Release Date: 12/06/2016
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.