Crash course Flashcards
Real property
defined as the land, everything that is permanently attached to the land, and everything that is appurtenant to (or goes with) the land.
Personal property
or personalty, is considered to be all property that does not fit the definition of real property.
The primary characteristic of personal property is
movability
Items of personal property, also referred to as _____, include such tangibles as furniture, clothing, money, bonds, and bank accounts. In other words, a _____ is an item of movable personal property.
chattels; chattels
Land is defined as
the earth’s surface extending downward to the center of the earth and upward to infinity, including things permanently attached by nature, such as trees and water
Real estate, or realty, is defined as
land at, above, and below the earth’s surface, including all things permanently attached to it, whether natural or artificial
Land is referred to as improved when
streets, utilities, sewers, and other improvements are brought to the land, making the land suitable for building.
The broader term real property includes the physical surface of the land, what lies below it, what lies above it, and what is permanently attached to it, as well as all the rights of ownership that are usually referred to as
the bundle of legal rights
bundle of legal rights
deepc
right of disposition (to sell, will, transfer, or otherwise dispose of or encumber the property);
right of enjoyment to use in any legal manner (to uninterrupted use of the property without interference of any third party claiming superior title);
right of exclusion (to keep others from entering or using the property);
right of possession (to use or occupy);
right of control (of the property and its profits within the framework of the law).
Tenements are
any structures attached to the land
hereditaments are
any interests in real estate capable of being inherited
Real estate characteristics fall into two broad categories which are
physical characteristics and economic characteristics
Physical characteristics
IIU
immobility,
indestructibility
uniqueness.
Economic characteristics
SLIP
scarcity,
location,
improvements,
permanence of investment.
Immobility
It is true that some of the substances of land are removable and that topography can be changed, but the geographic location of any given parcel of land can never be changed. Because land is immobile, the rights to use land are more easily regulated than are other forms of property use.
Indestructibility
Land is durable and indestructible (or permanent). The permanence of land, coupled with the long-term nature of the improvements placed on it, has tended to stabilize investments in land. However, while land is indestructible, the improvements on it depreciate and can become obsolete, thereby reducing values—perhaps drastically. (Depreciation should not be confused with the fact that a given location can become undesirable economically, creating a decrease in market value as a result.)
Uniqueness
No two parcels of land are ever exactly the same. Although they may share substantial similarity, all parcels differ geographically. The uniqueness of land is also referred to as its nonhomogeneity or heterogeneity
Scarcity
Although land is not thought of as a rare commodity, its total supply is fixed. Even though a considerable amount of land in the United States is still not used or inhabited, the supply of land in a given location (i.e., ocean front) or of a particular quality may be limited, creating increased demand for that specific land. Because no more land can be produced, the increasing use of land has a positive impact on value. American humorist Will Rogers once said, “Buy land. They ain’t making no more of the stuff.”
Location (area preferences)
Area preference, sometimes called location, refers to people’s choices and tastes regarding a given area. Location is one of the most important economic characteristics of land. Situs is a related term regarding location that takes into consideration social factors in addition to economic factors.
Situs
is a related term regarding location that takes into consideration social factors in addition to economic factors.
Improvements
Any addition or change to land or a building that affects the property’s value is referred to as an improvement. Improvements of a private nature, such as the house, fencing, et cetera, are referred to as improvements on the land, whereas improvements of a public nature, such as sidewalks, sewer systems, curbing, et cetera, are referred to as improvements to the land. Additions or alterations to the property that are merely repairs or replacements may not be considered to be improvements. Brokers should be aware that the term improved land has two meanings. If buildings are constructed on the land, the buildings can be considered improvements. If the land has been prepared for development, such as with grading, installation of utilities, et cetera, the land may be referred to as improved land.
Permanence of investment
Once land is improved, the total capital and labor used to build the improvement represents a large fixed investment. Although even a well-built structure can be torn down to make way for a newer building or another use of the land, improvements to the land such as drainage, electricity, and water and sewer systems remain because they generally cannot be dismantled or removed economically. The owner has no way to transfer the investment to another parcel of land. The return on such investments, therefore, tends to be long-term and relatively stable. This permanence generally makes improved real estate unsuitable for short-term, rapid-turnover investing. A disadvantage of owning real estate is that it lacks liquidity.
Real property is defined as the land itself and any improvements on it, as well as any rights inherent in the ownership of real estate.
True
False
True
The primary characteristic of personal property is movability.
True
False
True
Advantages of real estate investment
Most real estate values tend to keep pace with the rate of inflation
tax advantages
Disadvantages of real estate investment
not a liquid asset
it is difficult to invest in real estate without some degree of expert advice
Rarely can a real estate investor sit idly by and watch the invested money grow
high degree of risk
Factors affecting supply
labor force,
construction costs,
government controls,
monetary or financial policies
Who establishes a discount rate of interest for the money it lends to commercial banks?
The Federal Reserve Board (the Fed)
In 2010, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act that created
the Consumer Financial Protection Bureau (CFPB)
The CFPB consolidates most federal consumer financial protection authority in one place. The consumer bureau is focused on one goal:
watching out for American consumers in the market for consumer financial products and services.
Factors affecting demand
population,
demographics,
employment and wage levels
The upward and downward fluctuations in business activity are called
business cycles
A business cycle can generally be characterized by four stages:
expansion,
recession,
depression,
revival
improved lot
usually means that certain basic required services necessary to utilize it are available, such as electricity, telephone, street access, or water access.
The concept of the bundle of rights comes from old English law and a population that, for the most part, could not read or write. Therefore, a seller transferred property by giving the purchaser a bundle of bound sticks from a tree on the property. This process was referred to as a
livery of seisin
improved land
usually refers to land that has a structure on it, for example a house
caissons
building’s foundation supports
Riparian rights
are granted to owners of land located along the course of a river or stream. Such an owner has the unrestricted right to use the water, provided such use does not harm owners upstream or downstream by interrupting or altering the flow of the water or by contaminating it.
an owner of land that borders a non-navigable waterway owns
the land under the water to the exact center of the waterway.
Land adjoining navigable rivers is owned
only to the banks of the river in North Carolina
Navigable waters are considered _____ on which the public has an easement or a right to travel.
public highways
littoral rights
of owners whose land borders oceans and large, navigable lakes that have a tide.
enjoy unrestricted use of navigable waters but own the land adjacent to the water only up to the mean high-water mark.
All land below this point is owned by the government.
The strip of land between high and low tide lines, called the foreshore, belongs to the state of North Carolina
foreshore
The strip of land between high and low tide lines, called the foreshore, belongs to the state of North Carolina
Western states follow the doctrine of prior appropriation
Prior appropriation doctrine states that water rights are determined by priority of beneficial use. This means that the first person to use water or divert water for a beneficial use or purpose can acquire individual rights to the water. Thus property owners may have land that borders water but no rights to use that water.
accretion
a gradual increase in land resulting from the deposit of soil by the water
reliction
If water gradually recedes or disappears permanently, new land is acquired
Erosion
the gradual wearing away of land caused by flowing water or other natural forces, may cause an owner to lose land
When a sudden act of nature such as a flood or avalanche removes soil
avulsion
lateral support
The owner of real property has the right to lateral support, or the right to have adjacent property support the natural boundaries of the land. Therefore, construction or excavation on a neighboring property should not cause the soil on the owner’s property to subside.
subjacent support
As discussed previously, occasionally the landowner severs the subsurface rights from the land and sells them. In such a situation, the property owner is entitled to subjacent support for the surface of the property from the owner of the subsurface rights. As an example, any underground mining projects must assure continued support of the land’s surface.
Annual crops, such as wheat, corn, vegetables, and fruit, are known as
(fructus industriales—fruits of industry)
emblements
considered personal property
Trees, perennial bushes, and grasses that do not require annual cultivation are considered
(fructus naturales—fruits of nature)
considered real property
It is possible to change an item of real property to personal property by
severance
It is also possible to change personal property into real property. If a landowner buys several azalea bushes, fertilizer, and mulch to landscape the front yard, the component parts, which were originally personal property, are converted into real property once planted and applied. They have become permanent improvements on the land. This process is called
annexation
Total Circumstances Test
Intention of the annexor:
Did the person who installed the item intend it to remain permanently or be removable? (The courts look at objective evidence of the party’s intent, not the party’s subjective intent. In other words, the courts look at the facts surrounding the situation and determine what a reasonable person would have intended by them.)
Relationship of the annexor:
Is the person making the attachment an owner or a tenant? It is presumed that an owner intends a permanent attachment (the item becomes a fixture), while a tenant intends a temporary attachment (the item remains personal property). The greater the legal relationship the annexor has to the real property, the greater the likelihood the item will be declared a fixture.
Method of annexation:
How permanently was the item attached? Can it be removed without causing damage? To what degree has there been customization of the space around the item? For example, built-in refrigerators and microwave ovens are often surrounded by cabinetry, making them more likely to be considered a fixture.
Adaptation to real estate:
Has either the item or the property been tailored to facilitate working together? Has it been customized or built in to the property? For example, if a gas station owner sells his business, it would be the buyer’s expectation that the underground gas storage tanks would remain with the property since the tanks are necessary for the business to function.
Note
Seller’s use, removal, or resale of fuel in any fuel tank is subject to seller’s obligation to provide working, existing utilities through the earlier of closing or possession by buyer.
Fuel tank(s), whether attached or buried, and including any contents that have not been used, removed or resold to the fuel provider as of settlement is considered a fixture.
lists items that are deemed fixtures
Alarm and security systems (attached) for security, fire, smoke, carbon monoxide, or other toxins with all related access codes, sensors, cameras, dedicated monitors, hard drives, video recorders, power supplies, and cables; doorbells/chimes
All stoves/ranges/ovens; built-in appliances; attached microwave oven; vent hood
Antennas; satellite dishes and receivers
Basketball goals and play equipment (permanently attached or in-ground)
Ceiling and wall-attached fans; light fixtures (including existing bulbs)
Fireplace insert; gas logs or starters; attached fireplace screens; wood or coal stoves
Floor coverings (attached)
Fuel tank(s), whether attached or buried, and including any contents that have not been used, removed or resold to the fuel provider as of settlement.
Note: Seller’s use, removal, or resale of fuel in any fuel tank is subject to seller’s obligation to provide working, existing utilities through the earlier of closing or possession by buyer.
Garage door openers with all controls
Generators that are permanently wired
Invisible fencing with power supply, controls, and receivers
Landscape and outdoor trees and plants (except in movable
containers); raised gardens; landscape and foundation lighting; outdoor sound systems; permanent irrigation systems and controls; rain barrels; landscape water features; address markers
Mailboxes; mounted package and newspaper receptacles
Mirrors attached to walls, ceilings, cabinets, or doors; all bathroom wall mirrors
Storage shed; utility building
Swimming pool (excluding inflatable); spa; hot tub
Solar electric and solar water heating systems
Sump-pumps, radon fans, and crawlspace ventilators; dehumidifiers that are permanently wired
Surface-mounting brackets for television and speakers; recess-mounted speakers; mounted intercom systems
Water supply equipment, including filters and conditioning and softener systems; re-circulating pumps; well pumps and tanks
Window/door blinds and shades, curtain and drapery rods and brackets, door and window screens and combination doors, awnings and storm windows
agricultural fixtures
There is a special class of fixtures in North Carolina called agricultural fixtures. While fixtures used in a farming operation would seem to fall into the category of trade fixtures, agricultural fixtures are considered real property rather than personal property. Therefore, in North Carolina, if a tenant farmer installed feeding troughs during the tenancy, they would be considered real property and could not be removed by the tenant at the end of the lease without special written agreement.
North Carolina Uniform Commercial Code (UCC)
All brokers should be aware of the effect of the North Carolina Uniform Commercial Code (UCC) on fixtures. According to the UCC, if a homeowner purchases an item on credit (a dishwasher, for example) and gives the creditor a security agreement, that item remains personal property and may be removed by the creditor in the event of default.
manufactured home
A manufactured home is built according to the United States Department of Housing and Urban Development (HUD) construction standards
modular homes
These units are constructed in factories off site according to state building codes and contain a state-inspection label with serial numbers certifying compliance. Once the modular home is assembled on the home site, it is immediately considered to be real property.
nonfreehold estates
leasehold estates (those involving tenants’ rights of possession)
freehold estates
(those involving rights of ownership)
The types of freehold estates that can be transferred include
fee simple estate (can pass by inheritance),
defeasible fee estate (can pass by inheritance),
pur autre vie estate (estate for the life of another) with remainder or reversion (can pass by inheritance),
ordinary conventional life estate with remainder or reversion (does not pass by inheritance).
The four types of leasehold estates are the
estate for years,
estate from year to year,
estate at will,
estate at sufferance.
With fee simple subject to a condition subsequent… the former owner retains a right of re-entry, called a _____, so that if the condition is broken, the former owner can retake possession of the property through court proceedings.
reversionary right
fee simple determinable
The former owners, their heirs, or their successors retain the right of reversion that automatically reacquires full ownership if the special condition ceases to exist.
Because they will take effect only at some time in the future (if at all), the right of re-entry and the possibility of reversion are called
future interests.
A conventional life estate is limited to the lifetime of the new owner of the life estate (the _____)
life tenant
When someone dies without a will, or dies with a will disinheriting a spouse or leaving him or her very little, North Carolina allows the surviving spouse to choose an “_____” of the estate instead. This share is sometimes referred to as a _____. As of October 1, 2013, the determination of the percentage to which a surviving spouse in North Carolina is entitled was changed to a length-of-marriage approach.
elective share; marital life estate
Reversionary Interest
In real estate, a reversionary interest refers to the future ownership interest or right to possess a property that will be realized or exercised at a later date. This interest typically arises from a condition or event specified in a legal agreement, such as a lease or a life estate.
A life tenant can enjoy the rights of the land but cannot encroach on those of the reversioner or remainderman. In other words, the life tenant cannot perform any act that would permanently injure the land or property. For example, a life tenant would not be allowed to destroy an orchard on the property to avoid having to bother with it. This kind of injury to real estate is known in legal terms as _____.
waste
homestead
A homestead is a legal life estate in real estate occupied as the family home. In effect, the home (or at least some part of it) is protected from most creditors during the occupant’s lifetime. In states that have homestead exemption laws, a portion of the acreage or value of the property occupied as the family home is exempt from certain judgments for debts, such as charge accounts and personal loans. The homestead is not protected from real estate taxes billed against the property or a mortgage for the purchase or cost of improvements; that is, if the debt is secured by the property, the property cannot be exempt from a judgment on that debt.
A family can have only one homestead at any given time.
Youtube this
qualified fee estate
A wealthy person who gives the State of North Carolina ownership in land but stipulates that the property must always be used for recreational purposes has created a qualified fee estate.
A qualified estate, also known as fee simple defeasible, requires a new owner to obey the restriction imposed on the estate by the previous owner.
severalty
means that title is held by one owner
partition of the land by voluntary action and agreement
Each co-owner of real estate has an absolute right to force a partition of the land by voluntary action and agreement, which will divide a co-owner’s real estate according to his or her interests. When a division among co-owners cannot be agreed on voluntarily, the division can be ordered by a court in a suit for partition. The court may actually divide the land into pro rata parcels or, if this cannot be done, may order the property sold and the proceeds divided proportionately among the owners.
common interest community (hybrid) ownerships
Some forms of ownership are called common interest community (hybrid) ownerships because they contain elements of both ownership in severalty and concurrent ownership. Owners of individual units may hold title to their unit in any legal way previously discussed (severalty, tenants in common, joint tenancy, or tenancy by the entireties).
North Carolina Condominium Act of 1986
The North Carolina Condominium Act of 1986 specifies that a condominium is created and established when the developer of the property executes and records a declaration of its creation in the county where the property is located. The declaration must include any covenants, conditions, or restrictions on the use of the property.
The developer must file a plat map or plan of the condominium property, buildings, and any other improvements. The developer also must prepare a set of bylaws. The bylaws usually provide for…
the creation of a unit owners’ association giving a vote to each unit owner,
the election of a board of managers from among the unit owners,
the duties of the board of managers,
the compensation of its members,
their method of election and removal,
whether a professional manager is to be engaged,
the method of collecting the unit owners’ association monthly dues from each member to cover the costs of management and maintenance of the common areas.
The North Carolina law also requires disclosure and other consumer protection measures in connection with new residential condominium unit sales in the form of _____. The developer must disclose all ownership and other appropriate documents to the purchaser before _____.
public offering statements; the purchase contract is signed
The purchaser then has a seven-day rescission period, which begins after the purchase contract is signed. At any time during that seven-day period, the purchaser can cancel the sale and receive a full refund of any monies paid.
On a resale unit (a sale of a condominium other than the original sale from the developer), a resale certificate detailing the monthly dues assessment and any other fees payable by a unit owner must be given to a purchaser prior to conveyance. There is no right to cancel in resale transactions.
cooperative ownership
Under the usual cooperative ownership, title to land and building is held by a corporation (or partnership or land trust) and the building management sets a price for stock shares for each unit in the building. Each tenant of a unit in the building purchases stock in the corporation when the tenant pays the agreed-on price for use of a specific apartment. The purchaser then becomes a shareholder of the corporation and, by virtue of that stock ownership, receives a proprietary lease to the unit for the life of the corporation; there is no deed because there is no ownership of the individual unit.
The cooperative building’s real estate taxes are assessed against the corporation as owner. Generally, the mortgage is signed by the corporation, creating one lien on the entire parcel of real estate. Taxes, mortgage interest, and principal, plus operating and maintenance expenses, are shared by the tenants/shareholders in the form of monthly assessments.
While the cooperative tenants/owners do not actually own an interest in real estate (they own stock, which is personal property), for all practical purposes, they control the property through their stock ownership and their voice in the management of the corporation. The bylaws of the corporation generally provide that each prospective purchaser of an apartment lease must be approved by an administrative board. This hybrid form of ownership has not enjoyed much popularity in North Carolina to date.
Town house ownership
They share party walls
Sometimes called row houses
Each town house unit is individually owned
All unit owners have membership in the homeowner association that owns the common areas. The homeowners association will pay real property taxes on the common areas, while each individual unit owner will pay the real property taxes on the unit the individual owns.
Town house ownership is similar to condominium ownership with one fundamental difference: the owner of each town house unit also owns the land on which that unit is built.
Townhouse communities in North Carolina are regulated under the _____.
North Carolina Planned Community Act
time-share ownership
any right to occupy a unit of real property during five or more separated time periods (usually consisting of one or two weeks) over a period of at least five years
Note
The North Carolina Time Share Act (G.S. 93A, Article 4) was passed to regulate the development and sale of time-shares. Despite the name given to a development project, if the format meets the definition in the Act, it will be classified as a time-share and subject to its requirements.
Time share stipulations according to the North Carolina Time Share Act are…
all time-share projects must be registered with the state;
all developers selling or offering to sell time shares must renew their registrations on or before June 30 of each year.
Developers must give prospective purchasers public offering statements prior to contract;
and purchasers have a five-day cancellation or rescission period during which they can cancel the purchase without penalty.
Any payments received by a time-share developer or broker must be deposited in a trust or escrow account in an insured bank or savings and loan in North Carolina and remain in such account for 10 days or upon cancellation by the purchaser, whichever occurs first.
Time-share salespeople must be active real estate brokers operating under a project broker
Time-share salespeople must be active real estate brokers operating under a project broker, who are subject to disciplinary action by the North Carolina Real Estate Commission. P.S.- There is no separate license for individuals selling time-shares. Individuals who sell time-shares must be properly licensed North Carolina brokers.
The Commission can also fine unlicensed time-share developers $500 for each violation of the Act or revoke the project’s registration certificate.
In a cooperative, the shares of stock that the tenant/owner owns is considered what type of property?
A)
Personal property
B)
Real property
C)
Proprietary property
D)
Property in deed
Personal property
A trust is a
fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.
testamentary trusts
created by a property owner’s will
land trusts
where real estate is the only asset
A land trust usually has a definite term (e.g., 20 years), which can be extended.
Real Estate Investment Trusts (REITs)
(similar to a mutual fund, REITS are companies which own real estate.)
The beneficial interest in the trust is considered _____ that may transfer by assignment versus a deed.
Personal property
Trust dissolution may occur when
the beneficiary reaches a certain age, at the death of the beneficiary or the trustor, or when other conditions are met.
Note
The IRS treats a cooperative the same as houses or condominiums for tax purposes.
Also
The lender may accept stock as collateral for financing, which expands the pool of potential owners.
According to the North Carolina Time Share Act, a certificate of registration for each time-share project must
be obtained from the North Carolina Real Estate Commission.
be renewed every June.
A)
I only
B)
II only
C)
Neither I nor II
D)
Both I and II
D Both I and II
The North Carolina Time Share Act (G.S. 93A, Article 4) was passed to regulate the development and sale of time-shares. Under the act, all time-share projects must be registered with the state and all developers selling or offering to sell time-shares must renew their registrations on or before June 30 of each year.
the lender records the mortgage or deed of trust in the office of the _____ in the county where the property is located.
register of deeds
mechanic’s lien
To be entitled to a mechanic’s lien, the person who did the work must have had a contract (express or implied) with the owner or the owner’s authorized representative.
A person claiming a mechanic’s lien must file the lien claim within 120 days after last furnishing the labor or materials; the lien takes effect from the date that person first furnished the labor or materials.
The action to enforce a properly filed mechanic’s lien must be brought within 180 days after a worker last furnished labor or materials.
A property owner who applies for a building permit for improvements totaling more than $30,000 must designate an approved lien agent for the project. This includes all private residential and commercial construction projects except improvement to owner-occupied single-family detached property (even if the project cost exceeds $30,000)
Any mechanic lien filed receives special priority, in order to protect the contractors.
Any potential lien claimant must serve notice to the lien agent within 15 days of beginning work on the project or lose the lien priority afforded mechanics’ liens.
Projects costing under $30,000 are exempt from requirement for a lien agent designation.
A 2011 North Carolina law allows a real estate broker with a written agency agreement to represent a property owner in a _____ to place a lien on the property to be sold or leased to protect the broker’s commission. The lien must be filed in a sales transaction after the broker has _____; in a lease transaction, the broker has up to _____ after tenant possession to file the lien. The lien must be satisfied within _____ and is inferior to all mechanics’ liens.
commercial transaction; fully performed but before closing; 90 days; 18 months
A _____ is a decree issued by a court. When the decree provides for the awarding of money and sets forth the amount of money owed by the debtor to the creditor, the judgment is referred to as a _____.
judgment; money judgment
In North Carolina, a judgment lien is good for _____ from the date of the judgment.
10 years
Like real property tax liens, personal property tax liens have _____ over other types of liens.
priority
State tax liens
Both unpaid state inheritance taxes and unpaid state income taxes give rise to general, involuntary liens against all property owned by the individual taxpayer. In North Carolina, both types of liens last for 10 years.
Federal tax liens
An IRS tax lien results from a person’s failure to pay any portion of federal IRS taxes, such as income and withholding taxes. A federal tax lien is a general, involuntary lien on all real and personal property held by the delinquent taxpayer. Its priority is based on the date of filing or recording; it does not supersede previously recorded liens.
Effects of liens on title
Although the fee simple estate held by a typical real estate owner can be reduced in value by the lien rights of others, the owner is still free to convey title to a willing purchaser. The purchaser will, however, buy the property subject to any liens because liens run with the land; that is, they will bind successive owners if steps are not taken to clear the liens.
Remember, liens attach to the property, not to the property owner. Therefore, although a purchaser who buys real estate under a delinquent lien is not responsible for payment of the debt secured by the lien, the purchaser does face a possible loss of the property if the creditors take court action to enforce the payment of their liens.
Because property taxes and special assessments generally take priority over all other liens, they are called _____.
superior liens
The first lien to be recorded is the first lien to be paid. (This is called a _____ of determining lien priority.)
pure race system
One exception to this rule is the mechanic’s lien: the priority of a mechanic’s lien dates back to the date the labor began or materials were first provided rather than to the date the lien was filed. Remember, real property tax and special assessments can move in front of or take priority over any of these recorded liens. Real property taxes are always the most superior lien.
The normal recordation priority of mortgage liens may be changed by the execution of a _____ agreement, in which the first lender subordinates its lien to that of the second lender. To be valid, such an agreement must be signed by both lenders. Subordination agreements may be contained in the mortgage itself or they may be separate agreements filed for recordation.
subordination
Lis Pendens
A judgment or another decree affecting real estate is rendered at the conclusion of a lawsuit. Generally, there is a considerable time lag between the filing of a lawsuit and the rendering of a judgment. When any suit is filed that affects title to a specific parcel of real estate (such as a foreclosure suit), the person bringing the lawsuit may file a lis pendens (Latin for “litigation pending”). When a lis pendens is filed, anyone acquiring an interest in the property takes that interest subject to any judgment or decree the court may issue. Lis pendens is not a lien but rather a notice that there is an action or lawsuit pending that may adversely affect the title. The lis pendens acts more like an encumbrance against the title.
EXAMPLE
If a lender is filing a foreclosure suit against a property owner, it will file a lis pendens against the property. If the property owner should sell the property during the course of the legal action, the new purchaser would take title subject to the outcome of the foreclosure action.
Writ of Attachment
Another encumbrance against real property is a recorded writ of attachment for a debt other than a mortgage. A creditor can request the court to issue a writ of attachment against the debtor’s unsecured property. By ordering a lien on the debtor’s assets until the law suit is decided and a judgment is rendered, the unsecured real estate remains available to satisfy the judgment. Once a judgment is recorded, a writ of execution will be issued directing the county sheriff to sell the property to satisfy the judgment.
Easement in gross
A personal interest in or right to use the land of another is an easement in gross. An easement in gross benefits a person or an entity, not a parcel of property, so there is no dominant tenement or estate. Examples of commercial easements in gross are the easement rights a railroad has in its right-of-way, billboards easements, or utilities easements.
There are three ways that easements can be created
The first method of creating an easement is by express grant. This occurs when the servient owner gives an easement either by spoken or written words to the dominant owner. Typically this easement is created by a written agreement between the parties that establishes the easement right. The creation of an easement always involves two separate parties, one of whom is the owner of the land (servient owner) over which the easement runs.
The second method of creating an easement is by implication. An easement that is not created by express statements between the parties; but as a result of surrounding circumstances that dictate that an easement must have been intended by the parties. These are sometimes referred to as implied easements. An easement by necessity (see later discussion) is an example of an easement by implication.
The third method of creating an easement is by operation of law. The phrase “by operation of law” is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. An easement by prescription (see later discussion) is an example of an easement created by operation of law.
The person who has the easement interest has a _____ interest with the right to use the land. The owner of the land burdened by the easement has a _____ interest in the land (the owner can use and possess the land), but the owner cannot interfere with the easement holder’s rights of use.
nonpossessory; possessory
easement by necessity
An easement by necessity, or easement by implication of law, arises because all owners must have rights of ingress to and egress from their land—they cannot be landlocked. If a grantor has conveyed property that is completely surrounded by the grantor’s property (thus landlocking the grantee), an easement by necessity will be created.
easement by prescription
When a claimant has made use of another’s land for a certain period of time, as defined by state law, an easement by prescription is acquired. This prescriptive period is 20 years in North Carolina. The claimant’s use must have been continuous, exclusive, and without the owner’s approval. Additionally, the use must have been visible, open, and notorious, so that the owner could have readily learned of it. A property owner can prevent an easement by prescription from being created by giving permission to the user.
Terminating an easement
An easement may be terminated
when the purpose for which the easement was created no longer exists;
if the easement holder becomes the owner of the land where the easement is located (e.g., land owner B buys lot A—a situation called a merger);
by release of the right of easement to the owner of the servient tenement;
by abandonment of the easement (the intention of the parties is the determining factor);
by non-use of a prescriptive easement.
Licenses
A license is a personal, nontransferable privilege to enter the land of another for a specific purpose, such as a license for a friend to hunt on a farmer’s land during the winter.
A license differs from an easement in that it can be terminated or revoked. Generally, if the right to use another’s property is given orally or informally, it is considered to be a license rather than an easement. Because a license is not considered to be an interest in the land itself, it is not considered an encumbrance. A license automatically ends with the death of either party or with the sale of the land.
Machinery Act
All real property in North Carolina is subject to taxation. Although counties and municipalities determine real estate property tax rates within their jurisdictions, the Machinery Act regulates standards for real property taxation, standards for property tax assessment, standards for property tax appraisal, and requirements for tax-exempt status. Property generally considered tax-exempt or eligible for special tax treatment includes that owned by nonprofit religious, educational, and charitable organizations; property owned by the elderly and handicapped; agricultural, horticultural, and forest lands; and some properties with energy-efficient heating and cooling systems.
The North Carolina Machinery Act mandates that assessed value is _____ of market value (or true market value, as it is sometimes termed).
100%
Real estate is valued for property tax purposes by county or township assessors or appraisers. This official valuation process is called
assessment
In some states, assessed value may be less than market value, such as _____ of market value.
80%
Sometimes, a property owner believes that an error was made in determining the assessed property value—usually that the assessment is too high in comparison with the assessments of neighboring properties. Such owners may present their objections to a _____ or _____. Protests or appeals with regard to tax assessments may ultimately be taken to court.
local board of appeal; board of review
Appropriation
is the way a taxing body authorizes the expenditure of funds and provides for the sources of the funding. Appropriation generally involves the adoption of an ordinance or the passage of a law that states the specific terms of the proposed taxation.
The amount to be raised from the general real estate property tax is then imposed on property owners through a tax levy
tax levy
is the formal action taken to impose the tax, usually by a vote of the taxing district’s governing body.
tax rate
The property tax rate for each taxing body is computed separately. To arrive at a property tax rate, the total monies needed for the coming fiscal year are divided by the total assessments of all the real estate located within the taxing body’s jurisdiction.
mill
¹⁄₁₀₀₀ of a dollar
A property owner’s tax bill is computed by
applying the property tax rate to the assessed valuation of the property
Real property is appraised based on a statutory schedule and then is reappraised every eight years, a process referred to as _____.
octennial reappraisal
Real property may be reassessed more frequently than every eight years. In addition, the county or city may choose to make _____ in the fourth year after reappraisal. This means the values of certain types of property or of properties within certain areas may be uniformly adjusted to current value by applying an across the board percentage increase or decrease.
horizontal adjustments
Each county or municipality determines the appropriate property tax rate every year as part of its budgeting process. The rate is calculated by
dividing the total amount of revenue needed by the total assessed value of all the property in the county or city.
A new property tax rate must be established by _____ of each year or the property tax rate from the previous year will stand.
July 1st
when is the first day for possible day for property tax collection of the year?
September 1st
Tax assessors do not have the time to assess individual properties like appraisers for reasons such as loan applications. In the assessment process one method routinely used is the _____ technique that determines assessed value for all lands in a given area by applying an overall percentage increase or decrease. This method is often used in North Carolina in conjunction with a horizontal adjustment. Real property may be subject to reassessment if substantial improvements are added to the property.
mass appraisal
Large assessment bills MAY be prorated over several years.
True
False
True
A North Carolina property owner may appeal the amount of the special assessment but has only _____ after confirmation of the assessment roll to file a notice of appeal to the appropriate court, and within _____ after confirmation of the roll, the owner must deliver a statement on which the appeal is based. The appeal is then tried in court.
10 days; 20 days
Special assessment liens do not take precedence over ad valorem property taxes, and they are inferior to all prior or subsequent liens for state, local, and federal taxes. However, they enjoy priority over other types of lien, such as mortgage liens. Unlike property tax, special assessments are not tax deductible.
True
False
True
In North Carolina, property tax liens are filed yearly on January 1.
True
False
True
By law in North Carolina, the assessed value of property must equal
A)
appraised value.
B)
local value.
C)
market value.
D)
tax value.
C
North Carolina real property taxes attach to the property as of
A)
September 1.
B)
January 5.
C)
January 1.
D)
January 1 of the year following the year assessed.
C
Property taxes attach to the property on January 1, are due and payable September 1, and can be paid without penalty until January 5 of the year following assessment.
Legal descriptions
describe the land but not the improvements that are appurtenant and automatically run with the land.
While street addresses are not sufficient legal descriptions, the legal description in a deed or mortgage may be followed by the words _____.
commonly known as and the street address
informal description or reference
The street address standing alone
There are three basic methods of legally describing real estate used in the United States
(1) metes and bounds,
(2) the rectangular (government) survey, and
(3) reference to recorded plat (lot and block)
This description shows the boundaries of the parcel and where they meet. Such a description starts at a definitely designated place called the ______ and proceeds around the boundaries of the tract (clockwise or counterclockwise) by reference to linear measurements and compass directions, referred to as _____. Each _____ gives the distance (metes) and direction (bounds). Each _____ begins with either North or South (the cardinal directions), then the number of degrees East or West, using a surveyor’s compass.
point of beginning (POB); calls; call; call
There are ____ principal meridians in the United States.
37
The land on either side of a principal meridian is divided into six-mile-wide strips by lines that run north and south, parallel to the meridian. These north-south strips of land are called _____.
ranges
Lines running east and west, parallel to the base line and six miles apart, are referred to as _____. They form strips of land called _____.
township lines; township tiers
Townships are _____ square and contain ___ square miles
6 miles; 36
Each township contains __ sections
36
By law, each Section ___ was set aside for school purposes, and the sale or rental proceeds from this land were originally available for township school use. The schoolhouse was usually located in this section so it would be centrally located for all the students in the township. As a result, Section __ is commonly referred to as a _____.
16; 16; school section
The first step in subdividing land is the preparation of a _____—by a licensed surveyor or engineer
plat map
When a survey also shows the location, size, and shape of buildings located on the lot, it is referred to as a _____, a _____, or an _____.
physical survey; mortgage location survey; identification survey
When a survey shows the lay of the land, such as where there are hills and valleys, it is called a _____ or _____
topographic survey; topo survey
Title insurance routinely excludes coverage of title defects if no survey was conducted.
True
False
True
There are two documents that should always have a legal description during the real estate process. One is any type of deed. What is the other?
A)
Government acreage allowance
B)
Contract to convey real property interest
C)
Street address assignment
D)
Contract for an interest in a mobile home
B)
Contract to convey real property interest
A section
A)
is part of a township.
B)
is one square mile.
C)
has 640 acres.
D)
all of these.
D)
all of these.
Township squares are subdivided into sections and subsections called halves and quarters, which can be further divided. Each township contains 36 sections. Each section is one square mile or 640 acres, with 43,560 square feet in each acre.
Which method of legal description is NOT used in North Carolina?
A)
reference to recorded plat
B)
metes and bounds
C)
government survey system
D)
informal reference
C)
government survey system
The rectangular survey system, sometimes called the government (rectangular or geodetic) survey system, was established by Congress in 1785 to standardize the description of land acquired by the newly formed federal government. This form of land description is not used in North Carolina or the other original British colonies.
A farmer owns the W½ of the NW¼ of the NW¼ of a section. The adjoining property can be purchased for $300 per acre. Owning all of the NW¼ of the section would cost the farmer
A)
$12,000.
B)
$48,000.
C)
$42,000.
D)
$6,000.
C
Explanation
160 acres – 20 = 140 acres to buy × $300 = $42,000
Generally, a method used for land description is called reference to a recorded plat or lot-and-block. In North Carolina, this has a slightly different name and is called reference to
A)
a map point.
B)
a rectangular survey.
C)
a recorded deed.
D)
a plat map.
C)
a recorded deed.
In North Carolina, the method is by reference to a publicly recorded document, usually an earlier deed to the identical property. This deed typically contains a legal description of the property that is to be conveyed
A valid deed must contain certain essential elements, including the following:
The deed must be in writing.
The grantor must have the legal capacity to execute a deed.
Grantee named with reasonable certainty must be identified.
There must be adequate words of conveyance.
There must be an accurate legal description of the property conveyed.
The deed must be signed by the grantors.
The deed must be delivered to and voluntarily accepted by the grantee.
Nonessential elements often appear in deeds but are not required for validity. Nonessential elements include the following:
Deeds do not have to be witnessed.
Deeds do not have to be dated; although, for practical matters, it may be wise to do so.
Deeds do not have to include a statement as to the exact amount of consideration (the amount of money that was paid for the property).
Deeds do not have to be acknowledged (i.e., notarized).
Deeds do not have to be recorded to be valid, but under the Connor Act, the grantees must record the valid deed to protect their interest as to third parties under the law.
Effective in 1999, deeds do not have to be sealed in North Carolina to be valid. Standard deed forms may continue to have the word seal after the signature; however, it is no longer required to create a valid deed. Signing under seal does have certain legal advantages such as extending the statute of limitations protecting the parties’ rights from three years to 10 years.
Note
Note that acknowledgment (or notarization) is necessary before a deed can be recorded, and recording a deed is necessary to protect the grantee’s interests in the property.
It is referred to as a general warranty deed, a full covenant and warranty deed, or simply a warranty deed because the grantor is legally bound by certain basic covenants or warranties:
Covenant of seisin and the right to convey: The grantor warrants that he or she is the legal owner of the property and has the right to convey title to it. Delivery of seisin is the actual transfer of title.
Covenant against encumbrances: The grantor warrants that the property is free from any liens or encumbrances except those of record. Encumbrances would generally include such items as mortgages, mechanics’ liens, real estate tax liens, protective covenants, and easements.
Covenant of quiet enjoyment: The grantor guarantees that the grantee’s title will be good against third parties who might bring court actions to establish superior title to the property. If the grantee’s title is found to be inferior, the grantor is liable for damages.
Covenant of further assurance: The grantor promises to obtain and deliver any instrument needed to make the title good. For example, if an error in the deed is found, the grantor agrees to resign a new deed to correct the mistake.
Covenant of warranty forever: The grantor guarantees that if at any time in the future the title fails, he or she will compensate the grantee for the loss sustained. However, it is in the best interest of the grantee to obtain title insurance because at the time of a later claim, the grantor may be dead or financially insolvent.
Special warranty deed (limited warranty deed)
A conveyance that carries only two covenants is called a special warranty deed (also known as a limited warranty deed). The grantor warrants that he or she received title to the land and that the property was not encumbered during the time he or she held title except as noted in the deed. Special warranty deeds generally contain the words remise, release, alienate, and convey in the granting clause. Any additional warranties to be included must be specifically stated in the deed.
Bargain and sale deed
A bargain and sale deed contains no express warranties against encumbrances. However, it does imply that the grantor holds title and possession of the property. The granting clause usually states a person’s name or name of an entity and the words grants and releases or grants, bargains, and sells. Because the warranty is not specifically stated, the grantee has little legal recourse if title defects appear later. In some areas, this deed is used in foreclosures and tax sales. The buyer should purchase, or the seller provide, title insurance for protection.
Quitclaim deed (non-warranty deed)
A quitclaim deed (non-warranty deed) provides the grantee with the least protection of any deed. It carries no covenant or warranties and conveys only such interest, if any, that the grantor may have when the deed is delivered. By a quitclaim deed, the grantor only remises, releases, and quitclaims an interest in the property to the grantee. The deed might convey an easement; it might re-convey equitable title back to a seller; it might convey nothing at all.
Correction deed
A correction deed is used when there has been an error in a previous deed. For example, if the description of the property in the original deed was incorrect, a correction deed will be used to make the correction. Errors in names or dates would also be corrected by this deed.
Deed of gift
When a grantor conveys property as a gift (that is, no consideration or only token consideration has been accepted for the property), a deed of gift is used. A deed of gift must be recorded within two years or it becomes void. Because no consideration is exchanged, there is no need to pay excise tax.
Deed of release
A deed of release is used to release a parcel of property from a mortgage or deed of trust lien when the real estate loan has been paid in full.
Trustee’s deed
A deed of conveyance executed by a trustee is a trustee’s deed and is used when a trustee named in a will, trust agreement, or trust deed conveys the real estate to anyone other than the trustor. The trustee’s deed sets forth the fact that the trustee executes the instrument in accordance with the powers and authority granted to him or her by the trust instrument. A trustee’s deed is generally used to transfer title after a foreclosure auction.
Timber or mineral deed
Some ownership rights can be severed from the land and transferred by deed, such as the harvesting of timber or minerals located on the property.
Deeds executed pursuant to court order
One characteristic of these special-purpose deeds is that the full consideration is usually stated in the deed. This is done because the deed is executed pursuant to a court order; because the court has authorized the sale of the property for a given amount of consideration, this amount should be exactly stated in the document.
Adverse possession
Open (well known to others)
Continuous (uninterrupted for the required period)
Exclusive (not shared with another)
Adverse to the true owner’s possession (the adverse possessor must intend to claim that the land occupied is his or her own)
Notorious/hostile (without the permission of the owner)
Even if the adverse possessor fulfills all the legal requirements for _____, he or she must go to court to get clear title to the property. This is done with a lawsuit called an action to quiet title. It is difficult to prove title by adverse possession, and until a court decides that title has been acquired, the claimant’s title is considered to be unmarketable.
adverse possession
North Carolina Intestate Succession Act
This statute allows for the equal division of property among eligible heirs, or, in the event of no heirs, having the property escheat to the North Carolina State Educational Assistance Authority. This statute does not override an active survivorship clause in a deed.
Constructive notice
is the legal presumption that information may be obtained by an individual through due diligence. Properly recording documents in the public record serves as constructive notice to the world of an individual’s rights or interest, as does the physical possession of a property. Because the information or evidence is readily available to the world, a prospective purchaser or lender is responsible for discovering the interest.
Actual notice
means not only that the information is available but also that someone has been given the information and actually knows it. An individual who has searched the public records and inspected the property has actual notice, also known as direct knowledge. If it can be proved that an individual has had actual notice of information, that person cannot use a lack of constructive notice (such as an unrecorded deed) to justify a claim.
Recording acts
provide that any written document that affects any estate, right, title of interest in land must be recorded in the municipality where the land is located. With recordation, anyone interested in the title to a parcel of property will know where to look to discover any interest of other parties.
Under the terms of a typical real estate sales contract, the seller is required to deliver _____ to the buyer at the closing.
marketable title
To be marketable, a title must meet five criteria:
(1) be free from any significant liens and encumbrances;
(2) disclose no serious defects;
(3) be free of doubtful questions of law or fact to prove its validity;
(4) protect a purchaser from the hazard of litigation or any threat to quiet enjoyment of the property; and
(5) convince a reasonably well-informed and prudent person, acting on business principles and willful knowledge of the facts and their legal significance, that the property could in turn be sold or mortgaged at a fair market value.
North Carolina’s Marketable Title Act provides
that if a chain of title can be traced back for 30 years and no other claim has been recorded during that time, the title becomes a marketable title. Any conflicting claims predating the 30-year chain of title may be extinguished. The practical effect of this act is to eliminate obsolete defects in the chain of title.
Title companies issue various forms of title insurance policies; the most common are the _____ insurance policy and the _____ insurance policy.
owner’s title; lender’s title
The lender’s title insurance coverage is limited to the loan amount and is of a diminishing liability. Lender’s coverage ends with the _____.
payoff of the mortgage loan
A marketable title has no defects or clouds in the chain of ownership. An _____ title may have a defect or cloud, but an insurer agrees to protect the buyer against the known defect.
insurable
The extended coverage provided by an _____ policy includes all the protection of a standard policy plus additional protection to cover risks that may be discovered only through inspection of the property (including rights of persons in actual possession of the land, even if unrecorded) or revealed by examination of an accurate survey. The company does not insure against any defects in or liens against the title that are found by the title examination and listed in the standard policy.
American Land Title Association (ALTA)
Owner’s Title Insurance Policy
Standard Coverage
Defects found in public records
Forged documents
Incompetent grantors
Incorrect marital statements
Improperly delivered deeds
Extended Coverage
Standard coverage plus defects discoverable through:
property inspection, including unrecorded rights of persons in possession;
examination of survey, and
unrecorded liens not known by policyholder.
Not Covered by Either
Defects and liens listed in policy
Defects known to buyer
Changes in land use brought about by zoning ordinances
Defects that would have been shown by an accurate survey, if a survey was not done
Note
After closing, the attorney issues a final opinion on title, which includes recording information for the deed and deed of trust and so forth. The final opinion on title goes to the title insurance company, which issues the title insurance policy based on this information. Under the title insurance policy, the title insurance company promises to defend the title as insured, as well as to pay any claims against the property if the title proves to be defective. This coverage begins after closing and issuance of the policy and covers only title defects undiscovered before closing or not exempted in the title commitment. The opinion issued by the attorney is just that: an opinion based on the search of public records. It is not a guarantee of good title.
The price for title insurance is paid every month.
True
False
False
Title insurance is paid for once at closing for the life of the policy.
Along with excise taxes a number of North Carolina counties have additional taxes on real estate sales often referred to as _____.
deed transfer taxes
Which of the following BEST describes the covenant of quiet enjoyment?
A)
The grantor guarantees that if the title fails in the future, the grantor will compensate the grantee.
B)
The grantor warrants that the grantor is the owner of the property and has the right to convey title to it.
C)
The grantor ensures that the title will be good against the title claims of third parties.
D)
The grantor promises to obtain and deliver any instrument needed to make the title good.
C)
The grantor ensures that the title will be good against the title claims of third parties.
With the covenant of quiet enjoyment, the grantor guarantees that the grantee’s title will be good against third parties who might bring court actions to establish superior title to the property. If the grantee’s title is found to be inferior, the grantor is liable for damages.
Which of the following should be discoverable in a search of the public records?
A)
Encroachments
B)
Easements
C)
Inaccurate surveys
D)
Rights of any party in possession
B)
Easements
When a title examination is conducted, the title examiner lists each instrument in chronological order, along with information relative to taxes, judgments, special assessments, surveys, easements, and the like.
A document that protects a grantee against hidden risks, such as forgeries and loss due to defects in the title, subject to specific exceptions, is called
A)
an abstract of title.
B)
a chain of title.
C)
a certificate of title.
D)
a title insurance policy.
D)
a title insurance policy.
The best assurance of good title that a real estate purchaser can obtain is
A)
a title insurance policy.
B)
a valid quitclaim deed signed by the seller.
C)
a certificate of title.
D)
a valid warranty deed signed by the seller.
A)
a title insurance policy.
Which of the following offers the most assurance of marketable title to a grantee?
A)
A trust deed
B)
A title insurance policy
C)
An affidavit
D)
A warranty deed
B)
A title insurance policy
While deeds offer no guarantee of marketable title, a title insurance policy is a contract in which a title insurance company warrants to make good any loss incurred by a buyer that arises from defects in title to real estate, or any encumbrances or liens. Title insurance protects the policyholder against a loss from some event that has already happened.
The governmental right of _____ of the states is their inherent authority to create and adopt regulations necessary to protect the public health, safety, and general welfare of the citizenry
police power
Public land-use controls include
planning,
zoning,
subdivision regulations,
building codes, and
environmental protection legislation.
Zoning powers are conferred on municipal governments by North Carolina’s ______ act through the General Assembly.
enabling
In _____ zoning, a developer can provide the same number of housing units as traditional subdivision plans but with substantially increased tracts of open space.
cluster
These areas outside the incorporated limits, but subject to the zoning restrictions of a municipality, are called _____.
extra-territorial jurisdictions (ETJs)
overlay district
An overlay district is a type of zoning that is superimposed over another type of zoning. The overlay zone can modify the use of the original zone. A common example is when an area that is zoned single-family residential is also designated as a flood zone. This means that additional restrictions and regulations are imposed on developments and improvements in that area. Two other examples of overlay districts are historic preservation and aesthetic zoning.
Spot zoning
When a particular property or group of properties is rezoned to permit a use different from the neighboring properties’ use, it is referred to as spot zoning
subdivision
all divisions of a tract or parcel of land into two or more lots, building sites, or other divisions for the purpose of sale or building development (whether immediate or future) and includes all division of land involving the dedication of a new street or a change in existing streets.
There are a few exceptions to this definition of subdivision. The following two types of parcels are not considered subdivisions:
(1) a division of land if each parcel has more than 10 acres with no street right-of-way dedication and (2) a division of land no larger than two acres into no more than three lots with no street right-of-way dedication involved, when the parcel is owned by a single entity.
Approval of the subdivision _____ by local authorities is, however, a necessary step before recording.
plat map
Actual transfer of title cannot occur until _____.
the final plat has been recorded
The process of subdivision normally involves three distinct stages of development:
(1) the initial planning stage, (2) the final planning stage, and (3) the disposition, or start-up.
During the initial planning stage, the subdivider seeks out raw land in a suitable area. Once the land is located, the property is analyzed for its highest and best use, and preliminary subdivision plans are drawn up accordingly. Close contact is initiated between the subdivider and local planning and zoning officials. If the project requires zoning variances, negotiations for these begin. The subdivider also locates financial backers and initiates marketing strategies.
The final planning stage is basically a follow-up of the initial stage. Final plans are prepared, approval is sought from local officials, permanent financing is obtained, the land is purchased, final budgets are prepared, and marketing programs are designed.
The disposition, or start-up, carries the subdividing process to a conclusion. Subdivision plans are recorded with local officials, and streets, sewers, and utilities are installed. Buildings, open parks, and recreational areas are constructed and landscaped if they are part of the subdivision plan. Marketing programs are then initiated, and title to the individual parcels of subdivided land is transferred as the lots are sold.
An owner or its agent are not prohibited from entering into contracts to sell or lease by reference to an approved preliminary plat for which a final plat has not yet been properly approved under the subdivision regulation or recorded with the register of deeds, provided the contract does all of the following:
(1) Incorporates as an attachment a copy of the preliminary plat referenced in the contract and obligates the owner to deliver to the buyer a copy of the recorded plat prior to closing and conveyance.
(2) Plainly and conspicuously notifies the prospective buyer or lessee that a final subdivision plat has not been approved or recorded at the time of the contract, that no governmental body will incur any lessee with respect to the approval of the final subdivision plat, that changes between the preliminary and final plats are possible, and that the contract or lease may be terminated without breach by the buyer or lessee if the final recorded plat differs in any material respect from the preliminary plat.
(3) Provides that if the approved and recorded final plat does not differ in any material respect from the plat referred to in the contract, the buyer or lessee may not be required by the seller or lessor to close any earlier than 5 days after the delivery of a copy of the final recorded plat
(4) Provides that if the approved and recorded final plat differs in any material respect from the preliminary plat referred to in the contract, the buyer or lessee may not be required by the seller or lessor to close any earlier than 15 days after the delivery of the final recorded plat, during which 15-day period the buyer or lessee may terminate the contract without breach or any further obligation and may receive a refund of all earnest money or prepaid purchase price
A subdivision developer does have to disclose whether streets are public or private the first time but does not have to make such disclosure upon the resale of the property.
True
False
True
Note
Approval must be granted by the proper county agency (usually a planning board) before recordation can take place. North Carolina now allows the acceptance of monies and contracts on subdivision parcels once the preliminary plat has been approved. However, if there are any material changes from the preliminary to the final plat map, a buyer is allowed to cancel any existing contract and receive a refund of all monies. A broker who closes a sale on a lot before final approval of the subdivision is granted and recorded may be subject to a civil lawsuit or may be criminally prosecuted as well as face disciplinary action by the North Carolina Real Estate Commission.
Covenants and restrictions recordation
These restrictions can be included in the subdivision plat or they may be set forth in a separate recorded instrument, commonly referred to as a declaration of restrictions.
Interstate Land Sales Full Disclosure Act
The law requires those engaged in the interstate sale or leasing of subdivision lots (including condominiums, cooperative units, and campsites) to file a statement of record and register the details of the land with HUD
The Act does not apply to the sale of lots in a subdivisions…
- Containing fewer than 25
- Those in which each lot is 20 acres or more
- Lots offered for sale solely to developers
- Lots on which buildings exist or where a seller is obligated to construct a building within two years.
Interstate sales or leasing activities include out-of-state mailers, newspaper ads, television advertising directed to out-of-state buyers, and out-of-state telephone solicitation.
Prior to signing a purchase agreement or lease, the developer must furnish prospective buyers or lessees with a property report containing all essential information about the property, such as
- distance over paved roads to nearby communities,
- number of homes currently occupied,
- soil conditions affecting foundations and septic systems,
- type of title a buyer receives,
- existence of liens.
Failure to provide the property report prior to contract formation may give the consumer grounds to void the contract.
If the seller misrepresents the property in any sales promotion, anyone induced to purchase a lot by the promotion can sue the seller for civil damages. Failure to comply with the law also may subject a seller to criminal penalties of fines and imprisonment.
Thus, the question of sewage disposal is a _____ that all brokers should research.
material fact
Under state law, _____ are responsible for approving underground systems, whether a conventional subsurface system with a tank and drainage field, or the more complicated low-pressure pump system.
county health departments
Systems that discharge above the ground, such as spray-irrigation systems, or systems that discharge into streams or waterways are regulated by the _____. Off-site and community systems that serve more than one lot also are regulated at the state level.
North Carolina Department of Environmental Quality
When discussing soil suitability test for sewage systems note..
To request testing, a person files an application with the county health department explaining the proposed use of the property. A registered sanitarian from the health department will inspect the lot/tract, gather soil samples from different places on the parcel, and rate the various samples as either suitable, provisionally suitable, or unsuitable for an underground septic system. If the sanitarian finds that there is sufficient suitable or provisionally suitable soil for an onsite system, and enough land for a repair area, then an improvements permit will be issued.
Once issued, the permit is valid for a specified period of time, even if the standards later change, so long as the property features or its proposed uses have not changed. The period of time the permit is valid varies from county to county. The septic permit will set a capacity limit for the system, typically specifying the number of bedrooms for a residence (with presumed occupancy of two persons per bedroom), or the maximum number of rooms, or some other measure for a nonresidential structure. The permit may prohibit the use of an automatic dishwasher, garbage disposal, or other use that might overload the system. The permit also may include a map depicting the best location for the system and repair area.
If the property’s water source is a well, then no component of the septic system may be within _____of any well serving either the subject property or adjoining properties.
100 feet
Straight-piping
where wastewater is discharged directly into the yard or into a nearby creek or stream, rather than into any approved treatment system. Straight-piping is illegal because state law requires that any person owning or controlling a residence, place of business or place of public assembly must discharge all wastewater directly to an approved wastewater system for that specific use. Wastewater includes grey water (i.e., water used for dishes, laundry and bathing) and black water which is sewage.
Federal Emergency Management Agency (FEMA) regarding flood zones
has designated many areas bordering on rivers and streams as flood hazard areas, which are subject to federal regulations concerning improvements and construction in those areas. FEMA produces maps that designate these flood hazard areas, and flood insurance is required under the National Flood Insurance Program (NFIP) if a federally related mortgage loan is to be used for properties within those areas.
Access to a public road or street is important to any buyer, and the broker should make sure that public road access is available. If any government entity takes away road access, the owner must be compensated under _____.
eminent domain
Note
The federal government has recently mandated that new commercial buildings and older public buildings that undergo remodeling must meet the standards of the Americans with Disabilities Act (ADA). The purpose of this legislation is to facilitate accessibility and mobility by ramp construction, safety rails, wider doors, and other accommodations. ADA does not apply to residential housing.
Note
The term restrictive covenant is being replaced by the term protective covenant. Both have essentially the same meaning, which is defined by the North Carolina Real Estate Commission as follows: “Protective covenants are enforceable conditions that restrict the manner in which an owner may use his/her property” (1997-1998 Update Course). The term protective covenant is a more modern term and better implies the intended use, which is to protect owners from uses that may have an adverse effect on value or enjoyment.
If adjoining lot owners stand idle while a violation is being committed, they can lose the right to petition for injunctive relief by their inaction; the court might claim their right was lost through _____—that is, loss of a right through undue delay or failure to assert it
laches
A broker is expected to be able to recognize situations regarding land-use issues, advise the parties involved of the potential problem, and recommend that the interested parties verify the permitted land uses. Recognizing and taking appropriate action with regard to potential problems with restrictive covenants is particularly important. These types of situations are called
A)
red/white situations.
B)
red flag situations.
C)
red light situations.
D)
red alert situations.
B)
red flag situations.
If a property is subject to regulation by an owners association, it is recommended that the buyer review this completed disclosure provided by the seller before signing the offer. What is the name of this disclosure?
A)
North Carolina Association Disclosure Statement
B)
Residential Owners’ Association Disclosure Statement
C)
Residential Property and Owners’ Association Disclosure Statement
D)
Residential Disclosure Statement
C)
Residential Property and Owners’ Association Disclosure Statement
Before making material changes to a property located within a ____________________, the owner must obtain a certificate of appropriateness from the appropriate regulatory entity.
A)
historic preservation zone
B)
aesthetic zoning area
C)
super zone
D)
protective zoning district
A)
historic preservation zone
Deed restrictions may be enforced by
A)
court injunction.
B)
zoning board of adjustment.
C)
city building commission.
D)
state legislature.
A)
court injunction.
Legislation designed to convert residential zoning into conservation or recreational purposes
A)
has been determined by the courts to be an excessive use of police power and was therefore ruled as unconstitutional.
B)
may be found by the courts to be a taking without the payment of just compensation to the property owner.
C)
is generally supported by special interest groups whose power might be greater than that of the courts.
D)
is usually supported by all the residents of a given area so that the majority rules.
B)
may be found by the courts to be a taking without the payment of just compensation to the property owner.
Covenants or restrictions such as these usually relate to building type, use to which the land may be put, type of construction, height, setbacks, and square footage, and possibly cost. What are these called?
A)
Protected classes
B)
Declaration of restrictive covenants
C)
Developer protections
D)
Imposition restrictions
B)
Declaration of restrictive covenants
Building codes, under police power, determine all of the following EXCEPT
A)
methods of construction to be used.
B)
types of plumbing and electrical materials allowed.
C)
height and structure requirements.
D)
acceptable land uses.
D)
acceptable land uses.
Explanation
Building codes determine types of plumbing and electrical materials allowed. The height and structure requirements and methods of construction to be used are also determined by building codes. Zoning codes determine acceptable land uses.
Which of the following BEST describes the purpose of a building permit?
A)
To provide evidence of compliance with municipal regulations
B)
To serve as a means of regulating the area and size of buildings
C)
To control the volume of construction
D)
To override or substantiate deed restrictions
A)
To provide evidence of compliance with municipal regulations
Any developer who fails to comply with the requirements of the Interstate Land Sales Full Disclosure Act may be
A)
sanctioned by leaders in the area.
B)
ordered to cease work on the project.
C)
required to obtain a variance from the local zoning board.
D)
subject to criminal penalties of fines and imprisonment.
D)
subject to criminal penalties of fines and imprisonment.
In the past, putting a listing into a local multiple listing service (MLS) created a subagency relationship between cooperating brokers.
True
False
True
The firm is technically the agent in a transaction.
True
False
True
The common law of agency refers to laws from judgments and decrees of courts as opposed to laws created by a legislature.
True
False
True
Agency
the fiduciary relationship between the principal/client and the agent.
Agent
the individual who is authorized and consents to represent the interests of another person. In the real estate industry, principals are hiring an entire company and all the company’s affiliated brokers to represent them. Even though the firm is the agent, the broker-in-charge would be personally accountable for agency law compliance.
Subagency
the fiduciary relationship between the subagent and the principal.
Subagent
one who is employed by a person already acting as an agent (such as a provisional broker licensed under a broker-in-charge who is employed under the terms of a listing agreement). Simply stated, a subagent is an agent of an agent.
Facilitator/Transaction Broker
the real estate licensee who assists buyers and sellers in reaching an agreement in a real estate transaction without representing interests of either party. The licensee treats both parties equally as customers. This nonagency relationship is not allowed in North Carolina.
An agent may be authorized by the principal to use the assistance of others, called
called subagents of the principal.
OLD CAR
Obedience
Loyalty
Disclosure
Confidentiality
Accounting
Reasonable care and diligence
Duties to Third Parties
Honesty
Fairness
Disclosure of material facts
If a residence has ever been clad in an exterior insulating and finishing system commonly called _____, that will remain a material fact for that property forever.
EIFS or synthetic stucco
If a residence has ever had leaking ______ pipes, this must be disclosed even if the pipes were repaired or fully replaced.
polybutylene
If a property was the site of a _____, this also must be disclosed.
meth lab
stigmatized properties
those properties branded by society as undesirable because of events that occurred there. Some properties are typically marked by a criminal event: a homicide, suicide, or other violence; illegal drug or gang-related activity; or other events that render the property socially unmarketable in the community’s view. Another psychologically impacted property would be a purported haunted house, which is not a material fact.
The one exception to this rule is if the death or illness is AIDS-related. Because persons with AIDS (or HIV infection) are considered legally handicapped under fair housing laws, an agent cannot disclose this condition, even if asked. Instead, the agent should tell the person who asked the question that the agent is prohibited by law from answering the question.
Any agent who breaches an agent’s duties to either the principal or a third party must bear the consequences of that breach. These consequences may include any (or all) of the following:
Disciplinary action by NCREC—any violation of a duty owed to the principal or third parties is grounds for disciplinary action by NCREC. If the Commission finds that the agent did in fact violate the license law, that agent’s license may be revoked or suspended.
A civil action in court brought by the injured party—if the breach of duty harms either the principal or a third party, the agent may be sued and found liable for the damages caused by the breach. Note that if the agent’s improper behavior is deemed to be within the scope of the agent’s duties, the agent’s principal also may be held liable for the damages caused by the agent. The principal can in turn sue the agent for reimbursement for those damages.
Criminal prosecution brought by the district attorney—a violation of a provision of the real estate license law is also a misdemeanor (see G.S. 93A-8). If the agent’s breach of duty also is a criminal act, such as fraud or embezzlement, the district attorney may bring a criminal action against the agent.
A fiduciary relationship is, in a sense, a two-way street. While the agent has significant duties to the principal/client, the principal also has the following responsibilities to the agent:
To act in good faith (to cooperate with the agent and refrain from hindering the agent’s efforts)—for example, if the seller-client refuses to let the agent show the property, this is a breach of good faith.
To pay the agent the agreed-on compensation when the agent finds a ready, willing, and able buyer—once the agent brings the seller a buyer who is ready, willing, and able to purchase the property on the seller’s terms, the agent has earned a commission, whether or not the seller decides to sell the home. Similarly, the principal/client is a buyer, the buyer is obligated to make sure that his or her agent is compensated for the agent’s efforts to find the appropriate property.
Note
Property owners had no affirmative duty to reveal defects about the property. This is still true in North Carolina. Sellers are always liable for fraudulent misrepresentations.
North Carolina’s G.S. 75-1.1, Unfair or Deceptive Trade Practices Act
also applies to real estate agents (and some property owners) including poasting on the internet and social media. Agents who engage in the prohibited acts described previously may find themselves liable for treble (triple) damages and attorneys’ fees under certain circumstances.
tort
The principal who violates the principal’s duties either to the agent or to a third party is liable for the damage caused. The principal may be subject to both a civil lawsuit and criminal prosecution (if so warranted). The principal also may be held liable and accountable for the agent’s misconduct, referred to as a tort, which is a wrongful act by an agent while representing the principal and acting within the scope of the employment agreement that created the agency.
universal agent
A universal agent is a person who is empowered to do anything the principal could do personally. There are virtually no limits to the universal agent’s authority to act on behalf of the principal. An unlimited power of attorney would be an example of universal agency. This type of agency is seldom practiced by a real estate broker in a typical real estate transaction.
AKA Attorney in fact or power of attorney
general agent
A general agent may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contracts within the scope of the agent’s authority. A real estate broker typically does not have this scope of authority as an agent for a consumer in a real estate sales transaction. Brokers usually serve as general agents of their real estate brokerage firms. A more typical example of a general agent would be a property manager hired as a general agent for the landlord in the management of certain properties.
special agent
A special agent is authorized to represent the principal in only one specific act or business transaction, and under limited, detailed instructions with no power to bind the principal. A real estate broker is usually a special agent. If hired by a seller, the broker’s duty is limited to finding a “ready, willing, and able buyer” for the property. A special agent for a buyer has the limited responsibility of finding a property that fits the buyer’s criteria. As a special agent, the broker cannot bind the principal to any contract. It is important to remember that a special agency relationship provides only limited authority.
As a special agent, a broker cannot bind the principal to any contract.
True
False
True
Special agents have only limited authority on behalf of their principals, so they cannot bind their clients to any contracts.
An agent with such an understanding would be acting with
implied authority
Note
although legal in other states, implied agency agreements are illegal under North Carolina real estate license law, which requires all agency agreements be in writing.
When someone claims to be an agent but there is no express agreement, the principal can establish an agency relationship by _____—in other words, by performing any act that accepts _____ the conduct of the agent as that of an agent.
ratification (apparent authority); (ratifies)
In theory, an agency relationship can exist even if there is no fee involved (a _____ agency); however, such situations are rare, especially in real estate transactions.
gratuitous
North Carolina real estate license law mandates that an agency agreement must be in _____ in order for a broker to be entitled to compensation. All agency agreements should state how the agent is being compensated.
writing
Note
If there is a breach by one of the parties, such as abandonment by the agent or revocation by the principal (The breaching party might be liable for damages.)
Note
Agency can be terminated by operation of law, as in a bankruptcy of the principal (because title to the property would be transferred to a court-appointed receiver)
Note
Agency can be terminated by destruction or condemnation of the property – if a seller signs an exclusive right to sell listing agreement with a firm to list a one-acre lot that includes a 3,000 square foot house and the house burns to the ground, the listing agreement would terminate.
Note
Agency can be terminated by death or incapacity of either party (Notice of death is not necessary. Note that if a property is listed with a brokerage firm, the firm must dissolve to “die.” If the individual listing agent dies, the listing would not be terminated because the listing belongs to the brokerage firm rather than to the deceased listing agent.)
Duty generally ends when agency ends, with the following exceptions:
Express promise or implied obligation – for example, if an agent is still holding a client’s money after the termination of the agency relationship the agent still owes the client the duty to safeguard and account for the money.
Pending transaction at termination date of agency agreement – for example, in a sales transaction when a buyer agency contract expires after the buyer has entered into a contract, but before the transaction has closed, the broker will continue to owe agency duties to the buyer.
Self-dealing – the broker seeks to deal on their behalf after the listing has expired. The courts have held that real estate brokers have a continuing duty of loyalty and good faith to the former principal to the extent that the brokers may not use their former position of confidence to profit or gain an unfair advantage over former clients.
For example, a broker lists a property for sale at $300,000 and does not sell during the listing period. The broker finds a buyer willing to pay the full price the day the agency agreement is set to expire. After the listing expires, the broker offers to purchase the property from the seller for $250,000 and then turns around and sells to the buyer for $300,000.
Duty of confidentiality may be expected to continue as long as the agent has no duty to disclose to a new client.
Exclusive seller agency
Seller is the client; buyer is the customer
Exclusive buyer agency
Buyer is the client; seller is the customer
Single agency
Either the buyer or the seller is the client, but not both in the same transaction
Dual agency
Both the buyer and the seller are the clients in the same transaction
Facilitation/transaction brokerage
Neither the buyer nor the seller are clients; both are customers; not permitted in North Carolina
Note
The buyer’s agent may receive a flat fee or a share of the listing commission or both, depending on the terms of the agency agreement.
Vicarious liability
is a legal concept that might allow a consumer to successfully sue the seller and/or the listing firm for illegal or inept actions performed by the subagent firm and/or its brokers
Note
It is also important to note that when a real estate broker/firm becomes an agent under an agency agreement with a principal, all individual real estate brokers affiliated with the broker/firm automatically become subagents of the principal, unless there is a specific agreement to the contrary.
Note
The terms subagent and subagency usually refer to a firm’s brokers, but they may refer to co-brokerage firms and their brokers.
Note
As discussed earlier, when a co-brokerage firm acts as a subagent of the seller, buyers are not represented by any of the licensees involved in the sale.
Many real estate transactions are _____, that is, they involve two or more competing brokerage firms that cooperate by bringing the buyer and seller together.
co-brokered
Firms do reap financial rewards when the transaction is an _____; that is the listing agent and the selling agent are within the same firm.
in-house sale
Dual agency requires that the agent be _____ to two separate principals at the same time. The challenge is to fulfill the fiduciary obligations to each principal without compromising fiduciary obligations to the other.
equally loyal
Note
undisclosed dual agency violates license laws [see G.S. 93A-6(a)(4)] and the law of agency. It can result in rescission of the sales contract, forfeiture of the commission, or the filing of a suit for damages.
Dual agency can be created, then, in a number of ways:
1) one individual broker represents both the buyer and the seller in the same transaction;
2) two brokers working for Roomy Manor at the same office location, but one broker works with the seller and one broker works with the buyer and
3) two brokers working for Roomy Manor, but one works at the Markdale branch location and works with the seller, and the other works at the Sunnydate branch location and works with the buyer.
All three situations are examples of dual agency
Note
The written authority for dual agency must be obtained upon the formation of the relationship, except when an agent is working with a buyer or tenant under an oral agency agreement pursuant to A.0104(a), in which event the express oral authority for dual agency must be reduced to writing not later than the time that one of the parties represented by the agent makes an offer to purchase, sell, rent, lease, or exchange real estate to another party.
The agent and subagents are generally restricted by the dual agency agreement from disclosing to either client the following types of information about the other party without that party’s written permission:
Willingness to accept any terms of sale other than those offered
Motivation for participating in the transaction (unless required by statute)
Any confidential information unless disclosure is mandated by statute
when should designated agency be disclosed
A broker designated to represent a buyer or seller in accordance with Paragraph (j) of this Rule shall disclose the identity of all of the brokers so designated to both the buyer and the seller. The disclosure shall take place no later than the presentation of the first offer to purchase or sell.
Note that in dual agency…
the firm continues to act as a dual agent; the individually designated brokers do not.
If a firm practices dual agency and designated dual agency, full written disclosure of this practice should be given to clients and customers _____.
at the earliest opportunity
The timing of obtaining written consent of dual agency and designated dual agency can be confusing. To determine whether or not a property can be shown to a buyer, consider these three examples provided by the NCREC in its 2009-2010 Broker-In-Charge Annual Review Course:
Situation #1: The seller agreement does not authorize dual agency in the listing agreement. Consumer contacts listing company to see the property. The broker reviews the disclosure form and offers to show the property as a seller agent, cautioning the buyer that nothing the buyer reveals is confidential and the buyer should act as if he or she is talking directly to the owner/seller. If the buyer agrees, the broker provides written notice of seller agency and shows the property.
Answer: Dual agency has not been attempted in this situation. The company already has one principal (the seller) who has not authorized its agent to function as a dual agent. The listing broker offers to work with the buyer as a seller agent, its only permitted avenue at present, and the buyer, having received the agency disclosure form and having been cautioned as to the lack of confidentiality by the listing agent, consents to the listing agent acting solely as a seller agent.
Listing/leasing agents may always work with prospective buyers/tenants as owner agents only, so long as the broker’s agency status is disclosed and the buyer/tenant knowingly consents and does not insist on independent representation (i.e., a buyer or tenant agent).
Situation #2: The seller agreement does not authorize dual agency in the listing agreement. A broker in the company is working with a buyer under an oral buyer agency agreement. The buyer now wants to see one or more of the company’s listings.
Answer: If the oral buyer agency agreement does not already authorize dual agency, the broker first must explain dual agency to the buyer and obtain the buyer’s consent. Then, before the broker may show the property, the broker first must contact its other principal, the seller, explain dual agency and obtain the seller’s consent at least orally. If the seller refuses to consent, then the property may not be shown to the buyer client.
Note: Even though the listing agreement is already in writing and does not authorize dual agency, the seller’s oral consent to dual agency as to that buyer is sufficient only because the buyer agency agreement is still oral. If after viewing the property, the buyer wishes to make an offer, the buyer agency agreement first must be reduced to writing and must contain authorization for dual and/or designated agency before any offer is presented.
Further, the seller’s written consent to dual/designated agency, as least for this buyer, must be obtained before the offer may be presented. This may be done as an amendment to the listing agreement or as an addendum to the listing agreement, but it must be in writing before the offer is presented. Brokers are strongly advised to first obtain all necessary agency authorizations in writing before they prepare an offer. Otherwise, they may waste time preparing an offer they cannot present.
Situation #3: The seller agreement authorizes dual and designated agency in the listing agreement. Buyer agency agreement is in writing and does not authorize dual agency. Buyer wants to see the company’s listing.
Answer: In this situation, because both the listing agreement and the buyer agency agreement are already in writing, oral consent to dual agency will not be sufficient. The buyer client must first authorize the company in writing to act as his/her dual agent, at least for this property, before the buyer may be shown the property. If the written buyer agency agreement had already authorized dual agency, then there would not have been any impediments to either showing the property or preparing and presenting an offer.
More on dual agency…
if an agent has received confidential information about one party to the transaction, that agent has an obligation to refuse an appointment as the designated dual agent of the other party to the transaction.
After a broker has been appointed as a designated agent for one of the firm’s clients, the designated agent exclusively represents that principal in the transaction. Therefore, if the agent learns any confidential information about the other principal in the transaction after being designated, the designated agent must disclose that information to the client that they exclusively represent.
There cannot be designated dual agency unless dual agency exists first.
The firm owes the same fiduciary duties to both parties which has the effect of neutralizing the firm and its agents when acting as dual agents, but designated dual agents owe their fiduciary duties exclusively to the party they are designated to represent, even though the firm has an equal obligation to both parties.
Another issue to consider in the handling of dual agency relationships is whether the clients have hired a sole practitioner rather than a real estate firm with associated licensees. A sole practitioner, that is a one-person brokerage operation, can act as a dual agent but cannot act as a designated dual agent. Designated dual agency requires two individual brokers, each solely representing either the buyer or the seller.
habendum clause
“to have and to hold”
is a key component of a deed or a lease in real estate transactions. This clause defines the duration and extent of the interest being conveyed or granted by the deed or lease. It typically comes after the granting clause, which specifies the type of estate being conveyed (e.g., fee simple, life estate).
Any licensed employees of the property manager/broker become _____ of the property owner
subagents
Note
A property manager of residential property usually will represent only the property owner and will not seek to represent the tenant as well, which would cause the agent to become a dual agent. However, commercial tenants may or may not be represented. Whenever an agent seeks to establish an agency relationship with a commercial tenant thereby making the tenant a client, the agreement for brokerage services between the broker and the tenant shall be express and shall be reduced to writing not later than the time any party makes an offer to rent or lease property.
Exclusive buyer agency brokerages were the most common form of brokerage entity before the Edina lawsuit.
True
False
False
Exclusive seller agency broker firms were the most common form of brokerage entity. These brokerage firms limited their practice to listings and worked with buyers only to achieve the seller-clients’ goals.
Merely providing the form is not sufficient. Brokers must _____ with consumers.
review it
The Commission also provides a Q and A brochure about the form on its website
First substantial contact occurs when _____.
conversation between a broker and a consumer shifts from facts about the property to possible confidential information about the consumer’s needs, wishes, and abilities or when the consumer or broker begins to act as if there is a fiduciary relationship. Confidential information is information that would harm someone’s negotiating position, including motiviation, abillity, and price. Let’s look at a few examples of first substantial contact.
The form is not designed to replace the review and explanation of agency by the broker, but rather to facilitate this explanation. The broker must keep a copy of the signed form on file for three years. (See Rule A.0108.)
Let’s look at a few examples of first substantial contact.
Karen was holding an open house at her listing. While at the open house Steven stopped by to view the home. After taking a look around, Steven began to tell Karen that he loved the house and was moving to the area for work. Has first substantial contact occurred?
Yes. Steven began to tell her about his motivation for moving. Karen should stop Steven immediately to review the Q and A on WWREA brochure and ask him to sign the WWREA disclosure form.
Tariq was on floor duty for his firm and received a call from a buyer interested in a property and had a few questions about the floor plan. After explaining the locations of the rooms, the buyer said thank you and hung up. Has first substantial contact occurred?
No. Tariq only gave house details and the buyer did not offer any information related to price, ability, or motivation.
Bella is moving to NC from California. She sent a Facebook message to Hudson, a local real estate agent, and began to ask questions about a home he has listed in regards to what the seller is willing to accept. Has first substantial contact occurred?
Yes. The moment Bella inquired about what the seller would do, Hudson should have sent a message back to her to discuss the WWREA disclosure form and Q and A brochure. After going over the information, Hudson has no more than 3 calendar days to provide a copy of the form.
The form is not designed to replace the review and explanation of agency by the broker, but rather to facilitate this explanation. The broker must keep a copy of the signed form on file for three years. (See Rule A.0108.)
Note
Rule A.0104(e) also requires a seller’s agent or subagent working with a prospective buyer to disclose, in writing at first substantial contact, the agency status of representing the seller. If first substantial contact occurs other than a face-to-face meeting where it is not practical to provide written disclosure, the broker shall immediately disclose by similar means whom he or she represents and shall immediately, but in no event later than three calendar days from the first substantial contact, mail or otherwise transmit a copy of the written disclosure to the buyer. Note that this written disclosure of seller agency or subagency to the prospective buyer is reflected in the form.
There is a special rule regarding agency disclosure in auction sales
There is a special rule regarding agency disclosure in auction sales. Rule A.0104(g) states that providing the form to buyers does not apply to licensees representing sellers in auction sales transactions. However, A.0104(a) still applies: a written listing agreement between the seller and a broker is required from the outset of the relationship. Be aware that Rule A.0104 does apply in its entirety to licensees representing buyers in auction sales; in other words, licensees representing buyers must have reviewed the Working with Real Estate Agents form with their buyer-client and have a written buyer agency agreement with their client prior to submitting any bids. While licensees representing buyers in auction sales need not disclose their buyer agency status in writing to the seller at the time they bid, they must confirm it in writing “…no later than the time of execution of a written agreement memorializing the buyer’s contract to purchase…” as per Rule A.0104(h).
So auction licensees dont have to disclose when there selling someones property until its time to buy after the bidding is done
The same goes for someone who is representing a buyer at an auction
A broker who works with and represents a buyer initially under an oral agreement must do so in a ______ capacity.
nonexclusive
Note
The WRITTEN buyer agency agreement does NOT have to be exclusive
Note
Prior to switching to seller subagency, the oral buyer agent should consider entering into a written buyer agency agreement limited solely to that property, which few reasonable buyers should refuse.
Note
Because a broker may work with a buyer under an oral buyer agency agreement, the rule of necessity also allows an agent to enter into an oral dual agency agreement that must also be put in writing no later than the time an offer is presented.
The following may be used as a five-point checklist to properly follow disclosure rules:
The agency disclosure form must be given to prospective sellers and buyers no later than first substantial contact in all real estate sales transactions.
The broker must review the form and a determination of agency status must take place. The buyer/seller can acknowledge receipt by signing the form.
Listing agreements are required to be in writing from the start of the agency relationship.
The rule allows for an agent to act as a buyer’s agent, a dual agent, or a designated dual agent under an oral agreement, until such time as the agreements must be put in writing, which is not later than the time the first offer is going to be presented.
Any buyer agency agreement that sets forth agency exclusivity or a definite period of time must be in writing from the start of the agency relationship.
A broker properly reviewed real estate agency relationships to a prospective buyer using the Working with Real Estate Agents form. The buyer chose to enter into a written buyer agency agreement with the broker without authorizing dual agency. After the broker showed the prospective buyer several properties listed by other companies, the buyer asked to see one of broker’s listings. Given these circumstances, what kind of approval or authority to act as a dual agent must the broker obtain in order to proceed with the transaction?
A. Oral approval for dual agency from both the buyer and the seller before showing the property
B. Written authority to act as a dual agent from both the seller and the buyer before showing the property.
C. Written authority from the buyer for the agent to act as a dual agent and oral approval of dual agency from the seller before helping the buyer write an offer on the property.
D. Written authority to act as a dual agent from both the seller and the buyer no later than the time the agent presents an offer from the buyer to the seller.
The answer is B.
In this situation, because both the listing agreement and the buyer agency agreement already are in writing, oral consent to dual agency will not be sufficient. The buyer client must first authorize the company in writing to act as a dual agent, at least for this property, before the buyer may be shown the property. If the written buyer agency agreement had already authorized dual agency, then there would not have been any impediments to either showing the property or preparing and presenting an offer.
A broker reviews the Working with Real Estate Agents form with prospective a buyer. The buyer is reluctant to enter into a written buyer agency agreement with the broker’s firm, so the broker and buyer agree that the broker’s firm will represent the buyer for the time being under an oral buyer agency agreement. Dual agency is not mentioned. After the broker shows the buyer several properties listed with the broker’s competitors, the buyer expresses a particular interest in seeing a properly listed with the broker’s firm. The broker’s firm had previously executed a written listing agreement with the seller, but that agreement did not specifically authorize the firm to act as a dual agent when selling the owner’s property. At this point, can the broker proceed to show the buyer the listed properly in question without a written dual agency agreement from the buyer and the seller?
A. Yes, but only if the broker first obtains oral permission of both the buyer and seller to represent them as a dual agent and obtains a written dual agency agreement with both before any offer is presented.
B. Yes, because a written dual agency agreement with the buyer and seller is not required for in-house sales.
C. No, because a written dual agency agreement with both buyer and seller is required before any showing of a firm’s listing to a buyer client of the firm.
D. No, because having not authorized dual agency in the written listing agreement, the seller may not now orally authorize dual agency.
The answer is A.
If the oral buyer agency agreement does not already authorize dual agency, the broker first must explain dual agency to the buyer and obtain the buyer’s consent. Then before the broker may show the property, the broker first must contact its other principal, the seller, explain dual agency and obtain the seller’s consent at least orally. If the seller refuses to consent, then the property may not be shown to the buyer client.
Note: Even though the listing agreement already is in writing and does not authorize dual agency, the seller’s oral consent to dual agency as to that buyer is sufficient only because the buyer agency agreement is still oral.
If after viewing the property, the buyer wishes to make an offer, the buyer agency agreement first must be reduced to writing and must contain authorization for dual and/or designated agency before any offer is presented. Further, the seller’s written consent to dual/designated agency, as least for this buyer, must be obtained before the offer may be presented. This may be done as an amendment to the listing agreement or as an addendum to the listing agreement, but it must be in writing before the offer is presented. Brokers are strongly advised to first obtain all necessary agency authorizations in writing before they prepare an offer. Otherwise, they may waste time preparing an offer they cannot present.
A provisional broker is licensed to perform real estate activities on behalf of a licensed real estate brokerage firm.
True
False
True
The broker-in-charge is fully responsible for the actions performed in the course of the real estate business by all persons affiliated with the brokerage firm.
True
False
True
All of a provisional broker’s activities must be performed in the name of the broker-in-charge
True
False
True
The provisional broker can carry out only those responsibilities assigned by the broker-in-charge under whom the provisional broker is actively licensed and can receive compensation only from that broker-in-charge
True
False
True
In other words, as agents of the broker, provisional brokers have no authority on their own to make contracts with or receive compensation directly from any other party, whether the principal, another broker, a buyer, or a seller.
True
False
True
A broker-in-charge has fewer supervisory responsibilities for the associated nonprovisional brokers, who are held more accountable for their own acts, thereby reducing the broker-in-charge’s exposure to disciplinary action by the Real Estate Commission for the conduct of the associated nonprovisional brokers. The real estate company remains civilly liable for the acts of all of its associated brokers, whether provisional or nonprovisional.
True
False
True
For W-2 employees the real estate broker may reimburse marketing expenses or require an employee to follow rules such as those governing working hours, office routine, assignment of sales quotas, and adherence to dress codes.
True
False
True
An employer may pay certain benefits on behalf of its employees, but not its independent contractors, and generally will be required to pay unemployment compensation tax on the wages of its employees but not its independent contractors.
The IRS often investigates the independent-contractor-versus-employee situation in real estate offices. Under the qualified real estate agent category in the Internal Revenue Code, three requirements can establish independent contractor status:
(1) The individual must have a current real estate license.
(2) The individual must have a written contract with the broker containing the following clause: “The salesperson will not be treated as an employee with respect to the services performed by such salesperson as a real estate agent for federal tax purposes.”
(3) Ninety percent or more of the individual’s income as a broker must be based on sales production and not on the number of hours worked. The broker should have a standardized agreement drawn up or reviewed by a lawyer to ensure its compliance with these federal dictates. The broker should also be aware that written agreements mean little to an IRS auditor if the actions of the parties are contrary to the document’s provisions.
Employers are liable for withholding payment of Social Security and income taxes for persons who are paid as Form W-2 employees.
True
False
True
While 1099 independent contracts are responsible for reporting their income and paying taxes on their own, an employer is responsible for taking care of reporting and paying taxes for W-2 employees.
The real estate broker’s fiduciary responsibility to keep the principal informed of all facts that could affect a transaction is the duty of
A)
skill, care, and diligence.
B)
disclosure.
C)
accounting.
D)
obedience.
B)
disclosure.
The North Carolina Residential Property and Owners’ Association Disclosure Statement is NOT required on which of the following properties?
A)
Single-family residence
B)
Vacant lot
C)
Duplex home
D)
Manufactured home
B)
Vacant lot
Fiduciary refers to
A)
the relationship of trust between the agent and the principal.
B)
the principal in an exclusive agency relationship.
C)
the independent contractor status of a broker.
D)
the seller’s subagent that is working with the buyer.
A)
the relationship of trust between the agent and the principal.
A seller hired a local real estate firm to market her property and signed a six-month listing contract with Joe, a broker in the firm. Joe gave the seller, as part of the listing presentation, a list of 100 marketing items he would carry out. One of the items was to hold an open house every week. Joe has held one open house in the six weeks since listing the property and has stopped responding to the seller’s phone calls and emails. The seller has decided to list with another firm but was told the current listing must be terminated before an agency creation with a new firm could be formed. In this situation, which of the following is TRUE?
A)
The seller should send written notice to the principal broker of Joe’s firm stating the seller’s intention to terminate the listing because of poor service.
B)
The seller should send a letter of termination to Joe and send a copy to the new firm; the letter will serve as full notice of termination of the original listing.
C)
The seller is obligated to keep the current firm through the six-month listing period; however, the seller can pay the broker less commission because of bad service.
D)
The seller can leave a voice mail for Joe, advising that the seller has canceled the listing, and then remove Joe’s sign and start working with the new company.
A)
The seller should send written notice to the principal broker of Joe’s firm stating the seller’s intention to terminate the listing because of poor service.
A listing is an agreement between the broker and the seller. An agency agreement may be terminated at any time for breach of the agreement, such as abandonment by the agent. The seller must contact the listing broker.
A buyer-client has instructed the agent to show only properties where the seller is willing to pay the buyer agent’s commission. The agent contacts an owner selling property without the assistance of a real estate agent with the hope that the seller would be willing to pay her commission if the buyer decided to purchase the seller’s property. In order to comply with North Carolina Real Estate Commission Rules, the agent must do all of the following EXCEPT
A)
disclose her agency status to the seller at initial contact.
B)
obtain permission from her buyer-client in order to receive compensation from the seller.
C)
convince the seller to list with her and authorize dual agency.
D)
review the Working with Real Estate Agents form with the seller.
C)
convince the seller to list with her and authorize dual agency.
A real estate commission may be paid by any party in a transaction if agreed to by the parties. In this situation, the agent may receive her commission from the seller with the buyer-client’s permission without having to acquire a listing on the property and creating a dual agency relationship.
The North Carolina Real Estate Commission (NCREC) require licensees at first substantial contact with a client to perform one action. What is this action?
A)
To provide specific agency disclosures in writing
B)
To provide clients with their full name and birthdate
C)
To provide a business card featuring the name of their broker-in-charge
D)
To provide an unsigned offer to purchase as an example
A)
To provide specific agency disclosures in writing
This is an effort to inform and protect the public. North Carolina licensees also avoid the type of liability incurred for practicing undisclosed dual agency.
North Carolina describes the customer as the third party for whom some level of service is provided by an agent of another party, but who is NOT represented by
A)
the broker.
B)
the governor.
C)
the agent.
D)
the fiduciary.
C)
the agent.
A customer would have a nonagency relationship under this description.
Under North Carolina Real Estate Commission rules, an oral buyer agency agreement
A)
must be reduced to writing before acceptance of an offer.
B)
must be in writing before preparation of the first offer.
C)
should be put in writing immediately after the buyer receives proper disclosure and signs the Working with Real Agents form as required by state law.
D)
must be reduced to writing before presentation of the first offer.
Explanation
D)
must be reduced to writing before presentation of the first offer.
The written authority for dual agency must be in writing not later than the time that one of the parties represented by the broker makes an offer to purchase, sell, rent, lease, or exchange real estate to another party.
All of the following situations will terminate a listing EXCEPT
A)
death of the individual listing licensee.
B)
breach by either party.
C)
mutual agreement of the parties.
D)
destruction of the listed property.
A)
death of the individual listing licensee.
If the individual listing agent dies, the listing would not be terminated because the listing belongs to the brokerage firm rather than to the deceased listing agent.
Which of the following BEST defines the common law of agency?
A)
State license law and rules
B)
Case law establishing the responsibilities of a person who acts for another
C)
The disclosure requirement by the agent to third parties no later than first substantial contact
D)
The code of ethics prescribed by the local trade association
B)
Case law establishing the responsibilities of a person who acts for another
The common law of agency is based on court cases involving the responsibilities of persons who act for others and establishes specific duties that define how agents treat their clients.
A listing broker must disclose his brokerage relationship with the seller to any unrepresented buyer before
A)
showing the buyer a house.
B)
discussing any of the buyer’s confidential information.
C)
providing any information about the listing.
D)
discussing anything else.
B)
discussing any of the buyer’s confidential information.
Disclosure of agency representation must be before the consumer is put at a disadvantage by disclosing confidential information.
In 1995, the Edina case prompted the North Carolina Real Estate Commission (NCREC) to
A)
prohibit dual agency.
B)
revise its agency rule to require licensees to provide specific agency disclosures in writing.
C)
limit liability for brokerage firms who practice dual agency.
D)
require that brokers act as single agents only.
B)
revise its agency rule to require licensees to provide specific agency disclosures in writing.
Today’s consumers are much more likely to receive information about agency relationships early in their dealings with brokers. They are also likely to have much more choice in whether they are going to be represented or not.
The law of agency is a common-law concept (law from the judgments and decrees of courts, as opposed to the legislature) though it is being widely replaced or modified by state statute in many jurisdictions. Prior to 1995, North Carolina had chosen to
A)
ignore the common-law concept.
B)
completely renovate the common-law concept.
C)
not alter the common-law concept.
D)
use the common-law concept for occupations other than real estate.
C)
not alter the common-law concept.
In 1995, the Edina Realty case prompted the North Carolina Real Estate Commission (NCREC) to revise its agency rule.
While not directly representing third parties, North Carolina requires agents to perform the following three duties: honesty, fairness, and
A)
confidentiality.
B)
accounting.
C)
disclosure of material facts.
D)
loyalty.
C)
disclosure of material facts.
When dealing with third parties, agents must still comply with North Carolina Real Estate License Law and NCREC rules, including disclosure of material facts relating to a property or a transaction about which the agent has knowledge or should reasonably have acquired knowledge.
Which of the following statements about the Working with Real Estate Agents form is TRUE?
A)
The form is required in all real estate transactions, including leasing.
B)
The consumer must sign the form.
C)
The form is required in all commercial sales transactions.
D)
The consumer creates an agency relationship by signing the form.
C)
The form is required in all commercial sales transactions.
OLD CAR is an acronym used to remember the fiduciary duties owed by a broker, by law, to a principal. OLD CAR stands for the duties of obedience, loyalty, disclosure of information, confidentiality,
A)
accuracy, and reasonable care.
B)
accounting, and reasonable skill, care, and diligence.
C)
accounting, and resolution services.
D)
accuracy, and resolution.
B)
accounting, and reasonable skill, care, and diligence.
Which of the following statements is TRUE about types of agency?
A)
A buyer’s agent usually acts as a universal agent for the buyer.
B)
A real estate licensee usually acts as a general agent of an affiliated firm.
C)
A listing agent usually acts as a general agent of the seller.
D)
A property manager usually acts as a special agent of the landlord.
B)
A real estate licensee usually acts as a general agent of an affiliated firm.
A real estate licensee working under the broker-in-charge acts as a general agent of the broker-in-charge and the affiliated firm. A general agent is one whom a principal, in this case the broker-in-charge, authorizes the agent to conduct any of the acts related to a particular job or the specific business of the principal.
all written agency agreements must
(1) be signed by all parties;
(2) include the broker’s real estate license number;
(3) have a definite termination date; and
(4) contain the prescribed nondiscrimination provision
Note, however, under NCREC rules, an oral agency agreement with a property owner—whether a listing contract with a seller or property management agreement with an owner—is not permitted. The agreement must be in writing before any brokerage services are provided. There is only one exception to this rule:
if sellers did not originally give permission for dual or designated dual agency in the listing agreement and the buyer agency agreement has not been reduced to writing, the sellers can orally amend their written listing agreements to authorize either type of dual agency at a later date. This oral consent to dual agency must be reduced to writing prior to submission of the first offer on the property.
Note
Article 16 of the REALTOR® Code of Ethics prohibits members of the National Association of REALTORS® from the solicitation of business from a consumer that is party to an active exclusive agency agreement with another REALTOR®.
National Do Not Call Registry
it is a list of telephone numbers from consumers who have indicated their preference to limit the telemarketing calls they receive
The registry applies to any plan, program, or campaign to sell goods or services through interstate phone calls. The registry does not limit calls by political organizations, charities, or telephone surveyors.
A real estate broker may call a consumer with whom they have an established business relationship for up to 18 months after the consumer’s last purchase, delivery, or payment, even if the consumer is listed on the National Do Not Call Registry.
A broker also may call a consumer for up to three months after the consumer makes an inquiry or submits an application. Note that if a consumer asks a company not to call, even if there is an established business relationship, the company must abide by the consumer’s wishes.
Real estate brokers are prohibited from calling registered owners of for-sale-by-owner properties or owners of expired listings with another firm since these solicitation scenarios are subject to the Act. On the other hand, a buyer’s agent may call for sale by owners that are on the Registry if the buyer-client is interested in the property.
Telemarketers and sellers are now required to search the registry at least once every 31 days and drop registered consumer phone numbers from their call lists.
North Carolina’s do-not-call statute mirrors the federal rules and piggybacks on the federal registry. Penalties on the federal level are up to $11,000 per call and North Carolina fines range from $500 to $5,000 depending on the violation.
None of these do-not-contact laws prohibits real estate licensees from canvassing for business or soliciting clients by using postal mail or going door-to-door.
Working with brokers licensed in other states or jurisdictions (foreign broker)
A North Carolina broker can share a brokerage fee with a broker from another state if that broker is actively licensed in the state from which he is making the referral and does not physically enter the state to engage in brokerage activity that requires a North Carolina real estate license. Generally, such a situation would result in a referral fee being paid to the out-of-state broker for referring a buyer or seller client to the North Carolina broker. (Most states require referral fees to be paid to the firm who then pays the referring broker or salesperson.) The reverse holds true in that the North Carolina broker can receive compensation for referring brokerage business to an active broker in another state, as long as the North Carolina broker physically stays out of the state of the broker that received the referral. A North Carolina broker should secure a written compensation agreement and not assume that the out-of-state broker can or will be able to pay them. To be eligible to receive a referral fee, the broker must have a current, active North Carolina license at the time of making the referral. These fees must usually be paid to the out-of-state broker’s firm and not directly to the out-of-state broker.
antitrust laws
Generally, these laws prohibit monopolies and contracts, combinations, and conspiracies that unreasonably restrain trade. The most common antitrust violations are price fixing, group boycotting, and allocation of customers or markets.
Operating
as a real estate broker in North Carolina without the proper license is a _____.
criminal offense
A BIC is responsible for:
(1) assuring that all brokers affiliated with the office are maintaining current, active licenses and are
maintaining up-to-date information in Commission records;
(2) notifying the Commission of company name or address changes;
(3) advertising;
(4) maintaining trust/escrow account(s);
(5) retaining records;
(6) supervising provisional brokers;
(7) ensuring that all affiliated brokers adher to agency agreement and disclosure requirements; and
(8) notifying the Commission in writing that they are no longer serving as BIC of a particular office
within 10 days following any such change.
A sole proprietorship does _____ need a firm license
because no entity has been created.
NOT
Per Commission Rule 58A .0304, to qualify for such waiver, the completed prelicensing education in the other state MUST:
1) have consisted of at least 75 hours of instruction [no partial credit granted];
2) have been completed within one (1) year prior to North Carolina license application and while the
applicant was a resident of the other state; and
3) be parallel to the topics and timings described in the Commission’s Prelicensing course syllabus.
Required Documentation:
A course completion certificate or transcript evidencing the successful completion of a prelicensing education
program that meets the requirements stated in Rule 58A .0304.
An applicant may seek a waiver of the North Carolina Broker Prelicensing Course based on completion of
substantial real estate education other than prelicensing courses.
Per Commission Rule 58A .0304, to qualify for such waiver, the applicant must have a baccalaureate or
higher degree in the field of real estate, real estate brokerage, real estate finance, real estate development, or
a law degree conferred on the applicant from any college or university accredited by a college accrediting
body recognized by the U. S. Department of Education.
Required Documentation:
A transcript evidencing the successful completion of a baccalaureate or higher degree that meets the
requirements stated in 58A .0304.
An applicant who holds a current real estate license in another state (or U.S. territory or Canadian
jurisdiction) that is at least equivalent to NC’s provisional broker license and that has been on active
status within the previous three (3) years may
EITHER
1) submit an application, including criminal record report, certification(s) of licensure, and application fee,
2) pass the State portion of the NC license examination, and
3) be issued a provisional broker license (assuming NC requisite character requirements are met) and be
subject to the Postlicensing education requirement;
OR
1) submit an application, including criminal record report, certification(s) of licensure, and application fee, and
2) be issued a provisional broker license (assuming requisite character requirements are met) and be subject
to the Postlicensing education* requirement.
*Please note that provisional brokers who applied for an NC license based on licensure in another jurisdiction
and who opted not to take the State section of the NC license examination are NOT eligible for any waiver
of Postlicensing education under Rule 58A .1905.
An applicant who holds a current real estate license in another state (or U.S. territory or Canadian
jurisdiction) that is equivalent to NC’s “full” broker license and that has been on active status within the
previous three (3) years may
EITHER
1) submit an application, including criminal record report, certification(s) of licensure, and application fee,
2) pass the State portion of the NC license examination, and
Real Estate Licensing in North Carolina 7
3) be issued a “full” broker license (assuming requisite character requirements are met);
OR
1) submit an application, including criminal record report, certification(s) of licensure, and application fee, and
2) be issued a provisional broker license (assuming requisite character requirements are met) and be
subject to the Postlicensing education* requirement.
*Please note that provisional brokers who applied for an NC license based on licensure in another jurisdiction
and who opted not to take the State section of the license examination are NOT eligible for any waiver of
Postlicensing education under Rule 58A .1905.
Required Documentation:
Official Certification of Licensure is required from the licensing agency in the state or jurisdiction
in which the applicant is currently licensed. The certification must have been issued within the six (6)
months immediately preceding the application and must indicate the license (and status) history and any
disciplinary action taken or complaints pending against the applicant. A copy of the applicant’s real estate
license certificate or pocket identification card is not acceptable. Proof of education is not required.
NOTE: In order for an applicant to qualify for NC licensure based on option #4, the certification of licensure
must show that the applicant still holds the license in the other jurisdiction at the time of application to NC,
and that the license in the other jurisdiction was on active status at sometime within the three (3) year period
prior to application to NC. See Commission Rule 58A .0511.
Timeframe for Obtaining a License
If a qualified applicant files a complete application, schedules and takes the examination promptly after receiving
Notice of Exam Eligibility, passes the examination on the first attempt, and has no character issues, the entire
application-examination-licensing process may be completed in as little as ten (10) days. The process may
be slowed by many factors, such as filing an incomplete application or not passing the required examination
section(s) on the first attempt. However, the main factor that slows the process is the character review process.
(See Consideration of Applicant’s Character.)
Price fixing
the practice of setting prices for products or services rather than letting competition in the open market establish those prices. In real estate it occurs when brokers agree to set sales commissions, fees, or management rates, and it is illegal. Brokers must independently determine commission rates or fees only for their own firms. These decisions must be based on the broker’s business judgment and revenue requirements without input from other brokers.
Note
Multiple-listing organizations, Association or Boards of REALTORS®, and other professional organizations may not set fees or commission splits. Nor are they allowed to deny membership to brokers based on the fees the brokers charge. Either practice could lead the public to believe that the industry sanctions not only the unethical practice of withholding cooperation from certain brokers but also the illegal practice of restricting open-market competition.
Group boycotting
occurs when two or more businesses conspire against other businesses or agree to withhold their patronage to reduce competition. Group boycotting is illegal under the antitrust laws.
Allocating markets or customers
involves an agreement between brokers to divide their markets and refrain from competing with each other for business. Allocations have been made on a geographic basis, with brokers agreeing to specific territories within which they will operate exclusively. The division might occur by markets, such as by price range. These agreements conspire to eliminate competition and are illegal.
Note
The penalties for such acts are severe. For example, under the federal Sherman Antitrust Act, people who are found guilty of fixing prices or allocating markets may be punishable by a maximum $100,000 fine and three years in prison. For corporations, the penalty may be as high as $1 million. In a civil suit, a person who has suffered a loss because of the antitrust activities of a guilty party may recover triple the value of the actual damages plus attorney’s fees and costs.
Commission Rule A.0109 further stipulates that a broker in a sales transaction cannot receive any compensation, incentive, bonus, or other consideration from any party or person without full and timely disclosure of the compensation to the _____.
broker’s principal
Timely disclosure must be confirmed in writing prior to making or accepting any offer.
Once a broker obtains an offer from a ready, willing, and able buyer that meets the seller’s terms, the seller is technically liable for the listing broker’s commission. A ready, willing, and able buyer is financially qualified, prepared to buy on the seller’s terms, and ready to take positive steps toward consummation of the transaction by showing willingness to enter into an enforceable contract. Even if the transaction is not consummated, the broker still may be entitled to a commission when the seller…
has a change of mind and refuses to sell,
has a spouse who refuses to sign the deed,
has a title with uncorrected defects,
commits fraud with respect to the transaction,
is unable to deliver possession within a reasonable time,
insists on terms not in the listing, or
has a mutual agreement with the buyer to cancel the transaction.
In other words, a listing broker generally is due a commission if a sale is not consummated because of the principal’s unjustified default. Even if the buyer backs out without legal cause after the seller has accepted the offer, the broker may be entitled to a commission, but collecting it may be difficult. To be considered the procuring cause of sale, the broker must have taken action to start (or cause) an unbroken chain of events that resulted in the sale. In North Carolina, a broker who causes or completes such action without a written agency contract that promises compensation is deemed a volunteer and has no legal claim to compensation (N.C.G.S. § 93A-13).
Brokers must gather many documents and obtain information in order to completely and accurately fill out listing agreement forms. Prior to the first meeting with sellers, brokers should advise their sellers to have the following documents and information available:
Copy of seller’s deed
Copy of survey (if available)
Copy of protective covenants and homeowners’ association information (including dues and assessments)
Balance due on seller’s mortgage(s) and status of mortgage(s)
At the first meeting with the seller, a broker should provide, explain, and review the agency form (see Unit 7) and company policies/services, while taking care to caution consumer about sharing confidential information, until the agency relationship is established to
inspect prospective seller’s property and prepare listing data sheet, noting all significant features and defects;
identify personal property to be transferred and fixtures not to be conveyed;
suggest needed repairs, improvements, staging, etc.;
make sure listing data is accurate and complete;
inquire about construction/alteration/repair permits;
inquire about septic system capacity/permit (if property has onsite septic system);
determine if a potential short sale situation exists;
verify acreage of lot/parcel from seller’s deed and/or survey;
verify and properly report building square footage; and
discuss marketing plan and brokerage fee.
retainer fee
is typically an amount of compensation, usually paid up front by the buyer/client when the buyer agency agreement is established. A buyer agent must enter into a written buyer agency agreement with a buyer-client before receiving a retainer fee. This fee is advanced partial compensation for services.
success fee
is due and payable by the buyer/principal on the signing and acceptance of an offer to purchase property found by the buyer’s agent. Typically, however, it is actually paid at closing.
The buyer agency agreement normally states that the buyer’s agent will first try to recover the success fee from the listing firm via the cooperative agreement, and if unsuccessful, then from the buyer. If, after entering into a written buyer agency agreement, a buyer purchases a property without the involvement of the buyer agent, the buyer agent may be able to recover compensation from the buyer-client if the written buyer agency agreement indicates that the buyer will pay the buyer agent in the event that the seller or seller’s agent is unable or unwilling to do so.
North Carolina Commercial Real Estate Broker Lien:
A 2011 North Carolina law allows a real estate broker with a written agency agreement to represent a property owner in a commercial transaction to place a lien on the property to be sold or leased to protect the broker’s commission. The lien must be filed in a sales transaction after the broker has fully performed but before closing; in a lease transaction, the broker has up to 90 days after tenant possession to file the lien. The lien must be satisfied within 18 months and is inferior to all mechanics’ liens.
Competing brokerage firms routinely cooperate on the sale of listed properties. In such a transaction, referred to as
a co-brokered sale, the amount of compensation paid by the listing firm to the selling firm is negotiable; however, firms that participate in an MLS routinely disclose the amount of compensation that will paid to a successful selling firm.
co-listing
In a co-listing, brokerage firms team up to sell a property in order to obtain more exposure for that listing. For example, a property may be listed close to a county border. ABC Realty wishes to find buyers in the adjoining county but does not have the same degree of access as its competitor MNO Realty does. MNO Realty is located in the adjoining county. If ABC and MNO co-venture on this listing, they will also share in the listing commission if they are successful in finding a buyer who is ready, willing, and able.
The forms of listing agreements generally used are
(1) open listing, (2) exclusive-agency listing, and (3) exclusive right-to-sell listing.
open listing
In an open listing, the seller retains the right to employ any number of brokers as agents; it is a nonexclusive type of listing. The brokers can act simultaneously, but the seller is obligated to pay a commission only to that broker who successfully procures a ready, willing, and able buyer. Additionally, if the seller personally sells the property without the aid of any of the brokers, the seller is not obligated to pay any broker a commission; the seller can compete with the agents for the commission. If the owner or any of the brokers sell the property, all other open listing agreements on that property will terminate the authority given to those brokers. A broker who was in any way a procuring cause of the transaction, however, may be entitled to a commission if the procuring cause of sale can be proved. This type of listing agreement is not favored by brokers; moreover, MLS rules may prohibit this type of listing from being placed in this resource.
exclusive-agency listing
In an exclusive-agency listing, one broker is specifically authorized to act as the exclusive agent of the principal. However, the seller under this form of agreement retains the right to personally sell the property, without obligation to the broker; the seller can compete with the agent to save the commission. If the seller sells through his or her own efforts, the exclusive agency of the broker is automatically terminated. The seller is obligated to pay a commission to the broker if the broker has been the procuring cause of a sale. The listing brokerage can also offer and pay a co-op fee to another brokerage to bring a buyer. In which case, both firms would be paid. This type of listing may be acceptable to MLSs. However, brokers should exercise caution when handling such listings since prospective buyers may become confused about whether to deal with the seller/owner or a broker. Sometimes, sellers offer different terms of sale, depending on whether the seller is dealing directly with a buyer or with a buyer procured by a broker.
exclusive right-to-sell listing
In an exclusive right-to-sell listing, one brokerage firm is appointed as sole exclusive agent of the seller and is given the exclusive right, or authorization, to represent the property in question. Under this form of listing contract, the seller must pay the broker a commission, regardless of who sells the property, if it is sold while the listing agreement is in effect. In other words, no matter whether the listing firm, a cooperating firm or the seller himself finds the buyer, the seller still must pay the broker a commission. In real estate, this is the most common form of listing agreement and the most preferred form for brokers. Please note that the listing agreement contains specific language stating that the broker is entitled to the commission regardless of who actually sells the property.
The term exclusive right to sell does not imply that the broker has the authority to enter into a sales contract on behalf of the property owner. The listing agreement is not an offer to sell the property; it is an employment agreement. The seller cannot be forced to sell the property even if the offer matches the terms of the listing agreement exactly; however, the seller may be required to pay the earned commission to the broker.
North Carolina protection agreement
When a particular property is not currently listed with any real estate brokerage firm, a buyer agent may use a protection agreement to secure a commission if that particular property is purchased by the buyer agent’s buyer-client. Such an agreement does not create a general listing or any agency relationship between the seller and the buyer agent. The agreement does not create a general listing.
IN PRACTICE
The North Carolina REALTORS® created the Unrepresented Seller Disclosure and Fee Agreement to address required agency disclosure to property owners selling their own property and compensation by property owners to a buyer’s agent.
EXAMPLE
A broker may use a protection agreement when she has a buyer-client who is interested in a specific type of property. The broker knows this buyer would be interested in a particular house that is “For Sale by Owner.” However, the broker does not want to suggest that the buyer view the house because the broker could lose the opportunity to earn a commission. Instead, the broker might first approach the homeowner/seller and ask whether he would agree to pay her a commission if her client decided to purchase the home.
It may be more important for brokers to be more flexible and open to seeing their occupation as a bundle of services that can be unbundled. _____, or limited service agreements, is the arrangement where the consumer decides which services are needed and then works with and pays the broker solely for those services. It is important to remember that this type of agreement is still an agreement for real estate brokerage services. As such, it must contain the elements prescribed by Commission Rules A.0104(a) and (b).
Fee-for-services agreement
Unbundling services means offering services in a piecemeal fashion. For example, a consultant may want to offer a seller the following services:
Helping the seller prepare the property for sale
Performing a comparative market analysis (CMA) and pricing the property
Assisting with marketing the property using the MLS and any other websites
Locating and screening a buyer
Completing an offer to purchase agreement and helping with negotiations
Assisting with closing a transaction
A consultant may offer other services to a buyer. For example, a consultant may offer a buyer the following services:
Consulting on renting versus owning
Helping a buyer with a mortgage preapproval
Consulting on a buyer’s desired location
Visiting properties with a buyer and checking property information
Completing an offer to purchase agreement and helping with negotiations
Assisting with closing a transaction
offer of compensation and cooperation
Under this provision, the commission is divided between the listing broker and the selling broker, regardless of which party the selling broker represents.
MLS
Under most MLS contracts, the broker who secures a listing is not only authorized but obligated to submit the listing to the MLS within a definite period of time so that it can be distributed to the other member brokers. The length of time during which the listing broker can offer the property exclusively without notifying the other member brokers varies by REALTOR® board.
As part of the MLS agreement, listing brokers generally use a separate information form, known as a_____ or _____, for recording many of the property’s features.
profile; data sheet
This information generally includes the following (where appropriate):
Names, addresses, and relationship, if any, of the owners
Legal description of the property
Size of the improvements (square footage)
Age of the improvements and their type of construction
Number and general dimensions of rooms
Lot size (frontage and depth) as well as information concerning the facilities, services, and institutions (e.g., schools, parks and recreational areas, churches, public transportation) available in the neighborhood where the property is located (frontage is defined in “Math FAQs”)
Information on any existing loans, including name and address of each lender; type of loan; loan number; loan balance; interest rate; monthly payment and what it includes (principal, interest, real estate tax impounds, hazard insurance impounds, mortgage insurance premiums); whether the loan may be assumed by the buyer and, if so, under what circumstances; whether the loan may be prepaid without penalty; and so forth
Possibility of seller financing
Amount of any outstanding special assessments and whether they will be paid by the seller or assumed by the buyer
Zoning classification of the property
Current (or most recent year’s) property taxes
Any real property to be removed from the premises by the seller and any personal property to be included in the sale for the buyer (both the listing contract and the subsequent purchase contract should be explicit on these points)
Any additional information that would make the property appealing and marketable
Any required disclosures concerning agency representation, property condition, known defects in the property, and the like
Note
Agency disclosure must happen before a broker begins to gather information to complete a listing agreement.
The names of all parties to the contract
Anyone who has an ownership interest in the property must be identified and should sign the listing to validate it. If the property is owned under some form of co-ownership, that fact should be clearly established. (See Unit 2.) If one or more of the owners is married, the spouse’s consent and signature on the contract to release any marital rights is required. If the property is in the possession of a tenant, that should be disclosed (along with the terms of the tenancy), and instructions should be included on how the property is to be shown to prospective buyers.
extender clause
provides that the property owner will pay the listing broker a commission if, within a specified number of days after the listing expires, the owner sells, rents, leases, or options the property to or exchanges the property with someone the owner originally met or made contact with through the broker. This clause protects the broker who introduces two parties and is the procuring cause of a sale, only to have the parties intentionally delay entering into a contract and complete the transaction after the listing expires.
