Understanding the Risks and Guiding Your Team: The article we're sharing today from the North Carolina Real Estate Commission (NCREC) delves into a growing trend in our industry: listing and buyer agents hiring licensees not affiliated with their brokerage to show properties.
This practice, while seemingly convenient, brings with it a host of legal and ethical concerns. From agency roles and disclosure requirements to potential violations of Commission rules, this article provides a comprehensive examination of the top ten issues that can arise when brokers not affiliated with the same firm are involved in a transaction.
Brokers-in-Charge, pay special attention to the information in this article. It's not only crucial that you stay informed about these developments, but also that you guide your teams effectively. We strongly suggest considering the addition of a policy to your firm manual regarding the use of showing services.
Concerns When “Showing Agents” Are Not Affiliated with Your Brokerage
June 2023 ebulletin
By Len Elder, Director of Education and Licensing Division
A current trend involves listing and buyer agents hiring licensees not affiliated with their brokerage to show a property to a buyer. Sometimes the showing agents are hired and paid directly by brokers affiliated with a firm other than the listing or buyer agent’s firm. Sometimes showing companies such as Showami.com, ShowforME.com, or Instashowing.com are used.
There are a number of concerns for the brokers involved on both sides of this practice when the brokers are not affiliated with the same firm. Here are the top ten:
What is the agency role of the showing broker?
The showing agents are probably not operating under a valid existing agency agreement. They have not been hired by or authorized to work on behalf of the buyer. The buyer agency agreement (whether oral or written) is with the buyer agent’s affiliated firm of which the showing agent is not a part. Because all representation in North Carolina must be by express agreement, such relationships create compliance issues with the provisions of Rule 58A .0104(a) of the North Carolina Real Estate Commission rules.
Some brokers have suggested that the showing agent is acting as a seller subagent. We previously provided a relevant eBulletin article on this matter, Getting Agency Representation Right: Clarifying the Practice of Seller Subagency. It is questionable whether the showing brokers have met the appropriate requirements to legally practice subagency. Even assuming the showing agent is a subagent of the seller, has the buyer been advised that everything the buyer said during the showing would have to be reported back to the listing agent and/or seller? We doubt that showing agents are operating in this fashion.
Is the showing broker providing and reviewing the Working with Real Estate Agents Disclosure with the buyer?
Commission Rule 58A .0104(c) requires that brokers in every real estate sales transaction at first substantial contact with a prospective buyer or seller provide and review the Working with Real Estate Agents Disclosure. Brokers have never been able to assert that they are exempt from agency disclosure because an agent with a different firm already provided the disclosure to the consumer. In instances where the showing agent is not affiliated with either the listing firm or the firm representing the buyer, it is imperative that the showing agent comply with the agency disclosure requirement. This is particularly true when the situation that arises creates confusion with the buyer about the role of the showing agent.
Are buyer agents who use outside showing agents attempting to create an exclusive oral buyer agency agreement?
To prevent the buyer from employing the showing agent rather than continuing to work with the hiring broker, some showing agents are being required to enter into restrictive agreements. As an example, some of the companies that provide showing agents forbid the showing agent from entering into an agency relationship with the buyer and require that the showing broker respect the presumed exclusive nature of the buyer’s relationship with the hiring broker.
In North Carolina, the only way that brokers can create an exclusive buyer agency agreement is to have a written agreement. Many brokers in NC initially work with buyers on an oral basis. This is permitted under the rule, but Rule 58A .0104(a) prohibits any broker working under an oral agency agreement from binding the buyer for a period of time or restricting the buyer’s right to work with other agents. Brokers cannot mutually agree with each other, or with an outside third party, to act in a way that is contrary to the Commission’s rules.
How are both brokers fulfilling their obligation to discover and disclose material facts?
Showing a home to a potential buyer involves a lot more than unlocking a door and walking the buyer through the property. As was discussed in great detail in the 2022-2023 General Update and BIC Update courses, all brokers in North Carolina have an affirmative duty to discover and disclose material facts to all parties in the transaction. Failure to do so can result in disciplinary action pursuant to NCGS § 93A-6(a)(1). The 2022-2023 Update courses stressed the importance of brokers doing a visual inspection of the property. When a broker delegates this duty to a showing agent not affiliated with their firm, both brokers now bear responsibility for the disclosure of all material facts – the hiring broker and the showing broker. In delegating a showing, the hiring broker misses the opportunity to discover defects or other issues that they know are specifically important to their buyer-client.
Some showing agent agreements actually contain language that prohibit the showing agent from making any comments, disclosures, or representations to the buyer about material defects. Brokers cannot by private agreement with each other or with an outside company limit their fiduciary obligations required by state law.
Is the showing agent being paid directly by the hiring broker?
It appears that in many transactions, a broker from one firm directly pays either a set amount or an hourly amount to a broker from another firm. Depending upon the particular facts of the transaction, such an arrangement may be in violation of Commission Rule A .0120(b) which states: An affiliated broker shall not be paid a commission or referral fee directly by anyone other than their current BIC or the person who served as their BIC at the time of the transaction. For brokers to comply with the Rule, the fees earned for providing brokerage services must be distributed through the showing broker’s BICs.
Are both the hiring broker and the showing broker paying to, and receiving brokerage service fees from, an unlicensed entity?
Commission Rule 58A .0109 prohibits a broker from paying an unlicensed person or entity compensation for brokerage services. When a broker enters into an agreement to pay a third party company fees to retain a showing agent, that third party company must be a licensed brokerage. Showing fees are compensation for brokerage activity, because NC rules and statutes prevent unlicensed people from showing the property of another for sale for compensation. Even unlicensed assistants in direct employ of a licensed brokerage cannot show property in sales transactions. Is the third party company that the broker is paying to obtain showing services properly licensed in North Carolina? If not, the broker is probably violating Commission Rules.
Have both the hiring broker and the showing broker received the required consent from their principal for the payment or receipt of such compensation?
Because showing fees are compensation for brokerage services, Commission Rule 58A .0109 also requires full and complete disclosure to, and consent of, the principals in the transaction. This means that the showing agent would need proof of disclosure and consent from one of the principals in the transaction prior to receiving any compensation for showing a property. Has the showing agent provided this disclosure and obtained this consent?
Have both brokers verified the existence of E&O coverage regarding their practices?
Most Errors & Omissions insurance policies do not extend coverage to brokers who are not affiliated with the insured brokerage. Likewise, most policies do not provide coverage to a broker when they are working outside of the scope of their affiliated brokerage. If there is an injury to a buyer, damage to the property, breakage of an item, water damage from a faucet left on, or theft because the property was not secured, there would likely be no E&O coverage. Brokers and Brokers-in-Charge are urged to carefully review their E&O policies to better understand the liability of using a non-affiliated broker as a showing agent.
Is the broker showing properties on behalf of another firm a provisional broker?
Commission Rule 58A .0506(a) requires that provisional brokers be affiliated with a Broker-in-Charge in order for their license to be on active status and that they be directly supervised by the BIC with whom they are affiliated. With the limited exception of co-listing and co-selling in a team scenario, provisional brokers are prohibited from dual affiliation. This means that they cannot provide brokerage services outside of BIC supervision and their affiliation.
Are the brokers involved in the showings affiliating themselves with an unlicensed entity in order to provide brokerage services?
We already know that the showing of properties belonging to another for compensation is a licensed brokerage activity. Before brokers affiliate themselves with an entity that is going to pay them to show homes, brokers should make certain that the entity with whom they are affiliating is licensed. All entities in North Carolina that engage in brokerage services are required to comply with the firm licensing provisions of Commission Rule 58A. 0502.
There are a lot of pitfalls and liabilities that can be created when a broker uses a showing agent that is not affiliated with their brokerage. Brokers and Brokers-in-Charge are urged to carefully consider all of the above issues to ensure compliance with North Carolina statutes and Commission rules. Brokers-in-Charge are also urged to take the time and thought necessary to create written policies and procedures for their office regarding the use of non-affiliated showing agents.
Would you like to learn how to use Chat GPT to write a policy to address the use of showing services by agents in your firm?
Elder, L. (2023, June). Concerns When “Showing Agents” Are Not Affiliated with Your Brokerage. North Carolina Real Estate Commission Bulletins. Retrieved June 23, 2023.
The information provided in this article is intended for educational purposes only. It does not constitute legal advice and should not be relied upon as such. We strongly recommend consulting with a qualified legal professional or the North Carolina Real Estate Commission directly for guidance related to your specific circumstances.