HUD releases newly approved condo rules: On August 14, 2019 HUD finally released the long-awaited condo rules. The new rules include a new condo approval process.
The new policies become effective Oct. 15, 2019. Here are a few quick bullet points of items include in the new rules:
- Back again, the single unit approval process allowing individual condo units to be eligible for FHA financing. If you practiced real estate in the 1990’s you know how much this provision was used and how much we have missed it.
- The re-certification process for approved condo projects is extended to 3 years
- More mixed-use projects will be eligible for FHA financing as long as non-residential space including commercial space does not exceed 35% of the project’s total floor area.
- A range of 30% to 70% of the units must be owner occupied. The percentage is determined by several factors. Secondary residences occupied by the owner part of the year, but not rented out the majority of the year, will count toward the total owner-occupied unit count.
There are also provisions to lessen the burden on lenders and their staffs. You may read the new condo regulations and the updated FHA Single Family Handbook.
Update on the two Lawsuits Against NAR – Moehrl v. NAR and Sitzer v. NAR
Earlier this month NAR moved to have both lawsuits dismissed based on the fact the lawsuits misrepresent the NAR MLS Policy and Code of Ethics. You can read NAR’s comments as well.
Here is a quick overview:
Plaintiffs maintain the MLS rule of Listing Broker offering cooperation and some kind of compensation to buyer’s broker constitutes an anti-trust violation and they maintain the commission amount is fixed at 2.5% to 3%.
Clearly, neither plaintiff has attended a pre-licensing class, CE class, meeting of REALTORS or attended a risk management forum. How many times have we been cautioned to never speak of compensation amounts or percentages when more than one REALTOR from different brokerages is present? In fact, I have addressed this issue in my broker pre-licensing classes and member calls. Most of the time these calls and questions center around a broker or future broker being concerned they cannot speak about compensation amounts or percentages as part of their own brokerage policy and procedures or during their agent meetings. A broker’s attorney will help them construct policies and procedures and properly engage in the compensation conversation with their brokerage employed agents.
NAR addresses the issue in the Code of Ethics as well. No, REALTORS from different brokerages may not discuss compensation policies for purposes of comparison or information. In fact, NAR routinely advises brokers and agents from different brokerages to never discuss compensation. The AAR forms in which compensation is addressed always leave method and amounts blank with lots of blank lines so the two parties to the agreement may create the compensation agreement best suited to them.
The MLS rules say brokers must offer cooperation and compensation to the co-operating broker and that the offer of compensation must be honored. Clearly the plaintiffs have never viewed co-broke offerings in the MLS. Those offerings can range from a flat fee to a percentage of the sales or lease price. I have seen lease co-broke offerings in which the tenant’s broker received an initial compensation amount and a small commission upon renewal. I have seen compensation offerings on sales as low as $1.00, because the listing agent was not able to be paid very much from the distressed seller and was not able to share very much of his or her compensation. By the same token I have seen offers of sales compensation to the buyer’s broker in the percentage double digits, and everything in between.
The lawsuit’s “Nature of Action” describes a fundamental misunderstanding, or misrepresentation, of a listing agent’s job and considerations sellers and agents discuss at the listing table. To begin with, the net sheet and the seller’s future goals dictate terms and pricing along with broker compensation. After all brokers and agents should be paid for their work and sellers need to net a minimum amount in order to sell and still proceed with their plans.
In a diverse marketplace, listing agents will ask for a compensation amount sufficient to meet their broker’s policies and indicative of the amount of work the listing represents. As we all know, short sales are usually more work than traditional sales. Probate, luxury homes, mixed use, REO and other unique niche sales can be equally challenging, expensive and time consuming for the listing agent. A listing agreement must encompass enough compensation to warrant a broker and agent’s work, time and talent.
I have seen listing brokers agree to no compensation at close of escrow in the name of netting the seller all they need in order to move forward. Instead, these brokers accepted a note with payment plans clearly delineated.
Listing agents outline the compensation they ask for, if they will or will not be sharing with another broker (in fact that election is contained in the listing agreement), and the market place ramifications of a listing broker sharing part of their compensation with the buyer’s broker to their client. It is a conversation and decision at the listing table between the two parties to the listing employment agreement, broker and seller. And we all know these compensation agreements are amended by the two parties frequently as market conditions or specific offers arrive for seller consideration. By definition fluid and amendable broker compensation agreements cannot be accused of being “fixed”.
Add to that the different brokerage models representing only sellers or only buyers and it becomes clear, there are many brokerage types, many transaction types and the broker/client conversation surrounding compensation is unique to each circumstance.
Buyer/Broker agreements are not mandatory and as near as I can tell about 50% of REALTORS use them on a regular basis and 50% do not. They are essentially a buyer listing agreement enabling the buyer to hire the professional of their choice under a fiduciary standard and allowing a broker and their agent to feel somewhat confident that compensation for work will happen no matter the type of buyer home purchase.
Let’s start with the plaintiff’s premise that every type of real estate sale must contain buyer’s broker compensation from the seller. First of all, sellers do not pay the buyer’s broker. One of three things happen: The buyer pays the buyer’s broker, the seller’s broker shares enough of their compensation so that the buyer’s broker does not require additional compensation, or the listing broker shares a small amount of their compensation and the buyer pays the remainder of the buyer’s broker compensation as agreed to in writing between the buyer and their broker.
Frequently, the buyer will be the only party to compensate the buyer’s broker. Think about a buyer wanting to purchase from a wholesaler, offering on a short sale, offering on a HUD Home or other distressed property, and don’t forget FSBO’s.
As NAR points out, over the decades the MLS has sustained agency and court scrutiny and been confirmed as a way to create efficient and vibrant markets while providing consumers with a vast array of necessary information.
While we all know commissions and compensation are negotiable between the broker and their client, apparently some people do not understand the marketplace. NAR has talking points you can share with your clients. Think about including them as part of your buyer and seller presentations.
Visit with Legislators:
Two years ago, WeMAR hosted a Visit with West Valley Legislators. It was very popular and informative. This year we are expanding this event to include both West Maricopa County and the Western Pinal Chapter.
We have two events, one if the Casa Grand and one at WeMAR’s offices in Peoria.
Join us on Sept. 10th from 9am to 12noon at The Property in Casa Grande as we welcome Representative Cook, Representative Roberts and Senator Pratt. This event has been approved for 3 CE in Legal Issues by Az DRE.
Join us on Sept. 24th from 9am to 12noon at WeMAR in Peoria as we welcome Representative Dunn, Senator Kerr and Senate Majority Leader Gray.
We will be discussing Arizona’s Drought Contingency Plan, local and state lawmaking on water and the future of AMA’s and water rights in Arizona. We will also discuss infrastructure needs now and in the future and how to fund and maintain roadways, rail, air and internet for the future and for economic development.
We will discuss how these legislators became legislators, their concerns and visions for Arizona’s future, agriculture, education, foreign trade, and Arizona industry.
These are free events, but we ask you to please register to attend so that we have seats and food for all. You can register and read more about these events at www.weservgad.org.
WeMAR GAD: Advocating for private property rights, the right to private contract and your business!
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