Top Ten Issues for Commercial Real Estate Brokers

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:

  • The rule requires brokers to provide and review the disclosure “at first substantial contact” with prospective buyers or sellers and to disclose or determine who the broker represents or could represent in the transaction.
  • Brokers are not required to review the disclosure with parties who are already represented by a broker, but must disclose in writing whom they represent.
  • The disclosure is also not required in lease transactions, but the North Carolina Association of REALTORS® publishes a Working with Real Estate Agents disclosure for lease transactions and its use is encouraged.

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:

  • There is no “transactional brokerage” in N.C.; brokers either represent the buyer/tenant, the seller/landlord, or both, pursuant to a written agency agreement.
  • When representing the buyer or tenant, the agency agreement must be in writing prior to making or receiving an offer to buy or lease.
  • When representing the seller or landlord, the agency agreement must be in writing prior to offering the property for sale/lease.
  • The minimum requirements for an agency agreement are that it must:

○   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:

  • Disclose in writing to an unrepresented buyer/tenant that the broker represents the seller/landlord at first substantial contact. The Working With Real Estate Agents brochure is written to do this – use it.
  • Disclose at first contact with a seller/landlord that the broker represents the buyer/ tenant, and do so in writing no later than with the submission of an offer.
  • Get authorization from each party to practice dual agency in the agency agreement, and disclose the practice of dual agency in the same manner that you disclose representation to the seller and buyer above.

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:

  • “Timely disclosure” is in time for a party or prospective party to a real estate transaction to make an informed decision to buy, sell or lease or to continue with a transaction.
  • Generally, a party’s motivations are not material, but facts relevant to the property or a party’s ability to buy, sell or lease are material.

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:

  • Disclose to your client any offered/expected compensation, incentive or bonus in writing prior to your client making a decision to buy or sell.
  • However, a broker is not required to disclose to anyone the broker’s expected split of compensation with the broker’s firm.

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:

  • Earnest money or security deposits received in a form other than cash in conjunction with a pending offer to purchase or lease shall be deposited in a trust account no later than three days following contract acceptance.
  • A broker may accept custody of a check made payable to the seller for an option or due diligence fee and deliver it to the seller according to the instructions of the buyer.

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.:

  • Limited Nonresident Commercial License: Available to active, licensed brokers from other states by application; only for commercial brokerage.
  • Nonresident License: Available to active, licensed brokers from other states by application and passing the “state” portion of the licensing exam; full brokerage privileges.

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:

  • Records should be maintained for three years from the later of the closing of the transaction or the end of the agency relationship;
  • Electronic records are sufficient so long as they are complete, are properly protected and can be made available without prior notice.
  • Records help prove your side of the story.

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

This article came from the February 2015-Vol45-3 edition of the bulletin.