North Carolina Realtors protesting part of rule on compensation disclosure

By Peter St. Onge, The Charlotte Observer, N.C.

Feb. 10--A group of leading N.C. Realtors hopes to change part of a rule that protects homebuyers from having their search guided by their real estate agent's financial interests.

The presidents of the state's three largest metro Realtor associations are protesting part of a 2008 rule that requires buyer's agents to provide a written disclosure of compensation they might receive from sellers when a home is sold.

Changing such disclosure, said North Carolina Real Estate Commission director of legal services Tom Miller, could once again leave some homebuyers unaware that agents have extra financial motivation -- such as a hidden bonus -- in showing them a home.

But Tony Jarrett, regional vice president for the Triad for Allen Tate Realtors, said the rule requires burdensome disclosures for potential "in-house" transactions, in which one company employs both the buyer's agent and the agent listing a property for the seller. In those cases, the homebuyer must be told not only what the buyer's agent would receive if the property is sold, but the total compensation being paid to the real estate company.

"We don't believe in-house compensation is a disclosure issue," said Jarrett, who will make a presentation to the commission at its monthly meeting today in Raleigh.

Jarrett is supported by the presidents of Realtor associations in Charlotte, Greensboro and Raleigh, each of whom wrote letters on the issue in the past month to the real estate commission.

Real estate brokers are typically paid a commission, or a percentage of the sales price. Some sellers, particularly homebuilders, also pay agencies a bonus for finding buyers. Such extra incentives, which come in the form of cash, trips and gifts, are legal. Before 2008, however, an agent didn't have to acknowledge receiving those extra incentives until after the homebuyer had made a purchase offer on a home. Agents also were only required to tell the customer orally, making the rule hard to enforce.

The 2008 rule required that buyer's agents inform homebuyers of bonuses in writing -- and before that offer is made.

The rule was prompted by a 2007 Observer report that revealed millions of dollars in bonuses paid by homebuilders to Charlotte-area company Realty Place. The investigation found that Realty Place potentially violated state rules and federal law by not disclosing those bonuses to homebuyers they steered to those properties.

Realty Place owners agreed in 2008 to permanently close its doors in the face of an investigation by the real estate commission, which licenses and regulates real estate agents in the state.

To address questions about what might be considered "extra incentive," the 2008 disclosure rule requires simply that brokers disclose all compensation they expect to receive from a transaction, including commissions and bonuses. In the case of an in-house transaction, that means the agency must disclose all of the compensation that both the buyer's agent and selling agent will receive.

Jarrett, who said that he supports the intent of the disclosure rule, argues that only the buyer's agent should be required to reveal compensation for in-house transactions -- and that a customer gains no benefit from knowing if a company is getting extra compensation by a third party, such as a relocation service.

Such information also can confuse consumers and burden agents with new disclosure requirements, Jarrett and others said.

"We do want to be able to disclose, but we want to do it in a practical way," said Lyn Kessie, president of the Charlotte Regional Realtor Association.

Miller of the real estate commission said the additional disclosures for in-house transactions protect homebuyers, because the agency involved employs the agents on both sides of the potential transaction. "The company is telling the agents what to do," Miller said, "and that company might be receiving incentives from another party."

An example: If a builder offers a real estate company a bonus for selling its homes, that company could theoretically direct its agents to show those homes first. If those companies were exempted from providing full disclosure of its compensation, those incentives could be hidden from consumers. "We would be back to where we were before the rule was adopted," Miller said.

Phillip Fisher, the commission's executive director, said the commission is unlikely to vote on any major changes in the rule today. Commissioners could appoint a task force to study "in house" transactions, or it could direct the legal department to do the same, before deciding on any changes in the rule.

Said Jarrett, who worked on a 2007 real estate commission task force that initially studied the disclosure issue: "We just need to figure out what the solution is."

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