New Incentive Disclosure Rules

A change to real estate rules in North Carolina will require written disclosure of commissions, incentives, bonuses, rebates and other considerations provided to real estate brokers including the value of the payments and the identity of the person or company making the payment. The changes to Real Estate Commission Rules were approved by the NC Rules Review Commission on July 17th, 2008 and scheduled for formal publication in the NC Register September 2nd, 2008. The rules had been approved by the Real Estate Commission in May though at one point it appeared that the Real Estate Commission was hesitating to vote on them due to pressure from the real estate industry. The rules become effective October 1st, 2008.

The change was spawned by the publication of an article in the Charlotte Observer in 2007 (noted previously in a post called Bonus Round). The investigative reporting by Peter St. Onge and Binyamin Applebaum revealed that home buyers were unaware that their real estate brokers had received a bonus from the homebuilders selling them houses. The NC Real Estate Commission established an "Incentive Disclosure Advisory Commission" which issued a report November 2007 with three main observations/recommendations:

After reviewing and discussing the relevant issues, the committee determined that proper disclosure of incentives of more than nominal value requires:

1. That the disclosure be in writing and preferably accompanied by an oral explanation of the incentive arrangement, that it be prominent, and that it be acknowledged by the agent’s clients; but if the client fails to acknowledge the written disclosure, the broker may proceed with the transaction after noting this in his or her transaction records.

2. That the value of the incentive be disclosed and, if other than cash, a description of the incentive item and its monetary value stated.

3. That the disclosure by the agent be timely; i.e., preferably while showing properties for which an incentive is being offered, but in no event later than the making of the buyer’s offer to purchase such properties.

The committee then concluded that, since the current Commission rule on disclosing the receipt of sales incentives does not require that the disclosure be made in writing nor does it address the timing or content of the disclosure, the rule should be amended to incorporate the disclosure elements it identified.

The Commission went on to develop amendments to the rules which were submitted to the Rules Review Commission and published in the North Carolina Register:

BROKERAGE FEES AND COMPENSATION

(a) A licensee shall not receive, either directly or indirectly, any commission, rebate or other valuable consideration of more than nominal value from a vendor or a supplier of goods and services for an expenditure made on behalf of the licensee's principal in a real estate transaction without the written consent of the licensee's principal.

(b) A licensee shall not receive, either directly or indirectly, any commission, incentive, bonus,rebate rebate, or other valuable consideration of more than nominal value for services which the licensee provides, recommends, procures, or arranges relating to a real estate transaction for any party, without full and timely disclosure to such party; party. Full disclosure shall include a description of the commission, incentive, bonus, rebate, or other consideration including its value and the identity of the person or party by whom it will or may be paid. A disclosure under this rule is timely when it is made in sufficient time to aid a reasonable person's decision-making. provided, however, that nothing When the party is the licensee's principal, the licensee shall also confirm the disclosure in writing before the party makes or accepts an offer to purchase, lease, rent, or option, or before the party enters into any other contract relating to a real estate transaction. Nothing in this Rule shall be construed to require a licensee to disclose to a person not his principal the compensation the licensee expects to receive from his principal in a real estate sales or lease transaction or from the licensee's employing broker. Nothing in this Rule shall be construed to permit a licensee to accept any fee, kickback or other valuable consideration that is prohibited by the Real Estate Settlement Procedures Act of 1974 (12 USC 2601 et. seq.) or any rules and regulations promulgated by the United States Department of Housing and Urban Development pursuant to such Act. said Act or to fail to make any disclosure required by said Act or rules.

(c) The Commission shall not act as a board of arbitration and shall not compel parties to settle disputes concerning such matters as the rate of commissions, the division of commissions, pay of brokers, and similar matters.

(d) Except as provided in (e) of this rule, a licensee shall not undertake in any manner, any arrangement, contract, plan or other course of conduct, to compensate or share compensation with unlicensed persons or entities for any acts performed in North Carolina for which licensure by the Commission is required.

A public hearing was held April 16th, 2008 by the Real Estate Commission and the proposed amendment, with minor technical changes was approved by the Rules Review Commission July 17th, 2008.

Pending action by the [Real Estate] Commission on the proposed rule change, licensees are reminded that they are required by current Commission rules to fully disclose to their clients any compensation incentive they are offered and that federal law requires them to report on the HUD-1 form their “total sales/broker’s commission” including any compensation incentives.

Reporting of incentives is particularly problematic for buyers of new homes when builders provide performance incentives to realtors many months after a sale. The rules change will require written disclosure prior to an offer of incentives such as bonuses and realtor reward programs such as those offered in NC by Atreus Homes:

In 2007 the yearlong "Dream On"program of Atreus Homes & Communities, formerly HomeLife Communities,provided $10,000 each month to the three top-selling agents.

Winners, rewarded quarterly, were:
April:
· First -- ($5,000) Tiffany Richardson, Coldwell Banker Howard Perry & Walston
· Second -- ($3,000) Janet Smith, Fonville Morisey
· Third -- ($2,000) Phi Jacobs, New Homes.com
May:
· First -- ($5,000) Norma Abney, Realty World
· Second -- ($3,000) Teresa Pitt, Century 21/Vicki Berry
· Third -- ($2,000) Robert Page, Page Agency
June:
· First -- ($5,000) Ingrid Wright, ReMax Highlander Realty
· Second -- ($3,000) Glen Savio, Fonville Morisey
· Third -- ($2,000) Zach James, Pinnacle Properties
July Winners
· First place -- Jasper Gorham, Realty Executives Triangle
· Second place -- Hilda Eubanks, Brokers United Realty
· Third place -- Neill McLeod, Access Real Estate Services
August Winners
· First place -- Phi Jacobs, New Homes.com
· Second place -- Jeanine Lind, Allen Tate
· Third place -- Nigre Holcroft, New Homes Realty
September Winners
· First place -- Tiffany Richardson, Coldwell Banker Howard Perry & Walston
· Second place – Mark Connor, Fonville Morisey
· Third place – Rachael Leber, Coldwell Banker Howard, Perry & Walston
October 2007 Winners
· First place – Mark Connor – Fonville Morisey
· Second place – Kirk Keyes – America’s Best Realty
· Third place -- Samuel Pyrtle – Fonville Morisey
November 2007 Winners
· First place – George Wilson – Real Living Partners Triangle Inc.
· Second place – Thomas Wohl – ReMax Preferred Associates
· Third place – Ransford Thompson, Real Estate Today
December 2007 Winners
· First place -- Barbara Brotherson – ReMax United
· Second place -- Rachael Snow Lam – First Triangle Realty Inc.
· Third place- Julie Crespo – Crespo Real Estate

In 2008 Atreus recognized and awarded Triangle-area Realtors with $20,000 in cash prizes for quarterly “Extreme Realtors Rewards Program” Realtor incentive program.

Winners for the first quarter of 2008 are:
· First place – Laura Bonds – Bonds & Associates Realty - $10,000
· Second place – Sandra Smith – Coldwell Banker Howard Perry and Walston - $5,000
· Third place - Robbin Sutton - Pinnacle Realty - $3,000
· Fourth place – Larry Thomas - Brokers United - $2,000
Winners for the second quarter of 2008 are:
· $10,000 First Place Winner – Donnis Dunn of A. Dunn Deal Realty
· $5,000 Second Place Winner – Christian Isaacs of Isaacs Realty
· $3,000 Third Place Winner – Maggie Hobberchalk of NC Neighborhood Realty
· $2,000 Fourth Place Winner – Arneta Wicker of A. Wicker Realty

Atreus Homes Raleigh reports offering 3% commission and, additional flex money on certain homes. Flex money is most often a euphemism for down payment assistance (DPA) which has been banned by recent federal legislation for FHA guaranteed mortgages.