Find here a summary of important legislative updates affecting California real estate professionals.
Assembly Bill 1650—Disclosure Requirements on Solicitations
New legislation has been signed Read more...
Find here a summary of important legislative updates affecting California real estate professionals.
Assembly Bill 1650—Disclosure Requirements on Solicitations
New legislation has been signed into law by the governor that affects disclosure requirements on real estate solicitation materials.
A.B. 1650 is concerned with real estate licensees disclosing when they are performing a task that requires a license if it is intended as a first point of contact with a consumer. Thus any publishing or distributing of materials that advertise a product or service that requires a license must state that a license is required for that activity. For example, if a REALTOR® wants to advertise his or her listing services, their distributed material must make it clear that listing a property requires a real estate license.
All of these “first point of contact” materials are also required to include the licensees license identification number and apply to mortgage loan originators as well, not just real estate salespersons or brokers.
The new law provides examples of materials that will require this disclosure. It specifically states that covered materials “includes business cards, stationery, advertising flyers, and other materials designed to solicit the creation of a professional relationship between the licensee and a consumer”. Note that this is not an all-inclusive list and any other material intended as a first point of contact with consumers would be subject to the same requirements. The real estate commissioner has the power to define the list further.
This law’s reach does not extend, however, to “an advertisement in print or electronic media” or to for sale signs.
SB 710 Clarifies Team Name Laws
Current California law requires the listing of the company name and responsible broker’s license number on all team advertising materials, which was not the intent of legislators when they originally wrote the law.
Enter Senate Bill 710, which, effective immediately, changes the requirement from both the “name under which the responsible broker is currently licensed by the bureau and conducts business in general or is a substantial division of the real estate firm” and the associated license identification number, to that name or that name and the license identification number.
Those wishing to refrain from listing the broker’s identification number on advertising materials may now do so. Again, this law is effective immediately.
For any further information, the text of the legislation can be found here
AB 2330 Updates Broker Associates Searchable Information and Broker Notification Requirements
The California legislature has unanimously passed and Gov. Brown has signed into law AB 2330 and goes into effect January 1st, 2018. This new law requires brokers to “immediately notify the Commissioner in writing” when a new real estate salesperson hangs their license under the broker or is terminated by the broker. “Willful or knowing” violation of this provision is punishable as a misdemeanor.
Brokers must also report to CalBRE if a licensee is an “associate licensee” and if so, which broker the licensee is contractually associated with. CalBRE will be required to publish this information as well.
AB 197, SB 32: Greenhouse Gas Legislation
A seemingly unusual law for inclusion in a real estate-centered legislative update, but this law actually has the potential to be quite important.
This law requires the State Air Resources Board to “approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990” to be achieved by 2020. By 2030 greenhouse gas emissions are to be reduced to 40% below 1990 levels. The board is also required to “protect the state’s most impacted and disadvantaged communities” while creating these regulations.
This means that more steps will be taken to lower emissions—steps that have not yet been decided. The economic impacts are not yet known. Housing is clearly an issue that disadvantaged communities are concerned with, perhaps lending strength to the argument that policies that would directly affect the housing market will not be included. Yet, there is not yet any such guarantee. Real estate professionals should watch this law and its impacts as they assess their markets. Adhi encourages our students and readers to pay attention to politics and the state of the economy as our industry is dependent upon consumer confidence and a healthy economy.
AB 73: Clarifications Upon Disclosures of Death, HIV
This law, which took effect on September 25th, 2016, updates the wording of the law to clarify required disclosures. One such clarification is the confirmation that owners and agents are not required to disclose an occupant’s death or cause of death on the property if it occurred more than three years prior “to the date the transferee offers to purchase, lease, or rent the property”. Previously the law only stated that failure to disclose under these circumstances provided no cause of action.
This law also clarifies the disclosures surrounding HIV/AIDS. Owners and agents are not required to disclose that “an occupant of the property was living with human immunodeficiency virus (HIV) or died from AIDS-related complications” at any point.
It is of crucial importance that California real estate professionals fully understand these disclosure requirements in order to fulfill their duties to their client and not violate the law.
AB 2406, AB 2299, and SB 1069: “Accessory Dwelling Units”
These laws change some requirements for the zoning and creation of “Accessory Dwelling Units” (ABUs), formerly referred to as “Second Units”.
AB 2406 permits a “local [housing] agency” to “provide by ordinance” for the creation of ABUs in single-family or multifamily residential areas. This includes “Junior” ABUs within a single-family home. Any proposed ordinance to permit these ABUs must include “among other things”, building standards for the creation of said ABUs, “required deed restrictions, and occupancy requirements”. Additional parking requirements for the unit are prohibited by this law.
AB 2299 and SB 1069 work together to change the term “Second Unit” to “Accessory Dwelling Unit” as well as establish guidelines for ADU permit review processes and restrictions with the declared hope of increasing housing supply in the state. Cities and counties are permitted to identify and/or evaluate potential sites for the creation of ABUs. Cities and counties will be able to substitute ABUs for up to 25% of “the community’s obligation to identify sites for any income category” (meaning that communities that invest in housing may include ABUs as part of said investment, with further requirements.)
The laws also mandate that local agencies approve or disapprove applications “ministerially without discretionary review” unless they have adopted their own ordinance in accordance with this law—incentivizing local agency cooperation. Local agencies can adopt certain restrictions to accommodate other zoning laws.
For specific requirements and details of these laws, visit them here: AB 2406, AB 2299, SB 1069
We welcome feedback and commentary from our readers on these important new laws. Do you foresee important market impacts? Will any of these laws affect your business in any way? Let us know in the comments. And as always, for any questions or clarifications feel free to reach out to cody@adhischools.com
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Many real estate professionals use their knowledge and expertise to invest in real estate. They know a good deal when they see it, know the laws they need to navigate, and likely have contacts in property Read more...
Many real estate professionals use their knowledge and expertise to invest in real estate. They know a good deal when they see it, know the laws they need to navigate, and likely have contacts in property management or are confident in their ability to manage a rental property. Rental losses are also potentially deductible, insulating investors from some risk. But how does this deduction work? In Gragg v. United States of America; Internal Revenue Service a real estate professional was found to not be eligible for a tax deduction that they felt they were entitled to, shedding light on the details of the law—real estate agents who invest in rental properties should not necessarily expect these tax deductions unless they can prove that their investment involves material participation.
Gragg v. United States has provided us with a clarification on the Internal Revenue Code’s definition of material participation in rental activities. If a real estate professional materially participates in their rental activities, losses may be deducted. Passive activity in a rental investment, on the other hand, is not grounds for a tax deduction. The court case cites Section 469 of the Internal Revenue Code (I.R.C.), which defines material participation as activity in which the “taxpayer is involved in the operations of the activity on a basis which is—(a) regular, (b) continuous, and (c) substantial.” Rental activity is typically classified as “per se passive” and not eligible for any deductions under the material participation rule. Yet Section 469 (c)(7) of the I.R.C. has established that for “taxpayers who qualify as real estate professionals, the per se rental bar” does not apply, meaning real estate professionals have a greater ability to deduct losses on rental investments because real estate is their profession.
So how do these two sections of code work together? Since Gragg is a real estate professional, she should have been able to claim a deduction, right? Yet the court sided with the IRS and found Gragg ineligible for the deduction. How does this work?
The explanation lies in the interaction of the two sections of code. The court states that the effect of the real estate professional exception to the law is to remove the automatic classification of rental activity as passive—it does nothing to the general rule that material participation is necessary for exemption. Thus without proof of material participation, a real estate professional invested in a rental property cannot deduct losses.
Essentially there is a two step process to earn a tax deduction. First, one must be a real estate professional. Step two is to demonstrate material participation, something Gragg was incapable of proving. Two pages of undated notes were offered, but as those notes had not been present for previous court proceedings the court in this case declined to address them as a new argument.
The lesson for the real estate professional with rental investment properties—document your material participation. Prove activity in property management. Without this proof your deductions will be rejected by the IRS and you will find yourself paying more in taxes than you would have needed to if you had documented your material participation properly.
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Current California law requires the listing of the company name AND responsible broker’s license number on all team advertising materials, which was not the intent of legislators when they originally Read more...
Current California law requires the listing of the company name AND responsible broker’s license number on all team advertising materials, which was not the intent of legislators when they originally wrote the law. If you are thinking about taking real estate classes in Los Angeles and joining a real estate team continue reading.
Enter Senate Bill 710, which changes the requirement from both the “name under which the responsible broker is currently licensed by the bureau” AND the associated license identification number, to the name of the broker OR that name and the license identification number.
Those wishing to refrain from listing the broker’s identification number on advertising materials may now do so but must still include the name of the broker at a minimum. Again, this law is effective immediately.
Even still, it is important that real estate professionals follow the law and make all necessary disclosures. For any further information, the text of the legislation can be found here, or contact the author of this piece at cody@adhischools.com for any questions or clarifications.
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Your intuition can probably tell you that married couples are the largest home-buying demographic. It makes sense: between family and financial goals and the purchasing power of two people, married couples Read more...
Your intuition can probably tell you that married couples are the largest home-buying demographic. It makes sense: between family and financial goals and the purchasing power of two people, married couples have both the incentive and the means to purchase real estate. But married couples aren’t the only buyers. Single women make up the second largest buying demographic, ahead of single men and unmarried couples.
According to the National Association of REALTORS® 2016 Home Buyer and Seller Generational Trends report, 15% of recent buyers were single women. This number may not appear to be that large to some readers, but considering 67% of buyers were married couples and the next largest buyer demographic—single males—only accounted for 9% of buyers, it is quite evident that single women make up a huge part of the home buying population.
The highest percentage of single female buyers falls in the 51-60 year-old age range, where they actually make up 20% of buyers. 19% of buyers aged 61 to 69 are single females. Thus this single female buyer demographic is on average a bit older than the typical buyer. This is not to suggest, however, that younger single women are not also buying homes—they make up 13% of buyers in both the under-35 and 36-50 age groups.
There are a few other statistics to keep in mind to contextualize what we know now:
First time home buyers made up 32% of buyers
The typical buyer was 44 years old—younger than the average single female buyer
77% of sellers were married couples—singles and unmarried couples thus account for the other 23% of sellers
So what’s the takeaway for real estate professionals? How does this impact your business? We encourage you to keep an open mind as you take our real estate classes and forget any preconceived notions about who the average buyer is. Married couples might make up the majority of buyers, but there are other demographics—most notably single women—that are also active.
Think about ways to expand your network to better utilize this knowledge. You know your niche, ask yourself how to better utilize it. Share this information and find those people willing to dive into real estate.
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For those of you taking our Los Angeles real estate school, you might already know that the iconic Playboy Mansion has recently been sold for a staggering $100 million, half the original asking price, Read more...
For those of you taking our Los Angeles real estate school, you might already know that the iconic Playboy Mansion has recently been sold for a staggering $100 million, half the original asking price, to Daren Metropoulos—son of billionaire investor C. Dean Metropoulos. But Hugh Hefner won’t leave just yet—the 90-year-old will pay $1 million per year to continue residing at the estate and has the right to do so until he passes away.
We’ve all seen photos and heard stories of the property, but what else should we know? The iconic Gothic Tudor was built in 1927, considered one of the greatest works of famed architect Arthur R. Kelly. The house is approximately 20,000 square feet with twelve bedrooms (including the two-floor master suite), chef’s and catering kitchens, and a screening room with a built-in pipe organ. The grounds also house a gym, a tennis court, an orchard, a four-bedroom guest house, and the famous—or infamous—pool and grotto. All together the estate is five acres of prime west Los Angeles real estate.
So what are Metropoulos’ plans for the property? Well, he already lives next door and his long term plans are to merge the two estates into one larger property. He views it as his “private residence for years to come”. Metropoulos has described the Playboy Mansion as a “one-of-a-kind piece of history and art” that he intends to renovate and restore.
The deal itself? Mauricio Umansky of The Agency, many of our students work there already - with Gary Gold and Drew Fenton of Hilton & Hyland were the agents to hold the listing. Jade Mills of Coldwell Banker Residential Brokerage represented Metropoulos. Is this type of success enough motivation to work harder as a real estate agent and get your real estate license in California? We think so! =)
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Earlier this morning the California Association of Realtors sent out a “red alert” regarding Assembly Bill 1381. The frenzy was caused by a last minute change that would exempt some outdoor advertising Read more...
Earlier this morning the California Association of Realtors sent out a “red alert” regarding Assembly Bill 1381. The frenzy was caused by a last minute change that would exempt some outdoor advertising companies from needing a real estate license. This could harm many Realtor’s businesses as this is an area of specialization for some.
If this bill were to pass, two problems are created:
First, while real estate licensees have a fiduciary duty toward their client, it isn’t immediately clear whether or not these outdoor advertising companies would have the same duty to the landowner or advertiser.
Another potential pitfall is this bill could have the effect of reducing a revenue stream for Realtors by allowing those negotiating outdoor advertising space to act in that capacity without a license.
The California Association of Realtors and ADHI Schools, LLC are opposed to this or any legislation that would allow companies or individuals to act in a real estate license capacity without a license.
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Homelessness is a serious problem. Despite efforts to curb it—from government housing programs to charitable organizations and shelters—it persists. A recent federal House bill (with bipartisan cosponsorship) Read more...
Homelessness is a serious problem. Despite efforts to curb it—from government housing programs to charitable organizations and shelters—it persists. A recent federal House bill (with bipartisan cosponsorship) has been written that aims to help homeless and formerly homeless students and student veterans attain housing.
H.R. 5290 would amend the Internal Revenue Code to “qualify low-income building units that provide housing for homeless students and veterans who are full-time students for the low-income housing tax credit.” The full-time student must have been a homeless child or youth during any portion of the seven years prior to occupation of the housing unit in order to be eligible. Veterans are eligible if they have been homeless at any point in the previous five years and are full-time students.
So what is the low income housing tax credit (LIHTC) and how would this bill impact affordable housing? The LIHTC frees up funding for the development costs of low-income housing. Investors receive a dollar-for-dollar tax credit that directly lowers owed income tax. These investors propose a project to the state housing finance agency. A certain percentage of units in the development are committed to being both rent restricted and occupied by individuals under a certain income threshold compared to the median gross income in the area.
This commitment includes a number of years (typically 30) that the rent restrictions and availability will exist, meaning that landlords cannot take advantage of a tax credit, then remove rent restrictions. The specific scenarios are outlined here. These projects can be new construction or acquisition and/or rehabilitation of existing housing developments. Once the state housing finance agency approves the project, the credits are claimed over a ten year period.
To summarize: a landlord-investor set aside a certain number of units that have lowered rent to be made available to renters with low income. H.R. 5290 would automatically qualify students that were homeless children or youths within the last seven years and veterans that have been homeless within the last five years as eligible tenants for the rent-restricted units.
If H.R. 5290 is passed and signed into law there would be more incentive for landlords and developers to subsidize housing for formerly homeless veterans and youths while they are in college. This makes it easier for those who have escaped homelessness to stay out—a very real problem, especially in more expensive areas of the country. It is difficult to succeed in higher education while earning enough money to support oneself. It also provides a pathway out for those currently homeless. If they can become a full-time student, they can gain access to cheaper housing.
Will it pass? No way to tell yet, but bipartisan cosponsorship is always a good sign. In an increasingly divided legislature and an election year, cooperation is not something we hear about too often. Because this bill has Democratic and Republican support it may have a better chance of being passed. But the Senate is not currently in session, so any movement by the House will not be matched in the Senate until at least September. We will be certain to keep our readers updated as this legislation progresses or falters.
For questions about the legislation, programs described, or other real estate topics feel free to reach out to the author at cody@adhischools.com. If you feel strongly one way or another about this proposed legislation, we encourage you to contact your elected representatives. Anyone looking to obtain their real estate license needs to keep an eye on these important legislative updates.
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Sellers marketing their homes are often concerned about what goes on inside their house when they’re not there. This has led to the installation of surveillance equipment in many homes for sale. Maybe Read more...
Sellers marketing their homes are often concerned about what goes on inside their house when they’re not there. This has led to the installation of surveillance equipment in many homes for sale. Maybe the seller has a security concern: who is coming into my home and what are they doing? Are they stealing? Or maybe their interests are purely professional. What are potential buyers saying about my new floors? Is my agent working hard for me? Regardless of the motive, this is something real estate professionals must be aware of, particularly when the seller is not present.
These days it’s easy for a homeowner to keep their home under surveillance and find out what’s happening in their absence. From openly visible security cameras to so-called “nanny cams” (hidden cameras designed to innocuously keep an eye on caretakers that are often adopted for other purposes), there are lots of ways to keep watch.
You may be asking, is this legal? The answer is yes, for video recording - more on audio in a moment. Unless a person being recorded is somewhere they can reasonably expect privacy (e.g. a bathroom, changing room, etc.), video surveillance is legal. Considering a real estate agent is inside of someone else’s home, it is unlikely that court proceedings would determine that they could have reasonably expected privacy in the event they are recorded.
If you are listing agent and see cameras, you need to get on the same page as the seller if at all possible. Ask if the cameras are on when you are showing the home and what the purpose is. You will probably be asked about the cameras by potential buyers and agents and you should be prepared for that question.
It’s also possible that you may not know about the presence of cameras in your listings, particularly if they are hidden. If you feel comfortable asking the question, you could simply ask your seller if any recording equipment is in the property. These days, it’s probably safest to assume that cameras exist inside the home. While this should not affect what you do on the property (as you should already have been following all legal and ethical requirements that coincide with holding a real estate license), a mindful outlook on the situation may prevent professional issues with your clients.
Audio recordings are another legal issue. Depending on the state it is illegal to record a conversation without the consent of all recorded parties. In California, the legal standard is that “confidential communication” cannot be recorded without two-party consent. “Confidential communication” is defined as any communication in circumstances as may “reasonably indicate that any party to the communication desires it to be confined to the parties thereto”, as long as the communication is not made in a “public gathering”, “in any legislative, judicial, executive or administrative proceeding open to the public”, or “in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded”. This leaves a significant loophole. How do you define a reasonable expectation to be overheard?
According to the law offices of Stimmel, Stimmel, & Smith, answering this question will be left to the proceedings of each trial (and thus either the jury or judges). It is quite possible that a recording in someone’s home would not be considered a violation of privacy because the recorded persons are on someone else’s property, but there is not a guarantee. Real estate agents are invited into a home for business purposes and conversations are part of that standard business practice. It is entirely possible that a judge and jury would rule that privacy should not be expected.
Does all of this sound paranoid? Consider a few cases where that surveillance revealed some unpleasant facts. In 2013 an agent was caught stealing underwear from his female client. In 2014 two real estate agents were caught having sex on secret cameras in the home one of them was listing. And just last year a real estate agent was caught stealing prescription pain medication from a house she was showing. Obviously these happenings are rare, but it does prove that some homeowners had good reason to be suspicious.
So for our students preparing for the California real estate exam, know that obtaining a license is not an endorsement of character. Some sellers will be skeptical or nervous about the prospect of letting strangers into their home and real estate professionals should be prepared for how those clients try to protect themselves.
Do you have any experiences with recording equipment in a listed property? Comment below! As always, feel free to reach out to the writer, cody@adhischools.com , if you have any questions.
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With much of the Western United States experiencing extended droughts, some homeowners are turning to alternative landscaping methods to save resources.
Recently REALTOR® Magazine1 (pg 34-35) wrote Read more...
With much of the Western United States experiencing extended droughts, some homeowners are turning to alternative landscaping methods to save resources.
Recently REALTOR® Magazine1 (pg 34-35) wrote about owners who are “rethinking the traditional American landscape” by moving toward yards that require less water and maintenance. The “desert landscaping” method, popular in much of the Southwest, is probably what comes to mind when picturing drought-resistant landscaping, but depending upon your locale there are other options to save water without compromising the aesthetics of a property.
Besides aesthetics, cost can be a deterrent when re-landscaping. It takes money to tear out a lawn, buy new plants, or truck in gravel. While these upfront costs are cause for legitimate concern, a move towards drought-resistant landscaping has the potential to save a homeowner money over time. The overall savings will depend on water prices in a given area, but expert estimates claim up to 75% less water is needed and maintenance bills could be lowered by 50% in Southern California when desert landscaping is implemented.
It would be wise to investigate rebate opportunities from your city or county water authority in your area to help offset the upfront cost. There are opportunities throughout the western United States for rebates for everything from removing grass lawns and installing more efficient watering and irrigation systems to more general rebates for conversion to a drought-tolerant landscape. With hundreds of dollars in rebates oftentimes available, the investment can be manageable.
Houses with great curb appeal are easier to sell and it is never too soon to plan ahead. While the traditional, perfectly green yard will likely never go out of style, trends in design can impact prices. Landscape economist John Harris states that good landscaping can add up to 28% to home value. A Clemson University study says that taking landscaping from good to excellent “in terms of design, condition, and placement” can add 6-7% to a home’s value.
These statistics show that execution and design are important. If you choose to move away from a more traditional landscape design, but do it poorly, you may miss out on the opportunity for increased value or worse – even see your property value lowered. Choose the right layout, plants, and accessories, from gravel to a suitable gate to the backyard or courtyard. Seek professional landscaping help or gather the opinions of those you trust about what works. The U.S. Department of Agriculture also publishes information on “hardiness zones” that help people understand which plants can survive in which conditions. Remember, if your landscaping is already good, making it “excellent” could add 6-7% in value.
Some owners resist the thought of a drought resistant yard because they fear that their children won’t be able to play as much. One option is to maintain a lawn in the backyard for room to play, while the landscaping for the rest of the property reflects alternative design. Some choose to pursue this goal with artificial turf in the place of a genuine grass. The distance to a good, safe park can also be a factor here. A nearby park can reduce the amount of green space you personally need and many newer developments are built with parks in the neighborhood.
So if you’re a homeowner, consider a more efficient yard. It might just improve your curb appeal and the value of your home while saving you money on water and maintenance. Whether you’re taking real estate classes in Los Angeles or preparing for the real estate exam in California, make sure you know how to talk to your clients about landscaping. It may not be your job to convince them that alternative landscaping design is right for them, but it is your job to make sure they understand the reasons behind these designs and the community resources that may make up for lost green space.
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As we predicted on July 20th, H.R. 3700/ S. 3083, the bipartisan housing legislation that passed through Congress without receiving a single “no” vote, was signed into law by President Obama on Friday, Read more...
As we predicted on July 20th, H.R. 3700/ S. 3083, the bipartisan housing legislation that passed through Congress without receiving a single “no” vote, was signed into law by President Obama on Friday, July 29th.
The new law will reform HUD’s Section 8 housing voucher program (and any other family rental assistance programs) by requiring public housing agencies (PHAs) to develop new systems to properly review the incomes of families receiving assistance, to cease assisting families with assets exceeding $100,000, and a cap on project-based vouchers (those vouchers tied to the unit, not the tenant).
The FHA mortgage insurance eligibility requirements have also been changed. The FHA has now been instructed to make recertification of eligible condominiums less burdensome and to lower the required percentage of units occupied by owners in a development from 50% to 35% in order to qualify.
Loan approval authority for the USDA Rural Housing Service’s single family housing guaranteed loan program will now be made available to preferred lenders, streamlining this program.
As noted earlier, we predicted that this legislation would pass due to its broad bipartisan support and common sense reforms to important government policies and programs. We supported the legislation, as did the National Association of REALTORS®, California Association of REALTORS®, California Association of Mortgage Professionals, and other professional organizations. The reforms to FHA condominium approval processes are particularly promising and have the opportunity to open up more affordable housing opportunities for Americans while incentivizing the development of more housing, something we desperately need.
The full text (with summary) of the law can be found here. Or view our previous article summarizing some of the key impacts. For any questions or comments, reply below or reach out to the writer at cody@adhischools.com
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