Webinar Recap: Pot of Gold or Legal Landmines?

PAR’s Legal Hotline attorneys discussed current legal topics including real estate seminars, Beneficial Ownership Information rules, dual agency, wholesaling, referral fees and leaving a brokerage in yesterday’s webinar. Here’s a recap.

Real Estate Guru 101 Seminars

Attending real estate seminars that are not specific to Pennsylvania may provide agents with ideas or suggestions that don’t actually work in Pennsylvania. In addition to double-checking state law and regulations, it’s also good to check what you learned with a professional, such as your accountant or attorney, as well as with your broker.

“If you’re going to choose to attend a seminar, you need to do your research to gather all of your information before starting the process of following the advice of someone who may not be familiar with real estate specifically in Pennsylvania,” Associate Counsel Kacy Clouser said.

Clouser used the example where seminar speakers encourage agents to get paid through an LLC or similar business entity. Because Pennsylvania has specific laws about this that a non-Pennsylvania-specific seminar likely wouldn’t mention, she advised agents to always talk with their broker and read more about qualified associations before starting the process.

Beneficial Ownership Information Rules

“Entities such as corporations, LLCs and any other entities that are formed via the Department of State or similar office must register that entity through the federal government,” Chief Legal Officer Hank Lerner said. These entities, excluding exceptions that are detailed in the BOI rules, must register through the Financial Crimes Enforcement Network.

“Your job as a real estate licensee is to not try to advise your clients on exactly which of these entities have to be registered and how, but to understand enough about this to guide them to FinCEN’s resources.”

Read more about FinCEN’s policies here.

Dual Agency

“Along with seller disclosure, agency is one of the most common reasons that licensees are sued,” Assistant General Counsel Desiree Brougher said. Pennsylvania law states that you cannot act as a dual agent without the consent of both parties. Brougher stressed the importance of making sure your clients understand dual agency before agreeing to it. In addition, she noted that it’s important to remember that consumers can elect to not be represented at all in a transaction, so one option when faced with that situation is to simply acknowledge that rather than automatically trying to become a dual agent. Forms that can help protect agents in these situations include the Non-Representation Acknowledgement (Form NRA), the Single Agency Addendum (Form SA) and the Broker’s Fee Agreement (Form BFA).

“No one’s telling you not to do dual agency,” Lerner added. “We are suggesting, however, that you may have to put a little extra thought into how you do it.”

Wholesaling

“Wholesaling is when an individual enters into a contract with a homeowner, the record owner, and then proceeds to sell their equitable interest in the home or in the property,” Clouser said. She advised agents to first ask anyone who is contacting them to list a property, “What authority do you have to list the property?”

Clouser told buyer and seller agents that when it comes to wholesaling, they should be sure to get proper documentation, check with local MLS rules and talk to their broker, attorney and/or brokerage council if something doesn’t feel right.

“A wholesale transaction by itself is not an exclusion to the Sellers Property Disclosure law,” she added. “If a licensee is involved in a transaction, they cannot turn a blind eye to whether a seller’s disclosure has been completed and provided.”

Referral Fees

“Referral fees can only be given by licensees and given to licensees,” Associate Counsel Paige Perrucci stated.

State laws vary regarding referral fees. Out-of-state licensees must verify that their state laws do not prohibit them from collecting a fee or making an out-of-state referral.

The Referral Agreement (Form REF) can make sure referral fee relationships are in writing or show that there’s not a referral fee relationship. Read more about common referral fee scenarios here.

How to Pay an Agent After They Leave

When an agent leaves a firm, do they have the right to take their clients with them or do the clients they’ve been working with stay with the firm that they are leaving?

“Goading a client into possibly switching brokerages is going to be a potential serious Code of Ethics Article 16 violation, so you should probably try to avoid that,” Lerner said straightforwardly. He added that an independent contract agreement may further specify a broker’s rules on this.

Additionally, an agent should not “help out” former clients with the old brokerage, as that agent is not licensed to work at the former brokerage or with those former clients. Lerner added, “Once they are not your client, it is not your job to help them.”

“Generally speaking, if a licensee has earned a fee while they work for a brokerage, that broker would be the one to then pay them that fee,” he said. This money goes directly to the agent (not the new broker), and there is no standard industry policy that specifies an amount.

To hear about these legal topics in further detail, view the webinar recording on PAR’s website.