👋 Happy Friday! This Sunday will be National Make a 🦮 Dog’s 🐕‍🦺 Day. Subaru created the day to remind us to adopt, don’t shop when it comes time to let a dog pick you as its human.

1 big thing: 1 million fewer Realtors?

My Land Trustee

Chaos is wracking the National Association of Realtors leadership, and two class action suits are facing the Association that could lead to billions of dollars in damages.

Why it matters: The lawsuits could end the longstanding custom and NAR requirement that the listing agent share sales commissions with the cooperating buyer’s agent.

Not only did the NAR president recently step down amid multiple sexual harassment allegations, but the powerful trade organization is battling two massive class actions over their requirement that listing agents pay buyer agents a commission on each sale.

  • Plaintiffs argue that buyer agent commissions have been artificially inflated due to NAR rules requiring home sellers to compensate the buyer-broker.

What they’re saying: NAR argues that the rule has been in place for 100 years and helps consumers.

RE/MAX and Anywhere Real Estate, also named defendants in the lawsuits, have settled with the plaintiffs. As part of that settlement, the companies can no longer:

  • Require franchisees or agents to join NAR.

  • Comply with NAR’s “Participation Rule,” under which sellers pay for 1) buyer-broker commissions and 2) access to the local real estate board’s Multiple Listing Service (MLS).

Situation Awareness: If the class action courts decide to mirror the settlements and issue an injunction prohibiting sellers and listing agents from paying buyer-broker commissions, REALTORs could start leaving the profession in droves.

According to analysts at Keefe Bruyette Woods (KBW), the injunction could:

  • Shrink the annual commission pool worth $100 billion by 30 percent as consumers start negotiating their own contracts with buyer brokers.

  • Shrink commission rates by 200 basis points.

  • Drive as many as 1 million brokers out of the industry.

By the numbers:

  • The top 20% of agents are responsible for 80-90% of transactions. In comparison, the top 10% of agents are responsible for about two-thirds of transactions, according to KBW analyst conversations with brokerage industry participants.

  • The agent count in the U.S. could decrease to an estimated 300,000 to 600,000, based on the current NAR membership of 1.6 million.

A twist in the story: In early October, just two weeks before the trial began, NAR announced a change in its interpretation of the Participation Rule:

  • Listing brokers can now offer zero commission to buying brokers and remain in compliance, a sharp about-face for an organization that has insisted for decades that a compensation offer of zero did not comply with the rule.

What’s next: The first class action trial began on October 16. We’ll keep you up-to-date on any new developments.

2. Title Companies and Real Estate Agencies: Beware of Regulatory Crack-Down

My Land Trustee
Photo: Moritz Mentges

Regulatory authorities at the state and federal levels are cracking down on illegitimate joint ventures formed by title insurance firms and real estate agencies.

Why it matters: Joint ventures between title agencies and real estate companies aren’t illegal.

  • However, authorities have found that many such collaborations are sham operations that don’t meet regulatory standards.

  • If regulators find that your joint venture doesn’t follow regulations, you could be in serious legal trouble.

The Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Act (CFPA), and specific state regulations prohibit settlement service providers, such as title agencies, from offering kickbacks to real estate agencies who refer work to them.

To get around this prohibition, some title firms and real estate agencies create a joint venture (JV), which allows them to streamline the settlement process and share in the profits. However, some JVs are little more than shell corporations used to funnel financial rewards to real estate agencies for referrals illegally.

A comprehensive white paper by McGuire Woods law firm states that a legitimate JV between a title company and a real estate agency must satisfy three statutory conditions:

  • The company must make specific disclosures to consumers who are being referred.

  • Consumers must not be required to use any particular settlement–services provider.

  • The referring party may only receive a return on ownership interest.

Deviations from this third point are of most significant interest to regulators. According to McGuire Woods, certain illegitimate joint ventures “contribute nominal or even no capital in exchange for their ownership interests in the JV,” leaving the venture wholly undercapitalized for the services it claims to provide. The law firm also posits that such businesses often show profit dividends that are “wildly disproportionate” to their investments and that business models like these increase costs and stifle competition.

Other signs that a JV is not legitimate include a failure to have dedicated office space (i.e. a separate exterior door and lobby), employees, insurance, or other operational necessities.

The bottom line: RESPA, CFPA, and state regulators are spotlighting JVs between title agencies and real estate companies. If your company is involved in a joint venture with a settlement service provider, comply with all federal and state regulations.

Go deeper: Housingwire

3. Catch up fast

My Land Trustee

  1. Foreclosure filings are up nationwide by 28% over last quarter and 34% over last year at the same time. DSNews

  2. New home listings are up 2% since the beginning of September. National Mortgage Professional

  3. Mortgage bankers expect the average 30-year mortgage rate to drop to 6.1% by the end of 2024. Realtor

  4. Home sales are on track for the slowest year since the Great Recession. WSJ

  5. Orlando area home sales fell another 8.4% in September from the month before. Orlando Sentinel

  6. At the end of the largest tax audit in U.S. history, Microsoft has been ordered to pay $28.9 billion in back taxes, penalties, and interest for trying to shunt profits through a small Puerto Rican factory. ProPublica

  7. The Fall housing market cooled faster and more than usual this year. DSNews

4. Pic of the day

My Land Trustee
Embrace the shake Photo: Ryan Stone (http://ryanstonephotography.com)

Constraints are powerful change agents for business.

Why it matters: Whether you’re a Realtor who focuses on buyers or you’re a title agent who uses JV agreements to ensure you have a full pipeline of closings, based on the stories above, you’re facing some significant constraints coming your way.

  • If your main source of income is from listing brokers paying a portion of the overall sales commission to you, and NAR’s rules do away with that century-old way of doing business, what do you do?

  • If your main source of referrals is from Realtors who own an interest in your title agency so they can share in the profits, but it is found to be out of compliance with the regulations, requiring you to shut it down, how do you keep the Realtors coming back?

  • If your title agency relies on buyers’ Realtors referring business to your title agency, but buyers’ agents leave the profession because they no longer get paid a part of the commission, how do you survive as a title agency or as a Realtor who relied on those distributions?

What if I’d asked you in October 2019 to imagine a pandemic shutting down all businesses worldwide so no one can leave their homes to work? What solutions would you have devised to survive?

  • What solutions did you come up with?

Constraints come at business owners in the form of new technology (think AI), changes in the law or regulations, employee resignations, and new competitors.

  • Those constraints can be seen as obstacles that cause us to give up, or they can be taken as challenges to improve how we do what we do.

💭 Joe’s thought bubble: Business is always changing with new constraints. Exercising our organizational brains to prepare for constraints is necessary to be ready to roll with the punches.

  • SWOT analyses and focusing on our visions and core values are two things we can use everyday to be prepared when the Ch-Ch-Ch-Changes like these pop up.

Go deeper: The power of constraints: Phil Hansen at TEDxKC

How often do you do a SWOT Analysis of your life or business?

Annually
Quarterly
What’s a SWOT Analysis?

Your response is anonymous

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

Be on the lookout for our next issue! 👋

👋 Happy Friday! This Sunday will be National Make a 🦮 Dog’s 🐕‍🦺 Day. Subaru created the day to remind us to adopt, don’t shop when it comes time to let a dog pick you as its human.

1 big thing: 1 million fewer Realtors?

My Land Trustee

Chaos is wracking the National Association of Realtors leadership, and two class action suits are facing the Association that could lead to billions of dollars in damages.

Why it matters: The lawsuits could end the longstanding custom and NAR requirement that the listing agent share sales commissions with the cooperating buyer’s agent.

Not only did the NAR president recently step down amid multiple sexual harassment allegations, but the powerful trade organization is battling two massive class actions over their requirement that listing agents pay buyer agents a commission on each sale.

  • Plaintiffs argue that buyer agent commissions have been artificially inflated due to NAR rules requiring home sellers to compensate the buyer-broker.

What they’re saying: NAR argues that the rule has been in place for 100 years and helps consumers.

RE/MAX and Anywhere Real Estate, also named defendants in the lawsuits, have settled with the plaintiffs. As part of that settlement, the companies can no longer:

  • Require franchisees or agents to join NAR.

  • Comply with NAR’s “Participation Rule,” under which sellers pay for 1) buyer-broker commissions and 2) access to the local real estate board’s Multiple Listing Service (MLS).

Situation Awareness: If the class action courts decide to mirror the settlements and issue an injunction prohibiting sellers and listing agents from paying buyer-broker commissions, REALTORs could start leaving the profession in droves.

According to analysts at Keefe Bruyette Woods (KBW), the injunction could:

  • Shrink the annual commission pool worth $100 billion by 30 percent as consumers start negotiating their own contracts with buyer brokers.

  • Shrink commission rates by 200 basis points.

  • Drive as many as 1 million brokers out of the industry.

By the numbers:

  • The top 20% of agents are responsible for 80-90% of transactions. In comparison, the top 10% of agents are responsible for about two-thirds of transactions, according to KBW analyst conversations with brokerage industry participants.

  • The agent count in the U.S. could decrease to an estimated 300,000 to 600,000, based on the current NAR membership of 1.6 million.

A twist in the story: In early October, just two weeks before the trial began, NAR announced a change in its interpretation of the Participation Rule:

  • Listing brokers can now offer zero commission to buying brokers and remain in compliance, a sharp about-face for an organization that has insisted for decades that a compensation offer of zero did not comply with the rule.

What’s next: The first class action trial began on October 16. We’ll keep you up-to-date on any new developments.

2. Title Companies and Real Estate Agencies: Beware of Regulatory Crack-Down

My Land Trustee
Photo: Moritz Mentges

Regulatory authorities at the state and federal levels are cracking down on illegitimate joint ventures formed by title insurance firms and real estate agencies.

Why it matters: Joint ventures between title agencies and real estate companies aren’t illegal.

  • However, authorities have found that many such collaborations are sham operations that don’t meet regulatory standards.

  • If regulators find that your joint venture doesn’t follow regulations, you could be in serious legal trouble.

The Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Act (CFPA), and specific state regulations prohibit settlement service providers, such as title agencies, from offering kickbacks to real estate agencies who refer work to them.

To get around this prohibition, some title firms and real estate agencies create a joint venture (JV), which allows them to streamline the settlement process and share in the profits. However, some JVs are little more than shell corporations used to funnel financial rewards to real estate agencies for referrals illegally.

A comprehensive white paper by McGuire Woods law firm states that a legitimate JV between a title company and a real estate agency must satisfy three statutory conditions:

  • The company must make specific disclosures to consumers who are being referred.

  • Consumers must not be required to use any particular settlement–services provider.

  • The referring party may only receive a return on ownership interest.

Deviations from this third point are of most significant interest to regulators. According to McGuire Woods, certain illegitimate joint ventures “contribute nominal or even no capital in exchange for their ownership interests in the JV,” leaving the venture wholly undercapitalized for the services it claims to provide. The law firm also posits that such businesses often show profit dividends that are “wildly disproportionate” to their investments and that business models like these increase costs and stifle competition.

Other signs that a JV is not legitimate include a failure to have dedicated office space (i.e. a separate exterior door and lobby), employees, insurance, or other operational necessities.

The bottom line: RESPA, CFPA, and state regulators are spotlighting JVs between title agencies and real estate companies. If your company is involved in a joint venture with a settlement service provider, comply with all federal and state regulations.

Go deeper: Housingwire

3. Catch up fast

My Land Trustee

  1. Foreclosure filings are up nationwide by 28% over last quarter and 34% over last year at the same time. DSNews

  2. New home listings are up 2% since the beginning of September. National Mortgage Professional

  3. Mortgage bankers expect the average 30-year mortgage rate to drop to 6.1% by the end of 2024. Realtor

  4. Home sales are on track for the slowest year since the Great Recession. WSJ

  5. Orlando area home sales fell another 8.4% in September from the month before. Orlando Sentinel

  6. At the end of the largest tax audit in U.S. history, Microsoft has been ordered to pay $28.9 billion in back taxes, penalties, and interest for trying to shunt profits through a small Puerto Rican factory. ProPublica

  7. The Fall housing market cooled faster and more than usual this year. DSNews

4. Pic of the day

My Land Trustee
Embrace the shake Photo: Ryan Stone (http://ryanstonephotography.com)

Constraints are powerful change agents for business.

Why it matters: Whether you’re a Realtor who focuses on buyers or you’re a title agent who uses JV agreements to ensure you have a full pipeline of closings, based on the stories above, you’re facing some significant constraints coming your way.

  • If your main source of income is from listing brokers paying a portion of the overall sales commission to you, and NAR’s rules do away with that century-old way of doing business, what do you do?

  • If your main source of referrals is from Realtors who own an interest in your title agency so they can share in the profits, but it is found to be out of compliance with the regulations, requiring you to shut it down, how do you keep the Realtors coming back?

  • If your title agency relies on buyers’ Realtors referring business to your title agency, but buyers’ agents leave the profession because they no longer get paid a part of the commission, how do you survive as a title agency or as a Realtor who relied on those distributions?

What if I’d asked you in October 2019 to imagine a pandemic shutting down all businesses worldwide so no one can leave their homes to work? What solutions would you have devised to survive?

  • What solutions did you come up with?

Constraints come at business owners in the form of new technology (think AI), changes in the law or regulations, employee resignations, and new competitors.

  • Those constraints can be seen as obstacles that cause us to give up, or they can be taken as challenges to improve how we do what we do.

💭 Joe’s thought bubble: Business is always changing with new constraints. Exercising our organizational brains to prepare for constraints is necessary to be ready to roll with the punches.

  • SWOT analyses and focusing on our visions and core values are two things we can use everyday to be prepared when the Ch-Ch-Ch-Changes like these pop up.

Go deeper: The power of constraints: Phil Hansen at TEDxKC

How often do you do a SWOT Analysis of your life or business?

Annually
Quarterly
What’s a SWOT Analysis?

Your response is anonymous

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

Be on the lookout for our next issue! 👋

Happy Friday! In 1992, Congress passed a law designating July 28 as National Buffalo Soldiers Day.

The first peacetime all-African American Regiments, Buffalo Soldiers, were formed on this day after the end of the Civil War. They were frontier regiments, so the 9th and 10th Calvary Divisions protected the western edge of the nation (hence their name) as the country pushed westward. The 10th Calvary was based at Fort Leavenworth, Kansas, where Colin Powell dedicated a monument to the soldiers on the first Buffalo Soldiers Day. In 1944, the Army activated both regiments and integrated them into the rest of the Army for service in World War II. On September 6, 2005, Mark Matthews — the oldest living Buffalo Soldier — died at 111 years old. He is buried at Arlington National Cemetery.

1 big thing: Senate bill would thwart real estate investing

Land Trusts

Eight Senators introduced the “Stop Predatory Investing Act” (Senate Bill 2224) to the Senate Banking Committee earlier this month.

  • Why it matters: The bill would amend the US Tax Code to disallow the interest deduction and depreciation of properties owned by investors who own 50 or more one-to-four-family residential rental properties.

By the numbers: According to the bill’s sponsors:

  • The U.S. is short 3.8 million homes, making it almost impossible for homebuyers to find a home they can afford.

  • Institutional buyers bought over 13% of homes sold in 2021.

  • Such rates were as high as 28% in Texas and 19% in Georgia.

  • The share of investor purchases made by investors with portfolios of 100 properties or more grew from 14% in September 2020 to 26% in September 2021.

If it ever becomes law as it is proposed, the bill would prohibit an investor who buys 50 or more 1-4 family homes after the law’s effective date from deducting interest or depreciation on those properties.

Yes, but: The law would not apply to homes constructed by the taxpayer or to homes that the taxpayer buys after construction but before first being occupied as a primary residence by anyone.

  • Another exception is available if the taxpayer sells the property to a non-profit or a person buying it as a primary residence. The taxpayer can take all accrued interest deductions and depreciation at that point.

Our thought bubble: This bill will likely pass out of the Banking Committee favorably, considering that almost every committee member of the majority is a sponsor.

  • However, like most legislation, if it makes it to the floor for debate, it could be filibustered unless at least 60 senators are willing to allow it to be voted upon.

  • However, even if it passes the Senate, the chances of it being taken up in the House are extremely slim, given that chamber’s distaste for regulation.

Go deeper: The bill text at TaxNotes. Sign up to follow the bill through the Senate.

2. Too anonymous?

Land Trusts

We enjoy saying our tagline: “‘None of your business’ is our business.” But sometimes, we see land trusts coupled with limited liability company trustees that are too anonymous.

  • Why it matters: If no one can verify who has authorization to lease, sell, mortgage, or convey a piece of real estate, then it’s easier for fraudsters to steal rent or equity from the property.

I recently saw a Youtube video by a non-lawyer selling land trust preparation services nationwide.

  • He giddily described how his company would create (and charge for) a Wyoming LLC for their customer and then use that company to be the trustee of a land trust that they also create.

Having worked in title insurance and closings since 1996, I’ve seen the problems this can cause and recommend against it.

  • Anyone can generate an operating agreement, sign an affidavit, and then use those to sell or mortgage the property held in trust.

  • Anyone can say they own the trustee company and advertise the trust property for lease. They then take the first and last month’s rent plus a security deposit from a hapless tenant who moves into the trust’s property based on a fraudulent, unauthorized lease.

Using a third-party trustee like MyLandTrustee.com is a form of protection against such fraudsters, and it’s cheaper because fees to create and file a Wyoming, Delaware, or Nevada LLC are unnecessary.

  • Title and closing agents or tenants can locate us with a simple internet search to contact us and verify whether the property is for sale, mortgage, or rent.

  • They can view our Florida corporate records online to ensure that we have the authority to execute documents on behalf of the trustee and the trust.

  • We contact the beneficiaries also to verify that the property is being sold, mortgaged, or rented before signing anything.

The bottom line: Be wary of non-lawyers selling “total anonymity” regarding real estate. Sometimes, finding the right person to verify information can prevent the loss of money or the property itself, and that’s a good thing.

3. Catch up fast

Land Trusts

  1. California and New York lost high earners ($200K/year or more) during the pandemic mostly to Florida and Texas. Bloomberg

  2. Foreclosure activity ticks up to pre-pandemic levels, but still only a smidgen of what it was during the Great Recession. Attom

  3. Morningstar predicts that home prices will fall on average 4% to 6% over the next couple of years until home affordability is reached, and lower mortgage rates will be the lever that has to be pulled to do it. Yahoo Finance

  4. More great economic news following last week’s compendium of good news: GDP rose at a 2.4% annual rate instead of slowing to 1.8% as projected; durable goods outpaced projections, pending home sales jumped for the first time in four months, and unemployment claims fell. The chances of a recession continue to shrink. Bloomberg

  5. For the first time in recorded history, office space in the US declined. Since January, only 5 million square feet of new space broke ground for construction, while 14.7 million square feet was removed through demolition or repurposing. JLL

4. Pic of the day

Land Trusts
Buffalo Soldiers at the US Military Academy, West Point Photo: National Archives

I don’t think it’s any secret that we operate MyLandTrustee on the Entrepreneurial Operating System (EOS) as explained by Gino Wickman in his book Traction.

When embarking on the EOS journey, the first thing you do as an organization is to have a “Vision Day,” where you dig for and discover your company’s mission and the structure it will need to achieve the objectives to fulfill its mission.

I often catch myself describing roles in our Accountability Chart with military terms.

  • Visionaries are fleet captains who, instead of determining where the fleet will go next and why, envision the targets the business will pursue.

  • Integrators are the first officers who handle the daily grinding and implementation of the strategy to reach the visionary’s targets.

  • Underneath them, there are divisions, teams, and everyone else it takes to do the day-to-day work needed to keep the ships running, the crew fed and paid, and actually to shoot the guns.

Everyone from the visionary all the way day to the soldier on the field must know the vision and the objective with clarity and simplicity so they are all moving in the same direction.

Smart entrepreneurs first determine whether they are a general (visionary) or a first officer (integrator).

The bottom line: Once it is clear who will determine the ship’s direction and who will make it go, everyone in the chain of command will have clarity.

  • The crew will also know where they stand and where they’re going.

  • And they’ll fight like hell to get you there.

Go deeper: For more information on the photo above, check out the National Archives. And for a well-known song about Buffalo Soldiers, Bob Marley’s is the best.

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

Be on the lookout for our next issue! 

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