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:
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:
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.