The following example from the NC Real Estate Commission is discussed in our Update 2008-09 Course on pages 41 and 42. I want to give everyone a “friendly reminder” regarding the disclosure of compensation applying to dual and designated agency sales in your firm. Our NC Real Estate Commission is “adamant” that all licensees comply with brokerage and compensation rules effective October 1, 2008.

SOURCE: 2008-2009 Mandatory Update Workbook, NC Real Estate Commission

Example of Disclosure Required When Company/Broker Acting as Dual Agent

Example #6:
Facts: XYZ Realty represents a seller. In its listing agreement, the seller agrees to pay the Company a 5.5% commission and authorizes the Company to pay 2.5% to any buyer agent or seller subagent who brings a buyer. The listing agreement also specifies that the seller will pay any selling agent a $2,000 bonus above the commission split offered a selling agent, and that the seller authorizes the Company to act as a dual agent. An agent with XYZ Realty is working with a buyer as a buyer agent under an oral buyer agency agreement. The buyer agent told his buyer client initially that the broker expects to receive a commission from the listing company or seller equal to 3% of the sales price of any property on which the buyer makes an offer which is accepted by the seller. After showing the buyer several properties listed with other companies, the buyer now decides she wants to see XYZ’s listing. Prior to showing the property, the buyer agent orally informs the buyer client that they are now in a dual agency situation, obtains the buyer’s consent thereto, and also tells the buyer client that the seller of this property will pay a total commission of 5.5% of the contract price plus a $2,000 bonus to the Company which is acting as the agent for both parties. After viewing the property, the buyer decides she wants to make an offer on the property. What must the buyer agent do?

Comments: Because as yet there is no written agency agreement with the buyer, the buyer agent must prepare and have the buyer client sign a written buyer agency agreement in which the buyer also authorizes the Company to act as a dual agent. Since the buyer agent already knows what compensation is being offered on this particular property, the agent should specify that the buyer authorizes the Company to receive a 5.5% commission plus a $2,000 bonus as its compensation, all paid by the seller, if the buyer’s offer is accepted. The agent may indicate that the Company will not hold the buyer responsible for any sums not paid by the seller.

After obtaining the buyer’s signature on the agency agreement, the broker may prepare an offer on behalf of the buyer. Had the buyer agency agreement already been in writing and authorized dual agency and had it specified a commission of 3% paid by the seller, then the buyer agent merely would have been required to tell the buyer that the Company would receive a 5.5% total commission and a $2,000 bonus paid by the seller. Prior to preparing the offer, the agent would also confirm in writing to the buyer the amount of the total commission and bonus the Company would receive from the seller. Total commissions and bonuses or consideration to be paid to the Company by either the buyer or seller must be disclosed to each principal in a dual agency situation as there is no “split” – the Company receives all consideration paid by either principal.

Summary

Once the underlying buyer agency agreement is in writing, identifies the amount of compensation the buyer agent expects to receive from the listing agent or seller, and also authorizes the buyer agent to receive any bonuses, incentives or additional compensation paid to a buyer agent by the seller or listing company, the buyer agent does not need any additional consent from his/her buyer client, as s/he already has that permission in the written buyer agency agreement. What the revised rule requires is that the buyer agent merely put his/her principal on notice by timely disclosing to his/her buyer client those properties which are offering compensation above the amount stated in the buyer agency agreement, the value of the additional compensation, and to confirm that oral disclosure in writing prior to submitting an offer on behalf of the buyer. The buyer agent also should inform his/her buyer client if the compensation offered by the seller/listing company is less than the amount the buyer agent told the buyer s/he expected to receive. This is particularly important if the buyer agent expects his/her buyer client to pay the difference between the amount stated in the buyer agency agreement and the amount the seller/listing company will pay. The buyer should understand what his/her financial liability will be before s/he makes an offer. Where the buyer agent is working under an oral express agreement with his/her buyer client, s/he still must orally disclose to the buyer in a timely manner the amount or value of any compensation offered by the seller which differs from the amount the buyer agent has informed his/her client s/he expects to receive and must confirm that disclosure either in the buyer agency agreement itself when reducing it to writing prior to preparing any offer, or simultaneously in a separate writing at the time the broker and client enter into the written buyer agency agreement.

In a dual agency situation, because the Company has two principals and does not share the commissions, fees, bonuses or other consideration with any person or entity outside of the Company and its associated agents, it must disclose to both parties/principals the total commissions, bonuses, incentives, or other consideration the Company will receive from either its seller or buyer. Typically, the seller already is aware of the total compensation the Company will receive as it generally is paid by the seller and should be set forth in the listing agreement. The buyer should be informed orally of all consideration the Company will receive when showing an in-house listing (regardless of whether the Company is practicing traditional dual agency or designated dual agency) and the total consideration to be received by the Company should be confirmed in writing prior to either principal making or accepting an offer, if it is not already in writing. Where the Company also is receiving consideration from its buyer client in addition to any consideration paid by its seller client, then the form and value of the consideration paid by the buyer client must be orally disclosed to the seller client and confirmed in writing before either principal makes or accepts any offer from the other.

At this time, our NC General Assembly is meeting to discuss our state budget. Our General Assembly is considering increasing the NC Privilege License from $50 to $200 annually for real estate. If you would like to discuss this proposal, please contact your local representatives and give them your opinion.

Find a list of our NC Representatives here.

You may also participate in the interactive public hearing on the state budget. The NC House is opening up their budget talk meeting to citizens on-line and at sites around the state. The public hearing will be held tomorrow (Tuesday, April 28th) from 6pm to 9m. For information on access, visit General Assembly of NC Hearing Information.

On February 25, HUD released the 2009 loan limits as a result of the passage of the American Recovery and Reinvestment Act. Most areas will revert to the 2008 levels. The new loan limits, which are effective for any loan closed in calendar year 2009, are in effect through December 31, 2009.

This FHA mortgage limits web page allows you to look up the FHA mortgage limits for your area or several areas, and then list them by state, county, or Metropolitan Statistical Area.

IRS Press Release

Expanded Tax Break Available for 2009 First-Time Homebuyers

IR-2009-14, Feb. 25, 2009

WASHINGTON – The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit, “ said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations, and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before December 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

Urgent Notice: Revised NCAR Exclusive Right To Sell Listing Agreement, NEW NCAR Short Sale Addendum to Exclusive Right to Sell Listing Agreement, and NEW Short Sale Addendum to Offer to Purchase and Contract.

Attention: Please review and read very carefully the Revised NCAR Exclusive Right To Sell Listing Agreement (Revised January 2009). Because of the increasing number of short sales in North Carolina, NCAR has approved and released a “Short Sale Addendum” (Adopted January 2009) to the Exclusive Right to Sell Listing Agreement.  There is also a new “Short Sale Addendum” to the Offer to Purchase and Contract (Adopted January 2009).

NCAR’s Forms Use Policy allows permitted users a 60-day “grace period” to continue using an old version of a standard form following a modification of the form.  Therefore old versions of the updated forms may be used through the end of March. However, you should check with your broker-in-charge concerning your own firm’s policy on use of the new forms, in case your firm requires that you use them prior to the end of NCAR grace period.

Please read and review these new documents carefully.
If you have additional questions, please email Bill at bgallagher@superiorschoolnc.com.

If you wish to to take a “Short Sale” course, please view our schedule with upcoming dates for Art of the Short Sale.

Myth #1: Staging is Decorating…

Fact: Staging is NOT Decorating or Design! Decorating or Design is personalizing and Staging is De-Personalizing and preparing a house for the un-known Buyer. That is why it’s KEY that you hire someone with training specifically on how to prepare a house for sale.

The Accredited Staging Professional Designation™ (ASP™) is the ONLY nationally recognized professional designation for Home Staging. Make sure to hire someone with this professional designation when selecting a qualified Home Stager.

TIP: When the focus of the Staging becomes about things and not your house, then you are working with a decorator and not a trained Stager. An ASP Stager can use existing items in a house and their creativity to properly Stage a house for sale.

Myth 2: Staging Costs Too Much…

Fact: Staging is an investment in getting a house sold and the investment in Staging is always less than a price reduction. An ASP™ Stager has been trained to work with a Seller’s budget and time frame to properly Stage a house. We like to ask our clients, “Can you afford NOT to Stage?” When compared to other costs associated with the sale or purchase of a home, Staging is very reasonable. In most markets, a Staging report detailing what needs to be done to Stage the house for sale is less than the appraisal or Home Inspection reports.

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We know you are interested in minimizing the amount of taxes that will be due upon your death and maximizing the amount of property that is transferred to your heirs. The purpose of this letter is to discuss some of the opportunities that you may wish to consider prior to the end of the year to reduce your overall taxable estate and benefit selected family members.

You can decrease your taxable estate dramatically by making gifts to family members, trusts for their benefit, and charitable organizations throughout your lifetime. Not only is the value of the gifted property excluded from your taxable estate, but so too is any future appreciation of the gifted property. Because of the current market conditions and the relatively low values of many assets, now is an excellent time to give away assets that may increase significantly in value.

CURRENT ESTATE PLANNING DEVELOPMENTS

There have been several recent developments that may impact your estate and gift planning as follows:

· The IRS has announced that the annual gift tax exclusion will be increased to $13,000 beginning on January 1, 2009.

· North Carolina has repealed its state gift tax for gifts made on or after January 1, 2009 (including gifts previously subject to the $100,000 “cap” on the gift tax exclusion).

· The current interest rates which are used in many estate planning transactions, such as family loans and grantor trust sales, are at historical lows. For example, the mid-term Applicable Federal Rate (AFR) for December is only 2.85 percent. Accordingly, it may be possible to refinance existing transactions at a lower interest rate.

ANNUAL GIFT TAX EXCLUSION - USE IT OR LOSE IT

One simple but important technique for reducing your estate is to make efficient use of the $12,000 ($13,000 beginning January 1, 2009) per donee annual exclusion from gift taxes.

· By splitting gifts, a husband and wife can together make $24,000 ($26,000 beginning January 1, 2009) per year of annual exclusion gifts to each donee without incurring gift tax.

· Gifts made outright to family members can qualify as annual exclusion gifts, as well as gifts made to certain trusts for their benefit.

If you wish to maximize your gift tax annual exclusions, it is important to consider the timing of the gifts since the end of the year is approaching.

· Only gifts made and completed prior to December 31, 2008 will qualify as annual exclusion gifts for the current year.

Remember also that certain amounts paid directly to providers of medical services or educational services may be fully excludable from gift tax.

USING YOUR $1,000,000 EXEMPTION EQUIVALENT - THE GIFT OF A LIFETIME

Another important estate reduction technique is to use your $1,000,000 exemption equivalent during your lifetime.

* Each taxpayer is provided a $1,000,000 exemption equivalent, which can be used to shelter transferred wealth from gift taxes, if transferred during lifetime, or estate taxes, if transferred at death.

* To the extent the exemption equivalent is used during lifetime is not available at death.

To take advantage of the compounding effect of investments, many taxpayers prefer to use their $1,000,000 exemption equivalent during their lifetime so that any appreciation after the gift has been made is not included in their estate upon their death.

* For example, if a 40% interest in a closely held business is valued at $250,000, you can gift the interest to your children (or a trust for their benefit) now in anticipation that 20 years from now that same 40% interest would be worth over $1,000,000 using an 8% rate of appreciation. As you can see, there is a tremendous amount of leverage if you carefully select appreciating assets for lifetime gifting.

INCOME TAX OPPORTUNITIES IN A DIFFICULT ECONOMY

Finally, if you or a business you own has a break-even or loss year in 2008, you may face significant opportunities to claim tax losses, which in turn, may qualify you for a refund of income taxes paid in prior years. For example, an asset sold at a loss to a person who is not “related” to you as described in the narrow definition used by the IRS, could result in a significant refund of taxes paid in any of the last two years. The opportunity to get money back from the IRS already has helped provide significant relief to some of our clients in these difficult days.

We are available to assist you with your year-end estate, gift, and tax planning, including maximizing your annual gift tax exclusions and exemption equivalents through sophisticated tax avoidance techniques. Please contact us to discuss your options in greater detail.

Sincerely,

CULP ELLIOTT & CARPENTER, P.L.L.C.

IRS CIRCULAR 230 DISCLOSURE:

Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm’s work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities.

If you have any questions or need additional information, please contact Bill at 704-944-4260 or bgallagher@superiorschoolnc.com.

Superior School of Real Estate is partnering with A Child’s Place (Charlotte Mecklenburg School System) in order to assist homeless children and their families. There are over 2,400 homeless children in our school system (a 20% increase) and much of this increase can be attributed to the mortgage crisis and foreclosures.
Increasing food needs among A Child’s Place families have forced us to establish a Food Pantry for the 2008-09 school year.
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Culture makes Charlotte-Mecklenburg a great place to live, work and visit and has a major year-round impact on the health of our local economy. In fact, each year the cultural community attracts 716,000 visitors from outside Mecklenburg County and produces over $10 million in annual revenue for retailers and restaurants.
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It’s amazing to hear about the various new issues real estate agents and the public are encountering in 2008. In the past, most of the real estate issues we’ve encountered have been related to sex offenders, synthetic stucco, pressure treated lumber, lead-based paint and radon gas. Now, we are dealing with issues and questions related to “meth” houses. The North Carolina Real Estate Commission has addressed these issues and questions related to “meth” houses in the 2008-2009 Mandatory Update Course. Let’s read what the NC Real Estate Commission has published.

“Meth” Houses

Another topic which has garnered much press in the past few years are properties in which the occupants manufactured methamphetamine, a highly addictive controlled substance. It is estimated that concocting just one pound of methamphetamine can generate five to seven pounds of hazardous waste, including hydrogen chloride gases, which gases, fumes and chemicals can seep into the walls, air vents, filters, carpets, draperies, appliances and other household components. The waste byproducts could have been dumped on or around the property, contaminating the soil, septic system and ground water. According to a May 2005 Real Estate Bulletin article, there were only 9 meth lab “busts” in North Carolina in 2000, which had increased to 177 in 2003, 322 in 2004, and 121 in the first 3.5 months of 2005.

Once law enforcement eliminates the illegal activity, the Health Department is notified which in turn notifies the property owner that remedial action is required. The Department of Health and Human Services has established decontamination standards in hopes of assuring that properties previously used to manufacture meth are reasonably safe for human habitation. The rules require a “responsible party,” i.e., an owner, lessee, operator or other person in control of a residence or place of business previously used to manufacture methamphetamine, to:

1) assess the level of contamination and scope of necessary remediation before beginning to

decontaminate;

2) decontaminate the property; and

3) document both the pre-decontamination assessment as well as the remediation.

The foregoing documentation must be retained by the local health department for three years.

What are a licensee’s responsibilities? It could well be that brokers acting as property managers or listing agents for absent owners or other licensees might be viewed as “persons in control of a residence or place of business” under the rules which require responsible parties to remediate, although the law does not specifically address this issue. Due to potential lingering health consequences inherent in a property formerly used to manufacture methamphetamine, a broker must disclose the fact that the property was a meth lab if the broker knows or should have known, unless remediation has been completed and can be properly documented. Whether a broker “should have known” will be determined on a case-by-case basis.

The Commission has not said that a broker must check with the local health department, local law enforcement or the SBI every time the broker takes a listing or agrees to manage a property. However, if a broker has reason to suspect that a property was used for the illegal manufacture of drugs, s/he should minimally contact the local law enforcement agency or health department to see if they have any records or information. In time, it will be easier to check whether a property was used for the illegal manufacture of drugs due to a new website maintained by the Department of Justice. One may go to www.usdoj.gov/dea/seizures/ and click on any given state to find property addresses of “…locations where law enforcement agencies reported they found chemicals or other items that indicated the presence of either clandestine drug laboratories or dumpsites.” The website cautions that the listed information was not gathered by the Department of Justice, and that persons should contact their local health department or law enforcement agency to confirm information on any given address. The site also provides an email address where one may send notice if a property has been incorrectly listed.

“Meth” houses are only one of the many real estate issues in North Carolina. Our future articles will discuss more of the everyday situations we are experiencing in North Carolina Real Estate. If you have questions or comments, please e-mail me at bgallagher@superiorschoolnc.com or call 704-488-4814.