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Weekly Q&As

Will an earned commission always be due and payable?

Release Date: 02/21/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: The owner of a property I’d like to list has asked me a question about the Exclusive Right to Sell Listing Agreement (form 101) that I need some guidance on.  In the “Firm’s Compensation” paragraph, it says in so many words that the commission is deemed earned if a ready, willing and able buyer makes a full-price offer or if the property goes under contract during the term of the listing agreement.  The owner says my fee shouldn’t be earned until there’s a closing.  He says it wouldn’t be right for him to have to pay a commission if a buyer backed out of a contract, and he thinks the listing agreement needs to be changed.  I don’t think he’d owe me a commission if a buyer backed out, but don’t know how to explain it to him.  Can you help?

ANSWER: You are correct that the seller would not owe a commission if the buyer backs out of a contract, provided that it wasn’t due to a material breach of the contract by the seller.  Let’s take a quick look at the organization of paragraph 7 of the listing agreement to see why this is so.  Paragraph 7(a) sets forth the amount of the commission.  Paragraph 7(b) establishes when the commission is deemed “earned.”  Paragraph 7(c) establishes when an “earned” commission becomes “due and payable.”  There are several events that trigger the “due and payable” provision.  The most common event is when closing on the property takes place, but an earned commission may also become due and payable if the seller refuses to sign a full-price offer or breaches a sales contract or the listing agreement.  However, note that the buyer’s failure to complete a transaction (e.g., buyer’s breach of a contract, the non-fulfillment of a contract condition, buyer’s exercise or a unilateral right to terminate) is NOT an event that causes the commission to become due and payable under paragraph 7(c).  Thus, it can be seen that although a commission may be “earned” under paragraph 7(b) if the property goes under contract, it may never become “due and payable” under paragraph 7(c) if the buyer backs out of the contract through no fault of the seller. 

Hopefully, this explanation will give your prospective client some assurance that the listing agreement does not need to be changed in order to protect him, but if he has any questions about his rights and responsibilities under the listing agreement, he should be advised to seek guidance from his own lawyer.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Do I need a BIC for my new office?

Release Date: 02/14/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: My firm conducts brokerage activities across a large area that includes 3 different counties. I have decided to lease another office space in one of these counties to give my agents a desk and a copier to use when they are away from the firm’s main location. Does this new office space need a BIC if the agent is not going to conduct client meetings or receive trust money there?

ANSWER: We believe the answer is “no.” Unless otherwise exempted, every principal office and branch office must have a broker-in-charge under 21 NCAC 58A .0110(b). This rule defines “office” as “any place of business where acts are performed for which a real estate license is required or where monies received by a broker acting in a fiduciary capacity are handled or records for such trust monies are maintained[.]” This rule further states that a “branch office” is “any office in addition to the principal office of a broker which is operated in connection with the broker's real estate business,” and that a “principal office” is “the office so designated in the Commission’s records by the qualifying broker of a licensed firm or the broker-in-charge of a sole proprietorship.”

The North Carolina Real Estate Commission has said that in determining whether a location is an “office” or a “branch office” under section .0110(a), it will look at the following factors: (1) whether the location’s address is advertised in any manner including business cards or letterhead; (2) whether licensed agents use the location to meet the public and perform any aspect of brokerage services; (3) whether the location is operated on a permanent or indefinite basis with regular hours; (4) whether the location is regularly staffed by agents; (5) whether files, records, trust accounts, or transaction records are kept there; and (6) whether the location is designed and furnished to facilitate brokerage.

Applying at these factors to your new office, we think that it is unlikely that the Commission would consider your new office an “office” or a “branch office” requiring a BIC under 58A .0110(b). As long as your agents are not conducting brokerage activities, receiving trust monies, maintaining trust records, advertising, meeting the public, or keeping files at your new office, then your new office would not need a separate BIC.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Owners' Association Disclosure Form and sales of vacant land

Release Date: 02/07/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: An agent in my firm and I have had a friendly disagreement about whether agents are required to use the Owners' Association and Condominium Resale Statement Addendum (Standard Form 2A12-T) every time we complete contract documents relating to the sale of vacant land. My friend says that, if you read the "Note" at the top of the form, it confirms that the form should be used whenever the Residential Property and Owner's Association Disclosure Statement is not required. My belief is that the form is not required unless the land is in a planned community that is subject to regulation by an owners' association. Which one of us is correct?  

ANSWER:  You are.

The disclosures in Form 2A12-T are very similar to disclosures that were added to the Residential Property and Owners' Association Disclosure Statement (the "RPDS") several years ago. Because of that similarity, and to avoid duplication of effort, a Note was added to Form 2A12-T to confirm that where a RPDS has already been completed, completion of Form 2A12-T is not required.

Since the modification of the RPDS, the purpose of Form 2A12-T is to provide a means for sellers to make disclosures and representations to buyers regarding any owners' associations to which the property is subject, in those circumstances when a RPDS is not required. One of those circumstances is the sale of vacant land; the disclosures mandated by Chapter 47E are only triggered when there is a transfer of "residential real property".

Clearly, not all sales of vacant land involve property that is subject to regulation by an owners' association. Where the land being sold is not subject to such regulation, Form 2A12-T would serve no purpose. In those circumstances, use of the form is not required.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Is a photocopy of a check legal tender?

Release Date: 01/31/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: A broker told me recently that delivery of a photocopy of an Earnest Money Deposit check fulfilled the seller’s obligations under the Offer to Purchase and Contract.  He pointed out that you can now use a smart phone to take a picture of a check and deposit it into your checking account.  He said that a photocopy of a paper check is no different than a photo taken with a phone, so it stands to reason that a bank would have to accept a photocopy too.  That doesn’t sound right to me.  What do you think?

ANSWER: We believe the broker is incorrect.  Although a federal law known as “Check 21” now permits banks to accept images of checks for deposit from other banks and from bank customers, it does not follow that either a depository bank or a bank on which a photocopied check is drawn on would accept or honor a photocopy of a check. In our view, a seller would not be in breach of contract for refusing to accept a photocopy of an EMD check, and could terminate the contract if the buyer refused to deliver immediately available funds following notice from the seller given in accordance with paragraph 1(d) of the Offer to Purchase and Contract (form 2-T).

Check 21 provides that images of checks are legally the same as paper checks, allowing banks to electronically transfer check images instead of physically transferring paper checks.  Check 21 also means that a customer may deposit checks by presenting an image if that service is offered by his or her bank.  In 2009, USAA became the first bank to permit customers to deposit checks with a smart phone.  The customer uses the camera to take a picture of the front and back of the check and then transmits the images along with other verification information to the bank, where final validation occurs. 

Banks still need to use paper checks sometimes.  To address this need, Check 21 allows a bank to create and use “substitute checks,” which are paper reproductions of original paper checks.  A substitute check must meet several very specific requirements and must bear the legend “This is a legal copy of your check.  You can use it the same way you would use the original check.”  A simple photocopy of a check clearly does NOT meet the requirements of a substitute check and cannot be presented or accepted as such. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Prospective Clients and the Working with Real Estate Agents Form

Release Date: 01/24/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: An out-of-state buyer prospect sent me an email asking me to help him move. In the email, the buyer informed me that he is coming to North Carolina for a new job, he wants to buy a fully furnished home, and money isn’t really an issue. He also stated that he wants to spend about $1.5 million on the purchase.

I responded to the buyer with an email explaining that I would love to be his buyer’s agent and showing him a few listings. The “Working with Real Estate Agents” (“WWREA”) form was attached to my response, and I embedded a receipt so I could see when the email was received and read by the buyer. I also offered to review the WWREA form with the buyer at his convenience. Is this delivery of the WWREA form sufficient under the license law?

ANSWER: The short answer is “yes.” Rule A.0104(c) provides: “In every real estate sales transaction, a broker shall, at first substantial contact with a prospective buyer or seller, provide the prospective buyer or seller with a copy of the publication ‘Working with Real Estate Agents,’ set forth the broker’s name and license number thereon, review the publication with the buyer or seller, and determine whether the agent will act as the agent of the buyer or seller in the transaction.” The term “first substantial contact” includes any contact “between a broker and a consumer where the consumer or broker begins to act as though an agency relationship exists and the consumer begins to disclose to the broker personal or confidential information.”

In your facts, you have satisfied the rule by providing a copy of the WWREA form and documenting its delivery at first substantial contact. Even though you have not yet reviewed the form with the buyer, the North Carolina Real Estate Commission has made clear that the Rule A.0104(c) review requirement can be met in this situation – where a prospect has provided unsolicited confidential information – if an agent offers to review the WWREA form. Should you and the buyer later have a conversation, whether by phone or email, be sure to start the conversation by reviewing the WWREA form disclosures before going further.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.