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Weekly Q&As

When does a listing agent need to disclose their familial relationship with the seller?

Release Date: 11/01/2016

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QUESTION: Does a listing agent who is related to the seller in a transaction always have to disclose that fact? I know this is a Code of Ethics issue, but I have been asked whether it is also required under North Carolina law. If disclosure is required, is putting a note in the MLS sufficient? 

ANSWER: Article 4 of the Code of Ethics provides that when a REALTOR® sells property they own or have any interest in, they “shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative.” There is no correlating North Carolina Real Estate Commission rule or other North Carolina law that specifically requires disclosure to the buyer of a listing agent’s family relationship. There is also no rule mandating that the disclosure be made in the agency agreement or contract. However, N.C.G.S. § 93A-6 does, more broadly, prohibit an agent from misrepresenting material facts and “[a]cting for more than one party in a transaction without the knowledge of all parties for whom he or she acts.”

The provisions of Article 4 make clear that a listing agent only needs to disclose a family relationship with the seller if the agent also has an interest in the property due to their relationship with the seller. The case interpretations of Article 4 show that REALTORS® should err on the side of caution when evaluating their potential property interest.

If an agent has an interest in one of their listed properties by virtue of their family ties with the seller, Standard of Practice 4-1 of the Code of Ethics mandates that the disclosure required by Article 4 be made in writing and provided prior to the signing of any contract. We believe that disclosure in the MLS would fulfill the requirements of Article 4 and Standard of Practice 4-1, assuming the buyer or their agent has access to the MLS. However, in cases where a buyer may not have access, the disclosure under Article 4 should be made in a separate writing, such as an email, prior to the signing of the contract. 

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 agents receive payment for the oversight of construction work?

Release Date: 10/25/2016

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QUESTION:  One of my agents has asked if she is allowed to receive payment from a property owner to oversee some renovations and repairs. The sellers live a long distance away and want to make some improvements to their home before putting the home on the market. Is my agent is allowed to receive payment for overseeing the work that is being planned? If so, would it be best to have an agreement between the agent and the homeowners that is separate from the listing agreement? 

ANSWER:  There is no rule or law that prevents licensed real estate agents from entering into agreements to provide services that do not fall within the definition of real estate brokerage. Unless your firm wishes to take responsibility for the performance of such services, we suggest that any agreement to provide non-brokerage services be handled separate and apart from your firm’s listing agreement.

Any agent wishing to provide non-brokerage services should keep in mind a different type of license may be required in order to legally provide certain services. For example, depending on the scope of the construction/repair work that is planned, your agent may need to obtain a general contractor’s license if she wants to be compensated for overseeing that work. Chapter 87 of the North Carolina General Statutes regulates contractors. Section 1(a) of that Chapter defines the term “general contractor”. The definition includes any person who, for a fixed price, commission or fee, undertakes to “superintend or manage” the construction of any building, improvement or structure, where the cost of the undertaking is thirty thousand dollars ($30,000) or more. It is unlawful to practice general contracting in North Carolina without a license.

Whether the oversight being requested by the property owners constitutes “superintending” or “managing” is a legal question. Therefore, depending on the size of the project, we suggest that your agent seek formal legal advice before taking this project on.

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.

 

 

Handling a client’s intent to discriminate based on sexual orientation or gender identity

Release Date: 10/18/2016

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QUESTION: The subject of discrimination based on sexual orientation or gender identity has been in the news a lot recently, and it has me thinking.  Let’s say I’m going over the listing agreement form with prospective seller clients and they tell me they would be opposed to selling their house to a gay person or a person who identifies with a gender other than what is on their birth certificate.  Can I take the listing?  Does the answer change if they don’t say anything up front, I take the listing, and then they tell me they don’t want to sell their property based on a buyer’s sexual orientation or gender identity? 

ANSWER: In our view, the answer to both your questions is “no.” 

Article 10 of the REALTOR® Code of Ethics states that REALTORS® won’t deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity, and further, that REALTORS® will not be parties to any plan or agreement to discriminate for any such reason.  In our view, if the sellers voice their opposition during your listing presentation to selling their property to somebody based on their sexual orientation or gender identity, you should point out your ethical obligation not to discriminate on any such basis.  If the sellers indicate that they will not prevent a sale of the property to someone based on any of the nine classes listed in Article 10, it would be okay for you to take the listing.  However, if they remain steadfast in their opposition to selling to someone based on any one or more of the protected classes listed above, we believe it would be unethical for you take the listing with the understanding that they will not sell their property to the member of any such class. 

We don’t believe the answer changes if you don’t find out about the seller’s views until after you take the listing.  While it is true that State and Federal fair housing laws do not include sexual orientation or gender identity as protected classes (at least not currently), the Exclusive Right to Sell Listing Agreement form states in bold capital letters that REALTORS® are ethically obligated to conduct all brokerage duties without respect to gender identity or sexual orientation. You should point out your ethical obligations to the sellers.  If they nevertheless continue to indicate opposition to selling their property to someone based on gender identity or sexual orientation, we believe it would be a breach of the listing agreement and that you should terminate the listing agreement based on such breach to avoid an allegation that you are engaging in unethical conduct. 

REALTORS® should “stay tuned” on this subject because the law is evolving rapidly.

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.

 

 

Hurricane Matthew and real estate closings

Release Date: 10/17/2016

A significant number of North Carolina real estate transactions likely will be affected to a greater or lesser extent as a consequence of the effects of Hurricane Matthew.  The following Q&A attempts to address several issues that may arise.  NC REALTORS® may call the Legal Hotline to discuss these or additional issues.

QUESTION: If a property suffers Hurricane-related damage after it went under contract but before closing, what are the parties' rights under the Offer to Purchase and Contract (form 2-T, copyright 7/2016)?

ANSWER: If improvements on the property have been "destroyed or materially damaged," paragraph 12 of the Contract provides that the buyer can, at the buyer's option, terminate the contract by written notice or proceed with the transaction, in which case the buyer will be entitled to insurance proceeds payable on account of the damage or destruction.

 

QUESTION: If the buyer elects to terminate the contract, do they get their money back?

ANSWER: If the buyer elects to terminate the contract, paragraph 12 provides that the buyer is entitled to a refund of any Earnest Money Deposit and any Due Diligence Fee.  However, the buyer would not be entitled to a refund of any costs incurred by buyer in doing due diligence.

 

QUESTION: Are any of the contract deadlines or the obligations of the parties affected by the existence of an "act of God" like a hurricane?

ANSWER: In many cases, the parties will work together to extend contract deadlines in an effort to get a transaction closed or mutually agree to terminate it.  Parties and their agents should assume that all contract deadlines and obligations continue to be in full force and effect notwithstanding the Hurricane unless the contract provides otherwise or unless the parties agree otherwise.  REALTORS® should to use the Agreement to Amend Contract (form 4-T) to extend the Due Diligence Period and/or Settlement Date or to make other agreed-upon changes to the Contract.  Non-standard changes to the contract desired by the parties should be made by an attorney. 

In some situations, it’s possible that a party’s obligations under the contract may be suspended or discharged based on the impossibility of performance of the contract.  A buyer or seller who has questions about the effect, if any, that hurricane-related issues may have on their obligations to complete a a real estate contract should be advised to seek legal counsel to advise them on their legal rights and obligations under the particular circumstances. 

 

QUESTION: I’ve heard that if a buyer is getting FHA financing, the property has to be re-inspected.  Is that right?

ANSWER: First of all, ALL buyers should be advised to check with their lenders to determine if the Hurricane will require any re-inspection or re-appraisal, as well as the costs and timeframe, and to communicate with other party or their broker, closing attorney, etc.

If the buyer is obtaining FHA financing, FHA rules provide that all properties with pending Mortgages or endorsements in Presidentially-Declared Major Disaster Areas (PDMDA) must have a damage inspection report that identifies and quantifies any dwelling damage.  The information below has been copied from HUD’s FHA Single Family Housing Policy Handbook (click here HUD Handbook 4000.1 and then click on “FHA Single Family Housing Policy Handbook (Online).”  See Part II.A.7.c.)

From the FHA Single Family Housing Policy Handbook:

c. Inspection and Repair Escrow Requirements for Mortgages Pending Closing or Endorsement in Presidentially-Declared Major Disaster Areas (09/14/15)

Effective for case numbers assigned on or after September 14, 2015

All Properties with pending Mortgages or endorsements in Presidentially-Declared Major Disaster Areas (PDMDA) must have a damage inspection report that identifies and quantifies any dwelling damage. The damage inspection report must be completed by an FHA Roster Appraiser even if the inspection shows no damage to the Property, and the report must be dated after the Incident Period (as defined by FEMA). FHA does not require a specific form for a damage inspection report.

Streamline Refinances are allowed to proceed to closing and/or endorsement without any additional requirements.

FHA does not require the Appraiser to ensure utilities are on at the time of this inspection if they have not yet been restored for the area.

Damage inspections should be completed by the original Appraiser. However, if the original Appraiser is not available, another FHA Roster Appraiser in good standing with geographic competence in the affected market may be used. If the Mortgagee uses a different Appraiser to inspect the Property, the Appraiser performing the damage inspection must be provided with a complete copy of the original appraisal.

All damages must be repaired by licensed contractors or per local jurisdictional requirements. All damages, regardless of amount, must be repaired and the Property restored to pre-loss condition with appropriate and applicable documentation.

 

i. Mortgages Pending Closing

The following table shows inspection and repair escrow requirements that apply to Mortgages on Properties that have not yet been closed:

Pending Mortgage Closure
If…
Then…
The Mortgage is not closed,
Inspect the Property to determine damage exists. Provide on-site inspection with interior/exterior photographs.
No damage exists,
Close Mortgage and document inspection.
Damage exists but is below $5,000 and Property is habitable,
Complete repairs and close Mortgage or establish repair escrow and close Mortgage.
Damage exists and is above $5,000 or the Property is not habitable,
Do not close Mortgage. Repairs must be complete prior to closing.
When…
Then…
Repairs above $5,000 are completed and inspected with interior/exterior photographs,
Document inspection and close Mortgage.

ii. Mortgages Pending Endorsement

The following table shows inspection and escrow requirements that apply to Mortgages on Properties that have closed but are not yet endorsed:

Pending Mortgage Endorsement
If…
Then…
The Mortgage is closed but not yet endorsed,
Inspect the Property to determine if damage exists. Provide drive-by inspection with exterior photographs.
No damage exists,
Endorse Mortgage and document inspection.
Damage exists but is below $5,000 and Property is habitable,
Complete repairs and endorse Mortgage or establish repair escrow and endorse Mortgage.
Damage exists and is above $5,000 or the Property is not habitable,
Do not endorse Mortgage.
When…
Then…
Repairs above $5,000 are completed and inspected with interior/exterior photographs,
Document inspection and endorse Mortgage.

iii. Pre-Closing Appraisal Validity in Disaster Areas

For Mortgages that are not closed prior to the Incident Period, as defined by FEMA, in PDMDAs where a damage inspection report reveals property damage, the appraisal validity period is extended from 120 Days to a maximum of one year from the effective date of the original appraisal.

In no instance will an appraisal be acceptable for a mortgage closing that has an effective date beyond one year. Mortgages with appraisals having effective dates in excess of one year require a new appraisal.

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.

 

 

Do I need to be the BIC of an LLC set up to receive sales commissions?

Release Date: 10/11/2016

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QUESTION: My accountant recommended that I create a limited liability company (“LLC”) for the purpose of receiving my sales commissions. He said that I could save some money on taxes and save for retirement with a Simplified Employee Pension Plan. If I set up an LLC, do I need to be licensed by the NC Real Estate Commission? Do I need to designate myself as the broker-in-charge (“BIC”) of the LLC?

ANSWER: Under section A.0110 of the license law, your LLC will need to be licensed, but you do not need to designate a BIC as long as your LLC: “(1) has been organized for the sole purpose of receiving compensation for brokerage services furnished by its qualifying broker through another firm or broker; (2) is treated for tax purposes as a Subchapter S corporation by the United States Internal Revenue Service; (3) has no principal or branch office; and (4) has no licensed or unlicensed person associated with it other than its qualifying broker.” Under section A.0502(b), the qualifying broker of such an LLC (1) cannot be a provisional broker and (2) must be the manager of the limited liability company. The rules effectively prohibit a provisional broker from establishing a business entity to receive compensation.

Be sure to consult with both your accountant and your attorney to make sure that you are setting up your LLC, or other business entity, correctly. There are benefits to receiving your commissions through an LLC, but the risks may outweigh the benefits if you do not create and operate your company in compliance with the license and tax laws. For example, an LLC must be licensed before any commissions can be received by it.

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.