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Weekly Q&As

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

Release Date: 10/11/2016

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

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.

 

 

Can a listing firm reduce its commission to promote an "in-house" sale?

Release Date: 10/04/2016

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

QUESTION:  I am the Broker-in-Charge at my firm. An agent at our firm has a listing and has received two offers, one of which was presented by a broker with our firm. Can our firm offer to reduce our commission if the property is sold to the buyer represented by our buyer agent? If so, do I need to disclose the commission reduction to the agent who is affiliated with a different firm?

ANSWER:  There is no prohibition on your firm agreeing to reduce its commission at any time. However, on the issue of disclosure, the requirements of the REALTOR® Code of Ethics and the Real Estate License Law may be different. Specifically, while the Code of Ethics may not require disclosure of the commission reduction to other buyers, it appears that the Real Estate Commission might discipline a broker that agrees to reduce its commission on an in-house sale without timely disclosing that reduction to all competing buyers, and giving those buyers an opportunity to submit revised offers.  

The Code of Ethics provision that touches on this issue is Standard of Practice ("SOP") 3-4. It states: "REALTORS® acting as listing brokers have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements." A listing broker's agreement to reduce his or her commission if a listed property is sold to an "in-house" buyer would appear to create a "dual or variable rate commission arrangement". However, an attorney with the National Association of REALTORS® has advised us that SOP 3-4 does not bar a listing broker from renegotiating his or her commission at any time. NAR's attorney also opined that the Code of Ethics does not obligate a listing agent to put the acceptance of an offer produced by that agent's firm on hold until the listing agent informs all other MLS participants of his or her agreement with the seller.

The Real Estate Commission's legal staff  has a different view. The Commission's overriding rule in the multiple offer context is that there must be a level playing field for all buyers. Listing brokers must treat all buyers fairly and honestly. In the opinion of one Commission attorney, these principles obligate a listing firm that agrees to reduce its commission on an in-house sale to inform all other buyers of this agreement, and give them an opportunity to present a revised offer.

Ultimately, it would be up to an ethics hearing panel, or the Real Estate Commission itself, to decide each particular case based on the facts presented. However, brokers who elect to reduce their commission without informing the agents for other buyers should do so with knowledge that there are risks involved.  

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 make an offer on her own listing?

Release Date: 09/27/2016

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

QUESTION: One of my brokers has a listing that she personally wants to make an offer on.  She has also received an inquiry from an individual with no representation and it's likely he will want to make an offer too. Please let me know how we should handle this situation so we don't get in trouble.

ANSWER: First of all, Real Estate Commission Rule 58A.0104(p) applies to this situation.  According to the Rule, your agent cannot enter into a contract to purchase her seller’s property unless she does the following: (i) discloses in writing to the seller that she has a conflict of interest and that the seller may want to seek independent counsel of an attorney or another licensed broker, and (ii) the listing agreement is terminated or transferred to another broker affiliated with your firm.  She should also tell the seller about the inquiry that’s been made about the property if she hasn’t done so already.

Regardless whether the listing is terminated or transferred to another agent, we would advise against your agent working with the individual who has made inquiry about the property, given your agent’s interest in making an offer on the property herself.  If the listing is transferred to another agent with your firm, the individual who made inquiry should be advised to communicate directly with the agent to whom the listing has been transferred, and the new agent handling the listing should of course not disclose the terms of any offer that the individual may make to the former listing agent since she would be considered a competing party. See Commission Rule 58A.0115

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 a buyer inspect existing tenant leases when purchasing a rental or investment property?

Release Date: 09/20/2016

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

QUESTION: My client entered into a contract to purchase a townhome that was advertised as an investment or rental property. The Standard Form 2A11-T was filled out and made part of the contract, but the listing agent is now refusing to provide us with the current lease because of privacy laws. Is my client allowed to inspect the lease of the existing tenant? Is there some privacy law that would bar the seller from allowing us to see the lease pursuant to the contract?

ANSWER: If the seller collected personal information as part of the rental application process, then he or she has a duty under both federal and North Carolina privacy laws to not disclose such information to unauthorized third parties. “Personal information” includes, but is not limited to, social security numbers, driver’s license numbers, banking information, credit card numbers, and credit reports.

When the seller agreed to the terms of Standard Form 2A11-T, he or she agreed to provide your client with “true and complete copies of all existing leases, rental agreements, outstanding tenant notices, written statements of all oral tenant agreements, statement of all tenant’s deposits, uncured defaults by Seller or tenants, and claims made by or to tenants.” Some of these items may have a tenant’s personal information on them, but most of them likely would not. As long as there is no personal information on the lease agreement in question, then current privacy laws would not prevent the seller from allowing your client to inspect the existing lease in conformance with the contract.

If there is personal information on the lease, the seller can simply redact the personal information before turning it over for inspection. It should also be noted that if the seller used the Standard Form 410-T lease agreement, then the tenant has already agreed to the disclosure your client is seeking. Paragraph 30 of the 410-T allows a landlord to provide information about a tenant to third parties “in accordance with applicable laws.” If your client wants to inspect the tenant’s entire file, including the tenant’s personal information, then he or she should consult with an attorney to make sure they are authorized.

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 brokers check the "no representation" boxes on the Residential Property Disclosure Statement when selling their own property?

Release Date: 09/13/2016

Bill Gifford, Martin & Gifford, PLLC

QUESTION:  I am a licensed broker. I am about to list a residential property for sale that I have owned for several years. Am I allowed to check any of the "No Representation" boxes on the Residential Property Disclosure Statement?

ANSWER:  Our view is that a property owner who has an active real estate license may lawfully choose to check the "No Representation" boxes on the Disclosure Statement. However, that broker retains an obligation to disclose all material facts about the property being sold, including facts that the broker knows about, and facts that the broker reasonably should know about.

Essentially, we see a technical distinction between a property owner's obligations under the Residential Property Disclosure Act and a broker/owner's obligations under the Real Estate License Law.

The Residential Property Disclosure Act (the "RPDA") requires most owners of residential property to deliver a disclosure statement to a purchaser no later than the time the purchaser makes an offer for the property. However, the RPDA allows those owners to either make disclosures concerning specified "characteristics and conditions" of the property, or state that the owner makes no representations as to those "characteristics and conditions". There is no exemption in the RPDA for real estate broker-sellers. Therefore, the RPDA gives brokers the same right to check the "No Representation" boxes as any other seller.

That fact does not excuse brokers from their obligations under the License Law (and Article 2 of the REALTOR® Code of Ethics). Section 93A-6(a)(1) of the License Law obligates brokers to disclose material facts about a transaction in which they are engaged. Section 93A-6(b)(3) makes it clear that this obligation extends to transactions in which the broker is a party (and not necessarily acting as a broker). It states that brokers may be disciplined when: "[t]he licensee has violated any of the provisions of G.S. 93A-6(a) when selling, leasing, or buying the licensee's own property".

Practically speaking, a broker-seller whose license is active has a duty to disclose material facts about his or her property, whether it is accomplished by completing the Disclosure Statement or otherwise.

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.