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Weekly Q&As

Is it appropriate to reference Form 770 as an addendum to a purchase contract?

Release Date: 12/06/2016

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

QUESTION:  My firm recently entered into an exclusive buyer agency agreement. In paragraph 4(b), the buyers agreed that our firm's fee would be x% of the purchase price of any property they purchased. The buyers wanted to make an offer on a home where the listing agent offered cooperative compensation that is higher than x%. In an effort to comply with the Real Estate Commission's compensation disclosure rule - 58A .0109(c) - I completed Standard Form 770 (Confirmation of Compensation) and had my buyer-clients sign it. I provided a copy of that form to the listing agent along with the buyers' offer. When the listing agent sent me a fully executed Offer to Purchase and Contract, someone had checked the last box in Paragraph 15 and typed in "Confirmation of Compensation - Form 770" on the blank line next to that box to indicate that the disclosure form was a part of the contract. Was that appropriate?     

 ANSWER:  It was not. While it was completely appropriate for you to use Form 770 to disclose the additional compensation being offered to your firm by the listing agent, neither your disclosure nor the form that confirms that disclosure should be considered part of the contract between the buyer and the seller. Form 770 should not be referenced as an addendum to a purchase contract.

Furthermore, there is a separate Real Estate Commission rule - 58A .0112(b) - that specifically prohibits agents from using a preprinted offer or sales contract form containing "any provision concerning the payment of a commission or compensation... to any broker or firm".

The Commission's compensation disclosure rule is summarized in paragraph 1 of Form 770. It is discussed more fully in the guidelines for completing that form - Form 770G. As a reminder, the rule states that in all real estate sales transactions, licensed agents must timely disclose to their client the expected receipt of compensation from any person other than the agent's client, and then confirm that disclosure in writing. Compensation of nominal value is exempted from this requirement. Disclosure is considered timely if made "in sufficient time to aid a reasonable person's decision-making." Written confirmation must be provided "before the principal makes or accepts an offer to buy or sell."

If a written agency agreement between the agent and the client already describes all the compensation to be received, no further disclosure is 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  2016. 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.

 

 

Can a broker initial a contract change for their client?

Release Date: 11/29/2016

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

QUESTION: I am the listing agent for a property, and the buyer’s agent is insisting that, as an agent for the buyer, they can initial a change to the contract for their client. It is my understanding that brokers cannot sign or initial a contract for their client without a power of attorney. Am I correct? 

ANSWER: You are correct that an agent cannot act on their principal's behalf without authority. Paragraph 20 of the Standard Form 2-T (Offer to Purchase and Contract) provides that “[a]ll changes, additions or deletions hereto must be in writing and signed by all parties.” Because neither the standard listing agreement nor the buyer agency agreement forms grant a broker the authority to sign for their client in a real estate transaction, an agent may not sign or initial for their client and bind them to a contract for real estate unless they are otherwise permitted to by law. A validly executed power of attorney would satisfy this requirement.

The North Carolina Court of Appeals case of Manacke v. Kurtz discusses some circumstances where an agent may obtain actual or apparent authority to sign for their client without a power of attorney. In your situation, however, it does not appear that the buyer has given the buyer’s agent actual or apparent authority to sign for the buyer. Therefore, the buyer’s agent does not have the authority to initial a change to the contract and make it binding on the buyer.

Even when an agent has been given proper written authority to sign or initial a document for a client, an agent would be well-advised to exercise such authority only if there is a record confirming that the client has had an opportunity to review the document itself (if at all possible under the circumstances) or at least comprehends its essential terms.

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  2016. 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.

 

 

May I set up and advertise a charity donation program?

Release Date: 11/22/2016

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

QUESTION: I would like to set up a program where I would donate a portion of my commission to a charitable organization in my community that I’ve supported for many years. The organization would have a link on its website that would explain my program and I would be permitted to appear at the organization’s events to give a brief presentation about the program. The offer would apply to any buyer or seller client who contacts me through the program. Do you see any problem with this?

ANSWER: Yes. Although you may establish and advertise a program where you will pay a part of your commission to a charity designated by you or by your client, the charity may not help you advertise the program. The real estate license law prohibits a broker from paying any kind of incentive (cash or other consideration) to unlicensed persons or entities for the referral of business. That prohibition includes charities. In permitting you to have a link on the organization’s website and to appear at its events to explain your program, the charity is arguably helping you obtain real estate business, and unless it has a real estate license, you cannot pay any incentive to the charity for its assistance, even though it is passive in nature.

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  2016. 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.

 

 

Responsibility for Special Assessments - revised*

Release Date: 11/15/2016

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

QUESTION:  Several months ago, I represented a buyer in a transaction. In the Residential Property and Owners’ Association Disclosure Statement and in paragraph 7(c) of the Offer to Purchase and Contract (form 2-T), the seller disclosed the existence of what the seller characterized as a "proposed" special assessment relating to a county water and sewer project in the neighborhood. The buyer and I assumed that the seller would have to pay for the assessment.  Neither my client’s lender nor her closing attorney raised the issue and the transaction closed. My buyer client was very surprised when she recently received an assessment from the county in the amount of $4,000.00. Does she have any recourse against the seller to recover this amount?

ANSWER: The answer depends on whether the assessment you describe was formally approved by the county prior to Settlement.  Although sellers are required to pay all confirmed special assessments pursuant to paragraph 8(k) of the Contract, paragraph 6(a) states that buyers take title subject to all proposed special assessments.  Both types of assessments are defined in paragraph 1(n) of the Contract. The key distinction between the two is whether the assessment has been approved.

Special assessments can be imposed by governmental authorities or by owners’ associations.  Since your situation involves an assessment by a county, we will focus on the assessment-approval process used by governmental authorities.  Although the process can vary to some extent, in general, when a county or city decides to finance a project by special assessment, a public hearing is held. If the governing body formally approves the special assessment, a preliminary assessment resolution is adopted and a preliminary assessment roll is prepared.  The roll includes the expected amount of the assessment and a list of the parcels to be affected. At this point, even though the assessment amounts are subject to amendment, the special assessment is considered approved. This formal approval by the governmental body is what triggers the seller's obligation to pay the amount that is eventually assessed.

Once the county or city completes its improvement work, and all of the costs of the project are known, another public hearing is held.  Following that hearing, the final assessment roll is given to the tax collector for collection. This hearing does NOT need to take place, and the assessment does not need to be "fully payable",  in order for the special assessment to be considered "confirmed" under the terms of Standard Form 2-T.

It is important for a buyer to become knowledgeable about the existence and the status of any special assessments affecting a property the buyer is interesting in purchasing, either before making an offer or, if the buyer is under contract, no later than the expiration of the Due Diligence Period.  Such knowledge will likely affect the amount the buyer is willing to offer or the buyer’s decision whether to proceed with a transaction that is already under contract.

*This is a revised version of a Q & A that was first posted on 06/11/2013.

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  2016. 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.

 

 

What happens to a lease when property is sold?

Release Date: 11/08/2016

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

QUESTION: I’ve been contacted by the owner of a property who wants to list it for sale with me.  There’s a tenant living in the property under a 1-year lease that still has six months left on the initial term.  The owner and I want to know what effect a sale of the property would have on the lease.  The “Rental/Income/Investment Property” provision in the Additional Provisions Addendum (form 2A11-T) states that “[t]he Property shall be conveyed subject to existing leases and/or rights of tenants.”  Should I interpret that to mean that an existing lease will be terminated by a sale of the property unless the parties agree that will remain in effect?

ANSWER:  The answer to your question is “no.”  A lease for more than 3 years must be recorded to be valid against purchasers. A lease for 3 years or less does not have to be recorded to be valid against a purchaser if the purchaser has actual knowledge of the lease or if the tenant is in actual possession, since actual possession is treated as the equivalent of notice and as a substitute for recording.  Thus, since the tenant in your situation is in actual possession, the lease will remain in effect unless: (i) the landlord/seller or tenant exercises any contractual right either may have to terminate the lease, (ii) the landlord/seller and tenant enter into an agreement with each other to terminate the lease, or (iii) the landlord/seller or tenant terminates the lease due to a material breach of the lease by the other party.

It is important to use the “Rental/Income/Investment Property” provision in the Additional Provisions Addendum when there are any leases that will remain in effect after the sale.  It serves several important purposes: (i) to make clear the parties’ understanding that any existing leases are a material part of the transaction between them, (ii) to give the buyer the right to obtain and review copies of any leases and any relevant information relating to their status as a part of the due diligence process, (iii) to provide that any security deposit remaining (after being applied in accordance with Section 42-54 of the Tenant Security Deposit Act) will be transferred to the buyer at Settlement, and (iv) to provide whether or not any pet fee/deposit will be transferred to the buyer.  In addition, paragraph 9 of the Offer to Purchase and Contract (form 2-T) provides that any rents for the property will be prorated through the date of Settlement.

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  2016. 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.