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Can I share a commission with a lawyer?

Release Date: 11/23/2017

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

QUESTION: I’ve gotten an offer on one of my listings from a buyer who is a licensed North Carolina attorney.  The offer includes a provision that the listing firm will pay the buyer a fee equal to the amount offered in MLS to cooperating brokers.  I told the buyer/attorney that my firm was prohibited from sharing a brokerage fee with her unless she had a real estate license, and that in any event I couldn’t present an offer containing a provision concerning the payment of a brokerage fee.  The buyer/attorney said that it was permissible for her to be paid a brokerage fee because attorneys are exempt from the real estate license law.  Who is right?

ANSWER: Your firm can, in its discretion, share its commission with the buyer/attorney, but not for the reason she suggests.  It’s true that there is an exemption in the real estate license law for acts or services performed by an NC-licensed attorney, but the exemption is limited to those acts or services that constitute the practice of law. An attorney who makes an offer to purchase real estate for himself or herself is not engaged in the practice of law.  However, the Real Estate Commission has long taken the position that it is permissible for a broker to share a commission with an individual who is buying or selling real estate on his or her account since he or she does not have to have a real estate license to do so.  Thus, your firm can share its commission with the buyer/attorney, not because she is an attorney, but because she is a principal in the transaction.  However, since she is not a member of your MLS, you are under no obligation to share your commission with her simply because she asks. 

Regarding the inclusion of a provision in the Offer to Purchase and Contract regarding the payment of a brokerage fee, Real Estate Commission Rule 58A.0112 prohibits a broker from using a preprinted offer or sales contract form containing a provision concerning the payment of a commission to any broker or firm.  However, the Rule goes on to provide that it does not prohibit a buyer or seller from altering, amending or deleting any provision in a form offer to purchase or contract.  Thus, there is nothing to prohibit the buyer herself from adding a provision to the standard Offer to Purchase and Contract concerning the payment of a brokerage fee, and you must present the offer.

 

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  2017. 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 seller terminate if Additional EMD is paid by personal check?

Release Date: 11/16/2017

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

QUESTION: I’m the listing agent on a property that was put under contract using the Offer to Purchase and Contract.  The contract provides for the payment of an Additional Earnest Money Deposit by 5 PM today.  The buyer agent showed up around 4 PM with the buyer’s personal check for the Additional EMD.  I called the seller and discussed with her the fact that a personal check is not an acceptable form of payment for an Additional EMD according to the Contract.  There’s a back-up contract in place and the seller wants to terminate the first contract and make the back-up contract primary. It’s now past 5 PM.  Can the seller terminate the contract on account of the buyer’s attempt to pay the Additional EMD with a personal check?  If the answer is yes, when and how may the seller terminate?  The termination mechanism provided for in paragraph 1(d) of the Contract only applies if the buyer fails to timely deliver the Due Diligence Fee or Initial EMD.      

ANSWER: In our view, a buyer’s failure to pay an Additional EMD by an acceptable form of payment is a material breach of the contract that would give the seller the right to terminate.  As to when and how the seller may exercise the right of termination, note carefully that unlike delivery of the Due Diligence Fee and Initial EMD, time is “of the essence” regarding delivery of the Additional EMD.  The buyer’s failure to deliver the Additional EMD by the 5 PM deadline gives the seller a discretionary right to terminate the contract immediately. Form 352-T (or 353-T if the property is a vacant lot or land) may be used to notify the buyer of the seller’s decision to terminate.  The buyer may try to argue that your accepting possession of the personal check amounts to a waiver of the seller’s right to insist on payment of the Additional EMD by one of the means permitted in the Contract, but under the circumstances described in your question, we do not believe such an argument is persuasive.

 

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  2017. 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.

 

 

Should listing agents review inspection reports received from buyers?

Release Date: 11/09/2017

QUESTION: A buyer recently terminated a contract on one of my listings. In the email containing the termination, the buyer also included a copy of his inspection report. Another agent in my firm told me not to look at the inspection report at all. Am I allowed to do that? What will happen if I don’t?

ANSWER: Even thought the license law and the REALTOR® Code of Ethics do not have a specific requirement mandating that you look at a buyer’s inspection report, we believe the best course of action is to review the report.

The North Carolina Real Estate Commission has said that both listing and selling agents have a duty to discover and disclose material facts when “red flags” come to the agent’s attention, i.e., when the agent reasonably should know that a material fact exists. We understand that sometimes brokers share inspection reports as a matter of course, and that the mere receipt of an inspection report does not mean that a material fact is contained therein. Nevertheless, if a broker receives a copy of an inspection report, particularly if the report is offered in connection with a termination, we believe that the agent should strongly consider whether the report is being offered as a “red flag” to the listing agent.

An agent deciding not to investigate information given to them about a property may be opening himself or herself to a charge of negligent, or even willful, concealment of a material fact. Either charge could expose the agent and their firm to both ethics violations and civil liability.

 

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  2017. 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.

 

 

Should all offers include a specific end date for the "Due Diligence Period"?

Release Date: 11/02/2017

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

QUESTION: From time to time, I receive offers in which the buyer's agent has not inserted a date in the blank in paragraph 1(j) of Standard Form 2-T. That blank is used to specify the expiration of the "Due Diligence Period." Instead, these agents insert the words: "30 days after the Effective Date." Should I insist that a date be inserted instead?  

ANSWER:  While inserting a specific date in paragraph 1(j) is typically the best practice for agents and their clients, there are certain circumstances where inserting a time frame instead of a date is advisable in order to protect a buyer's need to complete the necessary due diligence investigation.

The principal reason for inserting a specific date in paragraph 1(j) is because that practice eliminates all confusion as to the exact moment that the due diligence period will expire. The parties will both know that the Due Diligence Period ends at 5:00 p.m. on the date designated in the contract. Certainty has its advantages.

However, buyers who submit offers often do not know how long the contract negotiation process will take. If a buyer believes that it will take a certain period of time to complete the due diligence process, and fills in a date in paragraph 1(j), that buyer runs a risk that the time needed to complete the due diligence investigation will instead be taken up in trying to negotiate a signed contract. For buyers who wish to offer, but also preserve, a relatively short due diligence period, inserting a time frame, rather than a date, is an alternative that can be considered.

Buyers who insert a time frame instead of a date in paragraph 1(j) should recognize that they are adding some degree of uncertainty into what they hope will be a signed contract. To minimize that uncertainty, we can suggest some specific wording. If a buyer would like the Due Diligence Period to start running on the Effective Date of the contract, the buyer should consider inserting the following language in the blank in paragraph 1(j): "the date that is x days after the Effective Date". Since paragraph 1(g) of Standard Form 2-T defines the term "Effective Date” and paragraph 23 defines what constitutes "days," any confusion caused by using a time frame instead of a date should be minimal. For example, say a contract has an effective date of November 1st, and the buyer fills in paragraph 1(j) to say “the date that is 21 days after the Effective Date.” The count of days will begin on November 2nd, and the Due Diligence Period will end at 5:00pm on November 22nd.

 

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  2017. 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 have to let sellers out of a listing agreement at their request?

Release Date: 10/26/2017

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

QUESTION: I currently have some clients who have requested that I terminate our listing agreement because they would like to list with another firm. We are 2 months in to a 6 month listing agreement and I have fulfilled my duties. Do I have to let them out? 

ANSWER: The short answer is that the sellers have the right to discharge you as their agent, but that doesn’t mean that you must agree to terminate the listing agreement. 

There is an important distinction between the rights and duties of the parties under agency law and under contract law regarding a principal’s right to end the agency relationship with an agent. Under agency law, either the principal or the agent has the power to terminate the agency relationship at any time, even though they have previously agreed that the agent’s authority will continue for a definite period.  If the principal exercises this power, the agent has no right to continue acting for the principal, and could actually be subject to liability for continuing to hold himself or herself out as the principal’s agent if it causes loss to the principal.

However, just because a party has the power to terminate the agency relationship doesn’t mean they also have the right to terminate the contract by which the agency relationship was established.  Under contract law, if either party’s termination of the agency agreement is a breach of the agreement, that party may be held liable for any damages that the non-breaching party may be able to prove. 

The Exclusive Right to Sell Listing Agreement (Form 101) does not give either party the right to terminate the listing agreement without cause, so you can take the position that the sellers’ termination of your authority to act as their agent is a breach of contract. The issue of what damages you might be entitled to recover is a tricky one, and an answer could depend on the occurrence or nonoccurrence of future events, such as whether or not the sellers’ property is sold during the remaining term of the listing agreement.

If, following a frank discussion with your sellers about your respective views of the situation, they insist on terminating their relationship with you, you should remove your sign, take the listing out of the MLS, and discontinue any other activity that tends to indicate you’re still their agent.  We encourage you to attempt to reach an agreement with the sellers to release them from any further obligation under the listing agreement, perhaps in exchange for their agreement to pay you a sum of money toward reimbursement of costs you’ve incurred in representing them, or perhaps in exchange for a promise from the firm they want to list with to pay you a referral fee on any sale of the property.  That’s negotiable.  However, if the sellers won’t agree to acceptable terms, make it clear to them that you consider their termination of the relationship to be a breach of contract and that you are reserving your rights to seek recovery of any damages to which you are legally entitled as a result of their breach. 

 

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  2017. 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.