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Case Study: Designated Dual Agency
FACTS:
XYZ Realty has two affiliated brokers, the BIC and a provisional broker. A consumer contacts XYZ Realty to inquire about a property listed by the brokerage. The provisional broker answers the call. During the conversation, first substantial contact is established. The provisional broker asks the consumer for their email address and sends the Working With Real Estate Agents Disclosure (WWREA) electronically and immediately reviews it with them. After the disclosure is provided, the consumer decides to allow the provisional broker/brokerage to represent their interests in the transaction. Next, the consumer enters into a written buyer agency agreement that authorizes designated dual agency. The consumer further tells the provisional broker they are preapproved for a $600K mortgage.
The provisional broker notifies the BIC about the brokerage’s new client and their preapproval amount for a mortgage. The BIC reviews the agency agreements, disclosures, and provisional brokers’ client notes. While reviewing the information, the BIC informs the provisional broker that their seller-client previously authorized designated dual agency in their listing agreement. The BIC also states they will notify the seller that they are now in a designated dual agency relationship. The BIC then designates the provisional broker as the agent for the buyer-client and themself as the designated dual agent for the seller-client.
The BIC reassures the provisional broker that the information they submit in the transaction file will not be disclosed to the seller-client; however, to comply with License Law and Commission rules, they must submit all their transaction records to the brokerage so the BIC can review them.
ISSUE: Did the BIC and provisional broker comply with Rule 58A .0104?
ANALYSIS: No. Rule 58A .0104(j) specifies that a broker-in-charge shall not act as a designated broker for a party in a real estate sales transaction when a provisional broker under his or her supervision will act as a designated broker for another party with a competing interest.
License Law and Commission rules state that a designated dual agent may be non-provisional or provisional brokers. Further, a BIC can be a designated broker for a party in a real estate sales transaction. However, the BIC cannot act as the designated dual agent for a party in a real estate sales transaction when a provisional broker under their supervision acts as a designated dual agent for another party with a competing interest.
In this scenario, the BIC and the provisional broker indicated to the seller-client and buyer-clients incorrectly that XYZ Realty could practice designated dual agency. Under License Law and Commission rules, it is not permissible for XYZ Realty to practice designated dual agency because there are only two affiliated brokers in the brokerage, the BIC and the provisional broker. Rule 58A .0104(j) clearly indicates that a BIC may not be a designated broker for a party in a real estate transaction if a provisional broker under their supervision is the designated broker for the competing party.
If the BIC wants XYZ Realty to practice designated dual agency, the BIC must have more affiliated brokers under their supervision. If the BIC has more affiliated brokers under their supervision, the BIC may represent a party in a designated dual agency transaction if a non-provisional broker is the designated dual agent for the competing party.
However, the Commission states a best practice for BICs is to not represent a party in a designated dual agency situation. If BICs adopt this practice it can reduce the chance that a BIC may violate Commission rules for either, (1)failing to maintain and review transaction records, or (2) learning confidential information about the other party and using or (failing to use) that confidential information to the advantage of their client in a designated dual agency situation.
BICs should establish policies and procedures to ensure compliance with License Law and Commission rules.
If a BIC chooses to be one of the designated dual agents in a transaction, the BIC would need to designate another broker in the office to collect/review records from the transaction for the client the BIC is not designated to represent. This will essentially prevent the BIC who is a designated dual agent from having access to confidential information about the other party in the transaction. It may also provide comfort to the other designated dual agents that they can provide records in compliance with Rule 58A .0108(d) and not have their client’s confidential information inappropriately shared with the other party in a designated dual agency transaction.
If the BIC and their provisional broker act as designated dual agents for competing parties in a transaction, they may be subject to disciplinary action by the Commission for failing to adhere to Rule 58A .0104.
Resources:
N.C.G.S. § 93A-6(a)(8), and 93A-6(a)(10)
License Law and Commission Rules: Rule 58A .0104(j)
Articles: 2022-2023 General Update Course
BICs and Designated Dual Agency Transactions- Room for Conflicts
Video: https://share.synthesia.io/1bba22d8-cc03-4eba-af98-634e78a07d49
What’s Next Once You Receive Your License?
Congratulations on receiving your hard-earned real estate license. What a great feeling after all that work! Once you have celebrated your accomplishment, you might wonder what the next step is. So glad you asked…there are three possible paths:
1. If you wish to begin working as a real estate broker as soon as possible: First, you must locate a supervising Broker-in-Charge (BIC) so you can activate your license. Consider interviewing with several brokerage companies to identify a work culture that appeals to you. The BIC of the company you select must agree to actively supervise your brokerage activities. Once a completed REC Form 2.08 License Activation and Broker Affiliation has been electronically submitted, you may begin your real estate practice under your BIC’s supervision.
2. If you wish to remain on inactive status and begin working as a broker later: Once you have your real estate license number, you can begin and even complete your 90 hours of Postlicensing education without activating your license. All provisional brokers (not just those on active status) are required to complete this educational series within 18 months of initial licensure. This will remove the provisional status of your license so that when you are ready to activate your license, it will be as a “full” broker.
3. If you wish to remain on inactive status indefinitely: As long as you renew your real estate license every year between May 15 and June 30, you are not required to complete any education or affiliate with any BIC. Be aware that this course of action can result in extensive educational requirements when you do decide to activate your license, depending on how long you wait to activate.
4. Recommendation: Regardless of which of the above paths you choose, you are strongly encouraged to complete the mandatory 8 hours of Continuing Education each year after your first license renewal. It will make activation much easier.
Reminders: Provisional Brokers
Provisional brokers will remain on inactive status until they affiliate with a designated broker-in-charge.
1. While on inactive status, brokers are not permitted to perform any brokerage activities, including making referrals. Commission Rule 58A .0504(a)
2. Postlicensing education must be completed within 18 months of the date of initial licensure. Commission Rule 58A .1902
For example, if the broker was first licensed on September 1, 2024, they must complete all Postlicensing courses by March 1, 2026. As soon as the courses are completed, so long as on or before the 18 months ends, the provisional status will be automatically removed.
Postlicensing education includes the following three 30-hour courses:
301 – Broker Relationships & Responsibilities;
302 – Contracts and Closing; and
303 – NC Law, Rules, and Legal Concepts.
3. Provisional brokers must complete continuing education each year by June 10 prior to the second renewal of their license. This requirement is separate from and in addition to Postlicensing education. Commission Rule 58A .1702.
4. All provisional brokers must renew their licenses between May 15 and June 30 of each year. Commission Rule 58A .0503
Whether the initial licensure date is September 1 or May 1, all brokers must renew their broker licenses on or before June 30 each year. There is a $45 fee to renew a broker license.
Reminder: Brokers-in-Charge (BIC) must submit License Activation and Affiliation, Form 2.08, for Provisional Brokers
Are you interested in affiliating a provisional broker? Have you completed the License Activation and Affiliation (Form 2.08) for the provisional broker?
Pursuant to Rule 58A .0506(b), a BIC is responsible for the submission of the License Activation and Affiliation Form 2.08 for provisional brokers under their supervision. The rule provides that if the provisional broker and broker-in-charge do not receive written acknowledgment from the Commission within 30 days of the date shown on the form, the provisional broker must cease brokerage activities pending receipt of the written acknowledgment from the Commission.
If you have additional questions, visit the Commission’s website.
Reminder: Do you know you can take the Update Course early?
While Commission rules allow brokers to complete their Update course anytime between July 1 and June 10, it is highly recommended to take it as early as possible. This will ensure you are up to date on the latest law and rule changes. If you wait until the spring, you may find the material covers changes that have already been in effect since the previous July, leaving you without the necessary information to conduct your business appropriately.
How do you find an Update Course near you?
A statewide CE Course Schedule is available on the Commission’s website. To search for courses, visit the Commission’s homepage (www.ncrec.gov), click on the Education menu, and select Search CE Course Schedule. You can search by course title, city, county, sponsor or instructor name, or date range.
Stay informed and compliant by taking your Update course early during the license year.
Disciplinary Actions
360 REAL ESTATE LLC (SPRING LAKE) – By Consent, the Commission suspended the firm license for a period of 24 months, effective March 1, 2024. The Commission then stayed the suspension following a 6-month active period upon certain conditions. The Commission found that the Firm provided property management services and maintained a security deposit trust account and a rental trust account. An audit of these accounts revealed a number of deficiencies, including negative balances for properties no longer managed by the Firm, deficit spending, comingling of funds, failure to perform monthly reconciliations, failure to note all identifications on ledgers and deposit tickets and a shortage in both the security deposit and rental accounts.
NICOLE LOUISE BURGER (SPRING LAKE) – By Consent, the Commission suspended the broker license of Burger for a period of 24 months, effective March 1, 2024. The Commission then stayed the suspension following a 6-month active period upon certain conditions. An audit of Burger’s property management trust account(s) revealed a number of deficiencies, including negative balances for properties no longer managed by Burger, deficit spending, comingling of funds, failure to perform monthly reconciliations, failure to note all identifications on ledgers and deposit tickets and a shortage in both the security deposit and rental accounts.
DANIEL JAMES DEMERS (HIGH POINT) – By Consent, the Commission suspended the broker license of Demers for a period of 12 months, effective May 1, 2024. The Commission then stayed the suspension following a 3-month active period upon certain conditions. The Commission found that Demers served as the listing agent in the subject transaction. Demers advertised the subject property for sale and included a square footage measurement in the advertisement. Demers failed to measure the subject property and instead relied upon the square footage measurement listed on the tax card to advertise the subject property.
NINA MARIE DESJEAN (KNOXVILLE, TN) – The Commission accepted the voluntary surrender of the real estate license of Desjean, effective August 14, 2024. The Commission dismissed without prejudice allegations that Desjean violated provisions of the Real Estate License Law and Commission Rules. Desjean neither admitted nor denied misconduct.
LAKE WYLIE MARKET CENTER LLC (CHARLOTTE) – By Consent, the Commission suspended the firm license for a period of 3 months, effective August 1, 2024. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that in 2022, a broker affiliated with the Firm acted as a listing agent and advertised a property as “remodeled top to bottom” but failed to discover and disclose material facts related the property and remodel. The Firm has instituted additional broker education and policies regarding advertising, renovations, and permitting.
JAMIE L MCDEVITT (PINEHURST) – By Consent, the Commission suspended the broker license of McDevitt for a period of 2 years, effective August 15, 2024. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that in 2022, McDevitt acted as buyer agent for an out-of-state buyer and drafted legal terms to create an escalation clause as part of an Offer to Purchase and Contract. McDevitt participated in disclosing the terms of a competing offer to their buyer-client without the competing offeror’s express consent.
MCDEVITT TOWN & COUNTRY PROPERTIES (PINEHURST) – By Consent, the Commission suspended the firm license for a period of 2 years, effective August 15, 2024. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that in 2022, the Firm acted as buyer agent for an out-of-state buyer. The individual broker acting as buyer agent drafted legal terms to create an escalation clause as part of an Offer to Purchase and Contract and participated in disclosing the terms of a competing offer to their buyer-client without the competing offeror’s express consent.
DAVID PRIESTLEY (GREENSBORO) – The Commission accepted the voluntary surrender of the real estate license of Priestley, effective August 1, 2024. The Commission dismissed without prejudice allegations that Priestley violated provisions of the Real Estate License Law and Commission Rules. Priestley neither admitted nor denied misconduct.
JACQUELYN A TINGEN (BENSON) – By Consent, the Commission reprimanded Tingen effective August 31, 2024. The Commission found that Tingen represented the buyer of the subject property and failed to independently confirm the acreage of the subject property prior to her client’s purchase.
JOHN M SYLVIA (CHARLOTTE) – By Consent, the Commission suspended the broker license of Sylvia for a period of 3 months, effective August 1, 2024. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that in 2022, a broker affiliated with Sylvia acted as a listing agent and advertised a property as “remodeled top to bottom” but failed to discover and disclose material facts related to the property and remodel. The Commission noted that Sylvia has instituted additional broker education and policies regarding advertising, renovations, and permitting.
JOANN M WAINIO (WILMINGTON) – By Consent, the Commission reprimanded Wainio effective August 1, 2024. The Commission found that Wainio acted as a listing agent in a subject transaction and misrepresented in an advertisement that the subject property was built in 1990. The sellers disclosed on the RPOADS that the subject property was built in 1980. Buyers went under contract and discovered the HUD manufacturing data plate which stated the subject property was built in 1977.
SELL YOUR HOME SERVICES LLC (HIGH POINT) – By Consent, the Commission suspended the firm license for a period of 12 months, effective May 1, 2024. The Commission then stayed the suspension following a 3-month active period upon certain conditions. The Commission found that Sell Your Home Services LLC served as the listing firm in the subject transaction. The Firm advertised the subject property for sale and included a square footage measurement in the advertisement. The Firm failed to measure the subject property and instead relied upon the square footage measurement listed on the tax card to advertise the subject property.
WOODS & WATER REALTY LLC (KNOXVILLE) – The Commission accepted the voluntary surrender of the real estate firm license, effective August 14, 2024. 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.
Case Study: Dual Agency
FACTS:
A BIC designates Broker A to represent a seller-client, and Broker B to represent a buyer-client after both principals provide written authorization for designated dual agency. Prior to being designated dual agents, neither Broker A nor Broker B had prior confidential information about the principals. Further, the BIC reminds Broker A and Broker B not to share any confidential information about their clients without the clients’ permission.
The next day, Broker A and Broker B have a conversation while in the office. Broker A tells Broker B that their seller-client will accept any amount over asking price because they are going through a tumultuous divorce.
Broker B shares the information about the seller with their buyer-client. Later that evening, the buyer-client submits an offer that is $5k over the asking price to the seller. The seller accepts the offer, and the parties go under contract.
ISSUE: Did Broker A comply with Rule 58A .0104?
ANALYSIS: No. Rule 58A .0104(k) and (l) state the broker acting as a designated dual agent for one party shall not, without their client’s permission, disclose to the other party or the broker designated to represent the other party: “(1) that a party may agree to a price, terms, or any conditions of sale other than those offered; (2) the motivation of a party for engaging in the transaction, unless disclosure is otherwise required by statute or rule; and (3) any information about a party that the party has identified as confidential, unless disclosure is otherwise required by statute or rule”.
The advantage of designated dual agency over standard dual agency is that each of the firm’s clients (seller and buyer) receive representation more like single agency than dual agency. Designated dual agency allows agents to fully represent the interests of their respective clients, allowing agents to advise their clients during the transaction. This is different than the typical dual agency situation where client advocacy is lost because the dual agent may not advocate for one client to the detriment of the other client.
Moreover, a designated dual agent is required to act only in the best interests of their client, and this includes ensuring confidential information is not shared with anyone, including the opposing designated party, without permission, unless otherwise required by law.
The Commission recommends a BIC develop written office procedures and policies to maintain the confidentiality of client information by preventing improper disclosure in designated dual agency transactions.
In this scenario, Broker A was designated to represent the exclusive interest of the seller-client and should not have disclosed any confidential information to Broker B without the seller’s permission pursuant to Rule 58A .0104(k).
If, as here, a designated agent learns confidential information after becoming designated, they have an obligation to represent their clients’ interest to the best of their ability and disclose the information. However, Broker A and the brokerage may be liable due to the disclosure of confidential information by Broker A. Moreover, as a result of Broker A disclosing confidential information, i.e., that the seller-client would accept any price over asking due to their pending divorce, they may be subject to disciplinary action by the Commission for failing to adhere to Rule 58A .0104.
RESOURCES:
N.C.G.S. § 93A-6(a)(8), and 93A-6(a)(10)
License Law and Commission Rules: Rule 58A .0104(k)(l)
Articles: 2022-2023 General Update Course
Dual Agency – Authorization, Disclosure and Safeguarding Confidential Information
Tech Corner: PDF to Speech
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