By Thomas R. Miller, Legal Counsel to the Real Estate Commission

John, a real estate broker in Any City, North Carolina, has an exclusive-right-to-sell listing contract for a residential property owned by Mr. and Mrs. Smith. After the Smiths' property was on the market for just one week, John happily presented them with an offer to purchase submitted by a buyer-agent with another firm. Much to John's surprise, the Smiths immediately rejected the offer because, the Smiths explained, the prospective purchaser was "not white."

What should John do? It doesn't matter to him what race or color the prospective buyer is. In fact, until his seller-clients informed him, John had not known or even considered what the buyer's skin color might be. John had no prior indication that the Smiths might discriminate against non-whites; they had not offered any objections when he drew their attention to the anti-discrimination clause in the listing contract.

John pondered his dilemma: How could he discharge the duty of loyalty and obedience he owed the Smiths as their listing agent after he has learned of their intent to discriminate against a buyer on the basis of the buyer's race or color?

The North Carolina Fair Housing Act provides the answer. Under the provisions of the statute, it is an unlawful discriminatory housing practice for a real estate broker or salesperson to "offer, solicit, accept, use, or retain a listing of real property with the understanding that any person may be discriminated against in a real estate transaction . . .," when the reason for the discrimination is based in any part on considerations of race, color, religion, sex, national origin, handicapping condition or familial status.

Because the Smiths' refusal to receive the offer is a violation of the Fair Housing Act, John's duty is clear. He cannot continue to act as the Smiths' listing agent as long as it appears that they intend to discriminate against non-whites. Failure to terminate the listing would subject John to possible enforcement action by the United States Department of Housing and Urban Development (HUD) and the North Carolina Human Relations Commission. It may also expose him to a suit by the buyer and under the provisions of the Real Estate Commission's rules, suspension or revocation of his real estate license.

How should John break off his relationship with the Smiths? First, he should explain to them that by refusing to sell to anyone other than a white person, they are violating the Fair Housing Act. John should then explain that the same law forbids him from continuing to act as their agent as long as it is their intent to unlawfully discriminate against any prospective purchaser. It would be desirable if John also expressed his reasons for withdrawing from the Smiths' listing in a letter to them. He should retain a copy of this letter in his files along with a memo describing the circumstances that required him to withdraw.

Next, John should inform the buyer and his agent that he is withdrawing from the listing and that the Smiths would not consider the buyer's offer. He should also tell them why the sellers rejected the offer, because his failure to explain the sellers' reasons could be interpreted as aiding the sellers in their discriminatory purpose.

Are there any circumstances that would permit John to retain the listing and continue representing the sellers? The answer to this question is "yes," but only if John can convince the Smiths to abandon their discriminatory intent and proceed with the transaction - promising to negotiate with the buyer in good faith in a sincere effort to make and close a contract. However, John must proceed with caution. Even if the Smiths promise John they will not discriminate against the non-white purchaser, he must nevertheless evaluate all of their subsequent actions and decisions in the light of his knowledge of their initial reluctance to consider the offer because of the buyer's skin color. John cannot turn a blind eye to his seller-clients' apparent intent and if their conduct creates any reasonable doubt concerning their motivation, John should terminate the listing.

If John's attempt to persuade his clients not to discriminate fails and he must terminate his listing, does he have any recourse against the sellers? Yes. Because John's termination of the contract is required by law and not a matter of choice, it constitutes a breach of the listing contract on the Smiths' part. John probably should be able to recover his expenses. Furthermore, if the Smiths sell their property during the life of what would have been their listing agreement with him, John also would have a strong claim to recover his full commission. Lastly, because John has probably been harmed financially by the Smiths' discriminatory actions, he could also have a strong claim against the Smiths for violation of his rights under the State Fair Housing Act.

The North Carolina Fair Housing Act expresses the important state policy that no citizen should be denied housing on the basis of race, color, religion, sex, national origin, handicapping condition, or familial status. Because of the central role licensed real estate brokers and salespersons play in the housing market, the effective implementation of the Act depends largely upon the diligence and commitment of agents like John.

For questions about the State Fair Housing Act, please contact the North Carolina Human Relations Commission at (919) 733-7996.