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Weekly Q&As

Can I be paid a commission if I don’t a have a written buyer agency agreement?

Release Date: 09/14/2017

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

QUESTION: I recently showed an MLS listing to a buyer.  I went over the Working With Real Estate Agents brochure with her beforehand.  She wanted me to be her buyer agent but was reluctant to sign a buyer agency agreement.  I said I could show her the property without a written agreement but that she would need to sign a written buyer agency agreement before I could help her make an offer on the property as her agent.  She said she understood.

The buyer was very excited about the property.  We had several phone conversations and I emailed her additional information about the property.  Then she went dark on me.  Long story short, I found out that she got another agent to write an offer on the property for her.  When I called that agent to tell him I thought I might be the procuring cause, he told me that it would be against the law for me to be paid a commission since I didn’t have a written buyer agency agreement, and that if I tried to do so he’d report me to the Real Estate Commission.  My question is, would it be wrong for my firm to try to recover the compensation offered in MLS if the deal closes and we can’t work something out? 

ANSWER: No, it would not be wrong for your firm to do that.  It’s true that the Real Estate Commission’s rules require brokerage agreements between a broker and a buyer to be in writing no later than the time an offer is made.  And it’s true there is a state law prohibiting a broker from recovering a commission from a client under an agreement for brokerage services unless the agreement is in writing.  However, the agreement you would be seeking to enforce would not be an agreement with the buyer, but rather an agreement with the firm that listed the property in MLS.  Neither the law nor the Real Estate Commission’s rules require an agreement between brokers for the payment of a commission to be in writing.  In the case of an MLS listing, the agreement between the brokers is formed by an MLS participant accepting the listing firm’s offer of compensation by demonstrating that they are the procuring cause of a successful transaction. 

We are not saying you would necessarily be successful if you file a “procuring cause” claim (called a “request for arbitration”) with your local association.  A hearing panel called on to decide a commission dispute between members is required to consider all the relevant facts and circumstances, and must disregard “predetermined rules of entitlement” (meaning that the winner isn’t determined simply by figuring out who showed the property first or who had the buyer agency agreement with the buyer).  Also, we are not saying that a violation of the law or a Real Estate Commission Rule might not be a factor in a hearing panel’s decision in a procuring cause dispute.  What we are saying is that based on the facts of your particular situation, we do not think the absence of a written buyer agency agreement should be a bar to your firm’s pursuit of a procuring cause claim if the matter can’t otherwise be worked out.

 

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.

 

 

The Back-up Contract Addendum and Payment of the Due Diligence Fee

Release Date: 09/07/2017

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

QUESTION: A couple weeks ago, my client accepted a back-up contract on her home, and yesterday the first contract terminated during due diligence. I notified the back-up buyer’s agent the same day that their contract had become primary and was no longer the back-up.

Today the back-up buyer’s agent sent me a notice of termination. I emailed the agent and asked that the back-up buyer send my client the Due Diligence Fee. However, the agent responded that their client did not need to pay, because the Back-up Contract Addendum indicated that the Due Diligence Fee was not due for five days. Is the buyer’s agent correct?

ANSWER: No. Paragraph 9(a) of the Back-up Contract Addendum (Form 2A1-T) states that “[a]ny Due Diligence Fee provided for in this Contract shall be due and payable within five (5) days after delivery to Buyer of Notice of Primary Status.” (Emphasis added). This provision does not conflict with the Offer to Purchase and Contract (Form 2-T), which provides that the Due Diligence Fee “shall be the property of the seller upon the Effective Date[.]” The Effective Date is not altered by the Back-up Contract Addendum, which means it is the date listed in the Form 2-T, not the date that the back-up contract moves into primary status.

Paragraph 9(a) of Back-up Contract Addendum merely outlines the timing for payment of the Due Diligence Fee. The fee becomes due and payable immediately upon the back-up buyer’s receiving notice of primary status, and the fee is late if the back-up buyer fails to pay within five days. Should the back-up buyer fail to timely pay the Due Diligence Fee, the seller can send a notice for payment. If the back-up buyer thereafter fails to pay the fee within one banking day, the seller has the right to terminate. The timing of payment does not alter who owns the Due Diligence Fee upon the contract’s execution. It is the property of the seller unless the parties reach another agreement in writing.

 

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 you explain the recent change to the termination of agency agreement?

Release Date: 08/31/2017

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

QUESTION: I noticed that a new paragraph 4 has been added to Standard Form 720 - the "Termination of Agency Agreement and Release". The new paragraph has the heading "Protection Period Preserved". Can you explain what is being preserved?

ANSWER:  If an agent and a client signed the old version of Form 720, and thereby agreed to terminate an existing agency agreement, the form provided that both parties agreed to release each other from any and all claims arising from that agency agreement. It was not uncommon for listing agents to learn that, shortly after signing the old termination form, their client had entered into a contract to sell their property to a person the agent had dealt with during the term of his listing. Similarly, it was not uncommon for selling agents to learn that, shortly after signing the old termination form, their buyer-client had entered into a contract to purchase property that the agent had introduced to the buyer during the term of their agreement.

Form 720 was revised in an effort to protect agents in both of these situations. The added paragraph states that notwithstanding the release language elsewhere in the Termination of Agency Agreement and Release, the parties agree that their respective rights and obligations under any "Protection Period" set forth in their agency agreement shall remain in full force and effect for the specified period of time following the "Effective Date" of the Termination Agreement.

Listing agents should keep in mind that if they sign the new Form 720, and their seller-client then engages another real estate broker to list their property, they will not be entitled to a commission even if the property is sold during the Protection Period. This possibility is specifically addressed in paragraph 7(b)(iii) of the Exclusive Right to Sell Listing Agreement (Standard Form 101). In other words, the new Termination form does not enhance the listing agent's rights under their listing agreement, it merely protects and preserves whatever rights the listing agent has pursuant to the "Protection Period" section of the that agreement.

 

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.

 

 

May I advertise my role in sales after leaving a firm?

Release Date: 08/24/2017

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

QUESTION: I’ve recently changed firms.  I was with my last firm for a long time and I was involved in the sale of many properties while I was there.  Those properties are displayed on my website.  Of course, I’ve changed my website to clearly show the name of my new firm.  My question is, can I continue to display the properties I helped sell while I was affiliated with my old firm since I’m no longer there?

ANSWER: Yes, provided that viewers would understand that some of the sales had occurred while you were affiliated with a different firm.  This could be accomplished by the addition of a prominent disclaimer at the end or beginning of the display stating that you were affiliated with a different firm for much of the time during which the displayed properties were sold. 

There are two “Case Interpretations” in the NAR Code of Ethics and Arbitration Manual that directly address a REALTOR® advertising his or her role in sales after changing firm affiliation.   They are Case Interpretations 12-25 and 12-26.  The Case Interpretations of the Code of Ethics help REALTORS® understand the ethical obligations created by the Code of Ethics, and as a reference work for Grievance Committees, ethics and arbitration Hearing Panels, and Boards of Directors.  They present specific situations involving charges of alleged unethical conduct by REALTORS® which are reviewed by a hearing panel and in which decisions as to ethical conduct are reached.  The Manual is available on the NAR website by clicking here.  Case Interpretations 12-25 and 12-26 are on page 330.

If you read Case Interpretations 12-25 and 12-26, you’ll see that in one case the REALTOR® respondent was found in violation of Article 12 of the Code of Ethics, while in the other case with nearly identical facts she was not.  In the first case, the hearing panel ruled that the REALTOR®’s display of sold properties on her website was misleading and a violation Article 12 because it might reasonably be concluded that all the sales had been made while the REALTOR® was affiliated with her new firm. However, in Case Interpretation 12-26, the hearing panel found that the REALTOR® had not violated the Code.  The difference-maker?  The addition of a disclaimer making it clear that many of the sales had taken place while the REALTOR® had been with a different firm

 

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.

 

 

To whom do I return the earnest money when multiple buyers do not agree?

Release Date: 08/17/2017

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

QUESTION: I represent a married couple who submitted a successful offer to purchase a home. Both parties were listed as the “Buyer” in the offer, but the earnest money check was issued from an account only in the husband’s name. Shortly after due diligence began, the couple filed for divorce and terminated the contract. The wife is now asking that the earnest money be refunded to her. The husband disagrees. To whom should I write the check?

ANSWER: Paragraph 1(e) of the Offer to Purchase and Contract (Form 2-T) states that if an offer isn’t accepted, or if a condition of any resulting contract isn’t satisfied, then the Earnest Money Deposit (“EMD”) must be refunded to “Buyer.” The term “Buyer” is defined in paragraph 1(b). Also see paragraphs 4(f), 8(n), and 12 for similar language. Unless you have agreement from all the buyers listed in an offer or contract for some other disbursement, you should issue the EMD to all “Buyers” listed in paragraph 1(b).

If you do not feel comfortable writing a check to all “Buyers,” you may also deposit the money with your Clerk of Court pursuant to N.C.G.S. § 93A-12 since you received the EMD in your fiduciary capacity.

 

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.