Obligation of Listing Agent to Disclose Interest in LLC-Seller
QUESTION: My firm represented a buyer who recently entered into a contract to purchase a residential property. The seller was a North Carolina Limited Liability Company. The listing agent (a REALTOR®) signed the sales contract as Manager of the LLC. This relationship was not disclosed during negotiations. We later learned that, in addition to serving as a Manager of the LLC, the listing agent also has a 60% ownership interest in the LLC. Did the listing agent violate the License Law? How about the REALTOR® Code of Ethics?
ANSWER: In the situation you describe, where the buyer and seller are represented by two different firms, North Carolina’s Real Estate License Law does not obligate a listing agent to disclose to a buyer that he has an ownership interest in the selling entity. However, Article 4 of the REALTOR® Code of Ethics imposes disclosure obligations on the listing agent that go beyond the requirements of the License Law.
The relevant language of Article 4 states: “In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative.” Standard of Practice 4-1 requires all Article 4 disclosures to be made in writing, and prior to the signing of any contract.
Here, the listing agent violated Article 4 in two ways. First, he only disclosed the fact that he was a Manager of the LLC. While a Manager of an LLC has the right to participate in the management of the LLC, a Manager does not necessarily have an ownership interest in the LLC. Here the listing agent was both a Manager and an owner but he disclosed only the former interest.
The listing agent’s second mistake was in the timing of his disclosure: he did not disclose his status as a Manager of the LLC until he signed the Offer to Purchase and Contract on behalf of the seller. This timing violated the requirement set forth in Standard of Practice 4-1; all Article 4 disclosures must be made prior to the signing of any contract.
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