Know that Your Locksmith Is Licensed

Locks play an important part in your real estate business. Leave one unlocked or needing repair so that it can lock and you could, pun intended, open the door to a lot of trouble.

To be certain that locks play a positive role in your business, secure the services of a licensed locksmith.

Since 2001, North Carolina has required that all locksmiths be licensed through written examination and background investigation. Every license renewal includes a criminal background check and requires the completion of 24 hours of continuing education.

In recent years, scam locksmith operations have emerged; appearing legitimate in the local phone directory and on the Internet, they are not in practice. When closing on a property, provide a list of licensed locksmiths for your client and recommend that the locks be changed. When managing a listing or rental property, report any problems with locks to the owners as soon as they are discovered.

For more information on locksmiths, visit the North Carolina Locksmith Board at www.nclocksmithboard.org.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Many Steps Required for Handling Trust Money in an Electronic Age

(The following article is reprinted from the Real Estate Bulletin, official publication of the California Department of Real Estate. Statute citations have been changed to the comparable North Carolina law.)

More and more real estate brokers are taking advantage of the electronic disbursement options made available to them from their bank or other financial institution. These options are available for the trust accounts used by a broker. If done properly, trust money can be paid out from a trust account via electronic disbursements. Not only must a broker comply with the Real Estate License Law including G.S. 93A-6 and the Commission rules including Rule A.0107, but it is important that the broker know that there are many caveats and steps that need to be taken in order to assure that there is proper authorization, documentation, and protection for electronic disbursements.

An electronic disbursement includes such processes as wire transfers and electronic funds transfers (EFT’s). A wire transfer is an individual transaction set up between one entity and another, typically with funds transferred from one bank account to another. Wire transfers may be more costly and are usually used for large transactions.

An EFT is a transfer of funds initiated through an electronic terminal, telephone, computer, or other means authorizing a financial institution to debit or credit an account. An EFT is often a very cost effective means of distributing funds. In the United States, the Automated Clearing House (ACH) is the primary means through which EFT’s take place.

Who Can Disburse Funds Electronically?

The requirements of Commission Rules A.0107 and A.0110 apply whether a disbursement is made using a paper check or electronically. Disbursements should be made from a trust account under the supervision of the broker-in-charge.

Policy and Procedures

Long-established internal control practices, such as written policies and procedures, authorizations, segregation of duties, and monitoring are vitally important in the electronic disbursement process. Supervisory oversight is especially critical to assure that trust money is not embezzled and is accounted for properly.

Before you begin making electronic disbursements, it is advisable to create detailed policies and procedures to spell out:

who is authorized to initiate electronic disbursements;

how electronic disbursements will be approved by the broker-in-charge;

who will send electronic disbursements if they are not automated; and

who will account for these transactions and reconcile accounting documentation related to electronic transactions (of course the requirements of Commission Rule A.107, .0108 and .0110 apply).

In order to establish a recurring bill payment from the trust account on behalf of a client (e.g., mortgage payment), policies should be in place that include, but are not limited to, obtaining authorization from the client, direction of the broker-in-charge for initiating the process, and an approval process that will prevent incurring negative balances.

Proper segregation of duties is especially critical for electronic transactions. Proper segregation of duties reduces the chance that one person could be in a position both to commit a wrongdoing and to conceal it. At least two individuals should be involved in an electronic distribution. If possible, the authorization and transmitting functions should be separated and the recording function should also be assigned to someone who does not have either approval or transmitting duties.

For non-recurring bill payment, access to the electronic disbursement function should be controlled and its use should be authorized and actively monitored due to the ease with which transfers can be made. Safeguards for initiating an EFT or wire transfer could include, but are not limited to:

having a callback provision in your electronic or wire instructions that requires the bank to call someone other than the person initiating the transaction;

using a restricted password to authorize the bank to make a transfer;

hand delivering a letter of authorization to the bank with the transfer instructions; and

having a policy with the bank that limits recipients of wire transfers.

Failure to establish controls could result in a trust account shortage.

Brokers should also be aware that, depending on the transaction flow, the use of a third part service intermediary provider may not meet the broker-in-charge’s trust money handling requirements.

If done properly, electronic disbursements can be a time and money-saving process, but the process requires strong supervisory oversight, controls and record keeping. It can be a nightmare for a broker, ripe with danger of substantial loss of funds and/or loss of accounting controls, if the broker is not fully involved and does not have policies in place.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Limited Activities Available to Unaffiliated Brokers

What activities can a full broker engage in if the broker leaves a brokerage firm office and chooses to work alone from home without being designated as a broker-in-charge? The short answer is: very few. Assuming the license is active, permissible activities are limited primarily to:

• receiving referral fees from another broker or brokerage company,
• selling, buying or leasing property for himself or herself,
• representing someone as a buyer or tenant broker so long as the broker did not actively solicit the business.  This most often occurs when the buyer/tenant is a relative or friend.

Pursuant to Commission Rule A.0110(a), a broker who chooses to function as a sole proprietor, but wishes to avoid acting as a broker-in-charge cannot:

• solicit business. advertise or otherwise promote his/her services,
• list properties (which inherently requires promotion),
• have other licensees affiliated with the broker’s sole proprietorship,
• be responsible for holding any monies that must be deposited into a trust account.

Note that only sole proprietorships qualify for this exemption: a broker who chooses to receive income from referrals through his or her one-person licensed limited liability company or corporation must still have a broker-in-charge.

A broker-in-charge or affiliated full broker who leaves a firm to set up a sole proprietorship, for example by working from home in his or her own name, should notify the Commission in writing upon the  severance of the affiliation.  Such a broker may remain on active status at his or her home address without a broker-in-charge so long as the broker timely renews his or her license prior to June 30 and completes 8 hours of continuing education (including the mandatory Update course) by June 10 each year.  On the other hand, provisional brokers must always have a broker-in-charge in order to be on active status — timely license renewal and continuing education is not sufficient so long as the license remains provisional. This means that a provisional broker cannot work from home as a sole proprietor.

Consider the following scenarios for an unaffiliated full broker with an active license but no broker-in-charge:

A)  The broker is asked by her sister to list her sister’s house for sale.  Typically, brokers find it necessary to advertise whenever they represent a property owner, in order to attract a buyer or tenant.  As a listing agent, the broker also may be called upon to hold any earnest money deposit. Thus, to take this listing, the broker must do any one of the following:

declare herself broker-in-charge of her sole proprietorship; or

create an entity, obtain a firm license and be broker-in-charge of her entity; or

refer the listing to another company and receive a referral fee; or

affiliate with a company/office if the broker wished to actively participate as an agent in the transaction.

B)  The broker wants to represent herself in purchasing property and receive a portion of the commission.  In this case, the broker does not need to have an active license to request and receive consideration because she is a party in the transaction (in this case, the buyer). As a party in the transaction, the buyer/broker is not engaged in brokerage, because she is not representing others. As such, she does not need a license to be paid.  It is up to the listing company to decide whether it will share compensation with this buyer.

A common activity of brokers on active status who are not affiliated with an office and who choose not to declare themselves broker-in-charge is to refer parties to other licensees in exchange for a referral fee.  As always, the broker making the referral must disclose to the prospect that the broker will earn a fee for the referral. It is recommended when negotiating referral fees that brokers put the terms of the referral agreement in writing. And, if the broker promotes his or her services as a referral agent by handing out business cards or maintaining a website soliciting consumers, then he or she must be a broker-in-charge.

On rare occasions, an unaffiliated non-BIC on active status acting as a sole proprietor may also act as a buyer agent.  This is permissible IF the buyer client was not solicited in any way by the broker, and the broker does not handle any trust money in the transaction. Typically, the buyer will be a family member or friend who knows the broker has a license and who initiates contact with the broker.  In this case, the broker is rendering brokerage services and must comply with all Real Estate License Law and Commission rules including maintaining transaction files, making appropriate agency disclosure and having a written agency agreement.

Practicing as a sole proprietor can sometimes be a challenge.  But, a full broker (whose license is not provisional) does not have to affiliate with another broker to maintain his or her license on active status. The broker must simply timely renew the license and complete eight hours of CE each year (the Update course and an elective). So long as the broker remains a sole proprietor, the broker may engage only in the limited activity outlined above without being a broker-in-charge. Understand as well that this limited exception only applies to sole proprietorships, and not to any entity.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Property Disclosure Form Revised as of January 1 To Include Properties Governed by Owners’ Associations

By Curtis E. Aldendifer, Associate Legal Counsel

As mandated by legislation effective January 1, 2012, owners of residential real estate are now required (with certain statutory exceptions) to furnish purchasers with a revised Residential Property Disclosure Statement. The Statement is set forth in the recently amended Rule A.0114 and available on the Commission’s Web site, www.ncrec.gov.

Now four pages in length and titled “Residential Property and Owners’ Association Disclosure Statement,” the revised form includes additional disclosures that apply when a property is governed by an owners’ association or system of mandatory covenants.

The instructions and questions 1 through 20 of the revised form remain essentially unchanged except for the addition of language in the instructions clarifying that disclosure requirements apply to sellers of condominiums, townhouses, and similar residences in the same way it applies to sellers of single-family detached residences.

The new disclosures, beginning with question 21 page 3, pertain to properties governed by an owners’ association.

Question 21 asks whether the property is “subject to regulation by one or more owners’ association(s) and governing documents which impose various mandatory covenants, conditions, and restrictions upon the lot, including, but not limited to obligations to pay regular assessments or dues and special assessments.”

The available responses to question 21 are “yes”, “no”, and “no representation”, indicated by marking the appropriate box adjacent to the question. If the seller responds “no” or “no representation”, then the remaining questions need not be answered. However, if the seller responds “yes”, then the remaining questions, 22 through 25, must be completed.

Question 22 asks for the name of the governing owners’ association, the amount of dues or assessments and the period of time covered by each payment, and the contact information for the president of the owners’ association or the association manager. The seller may respond with “N/A” to any of the information requested by question 22 that does not apply to the property.

Question 23 is framed as a declaration that, as of the date the disclosure statement is signed, there are no dues, fees, or special assessments that have been approved as required by the applicable declaration or bylaws and are payable to the owners’ association to which the lot is subject except for those identified by the seller in the space provided. The seller should list any duly approved dues, fees, or assessments that remain payable to the governing association, and should include any fees charged by the association or management company in connection with the transfer of title to the new owner.

Question 24, also framed as a declaration, states that, as of the date the disclosure statement is signed, there are no unsatisfied judgments against or pending lawsuits involving either the property or lot to be conveyed or the planned community or association to which the property and lot are subject, except those identified by the seller in the space provided. The disclosure is not intended to include any action filed by the association for the collection of delinquent assessments on lots other than the lot for sale.

The last question, number 25, addresses the disclosure of any services and amenities that are paid out of the association’s regular assessments or dues and includes a list of typical services and amenities. Additional space is provided in which the seller can disclose any other services or amenities not addressed in the list paid for by association dues, or provide any additional information or explanation necessary to a full and complete disclosure.

Once completed, the disclosure form should be signed and initialed in the appropriate places and made available to all prospective purchasers.

A good broker will assist his or her owner-clients with obtaining the information necessary to complete the owners’ association disclosures. In some instances, owners’ associations and association managers will be restricted in how and to whom they furnish certain information. In order to avoid unnecessary delay in obtaining the information needed to complete the disclosure form, brokers should be aware of the association’s policies and procedures prior to requesting information needed for the disclosure statement.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Law, Commission Rules Book Available

An updated and expanded edition of the North Carolina Real Estate License Law and Commission Rules booklet is being published.

The printed booklet contains the Real Estate License Law, Commission Rules, Trust Account Guidelines, and the Commentary on the Law and Rules (a study guide for the licensing test) and is a convenient portable reference source.

Each of the booklet’s four sections is also published as an individual PDF file on the Law/Rules page of the Commission’s Web site, www.ncrec.gov.

The Law section has been expanded with the inclusion of Article 3 of the Real Estate License Law covering Private Real Estate Schools. Articles 1 (Real Estate Brokers), 2 (Real Estate Recovery Fund), and 4 (Time Shares) are already included.

The Rules section with Subchapters 58A (Real Estate Brokers) and 58B (Time Shares) has been expanded to include Subchapters 58C (Real Estate Prelicensing Education), 58E (Real Estate Continuing Education) and 58G (Real Estate Commission Administration).

The booklet may be ordered at $3 per copy using the publications order form in this issue of the Bulletin or the online or mail-in order forms on the Publications page of the Commission’s Web site.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Changes to Rules Effective January 1

Following is a summary of Real Estate Commission rule changes which became effective January 1, 2012.

General Brokerage

Trust Accounting

• Clarifies that a broker may hold and transmit a check for a due-diligence fee in the same manner as an option fee.
• Clarifies that properly documented electronic deposits into and disbursements from a broker’s trust account are permissible.

Residential Property Disclosure Form

• Provides for a revised residential property disclosure form containing new disclosures required for properties governed by owners’ associations and more specific instructions concerning the type of residential properties for which the form is required. (See related story page 4-5.)

Examination and Licensing

• Requires license applicants to pass an examination consisting of a national section and a North Carolina section and provides modified procedures for scheduling and taking the two-part examination.
• Eliminates examination review by failing applicants.
• Provides new procedures for licensing persons licensed in another jurisdiction after licensing by reciprocity is discontinued effective February 29, 2012.

Postlicensing Education

• Provides that when a provisional broker fails to complete required post-licensing education within three years of initial licensure, the broker’s license will be placed on inactive status rather than canceled.
• Provides educational requirements that a provisional broker whose license is on inactive status for failing to timely complete required post-licensing education must meet to reactivate his or her license.
• Clarifies the Commission’s authority to extend the time for completing post-licensing courses by reason of hardship.

Schools and Instructors

• Prohibits real estate schools and sponsors from using a van or other motor vehicle as a classroom and requires that classroom facilities comply with health, safety, and welfare requirements and are equipped for electronic visual presentations.
• Provides that an individual applying for approval as a prelicensing and postlicensing instructor may be granted only one six-month grace period to attend the Commission’s New Instructor Seminar and satisfactorily demonstrate his or her teaching skills on a video recording.
• Prescribes requirements for reinstatement of an expired instructor approval to teach the Real Estate Update continuing education course.

Please see the Commission’s Web site for the actual language of each rule.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Thomas R. Miller to Retire

Licensing Reciprocity Ends February 29; Replaced with New Exam Requirements

Current reciprocal licensing arrangements between North Carolina and all other states with which such arrangements are currently in place will end February 29, 2012. Those reciprocal states are:  Arkansas, Connecticut, Georgia, Iowa, Louisiana, Mississippi, Nebraska, South Carolina, Tennessee and West Virginia.

The current approach to reciprocal licensing arrangements allows resident licensees of one reciprocal state to obtain a license in another reciprocal state without taking any prelicensing education or license examination. Thus, applicants for a North Carolina license by reciprocity currently do not have to demonstrate any knowledge of North Carolina real estate laws and practices. Also, applicants for a North Carolina license by reciprocity presently must be a resident of the reciprocal state or must not have resided in North Carolina for more than 90 days before applying for a reciprocal license.

New Approach

Beginning March 1, 2012, any person applying for a license in North Carolina based on current licensure in another state, U.S. territory or possession or a Canadian province, regardless of their place of residency, will not have to take the North Carolina prelicensing course or the “National” section of the North Carolina license examination; however, all such applicants will have to pass the “State” section of the North Carolina license examination.

This new approach might be described as a “limited license recognition” approach – it recognizes completion of prelicensing education and passing the “National” section of a license examination in another jurisdiction, but does not fully exempt the entire North Carolina license examination requirement. By requiring the applicant to pass the “State” section of the North Carolina license examination, the new approach provides some assurance that the applicant has a basic knowledge of North Carolina real estate laws and practices.

Additionally, rather than North Carolina having full license reciprocity with only a small number of states, (currently 10), the new approach allows licensees of any other state, U.S. territory or possession or Canadian province to obtain a North Carolina license by passing only the “State” section of the license examination. Moreover, the place of residence of the applicant is not an issue under this approach.

Like the licensing agencies of several other states that have moved from a reciprocity approach in recent years to the “limited license recognition” approach described above, the Commission determined that this approach would better protect the interests of North Carolina consumers.  Consequently, the Commission obtained from the 2011 General Assembly the authority to adopt a new system of licensing persons based on their licensure in another jurisdiction and adopted rules to implement the system described in this article. Additionally, the Commission decided to change its license examination from a one-part  examination to a two-part examination, also effective March 1, 2012, in part to facilitate this change in licensing standards for applicants licensed in other jurisdictions. [See the article on “License Examination Changes” on page 1 of this Bulletin.]

Effect on Current Reciprocal Licensees

North Carolina licensees who obtained their licenses by reciprocity may retain those licenses indefinitely by keeping the North Carolina license current (i.e., properly renewed each year) and meeting the continuing education requirement (waived if the licensee maintains an active license in the reciprocal state). However, if such a licensee allows his/her license to expire for more than six months or the license is suspended, revoked or surrendered, the former reciprocal licensee must satisfy the new requirements in order to reinstate such license.

*NOTE: The South Carolina Real Estate Commission has advised that, beginning March 1, 2012, if will require North Carolina licensees to take the appropriate South Carolina “state” license examination section.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Commission Implements Major Changes To Real Estate Licensing Examination

The North Carolina Real Estate Commission is implementing major changes to the real estate license examination program on March 1, 2012. To understand these changes, however, one must first recall how the current examination program works.

The license examination that applicants must pass to initially obtain a real estate broker license (on provisional status) has consisted for many years of a one-part comprehensive examination with 110 scored questions and a 75% passing score. This one-part examination approach has been followed by the Commission since it assumed full responsibility in 1984 for developing and maintaining its own examination “in-house.”  Initially the Commission also actually administered the examination, but since 2000, the examination has been administered for the Commission on computer by PSI Examination Services, Inc.  Also since 2000, North Carolina has had a single entry-level license examination, with no separate examination for an advanced-level broker license status. North Carolina’s approach contrasts with the system followed by a majority of states whereby the state licensing agency contracts with a testing company to provide a two-part examination consisting of a “national” section on general real estate laws, principles and practices and a “state” section on state-specific laws and practices.

While the Commission has been quite satisfied with its “in-house” examination, the Commission determined that the current high quality and standards of the examination program could best be maintained by enlisting the assistance of a testing company to do more than just administer the examination. Moreover, the Commission determined that the two-part examination approach followed by most other states would have the additional benefit of enabling the Commission to require persons applying based on licensure in another jurisdiction to pass the “State” section of the license examination, thereby providing some assurance that such applicants possess a good basic knowledge of North Carolina real estate laws and practices.

Consequently, the Commission went through a procurement process in 2011 to select a testing company to assist in developing and administering a two-part examination program. Following a thorough selection process, the Commission contracted with Applied Measurement Professionals, Inc. (AMP) of Lenexa, KS to handle its examination program.

The “New” Examination

Beginning March 1, 2012, the license examination will be a two-part examination consisting of (1) a “national” section of 100 scored questions on general real estate laws, principles and practices and (2) a “state” section of 40 scored questions on primarily North Carolina laws and practices. The “national” section is AMP’s national salesperson (entry-level) examination administered in 11 other states, while the “state” section is developed by and will be maintained entirely by the Commission. The passing score for each section is 75%. Most applicants must pass both sections of the examination; however, persons applying based on licensure in another jurisdiction will be required to pass only the “state” section of the examination. [See article on “License Reciprocity Changes” on page 1 of this Bulletin.]

Approved schools and instructors have been aware of the impending changes for several months and the Commission is working closely with them to assure they have the information necessary to properly prepare their students for the new examination.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Update, BICAR Topics Available Online

Selected topics from the Commission’s Update and Broker-in-Charge Annual Review Courses from 2005-2006 to 2010-2011 are now available online.  More content will be added in the future.

Organized by topic, the content can be reviewed on the new Update Course/BICAR Web page under the “Bulletins/Publications” link. To search for specific information within the topics, use Google on the Web site Search page.

The text is the same as that provided in the courses and, in digital form, provides a fast, convenient reference source.

This article came from the October 2011-Vol42-2 edition of the bulletin.