N.C. Realtors fight dual-agency disclosure

Commission to appoint a task force to study complaints

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Three North Carolina Realtor associations want the state’s real estate commission to reconsider its interpretation of a new disclosure rule that requires firms conducting dual-agency transactions to reveal the total compensation they receive to the buyer.

Realtor associations based in Raleigh, Charlotte and Greensboro have issued letters in support of Tony Jarrett, regional vice president at Allen Tate Realtors, who has requested that the commission reconsider its interpretation of the rule as it pertains to dual agency.

The North Carolina Real Estate Commission will appoint a task force to evaluate the associations’ complaints, said the commission’s legal counsel, Tom Miller. Commission staff are drawing up a list of proposed task force members for the commission to consider at its next meeting on March 10, Miller said.

Rule A.0109 went into effect on Oct. 1, 2008. It requires the state’s real estate licensees to reveal, in writing, any compensation "of more than nominal value" they expect to receive from their client (the buyer, seller or both) and any compensation that the licensee expects to receive from any other party for that transaction.

Written disclosure must happen before the principal makes or accepts an offer to buy or sell.

The letters reveal objections to the rule’s requirement that firms reveal the total compensation they receive from a dual-agency transaction to the buyer (the seller would likely already know since he/she would be the one paying compensation for both) and cite obstacles to the rule’s application in practice.

"I am writing this letter because I fail to understand the reasoning, the logic or even the consumer benefit, in having the real estate brokers in N.C. disclose the firm’s total compensation in a dual-agency transaction to the buyer client," Jarrett said in a Dec. 18 letter to the commission.

Jarrett was a member of the 2007 task force that first studied the disclosure issue, following a report by the Charlotte Observer that Charlotte-area-based Realty Place received millions in bonuses from builders to steer hundreds of potential buyers to their properties and then failed to disclose the bonuses.

According to the Observer, receipt of the bonuses was legal, but the nondisclosure might have violated state rules and federal law. Realty Place closed in 2008.

Jarrett said he agreed with the intent of the rule "to avoid this kind of bad consumer experience from happening again."

"However, now this rule appears to becoming more and more complicated, with inconsistent applications, and it is creating more hurdles for the real estate licensee in regards to delivering the best consumer experience," Jarrett wrote.

"Disclosing bonuses is one thing, but having to discuss our seller compensation agreements with a buyer client simply because that buyer bought our seller’s listing is another matter entirely."

The presidents of the Raleigh Regional Association of Realtors, the Charlotte Regional Realtor Association and the Greensboro Regional Realtors Association each wrote letters in support of Jarrett’s request.

"Our members expressed concerns that this rule seems to set agents up for failure by attempting to make this disclosure in a satisfactory manner. In order to comply, the rule puts the agent in an awkward position," wrote William Guill of the Greensboro association.

Critics say reporting the total compensation amount would be misleading when a seller pays for additional marketing of a new development as part of the listing agreement, or if a broker is required to report the amount the seller paid a third party (through the brokerage) as a referral fee.

They also cite questions of timing. The rule requires written disclosure before an offer is made and "made in sufficient time to aid a reasonable person’s decision-making." What happens if the listing agent cannot be reached or is reached after hours and cannot remember the specific compensation amounts? …CONTINUED

The commission addressed these concerns in an Oct. 7, 2009, letter assuring Realtors that the commission "will look at all the facts and circumstances surrounding a particular transaction before making a decision as to whether a broker behaved inappropriately."

But confusion among some Realtors remained.

"We want the real estate commission to help us figure out how to apply this rule. How do we make it work in an every day world? It works well in an ivory tower but not when you’re driving buyers around and writing offers," said George Bell, a Realtor who works with Jarrett on the North Carolina Association of Realtors’ Forms Committee.

"This isn’t about what the buyer should or shouldn’t know. It’s how it should be applied," Bell said.

The commission defends its interpretation of the disclosure rule as a benefit to consumers.

"If the seller is paying disproportionate amounts of money, I (as the consumer) have a right to know that in order to weigh the advice given with given information," Miller said.

"This is the conundrum that every dual agent has. A dual agent has an inherent conflict of interest."

The challenge for the commission, Miller said, is to figure out which complaints have merit and try to address them without diminishing the benefit to consumers.

"I feel fairly certain that the commission will not do anything to reduce a consumer’s protection," Miller said.

In the associations’ point of view, the rule was designed to reveal "additional" compensation made in the transaction, but they are left with the question of what is "normal" and what is "additional."

"You can beat the rules and say everything is part of the commission and that’s why we require the disclosure of everything," Miller said.

The complainants also believe the commission is treating co-brokered transactions, in which two different companies represent the buyers and the sellers, differently than dual-agency transactions.

"In addition, why are we only targeting dual agency in a firm when you take into account no additional disclosure is required in a non-dual-agency transaction," wrote Theresa Clark of the Raleigh association.

The rule itself does not mention any disclosure distinctions between these transactions. Miller maintains that the transactions are not treated differently; that in each, the firm has to disclose to their principal what they expect the principal to pay them and what they are being paid by another party for the same transaction.

"In designated agency (when two different agents from the same company represent the buyer and the seller) the agent for both (is) the company. Otherwise, that creates a significant hole that could be abused. It was exactly that situation in Realty Place," Miller said.

Consumers should know "if you buy this house, I get 2 percent. If you buy this one, I get 1 percent," Miller said.

When asked why the associations objected to the rule’s interpretation, he said, "I don’t know why. I don’t think they understand it."

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