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Weekly Q&As

Agents' duty to discover and disclose facts about highways that are proposed but not yet planned?

Release Date: 6/2/2015

QUESTION:   I live in Raleigh and represent both buyers and sellers. Over the past few years, there has been some publicity surrounding what is known as the "Southeast Extension". This proposed road construction project would extend the Triangle Expressway and complete what is known as the "540 Outer Loop" around the greater Raleigh area. At this point, the route for the Southeast Extension has not been selected. It is anticipated that one of several proposed routes will be selected by the NCDOT in the fall of 2015. What are my obligations as either a listing agent or a selling agent with regard to disclosing the potential impact of a roadway that is proposed but may never be built?

ANSWER:  North Carolina’s license law obligates licensed agents to disclose material facts about a property. In some cases, however, it is not easy to determine whether a fact is sufficiently “material” to require disclosure. The North Carolina Real Estate Commission has identified three categories of facts that must be disclosed if the agent has knowledge of those facts OR if the agent should reasonably be aware of those facts. One category includes facts that "relate directly to the property." Typically, that category refers to external factors that affect the use, desirability or value of a property.

One example of such an external factor that is identified n the Real Estate Commission’s Real Estate Manual is a plan to widen an adjacent street. An article published in the Real Estate Bulletin in May 2014 cited a plan by the NCDOT to construct or widen a roadway that has been publicized on the NCDOT's website, in local newspapers or on local TV as an example of "common knowledge" that all agents are expected to know about and disclose. In 2013, one agent was disciplined by the Real Estate Commission for failing to discover and disclose that the NCDOT planned to build a freeway adjacent to the property she had listed for sale. But what if a road construction project is not yet planned but is merely a possibility that is still under consideration?

To answer this question, agents must ask themselves whether a proposed road project sufficiently affects the use, desirability or value of the property in question. A reasonableness standard should be applied. Ask yourself whether the publicly available information concerning the project would affect a reasonable prospective buyer’s decision to buy the property. In the situation you have described, the proximity of the proposed roadway to the subject property will be a crucial factor. If the proposed road would be close enough to the property that road noise will likely be heard at the property, disclosure is almost certainly required. Similarly, if the proposed roadway will affect the volume of traffic adjacent or close to the property, the status of the proposed project should be disclosed. Increased noise and traffic are both matters that almost certainly would affect the normal use and enjoyment, and therefore the value of, the property.

As with all disclosure issues, when in doubt, always disclose. Once a proposed road construction project is disclosed, it is up to the buyer to conduct whatever investigation he or she feels is appropriate. Paragraph 4(b)(vi) of the Offer to Purchase and Contract (Standard Form 2-T) specifically includes "planned or proposed road construction" in the list of investigations that should be conducted during the Due Diligence Period. 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Can I exclude another agent from showing my listing?

Release Date: 5/26/2015

QUESTION: I have a seller client who says she had a “very bad experience” with another local REALTOR® a few years ago, and she insists that this agent not be allowed to show the property.  The agent has her own one-person firm and participates in our association’s MLS.  Can I prohibit the other agent from showing the property, and if so, how? 

ANSWER: Yes, you can. Although Article 3 of the Code of Ethics obligates REALTORS® to cooperate with other brokers, there is an exception when such cooperation is “not in the client’s best interest.”  If the client instructs you not to cooperate with another broker, following that instruction would not violate the Code of Ethics, assuming that the instruction does not constitute some form of illegal discrimination.

But that’s not the end of the analysis.  The obligation to “cooperate” as used in Article 3 of the Code does not include the obligation to share commissions. Compensation issues are addressed by your MLS rules.  A broker filing a listing with MLS is making a blanket offer of compensation to all other MLS participants, which would include the broker in question.  However, the MLS rules do allow the listing broker to offer compensation to another participant other than the compensation indicated on the listing published by the MLS, provided the listing broker informs the other broker, in writing, in advance of submitting an offer to purchase, and provided that the modification in the specified compensation is not the result of any agreement among all or any other participants in the service. Thus, you should notify the broker in writing that per the seller’s request, she will not be permitted to show the property and that you are not offering to compensate her or her firm in any amount in connection with the sale of the property.  

If your MLS has a centralized the showing service, you may include in the instructions to the showing service that the seller requests the agent in question not be allowed to show the property.  Also, it would probably be wise to put the property on a “confirmed appointment” only status so that the seller must confirm or deny any showings.

Although it’s permitted, excluding other agents from participating in the sale of a property should be done rarely and only at a seller’s request.  It should never be done to further some personal agenda a broker may have with another agent or firm.

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Is the cost of a home warranty a buyer expense that seller is obligated to pay?

Release Date: 5/19/2015

QUESTION:   Recently, two agents in our office expressed different opinions about whether a buyer could include the cost of a home warranty in the buyer's expenses that the seller agreed to pay at settlement. In the transaction in question, the parties agreed (by checking the appropriate box in paragraph 10 of the Offer to Purchase and Contract) that no home warranty would be provided by the seller. In paragraph 8 (h) of the contract, the parties agreed that the seller would pay at Settlement $3,000 toward any of buyer's expenses associated with the purchase of the property. In a situation like this, can the buyer purchase a home warranty and include the cost of that warranty in the expenses to be paid by the seller at Settlement?

ANSWER:  Yes. The fact that the parties agreed, in paragraph 10 of the contract, that the seller would not purchase a home warranty does not affect the ability of the buyer to include the cost of a home warranty in the list of expenses that the seller must pay at Settlement.

Paragraph 8 (h) of the standard purchase contract (Form 2-T) expressly states that Seller will pay the agreed-upon amount (possibly zero) "toward any of Buyer's expenses associated with the purchase of the Property... less any portion disapproved by Buyer's lender." What are expenses "associated with" the purchase of the Property? Several examples are listed in paragraph 8 (h). While the examples do not include the premium for a home warranty, that premium is well within the definition of an expense that is "associated with" the buyer's purchase.

Paragraph 10 of the standard contract requires the parties to reach an agreement regarding the purchase of a home warranty. Whatever agreement is reached in paragraph 10 is wholly independent of any agreement by the seller to pay some portion of the buyer's expenses. Paragraph 10 has three check boxes reflecting three distinct  options. The option selected in your example states that the seller will not purchase a home warranty and provide it to the buyer. That selection does not relieve the seller from his agreement, in paragraph 8 (h), to reimburse the buyer for the cost of a home warranty purchased by the buyer.  

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Can a lender pay for the costs of an open house?

Release Date: 5/12/2015

QUESTION:  A lender I regularly refer clients to has offered to pay for the cost of an open house luncheon I plan to hold for other agents.  Is there any problem with this?

ANSWER:  Yes, potentially.  The Real Estate Settlement Procedures Act (“RESPA”) prohibits settlement service providers from giving anything of value in exchange for referrals of business.  A settlement service includes any service provided in connection with a real estate settlement, and a lender is clearly a settlement service provider.  By defraying the costs of the luncheon that you would otherwise incur, the lender has arguably given you a thing of value in consideration for the referral of business. Both the lender and you could be held responsible for a RESPA violation.

If, however, the lender attends the open house and gives a brief presentation, or prominently displays a sign indicating the lender’s name and distributes brochures about the lender during the open house, there is a reasonable argument that this activity is an acceptable form of advertising rather than a payment to you for the referral of business.

This and other RESPA-related issues are addressed in a “RESPA FAQ” on the NAR website, accessible by clicking here, and in a “FAQs about RESPA” on HUD’s website, accessible by clicking here.

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

How does my client assign his rights under a purchase contract?

Release Date: 5/5/2015

QUESTION:   I have a client who is under contract to purchase some residential property. He wants to assign his rights  under that contract to a family member. Can he do that? If so, is there a standard form that should be used to effect that assignment?

ANSWER:   Under North Carolina law, contracts are considered "freely assignable" unless the assignment is prohibited by statute or by public policy or by the terms of the contract. One example of a public policy against assignments are contracts involving an element of personal skill. If a venue hires a musician to perform a concert, the musician cannot freely assign that contract to another musician to perform in his or her place. In contrast, there is no statute or public policy that limits or restricts the assignment of a contract to buy and sell residential real estate.

However, the inquiry does not end there. The standard Offer to Purchase and Contract (Standard Form 2-T) has a paragraph directly addressing the issue of Assignments. Paragraph 16 states that the contract may not be assigned without the written consent of all parties (except in connection with a tax-deferred exchange). North Carolina courts have held that provisions like this one (i.e. that forbid assignment of the contract without the consent of the other party) are valid and enforceable.

Assuming that the seller in your transaction gives written consent to the assignment, the next step is to make sure that the assignment is prepared in proper form. NC REALTORS® has not adopted a standard assignment form because the issues involved in every assignment are complex. Perhaps most important, the parties must agree on whether the assigning party (called the assignor) will remain liable under the contract if the person to whom the contract is assigned (called the assignee) fails to perform. Unless the assignment agreement provides otherwise, the assigning party will remain liable for the performance. To be sure that the issues of liability are properly addressed, you should advise your client to speak with an attorney who can explain the issues involved and draft the appropriate document.

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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.