Is This a Duck?

I don’t know! It depends!

unnamedSome years ago I suffered at the hand of an aggressive (abusive!) insurance salesperson. Part of his creative pitch was that he really wasn’t selling insurance. He ultimately became so obnoxious I called the state licensing department (this was not in Maine), described the situation and wondered if this individual might be violating the state licensing requirement. I was prepared for bureaucracy and a run-around so I’ll never forget the investigator’s response. “Well, if it looks like a duck, walks like a duck, and quacks like a duck, it’s probably a duck.”

The recent controversy regarding Zillow’s “instant offer” program reminded me of that experience. Among the issues being raised is “Does this instant offer program constitute brokerage and is it, therefore a licensable activity?” Of course, the debate doesn’t stop there. As more organizations and individuals have joined the fray, the questions now range from “Is this good for consumer?” to speculation that Zillow is trying to “disintermediate” (I had to look it up too) brokers and agents. Personally, I’m reminded of a high school debating class and learning that an often-used technique is “begging the issue.” Whether or not the “Instant Offer” program is good for the consumer doesn’t really determine whether or not it’s brokerage. What determines whether or not it’s brokerage requires looking at the law–not whether or not people (brokers, agents, or consumers) like it.

Somewhere between “if it looks like a duck” and an in-depth analysis of statutes and case law, we might find the answer. However, as I often say in class, “Sorry, I left my judge’s robe home so I’m not qualified to offer a ruling.” I do have a personal opinion. But here’s the thing: that personal opinion is based on the Maine Statute that defines brokerage. (Title 32, Chapter 114, §13001 2.)

But here’s the really interesting thing–in case you haven’t noticed. My opinion is based on a MAINE statute. Would it be the same if I were in any other state? As is often the case, there just might be more than one answer to this question–one reason I teach that there are always two correct answers to any question:

  1. “I don’t know.”
  2. “It depends.”

If you ask me whether or not Zillow’s program is brokerage I’ll give you both answers. “I don’t know. It depends.” I don’t know because I’m not that familiar with the program and it depends because the answer might be different depending on where I am when I answer the question.

And that leads us to something to think about.

While we can still say with some accuracy, “all real estate is local” another reality is that the business of real estate is becoming increasingly global. Anyone licensed in two different states will likely honestly admit it becomes important to remember the differences in laws and rules between those two states. Yes, there are many commonalities–but those differences can be significant. “The devil is in the details.”

It would be a keen grasp of the obvious to observe that the world is changing. Twenty years ago the technology didn’t exist for a nation-wide company to offer an “Instant Offer” program. A localized version might have been feasible, but the concern would have been (for example) “Can I legally do this in Maine?” It’s not that simple anymore.

Without creating a political discussion, I think issues like the Zillow question can make us wonder if we will come to see more federal regulation that will facilitate one answer to questions. We can, of course, debate whether or not this would be a good thing… and wonder what the motivation might be for increased federal oversight of real estate brokerage, but that somewhat begs the questions of “Where are we headed?” and “Are we sure we want to go there?”

Oh, by the way. Within 24 hours of talking to the investigator at the insurance division, I stopped hearing from the duck who was “not selling insurance.” His statement actually became true. He was not selling insurance. In fact, he was barred from selling anything resembling it in that state.  Sometimes things are pretty simple and a duck is just a duck.

A recent article posted at RIS Media raises even more questions and reports some opinions on this question.

Article written by Walter Boomsma, a real estate educator in Bangor, ME. 
Check out his blog at boomsmaonline.com for more topics and discussions!

 

Please CAN the SPAM

“There’s no such thing as bad publicity,” is often attributed to P.T. Barnum although there’s no hard evidence he said it. There’s no doubt, however, that he was a self-promoter extraordinaire. An interesting discussion is available for those engaged in the practice of real estate brokerage–how much self-promotion of ourselves should we be doing versus promoting properties?

During one of those discussions with a student, he was quite adamant that whether we are promoting properties or ourselves, we should be using every available means at our disposal–it’s a fiduciary duty to our clients! His twist was “There’s no such thing as bad advertising.” My tongue was only slightly in my cheek when I told him that I hoped he was taping his business card on the wall of every public bathroom he used since business cards are cheap and a lot of people would see them.

Seth Godin, in a recent blog post, notes that marketing used to be done with care and caution, but now that getting attention (publicity) is easy and cheap, we are “like a troop of gorillas arguing over the last banana.” For those unfamiliar, the gorilla reference relates to a series of books by Jay Levinson on “GuerillaMarketing.” The premise behind the popular book series was that small businesses could compete by adopting unconventional methods of promotion. For an effective program, you didn’t need a huge budget, you just needed to have imagination, energy and time.

But you also needed to think because guerilla marketing works best when it’s targeted. Just because you can tape your business card on the walls of public bathrooms doesn’t mean you should.

Guerilla marketing is creative and fun, but it is still about building your image in a strategic manner–not just doing the quick and easy. Let me give you one example that is a personal annoyance.

Technology now makes it very easy to email information to diverse audiences and lots of people. All you need is a mailing list, right? And best of all, email is free! (That’s actually not true, but it’s a different discussion.) So a lot of folks started playing the numbers game. Some guy in Nigeria figured out that if he sent out enough emails suggesting he needed help getting his family fortune moved to the United States, some small number of people would perhaps be willing to help him.

So, yes, it does work. It works really well for the short term. But for every willing victim, there are thousands–perhaps hundreds of thousands–of people who are simply annoyed by his constant badgering and desire to take advantage of people. (Robo-calls fall into the same category when you think about it.)

For those who are using technology–email and social media–as a vehicle for promotion, it might be wise to consider the full impact of what you’re doing. I don’t maintain counts, but every week I receive at least a dozen or so “ads” from real estate licensees. These range from announcements of open houses to brochures that tie up my server because they are megabytes in size.  Some are for properties over 100 miles away. But that’s not what really bothers me.

What really bothers me is how many of these emails are in direct violation of federal law. You might find it mildly interesting that the term “CAN SPAM” is an acronym for “Controlling the Assault of Non-Solicited Pornography And Marketing.” So sending unsolicited email is considered an assault–I can relate to the term while I delete them from my inbox.  What might be more interesting is that if your marketing and advertising program includes assaulting people with email, you’re risking a $16,000 fine by the FTC for each email you send that violates the act.

We can debate the effectiveness of the act, but it is law and many people are at least mildly aware of it. So consider that sending email that does not comply is also advertising your willingness to violate the law. It’s actually not a hard law to comply with, so do a little research:

  • National Association of REALTORS® offers a number of articles and resources
  • HubSpot offers a short list of do’s and don’ts along with some FAQs
  • FTC (Federal Trade Commission) offers a compliance guide for small businesses
  • Comm100 provides some detail and unintentional entertainment by using the word “complaint” repeatedly when they mean “compliant” — an interesting error for a company specializing in communication!

What are you telling your prospects unintentionally? This really isn’t just about the law. If you find receiving SPAM annoying, you might not want to send it! And if you don’t find it annoying, remember that a lot of people do! That’s one reason the law was passed. You might just distinguish yourself by doing it right.

 

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1031 Exchanges for Vacation Homes

From Maine down the Atlantic coast, across to the lakes and ski mountains of the Northeast, many people own some type of vacation or second home.  Large or small, used year-round or only seasonally, it’s their personal getaway.  They may even consider it an investment, building upon the original structure or simply letting the value and equity grow.  Unfortunately when it comes time to sell, owners do not benefit from the same tax exclusions as that of a primary residence sale.  

 

Many have no idea the federal and state capital gains tax will be due, and possibly even the 3.8% Affordable Healthcare Tax depending on their adjusted gross income.  The IRS maintains holding property solely for “personal use & enjoyment” does not qualify it for a 1031 Exchange. With no proven business use (i.e. rentals), the IRS reasons that “holding this property with the hope of future gain” is simply not enough to qualify property as “held for investment” under the §1031 Tax Code.

Investors inevitably ask: “How long do I have to rent out the property? How much can I use it?”  In 2008 the IRS answered: for a “dwelling unit” to qualify as property held for investment purposes and be eligible for the Section 1031 tax deferral, the Taxpayer must have:

  1. owned it for 24 months immediately before the sale/exchange, and
  2. rented it at fair market rental for 14 days or more within each of the past two 12-month periods the Exchanger, and
  3. restricted personal use to not exceed the greater of 14 days or 10% of the total days rented within each of those 12-month periods.

Going forward, purchasing a vacation/second home as replacement property must meet the same criteria as above for the following 2 years, and the Exchange itself must meet all other §1031 requirements.  

Many property owners hoping to keep their investment properties “safe from damage” during those first few years will rent to those found through a rental agency, or rent to friends and acquaintances for fair market value. This will help ensure it remain in good condition for future years when the taxpayer may eventually decide to sell, or convert the investment to a personal vacation home or even their primary residence.

 

Patricia A. Flowers is Vice President for Investment Property Exchange Services, Inc. (IPX1031®), Boston, MA. www.ipx1031.com

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THE LONGER VIEW CONCERNING LEAD

Residents in Flint, Michigan recently learned that they have been drinking water highly contaminated with lead and the problem has persisted now for some time. This is due, in part, to a failure to act, but also because lead is a persistent element… it doesn’t break down. Those who pay attention to issues of public concern also know that Flint is not all that unusual. Many places have inadequate protections against lead. Lead is in paint, water and soil but there are ways to prevent and reduce exposures, some of which cost very little or nothing at all. Proper disclosure raises awareness. It can start with the EPA pamphlet Protect Your Family from Lead in Your Home. This brochure is a mandatory requirement before a buyer or lessee is obligated.

Experts who work with lead know that the benefits of preventing lead exposure far outweigh the costs of taking action and that there is an overwhelming case for paying attention and investing in lead hazard reduction.

The current Administration is proposing many changes in federal enforcement, policy, and regulations, and it may be tempting at this point to think that it is no longer necessary to really pay much attention to the issue of lead, or consider investing in exposure reduction, because the risk of getting into trouble is reduced. This is a mistake.

A certain kind of risk may be reduced in the short-term, but other types of risks persist. Lead persists. The risks are severe and probable enough that no professional should feel intelligent in veering from the path of responsibility due to a perceived drop in potential liability. Not only has the potential for private civil liability increased (not least because of the advances in our understanding of how lead harm occurs and how it can be prevented) but also because plaintiffs are more likely to go to court out of conviction. They want to right a wrong and are compelled to seek justice. Once lead enters the body, it can cause long-term harm and prevention is critically important to the health and wealth of a community. Failure to exercise proper care risks various liabilities. Failure to responsibly manage the problem of lead is a business, legal and moral issue. In addition, administrations change and a new administration can look back and enforce violations quite easily. The lead laws work by placing the requirement to document compliance on the regulated party.

Real estate agents are well advised to know and be faithful to the full requirements of the lead disclosure law. All real estate professionals should either observe or insist on full compliance with the Renovation Rule, even though this rule has been targeted by the Administration. These rules represent only one facet of the law, not the whole law, and compliance is just the beginning of awareness. By fully appreciating the purpose of these laws, and understanding the value in investments in lead hazard reduction, real estate professionals can attract business, improve their reputation, preserve the value of their properties and reduce the possibility of lawsuits.

In addition, investments in lead hazard reduction can be combined with improvements in energy efficiency and aesthetics. Properly planned, they minimize budget constraints.

 

 

Rick Reibstein has taught lead compliance to real estate professionals since 2004, after serving as an enforcement attorney at the U.S. Environmental Protection Agency. He currently teaches environmental law and policy at Boston University and the Harvard Extension School and is a frequent Instructor for the Arthur Gary School of Real Estate.

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§1031 EXCHANGES KEEP REAL ESTATE MOVING

Have you been feeling it?  We sure have!  Real estate transactions have been up considerably in the last few years and a large percentage of those have been 1031 Exchanges.  When speaking with our clients, the high volume of exchanges can be attributed to a number of reasons.  

Real estate remains strong and investors are starting to look for ways to change or build upon their portfolios.  Properties that held as stable investments through the downturn are now showing significant appreciation and equity.  Since multiple properties can be acquired through a single Tax Deferred Exchange, investors can diversify their real estate portfolio, thereby hedging the investment risk inherent in a single property.  These replacement properties can offer greater income and long-term appreciation potential.

For some, it’s all about the taxes: In 2013 the Affordable Healthcare Act began imposing a 3.8% tax on certain investment income, including capital gains, for those with an Adjusted Gross Income exceeding $200,000 for single filers and $250,000 for married couples filing jointly. Additionally, the American Taxpayer Relief Act raised the top long-term capital gains rate from 15% to 20% for those with a taxable income of $400,000 for single individuals and $450,000 for married couples filing jointly.  Both of these taxes, combined with the 25% Depreciation Recapture Tax and the state capital gains tax, cause a substantially greater amount of equity to be due to the Federal Government at tax time.  With upwards of 1/3 the gain due in taxes, Investors utilize 1031 Exchanges to preserve their equity and grow their portfolio!

For others, Exchanging is an estate planning tool:  Investors want the income and benefits of ownership while they are alive, but want the property and hard-earned equity to pass on to their heirs upon death.  When a taxpayer dies, the estate receives a stepped up basis in the inherited property.  As a result, all of the built in gain disappears upon the taxpayer’s death.  This taxpayer could have exchanged multiple times during their lifetime, leaving their heirs with a sizable benefit that would have otherwise been greatly reduced if the taxpayer had sold the property outright, paid the taxes and just given the remaining cash to the future heirs.   

These strategies are excellent tax saving opportunities for a 1031 Exchange, and for all those involved in the real estate transaction.  We pride ourselves on not only being the industry leader in service and security, but we also strive to help our clients and their advisors keep current on tax issues pertaining to §1031 exchanges and applications for them. IPX1031® is your complete information resource. For more information about us, IRC Section 1031, or our complimentary monthly webinars, visit our website at http://www.ipx1031.com.

Patricia A. Flowers is Vice President with Investment Property Exchange Services, Inc.(IPX1031), the largest and most secure Qualified Intermediary in the country.  In 2004, Patricia received one of the first industry-awarded Certified Exchange Specialist® (CES®) Designations. In her role she strategically guides investors and advisors through the process, structuring transactions to help investors preserve equity and save thousands in taxes.

Patricia’s involvement spans the legal, financial, brokerage, tax and real estate industries, where she has participated in thousands of Exchanges. She is a member of various associations, including CREW-Boston (Women in Commercial Real Estate) and the Federation of Exchange Accommodators (FEA). Patricia is a frequent lecturer on IRC §1031 Exchanges, an instructor for CLE, CPE and CE credit, and author of numerous articles including an ongoing column the New England Real Estate Journal.

She can be contacted at 617-423-1031 or patricia.flowers@ipx1031.com

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Should I Renovate…?

Written by Walter Boomsma, instructor. See his blog.

A question we often hear from potential sellers is whether or not they should renovate or otherwise improve the property before selling. While there’s no one correct answer (except “it depends”), most licensees will recommend some degree of “freshening” — cosmetic improvements that might fall under the headings of staging or curb appeal.

paintBut what about the “bigger” stuff? Should we remodel the bathroom?

Every year Remodeling Magazine reports the results of research designed to determine which projects have the greatest dollar return. The results of the most recent survey are reported on REALTOR.COM and might surprise you. While sexy renovations may help with the sale, it doesn’t necessarily mean a great increase in value. The top return was attic insulation–statistically it returns more than the cost.

We ought to bear in mind (and explain to prospective sellers) that the value of the improvement shouldn’t simply be measured in dollars, but having some data beats pulling our opinions out of the air. If you look at the chart, note also there are regional differences. Also, pay attention to what people are saying. I know when I talk with folks who are buying and selling two things that come up consistently are “energy efficiency” and “aging friendly.” It shouldn’t be a surprise to hear that in Maine where we have an aging population and some mighty cold weather.

One of the funnier questions I had a few years ago came from a young couple who wondered, “Should we remodel and add a bedroom if we’re planning to sell in ten years–will we get back the money we spend?” That’s some strategic thinking! In this case, they ultimately decided ten years living in a home with the additional bedroom would be worth spending the money–even if the long-term payback wasn’t guaranteed. There are too many “it depends” to answer the dollar question with any degree of certainty.

Seth Godin recently wrote a piece (Economics Is Messy) about the difference between value and profit. When considering the “Should I renovate…?” question, it’s an important distinction. The average dollar “return” on improvements is about 64%, making most improvements a loss if we only measure in dollars. When we look at the value we include factors like how much more salable the property becomes and how much pleasure the current owner will reap from the improvement. Those factors add value and may well offset the lack of dollar profit.

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Could Facebook Ads Violate the Fair Housing Act?

Written by Walter Boomsma, instructor. See his blog.

Walter notes: I’ve occasionally observed that Facebook ads are a great place to find ads that do not meet the requirements of Maine License Law and Rules. Well, here’s another article (reposted courtesy of Tuesday Tactics) that raises a slightly different concern!


fair-housing-logoFacebook ads are a powerful way to generate leads, find prospective buyers and sellers, and optimize your marketing spend. There are lots of tips out there on how to maximize your ROI and craft ads.

But recently Pro Publica reported that Facebook’s ad targeting system may violate the Fair Housing Act of 1968. From the piece “Facebook Lets Advertisers Exclude Users by Race“:

“The ubiquitous social network not only allows advertisers to target users by their interests or background, it also gives advertisers the ability to exclude specific groups it calls “Ethnic Affinities.” Ads that exclude people based on race, gender and other sensitive factors are prohibited by federal law in housing and employment.”

Facebook disagrees. According to an article in Engadget:

“Facebook defended the practice, telling USA Today that “multicultural marketing is a common practice in the ad industry and helps brands reach audiences with more relevant advertising.” However, it added that “we’ve heard from groups and policy makers who are concerned about some of the ways our targeting tools could be used by advertisers. We are listening and working to better understand these concerns.”

If you use (or are considering) Facebook’s sophisticated ad targeting, you may want to keep this issue front and center in your mind. Be prudent how you use the targeting, and be aware that there’s a debate going on right now about the legality of the platform’s features.


Tuesday Tactics was developed in the Fall of 2008 and began publishing in the Summer of 2009 by Scott Levitt, owner of Oakley Signs & Graphics, to help real estate agents survive and thrive in an increasingly challenging market. In addition to Oakley Signs & Graphics, Scott is also the founder of My Real Helper, a real estate marketing content service designed to help agents market themselves and build rapport with clients. His newest company is Oakley Canvas Prints, a one-stop source for turning your photos into art you can hang on your wall.
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