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Weekly Q&As

Paying brokerage commissions at closing

Release Date: 05/17/2016

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QUESTION: In the Real Estate Commission’s May 2016 Real Estate Bulletin, there’s a short article on page 13 entitled “Brokers: Do Not Require Closing Attorneys to Disburse Commissions.”  The article seems to imply that listing agents should not be asking closing attorneys to make disbursements of any part of the listing agent’s fee to cooperating brokers. For many years, closing attorneys have written checks out of the closing proceeds to the listing firm and the selling firm. Are we supposed to stop doing that now?

ANSWER: No.  We have discussed the matter with legal staff at the Real Estate Commission.  The Commission does not have an issue with the historical manner in which commissions have been disbursed.  However, the Commission does have an issue with brokers demanding that the closing attorney further split up the commission between the listing and cooperating firms and their individual agents.  As stated in the Bulletin article, this practice puts the closing attorney in potential jeopardy of paying an unlicensed firm or agent, which is a criminal act, or improperly dividing a fee due to incomplete or inaccurate information.

According to the Commission’s legal staff, “[p]ayroll or accounts payable is not the settlement agent’s job.  The settlement agent is authorized to pay the listing commission from the seller’s proceeds to the listing company pursuant to the listing agreement.  Historically, the listing company instructs or authorizes the closing attorney/settlement agent to pay the selling company’s share of the full commission to the selling company because the seller has authorized a co-broke situation. Thus, closing attorneys usually write one check to the listing company and another check to the selling company, if any.  It is then up to each company to pay its affiliated agents whatever split may be due the agent under the employment agreement with the company and to issue a Form 1099 to each agent.” 

It is anticipated that further guidance on this subject will be available in a future Bulletin article and/or next year’s annual Update program. 

 

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. 

 

 

Does a buyer's agent have the right to participate in the presentation of an offer?

Release Date: 05/10/2016

QUESTION:  I have a property listed in the local MLS. A buyer's agent arranged a showing last week. She just called to tell me that her clients have signed an offer to purchase the property. The buyer's agent wants to be present when that offer is presented to my seller-client. When I told her to just send me the offer, and that I would present it to my client, she told me that she had the right to participate in the presentation. Is she right about that?

ANSWER:  Since the property in question was listed in the MLS, the answer is yes. The right of a cooperating agent to participate in the presentation of any offer he or she secures is governed by Section 2.3 of the Model MLS Rules and Regulations.

Keep in mind that MLSs owned or controlled by a REALTOR® association must conform their governing documents to mandatory MLS policies established by NAR's Board of Directors. NAR publishes a handbook to guide member associations in that process. The handbook includes model rules and regulations some of which are considered mandatory. Rule 2.3 is one such mandatory rule. It states: "The cooperating broker (subagent or buyer agent) or his representative has the right to participate in the presentation to the seller or lessor of any offer he secures to purchase or lease. He does not have the right to be present at any discussion or evaluation of that offer by the seller or lessor and the listing broker."

There is an exception in the model rule. Your seller can give you written instructions that the cooperating broker not be present when the offer secured by that agent is presented. If that happens, you can and should abide by those instructions. However, the cooperating broker has the right to a copy of the seller's written instructions.

A corollary to Rule 2.3 is another mandatory rule, Rule 2.4. It gives listing brokers the right to participate in the presentation of any counter-offer made by a seller or lessor. The listing agent does not have the right to be present for any discussion or evaluation of that counter-offer by the purchaser or lessee, except when the cooperating broker is a subagent.

 

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.

 

 

Must seller sign buyer’s notice of termination if no earnest money has been paid?

Release Date: 05/03/2016

QUESTION: My seller entered into a contract on the Offer to Purchase and Contract (form 2-T).  The contract provided that the EMD was to be delivered within 5 days of the Effective Date.  Before the 5 days was up, and before the EMD was delivered, the buyer agent sent me notice signed by the buyer using form 350-T that the buyer was terminating the contract during the Due Diligence Period.

There’s a place on page 2 of form 350-T where the seller signs to release the EMD, and the buyer’s agent is insisting that the seller needs to sign page 2 in order for the contract to be properly terminated.  I don’t think the seller needs to sign because there’s no EMD to release.

Who’s right, the buyer agent or me?

ANSWER: We think you are.  The buyer had the right under the Contract, during the Due Diligence Period, to terminate the contract for any reason or no reason by written notice to the seller.  The buyer chose to exercise this right.  The seller doesn’t have to agree to anything in order for the termination to become effective. 

The place for the seller to sign on page 2 of form 350-T is there because of the Real Estate Commission’s Rule requiring an escrow agent, if there’s any dispute about the EMD, to get a written release from the parties consenting to the disposition of the EMD or until disbursement of the EMD is ordered by a court.  Although there shouldn’t be any dispute about the buyer’s right to a refund of the EMD when the buyer terminates during the Due Diligence Period, many brokers acting as escrow agents prefer for risk management purposes that the parties sign a consent to the disposition of the EMD.  However, in your situation, the EMD wasn’t delivered before the buyer exercised the right to terminate; thus, there is no reason to obtain the seller’s agreement to release the EMD to the buyer.

If the buyer desires to get a written release of any claims the seller may have under the Contract, consideration should be given to using the Termination of Contract by Mutual Agreement (form 390-T).  That form does require the signature of both parties to terminate a contract.  However, it is not necessary for the buyer to use that form to terminate during the Due Diligence Period, and agents are cautioned against using form 390-T in situations where the Due Diligence Period might end before the seller signs the form 390-T.

 

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 listing agent deal with a buyer who has fired his buyer’s agent?

Release Date: 04/26/2016

QUESTION: My clients accepted an offer to sell their home to a buyer. During the due diligence period, the buyer’s agent informed me that the buyer wished to terminate the deal, and forwarded me a signed Standard Form 390-T. Shortly after I received the 390-T, however, the buyer began calling my office to tell me that the buyer’s agent no longer works for him and that he still wishes to proceed with the deal. Over the last two days, my office has told the buyer to work through his agent, but he will not listen. He continues to call and insist that the buyer’s agent not be involved any further in the transaction. In the meantime, the buyer’s agent has no idea what is going on and is now sending me impatient emails because I have not yet returned a signed copy of the 390-T. My client wants to continue with the deal and has not signed the termination. What should I do?

ANSWER: Article 16 of the REALTOR® Code of Ethics provides 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 16-13 further explains that under Article 16, “[a]ll dealings . . . with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.”

In this case, your foremost responsibility is to your client. If your client wants to continue to deal with the buyer, then the Code of Ethics would allow you to do so if the buyer is initiating contact with your office. You should, however, be sure to let the buyer know that you only represent the seller; and that you will not be able to represent the buyer’s interests in the transaction. (See Case #16-13 of Interpretations of the Code of Ethics) Since you do not owe any duty of confidentiality to the buyer, you can let the buyer’s agent know what is going on, and explain to him or her why you have not yet returned a signed copy of the Form 390-T.

 

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 a seller's "condition" to signing a sales contract a material fact?

Release Date: 04/19/2016

QUESTION:  I showed my out-of-town buyer clients a property located in a golf course community. They liked the property and submitted a full-price offer. We received a counter which informed the buyers that they would have to purchase a golf club membership with a $10,000 initiation fee as part of the contract. The listing agent told me that this payment would be a condition to any sale because, in the event of such a payment, the seller would receive a substantial refund of his own initiation fee . This condition was not disclosed in the MLS and was not disclosed to me when I made an appointment to show the property. My buyers do not play golf, have no interest in joining a golf club, and now have to make another trip to North Carolina to find another home. Was the seller's condition a material fact that the listing agent should have disclosed?

ANSWER:  We would recommend disclosure in the scenario you have described . We note that typically, it would be in the interest of everyone concerned for the listing agent to disclose any significant conditions a seller will insist on attaching to a sale of his or her property. For example, if a seller will only consider cash offers, that fact should be disclosed in the MLS listing. That way, agents don't waste time showing properties to (and possibly preparing offers for) buyers who will never be able to make an all-cash purchase.

If the practice of requiring the purchase of a club membership is widespread in your community, it is arguable that buyer agents who show golf course properties should know about the incentives being offered. Ideally, those buyer agents would inquire about such incentives before submitting an offer, and would also ask the listing agent if the seller would be looking to condition any sale on the purchase of a membership.

Having said that, we believe that if a seller will insist that any buyer purchase a $10,000 club membership as a condition to signing a sales contract, that condition is a material fact that should be disclosed by the listing agent prior to the time that a buyer submits an offer for the property. We relayed this scenario to an attorney with the North Carolina Real Estate Commission, and that attorney reached the same conclusion.

The Real Estate Commission's admittedly broad definition of a material fact is "any fact that is important or relevant to the issue at hand." We believe that the seller's condition you have described falls within this definition. Furthermore, Article 2 of the REALTOR® Code of Ethics requires REALTORS® to avoid concealment of pertinent facts relating to the property or the transaction. In our view, the seller's condition is a fact that is pertinent to the transaction being contemplated by the parties.

 

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.