The Regulatory Affairs Division of the Commission sees many of the same compliance issues while investigating complaints or conducting audits. The following list of compliance issues (and the Rule to which they relate) are common to most types of brokerage, but appear to be a particular concern for commercial brokers.
The Working with Real Estate Agents disclosure [Rule A.0104(c)]. Commercial agents can be sporadic with their use of this required disclosure; here are the basics:
Written agency agreement [Rule A.0104(a)]. The need for a written agency agreement is overlooked more often in commercial brokerage. The minimum requirements to adhere to:
○ Provide for its existence for a definite period of time,
○ Include the agent’s license number,
○ Include the nondiscrimination language prescribed in Rule A.0104(b).
Timely disclosure of representation [Rule A.0104(d-j)]. Most brokers are careful to inform the parties to a transaction who the broker represents, but commercial brokers often neglect to put this in writing. Always remember to:
Timely disclosure of material facts [N.C.G.S §93A-6(1)]. Commercial brokers tend to see the discovery of material facts to be the job of the buyer/tenant and/or their agent. However, all brokers have a duty to make objective inquiries to discover material facts, and to verify information provided by the broker’s client when it is reasonable to do so. Some of the basics to remember regarding disclosure of material facts:
Disclosure of compensation to the agent’s principal [Rule A.0109(c)(d)]. There is generally no duty for a broker to disclose his or her compensation to a party whom the broker does not represent. However, the total compensation a broker (or the firm) expects or receives is a material fact to that broker’s client. Remember the following:
Deposit of trust money into a trust account (Rule A.0116(a)(b)). Commercial brokers acting as couriers of rent or other trust monies is a common issue.With the exception of option and due diligence fees, brokers are required to deposit all funds received in their fiduciary capacity into a trust account. The timing of such deposits are as follows:
Representing a buyer in the purchase of property in which the broker has ownership interest [Rule A.0104(o)]. This has always been a conflict of interest, but now it is specifically prohibited by rule as of July 1, 2014. Another broker with the firm may represent the buyer so long as that broker does not have an ownership interest and the buyer consents after full disclosure.
Broker purchasing his/her own listing [Rule A.0104(p)]. Another potential conflict of interest is specifically addressed by a new rule. A broker must disclose the inherent conflict of interest in writing to the seller and suggest the seller seek independent counsel. Prior to entering into an agreement to purchase, the broker must terminate the listing agreement or transfer to another broker affiliated with the firm who will not have an interest in the purchase.
Co-brokering with out-of-state brokers [Rule A.0109(g), A.1810]. Commercial brokers frequently work with out-of-state brokers representing buyers or tenants in N.C. transactions. N.C. brokers may pay a commission or fee to brokers licensed in other states so long as the foreign broker does not enter N.C. Foreign brokers practicing commercial real estate have two options for licensure in N.C.:
Record retention [Rule A.0108]. The Commission tends to see inconsistent record retention among commercial brokers with greater frequency. Rule A.0108 lists many of the documents that must be retained, but it is not exclusive. Brokers should retain all documents related to both failed and successful real estate transactions including offers, contracts, disclosure documents, agency and commission agreements and correspondence such as emails or texts. Remember the following:
The foregoing is only a basic treatment of these topics. If you have questions or concerns regarding compliance issues or wish to discuss a particular scenario with someone in the Regulatory Affairs Division, call the Commission at 919-875-3700 and ask to speak to an Information Officer or email us at email@example.com.
This article came from the February 2015-Vol45-3 edition of the bulletin.