In a previous e-mail, I presented a new North Carolina Real Estate Commission Rule that will become effective on October 1, 2008 regarding the disclosure of brokerage fees and compensation. Since the new rule will require real estate agents to disclose “additional compensation” above the compensation stated in the written agency agreement, a new NCAR Form #770 “Disclosure of Additional Compensation” will be required. Please click here to read and review the new NCAR form #770 “Disclosure of Additional Compensation”.

Since the new rules will become effective October 1, 2008, licensees are asking questions about the new commission rules and NCAR forms. Here’s a summary of my recent conversation with Vonda Lee.

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Sherrie Young, Owner of Young Accounting Services, has reported during this past summer, that Congress has revised the tax law that applies to the tax ramifications to convert vacation/rental property into a primary residence.

Second homes turned to principal residences will no longer be considered for the full $250,000/$500,000 (if married) exemption upon sale starting January 1, 2009. Second homeowners received a break when they sold their primary residence after living there two (2) of the five (5) years of ownership, qualifying for the $250,000/$500,000 (if married) exemption. They would then move into their investment or 2nd home and live in it for two (2) of the five (5) qualifying years, sell it and again reap the benefits of the $250,000/$500,000 (if married) exemption.

Summer of 2008, Congress enacted a new law called the Housing and Recovery Act of 2008. The example below is how this bill will work.

Example:

• You purchase a 2nd home January 2005 for $200,000.00.

• You sell your primary home and move into your 2nd home in January 2013 making this your principal residence.

• You sell this home January 2015 for $500,000.00.

• The time from January 2009 until January 2013 when you move in is the qualifying period for capital gains. That is 4 years or 40% of the 10 years you owned it. $500,000 sell less $200,000 purchase = $300,000 X 40%=$120,000 profit X Capital Gains rate for 2015. The balance is tax exempt up to the $250,000/$500,000 (if married) limits.

A second home converted to a primary residence purchased after 2008 would qualify for the percentage of capital gains based on how long you owned it. The longer you own it and use it for a principal residence, the less the percentage impact of capital gains would be.

If you do own a second home and plan to use it as a principal residence, the thing to do is move in before January 2009 and avoid the qualifying period. Of course, you must live there two (2) of the five (5) years of ownership.

If you have questions regarding this change in tax law, please contact Sherrie Young at 704-907-5280, your CPA or financial planner.

Bill Gallagher
bgallagher@superiorschoolnc.com

CHANGES TO RULE 58A.0109 BROKERAGE FEES AND COMPENSATION EFFECTIVE OCTOBER 1, 2008

The North Carolina Real Estate Commission approved amendments to Rule A.0109, which now states:

(c) In a real estate sales transaction, a broker shall not receive any compensation, incentive, bonus, rebate, or other consideration of more than nominal value:

(1) From his principal unless the compensation, incentive, bonus, rebate, or other consideration is provided in a written agency contract prepared in conformity with the requirements of 21 NCAC 58A.0104.

(2) From any other party or person unless the broker provides full and timely disclosure of the incentive, bonus, rebate, or other consideration, or the promise or expectation thereof to the broker’s principal. The disclosure may be made orally, but must be confirmed in writing before the principal makes or accepts an offer to buy or sell.

(d) Full disclosure shall include a description of the compensation, 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 is timely when it is made in sufficient time to aid a reasonable person’s decision-making.

(e) Nothing in this rule shall be construed to require a broker to disclose to a person, not his principal, the compensation the broker expects to receive from his principal or to disclose to his principal the compensation the broker expects to receive from the broker’s employing broker. For the purpose of this rule, nominal value means of insignificant, token, or merely symbolic worth.

The rule was sent to and approved by the Rules Review Committee of the Office of Administrative Hearings and has been published in the Administrative Code. The new revised rule is effective October 1, 2008.

SUGGESTED STEPS TO IMPLEMENT REVISED RULE:

1) Review NCAR “Exclusive Right To Represent Buyer” (Standard Form 201 Revised 10/2008) Provision Four “Compensation of Firm”.
View Exclusive Right to Represent Buyer form (PDF)

2) Review NCAR “Confirmation of Additional Compensation” (Standard Form 770 Adopted 10/2008).
View Confirmation of Additional Compensation form (PDF)

3) Read and study NCAR “Guidelines for Completing Confirmation of Additional Compensation Form (Standard Form 770G, Adopted 10/2008).
View Guidelines for Completing Confirmation of Additional Compensation Form(PDF)

4) Attend the NC Real Estate Commission’s 2008-2009 Mandatory Update Course to review the basic requirements, discuss various disclosure examples, and answer your questions. View www.superiorschoolnc.com to register for upcoming 2008-2009 Mandatory Update classes.

Please e-mail your questions to bgallagher@superiorschoolnc.com regarding this issue. In the October 2008 edition of our Hot Topic Mass E-Mail, I hope to e-mail you with answers to your questions.

Take the Mandatory Update TODAY to get up to speed on the compensation and brokerage fee changes. Changes are effective October 1st.

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