I’m getting an increasing number of calls to the VAR Legal Hotline about the legal and ethical issues REALTORS® face in increasingly-common short sales. In this brand new 29 minute webcast, I address some of the most frequently asked questions such as:

1. Is it legal or ethical to require the seller to state that the home is a short sale listing in the MLS?
2. What happens when a ratified contract with a third party approval clause fails because the third party rejects the offer?
3. What are my obligations when the bank asks me to reduce my commission on a short sale?
4. Why aren’t lenders be required to pre-approve the selling price before short sale listings are entered into the MLS?
5. Are “conditional commissions” permitted in the MLS?

One of the most controversial Standards of Practice to come from NAR in long time, would have to be the new Standard of Practice 12-12, which became effective January 1, 2008.  Just to refresh your memory, Article 12 is known as the “truth in advertising” article.  We have come a long way from the published newspaper ad.  Years ago, that was pretty much all that was available to REALTORS to spread the word about their new listing.  Now, advertising can be instantaneous thanks to the internet.  In addition to company web-sites, many agents have their own personal website.  Some of the URLs and domain names used can be either dull or attention getters, and sometimes down right misleading.  The new Standard of Practice 12-12 states:  REALTORS shall not:  (1) use URLs or domain names that present less than a true picture, or (2) register URLs or domain names which, if used, would present less than a true picture. 

The new NAR Case Interpretation 12-20 address this new Standard of Practice.  So, here it is–you be the judge–REALTOR A, a residential broker in a major metropolitan city, spent several weeks each year in his cabin in the north woods where he planned to retire one day.  Even while at home in the city, REALTOR A stayed abreast of local news, events, and especially the local real estate market by subscribing to the print and on-line editions of the local newspaper.  He also bookmarked a number of north woods brokers’ websites to stay current with the market and to watch for potential investment opportunities.

One evening while surfing the internet, REALTOR A came across a URL he was unfamiliar with–northwoodsandlakesmls.com.  REALTOR A was pleased to see the MLS serving the area where he vacationed for so many years had created a website accessible to the public.  Clicking on the link, he was surprised to find that the website connected with REALTOR Z’s company website, not an MLS website.  Having had prior dealings with REALTOR Z, REALTOR A spent time carefully scrutinizing the site.  He noted, among other things, that the name of REALTOR Z’s firm did not include the letters MLS.  REALTOR A sent a letter to the association’s EO asking whether REALTOR Z had been authorized to use the name northwoodsandlakesmls.com and whether it presented a true picture as required by Article 12 of the Code of Ethics.  REALTOR Z filed a complaint alleging that when he clicked on what appeared to be a real estate-related URL that included the letteres “MLS” he expected to be connected with a website operated with a multile listing service.  He stated he felt that REALTOR Z’s URL was deceptive and did not meet the true picture test.

At the hearing, REALTOR Z defended his URL on a number of grounds including the fact that he was a participant in good standing in the MLS and he was authroized to display other participants’ listings  on his website under MLS rules.  “If I used `MLS’ in the name of my firm, I could see how that might be perceived as something less than a true picture,” he argued, “but by simply  using MLS in my URL I am telling consumers that they can get MLS-provided information about properties in the north woods from me.  What could be truer than that?”

How do you think the hearing panel ruled?  Do you think REALTOR Z  was found in violation of Article 12?  What do you think of the new Standard of Practice?   

This week I received an e-mail from the Virginia Real Estate Board that, among other things, advised the schools that the requirement for CE and PLE instructors have changed. This is a good start, but we must do better…

Up to this point, schools submitted their classes to VREB for credit and included an instructor’s name and bio. There wasn’t much more required than a loose idea that the instructor could teach the topic. The new requirements state that the instructor must have three years experience in their area of instruction, letters of reference, etc… I am a fan of high quality instruction, but I am not sure that we’re attacking the issue of practitioner competency from the correct angle. I fully agree that it starts with the instructor. Not everyone who is teaching is effective. These requirements, although a bit cumbersome, will help.

Beneficial Changes?

There are other changes going on this year as well. Two significant changes are coming up as of July 1, 2008. The first is that licensed Brokers (Associate, Supervising and Principals) will be required to earn eight additional hours, on top of the limited services two hour requirements and the 16 hours of Continued Education. It’s obviously a good move to require those who carry the title of broker to get that higher level of training that most consumers perceive the broker as having. I’ve been surprised at the number of Associate Brokers who have balked at this requirement. I don’t even know what to say about that, other than the fact that it’s necessary and it’s only one extra day out of the 730 that you have between license renewals.

The other significant change is that VAR and VREB worked together to have legislation passed to require agents licensed after July 1, 2008 to obtain 30 hours of Post Licensing credit in the first 12 months of licensing. The theory, as I understand it, is that there are obvious failings in the pre-license program, as the 60 hour requirement does not typically carry information about the practical practice of real estate. There is so much theory and principle that things such as drafting a contract, short sales and marketing simply don’t find their way into the training.

I fully support the idea that the 30 hours should be “everything that we should have learned in pre-licensing and did not” but I think we’re going to see the nature of unintended consequences. Having sat as an association staffer now for the past few months and getting many daily phone calls from agents who find the relicensing program complicated, I have found that many (most) are taking the path of least resistance and simply taking an all inclusive on-line program. Many of these agents are very honest that the 30 hours can be gotten in 10 hours and they can do it while watching television.

Online Education Isn’t Cutting It

I’ve ventured through some of these online programs, and they can be done in far less time, than the “learner” is given credit for. At some point I have to ask: “Why do we even bother requiring CE or PL hours?” Almost all adult learning studies I’ve reviewed show that online learners have a much lower retention rate than those who learn in a classroom. The relicensing process for many is too complicated and frustrating to keep track of and they feel that there is no other option but these online classes. To compel the issue even further, most schools only have a limited number of these classes approved and don’t offer them often enough.

Learners have to take 30 hours, with 15 of them being in mandatory topics and the other 15 in a variety of electives. No one can get credit for taking any one class more than once. So, if I take “Short Sales” and get my three hours, but feel I need to take it again, I will not get an additional three hours, unless I take that topic through a different school.

How To Gauge The Retention

However, even aside all these issues, my real concern is that we never establish a mechanism by which to gauge the retention of the student. How do we know that the student really learned anything? What’s the point of requiring the student to meet certain criteria, if we’re not evaluating the student to see if they retained the information? I know that by suggesting that written evaluations be implemented I will become the least favorite person here, but really, how can we otherwise gauge our effectiveness? If the student is required to pass a written evaluation, then the instructor will be sure to deliver that material better and the learner will pay more attention.

Here are my suggestions:

First, we should consider requiring all mandatory PLE and CE classes be in a classroom setting, with a written evaluation. (Otherwise, what’s to stop an agent from reading a romance novel or comic book for the three hours I am supposed to be taking ethics?)

Second, electives can be taken in a classroom or online, but if they are taken online than it should require some mechanism to ensure that the learner is interacting at intervals that equal the clock time of the program. So, maybe you have to have mouse or keyboard activity every five minutes for the three hours, or you have to start all over. The technology is out there. All online training should require written evaluations at the end of the course.

Third, licensing and relicensing should be more relevant to the discipline of the practitioner. I am curious to see if anyone else thinks that Commercial, Residential and Property Management should have different licenses, with separate pre-licensing and separate post licensing requirements. There are a lot of different litigious pitfalls involved with these various types of practice and it seems that most all of pre-licensing and post licensing programs are directed to residential.

There are folks smarter than I am looking at the issues and overhauling as we go, but I just don’t feel our current structure is as effective as it can be. I am sure that there are some solid objections to these concerns, but if we’re all interested in improving the competency of agents than we need to find a better way to proceed in the future.

OK OK I’m going to step up to plate. (do I need a flame proof suit?)

First of all DISCLOSURE: Often I am a dual agent, I work in a niche market - horse properties & farms. I am broker/owner of a small firm Valley of Virginia Real Estate, within my firm I have no possibility of Designated Dual Agency.

When I started in Real Estate I thought seriously about being an Exclusive Buyers Representative but as I started working with buyers & showing farms I discovered many, not all, listing agents of horse properties just did not understand the horse aspects of the property. They were trying to sell the house that oh btw there is a “barn out there too, I’ve never been in it but I think you can store about 6 ponies in it & there’s a riding rink too”. Hint - horse folk usually could care less about the house -they want all the details about the horse facilities. After seeing this type of information more times than I want to count, I started listing horse properties so I could better serve the clients - both sellers & buyers. I guess you could say lack of specific knowledge on other agents part drove me to Dual Agency.

My average time from first contact with a seller or buyer client to closing is often well over a year. I build relationships with clients based on the expected Real Estate expertise & my clients very specific needs which require special knowledge of horses, land, riding styles, hay sources, local instructors, equine vets, show schedules, just to name a few. Most of my sellers require & expect me to be present for all showings - most live in fear of something happening to their horses, dogs, cats. They also know most agents just flat don’t know enough about the horse world to be effective. Buyer clients seek me out because they know I have specialized knowledge of horses & riding.

“Candy has had horses and ridden for a long time and so she was able to understand how functional the farm was. Also, horse people have their own language and she “fit right in” with whoever she showed the farm to”

I’ve had more than one client tell me that if I’d shown up in a fancy car with a dress & heels they would have shared a cup of coffee with me, thanked me for my time & said goodbye. I am one of those blue jean wearing , big loud truck driving agent! So what does all this have to do with dual agency?

On first contact with each seller or buyer I explain agency with emphasis on Single Agent Dual Agency. I let them know up front that my firm cannot offer Dual Designated Agency. I send them home with information on Agency to read. If they are not comfortable with Dual Agency as a possibility, we either make arrangements for referral, identify another agent with another firm that can represent their interests or part ways on good informed basis. This conversation is repeated throughout the process.
Do I recommend Single Agent Dual Agency for everyone? NO!!!
It takes a special REALTOR. One that is a stickler for COE & one that is willing to work hard to do it right. Agency & Agency Law must go hand & hand with the COE. Its hard work, it takes extra time, specific education (I highly recommend taking Marcie Roggow’s Class: Negotiating in Dual Agency), specific consent ( IMHO - above & beyond signing the VAR Form on Agency), specific rules during negotiations, specific education to all parties & above & before all - DISCLOSURE!

I’ve heard some REALTORS & media say that REO/foreclosure sales are driving values down nationwide. I would argue it’s actually the short-sellers that are doing this, and it’s something we need to take immediate and decisive action to stop. Here’s why:

Let’s take a fictional seller, Bob. Bob bought his house using 100% financing, and he paid $500k for it. Now it’s worth $400k based on comps in the neighborhood. The banks have all priced their listings, say, at $395k to be on the lower end of the neighborhood price range (which tends to be their strategy).

Here’s the issue - since Bob is already taking a loss on the property (and often it’s the bank eating it), when he tries to sell it as a short-sale, Bob has no real motivation to list it at the current market price of $400k. And since it’s so hard to get REALTORS to make offers on short-sales, he’ll probably have to list it at $350k or even lower just to get someone to make an offer. Bob might even list it at $300k just to get out of the mortgage payments, after all, what does he care if the bank takes a $100k loss vs. $200k loss?

And so the vicious cycle begins. Since the banks try to price their properties at the low end of the comps, and do BPO’s every 60 to 90 days, Bob’s $350k listing all of a sudden means the banks lower their prices to $345k to be just below the short-seller.

But I could make an argument that the short-sale listings aren’t even “real” listings because it’s very unlikely they’ll sell… unlikely that the bank will even accept the price at which Bob has listed his property (let alone a lower offer).

Do you agree that short-sales are driving values down at a precipitous pace? And if so, what should be done?

One agent I discussed this with had a great suggestion - have the MLS’ require the bank to sign off on a listing when it’s a short-sale. This would at least provide some amount of verification that the listing is reasonable from the bank’s perspective.

Other suggestions? I’d love to hear your thoughts. I think short sales are a major issue nationwide and I’d love to see VAR and even NAR take a leadership role on this issue that’s affecting all of us.

Congratulations to Alexandria REALTOR Brian Block, one of the newest real estate brokers in the Commonwealth of Virginia. Fortunately for us, Brian wrote a blog post about his experience preparing for the exam and about the process of actually taking the exam. For anyone considering taking the plunge and taking the broker’s exam, this is a must read post.

Following is just-in from NAR’s Joe Ventrone (Vice President of Regulatory and Industry Relations):

Over the past few months, the GSEs (Fannie Mae and Freddie Mac) along with the Private Mortgage Insurance Industry (MIs) have been increasing fees and tightening up underwriting standards. This is a direct result of the mortgage crisis which surfaced last August. NAR is communicating with the GSEs about these changes and raising concerns about their impact on the market and unintended consequences. For example, the declining market policies may be stigmatizing entire markets and unfairly denying homeownership to homebuyers, especially minority and low income homebuyers. Although the recent GSE actions will have a significant impact on the mortgage and housing markets, we recognize they have suffered serious financial losses in recent quarters and their goal, like ours, is to make sure they are strong enough to continue making the secondary market work. Without the GSEs, the current crisis would have been much worse.

The following factors may help explain recent GSE decisions:
• These are essentially private entities that are universally losing billions because the mortgage markets in the last several years failed to apply strong underwriting standards.
• After what has happened in the mortgage market, with hundreds of billions of losses, a period of retrenchment is inevitable. A return to zero down mortgages is unlikely, which is not necessarily a bad thing.
• The FHA mortgage insurance program is a sound alternative for subprime and many Alt-A borrowers, People with weaker credit and a small downpayment should consider using FHA. There is a long history of FHA filling that role, and we expect the pending FHA reform legislation to help revitalize its programs and make them even more accessible.
• If Fannie and Freddie are charging too much and setting their standards unnecessarily high, considering the risk, there will be an opening for others to compete. Unfortunately, considering how cautious banks and other mortgage lenders have become, this could take considerable time.
Attached please find an update from our Real Estate Services program which was drafted by NAR consultants. This update provides up to date information on the current state of the mortgage market.

These are very trying times for our mortgage finance system, our members, and the American homebuying consumer. We at NAR are keeping abreast of up to the minute changes from the mortgage lending industry as well as the GSE’s and the financial regulatory agencies. In this regard, we continue to work with the GSEs on their declining markets policy. Please visit www.Realtor.org for current information. Please do not hesitate to call any of the following NAR staff if you have any questions.

NAR Contacts

FHA Programs Regulatory Contact:
Jerome Nagy, jnagy@realtors.org <mailto:jnagy@realtors.org> , 202.383.1233

FHA Programs Legislative Contact:
Megan Booth, mbooth@realtors.org <mailto:mbooth@realtors.org> , 202.383.1222

GSE Programs Regulatory Contact:
Jeff Lischer, jlischer@realtors.org <mailto:jlischer@realtors.org> , 202.383.1117

GSE Programs Legislative Contact:
Marcia Salkin, msalkin@realtors.org 202.383.1092

Well, we knew it was good, we just didn’t expect this overwhelming response!

After just a few months of availability, VAR’s Broker Tool Kit has crossed a significant milestone: 2000 downloads. VAR’s Broker Tool Kit is a comprehensive guide to everything you need to know about starting a real estate brokerage in Virginia. Even if you’ve managed a brokerage for years, you’ll want to keep this resource handy for the times you run up against situations you’ve never encountered. Developed collaboratively by VAR staff attorneys and the Virginia Manager’s Council, this convenient desk reference is free for all VAR members.

Another popular VAR resource making the rounds these days is our 10 Things you should know about today’s Virginia real estate markets. It’s title isn’t concise, but this colorful, engaging piece covers 10 important things to keep in mind about today’s housing market in just a few words. You, your agents, and clients will find facts and figures to put the current housing market into context in a way that acknowledges the flattening market. We encourage you to download a high-quality full-color PDF of this piece, print it, and share it at your next sales meeting and client appointment.

Other pages at VARealtor.com getting lots of traffic recently are the Standard Forms area, our Rookie REALTORS® section, and the REALTOR® Institute page.

Are you taking advantage of us? When it comes to the products and services we aim to provide to REALTORS®, we wish you would! Be sure you get your money’s worth from your investment in VAR by using the benefits we work hard to provide.