Regulatory Affairs Case Study: Get Answers First

By Sheryl B. Graham, Consumer Protection Officer

An unsuccessful buyer who submitted an offer to purchase a beach-front property through his buyer agent filed a complaint with the Commission against the listing agent. 

Before showing the property, the buyer agent texted the listing agent asking questions about the property.  She asked if there was any storm damage from a prior hurricane, the location of the set-back lines, and if a structure could be rebuilt on the lot if the current structure was extensively damaged.  The listing agent answered some of the questions via text and stated she was waiting for answers to the remaining questions.  There was no response from the listing agent regarding whether or not the lot would be buildable if the structure were to be heavily damaged.  The listing agent and the buyer agent also spoke by telephone.  The buyer agent recalled the listing agent stating the damage from a prior storm was mostly cosmetic and was being repaired.  The listing agent recalled telling the buyer agent to contact the local Division of Coastal Management, which carries out the state’s Coastal Area Management Act (aka CAMA) requirements, regarding the property setback lines. 

The buyer submitted an offer to purchase without receiving additional answers or verifying information.  After the inspections and survey were completed, the buyer contacted a CAMA representative regarding the setback lines. The buyer learned the lot was “non-conforming”, meaning the structure could not be rebuilt in the existing footprint if it was damaged beyond 50%.  According to the CAMA office, a lot classification can change with the location of the first stable vegetation line in relationship with the ocean.  Changes can occur due to storms, hurricanes, and acts of nature. Therefore setback lines and lot classifications of beach-front properties should be verified with current information.  The standard setback from the oceanfront is a minimum of 60’ from the first stable line of vegetation.  If the house or structure is within 60’, the house is “non-conforming,” meaning that repairs and maintenance can be made to the property of up to 50% of the structure (whether caused by storm, hurricane, flood, etc.).  If the repairs / maintenance are for more than 50% of the structure, that is deemed “development” and must be approved through new construction guidelines and meet the current requirements. A standard survey does not indicate the location of setback lines and should not be relied upon to determine if a lot is non-conforming or not.

The buyer was not interested in continuing with the purchase and although it was past the due diligence (DD) date, the seller released the earnest money deposit, but not the DD fee.  The seller updated the Residential Property Owners Association Disclosure and the listing agent revised the MLS to reflect the information about the non-conforming lot.  The buyer filed a complaint against the listing agent for failure to disclose a material fact.

The North Carolina Real Estate Commission (NCREC) publication Purchasing Coastal Real Estate in North Carolina advises consumers: “…If you are working with a licensed real estate broker, the broker has the duty to disclose material facts that the broker knows or reasonably should know.  Although real estate brokers may not always know erosion rates or setback location for particular oceanfront properties, they should advise you of the possibility of erosion and direct you to available sources of information…”.  It further states:  “…Purchasers should determine if the lot and building presently meet the setback for new construction and [if the lot is] eligible for a replacement building, keeping in mind the risk that erosion may make the lot unbuildable in the future.”

            During investigation of the case, both the buyer agent (a provisional broker) and her broker-in-charge were added as Respondents.  The Commission cautioned the listing agent to discover and disclose material facts and features about properties prior to listing.  The Commission cautioned the buyer agent to discover and disclose material facts about a property prior to assisting a buyer with submitting an offer.  The Commission cautioned the buyer agent’s broker-in-charge regarding supervision of provisional brokers and training to discover and disclose material facts.  In this case, confirming answers to the buyer’s questions prior to submitting an offer would have saved the parties time, money and headaches.  Properties in particular markets, such as oceanfront areas, have features and nuances unique to their location.  Brokers representing clients in these areas should know, disclose and communicate those characteristics.     

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