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Weekly Q&As

Which form should I use to terminate a contract during the Due Diligence Period?

Release Date: 12/20/2016

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

QUESTION: I am representing a buyer who is under contract using the Offer to Purchase and Contract (form 2-T). She paid a Due Diligence Fee of $500 and an Initial Earnest Money Deposit of $2,500. After doing inspections, she has decided she wants to terminate the contract. The Due Diligence Period ends tomorrow at 5 PM. There are two different forms that look like they would work. One is the Notice to Seller that Buyer is Exercising Their Unilateral Right to Terminate the Offer to Purchase and Contract (form 350-T), and the other is the Termination of Contract by Mutual Agreement With Release of Earnest Money (form 390-T). Which one should I use in this situation? 

ANSWER: We recommend you use form 350-T. Either form would work, but 350-T only requires the buyer’s signature to accomplish the termination, while form 390-T requires signature by both the buyer and the seller to be effective. As its name suggests, form 390-T requires mutual consent of the parties. If you transmit a form 390-T signed by the buyer to the listing agent and for some reason the seller fails to sign it before the end of the Due Diligence Period, an argument can be made that the contract was not terminated before the end of the Due Diligence Period and the buyer would not be entitled to a refund of her Earnest Money Deposit if she fails to complete the transaction. 

On the other hand, form 350-T is designed for the buyer to exercise her unilateral (or one-sided) right to terminate the contract for any reason or no reason during the Due Diligence Period (see paragraph 4(f) of the Contract). It’s true that there’s a place for the seller to sign on the second page of form 350-T, but it’s simply an authorization for the Escrow Agent to return the Earnest Money Deposit to the buyer. Transmitting a signed form 350-T to the listing agent before the end of the Due Diligence Period effectively terminates the contract. The seller’s failure to sign the second page doesn’t change that, although it could cause a delay in the return of the EMD. (For a discussion of that issue, see Q&A titled “Can my firm disburse an earnest money deposit without the consent of both parties?” in the archived Q&As under the category “Real Estate License Law and Rules.”)

Form 390-T is a very useful form that can be used to terminate a contract by mutual consent in many different situations, including this one. However, since time is of “of the essence” regarding the end of the Due Diligence Period, we think form 350-T is the better form to use in this situation, given the critical importance of timely and clearly notifying the seller of the buyer’s decision to terminate the contact.

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 departing agent take their clients with them to a new firm?

Release Date: 12/13/2016

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

QUESTION: An agent is leaving my firm and has requested that I let them take their clients with them to their new firm. Do I have to let the agent take their clients? Is the agent allowed to contact the clients and try to take them to the new firm?

ANSWER: The answer to both your questions is likely “no.” Article 16 of the Code of Ethics states that “REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients.” Standard of Practice 16-20 makes clear that this means a REALTOR® “shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm” once the REALTOR®’s relationship with their current firm is terminated.

Generally speaking, agency agreements are entered into on behalf of the firm through the agent. This means that the agency contract belongs to the firm, not the individual agent. If the agency contracts in your situation belong to the firm, the departing agent may only take those contracts to the new firm if: (1) you, the departing agent, and the client consent to the transfer; or (2) your independent contractor agreement or policy manual states that the departing agent can take their business with them upon termination with the client’s consent.

The Code of Ethics does not specifically bar a departing agent from informing his or her current clients that they are leaving, however, the information the departing agent provides should be for that narrow purpose to avoid the prohibition in Standard of Practice 16-20. If the departing agent is contacted by one of your clients after they join their new firm, Standard of Practice 16-6 would allow the departing agent to discuss the terms of a future contract once the current contract expires, as long as the departing agent did not initiate the contact. If one of your clients contacts the departing agent to request that their current contract be transferred, the departing agent should refer the client to their new broker-in-charge, or you, so the client can be informed that the current contract cannot be transferred absent your firm’s consent.

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.

 

 

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.