San Diego, California
A collection of notes and observations by Saul Klein, CEO of Point2 Technologies and InternetCrusade.
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2005
Dec. 16, 2005
Did you pay a non employee such as an assistant, or a "virtual assistant"
$600 or more for services provided for your trade or business in 2005? How about contractors you hired to work on properties?
Did you collect rent for a property owner exceeding $600 for the year?
If you did, you may need to file a 1099 with the government (and also with your state) and send a copy to the party you compensated. Not doing so could lose you the deduction and subject you to penalties.
If you must file a 1099 with the IRS and you are filing paper forms, you must send a Form 1096 with each type of form as the transmittal document.
Saul
Dec. 15, 2005
The Basis of an asset is required to calculate the capital gain.
The basis of a property is essential in calculating the capital gain of the property upon sale and it is referred to as:
Cost basis
Adjusted cost basis
book value
and just plain basis.
For the most part, unless you have "exchanged" into a property, basis is defined as follows:
Original Cost + Capital Improvements - Allowable Depreciation
Again, the reason basis is an important tax concept is that it is used to calculate the capital gain, and when you dispose of the property, with a few exceptions, you are taxed on the capital gain.
From an income tax perspective , it is generally in your best interest to have a high basis, while it is in the government's interest that your basis be low (lower basis results in a larger capital gain).
Non-recurring closing costs are usually additions to basis (save that closing statement) as are improvements to the property.
Depreciation ("theoretical" and used for investment property and not personal use property) reduces the basis. Annual deductions for depreciation you take over the holding period of a property lower the basis and the result is that you are taxed on that amount (as well as any appreciation) upon sale of the property.
Example: You purchase an asset for $100,000.00. You depreciate it
$2,500.00 per year for 10 years. Your basis is reduced by $25,000.00 ($2,500.00 X 10 years) and is now $75,000.00. If you sell the property for what you paid for it, $100,000.00, IRS says you have a capital gain of $25,000.00 and must pay tax on the $25,000.00.
Other Aspects of Basis:
A. Basis of a gift is the donor's basis or the fair market value, whichever is LESS.
B. Basis upon inheritance is the fair market value at death. (It may be better, from a tax perspective, to will your property to your heirs rather than give it to them prior to your death...after you examine the annual and lifetime gift tax exclusion)
C. Basis for an asset purchased as "community property" in community property states allows a totally new basis for the survivor equal to the fair market value at the date of death (that is, both the interest of the decedent and the interest of the survivor are "stepped up"). This causes the entire appreciation to the date of death to be free of income taxes if the property is sold at the death of the first spouse. Any appreciation or depreciation after the death of the first spouse would be taxed upon sale unless the asset passes to heirs at the death of the second spouse, and then there is again an "elevated basis."
D. Joint Tenancy - Carries the "right of survivorship" and normally, only the interest of the decedent has a new or "Stepped up" basis. Thus, when property is owned with one's spouse as a Joint Tenant, the basis after death to the survivor will be one half (1/2) of the original cost (as to the survivor's portion) and one half (1/2) of the value at death (as to the portion received from the decedent). This could mean that only one half
(1/2) of the appreciation to the date of death is free of income tax to the surviving spouse.
In bold type in our California purchase agreement I remember the phrase:
"The manner of taking title may have significant legal and tax consequences therefore give this matter serious consideration."
Saul
Dec. 15, 2005
The Capital Gains exclusion for personal residences sold after May 6, 1997, is $ 500,000 for married couples filing jointly and $ 250,000 for singles.
During the five year period ending on the date of sale, the taxpayer is required to own the home for at least 2 years and lived in the home, as the taxpayer's main home for at least 2 years. This exclusion can only be used once in two years unless the house is sold due to an illness or a job move.
Taxpayers that have Capital Gains exceeding $ 500,000 ($250,000 single) on personal residence sales after August 4, 1997, cannot defer taxes by purchasing a more expensive house. The rollover rule has been repealed (remember IRC Section 1034?).
Saul
Dec. 15, 2005
You may qualify to exclude from your income all or part of any gain from the sale of your main home. This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion, next. To qualify, you must meet the ownership and use tests described later.
You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale.
Maximum Exclusion
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.
You meet the ownership test.
You meet the use test.
During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.
You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.
- You are married and file a joint return for the year.
- Either you or your spouse meets the ownership test.
- Both you and your spouse meet the use test.
During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.
Ownership and Use Tests
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
Owned the home for at least 2 years (the ownership test), and
Lived in the home as your main home for at least 2 years (the use test).
Exception. If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. The maximum amount you can exclude will be reduced. See Reduced Maximum Exclusion, later.
Example 1 home owned and occupied for 3 years.
Amanda bought and moved into her main home in September 2002. She sold the home at a gain on September 15, 2005. During the 5-year period ending on the date of sale (September 16, 2000 – September 15, 2005), she owned and lived in the home for 3 years. She meets the ownership and use tests.
Example 2met ownership test but not use test.
Dan bought a home in 1999. After living in it for 6 months, he moved out. He never lived in the home again and sold it at a gain on June 28, 2005. He owned the home during the entire 5-year period ending on the date of sale (June 29, 2000 – June 28, 2005). However, he did not live in it for the required 2 years. He meets the ownership test but not the use test. He cannot exclude any part of his gain on the sale, unless he qualified for a reduced maximum exclusion (explained later).
Period of Ownership and Use
The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous.
You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale.
Example
Susan bought and moved into a house in July 2001. She lived there for 13 months and then moved in with a friend. She moved back into her own house in 2004 and lived there for 12 months until she sold it in July 2005. Susan meets the ownership and use tests because, during the 5-year period ending on the date of sale, she owned the house for 4 years and lived in it for a total of 25 months.
Saul
Dec. 15, 2005
Your annual business planning should lead you each year, closer to your Vision. What is a simple way to describe your Vision? If, at the end of your real estate career, someone were to describe you, your business, what you achieved, who you helped, how would they describe you and your business?
What would you want them to say about you and your business (twenty years down the road)? That is your Vision. Remember, if you don't know where you are going, any road will take you there. Successful people:
1. Have a Vision
2. Create a plan
3. Take risks
4. Build a Team
5. Take Action
All of us here are part of your team. We are all a resource for one another...that is part of the power of online community.
Sooo...most of you are involved in the real estate business because you feel it will help you attain financial freedom...but just what is financial freedom other than two words...simple, financial freedom is really one word...choice.
Some refer to it as financial independence or financial security. As a real estate professional and independent contractor, no one is looking out to see that you achieve financial freedom except you-not your broker, not the government, but you.
I know I am repeating myself, but repetition is the mother of learning.
Financial freedom is about choice. I have always defined it as being able to do whatever you want to do, whenever you want to do it, including whomever you want to include, and not worrying about how much money it costs. Of course whatever you want to do may not be whatever I want to do. We're all seeking our own bliss. Success means different things to different people.
Defining your success requires an examination of your values. Ask yourself:
How important are the following:
Family
Charity (Money)
Spirituality/Religion
Wealth and Material Possessions
Helping Others (Deeds)
Education
Self-improvement
Security
Happiness
Prioritize what is important to you. Keep what you want to achieve in your consciousness as you work each day toward retirement and financial freedom.
You have the ability to achieve whatever you want in life. It's a matter of commitment and discipline. Are you willing to do what it takes to achieve or accomplish that which has value to you? An interesting phenomenon is that you may not have to do what it takes (sometimes things just happen in your favor), if you are only willing to do what it takes to accomplish that which you set out to accomplish.
Are you seriously or moderately committed to your financial success? Most people are only moderately committed and that's why they never achieve financial independence. That's why when they reach retirement age, they have to reduce their standard of living. That is a sad state of affairs for the richest nation in the world. Most people approach retirement age fully expecting to reduce their standard of living.
I say that if you are seriously committed to your financial independence, if you set goals based on your values, if you plan, learn, monitor and make appropriate corrections along the way, if you start today, you will become financially free. Meaningful financial freedom is obtainable for everyone.
If you fail to plan, you will end up like most people. Here is an old story from the Social Security Administration a number of years ago, but the lesson is a good one.
The Select Few
Begin with 100 people-any 100 people-all entering the work force at the same age. What will happen to them on their way to age 65?
- Thirty-six of the 100 will die before they reach age 65. The other
- 64 will keep going and make it to age 65-but in different ways.
- Fifty-four of them will end up broke, living on the generosity of
- their family, friends, or dependent on charity.
- Six of them will be luckier. At age 65 they will be able to keep on
- working-they won't be financially able to retire.
- Only four of the 100 will make it to retirement age with enough
- money to live comfortably-to have a choice as to how they want to spend the rest of their lives.
- The others didn't plan to fail. They just failed to plan.
Achieving financial freedom requires having a target, a Vision...and then steps 2 through 5 above.
Saul
Dec. 15, 2005
A number of years ago, my wife Janie and I went through the estate planning process...set up an AB Trust...decided where we wanted our assets to go upon our demise. As a financial planner, I often saw that one of the areas folks have trouble discussing...husbands and wives, children and parents...is estate planning...and if you have assets, one of the worst things you can do is fail to plan (failing to plan usually results in more going to the government instead of to the ones you love). More wealth than ever before will pass from the World War II Generation to the Baby Boom Generation and estate planning is an absolute must, for ourselves and for our real estate clients. Sometimes folks think that the manner of taking title can substitute for good estate planning. Nothing could be further from the truth.
Consider a living trust. Living trusts can avoid probate, remain private, allow for expeditious distribution of trust assets. There may also be tax advantage depending upon the size of the estate of married couples.
Saul
Dec. 15, 2005
I recently received the following in an e-mail message: >> My husband is a Broker and I am a Realtor. We are very interested in more information about REIT's (Real Estate Investment Trusts). There is a attorney my husband is speaking with in regards to this, but we also wanted to get further education through you if possible. Are there any specific Seminars you hold in regards to this?? If not maybe you can refer me to someone I can network with. Your help is greatly appreciated. << Here is my reply: A REIT is a sophisticated "group investment." Group investments can have different legal structures, benefits, and consequences. There was a time in my real estate career when I was involved with investment groups or what we called "real estate syndications." I participated as a consultant to limited and general partnerships, broker to partnerships, and as both a limited and general partner in a number of real estate partnerships. I current continue to be involved in a general partnership I have been involved in for 27 years (with my real estate brokerage partner and two high school friends). The assets of the partnership are a 5 bay coin operated carwash and two adjacent parcels (single family homes). This general partnership has a formal partnership document created by an attorney specialist, and is successful because the investments are sound and the partners have trust and respect for one another, not to mention a long history as close friends. General partnerships are not suitable for everyone. There are no seminars that I know of on the subject today that I would recommend. There were years ago, especially as real estate investing benefits were amplified by the Economic Recovery Tax Act (ERTA) in 1981. There were also books on the "whys and how tos." In the early 1980s I worked with and attended seminars with an attorney, author, seminar promoter and syndicator named Mark Long. Mark wrote "Big Money Brokerage, Volumes I and II." It is out of print but I googled and found the following: Link It will provide a decent "primer" on the subject. Each investment group provides opportunities to acquire properties which the individuals would not have the ability to purchase on their own. Tax law and the "active participation rule" limit some of the immediate tax benefits which were available to investors of 20 years ago. That being said, getting groups together to invest in real estate can still be a great career path for competent real estate professionals. There are different investment group structures. 1. Partnerships - Tax consequences are passed through to partners and taxed at the partners tax rates. There are General Partnerships and Limited Partnerships. A. General partnerships - All the general partners have unlimited liability (Joint and Several Liability) and because all general partners participate in the management of the partnership and its assets, General Partnerships can be difficult to manage. B. Limited partnerships - Have two classes of partners, General Partners and Limited Partners. All General partners are responsible for the management and control of the partnership and its assets and have unlimited liability. Limited partners liability is limited to their investment and they have no control over the partnership or its assets. There are two types of limited partnerships, Private Placements and Public Placements. 1) Private Placements are the least regulated of the two and have the lowest legal and compliance requirements and consequently, the lowest legal fees and costs to put together. When creating a limited partnership, the total number of "unqualified investors" is 35 (last time I worked in this area...it may have changed so check first). The marketing of the investment opportunity must be private and to people you know or with whom you have a pre-existing relationship. There are "specified offerings" and "blind pool offerings." With specified offerings, the general partners acquire property or the rights to property and then market the interests in the partnership with the property and its specifics outlined in the prospectus. With Blind pools, the general partners may create a profile of the property type they intend to acquire and investors invest without knowing the ultimate property to be owned. 2) Public Placements require more legal, registration, compliance and disclosure (and expense) but the offering can then be made to the "public,"making it easier to raise more money from more investors (not limited to the number or type of investors). 2. Real Estate Investment Trusts (REITS) - A REIT is a corporation (lots of legal, compliance and disclosure requirements...and expense) which must invest its assets in real estate and has the liability characteristics of a corporation...limited liability of all investors, and tax consequences are "passed through" as they are in partnerships. Partners can offer their shares for sale to other investors and REITS are typically more liquid than partnership investments. 3. Limited Liability Companies - Specific to the laws of your state...similar to a corporation investing, which limits liability of all investors. 4. Joint Ownership (Usually Tennant in Common Ownership - This is where several parties might own a real property asset as Tenants in Common. This is sometimes done informally, with the deed being the only document indicating a "partnership exists." Make sure you have an attorney create some sort of "land holding agreement" which stipulates what happens "if," if a partner wants out, if a partner dies, etc. When should you use one of the above over the other? One rule of thumb could be the amount of money you plan to raise. I would say REITS are in the 100 Million Dollar range, Public Placements in the multi million dollar range, and Private Placements in the multi hundred thousand dollar range. When you take other people's money and make investments for which they have no management control, you are more than likely dealing in a "security" and securities laws come into play. Be very careful and engage the services of a good attorney who has knowledge of these things. Investor communication and management is very important, as is managing the expectations of the investors. Saul
Dec. 11, 2005
Hi everyone,
Each year at this time, as we prepare for tax season, I run a series of posts to assist you in your preparation for 2005 taxes and for your 2006 planning.
When it comes to tax expense categories, everyone will have their own system but I would suggest the following system which has worked well for me over the years. Last years Schedule C is a good place to start as you develop your record keeping system. The more categories the better. Avoid any one category being a big catch all...IRS is likely to question a large deduction in a category entitled Misc.
I have Business Categories and Household Categories and keep them separate.
Start with general categories (Keep all receipts in an organized manner, I use the green Pendaflex Folders and the little plastic tabs and then create sub folders (using manila folders, properly titled).
Major Category: Telephone Sub Category(s): Office Cellular Phone cards and Long distance Home (not tax deductible except that which is business related)
Major Category: Office Supplies Major Category: Auto Sub Category(s): Fuel Insurance Maintenance and repair Tires Registration and License Fee Misc
Major Category: Interest for items purchased for your business, such as auto loan, or credit card interest on business expenses.
Major Category: Dues and Subscriptions Sub Category(s): Association of REALTORS MLS Magazines Lock Box Fees
Major Category: Compensation to others. Personal Assistant or anyone to whom you made payment over $500 (including referral fees you may have paid). Make sure you submit to the payee a 1099 and file the 1099s and the appropriate cover form with the IRS prior to the 1099 filing deadline.
Major Category: Advertising Newspaper Magazines Business cards Major Category: Marketing
Major Category: Promotions (pads, flyers, magnets, flyswatters, raincaps)
Major Category: Forms
Major Category: Education
Major Category: License Fees
Major Category: Signs and Sign Riders
Major Category: Computers and related Equipment (Section 179 allows for deduction up to certain limits in the year of purchase)
Major Category: Software
Major Category: Meals and Entertainment (keep 100% of expenses, only 50% is deductible) MajorCategory: Travel
Remember, you can deduct "anything that is reasonable and necessary in the pursuit of taxable income."
The better you are at record keeping, the more you will save on taxes.
Personal categories include charitable contributions, medical expenses after they exceed 7.5% of your Adjusted Gross Income, state income tax paid, real estate taxes.
Saul
Saul Klein Certified Financial Planner (CFP)
Dec. 11, 2005
I recently received the following in an e-mail message:
>> My husband is a Broker and I am a Realtor. We are very interested in more information about REIT's (Real Estate Investment Trusts). There is a attorney my husband is speaking with in regards to this, but we also wanted to get further education through you if possible. Are there any specific Seminars you hold in regards to this?? If not maybe you can refer me to someone I can network with. Your help is greatly appreciated. <<
Here is my reply:
A REIT is a sophisticated "group investment." Group investments can have different legal structures, benefits, and consequences.
There was a time in my real estate career when I was involved with investment groups or what we called "real estate syndications." I participated as a consultant to limited and general partnerships, broker to partnerships, and as both a limited and general partner in a number of real estate partnerships. I current continue to be involved in a general partnership I have been involved in for 27 years (with my real estate brokerage partner and two high school friends). The assets of the partnership are a 5 bay coin operated carwash and two adjacent parcels (single family homes). This general partnership has a formal partnership document created by an attorney specialist, and is successful because the investments are sound and the partners have trust and respect for one another, not to mention a long history as close friends. General partnerships are not suitable for everyone.
There are no seminars that I know of on the subject today that I would recommend. There were years ago, especially as real estate investing benefits were amplified by the Economic Recovery Tax Act (ERTA) in 1981. There were also books on the "whys and how tos." In the early 1980s I worked with and attended seminars with an attorney, author, seminar promoter and syndicator named Mark Long. Mark wrote "Big Money Brokerage, Volumes I and II." It is out of print but I googled and found the following: <http://www.biblio.com/search.php?tid=0&auid=0&stage=1&author=Long+Mark&titl e=BIG+MONEY+BROKERAGE>. It will provide a decent "primer" on the subject.
Each investment group provides opportunities to acquire properties which the individuals would not have the ability to purchase on their own. Tax law and the "active participation rule" limit some of the immediate tax benefits which were available to investors of 20 years ago. That being said, getting groups together to invest in real estate can still be a great career path for competent real estate professionals.
There are different investment group structures.
1. Partnerships - Tax consequences are passed through to partners and taxed at the partners tax rates. There are General Partnerships and Limited Partnerships.
A. General partnerships - All the general partners have unlimited liability (Joint and Several Liability) and because all general partners participate in the management of the partnership and its assets, General Partnerships can be difficult to manage.
B. Limited partnerships - Have two classes of partners, General Partners and Limited Partners. All General partners are responsible for the management and control of the partnership and its assets and have unlimited liability. Limited partners liability is limited to their investment and they have no control over the partnership or its assets. There are two types of limited partnerships, Private Placements and Public Placements.
1) Private Placements are the least regulated of the two and have the lowest legal and compliance requirements and consequently, the lowest legal fees and costs to put together. When creating a limited partnership, the total number of "unqualified investors" is 35 (last time I worked in this area...it may have changed so check first). The marketing of the investment opportunity must be private and to people you know or with whom you have a pre-existing relationship. There are "specified offerings" and "blind pool offerings." With specified offerings, the general partners acquire property or the rights to property and then market the interests in the partnership with the property and its specifics outlined in the prospectus. With Blind pools, the general partners may create a profile of the property type they intend to acquire and investors invest without knowing the ultimate property to be owned.
2) Public Placements require more legal, registration, compliance and disclosure (and expense) but the offering can then be made to the "public," making it easier to raise more money from more investors (not limited to the number or type of investors).
2. Real Estate Investment Trusts (REITS) - A REIT is a corporation (lots of legal, compliance and disclosure requirements...and expense) which must invest its assets in real estate and has the liability characteristics of a corporation...limited liability of all investors, and tax consequences are "passed through" as they are in partnerships. Partners can offer their shares for sale to other investors and REITS are typically more liquid than partnership investments.
3. Limited Liability Companies - Specific to the laws of your state...similar to a corporation investing, which limits liability of all investors.
4. Joint Ownership (Usually Tennant in Common Ownership - This is where several parties might own a real property asset as Tenants in Common. This is sometimes done informally, with the deed being the only document indicating a "partnership exists." Make sure you have an attorney create some sort of "land holding agreement" which stipulates what happens "if," if a partner wants out, if a partner dies, etc.
When should you use one of the above over the other? One rule of thumb could be the amount of money you plan to raise. I would say REITS are in the 100 Million Dollar range, Public Placements in the multi million dollar range, and Private Placements in the multi hundred thousand dollar range.
When you take other people's money and make investments for which they have no management control, you are more than likely dealing in a "security" and securities laws come into play. Be very careful and engage the services of a good attorney who has knowledge of these things. Investor communication and management is very important, as is managing the expectations of the investors.
Saul
Oct. 19, 2005
There are lots of e-PROs and RealTalkers heading to San Francisco Oct 27-31 for the NAR Conference and Expo.
If you have information about exciting events or get-togethers there, feel free to Click the Post A Comment link below and append a message.
We will have e-PRO ribbons and RealTalker ribbons availalble at the e-PRO booth #3400
Looking forward to seeing you in San Francisco.
Saul
Oct. 14, 2005
Categorized in: Buyer Agency
Saul Klein meeting with Ralph Nader circa 1993.









Sep. 19, 2005
Categorized in: DOJ vs. NAR
At 09: 01 AM 9/12/2005, you wrote: >I know that many EBAs are rejoicing in the DOJ suit against the NAR.>I'm not sure why. The DOJ suit, although it addresses now moot NAR>policies, the old VOW proposed policies, it does nothing to change the>NAR policies with respect to agency as we know it.I have absolutely know idea why you would think EBA's would be rejoicing. We have no dog in this fight, if we did, you would be hearing from us in a formal way. What we worry about is the idea that listing brokerages will stop using the MLS as a way of sharing listing data with their fellow REALTORS. We are REALTORS and we are members of the MLS. I know no one ever says, out loud anyway, that EBA's should not get the IDX, VOW feeds but I also know there are many sitting in Chicago that would like to see that happen. We will be ever vigilant seeing to it that the consumers working with EBA's have as much access to listing and listing information as any other REALTOR. If that is too much for some, tuff nuggies. Thomas A. Early
Saul's note:
Chicago is where IDX and VOW were created, and nobody ever said EBAs should be denied access to MLS that I know of, and I talk to lots of people.
Saul
I like our MLS the way it is: owned by several associations, run by an interested Board of Directors (who actually work in the business rather than sitting on each other's Boards and granting favors to their friends) and very proactive (Internet-based, all listings available on company feeds if you have not "opted out", etc.). I like a level playing field but understand that small companies may need to sell their own listings and I am empathetic for companies that border our marketing area (we have rules about data dissemination) and may need to join several boards to do business. Nothing is perfect and I cannot imagine a national MLS nor would I want to lose the opportunity to display other company's listings.
As with other things, we need to get our own house in order before the DOJ or whomever force us to take actions that may truly have unintended consequences (like banks in real estate, for example).
Andrew Wetzel
>>>If I spend money to market MY listing, it is because I am hoping that I will find the buyer and thus get commissions from both sides of the transaction.>>>
Couple of quick points as I attempt to multi-task this afternoon:
1. - Correct me if I'm wrong but this is part of "the disconnect" that I'm seeing, because unless you (as a buyer agent) are getting paid directly from your buyer out of their bank account then there is only ONE commission from one side of the transaction.
That is the fee paid by the seller to "their" (listing) agent, who in turn pays the buyer agent's company (in the case of a co-op sale) out of their commission essentially what is a marketing expense in exchange for the cooperation. This expense is really no different than that of running print ads, it gets deducted from the net the listing company will get in the end.
The money may originate with the buyer (or their mortgage company) but it is the seller's money paid to the seller's agent when the funds get dispersed, whether the seller's agent's company keeps the entire amount or pays some out.
2. - The next commonly misunderstood part to me, and the most important point overall, is ownership of a listing. Regardless of what MLS rights or copyrights of any compilations there may be, (in most states) the Listing Company owns the marketing rights to the listing itself (as well as the prospecting value thereof) and regardless of what The NAR and/or The DOJ thinks they don't have any control over your or my listing data as we individually can dictate where and whether or not our listings (work product) get shown, promoted or advertised.
In otherwords, I own my listings. if I don't want XYZ Realty to leverage the prospecting value of my work product (i.e. show my listings on their web site) while at the same time they're calling me a crook and offering (compared to me) steep discounts to try to scoop up potential clients then it's my right according to state law to withhold permission to advertise my listings from them, whether in print or online.
Unless my state's law changes there's not a dang thing anyone can do about this. It's MY right as a Broker/Owner (and the main reason I left the Balloonheads to go out on my own 3 years ago).
I'm not entirely sure where I'm going with this post as I just got distracted by a phone call and lost my train of thought; just felt a need to clarify these particular points so we are all comparing apples to apples. I'll stop here - for now :-)
Just keep in mind as this thread goes on it's (the people behind the DOJ thing) all about one thing and one thing only - Leveraging the prospecting value of the listing data.
Leveraging the prospecting value of the listing data.
Leveraging the prospecting value of the listing data.
Leveraging the prospecting value of the listing data.
Leveraging the prospecting value of the listing data.
Leveraging the prospecting value of the listing data.
Everything is window dressing so don't let any sleight of hand arguments (such as Agency Duties and exposure for sellers) distract us and get us off track of what this is really all about...
Al (trying to catch up) in CT, JIM
At 09:07 AM 9/12/2005, you wrote: >And that's the point. Advertising on the internet (where we know that over >70% of home buyers start their searches) eliminates the need for deep >pockets. With the internet, IDX (or whatever fancy new term is coined) & >the DOJ oversight, this exact scenario will be played out, at very little >cost to the perpetrator, and to the detriment of every broker who actually >worked to get those listings, & from whom the ADVERTISING POTENTIAL is being >STOLEN. > >Bill Keegan
I am an EBA. I have IDX on my web site. Do you consider my having YOUR listing on my web site as STOLEN?
Thomas A. Early
Saul's note:
I know you are not asking me Tom Early, but my answer would be that if I am a participant in IDX through my MLS, you have my permission to use my listings on your website.
Saul
>>Saul's note in part: >>MLS was not created to allow consumers access to the information and the Purpose of most MLSs today is not to provide information to the consumer, but to provide information to MLS Subscribers and Participants.<<
Consistant with what you say, there's nothing regarding advertising in Sandicor's "Purpose" statement but it's my understanding that Sandicor provides FTP access to its database for, in my opinion, advertising (e.g. Realtor.com and IDX --- or ILD). It seems to me that either the advertising feeds should be discontinued or the Sandicor's purpose statement revised.
<http://www.sandicor.com/rules.html> "2. PURPOSE. SANDICOR's Multiple Listing Service is a means by which authorized MLS broker participants establish legal relationships with other participants by making a blanket unilateral contractual offer of compensation and cooperation to other broker participants; by which information is accumulated and disseminated to enable authorized participants to prepare appraisals and other valuations of real property; by which participants engaging in real estate appraisal contribute to common databases; and is a facility for the orderly correlation and dissemination of listing information among the participants so that they may better serve their clients, customers and the public."
Fred fsalzer@sempre.com Poway, CA
Saul's note:
Hi Fred,
Has Sandicor found a new Executive Officer yet?
I agree with your comment, and let's take it one step further in defining roles and obligations. I think MLSs can go beyond the scope of their stated purpose, but only by approval of their Board of Directors, and when it comes to the listing data...what the MLS is going to do with that listing data should be clearly defined in the Purpose and permission obtained (either Opt In or Opt Out) by the Brokers providing the data, if the use is outside the scope of the Purpose of the MLS.
IOW, anything that is within the scope of the Purpose, no permission required. Anything outside of the scope of the Purpose, permission required (of the lisiting brokers).
Saul
In a message dated 9/12/2005 1:03:51 PM Central Standard Time, TBATBA@aol.com writes: Saul's note:
It always has been about advertising. Go back and read what we have said about this from the start. The issue with VOWs has been, in my mind a cover and web sites for the most part are not used for more than advertising in most cases. Before we can have a conversation on the use of data in a "virtual office," we need to be able to determine what advertising is and is not.
It is part of the learning process if we expect to make informed data decisions in the future.
If something is best for the consumer, the market place should be the determinant to the extent possible.
MLS was not created to allow consumers access to the information and the Purpose of most MLSs today is not to provide information to the consumer, but to provide information to MLS Subscribers and Participants.
As for e-PRo...take the course and find out what we teach.
Saul
Saul, It was my understanding that with the VOW (or what ever it will eventually be called), the consumer would be required to sign in with some type of verifiable identifier equal to if a consumer walked through the door of your office. Then, and only then would the consumer be given information, out of the hope that the consumer would do business with you. For the love of me I do not see this as using the MLS info. for advertising purposes.
You wrote that "if something is best for the consumer, the market place should be the determinant to the extent possible." This could be true. But, if it is never tried in the marketplace then there will be no way to determine if it is the best for the consumer or not. After all, the consumer is the one who must be the judge of this.
You wrote: "As for e-PRo...take the course and find out what we teach." Maybe we should work together on this and have you guys offer it on the cruise?
Tom Hathaway
Saul's note:
I think the way VOWs were being used, and the way they would begin to be used as more REALTORS accessed the technology to allow them to do this, was for advertising. "Search the MLS on my web site." And when a consumer goes to that web site, they use a "throw away" e-mail address (Yahoo/HotMail, etc), and access all the MLS data. Framed around the search results...you guessed it, advertising. This is what brought up the conversation about the "clean page rule," one of the VOW rules to which DOJ objected.
Our position (IC) when we were having the VOW discussion a few years ago was how do you verify that someone is real and not just "scamming for the data." We suggested a few years ago that the visitor to your VOW identify themselves in some trackable manner, such as having to provide credit card info. Boy was that unpopular...and yet it is so sensible. A serious consumer (which is the only type of consumer you should let into your VOW) should be willing to identify themselves and credit card systems are set up for verification. There are other methods but no one wanted to possibly drive away consumers. Why not, because VOWs were really diguised advertising vehicles for most and not used as true vitual offices.
As for e-PRO...Thanks for the offer, but it has to be done online. We can provide you with a 1 hour e-PRO video work shop and anyone who attends the video event could then purchase e-PRO for our event price of $329.
Talk to John Reilly if you are interested.
Saul
In a message dated 9/12/2005 1:50:31 PM Central Standard Time, fsalzer@sempre.com writes:
Fred writes: <advertising in Sandicor's "Purpose" statement but it's my understanding that Sandicor provides FTP access to its database for, in my opinion, advertising (e.g. Realtor.com and IDX --- or ILD). It seems to me that either the advertising feeds should be discontinued or the Sandicor's purpose statement revised. >>
Fred, This is the point I was trying to make. NAR, the Boards and the MLSs have already crossed the line as far as sharing the information for marketing purposes. Most if not all of them have been doing this for years, even as you pointed out, without it being included in their governing documents. Every single Board and MLS which has been sharing listing data feeds with Realtor.Com for the past 6 or 7 years has been doing just what NAR is now arguing against.
There is no one I know of who has spent more money than NAR and Realtor.Com on training the consumer to use the Internet to search for their next home. Is it any wonder that today the consumer has learned that the Internet is the place to go to look at homes? Sure the consumer wants more information. Believe me if we do not provide it someone else will.
I think that is what most of this is really about. Who is going to be the gate keeper for the general public, of information about homes for sale and how to pick someone to help you buy or sell a home? In the past it was all of us through the services of the MLS. Suddenly some want to take a step backwards and require consumers to go to each individual brokerage firms web site to find homes for sale.
The end result would be obvious. The majority of the mom and pop brokerage firms will end up going out of business and left in their wake will be four or five national firms, each with their own web sites of homes they have listed. Then the Cendants and ReMaxs of the world will begin buying up the smaller players and before you know it, there will be no Realty Worlds, or KW, or Exits, or Help U Sells.
As they say, it is hard to un-ring a bell. The industry has a 50 year history of providing information about the majority of the homes for sale through a shared MLS system that has been a great success for all concerned. It is going to be really difficult for the industry to roll back the clock to 1960 and tell people they have to call each office to find out what is available for sale.
Tom Hathaway
Greg_DiSisto wrote:
"Stefan,
Do you believe that any broker member of the MLS should be able to advertise any other broker's listings unconditionally? It's not about whether you CAN or can't list property. Personally, I LOVE buyers agents, whether they're EBAs BAs SAs TBs or ABCDs. They sell my listings, my sellers are happy, and I get paid! It's about the desire for an unconditional right to use my listings to enhance the business of a competitor."
Greg,
I wouldn't in a million years "advertise" another broker's listings without permission. However, what riles me is the fact that there are those who would apparently deny me the right to display other MLS participants' listings on my website through IDX (or ILD), by means of a selective opt out or some other mechanism, based on the argument that they, as listing brokers, have the right to prevent my firm from "advertising" "their" listings.
The way I see it, this type of thinking is anti-competitive, and could potentially (and quite possibly) put brokerages such as mine, which do not list properties (or whose business models, such as discounters, pose a threat to the status quo), out of business. But, I guess that would be the goal of such behavior, wouldn't it?
Denying Realtor and MLS members such as my firm the right to display other members' listings on my website through IDX is an illegal restraint of trade, in my opinion. Practically speaking, the MLS in my area of practice is the real estate marketplace, containing the vast majority of properties offered for sale. When you tell your membership that it is OK to effectively prohibit firms such as mine from participating in the marketplace by not allowing us to display MLS listings on our websites, you are engaging in anti-competitive behavior which is most certainly not in the best interests of the marketplace or the consumer.
The government exists to protect the integrity of our markets from illegal and damaging behavior, whether it is the stock market (Enron, Dennis Koslowski, Martha Stewart, et al.) or the real estate market. The thinking that we can selectively pick and choose among MLS members who can display listing information and who can't is exactly the type of thinking that has led to problems with the DOJ.
As far as MLS non-members, I am certainly not in favor of them having any rights to display proprietary MLS information whatsoever. Also, I feel that it is reasonable to place sensible restrictions on the type of listing information that is displayed through IDX (or ILD).
Greg, I am pleased that you love buyer agents. I love seller agents also. Their contribution of inventory to the MLS is obviously of critical importance. I believe that my contribution of buyers is equally important. Working together, we can make the marketplace work efficiently for ourselves and the real estate consuming public.
Stefan J. Scholl, J.D., ABR, EBA, e-Pro Buyer's Broker of Northern Michigan, LLC scholl@BuyersBroker.biz - E-Mail
Saul's note:
Is IDX a form of advertising? I think it is. Remember, MLS is a vehicle offering participants and subscribers easy access to all the listings and is also a unilateral offer of compenstion and cooperation.
If IDX is a form of advertising, what does your license law say about advertising another broker's listings. Go look at your license law and tell me what you think. Not emotions, but facts.
Now...Should I be able to use the data in the MLS for a purpose other than the purpose for which MLS was created and other than the stated purpose of the MLS I joined? I should be able to if you allow me to use it. If you do not want me to use it, I should not be able to use it and the state should enforce my right not to allow you to advertise my listing.
Saul
From: "Bill" <Bill@BillKeegan.com>
> -----Original Message----- > From: Thomas A. Early [mailto:TomEarly@BuyersBrokerage.com] > > I am an EBA. I have IDX on my web site. Do you consider my having > YOUR listing on my web site as STOLEN? > > Saul's note: > > I know you are not asking me Tom Early, but my answer would be that if I am a > participant in IDX through my MLS, you have my permission to use my listings on > your website. > ------------------------------------------------------------------------------------- As Saul said, Tom, if you are displaying the IDX available through our MLS, and I am also a participant in that IDX, then, no, you are not stealing those listings. And I think every REALTOR should be able to display the listings on the MLS for the purpose of servicing their client, choosing a house for their client, comparing properties with a client, etc. My objection is to the use of listing data & information for the express purpose of attracting new clients. No one should be allowed to do that without the permission of the listing broker. As an EBA, Tom, you sell a service; buyer representation. So your web site & advertising should promote the service you sell. After you've sold it, and the buyer has agreed that they want to buy a house with you as their representative, then go show them all the houses you want. That is the purpose, to my mind, of the MLS. The DOJ, however, wants to take away from me, the right to NOT participate in the IDX. So if you (and I'm not picking on or accusing you personally, just continuing the example) display that IDX on your website, using the product of my work to attract clients & business for yourself, while you badmouth me & denigrate the way I do business, I should have the right to no longer allow you to display my listings. The DOJ says I shouldn't be allowed to take that stance, and that my listings can be used without my permission. THAT would be stealing.
Bill Keegan
Stephan Scholl wrote:
>>Your comments are very disturbing to me, and I cannot let them go unchallenged. You firmly believe not only that listings are the property of the listing broker, but that listing brokers should be allowed to do whatever they please with "their" listing information, including not allowing "their" listing information to be shared with cooperating buyer brokers such as myself, who are both Realtors actively engaged in the practice of real estate and members of the MLS, by means of IDX or ILD or whatever. It is precisely this type of thinking that has driven the DOJ to action.
Art offers:
No, Stephan, it is the attempt by the DOJ to try and micromanage business, and their general hostility to business people that has driven this action. You have to remember who the DOJ is: just as many of the Washington regulatory employees, they are a government-employed group of liberal trial lawyers who see business people as being "bad," and in need of restriction in the pursuit of commerce.
What would happen, for example, if the DOJ attorneys, or even attorneys in general, were told they had to release all of their interview notes, briefs, and working papers? After, all, the people can't trust a crusading attorney with their rights, can they? Their work product should therefore be considered to be "public property," out of "fairness" and "openness."
Yes, I'm using absurdity to illustrate the absurd. The idea that a listing is some public form of notice is absurd. It just is not true, period.
The fact is that the listing is the work product produced by the listing agent, or broker, if you prefer. There is no force of law that makes the listing agent share their work product with ANYONE, save the person that intends on buying a home. Everything else is a professional courtesy that could easily evaporate if the DOJ decides to press us on this issue. There is no law that says that listing information must, or even "should" be shared with anyone, using any method, MLS or otherwise. The sharing was a matter of expediency that can easily be taken away by ANY licensee. So the DOJ, while attempting to help consumers, may end up causing a new set of difficulties for you and others because they refuse to observe that those who make out the contracts should retain rights to the intellectual content of those contracts. Lenn mentioned the law of unintended consequences, and they are usually fully in play where the government attempts to be wiser than the people who put it there.
Mark my words, Stephan, individual business people are far more powerful than any government attorney, and the freedoms granted to us as Americans make us that way. If they take those freedoms away, we have options to deal with that, too.
>>Your comments are insulting and a slap in the face to any Realtor that chooses not to list properties for sale. Like the old saying goes, the pigs get rich and the hogs get slaughtered. I implore to you keep pursuing your reactionary agenda. Knowing that there are influential people such as yourself who continue to hold such anti-competitive, anti-consumer beliefs will only bolster the DOJ's resolve.
Art opines:
What a bunch of socialist worker's party nonsense. You can't possibly subscribe to this attitude in real life, can you? Please, say that it's Ted Kennedy style bluster and anger talking there. Such an intrusion into the operation of a business would be the biggest mistake since the breakup of the phone company. Great service, live operators, good jobs, all gone. Thanks, DOJ.
Wait and see what happens to your access to listings if the DOJ goes ahead, Stephan. You might have to go out and get some of those listings for yourself. If I were you, I'd start sending letters right now begging the DOJ to stop, as this "resolve" you speak of can only hurt everyone.
And none of us wants that.
Art Houston
The Below was written and published on our various list and websites on January 6, 2003. For more information on IDX and VOW we also created an auto responder a few years ago <MailTo:IDXandVOW@InternetCrusade.com> or go to http://BrokerReciprocity.InternetCrusade.com ...we haven't updated this site in a few years but it is good enough for historical purposes.
Saul
>> Your Listings on the Internet.For better or worse, they are there.now what? Understanding IDX and VOW.
Public display of other broker's listings via the Internet has created the potential for major change in the real estate industry and that is exactly why we must move forward with our eyes open, going back to the basics and understanding the fundamentals before we move forward. It is time to re-evaluate where we have been and then where we want to proceed...or someone else will do it for us.
Let's start by looking prior to the days of the www (the graphical part of the Internet), which has been around since 1992 or so with the development and then commercialization of "browsers" (The Internet has been around in some form since 1969).
Things were pretty simple in pre 1992 real estate. The two major ways to make money in real estate sales were:
Listing Selling
If I took a listing, I could use that listing to help me generate more listings. "For Sale" signs and "just listed" mailings increased my "presence" and the chance that other owners would recognize me as a real estate sales leader in the neighborhood (and hopefully, help me get more listings). There was a recognized promotional value in the listing. Other brokers were not allowed to put their signs on my listings...they were not entitled to the promotional value I gained when I got that owner to sign my Exclusive Authorization and Right to Sell (listing agreement).
Listings and their promotional value helped me find buyer leads for my listing, other listings I might have...and...because I was a member of the MLS ("unilateral offer of compensation"), listings of other broker members of the MLS.
If I had a listing I could run ads and when calls came in (leads)I could begin to work with the caller by inviting them into my office to meet and discuss perhaps other properties in which they might have an Interest. This might include other broker's listings as well as my own. I had no obligation to give the name and phone number of the listing broker when I provided listing information to a prospective buyer who came into my office. When I took a prospective buyer out to look at property, I had no obligation to give the prospect the name or phone number of the listing broker. I simply "showed" the property" and provided information, answered questions, etc. If the buyer said: This is great, now please give me the name of the listing broker so I can write an offer," I was under no obligation to do so.
Once again, and this is an important concept, the listing itself had a promotional value that we all recognized and of which, only the listing broker, could take advantage. Listing broker's had no obligation to let competitors benefit from the promotional value of the listings they worked to obtain (Listings are the property of the broker. We all learn this in pre license classes and the Internet and web do not, because of their existence, change this foundational aspect of the business).
As a matter of fact, state real estate laws prohibited the advertising of another broker's listing without the listing broker's permission (still the case today).
Now roll forward to 2002:
As many RealTalkers might remember, IC has been putting the IDX/VOW subject in front of readers for at least the last year...and most REALTORS in the field are not yet aware of ideas and concepts that have the potential to change the way many do business.
Today, there are at least 3 identifiable ways to make money in real estate sales:
Listing Selling Lead Generating and Referring
While referring existed prior to 1992, it was not a major part of most real estate businesses (except for maybe relocation, which was usually done within the confines of particular companies).
Listing information is content and it still has that promotional value. So who is entitled to the benefit of the promotional value created by listings? Many are saying all brokers (and even their agents, without their broker's permission) have the right to display on their website as information, all the MLS listings without obtaining permission of the listing broker. While IDX requires permission, VOWs do not. This is a major distinction and critical to any discussion on VOWs.
Have you been to http://RealEstate.Yahoo.com? The site indicates: "Search our COMPLETE data base of MLS Listings"< |