How does an agent purchase their own listing?
QUESTION: One of my agents listed a property and has now decided that she wants to buy it even before it goes on the market. She wants to be fair to the seller. How should she proceed? And what happens if an agent at my firm wants to purchase a property listed by a different agent at my firm?
ANSWER: An agent buying their own listing at any time, and particularly before that listing has been exposed to the market, presents fairly obvious conflict of interest concerns. Recognizing that guidance was needed in these situations, the North Carolina Real Estate Commission amended its “Agency Agreements and Disclosure” rule in July of 2014.
Paragraph (p) of Commission rule A.0104 sets forth three requirements for listing brokers and firms. The first is that a broker or a firm with an existing listing agreement for a property shall not enter into a contract to purchase that property unless the broker or firm first discloses in writing to their seller-client that the listing broker or firm may have a conflict of interest, and that the seller-client may want to seek independent counsel of an attorney or another licensed broker. The second requirement is that before a listing broker enters into a contract to purchase the listed property, the broker and firm must either terminate the listing agreement or transfer the listing to another broker affiliated with the firm. Finally, rule A.0104(p) states that before a listing firm enters into a contract to purchase the listed property, the listing broker and firm must disclose to the seller-client in writing that the seller-client has the right to terminate the listing, and the broker and firm must terminate the listing if the seller-client so requests. We would recommend a fourth requirement, perhaps in the form of a firm policy, that any property listed by any agent at a firm must be exposed to the market for a reasonable amount of time before the firm, or any firm agent, is permitted to purchase that property.
If an agent at your firm wants to purchase a property listed by a different agent at your firm, strictly speaking, rule A.0104(p) does not apply. Nevertheless, we strongly believe that the rule’s guidance should be applied in these situations. Why? Because a firm’s listing agreement imposes fiduciary responsibilities on all of the agents at that firm. As fiduciaries, agents are required to act in their clients’ best interests, and to place the interests of the firm’s clients above their own. An agent’s failure to comply with their fiduciary responsibility can provide the legal basis for a seller to make a claim of constructive fraud. If the seller can establish, among other things, that an agent used their position of trust and confidence to benefit themselves, that finding could support an award of punitive damages. Compliance with rule A.0104(p)’s guidance will allow brokers to meet their fiduciary responsibilities, to avoid even the appearance of improper self-dealing, and to greatly reduce their risk of potential litigation.
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.