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New Q&A Brochure Residential Subdivisions and Planned Communities

The new Questions and Answers on: Residential Subdivisions and Planned Communities brochure will educate consumers in both the new development and re-sale markets. It is the 10th Q&A brochure in the series including three in Spanish.

A companion brochure to Questions & Answers on: Condos and Townhouses, it includes information on road maintenance issues and how North Carolina’s Planned Community Act applies to residential developments.

The brochure is free and may be ordered using the Publications Order Form on page 7 of this issue of the Bulletin.

This article came from the February 2002-Vol32-4 edition of the bulletin.

NC Licensees Can Pass On Exams in 13 States

The North Carolina Real Estate Commission currently has arrangements with the following states enabling North Carolina brokers and salespersons to obtain nonresident licenses there without taking their licensing examination:

Alabama, Arkansas, Connecticut, Georgia, Indiana, Iowa, Kentucky, Mississippi, Nebraska, Oklahoma, South Carolina, Tennessee, West Virginia.

This article came from the February 2002-Vol32-4 edition of the bulletin.

Former Commission Member John W. Olive

The Real Estate Commission also regrets to announce the passing of former member and Chairman John W. Olive (Wilmington) who served with distinction on the Commission from 1969 to 1973.

This article came from the February 2002-Vol32-4 edition of the bulletin.

Is Your Business Worth More Than Zero?

B. M. Brogden, Jr., Chief Deputy Legal Counsel

I went to lunch one day and ended up in a slow line at my favorite fast food outlet. The fellow next to me in that line was a respected licensee with a similar taste in traditional southern cuisine. We fell to “talking shop,” including the various methods for valuing an ongoing real estate brokerage business. At the end of a complex discussion of ratios and formulas, he explained, “Now if the trust account is short, the value of the business is either zero or a negative number.”

OK. Simple. According to at least one licensee, if your trust account is short, no matter how many clients, contracts and other assets you have, your business is worthless. Does that mean that if the bank statement shows money in the trust account, you can just stop there? No!

Enough Money
Why? Just because you have what seems like enough money in the trust account doesn’t mean you are in compliance. Consider the following example:

Firm A does not correctly utilize an owner ledger system that balances to a journal, or perform the monthly reconciliation required by Commission rule. It is only when the Commission trust account auditor comes around for a visit that the BIC finds out that the firm routinely pays out earnest money from the trust account for closings when it is not actually holding that money because the deposit went to a builder. One would expect this to show up pretty soon with bounced checks, so the BIC at first can’t believe this.

However, because the BIC also was not closely reviewing the trust account records, he also had not figured out that in other transactions, where the closing attorney had credited the earnest money held by the firm in the trust account against the total amount of commission due at closing, Firm A had never taken those funds out of the trust account after closing. So, by unlawful commingling (which kept money belonging to the firm in the trust account instead of being transferred to its operating account, reducing the actual amount of the firm income it could spend), the BIC managed to keep himself from finding out that trust money was being misapplied!

I don’t have to make this example up — it happens all too often. Done intentionally, this kind of misconduct can be used by crooks to hide trust account embezzlement for awhile. Done unintentionally, the BIC disguises the value of the firm with a pretense of solvency. Either way, the licenses of the firm and its BIC are at risk, as is the money of the firm’s clients and customers.

The heart of the problem is that all too often, the BIC views the trust account record keeping as a burden or a homework assignment in a foreign language. Yet, how can the BIC know if the business itself is healthy and profitable if he or she really does not understand what the trust account is doing on a regular basis? Brokers-in-Charge have a responsibility to understand their office bookkeeping systems and to know what’s going on.

Ledger System

The key is that the BIC must understand how a ledger system is created, how the ledger system relates to the journal, and that simply balancing the bank statement to the journal is only the first step in the monthly reconciliation. The total of all the pending or open ledger balances should equal the reconciled bank balance which should equal the running balance on the journal. If to reach this balance, the firm must include negative balances on owner ledgers, there is a serious problem. No owner ledgers should ever have a negative balance.

If you are the BIC or bookkeeper and if the concepts described above don’t make sense to you, it’s time to take the trust account course and other educational programs to get yourself up to speed. Otherwise, you may wind up asking yourself, “Why isn’t my business worth more than zero?”

This article came from the February 2002-Vol32-4 edition of the bulletin.

Frye, Phillippi Receive Commission Scholarships

Greta S. Frye of RE/MAX Hallmark Realty in Winston-Salem and Cathy A. Phillippi of Dickens-Mitchener and Associates in Charlotte are the recipients of the Commission’s Joe Schweidler and Blanton Little Memorial Scholarships for 2001.

The Commission awards the scholarships, in honor of Schweidler and Little, both former Commission Executive Directors, to persons selected by the North Carolina Real Estate Educational Foundation for outstanding scholastic achievement in the North Carolina REALTORS® Institute program during the previous calendar year.

This article came from the February 2002-Vol32-4 edition of the bulletin.

Commission Assists Egyptian Real Estate Association

The Real Estate Association of Egypt (REA) has requested the North Carolina Real Estate Commission to provide technical assistance in helping it modernize the real estate industry in Egypt that, the Association proudly proclaims, has “survived seven millenniums”. The Commission has agreed to assist REA by preparing for its use a document identifying the major components of a real estate licensing and regulatory program based upon the North Carolina model and licensing programs in other states.

According to Association General Secretary Fathallah Fawzi and REA founding member Dr. Ahmed El-Sharkawy, “Current market conditions and the increasing sophistication of the market players (buyers and sellers) demand initiating a more formal, transparent and sophisticated framework to better regulate the real estate market in Egypt. REA believes that a framework will create the right environment to foster continuous improvement in the real estate market, which constitutes a considerable part of Egypt’s economy.” They add that the “proposed document identifying the major components of the licensing program shall be the foundation on which REA will work towards defining the blueprints of the REA licensing program.”

Hesham El-Boulaki, MCE, PE, who is both a native of Egypt and a North Carolina resident, will on behalf of REA, liaise with Commission Executive Director Fisher, Director of Education and Licensing Larry Outlaw and Legal Counsel Thomas R. Miller in developing the document and furthering the working relationships between REA and Real Estate Commission.

This article came from the February 2002-Vol32-4 edition of the bulletin.

Do Not Act Without Authorization!

Agency agreements authorize a real estate firm and its associates to act on behalf of their clients — to market a seller-client’s property, to search for and assist a buyer-client with purchasing a suitable property or to manage an owner’s rental property. All agency agreements authorize agents to perform certain duties, but they do not give the agents unlimited authority to act on behalf of clients or to make decisions for their clients or customers. The following is a partial list of services for which agents must obtain authorization.

1 A listing agent may not advertise a seller’s property or perform any service on behalf of a seller-client without first entering into a written listing agreement with the seller.

2 A listing agent should not advertise a seller’s property at any price other than the price selected by the seller.

3 A listing agent must not decide on his or her own whether an offer is acceptable. The agent must deliver the offer to the seller to enable the seller to decide whether the offer is acceptable. [Note: Even when an offer is negotiated via telephone, the listing agent must send or deliver any written offer to the seller for review.]

4 A listing agent or buyer agent should refrain from giving a buyer or prospective buyer keys or possession of a seller’s property without first obtaining the seller’s express permission. If a closing occurs so late on a Friday afternoon that the new deed will not be recorded until the following Monday or later, then the agents must obtain the seller’s permission before giving keys to the buyer and should recommend that the parties enter into a written agreement to permit the buyer’s possession before closing. (Remember, the standard form Offer to Purchase and Contract defines “closing” as the date and time the deed is recorded.)

5 A listing agent or buyer agent should avoid signing closing statements or other documents on behalf of a client without first obtaining written authority, preferably in the form of a power of attorney. Agents should avoid signing anything for customers.

6 A listing agent or buyer agent should not contract for services (e.g. repair services, inspections, closing attorneys, surveys, termite treatments, etc.) on behalf of a client or customer without first obtaining authorization from the client or customer. Otherwise, the agent may be held responsible for paying for the services rendered.

7 A listing agent or buyer agent should refrain from advising clients and customers that a contract has been formed or that they have a “done deal” until all parties have signed the offer, initialed all changes made to it and communicated to all parties that the offer has been signed and initialed by all parties. Until then, agents must refrain from using the term, “verbal contract,” as it falsely implies that a valid, binding agreement has been formed.

8 A property manager must refrain from entering into a lease containing terms not authorized by the owner including the lease rate and lease term.

9 A property manager may not permit a tenant to use a property for any purpose other than that which is authorized by the owner, by restrictive covenants and by zoning restrictions.

10 A property manager may not permit a tenant to have pets or to exceed the occupancy limit set by the owner without first obtaining the owner’s permission.

Real estate agents must act in the best interests of their clients at all times and should avoid taking any action for which they have not received express authority from their clients and customers. A real estate agent’s duty is to communicate information to the parties involved so that they can make informed decisions rather than the agent making them alone. Complaints received by the Commission alleging any of the ten items listed above may result in disciplinary action. Therefore, to protect your license, obtain authorization before acting on behalf of someone else.

This article came from the February 2002-Vol32-4 edition of the bulletin.

Commission Initiates Commercial Broker Education Proposals

The Real Estate Commission has accepted and begun to implement the recommendations of an advisory committee to work with interested education sponsors to improve educational opportunities in the field of commercial real estate brokerage and to enhance licensees’ awareness of the need for greater education in this and other specialty areas of practice.

Specific Proposals

The Commission’s Commercial Brokerage Education Advisory Committee (CBEAC) recently reviewed commercial brokerage educational opportunities and specifically proposed that the Commission:

Formed in 2001

The CBEAC was formed in 2001 to assist the Commission in developing a plan for a commercial brokerage education certificate program designed to make available basic instruction to licensees, especially those with occasional commercial transactions.

The development and operation by the Commission of such a program had been recommended by the Commission’s Specialty Licensing Advisory Committee that studied the issue of possible separate licensure or certification of commercial brokerage and property management practitioners. The Commission agreed with the committee’s recommendation After considerable deliberation, the CBEAC recommended that the Commission reconsider its tentative plans to develop and administer a basic commercial brokerage education certificate program.

Primary Concern

Several factors contributed to the CBEAC’s conclusion. A primary concern was that issuance of a program certificate by the Commission would imply to licensees and consumers that certificate holders are especially competent to practice commercial brokerage.

The fact is, however, that the amount of information that could be conveyed in even a high quality introductory-level program of some 30 classroom hours would be completely inadequate to achieve the necessary level of competence. The committee also had other concerns about the likelihood of program participation by the primary target audience, competition with an existing similar program in Charlotte and the high cost of development.

The CBEAC members were Peter T. Chenery, Raleigh, Richard D. Whitney, Asheville, and William C. Maus, Wilmington, Commercial Brokers; Ernest D. Wilkinson III, Atlantic Beach, Dewey L. Brantley, Jr., Wilson, and Roy H. Harvel, Southern Pines, General Practitioners; Cindy S. Chandler, Charlotte, Educator and Commercial Broker; William C. Lackey, Jr., Charlotte, General Practitioner and Commission Member; and Chris Rhodes, Director of Professional Development, NC Association of REALTORS®, Ex Officio Member. Commission staff advisors for the committee were Larry Outlaw, Director of Education and Licensing, and Pamela Rorie, Continuing Education Officer.

The Commission appreciates the contributions of the CBEAC members who willingly devoted their valuable time to assist the Commission in this matter.

This article came from the February 2002-Vol32-4 edition of the bulletin.


Caveats About VA Foreclosures

When the Veterans Administration is forced to foreclose on a real estate loan which it has guaranteed, it typically arranges with a local real estate broker to act as its “property manager” to get the property ready to re-sell. It then posts the property on its website for any licensed real estate broker to sell.

Selling VA-foreclosure properties can be rewarding, but agents should be aware that:

The VA will not list its property with any individual agent or company. Therefore,

You cannot give a “broker price opinion” (BPO) on the property, even if you are the “property manager.” Real estate brokers and salespersons can perform BPO’s only if they expect to obtain a listing on the property (which they cannot) or if they are licensed appraisers.

You cannot act as a seller’s agent or subagent. To act as agent for the seller, you must have a signed listing agreement (which you cannot have). You can only act as a buyer’s agent. And, if you act as both the buyer’s agent and the VA’s “property manager”, you should disclose to the VA and the buyer what your relationship is to each of them.

You must not imply in your advertisements that the VA foreclosure property is listed with your firm or that you have the exclusive right to market it. By including “this is not a company listing” or “inventory available on VA website” in your advertising, you can dispel this impression.

The VA sells its property “as is” and does not require an attorney to close the transaction. Therefore,

You should encourage your buyer-client to have the property inspected by a licensed home inspector, get a pest inspection, a survey, etc., and to retain an attorney to protect the buyer’s legal interests. [Document in your files that you made these recommendations to the buyer.]

This article came from the February 2002-Vol32-4 edition of the bulletin.

Bulletin Changes

Changes have been made in the Bulletin beginning with this issue:

This article came from the February 2002-Vol32-4 edition of the bulletin.