) with additional content. It is available on the Commission’s website (ncrec.gov) under “PUBLICATIONS.” Click on “Publications” and then “Q&A Brochures” under “Paid Purchases” to order a printed copy, or “View Online/Download” to view or print a copy. You may order five (5) brochures at no charge or order in bulk for a small fee.

The Q&A brochure’s new content answers questions commonly asked by buyers and sellers and includes the Commission’s commitment to racial equality and Fair Housing, definitions of agency and agency agreements, descriptions of the services brokers provide, the responsibilities of agents to their clients, how brokers are compensated, explanations regarding the expiration and termination of agency agreements, and agency diagrams illustrating four types of agency relationships.

The Commission recommends that brokers give prospective buyers and sellers copies of (or links to) this new Q&A brochure when reviewing the new Working With Real Estate Agents Disclosure form with them at first substantial contact.

This Q&A brochure will be translated into Spanish in the near future and will be available online and in print in the same manner as the English version.

Building Permits – A Broker’s Responsibility

The requirements for obtaining building permits for original construction, additions, renovations, and repairs are determined by county and/or municipal building inspection offices. These requirements can be complex, may change over time, and may be different from one county/city to another. Brokers are not expected to know or remember all of the requirements for obtaining building permits. However, brokers have a duty to disclose material facts and part of fulfilling that duty is verifying information – including permitted or non-permitted changes.

When a broker lists a new home for sale, the broker should ask the builder for a copy of the Certificate of Occupancy (aka “CO”) and give a copy of it to the buyer or buyer’s agent. The issuance of a CO confirms that the builder obtained the necessary building permit(s) in advance, that the house/building was fully inspected by the building inspections office during its construction, and that its construction complies with the building code. If a CO is not yet available, then the seller’s agent should disclose this fact to a prospective buyer and ensure that the buyer receives a copy of the CO at or before the closing.

When brokers list properties for sellers, especially properties being flipped, the brokers should inquire about all of the renovations, additions and repairs their seller-clients have made. The brokers should make a good faith effort to obtain copies of vendor invoices from the sellers referencing the work that was done, when, and by whom. The brokers should then contact their local building inspection offices to inquire whether permits and/or occupational licenses were required, whether permits were pulled and, if so, obtain copies of the permits. If a broker discovers that the seller failed to obtain a required permit or failed to hire a licensed professional when a license was required, then this is a material fact that the broker must disclose to all prospective buyers, even if the seller chooses not to disclose it.

This same requirement holds true when brokers renovate, add on to, or repair their own properties as flippers or owner-occupants. The broker must obtain all required permits and hire licensed professionals when it is required. If the broker fails to do so, it is a material fact which the broker-seller must disclose to all prospective buyers (or their agents).

N.C.G.S. §160D-1110 (c) states that no permit is required for any construction, installation, repair, replacement, or alteration performed in accordance with the current edition of the North Carolina State Building Code costing fifteen thousand dollars ($15,000) or less in any single-family residence unless the work involves any of the following: (1) The addition, repair, or replacement of load-bearing structures. (2) The addition or change in the design of plumbing. (3) The addition, replacement, or change in the design of heating, air-conditioning, or electrical wiring, devices, appliances, or equipment, other than like-kind replacement of electrical devices and lighting fixtures.  (4) The addition (excluding replacement) of roofing. A local government shall not require more than one building permit for the complete installation or replacement of any natural gas, propane gas, or electrical appliance on an existing structure when the installation or replacement is performed by a person licensed (otherwise, a permit is required).  The following chart illustrates a few common renovations performed on properties in a small sample of North Carolina counties. A “YES” indicates that a permit is required for that particular renovation. You may be surprised at the types of updates that require permitting, so be careful!

Flipping homes has become a common practice in North Carolina. Flippers sometimes emphasize cosmetic improvements that greatly enhance the appearance of their properties, and unfortunately, saving money on these improvements is often a priority.  If an owner replaced an HVAC system, water heater, wiring, plumbing or other systems, then one or more building permits may have been required and the person who made those replacements was likely required to be licensed in their fields. Flippers sometimes hire unlicensed handymen to perform services that require licenses. Hiring a licensed contractor may raise the cost of the repair or improvement but will also help an owner or flipper navigate permitting requirements and help ensure that the improvements are satisfactory. Brokers should educate themselves, to be alert, and must inquire about improvements to ensure that they discover and disclose material facts.