Terra Firma - Winter 2013

U UN ND D EE RR A A LL LL II SS TT H H EE LL A AN ND D

OFFICIAL NEWSLETTER OF THE REALTORS速 LAND INSTITUTE

WINTER 2013 Vol. 67 No. 1

2013 REALTORS® Land Institute & National Association of REALTORS®

Course and Events Calendar* March 18-20

2013 National Land Conference--Las Vegas, NV

April 1-3

Land Investment Analysis Course —Surf City, NC

April 4-5

Tax Deferred 1031 Exchanges Course — Surf City, NC

May 6-17

Land: Conservation and an Environmental Perspective on Redevelopment Hybrid NEW

May 6-31

Legal Aspects of Real Estate Online Course NEW

May 15-16

Land 101: Fundamentals of Land Brokerage— Lakeland, FL

May 13-18NAR

Midyear Meetings & Expo--Washington DC

June 6-17

Basics of Eminent Domain Law Hybrid NEW

June 3-28

Tax Implications of Real Estate Hybrid

May 27

Memorial Day

July 1-12

Advanced Tax Deferred 1031 Exchanges for Land Professionals Hybrid NEW

July 4

Independence Day

July 14-23

LandU Education Week—Chicago, IL

August 5-30

Site Selection Hybrid

August 5-30

Ethics in Real Estate Online Course NEW

August 26-27

NAR Leadership Summit Chicago, IL

September 2

Labor Day

September 3 – 27 Timberland Hybrid September 3 – 27 Essentials of Negotiation Online Course October 14

Columbus Day

October 9-12

Land Investment Analysis—St. Augustine, FL

November 4 – 29

Land Investment Analysis Hybrid

November 4 – 29

Legal Aspects of Real Estate Online Course

November 6-11

NAR Annual Meetings Conference & Expo— San Francisco, CA

November 11

Veterans Day

November 28

Thanksgiving Day

December 25

Christmas Day

*Note: Additions and modifications will be made to this throughout the year.

Check www.rliland.com for updates.

CONTENTS President's Message ............................................................. 3 News Briefs from National.................................................... 4 Member News .................................................................... 13 Lifetime ALCs ..................................................................... 15 Newest ALCs ....................................................................... 22 Education ........................................................................... 24 Chapter News ..................................................................... 32

FEATURE Government Affairs Briefing ................................... 8

By Russell Riggs, RLI Government Affairs Liaison National Association of REALTORS® The REALTORS®' "Golden Thread" Celebrates 100 Years..............................................................10

By Frederik Heller, Manager, Digital Library & Archives, National Association of REALTORS® Why I'm Optimistic About 2013 ..............................16

By Mark G. Dotzour, PhD, Chief Economist and Director of Research, Texas A&M University's Real Estate Center Farmland Auctions Becoming More Common— Even for Small Farms .............................................18

By Murray R. Wise, ALC, CEO, Murray Wise Associates, LLC/ Murray Wise Capital LLC New Ways to Connect Buyers and Sellers ................28

By David Hitchcock, ALC, Sales Associate, CBC Sauders Real Estate in Lakeland, Florida, and Matthew Wengerd, Marketing Strategist, CBCSRE/CBCSRD Promote Conflict in Your Real Estate Team ..............29

By Andre J. van Rensburg CCIM, ALC, CIPS, President, Prudential Commercial Real Estate Jacksonville Alchemy: De Ja Vu: Turning a Code 1031 Exchange into a Loss of Equity, Insolvent Intermediaries, Bankruptcy ..........................................................33

By Dr. Mark Levine, ALC; Dr. Libbi Levine Segev; Dr. Jeffrey L. Engelstad, Burns School of Real Estate and Construction Management at the Daniels College of Business

PRESIDENT’S MESSAGE UNDER ALL IS THE LAN D

BUILDING THE FUTURE I am honored to be the 2013 National President of the REALTORS® Land Institute (RLI)—an organization based on commitment that is clearly stated in the opening lines of the REALTOR® Code of Ethics: “Under all is land. Upon its wise utilization and widely allocated ownership depends the survival and growth of free institutes of our civilization.” With this being the centennial anniversary of the REALTOR® Code of Ethics, we celebrate the importance of integrity in the business and that the core of all real estate is our most precious commodity, the land.

Winter 2013 Edition Published by The REALTORS® Land Institute 430 North Michigan Avenue Chicago, Illinois 60611 Telephone: 1.800.441.5263 (LAND) Fax: 1.312.329.8633 E-mail: rli@realtors.org Website: www.rliland.com Editor Michele Cohen, Executive Vice President Contributing Editor Jennessa Berg, Institute Coordinator

Chuck Wingert, ALC 2013 RLI National President

The business of land has seen changes.

Auctions have become key strategies in sales, farm prices have risen beyond expectations, and mineral, oil rights, and fracking (fracing) are in the news. Many investors in the United States and abroad are seeking land ownership opportunities since other investments are not yielding desired income. Land is the “new gold.”

"...the core of all real estate is our most precious commodity, the land."

Cover Photo Courtesy of Dan Hatfield, ALC 2010 RLI National President

The esteemed Accredited Land Consultant (ALC) designation signifies the highest levels of land expertise. The ALC designation has gained recognition as representation of those who are the most experienced, knowledgeable, and highest performing professionals. In this organization, bonds are built, information is shared, and deals are made.

Photo taken at the foot of the Sierra Vieja Mountain looking across the Rio Grande River into Mexico in the Big Bend area of Texas.

RLI’s leadership team, the organization’s committees, and the Board of Directors are devoted to “BUILDING THE FUTURE.” They will continue to 1.

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Develop and provide best-in-class education programs Promote and increase awareness regarding land experts and their knowledge Build membership knowing that “an organization is driven by its members” Increase member benefits Raise the bar at its 2013 National Land Conference in Las Vegas on March 18-20

The organization’s strategic plan will be reviewed and updated to cover 2014-2017. The vision and mission of the organization as well as clear action steps will be reviewed and revised to make sure that we move forward to “build the future.” The organization has a rich history and the future history being built will be strong.

We have five new courses being rolled out in 2013 offered in face-to-face, hybrid, and online college classroom deliveries. One-day courses have been added to the curriculum with our two and three day courses.

LANDU Week will take place on July 14-20; the new optional ALC Advanced tier will recognize ALCs for their professional development participation; our voice in Washington will continue to be heard through our affiliation with the National Association of REALTORS®; we will build upon the LandLIST tool. The new 2013 Member Directory will be available that will include all members who pay their dues by December 31, 2012.

The list continues.

I look forward to seeing you at the 2013 National Land Conference—LAND: The Real Deal. If you are in the business of land, it is where you should be on March 18-20.

Here’s to BUILDING THE FUTURE!

Copyright 2013. All rights reserved.

Reproduction in whole or in part without permission is prohibited. Views expressed within the publication are not necessarily endorsed by the REALTORS® Land Institute and information should not be construed as recommendations for any course of action regarding financial, legal, or accounting matters.

Chuck Wingert Accredited Land Consultant 2013 RLI National President

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NEWS BRIEFS from NATIONAL Meet RLI’s 2013 National Board of Directors Charles “Chuck” Wingert, ALC 2013 National President Wingert Realty & Land Services Mankato, MN charles@wingertrealty.com George Clift, ALC RLI President Elect Clift Land Brokers Amarillo, TX george@cliftlandbrokers.com Terri Jensen, ALC RLI Vice President Farmers National Company Omaha, NE tjensen@farmersnational.com Ray Brownfield, ALC Land Pro, LLC Immediate Past President landprollc@aol.com John Dean, ALC NAR Executive Committee Rep. Landmart/Dean Land & Realty Company Leland, MS jdean@deanlandmart.com Danny Smith, ALC Accredited Land Consultant Designation Committee Chair Smith and Smith Realty Wildwood, FL dannysmith@ccim.net Flo Sayre, ALC Accredited Land Consultant Designation Committee Vice Chair Farmers National Company Pasco, WA fsayre@farmersnational.com Renee Harvey, ALC Education Committee Chair Century 21 Harvey Properties, Inc. Paris, TX rharvey@c21php.com David Hitchcock, ALC Education Committee Vice Chair Coldwell Banker Commercial-Saunders Real Estate Lakeland, FL david@saudnersrealestate.com George Harvey Government Affairs Committee Chair The Harvey Team Telluride, CO george@TheHarveyTeam.net Kirk Weih, ALC Government Affairs Committee Vice Chair Hertz Farm Management, Inc. Mt. Vernon, IA

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Ex-Officio Board Members John Pierpoint, RLI Treasurer National Association of REALTORS® Chicago, IL jpierpoint@realtors.org Russell Riggs RLI Legislative Staff Liaison National Association of REALTORS® Washington, D.C. riggs@realtors.org Michele Cohen Executive Vice President REALTORS® Land Institute Chicago, IL mcohen@realtors.org 2013 RLI Representatives to NAR Committees John Dean, ALC Executive Committee George Harvey Global Business and Alliances Kirk Weih, ALC Land Use Committee Brandon Rogillio, ALC Commercial Committee Mark Cumbest, ALC Commercial Committee Randy Hertz, ALC Commercial & Legislative Regulatory Subcommittee Michael Durkin, ALC Land Use Committee George Clift, ALC Professional Standards Committee John McAllister, ALC Public Policy Coordinating Committee Zivko Martinic Business Issues Committee Danny Smith, ALC Commercial Real Estate Research Subcommittee Bill Burruss, ALC Commercial Real Estate Research Subcommittee Bob Turner, ALC Federal Housing Policy Committee Derrick Volchoff, ALC Resort and Second Home Real Estate Committee Ray Brownfield, ALC Professional Development Committee Chuck Wingert, ALC Institute Advisory Committee George Clift, ALC Institute Advisory Committee Terri Jensen, ALC Institute Advisory Committee

NEWS BRIEFS from NATIONAL 2012 NAR Annual Meeting In November, 2013, during the RLI Day Installation and Awards Luncheon, Roger Heller, ALC, 1998 RLI National President, conducted the oath of office ceremonies for the installation of the 2013 officers: Chuck Wingert, ALC, President; George Clift, ALC, President Elect; and Terri Jensen, ALC, Vice President. The traditional passing of the gavel from past presidents to the current president took place ending with Ray Brownfield, ALC, 2012 RLI National President, handing the gavel to 2013 National President, Chuck Wingert, ALC. In addition, the 2012 RLI National Award winners were announced:

Meeks Distinguished Service Award:

Norma Nisbet, ALC, 2004 RLI National President Vista Properties & Investments in St. Louis, MO

Land REALTOR® of the Year Award:

Danny Smith, ALC Smith & Smith Realty in Wildwood, FL

Excellence in Instruction Awards:

The celebration continued during a President’s Inaugural Cocktail party.

Members, partners, family members, and friends shared in the celebration.

Congratulations to all of the above for their service and dedication to the organization, education, and to the overall business of land.

2013 Midyear Meetings in D.C. The National Association of REALTORS® 2013 Midyear Meetings and Expo will convene in Washington D.C. on May 13-18. REALTORS® Land Institute will have strong representation at the committee meetings to represent the opinions and priorities of all land professionals (see the NAR committee members on page 4.) Opportunities exist for attendees to speak with government officials on the Hill.

RLI will hold a meeting for all members who are attending these events at the Marriott Wardman Park in D.C. RLI Leadership will discuss “RLI Updates.” Russell Riggs, RLI Government Affairs Liaison through NAR, will speak at this meeting covering relevant government affairs topics.

Riggs keeps the organization current on what is happening on the Hill.

To see the latest, visit the website at http://www.rliland.com/dcupdates.

The One-and-Only 2013 National Land Conference This is the “cannot afford to miss” conference exclusively for professionals involved in the business of land. As Brandon Rogillio, ALC, Louisiana, states, “I receive a lot of conference information.

The only one I attend for sure each year is the RLI National Land Conference.”

On March 18-20, learn from the experts, build bonds with the best-in-thebusiness, make deals, and have a great time in Las Vegas. Award recipients and new ALCs will be recognized, partner/sponsors will share trends and strategies to improve productivity, colleagues will lead round table discussions on hot topics, and treasures will be purchased at RLI’s GREATEST COWBOY AUCTION ON EARTH (see page 35).

If you are in the land business, this is where you need to be!

James Miller, Esq. Investment Property Exchange Services, Inc. in Tempe, AZ

A Salute to Accredited Land Consultants (ALCs) ALCs had the option of completing an electronic survey to help RLI develop a promotional statement to bring awareness to others about those who earned the designation. From the survey of 100 random ALCs, 51 percent of the respondents are owner/brokers coming from diverse geographic areas and specializing in one or more of the above segments of land.

Andre J. van Rensburg, ALC Prudential Commercial Real Estate Jacksonville in Saint Augustine, FL

2012 Chapter Award:

The total volume of business from these 100 ALC respondents was $979,077,917 in 2012. The single largest transaction reported was $83,000,000--one of multiple transactions made by a single esteemed ALC. With a total of 461 active ALCs, this is a small sample, but a clear indication, of the impressive total business generated by these professionals.

REALTORS® Land Institute salutes the Accredited Land Consultants.

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NEWS BRIEFS from NATIONAL ALCs Represent Honor and Integrity In this centennial anniversary of the Code of Ethics of the National Association of REALTORS®, RLI recognizes and reinforces the importance of following the values set forth in this document. With this spirit in mind, the RLI Board of Directors has approved a ten-point ALC Code of Conduct. A code of conduct is a set of principles that guide decision making and behavior. The purpose of the code for Accredited Land Consultants (ALCs) is to provide guidelines for making ethical choices in the conduct of their work.

Professional integrity is the cornerstone of credibility reflecting high principles and standards of practice. RLI is proud of ALCs who bring the highest level of integrity to the business of land.

ALC Code of Conduct Preamble Accredited Land Consultants (ALCs) are honorable land professionals who recognize the importance of land to life. ALCs share in the responsibility to conduct themselves with high morals following the ALC Code of Conduct and the Code of Ethics of the National Association of REALTORS®.

ALC Code of Conduct 1.

Protect and promote the best interest of clients

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Display high moral and professional standards

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Avoid exaggeration and misrepresentation of relevant facts

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Treat all with honesty and respect

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Stay current in industry knowledge and trends

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Enhance the integrity and professionalism of the industry

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Cooperate with fellow real estate professionals

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Follow local, state, and national laws regarding disclosure

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Will not condone or participate in discriminatory practices

10. Support, understand, and champion institute policies

Tools to Use Sign into the Members Only area of the website at www.rliland. com to take advantage of the below member benefits:

LandLIST More and more RLI members are opting in to RLI’s email listing tool, LandLIST. If you have not already done so, “opt-in” and get started!

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Sign-in Go to www.rliland.com and sign in, using your last name for your username and RLI number for your password. After signing in, go to “My Member Profile.”

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Go to "E-Lists" In your profile, locate the E-List section under the tab “My Features.”

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Subscribe There are 7 LandLISTs:

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LandLIST (all area) Midwest LandLIST Northeast LandLIST Northwest LandLIST Southeast LandLIST South LandLIST Southwest LandLIST Join and post to one or all of the lists. Subscribe to each list individually to post and receive posts for that specific area. Click the “Subscribe” button to opt into the LandLIST email option.

Note: You will immediately receive a welcome email. If you do not receive it, please check your spam/junk folder and mark the email as not spam/junk.

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Create a Message Begin sharing your listings with other RLI members who are participating in this member benefit. Click on the LandLIST link to enter the menu screen. Posting a new message will generate an email to all members who have opted into LandLIST. Participants have the option of attaching a file and may send listings in PDF format. Responses to the LandLIST postings will be sent directly to the listing member.

Need assistance? Call 1.800.441.5263 and ask for Jen. She is standing by to assist.

Peer White Papers Many ALC candidates developed white papers on topics covered during the 2012 National Land Conference. These white papers are posted in the member’s only section of the website and area relevant to the diverse land segments. The topics include Wind and Air Rights, The AG Bubble, Real Estate Auctions, Ranch and Recreation, and more.

White papers will be added after the 2013 National Land Conference by those who attend the conference as a course option. If you would like to participate in the Conference as a Course Option, visit http:// www.rliland.com/elective-course-credit-option.

Member Profile The Member Profile is an excellent marketing tool. Daily, the “Find a Consultant” area of the website is utilized by those looking for land professionals. RLI National also uses this information to refer people who call asking about professionals in certain locations who specialize in specific land segments. In addition, the profile information is the source for the Member Directory and the Land Conference Registrant Roster.

Each member keeps his/her profile current at http://www.rliland.com/ member-login. Once you have logged in, select “update your profile.”

The next screen will be your profile page. By choosing “Edit Profile” you can update your personal information, add a picture, and even write up a short biography!

Member Volunteers Members drive organizations; member volunteers create a strong organization. Make a difference and make connections. In May, all members will receive a “Call for Volunteers” notice via email. If you would like to serve on a 2014 committee—Education, Government Affairs, and/or the Annual Land Conference—let leadership know upon receipt of the notice. Members make a difference!

Feature

GOVERNMENT

AFFAIRS BRIEFING

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Capital Gains Capital Gains rate stays at 15% for those at the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20%. The $250/$500k exclusion for the sale of a principal residence remains in place.

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Estate Tax The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that, the rate will be 40%, up from 35%. The exemption amounts are indexed for inflation.

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Farm Bill The cliff deal included a one-year extension of the 2008 Farm Bill.

The bill expired Sept. 30, 2012, and the deal essentially re-authorizes the farm bill until Sept. 30. The extension means negotiations will begin anew on a five-year farm bill. The bills previously approved by the House Agriculture Committee and full Senate in 2012 are moot.

Lawmakers may find it harder to pass a farm bill in 2013 as Congress starts searching for ways to cut costs on March 1.

Russell Riggs, RLI Government Affairs Liaison, National Association of REALTORS®

News and Notes from Inside the Beltway Congress, President Avoid Fiscal Cliff………For Now! On January 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” The bill was signed by the President on January 4.

However, this deal only gets us halfway; a plan to reduce government spending is required by the bill and will take up much discussion and air time in Congress over the next two months.

Here is a summary of provisions in the bill that may impact land professionals.

Apart from narrowly avoiding the fiscal cliff, other items of interest to land professionals include:

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Real Estate Tax Extenders Mortgage Cancellation Relief is extended for one year to January 1, 2014.

Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012.

Leasehold Improvements: 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.

Energy Efficiency Tax Credit: The 10% tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

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Permanent Repeal of Pease Limitations for 99% of Taxpayers Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time.

Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3%. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80% of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

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NFIP Debt Limit Raised On January 4, 2013, Congress approved nearly a $10 Billion increase in the Nation Flood Insurance Program’s borrowing authority for Superstorm Sandy (HR 41). This is a temporary measure necessary to ensure the continued payment of claims for the resulting flood damage, and does not affect either the purchase of flood insurance or premium rates. NAR will continue to monitor implementation of the broader NFIP legislative reform package passed last year to keep the program on a fiscally sensible path over the next 5 years.

Justices Hear Oral Arguments in Property Rights Case On January 15, The U.S. Supreme Court heard oral arguments in Koontz v. St. Johns River Water Management District. This case addresses a Florida landowner’s claim that he is owed compensation by a land-use agency after it declined to issue permits for a wetlands area he wanted to develop because he wouldn’t agree to certain conditions. The case raises major questions about the right of government to impose conditions in return for permit approval. It hinges in part on whether Supreme Court precedents limiting the ability of government entities to place conditions on landowners in exchange for permits applies to “money, services, labor or any other type of personal property.” The court is also weighing whether a constitutional violation occurs even when no permit is actually issued. It is not clear how the court will rule, although the decision could rest on whether a majority of justices conclude that a taking, subject to compensation under the takings clause of the Fifth Amendment, even occurred.

NAR signed on to an Amicus Brief with several other regulated stakeholder groups. The focus of the Amicus Brief was to further elaborate on the property rights implications of the case and describe how real estate development and related activities are adversely affected by these types of situations. A decision in the case is expected in the Spring.

Feature Waters of the U.S. Update Guidance Still Under Review Efforts by the Environmental Protection Agency (EPA) and the Army Corps of Engineers (ACE) to expand their authority over more waters of the United States than allowed by the Clean Water Act (CWA) remain bottled up at the Office of Management and Budget. The EPA and the ACE have for years sought to expand the reach of the Clean Water Act to waters beyond what is defined in the CWA as “navigable” and waters “adjacent” to navigable waters. If CWA jurisdiction is expanded to more waters of the U.S., it would result in more regulation, permits and onerous requirements on development. The most recent efforts is a “guidance” document that, despite EPA’s statement to the contrary, increases federal authority over more kinds of U.S. waters. At a recent meeting with EPA’s Assistant Administrator of Water, officials acknowledged that the guidance was still under review and that discussions regarding a formal rulemaking were still “under discussion” between EPA and the ACE.

About the author: In his position with the National Association of REALTORS®, Russell Riggs serves as RLI’s Government Affairs Liaison in Washington, D.C., conducting advocacy on a variety of federal issues related to land. Riggs will be a presenter at the 2013 National Land Conference in Las Vegas, Nevada, taking place on March 18-20.

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Feature

The REALTORS ’ “Golden Thread” Celebrates 100 Years ®

Frederik Heller Manager, Digital Library & Archives, National Association of REALTORS®

The year 2013 marks the centennial of the Code of Ethics and Standards of Practice of the NATIONAL ASSOCIATION OF REALTORS®. The Code establishes the standards of ethical practice that all REALTORS® agree to follow as a condition of their membership. These ethical requirements are a key factor separating REALTORS® from all other real estate practitioners. The Code, a living document that today undergoes annual review and revision, has been called a “golden thread,” uniting those devoted to raising the standards of professionalism and service in real estate.

When the National Association of REALTORS® was founded in 1908, the real estate industry was a much different world than it is today.

Aside from a few municipal ordinances, there were virtually no laws regulating how real estate brokers conducted their business. No real estate licensing laws were in place, and there was no national Code of Ethics—although some local real estate boards, beginning with the Baltimore board in 1858, adopted codes of conduct for their own members.

While there were plenty of trustworthy people trying to build successful careers in real estate and help their customers work through the increasingly complex world of property transactions, there was also no shortage of people seeking to take advantage of an unwary public and make a quick buck. Curbstoners, as dishonest brokers were called, were holding back the real estate industry, with almost no way for the public to tell which brokers were trustworthy and which were swindlers.

Anyone could put out a sign advertising their expertise as a real estate broker. “It is easier to become a real estate man and handle thousands of dollars’ worth of property and money,” complained R. Bruce Douglas, executive secretary of the Milwaukee Real Estate Exchange, in an address before the members of several Midwestern real estate boards in 1907, “than it is to become a barber charging 10 cents for a shave.”

Those devoted to the real estate business needed to find a way to raise the standards of their chosen career, gain the public trust, and chase away the curbstoners.

It was largely in response to this situation that the National Association of REALTORS® was organized in Chicago in May 1908. In her 1958 book Real Estate in American History, author Pearl Janet Davies recalled: “A code of ethics for the real estate business had been the national real estate organization’s primary objective. Its constitution had a mandatory provision for a committee on code of ethics. Its founders realized that one principal task must be to formulate in clear words the essentials of proper real estate business conduct. Those rules of conduct must be such that men in the business could agree upon them. They must be an expression of the group consciousness.”

At NAR’s second annual convention, in 1909, Milwaukee broker Edward Barber, first chairman of the Ethics Committee, presented an address in which he summarized the task ahead. “Never go into a deal with a person without first having a definite and distinct understanding as to

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just where his interests leave off and yours begin,” Barber declared. “We must insist that no dishonest deal be permitted to pass through our hands.”

During the first few years of NAR’s existence, members of the Ethics Committee were not yet prepared to produce an actual code of ethics.

Instead, through speeches at the national meetings, presentations to local boards, and articles in the National Real Estate Journal, the committee explored and debated the concept of ethics as it applied to real estate and discussed ways to incorporate meaningful rules that could apply to real estate practitioners across the country.

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Two enduring features of today’s Code were developed during this period. In 1910, ethics committee chairman C. F. Harrison of Omaha, NE, pointed out that a code of ethics “naturally divides itself into two parts, the broker’s duty to his clients and the broker’s duty to his fellow brokers.” Today’s Code has a third section: duties to the public. Frank Craven of Philadelphia, PA, in June 1912 suggested the Golden Rule as an ideal starting point, a concept which is now incorporated into the Code’s Preamble.

At the same 1912 meeting in which Craven presented his idea, John T. Sears of Kansas City, MO, submitted his real estate board’s statement of ethics to help guide the National committee in its work. The Kansas City code had been developed in January 1912, and was divided into 13 “positive” and 14 “negative” rules.

This move seemed to have had the desired effect, as the committee finally put pen to paper and wrapped up five years of intensive work and debate over the concept of ethics in the real estate business. In July 1913 at the National Association’s annual convention in Winnipeg (Canada was part of NAR’s territory until the early 1940s), the committee submitted its long-awaited proposal for a national Code of Ethics.

The 1913 version of the Code was largely adapted from Kansas City’s code, and was divided into two sections, “The Duty of Real Estate Men Towards Their Clients” and “The Duty of Real Estate Men Towards Other Real Estate Men.” It was adopted by the National Association after a brief discussion, with recommendations that it be printed and distributed to all members and adopted by local boards.

The 1913 Code was considered to be a first attempt at a national code of ethics for the real estate industry, one that would be revised and perfected over time. William V. Ebersole, 1914 chair of the ethics committee, invited all members of the association to “carefully consider the code of ethics adopted at Winnipeg, suggesting such improvements or changes as may seem advisable, adopting the spirit and text of the rules as far as practicable, the object being to enlist the personal cooperation of each individual member of the National Association, in this great movement forward….”

Feedback was quickly gathered, and the Code was almost completely

Feature revised and expanded by July 1914. The new Code was divided into three sections, with a section of ten rules outlining the broker’s duty to clients; five rules outlining duties to prospective buyers; and another ten rules outlining duties to other brokers.

It was revised again in 1915, this time modeled after the Chicago Real Estate Board’s own code and featuring two new sections, one addressing the “Duty to Organize” and another listing four “Suggestions to Owners and Investors.”

One interesting aspect of these first renditions of the Code is that they included no provisions for enforcement. The general assumption was that brokers, once made aware of the rules, would simply abide by them. That didn’t always prove to be the case, however, and by 1915 the National Association was actively encouraging local real estate boards to develop their own enforcement procedures. Adoption of the Code was also voluntary, so even after the national Code was presented in 1913, some state and local associations continued to develop and use their own rules of conduct. The New York State association, for example, issued its “10 Commandments of Real Estate” in April 1915, a concise version of the Code of Ethics intended to dissect the National Association’s “elaborate treatises” of 1913 and 1914.

In October 1923, ten years after the Code was first adopted, the National Association finally amended its bylaws to make it mandatory for each local board to adopt the national Code of Ethics and put in place a system to enforce the Code among their members.

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The following year, 1924, the Code underwent its third revision, making the articles more relevant to the rapidly changing structure of the real estate industry. Several new provisions were added to help correct the problem local real estate boards were experiencing in enforcing the Code among their members. “Any code that we adopt […] should carry an adequate provision for its own enforcement,” explained ethics committee chair A. H. Barnhisel of Tacoma, WA. “The jazz and joyride stage of realty operations has had its day. It is the business of REALTORS® to see that the new era of service to the individual and civic responsibility has come to stay.”

The 1924 Code of Ethics also included what is perhaps the best-known feature of today’s Code, both among REALTORS® and the public: the preamble. The familiar “Under all is the land” language setting forth the social responsibilities of the association and its members was not part of the original Code, but was written by Barnhisel and adopted along with many other revisions to the Code in 1924. The preamble’s language was modernized in 1955, but REALTORS® were so unhappy with the results that the changes were overturned in 1961. No further attempts were made to alter the preamble until the early 1990s.

One further change was made to the Code in the following years, when an amendment addressing the problem of “horseback appraisals” (what we would now call drive-by appraisals) was added in 1928.

After 1928, the Code, which was originally intended to be a fluid, ever-changing document, was declared “complete” and wasn’t altered again for over twenty years.

Although the enforcement process was refined and the concepts of mediation and arbitration were developed during those two decades, the Code itself remained unchanged. Even the Committee on Ethics, an integral part of the National Association since its founding, had completely vanished by 1933.

Even after twenty-plus years of stagnation, the Code of Ethics was still seen as a vital benchmark for conducting real estate business the right way, and calls to revitalize it grew louder. Lead by Philadelphia’s Roland R. Randall, the Code’s supporters finally got their chance in May 1946 with the formation of the Committee on Professional Standards, filling a gap left by the old ethics committee. “The idea of a Committee on Professional Standards grew out of criticism from members of the National Association of Real Estate Boards that the term REALTOR® ‘didn’t mean anything,’” explained Randall. “Some members felt that the Code of Ethics was not adhered to rigidly, if at all. Other members felt that, after 25 years, changes should be made in the Code and additions made to it. The Professional Standards Committee was therefore appointed […] to devote its attention to the raising of professional standards nationally in the transaction of business concerning real estate in all its branches.”

A Code of Ethics for Farm & Land Brokers Today’s Code of Ethics acknowledges the specialized expertise and services provided by farm and land brokers in Article 11, which states: “The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.”

The mention of land brokerage is a very recent addition to the Code, and took many decades to achieve.

The National Association’s Farm Lands Division, established in 1920, made no mention of the Code in its bylaws. The bylaws stipulated that the Division’s members be REALTORS®, however, who by definition were required to follow the principles set out in the Code.

In 1928, NAR’s Home Builders & Subdividers Division created its own Code of Ethics. Its members were required to follow NAR’s Code, in addition to the Division Code, which addressed situations specific to home builders and subdivision developers, such as specifying which improvements and utilities would be included with the purchase of a lot.

The Farm Lands Division saw advantages in creating a similar code for farm and land specialists, and soon appointed a Committee on Ethics and Standards of Practice to examine the matter. The Committee was told to make its recommendation at the Division’s annual meeting in 1929.

The dire condition of the farm economy, coupled with the onset of the Great Depression, caused many of the Division’s members to leave the business in 1929, including several of the ethics committee members, and so the proposed farm specialists’ code was never written. A second unsuccessful attempt at writing a farm code was made in 1933.

When the REALTORS® Land Institute was founded in 1944, the organization’s bylaws specified that members “shall agree to abide by the Code of Ethics of the National Association of Real Estate Boards.”

So throughout the decades, members of the Farm Lands Division and the REALTORS® Land Institute have always been required to abide by the REALTORS® Code of Ethics, although the Code itself didn’t mention farm and land brokerage. Commercial and industrial property, international real estate, real estate auction, and other specialties were acknowledged as specific disciplines when Article 11 was amended in 1995.

Land brokerage was finally added to that list in 2010.

Terra Firma

Winter 2013 11

Feature

The new Professional Standards Committee immediately set about revising the Code of Ethics. “It has been 23 years since a change has been made in our Code of Ethics and as changes have come in our business life over the last two decades, it has become quite apparent that new provisions should be added and certain sections should be clarified,” declared Randall, the committee’s first chairman.

renumbered and rearranged the Code’s articles to follow the original 1913 format, and omitted several articles that were outdated or redundant. A number of new provisions were also included, covering such topics as multiple offers, the REALTOR®’s duty to keep abreast of market conditions and changes in the law, and the necessity of keeping escrow funds in a separate account.

In the summer of 1947, just as the revisions were about to be presented to the National Association’s board of directors for consideration, the federal government brought an antitrust action against the National Association, putting the Code’s planned updates on hold. At issue was the Code’s Article 9, which required REALTORS® to follow their board’s published commission rates and fees. The National Association said the provision protected consumers from paying unfair and arbitrary rates for real estate services, but the Department of Justice called the rate setting anticompetitive. The case eventually reached the U.S. Supreme Court, which ruled in 1950 that Article 9 was a clear violation of the law.

Since 1955, the Code of Ethics has been subject to regular reviews and been revised or amended over thirty times. REALTORS® serving on NAR’s Professional Standards Committee have labored long and hard to ensure that the Code is a living document that protects the sellers, buyers, landlords, tenants, and others who place their trust in REALTORS®; that the Code’s obligations are phrased in clear, objective, and unambiguous terms; and that the Code remains relevant and meaningful in the constantly changing real estate environment.

The National Association immediately revised Article 9 to bring it in line with the Supreme Court ruling. Over the next few years, though, further attempts to revise the rest of the Code were rejected. A special committee appointed to review proposed revisions to the Code in 1952 concluded that “the task of putting such a Code through would be enormous.”

In November 1955, the Professional Standards Committee’s tried again, and this time the revised Code of Ethics was finally accepted, constituting the most significant changes to the Code since 1924. It

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About the author: Frederick Heller, Manager of the Virtual Library & Archives at the National Association of REALTORS®, preserves documents from the real estate industry’s past and makes them available for future use. Before moving to the NAR group in Chicago in 2006, Heller was a manager of NAR’s Washington D.C. library.

Member News

Dwayne Anderson, ALC, was named Illinois Land Broker of the Year by the Illinois Farm & Land Chapter of REALTORS® Land Institute at its annual meeting in October 2012. His nomination acknowledged his professionalism, ethics as a REALTOR®, dedication to community service, and his knowledge and expertise regarding the Illinois land market. He is president of Dwayne Anderson Land Company and Anderson Grain Farms, Inc.

Mac Boyd, ALC, will be inducted into the National Association of REALTORS® RPAC Hall of Fame at the 2013 NAR Mid-Year meetings held in Washington, D.C., on May 13-18. RPAC is a voluntary political action committee whose membership consists of REALTORS® interested in actively and effectively protecting the real estate industry by participating in government affairs at the local, state and federal levels.

Jerry G. Brewer, ALC, was inducted into the Mississippi Association of REALTORS® Hall of Fame during its 2012 Annual Convention. During his career, Brewer has served as the 2000 State President of the MS Association of REALTORS®, as well as the 1988 National President of the REALTORS® Land Institute.

In 2004 he served as the Regional Vice President of the National Association of REALTORS®, representing MS, AL, GA, FL, Puerto Rico, and the U.S. Virgin Islands. Brewer is the co-owner of Brewer Realty and Brewer Appraisal Service.

Ray Brownfield, ALC, was the recipient of ASFMRA's 2012 D. Howard Doane Award. This award is given to an agriculture professional that has made outstanding contributions to the field of agriculture with emphasis on farm management and rural appraisal. Brownfield is the owner and managing broker of Land Pro LLC, an all-service real estate company in Illinois.

George Clift, ALC, was a presenter at the 2013 Keller Williams annual company event on February 18, 2013, in Dallas, Texas. He participated in the Grow Your Farm and Ranch Business session. Clift will also be a presenter at the Century 21 Global Conference on March 12, 2013 covering Farmland: The Hottest Commodity in the World and The Value of the Accredited Land Consultant Designation.

Congratulations to Beth Cristina, ALC, of Stirling Properties in New Orleans, Louisiana, for her 2013 election to the Louisiana Association REALTORS® board as the Secretary/Treasurer. Cristina has over thirty years of successful experience in commercial real estate sales, leasing, development and investments.

Bob Turner, ALC, will be a presenter from the RLI Speaker Center at the Century 21 Global Conference on March 12, 2013. Turner will conduct the following two sessions: New Home Sales: Working with A Builder and Land Development for New Home Subdivisions.

Turner is the Chair of the 2013 National Land Conference in Las Vegas, Nevada, on March 18-20, 2013. He will emcee the event and be the ALC Moderator of an armchair chat with esteemed economists (see page 20).

Dan Hatfield, ALC, 2010 RLI National President, Vice President of Texas Homestead Real Estate, was inducted as the 2013 Vice Chair of the Texas Association of REALTORS® (TAR). He served as chairman on the 2012 Land Use, Property Rights, and Environment Committee with NAR.

Myers Jackson, of United Country Real Estate and Auction Services in Tallahassee, Florida, is the 2013 President of the Georgia Auctioneers Association.

Myers will be leading a round table at the 2013 National Land Conference in Las Vegas, on Wednesday, March 20, 2013, on “Online Only Auctions".

James Logan, ALC, of Mossy Oak Properties-Logan Land Company in Eutaw, Alabama, was the national Mossy Oaks Properties “Agent of the Year” award winner. The Agent of the Year award is given annually to the salesperson that has the highest yearly sales volume in the Mossy Oak Properties network.

John A. McAllister, Jr., ALC, owner of John McAllister Realty Consulting, LLC, was appointed to serve on The National Association of REALTORS® (NAR) Meeting and Conference Committee. NAR’s Meeting and Conference Committee oversees the planning and execution of the 2013 Midyear Meeting in Washington, DC and the 2013 Annual Conference and Trade Show in San Francisco, CA.

Terra Firma

Winter 2013 13

Member News Norma Nisbet, ALC, Vista Properties and Investments, LLC, was the recipient of the 2012 Meeks Distinguished Service Award which recognizes an ALC who demonstrates long-term commitment and service to fellow Institute members, the land profession, and the community. Nisbet has been a Board Member for the South County Chamber of Commerce and the Missouri Chamber of Commerce. She chaired the Missouri REALTOR® Association Economic Development Summit and serves on the Missouri and St. Louis Association REALTOR® Boards. She is involved with Zonta International and was the 2004 RLI National President.

Danny Smith, ALC, of Smith & Smith Realty, Wildwood, FL, is the 2012 recipient of the Land REALTOR® of the Year Award. This award recognizes members of RLI for their effort and work expended in the interest of their fellow Institute members, their profession, and their communities. Smith serves on the Florida REALTORS® Board Executive Committee; the Florida REALTORS® Commercial Alliance Committee as the 2013 Vice Chair; the Florida REALTORS® Land Use, Property Rights, and Sustainable Development Committee; and the REALTORS® Association of Lake and Sumter Counties as the President of the Board of Directors.

Lee Vermeer, ALC, Vice President of Real Estate Operations for Farmers National, retired as VP of Real Estate Operations at the end of January, 2013.

Vermeer has had a distinguished career to date of 31 years with Farmers National. He will continue with Farmers National as a sales associate and will work with investor clients. He is a past member of the RLI Board of Directors.

Derrick Volchoff, ALC, was named the new Vice President of Real Estate Operations at Farmers National Company. Formerly of Cabelas Trophy Properties, Volchoff is an active participant in RLI and an advocate for education for professionals in the land business. He is on the RLI Education Committee and is the RLI Representative to the NAR Resort and Second Home Committee.

Be a Champion Members who spread the word about RLI are true winners! Each quarter, RLI recognizes the efforts current members make to recruit new land professionals to this one-of-a-kind organization.

During the first quarter of 2013, join in the effort: Win and be a Champion Today! : •

Bring in 5 new members and receive a free registration to LAND: THE REAL DEAL National Land Conference

•

Bring in 3 new members and receive a complimentary night at the Flamingo Hotel during the Land Conference

•

Each time you champion a new member, your name is placed into a quarterly drawing for $100 gift card.

*This campaign will run until March 17, 2013, prior to the 2013 National Land Conference in Las Vegas on March 18-20. In order to earn credit for recruiting a new member, that new member must write your name on their membership form in the “referred by” section and join between December 1, 2012 and March 17, 2013.

Congratulations to RLI members Mac Boyd, ALC, of Farmers National Company in Arcola, Illinois, and Glenn Green of Paul Green & Associates Inc., in Natchez, Mississippi for recruiting new members during the third and fourth quarters of 2012. Each won $100 for spreading the word on REALTORS® Land Institute.

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Lifetime ALCs

Life Time Membership Achieved Since September 2012 Life Members have held Candidate, Accredited, or Associate Membership in the RLI organization for at least 20 years, maintain a category of membership in the National Association of REALTORS®, and continue to be active in the real estate business. Emeritus members have the same criteria but are retired from business. Congratulations to the below life time and emeritus members: Carl Maier, ALC – Emeritus Beaverton, Oregon

Hazel Forbus, ALC Tucson, AZ

James Maxwell, ALC Ridgefield, WA

Larry “Tom” Lund, ALC – Emeritus Hamilton, Montana

Carol Hebel, ALC Louisville, KY

Richard Miller Midland, MI

Buddy Almy, ALC Granbury, TX

Patricia Hoffman, ALC Red Lodge, MT

Gooley Orr, ALC Kerens, TX

Marvin Branch, ALC Santa Barbara, CA

Donald Johnson, ALC Nampa, ID

Virgie Orr, ALC Kerens, TX

Jack Brown, ALC La Grange, GA

Robert Jones, ALC Twin Falls, ID

George Schneider, ALC Fresno, CA

Arland Brown, ALC Grapeland, TX

Klaus Knoll, ALC Byron Center, MI

O. Joy Temme, ALC Tucson, AZ

Joan Dodd, ALC Phoenix, AZ

Keith Lineback, ALC South Bend, IN

Richard Wood, ALC Pittsburg, KS

Terra Firma

Winter 2013 15

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Why I’m Optimistic About 2013 Mark G. Dotzour, PhD Chief Economist and Director of Research Texas A&M University’s Real Estate Center

As I write this article at the end of 2012, a lot of uncertainty still clouds the horizon for the American economy in 2013 and beyond. Has Congress fixed Fannie Mae and Freddie Mac? Not even close. Have they and the President developed a tax policy that business owners and investors can count on? Nope. Do we have an immigration policy that encourages smart people from all over the world to move to the US? Not a chance.

Have the bureaucrats in Washington written all the hundreds of new bank regulations required by Dodd-Frank? They are way past due. Does our federal government support American energy independence? Don’t know.

With all this uncertainty, one thing is certain. A lot of investors all over the world fear the prospects of higher inflation in coming years. They are voting with their dollars. People buy gold at $1,700 per ounce because they fear Congress and the President will never have the courage to tell the American people that the tooth fairy has died. Nobody has the courage to tell the American voters that they need to expect less from the government in the future. Social security, Medicare, Medicaid and Welfare programs will have to be reduced. So will government spending on everything else. Taxes will have to be increased as well, if we want to have a chance of preserving the solvency of the US government.

Here are three more reasons that I’m optimistic about 2013 and beyond.

Reason three: Americans do not tolerate deferred gratification. Many families have postponed important decisions for nearly five years since the financial system collapsed in 2007. Many have postponed retiring.

Others have postponed getting married or having children. Retirees have postponed purchasing a second home near the kids. After five years of postponing decisions, there is a lot of pent up demand. As an example, the average age of autos in America is at a record high of around 11 years old.

We don’t like driving old cars, walking barefoot on old carpet or using old computers and cell phones.

I heard a speaker recently encourage their membership to remain politically active because “history is being bent.” I agree that history is being bent. I guess this is another way to say that we are moving to a “new normal.”

Here is where the “bending” is becoming obvious.

Two generations of Americans, the Bob Hope group and the Boomers, are waking up to find that the long held belief that you can work until age 65 and then retire and live off of a pension and Social Security is gradually vaporizing before their eyes. The federal government cannot afford to pay for benefits they have promised to the voters. States and local governments can’t either. Their pension fund and medical care liabilities are eating them alive. Private companies have the same problem.

I used to joke about how General Motors had become a health care plan and pension fund that built a few cars on the side; and that they would ultimately have to take bankruptcy. Well, now the federal government is in exactly the same predicament.

Here are the first two reasons for my optimism going forward into 2013.

Reason one: The American voters are finally starting to hear the truth that Social Security and Medicare and essentially the federal government are on the road to insolvency. My theory is that once Americans know the truth, they will take action to preserve the economic future of the country.

Reason two: Younger Americans do not have the same belief in the promise of Social Security and other government subsidies to retirees.

Almost every college student that I talk to thinks they will get nothing out of Social Security. They are not being brought up in the indoctrination that the government will take care of you from cradle to grave. So each decade that goes by, less and less of the American electorate will fell the sense that they have a “right” to government sponsored health care and retirement.

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Reason four: American families have increased capacity to buy things again. The percentage of our income that goes to pay back loans for stuff we already have purchased is plummeting from a historic high of nearly 14 percent down to a recent reading near 10.5 percent. This is huge for economic growth prospects in coming years. “Demand” means you want to have something. “Effective demand” means you want something and you have the ability to pay for it. Effective demand drives economic growth.

Reason five: The real estate sector of the economy has been a “headwind” against economic growth in the U.S. Well the wind is changing direction.

We will look back on 2012 as the year when the housing market turned the corner. Home sales volume is picking up dramatically. Prices are increasing in many parts of the country and homebuilding is starting to increase again.

Housing construction is a vital part of economic recovery. The multiplier effect is huge, creating jobs for homebuilders, contractors, building suppliers, concrete firms, retailers, title insurance companies and numerous other industries that provide goods and services to homebuilders.

These five reasons for optimism are potent. Even more important, these trends are going to happen even if Congress and the President continue mismanage our government and fail to create a positive environment for business. If some miracle happens and they actually do something that encourages business owners and investors, that will be an unexpected bonus.

Feature About the Author: Dr. Mark G. Dotzour is the Chief Economist and Director of Research for the Real Estate Center atTexasA&MUniversity in College Station, Texas. As Chief Economist, he is currently doing market research to monitor how global and national trends are likely to impact residential and commercial real estate markets. His research findings and comments have been published in the Wall Street Journal, Money Magazine, USA Today and Business Week. Dr. Dotzour is a presenter at the 2013 National Land Conference in Las Vegas, Nevada, on March 18-20.

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Winter 2013 17

Feature

Farmland Auctions Becoming More Common—Even for Small Farms Murray R. Wise, ALC CEO, Murray Wise Associates, LLC / Murray Wise Capital LLC “When you’re ready to retire, I want to buy your farm.”

That’s something practically every farmer has heard from a neighbor or even a relative. And if that farmer is your client, it’s tempting to just handle the sale and pocket an easy commission.

But in a time of rapidly rising farmland prices, it may not be clear how much that friend or relative should pay. In any given year, the amount of farmland sold is notoriously small—1 percent or less, per year in many of the better farming areas. That means there may be few true “comps” on which to base a meaningful appraisal.

So what are your choices? Basing the sales price based on the sale of a farm eight months ago, three counties over? With farmland prices going up 20 percent per year or more, as they have for several years, such comps could be hopelessly out of date or invalid due to differences between the two properties.

It’s not hard to sell a farm these days, because demand is strong. But getting the full value out of the farm in a rapidly rising market is more of a challenge.

An increasingly popular solution is to sell the property at auction. That neighbor or relative can still buy the property, but the competition of the auction will ensure that he or she buys it at a fair price. Such a scenario is actually pretty common. At Murray Wise Associates, we had two examples in 2012 alone in which a family member had wanted to buy the property but was outbid once other prospective buyers got involved. It means, of course, that it’s important to evaluate the seller’s objectives. If it’s important to keep a farm in the family, an auction probably isn’t a good idea, because you won’t know who the buyer will be. It could be the seller’s best friend or somebody he’s never heard of.

Similarly, if a farmer wants to sell his farm and lease it back to continue farming, he probably would be better off with a private treaty sale.

In the past, auctions tended to be used more for large farms, but today, they’re being used for agricultural properties of all sizes. A major reason for this is that higher farmland prices have changed the math—making auctions cost-effective even for small farms. Let’s say you have a client who owns a 150-acre farm in a good location. A few years ago, that might have been worth $3,000 per acre—a $450,000 sale. Today, that same farm might be expected to sell for $10,000 or more, which would make it a sale of $1.5 million.

And that means the stakes are higher than they were just a couple of years ago. An auction—especially one that promotes the property beyond the obvious buyers—is the single most reliable way to be sure you’re getting a fair and full market price.

So let’s say you and your seller have decided on an auction. Now what?

Finding the right auction company Nothing is more important than selecting the best auction company for the job. And the “best” company is the one best suited for the task.

As with everything else, there are tradeoffs. For example, a small, local auction company may know the market better, whereas a bigger one

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might be in a better position to attract investors and other bidders from outside the area.

The growth in land auctions has attracted a lot of newcomers who may know a lot about other assets, but not much about farmland. Some real estate brokers have branched out into the land auction business to capitalize on the opportunities there. Meanwhile, auctioneers who have historically sold antiques, vehicles and other assets are promoting farmland auctions. In either case, there are some very good professionals who may do an excellent job at marketing a farm. But why take the chance?

I recommend you interview several different auction companies, of different sizes. Pay special attention to their success rate. What percentage of their properties actually get sold and closed? If an auctioneer dodges this question, that’s an unhealthy sign. Ask past customers about specifics, such as how well the auctioneer kept them informed along the way.

“When you’re ready to retire, I want to buy your farm.”

And of course, it’s preferable to look for an auctioneer that’s comfortable working with REALTORS®. The network of real estate brokers and agents in a community is a powerful tool, even with an auction. That’s why my firm, Murray Wise Associates, makes it a practice to work closely and partner with brokers whenever possible.

One word of caution: Don’t shop “price” alone. There’s no point in paying a low commission if you don’t get the land sold—or if you end up selling at a price that doesn’t reflect the true market value. Remember: An auction will generally result in a sale at the best possible market value, but only if the qualified bidders are there. An auctioneer who’s working for a rock-bottom commission may not be able to put in the time and effort that a property deserves. This is a matter of simple economics! You don’t want your client’s precious asset to be part of someone’s volume business. Nor do you want an auctioneer who’s so desperate he’ll take your auction at a loss. As with anything else, common sense is your best guide.

Secrets to a successful farmland auction Offer the land in multiple tracts, where feasible. If a farm can be offered in more than one tract, you bring more bidders into play. This is easy to see on a large property—let’s say, 800 acres or more—because there may be a limited number of people with the resources to buy that much land, or with the capacity farm it. But let’s say you offer the land in tracts of 100 acres, or even 50. Now, you suddenly have a much wider pool of prospective buyers! It’s worth noting that in auctions conducted for Murray Wise Associates, the average buyer purchases about 80 acres.

Feature Think beyond the local community. As we have already seen, a major benefit of an auction is its ability to “cast a wider net” and reach prospective buyers outside the community. Farmland has become established as an excellent investment, and investors range from large pension funds to local individuals. While operating farmers are buying three-fourths of the farmland selling at auctions these days, investors are still an important part of your universe of prospective bidders.

Remember, also, that a growing number of farmers are investors as well.

Many will work their farm while buying additional farms—sometimes over a surprisingly wide geographic area—and leasing them out.

Take your auctioneer’s advice. As with any professional, you’ll get the best results if you take his or her advice. Assuming you have chosen well, your auctioneer will be equipped to handle every stage of the process, including signs, brochures, direct mail, open houses, Internet marketing, advertising and auction day arrangements. Because he’s done this many times, he generally knows what is most likely to work for a given property. Trust him.

Avoiding the temptations Selling at auction isn’t without its traps, especially for those who lack experience. Here are some of the most common I see.

Relying on the land to “sell itself.” The bull market in farmland can lull some sellers—and auctioneers—into expecting good results without really communicating and marketing the property’s features. Farms are not generic!! Prospective buyers need to know about soil type and drainage, just for starters. They want to know how the property has been managed, what crops have been grown, and what it has yielded.

Make sure prospective buyers understand any benefits of the land’s location. If it’s close to river or rail transportation, that can reduce the cost of getting grain to market and make the property more profitable.

If it is currently owned by an investor, what has it been renting for?

What are cash rents on surrounding properties?

Skimping on marketing costs. One of the few certainties is that people won’t show up for an auction they don’t know about. Reaching prospective buyers, informing them about the farm and motivating them to show up and bid costs some money. By all means, you will want to review the elements of the campaign and ask tough questions about what target audiences they are intended to reach. But don’t cut it back to the point where your campaign doesn’t get the job done.

Neglecting the ground work. Some people think you can just put a property up for sale, buy a bunch of ads, mail brochures and wait for the phone to ring. If only it were that simple! While much of this article has dealt with the auction’s ability to reach buyers from a broader area, you also want to make sure the auctioneer does everything possible to engage the local community. Have a frank discussion with your auctioneer about this.

Is an auction right for your client?

So is an auction the best choice for your seller? Ultimately, only you and the seller can determine that. However, by understanding the big picture, you can provide the guidance he or she needs.

About the author: Murray Wise, ALC, is the CEO of Murray Wise Associates, LLC—a leading national agricultural real estate marketing and auction company headquartered in Champaign, Illinois, with the land brokerage and farm management office located in Clarion Iowa. He is also the CEO of Murray Wise Capital LLC, a financial advisory firm for the agribusiness industry. Wise may be reached at 217.398.6400.

&

A P S  RLI Uniting affluent buyers with distinguished land professionals since 1992

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1/4/13 10:25:01 Winter 2013 AM19

www.rliland.co Experience the “Real Deal” with the best in the land business at the 2013 National Land Conference at the Flamingo in Las Vegas, Nevada.

The Flamingo Las Vegas, March 18-20

Tuesday, March 19th

Monday, March 18th

www.rliland.com

www.rliland.com Pre-Conference Committee Meetings

8:00 AM – 8:45 AM

9:00 AM – 9:45 AM

RLI Chapter Presidents Council RLI Government Affairs Committee RLI ALC Designation Committee

RLI Education Committee RLI Chapter Development Task Force RLI Membership Development & Retention Task Force

(concurrent sessions)

7:00 AM Conference Registration and Exhibits Open 7:00 AM – 8:00 AM Welcome Continental Breakfast 8:00 AM – 8:15 AM Conference Welcome 8:15 AM – 10:30 AM

Current Land Values: Are They Sustainable

2013 and Beyond Economic Outlook

Moderator: Bob Turner, ALC

Nickels, Dimes, and Economics

Speaker: Dr. Mark Dotzour, Chief Economist and Director of Research – Texas A&M University

The New Administration’s Impact on the Economy

Speaker: KC Conway, CRE, MAI, Executive Managing Director of Real Estate Analytics – Colliers International

7:00 AM – 8:30 AM

Wednesday, March 20th

(concurrent sessions)

Hot Topic Breakfast Game Tables Appraising Land Auction Successes Counseling – Getting to the Bottom of It Creating a Successful ALC Application Deferred Sales Trust Department of Interior: Multi-Species Conservation Partnerships Developing an International Land Practice Land Ops in Canada Mapping Mineral, Oil, Gas, Surface Rights Online Only Auctions Ranch and Recreation Market Conditions The State of US Farmland Values Social Media Marketing Technology and the Land Business Today’s Transitional Opportunities

Speaker: Dr. Brent Gloy , Director of the Center for Commercial Agriculture, Associate Professor at the Department of Agricultural Economics, and Associate Director of the Center for Food and Agricultural Business - Purdue University

10:45 AM – 11:00 AM Economists & ALC Armchair Chat 11:00 AM – 12:00 NOON

House Rules: Government and Land Affairs

DC Update

Speaker: Russell Riggs, Government Affairs Liaison – National Association of REALTORS®

Pre-Conference Events

2:00 PM – 5:15 PM Registration Mingle with Sponsor Partners

5:30 PM – 6:15 PM Deal the Cards Speed Networking 6:30 PM – 7:30 PM All In! Conference Welcome Reception

12:15 PM – 1:30 PM

4:15 PM – 4:50 PM

10:00 AM – 12:00 NOON RLI Board of Directors

High Roller Awards & ALC Induction Luncheon Special Guest: Steve Brown, NAR President Elect

1:45 PM – 4:00 PM

Know the Rules of the Game: About the Earth/Land

Climate Change Impact on Land

Speaker: Dr. Peter Backlund, Director of NCAR External Relations and the Integrated Science Program - NCAR

Wind and Solar Leases: What Land Professionals Need to Know Speaker: Kimberly Diamond, Esq. – Lowenstein Sandler

(concurrent sessions)

Economics of Ranch and Recreation Speaker: I Ling Thompson, Vice President of Communications – Outdoor Industry Association

PR and the Land Business

Speaker: Randy Hertz, ALC - Hertz Farm Management, Inc.

4:55 PM – 5:30 PM

(concurrent sessions)

Auctions

Speakers: Charles Wingert, ALC, 2013 RLI President – Wingert Realty & Land Services; George Clift, ALC, 2013 RLI President-Elect – Clift Land Brokers

Vineyards and Orchards

Timberland—Who is Buying?

Surface and Mineral Conflicts During Co-Development Speaker: Randy J. Feuerstein, Esq., Director, Dufford & Brown

4:15 PM – 5:30 PM

6:30 PM – 7:45 PM

8:45 AM – 9:30 AM

11:15 AM – 12:15 PM

How to Turn a Sales No Into a Sales Yes

SPACESHIPONE – A SPACE ODDITY

Post-conference Activities 2:00 PM Hoover Dam Group Tour (separate registration) 6:30 PM Exclusive ALC Round-Up Informal networking gathering for ALCs Companion Tour 10:00 AM – 4:00 PM on Tuesday, March 19, 2013 Pahrump Valley Winery Tour, Tasting, and Lunch (separate registration) Limited Space Available

Win with Strategies for Success

Speaker: Frank Belzer, Vice President Sales Strategy, Kurlan & Associates, Inc.

9:30 AM – 11:00 AM

Exploring New Opportunities

Agricultural Investing, A Global Approach

Speaker: Randall E. Pope, President & CEO – Westchester Agriculture Asset Management

Delaware Statutory Trusts

Speaker: Joe Michaletz, President & CIO - Discipline Advisors, Inc.

Speaker: Tony Correia, ARA, MRICS, Founder – Correia- Xavier, Inc.

Odds are In Your Favor: The Market Place, Trends and Opportunities

Closing Keynote Presentation

Speaker: Brian Binnie, former United States Navy officer and one of the test pilots for SpaceShipOne, the experimental spaceplane developed by Scaled Composites.

12:15 PM – 12:30 PM

Bringing it all Together Chuck Wingert, ALC, 2013 RLI National President George Clift, ALC, 2013 RLI President Elect

12:30 PM

Time to Fold: Conference Adjourns

Headquarters Hotel

Flamingo • 3555 S. Las Vegas Blvd. • Las Vegas, NV 89109 (Conference rate upon availability)

For reservations call 888-373-9855 and ask for the REALTORS® Land Institute (Code: SFRLI3) conference rate.

Speaker: Samuel J. Radcliffe, Vice President- Prentiss & Carlisle

Ante Up at the Cowboy Auction & Reception

Sponsors

Thank You to our Valued Partners REALTORS速 Land Institute extends special recognition to our partners for their commitment to the organization and to the business of land.

Platinum Partner

Platinum Conference Partner

Gold Partners

Education Programming Contributor

Conference Partners

Ray Brownfield, ALC Terra Firma

Winter 2013 21

Newest ALCs

Congratulations to the Newest Accredited Land Consultant Designees of the Realtors® Land Institute.

Jesse“Butch” Armistead, ALC Murray Company REALTORS® Griffin, GA 770-227-8661 butch@ murraycompanyrealtors.com Armistead is a native of the Middle Georgia area and is a graduate of the University of Georgia.

He has been active in the Real Estate business for the last 10 years. Armistead is involved in the cattle business and has enjoyed selling income producing properties .Armistead is an Associate Broker with Murray Company REALTORS®.

Max Brand, ALC Max Brand Realty Navasota, TX 936-668-1528 emaxbrand@gmail.com Brand is the owner/broker of Max Brand Realty, a member of the Houston Association of REALTORS®, and serves on the Board as a Director with Bryan College Station Region of REALTORS®MLS. Edgar Gaddis, ALC United Country/Gaddis Realty Coushatta, LA 318-932-3333 EdgarGaddis@gmail.com Gaddis is the only REALTOR® in Coushatta, LA, a small town of 2,300 people and located in the piney woods of north Louisiana—right in the middle of the Natural Gas, Haynesville Shale Field and along the Red River. Twelve years into his third career as a real estate agent, Gaddis is the most seasoned gentleman to earn the ALC Designation.

Virgil George, ALC Rocking X Land Company, Ltd. Burlington, CO 719-346-5420 rxl@centurytel.net In 2005, George founded Rocking X Land Company, Ltd., and today remains committed to buyers and sellers alike, as the employing broker. He is a member of Colorado Association of REALTORS®.

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Cody Harris, ALC United Country Texas Land & Ranch Palestine, TX 903-723-1117 cody@unitedtexasland.com Harris is one of the youngest ALC’s in the nation.

At age 29, he has made a career representing Texas oil barons and professional athletes in the purchase and sale of premier ranches across Texas. Cody is a graduate of Texas A&M University.

Linda Pillard, ALC Bella Vie Real Estate Brooks, CA 530-713-6121 l.pillard@gmail.com Pillard has lived in Yolo County, CA since 1988. After working in the environmental field and raising her sons, she became a REALTOR® specializing in country properties. With more than 5 years of experience in land sales, Pillard currently lives on a 70 acre working ranch.

Patricia Purvis, ALC Texas Land Sales, LLC Fort Worth, TX 817-682-4333 patty@pattypurvis.com Purvis is a native of central Texas and has been active in rural real estate marketing and sales since 1997. Purvis is a graduate of the Texas Christian University Ranch Management Program and has a lifetime of hands-on experience with land and livestock.

She is the owner/broker of Texas Land Sales LLC. Russ Russell, ALC Russ Russell Commercial Real Estate Huntsville, AL russ@russrussell.com In business for 25 years, Russell has a large number of commercial listings in North Alabama. He earned his real estate degree from the University of Alabama and is currently the only broker in the State of Alabama to hold CCIM, SIOR, CEA and ALC designations.

Ryan Schroeter, ALC Land Pros Realty Gretna, NE 402-932-5499 rrs@landpros.com Schroeter is an Associate with Land Pros Realty specializing in farm, ranch and recreational properties in Nebraska and Iowa. He is also working toward getting his certified general appraisal license.

Jeramy Stephens, ALC Mossy Oak Properties of Stuttgart Stuttgart, AR 870-672-4820 jstephens@ mossyoakproperties.com Stephens is the Principal Broker and Owner of Mossy Oak Properties of Stuttgart Land & Auction Company. He specializes in row crop farmland and recreational hunting land throughout Arkansas. He has been in the real estate business for 10 years and was a Vice President & Branch Manager in the Farm Credit System.

Luke Worrell, ALC Worrell-Leka Land Services Jacksonville, IL 217-245-1618 lukew@worrell-leka.com Worrell joined the family business in 2007. Since then, he has become a licensed broker, Accredited Farm Manager (AFM) and Accredited Land Consultant (ALC). He specializes in agricultural real estate and farm management in central Illinois.

New Candidate Members

Welcome New Members/ALC Candidates They are more than real estate people…they are land people!

Jennifer Bhatt Equity Real Estate Toquerville, UT jenbhatt@gmail.com

John Dugdale Burford & Ryburn Dallas, TX jdugdale@brlaw.com

Bradley Miller My Realty Company Douglas, WY briley@myrealty.org

Taruna Lombeshkon Keller Williams Boca Raton, FL tslomb@tslintl.com

Daran Becker Peoples Company Indianola, IA daran@peoplescompany.com

Patricia Dunaway Coldwell Banker Hockley, TX patdunawaybroker@gmail.com

Robb Nelson Live Water Properties Windsor, CO robb@huntersdream.org

Chia Valdez Saratoga Land Sales, LLC Saratoga, WY chia@saratogalandsales.com

Brandon Bird Munn Bro’s Hood Canal Properties Quilcene, WA birdfamily2002@comcast.net

Terry Garmon United Country Heartland Realty & Auction Bowling Green, KY Tagarmon55@aol.com

Jeffrey Post First Colorado Land Office Salida, CO post@firstcolorado.com

Jim Van Sickle Coldwell Banker Select Sapulpa, OK jvansickle@cbtulsa.com

Michael Pottebaum Realty Executives of Wichita Wichita, KS mjpottebaum@gmail.com

Candy Vaughan All-American Realty Homes & Land Charleston, IL candy@consolidated.net

Frank Bowman Frank Bowman Pleasant Plains, IL frank@bowman-realestate.com Jill Carbonelli Prudential Commercial Real Estate FL Land O Lakes, FL jcarbonelli@prucomm.com Kyle Cato Carter Group Real Estate Jesup, GA kyle@cartergrouprealestate.com Phyllis Clary Keller Williams Realty Lake Conroe Lake Conroe, TX phyllisclary@gmail.com Eric Cromer Hayden Outdoors Pratt, KS cromer@haydenoutdoors.com Tom Damon Oregon Opportunities Medford, OR tdamon@orop.com Scott Doggett Burford & Ryburn Dallas, TX sdoggett@brlaw.com Shane Drawe Jim Maloof Metamora, IL drawe@mtco.com

Kurt Gremley Landmark Tampa, FL kurtgremley@yahoo.com Deborah Henderson Realty Of Maine, Maine Recreational Realty Group Bangor, ME dhenderson@midmaine.com Kurt Hollenberg United Country Missouri Land & Home Columbia, MO kurth@missourilandandhome.com James Keeth Mossy Oaks Properties Shreveport, LA jkeeth@mossyoakproperties.com Austin Maas Ruhl & Ruhl Muscatine, IA austinmaas@ruhlhomes.com Peter McPhail United Country McPhail Realty Lincoln, ME peter@mcphailrealty.com Philip McPhail United Country McPhail Realty Lincoln, ME phil2@mcphailrealty.com

Glenn Preuss Compass Investments Gonzales, TX Glenn@glennpreuss.com Joseph Rapp Legacy Ag Group, LLC Austin, TX jwrapp@legacyaggroup.com Michelle Salyer Century 21 Judge Fite Co. Weatherford, TX michelle@michellesalyer.com Teri Shaifer Paul Green & Associates Natchez, MS nikkishaifer@gmail.com Ken Shebib Colliers International Inc. Edmonton, AB ken.shebib@colliers.com Dawn Shipman Jim Maloof REALTOR® Pekin, IL dshipman@maloofrealty.com

Denise Weinmann Rvg Milner / Carpenter DeKalb, IL dweinmann@rvgcommercial.com Stephen Welliver Wellson Group, Inc. Grand Rapids, MN swelliver@wellsongroup.com Debra Windish Maloof Realty Edwards, IL debbiewindish@yahoo.com Beth Young Tuttland Company Birmingham, AL beth@tuttland.com Daphne Zollinger Daphne Real Estate Krum, TX daphne@daphnerealestate.net

Chuck Simpson Village Real Estate Services Franklin Office Franklin, TN chuck.simpson08@comcast.net

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Education About the ALC Advanced Goal Statement: The Accredited Land Consultant (ALC) designation is an indication of a professional who is the most accomplished, the most experienced, and the most knowledgeable land expert. Staying current in trends and information is inherent in being the best in the business. The ALC Advanced tier is designed to offer opportunities to ALCs to stay current in the area of land to assist clients through up-to-date knowledge.

Program: ALC designees have the option to participate in 30 hours of continuing education within a three-year period. If fulfilled, the participant would become an ALC Advanced for a three-year period. The following counts toward these required hours. All of the below must be from options available through the RLI: • • • • • • • • •

One-day courses: 8 contact hours Two-day courses: 16 contact hours Three-day courses: 24 contact hours Annual Land Conference: 16 contact hours ALC-to-ALC TeleConference Facilitation: 1 hour ALC-to-ALC TeleConference: 1 hour Web Seminar Development and Facilitation: 30 hours Web Seminar Attendance: 1 contact hour Comprehensive Course Updates: 15 hours

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• Minor Course Updates: Based on updates submitted • New Course Development: 60 hours per completed course • Short Course Instruction: 5 hours per session (maximum of ten hours per year) • Leadership: 30 hours a year • Board of Directors: 2 hours per meeting attended • Committee Chairs: 10 hours per year • Committee Vice Chairs: 10 hours per year • Committee Members: 1 hour per meeting attended • Other RLI-related activities: Must be submitted to the RLI Education Director for approval at least sixty days prior to submitting the three-year report.

Administration: ALCs will submit their thirty hours with proof of attendance and/or completion of the activities once a year to RLI. These will be collected between January 2-January 10 on the year following the due date (i.e. For 2013, the records would need to be sent to National for credit between January 2-January 10 of 2014).

If an ALC Advanced designee desires to keep that designation tier, he/ she must submit proof of having fulfilled the requirements every three years (i.e. If an ALC Advanced, submits the fulfilled requirements in January 2013, he/she would need to reapply in January of 2017 with professional development taking place in 2013-1016).

Education LANDU Education Week Plus The 2013 LANDU Education Week Plus is more than a week—it’s ten days of best-in-class education!

From July 14-23, Complete one to six courses during the 2013 LANDU Week Plus taking place in Chicago, at the historic REALTORS® Building in the heart of Chicago.

The three required courses and three elective courses for earning the Accredited Land Consultant (ALC) designation are scheduled.

These total 104 hours, the total required hours needed for the education portion of the ALC Application! This is also a unique opportunity to earn hours toward the ALC Advanced.

PLUS...the Essentials of Negotiations course is being offered as a traditional course for the first time!

See the full schedule for LANDU Education Week Plus and make your plans to increase your knowledge which will increase your productivity!

P.S. If you have time...take in Second City or a baseball game with another student!

Something for Everyone…Including You Whether you are working toward earning your ALC, are an ALC, working toward the ALC Advanced, or simply want to gain knowledge in certain areas, LANDU has “something for everyone.” Five new courses developed and instructed by experts in their fields have been added to the seasoned courses—bringing the total to sixteen—with more to be added in 2014!

“Essentials of Negotiation provided me with an insight into negotiation that I had not seen before. I was able to use the philosophy of EON this morning to get seller's POA to rethink his strategy and made headway in keeping a purchase agreement active and headed to closing.”

– Terry Pauling, ALC Candidate, Iowa

LANDU Course Choices 2013 National Land Conference Course Option - (16 contact hours) NEW Advanced Tax Deferred 1031 Exchanges for Land Professionals - (8 contact hours)

Land Development - (16 contact hours)

Agricultural Land Brokerage and Marketing - (16 contact hours) NEW The Basics of Eminent Domain Law for Real Estate Professionals - (8 contact hours)

Practical Navigation for Land Professionals - (16 contact hours)

Essentials of Negotiations - (16 contact hours)

Land Investment Analysis* - (24 contact hours) NEW Legal Aspects of Real Estate - (16 hours) Site Selection - (16 contact hours) Tax Deferred 1031 Exchanges* - (16 contact hours)

NEW Ethics in Real Estate and Business - (16 hours)

Tax Implications of Real Estate - (16 contact hours)

Land 101: Fundamentals of Land Brokerage* - (16 contact hours) New Land: Conservation and an Environmental Perspective on Redevelopment - (8 contact hours)

Site Selection - (16 contact hours)

Timberland - (16 contact hours)

*These courses count as requirements toward earning the prestigious Accredited Land Consultant Designation. 104 total course contact hours are required toward earning the designation.

Note: These courses count toward reaching the 30 hours required for earning the ALC Advanced tier.

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Education 2013 Course Schedule Below is the Current Schedule for upcoming courses. These are subject to changes and additions:

NEW! Advanced Tax Deferred 1031 Exchanges for Land Professionals July 1-12, 2013: Hybrid Course (8 contact hours) Register online or call RLI National at 800.441.5263

NEW! The Basics of Eminent Domain Law

June 6-17, 2013: HybridCourse (8 contact hours) Register online or call RLI National at 800.441.5263

Essentials of Negotiation

September 3- 17, 2013: Online Course (16 contact hours) Register online or call RLI National at 800.441.5263

NEW! Ethics in Real Estate

August 5-30, 2013: Online Course (16 contact hours) Register online or call RLI National at 800.441.5263

Land 101: Fundamentals of Land Brokerage Independent Study Opportunities available throughout the year at learninglibrary.com May 15-16, 2013: Lakeland, FL(16 contact hours) Contact Lisa at lisa@gtar.net or 813-879-7010

NEW! Land: Conservation and an Environmental Perspective on Redevelopment May 6-17, 2013: Hybrid Course (8 contact hours) Register online or call RLI National at 800.441.5263

Land Investment Analysis

April 1-3, 2013: Surf City, NC (24 contact hours) Carolina’s RLI Chapter Register at http://ncrli.com/Events.html or contact 336-854-5868 or aboykin@grra.org

November 4 - 29, 2013: Hybrid Course (24 contact hours) Register online or call RLI National at 800.441.5263 October 9-12, 2013: St. Augustine, FL (24 contact hours) Contact Lisa at lisa@gtar.net or 813-879-7010

NEW! Legal Aspects of Real Estate

May 6-31, 2013: Online Course (16 contact hours) Register online or call RLI National at 800.441.5263 November 2013: Online Course (16 contact hours) Register online or call RLI National at 800.441.5263

Site Selection

August 5-30, 2013: Hybrid Course (16 contact hours) Register online or call RLI National at 800.441.5263

Tax Implications of Real Estate

June 3-28: Hybrid Course (16 contact hours) Register online or call RLI National at 800.441.5263

Tax Deferred 1031 Exchanges

April 4-5, 2013: Surf City, NC (16 contact hours) Carolina’s RLI Chapter Register at http://ncrli.com/Events.html or contact 336-854-5868 or aboykin@grra.org

Timberland

September 3 - 27, 2013: Hybrid Course (16 contact hours) Register online or call RLI National at 800.441.5263

Introducing the AUCTION ALC Fast Track

ALC-to-ALC TeleConference

The RLI Education and ALC Designation Committees along with the Board of Directors have approved an ALC Fast Track Program for those who have earned the CAI (Certified Auctioneer Institute) and are in good standing.

Auction candidates must fulfill all of the ALC requirements including the following: They must substantiate their participation and portion of commission in at least 5 closed land auctions totaling $10,000,000, or a minimum of 25 separate auction events of which no more than 80 percent involve residential lot sales, or a comparable level of volume dependent upon the land specialty and type(s) of real estate services provided.

On Tuesday, February 12 at 10-10:45 a.m. CT the RLI Education Committee presented a free teleconference exclusively for ALCs titled 2013 Land Issues and the Government. Russell Riggs, Senior Regulatory Representative in the Government Affairs Division for the National Association of REALTORS® addressed the key issues and fielded questions. Stay tuned for two more ALC-to-ALC TeleConferences to be announced.

Other Fast Track Programs apply to the following designations: CRE, ARA, AFM, CCIM, RPRA, AAC, MAI. For additional information about earning the ALC designation through the fast track programs, call 18.800.441.5263 or write to rli@realtors.org.

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Hot Topic Web Seminar by Dr. Mark Levine, ALC On January 23, Dr. Levine, ALC, covered “Current Real Estate Tax Issues.” The information was relevant to professionals and investors regarding the use of exchanges, installment sales, and other approaches to defer and/or eliminate taxes.

The presentation was captured on a link and a CD and may be found in the RLI General Store on the website at www.rliland.com.

Education The 2012 Excellence in Instruction Awards Went to…

James Miller, Esq.

Andre J. van Rensburg, ALC

James Miller, Esq. and Andre J. van Rensburg, ALC, were chosen by the members of the Education Committee as the recipients of the 2012 Excellence in Instruction Awards. They exemplify the best in instruction delivery and in volunteerism to helping build the LANDU Curriculum.

Miller has been an approved instructor for RLI since 2007.

During that time, he has authored and updated courses on 1031 Exchanges—including the new one-day course on Advanced 1031 Exchanges for Land Professionals. Since laws change regularly, he keeps the courses and exams current and is open to bringing fresh delivery ideas to education. He also assists when members have general questions regarding 1031 Exchanges. Miller is the AttorneyManager for the Southwest Region of IPX1031.

The students who have had van Rensburg as an instructor repeatedly state in evaluations that they cannot wait to take another class from him. He engages his students and gives extra assistance and hours to make sure that understanding exists. He, too, is open to fresh delivery methods and updates the materials to best assist the students in the learning process. Andre J. van Rensburg, ALC, is the principal of Prudential Commercial Real Estate in St. Augustine, Florida.

Jesse Lane, ALC, 2011 RLI President (left), and Ray Brownfield, ALC, 2013 Immediate Past President (right) mix fun with business at the 2012 Conference and Expo held in Orlando, FL.

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Go to http://www.rlifarmandranch.com/membership.aspx Visit the RLI Farm and Ranch booth at the National Land Conference

Questions?

515-771-8316 or molly@rlifarmandranch.com

Terra Firma

Winter 2013 27

Feature

New Ways to Connect Buyers and Sellers David Hitchcock, ALC Sales Associate Coldwell Banker Commercial Saunders Real Estate in Lakeland, Florida Matthew Wengerd Marketing Strategist CBCSRE/CBCSRD The ways companies connect to consumers is changing at break-neck speed and it can be hard to know where to start and what’s working.

Digital marketing in particular can be alluring and intimidating all at once. Sometimes the gains are clear and valuable and there are other times where the benefits can be more subtle.

We have found that email marketing done right is almost a necessity today. The challenge is in capturing email addresses in ways that are considered appropriate since the CAN-SPAM Act of 2003. We use one of the many great email services available that keep us in compliance with this act and provide great tracking and measuring tools to monitor the effectiveness of our campaigns. We have found that a smaller list of better-targeted people, who have given us permission to email them, is more effective than targeting a larger list of harvested or purchased names. Additionally, we have been surprised by the types of subject lines that generate the best response in our testing. It is not uncommon for an email simply titled “CBCSRE Newsletter” to earn a much higher open-rate than one whose subject had been carefully written to entice the reader to open it.

At CBC Saunders Real Estate, we have launched a campaign to provide potential buyers the opportunity to virtually fly our large land listings from the comfort of their office (or easy chair) with our Fly-the-Groves Aerial Video Technology. We have spent more than a year researching equipment and techniques to provide the most effective way for viewers to view our properties from the air. We have been using aircraft to video record our properties and editing them in-house to showcase on You Tube and our website (some may be seen at FlyTheGroves.com).

We have experienced positive feedback from buyers and have found it to be a great tool for bringing attention to all of our listings.

In addition to aerial videos, we utilize a custom iOS app called Florida Land for Sale to provide buyers with 360o views of properties. We are able to send our agents out with a camera that captures these panoramas and then process them in-house and upload them to our app, where users can view the property in all directions either by moving their iPhone or iPad around or by swiping their hand across the screen. Traffic to our website through this app represents a large portion of all of our referral traffic (visitors who arrive on our page by clicking a link on someone else’s website). You can download the app from the app store by searching “Florida Land for Sale.”

We use QR (Quick Response) codes, or 3D barcodes, on nearly all of our print materials. These images direct Smartphone users to pages we designate when we create them. We utilize multiple QR codes for each property in order to determine whether a user scanned the code on a flyer, postcard, or other location. While the traffic generated from these is very low, the minimal effort needed to create them, as well as the impression they give of a forward-thinking, technologically-inclined office have been factors in our continued use of them. If you choose to use QR codes in your own campaigns, it is worth noting that it is not wise to use them where the distraction of using a phone would be considered unsafe, particularly places where viewers are most likely to see only while driving a vehicle.

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While digital marketing certainly is appealing, we believe that there are some things that are most effectively communicated by ink and paper.

That is why we create printed flyers for every listing and send several postcard campaigns per week to targeted lists of potential buyers. We have found that in the large-acreage land market, there are still many people who are not technologically inclined and, in many cases, simply do not have email addresses. While response to these methods is often harder to track than links in digital marketing, we have seen good response to our postcard campaigns and often find buyers through a simple printed card.

There is no one-stop solution for marketing and what works for us might not work for you. The important thing is to track effectiveness as much as possible and to hone in on your approach to best suit your ideal buyers.

About the Authors: David Hitchcock, ALC, REALTOR®, is a Sales Associate with CBC Saunders Real Estate (CBCSRE) with a background in citrus, industrial, and agricultural businesses. He earned the 2010 Bronze Circle of Distinction award from Coldwell Banker Commercial®. A thirty-year veteran of the Florida Agribusiness industry, his specialties include Central and South Florida agricultural properties, agriculture transitional properties, and land use issues. Hitchcock is Vice Chair of the RLI Education Committee and a member of the 2013 RLI Board of Directors.

Matthew E. Wengerd, Marketing Strategist, leads the Florida marketing efforts for CBC Saunders Real Estate, the land real estate brokerage and CBC Saunders Ralston Dantzler Realty, the commercial real estate brokerage, both located in downtown Lakeland, Florida.

Feature

Promote Conflict in Your Real Estate Team Andre J. van Rensburg CCIM, ALC, CIPS President, Prudential Commercial Real Estate Jacksonville

Traditionally real estate practitioners worked alone. However, in recent years many real estate companies employed real estate teams. Why? Because it works! TEAMS - Together Everyone Achieves More Success.

However, conflict in teams cannot be avoided. Most people perceive conflict as negative or destructive. It can, however, if identified early and managed effectively, provide a positive and beneficial outcome.

Teams should embrace conflict as a part of high-performing teams; these tensions should not be discouraged as they can be productive and can increase a team’s performance if handled correctly.

Conflict can mean different things to different people. Much of the perception depends on our individual take on the circumstances.

Some may define conflict as a difference of opinion while to others it may mean war. Ultimately, conflict involves opposing views on one or a number of matters including relationships, tasks, territories, values, principles, and commodities.

Research has shown that to understand how conflict impacts team performance, we need to distinguish between two types of conflict: a) Relationship-focused conflict This primarily refers to interpersonal interactions between individuals, personalities, emotions or values causing tension and animosities between the individuals personally rather than the task at hand. These conflicts are often seen as personal attacks due to personal disagreements or emotional interactions between team members. This type of conflict is generally considered to be destructive, negative and dysfunctional if not managed expeditiously. If these conflicts are not resolved quickly, it may compromise team moral, focus, cohesiveness, and energy while facilitating distrust, apathy, disengagement from the team, cynicism and even hostility. b) Task-focused conflict This primarily refers to the interactions over the nature of tasks, issues, ideas, processes or principles. It involves disagreements between team members relating to issues that focus on a common goal. Many researchers agree that this type of conflict can be constructive, beneficial and positive. It can improve team efficiency, effectiveness, cohesion, empathy, understanding and commitment while reducing complacency, apathy and dissatisfaction.

Team conflict could be caused by any of the following: • • • • • • • • •

Lack of effective leadership Lack of objectives, goals, focus and purpose Lack of clear directives as to team and individual roles Lack of tolerance for cultural differences Unclear or non-existent company policy Uncertainty due to staff turnover Uncertainty due to mergers or acquisitions Uncertainty about availability of resources and support Incompetence or inadequate skills and abilities by some of the

• • • • •

team members Poor time management Poor communication Personal problems Personality conflicts Self-promotion (wanting all the credit)

Conflict exists when observing the following behaviors: • • • • • • • • • • •

Not coming to work Not completing work on time Not returning phone calls or emails Not sharing important information nor requesting appropriate information Not following orders or company policies Being aggressive or passive aggressive at work Being hostile towards coworkers and employers Being late for meetings Using inappropriate language and being verbally abusive Complaining constantly Filing lawsuits or grievances reports

Individual incidences of the above behaviors do not always indicate conflict as people sometimes miss meetings, don’t complete work on time or respond to email in time. If however, these behaviors continue over a prolonged period of time, it will have an impact on team performance and may cause severe or irreparable harm to the wellbeing of the team. Expeditious intervention is required to prevent the perpetuation of the behavior.

The first step in conflict management is to learn how to prevent or minimize negative conflict and promote positive conflict. Some of the ways to achieve this include: • Launch the team with personal introductions, a communication plan and team goals. Set the ground rules early and let there be a buy-in from all members of the team. This should include behaviors, policies and processes that the team will allow and prohibit. As soon as conflict arises the leader can refer to the ground rules for guidance as a good objective guideline.

• Identify and develop team norms and rules • Regulating team behavior by posting these rules on company message boards thus allowing for self-regulation.

• Develop team agreement on how the team will resolve conflict when it occurs. The focus then becomes on how to create good resolution behavior and prepares the team for the process that is followed when necessary.

• Attend formal conflict and communication training as a team.

• Identify and focus on the team goals. Rectify goal misalignment as soon as it is identified.

• Make sure all new members on the team understand the goals of the team and are adequately trained in the skills to support the team.

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Feature The way conflicts are managed can determine if it will be destructive or constructive. It is imperative for teams to be able to identify the differences between healthy or destructive debates. It is a reality that teams require some conflict to operate effectively. Healthy or cooperative conflict can contribute to effective problem solving and decision making by motivating people to examine their point of view to solve a problem. This can be achieved by encouraging the expression of many ideas; energizing people to seek a superior solution; and fostering integration of several ideas to create high-quality solutions.

The key is to understand how to handle it constructively. If members understand how to do it, differences that arise can result in benefits for a team.

Direct and open discussion of disagreements results in greater understanding of other people’s ideas and motives and motivates team members to question the accuracy and completeness of one’s own views. These open debates allow team members to see the limitations of their own perspectives and allows every team member to get a better understanding of opposing opinions, perspectives and views.

This allows team members to incorporate the best and most reliable information from others resulting in higher quality decisions.

Healthy debates include listening and responding to different ideas, being open to other people’s ideas and views, staying objective, staying focused on the facts, and systematically analyzing the situation to find solutions without getting bogged down with tangential details.

Manage or facilitate healthy conflict by: • taking charge and be assertive as the team leader • creating a set of rules for communicating and listening politely and being respectful • aiming to get resolution and move on to the next issue • inviting constructive feedback during the meeting • paraphrasing each other’s ideas • openly examine the differences to gain and understanding of all perspectives • openly discuss the concerns of the team or individuals

Manage or facilitate unhealthy or negative conflict: Traps that worsen conflict: 1. Avoid limiting the options or forcing team members to choose between given options 2. Avoid depending on management to resolve conflict simply because conflict is too painful 3. Avoid the temptation to avoid conflict altogether 4. Prevent individual team members from giving into the group, who later will act as a victim of group pressure 5. Prevent team members from discussing team issues outside the team as these issues should have been resolved in the team or contextual meetings.

There are 5 steps to resolve negative conflict 1. Recognizing the existence of conflict 2. Finding common ground by putting the conflict in the context of the larger goal of the team and the organization 3. Understanding all perspectives of the issue, which means that everyone is not requested to agree with the opposing view 4. Attacking the issue and not the members of the team 5. Developing an action plan that describes how each member of the team will solve the problem or issue.

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Possible ways of handling negative conflict: 1. Direct Approach The leader confronts the issue head-on and this may be the best approach of all. Although conflict is uncomfortable to deal with, it is best to look at issues objectively. We should face them when they occur. Criticism must be constructive. This approach usually leaves everyone with a sense of resolution.

2. Bargaining This is a great technique for when both parties have ideas for a solution, but cannot find common ground. Often a third party, such as the team leader, may be needed to assist with the compromise. Compromise involves give and take on both sides.

Parties usually end up with both walking away equally satisfied or equally dissatisfied.

3. Enforcement This technique should only be used when it is clear that a member refuses to work with the rest and does not want to be a team player.

This method should be avoided, as it can bring about hard feelings toward the leader and the team. If enforcement has to be used on an individual, it may be best for that person to find another team 4. Retreat Only use this method when there isn’t really a problem to begin with. By simply avoiding it for a while or working around it, a leader can often delay long enough for the individual to cool off. When used by an experienced leader and in a specific set of circumstances, this technique can help to prevent minor incidents like someone merely having a bad day from becoming real problems.

5. De-emphasis This is a form of bargaining where the emphasis is on the areas of agreement. When parties realize that there are areas where they are in agreement, they can often begin to move in a new direction.

A Team Resolution Process for resolving positive conflict should initially attempt to resolve the conflict on an informal basis between the individuals involved. This will allow time for resolution or self-correction by the respective individuals. If the conflict remains unsettled, a mediator can be brought in to assists resolving the situation. If resolution is still not achieved, the dispute should be openly discussed in a team meeting. If resolution is not achieved after being addressed at the team level, the escalating process of Team Resolution is as follows: 1. Collaboration (One-on-one) Approach the problem on a person-to-person basis. Base the discussion on as many facts as possible and relate the issues to customer, team, or organizational needs. Be open and honest and conduct the meeting in a private setting. Document the concerns or issues, the dates, and the resolution, if any, and have both parties sign it.

2. Mediation (One-on-one with Mediator) If collaboration did not work or may be inappropriate, approach the problem with a mediator. The mediator must be trained in conflict resolution, understand policy and ethics, be trusted by

Feature the individual team members, and have the ability to remain neutral. Gather facts and talk over the issue with the people involved. Reference as many facts as possible and relate the issue to customer, team, or organizational needs. Be open and honest and conduct the mediation session in private. Take minutes of the meeting and have all parties sign.

3. Team Counseling ©2013 Cabela’s Inc.

The conflict has now become a definite issue to the team.

Collaboration and/or Mediation did not work, could not be done or were not appropriate. Approach the conflict at a team meeting; put the problem on the next agenda and invite the necessary individuals and the whole team to the meeting. Again, bring up the facts; relate the issue to customer, team, or organizational needs.

Be open and honest, discuss it in a private setting, document it, and have all parties sign it. Anyone on the team can put an issue or problem on the team agenda; however, this step should be used only after Collaboration, and Mediation has been ruled out.

Let’s face it, hunting isn’t just something you do. It’s who you are. At Cabela’s, we feel the same way. That’s why it’s in our nature to support you with thousands of experts, more than 50 years of experience and every last bit of expertise, so you can treasure this passion for the rest of your days.

Conflict in teams could be very healthy and foster positive and beneficial outcomes for a team if managed effectively. Teams should deal with conflict immediately and avoid the temptation to ignore it.

Always be open other people’s idea and thoughts. If people have issues, they need to be expressed immediately and not allowed to fester.

Teams always need to ensure to practice clear communication by articulating thoughts and ideas thoroughly. They need to practice active listening by paraphrasing, clarifying, questioning and identifying assumptions and demonstrate respect to team members. Always keep issues within the team.

Conflict should not become personal and should always attempt to stick to facts and issues, not personalities. Looking for blame in any situation is counterproductive and we should rather encourage ownership of the problem and solution. Focusing on actionable solutions and not belaboring what cannot be changed, encouraging different points of view and insisting on honest dialogue should always be the goal.

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Conflict should not be avoided as it can be productive and can help teams to perform better. Efficient leadership and effective communication hold the key to healthy team conflict.

Acknowledgements: This article was written based on research from a number of papers. To appropriately acknowledge these papers please visit www.andrejvanrensburg.com for a list.

About the Author: Andre J. van Rensburg ALC, is the President of Prudential Commercial Real Estate and Asset Risk Management Services based out of Jacksonville Florida. Van Rensburg has taught various specialty commercial real estate courses and delivered presentations all over the world. He received the 2009, 2010 and 2012 REALTORS® Land Institute Excellence in Instruction Awards and the 2011 CCIM Instructor of the Year Introduction to Commercial Real Estate.

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AGGREGATOR SUBSCRIBE TODAY! Winter 2013 31

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Chapter News Carolinas The Carolina’s chapter is building knowledge and members. It is offering two traditional courses in April: Land Investment Analysis Date: April 1-3, 2013 Location: Surf City, NC

Tax Deferred 1031 Exchanges Date: April 4-5, 2013 Location: Surf City, NC

The organization welcomes you to come out to North Carolina to participate in two of the required courses for earning the esteemed Accredited Land Consultant Designation (ALC). For information, contact Ashley Boykin at 336-854-5868 or aboykin@grra.org or register online at http://ncrli.com/Events.html .

Colorado The Colorado Chapter held their first 2013 meeting on January 17 and 18 in Denver, Colorado, coinciding with the National Western Stock Show.

Thursday opened with a short chapter meeting, covering the upcoming chapter schedule and national events. RLI success stories were shared to demonstrate the power of RLI networking and actual deals done between members as a result of being part of the organization. This was followed by a marketing session with nearly every property showcased though PowerPoint presentations. In the afternoon a "cash board" was showcased to connect buyers with potential properties followed by networking activities.

An educational session took place on the final day with a presentation on Colorado water law and history by Colorado Supreme Court Justice Gregory Hobbs. As Kirk Goble, ALC, stated, “This meeting demonstrated the power of RLI networking, business, and education.

Attitudes were very high and people left with great education and potential business for the coming year.

Florida Florida will offer two onsite courses during 2013: Land 101 Date: May 15-16, 2013 Location: Lakeland Fl. (tent.)

Land Investment Analysis Date: October 9-12, 2013 Location: St. Augustine Fl. (tent.)

business conducted from January through December 2011. Recipients were honored at the September RLI Land Trends and Values Press Conference and Awards Luncheon.

Congratulations to Jon Hjelm, ALC, Farm & Land Broker of the Year; Dick Meade, for Deal of the Year; Eric Schlutz, ALC, the Rookie of the Year, and Jeff Obrecht, for Volume Sold & Acres Sold for the Year.

Texas The RLI Texas Chapter met for a great two-day session in January.

The session included education from Texas Southwest Cattle Raisers Association, Texas AgriLife, and a Cowboy Winery. The Historic Stockyards of Fort Worth were the venue area where wonderful food, dancing, and networking took place.

2013 RLI Chapter Presidents Congratulations to the leaders of the RLI state chapters: MS Mike Flannes AL Michael Delaney, ALC MT Patti Davis,ALC AZ Rick Padelford Carolinas Christina Asbury, ALC CO Bart Miller, ALC OK Sandy Bahe, ALC FL Sage Andress, ALC PAC NW Flo Sayre, ALC GA Dan Crocker, ALC TN Bob Turner, ALC IA Kyle Hansen, ALC TX Steve Anderson, ALC IL David Klein, ALC VA Jeff Huff, ALC KS John Rupp,ALC WY Ivan Judd, ALC LA Brandon Rogillio, ALC MN Wendy Forthun Chapter Presidents Council The next meeting of the 2013 Chapter Presidents Council will take place at the National Land Conference on Monday, March 18, at 8:00 am. The 2012 and 2013 chapter leaders, education chairs, and administrative representatives of chapters are invited to attend. Terri Jensen, ALC, the 2013 Vice President, will facilitate the meeting. The second meeting of the year will be a conference call on July 25th at 11:00 am CT, and the final meeting is set for RLI Day at the National Land Conference in San Francisco on November 7th.

Contact Lisa at lisa@gtar.net or 813-879-7010 Georgia This past November 2012 the Georgia Chapter installed their chapter leadership and featured three guest speakers on topics of Water Resources, Asset Protection and Georgia Forestry. Committed to keeping land professionals current and in building knowledge, the Georgia Chapter of RLI will be offering an educational workshop entitled, “A Mapping, Marketing and Technical Workshop for the Land Broker.” This workshop will be held in Forsyth, GA at the Georgia Forestry Association Headquarters. For additional information, contact Chapter President Daniel Crocker, ALC, at crocker@rose.net or (229) 403-6297.

Iowa The 2013 chapter officers were installed by Ray Brownfield, ALC on September 27 in Ames, Iowa at the Iowa RLI Annual Meeting and Dinner.

The Iowa Chapter of RLI also recognized the performance of members for

32 Winter 2013

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Feature

Alchemy: De Ja Vu: Turning a Code 1031 Exchange into a Loss of Equity, Insolvent Intermediaries, Bankruptcy Dr. Mark Levine, ALC; Dr. Libbi Levine Segev; Dr. Jeffrey L. Engelstad Burns School of Real Estate and Construction Management at the Daniels College of Business

INTRODUCTION: The title of this article referred to Code §1031 exchanges.1 Under this tax law, assuming the requirements of Code §1031(a) are met,2 the taxpayer could be allowed deferral of Federal (income) taxable gain. (See the Footnotes in this article for more details on this issue.)

However, the summary position of Code §1031(a)(1) provides that: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”

This definition of “tax-deferred exchanges” emphasizes that a taxpayer holds the property for “trade or business or for investment” purposes. That is, the property that could possibly qualify under Code §1031 for a real estate exchange must be used in the trade or business or held for investment.3 In addition to showing the proper type of property to be used in the trade or business or for investment, the property must also be what is referred to as “like-kind property.”4 (This generally means, in the real estate field, exchanging real estate for real estate.)

If the property is qualified trade or business or investment property, is “like-kind property,” generally meaning “real estate for real estate,” and assuming that the property is not otherwise excluded from Code §1031, then the property might fit for the requirements of an exchange under Code §1031. (See Code §1031(a)(2) as to specific items not allowed for exchange, as determined by the U.S. Congress.5 Such items that cannot be exchanged under Code §1031 include stock in trade, stocks, bonds, notes, certain other securities, interests in partnerships, certificates of trust, choses in action, and other property noted in the interpretations as a result of the Treasury Regulations.6) The focus of concern when undertaking a real estate exchange, assuming that the requirements are met for the property to come within Code §1031(a), would often be that such property must be "held" for business use or for investment.7 The word “held” has been interpreted in numerous cases to be contrasted with a taxpayer who is acquiring property for purposes of resale (inventory property), as opposed to holding the property for use in a trade or business or for investment use.8

SETTING FOR THE EXCHANGE: EXAMPLE 1: A taxpayer cannot undertake a qualified real estate exchange by Taxpayer X transferring X-1 property, directly to Taxpayer Y, for the Y-1 property, if the X- or Y-1 property is not “held” by X for use in a “trade or business or for investment” purposes.

Taxpayer X, in transferring X-1 property (to Taxpayer Y), could not receive from Y any cash, as an example, and then have Taxpayer X immediately invest the cash received. Such property would not be “like-kind property.”9

In this Example, Taxpayer X cannot transfer X-1 property and not receive, at the same time (simultaneous) the “like-kind” property that would qualify for the real estate exchange.10 If Taxpayer X is attempting to show that the property acquired has “come to rest” in Taxpayer X’s hands, then Taxpayer X cannot acquire the Y-1 property and then immediately retransfer the Y-1 property. This is true even if the property acquired was “real estate for real estate.” If Taxpayer X did not intend to “hold’ the property acquired from Taxpayer Y, in the above Example, it would not be property “acquired” for the purpose of “holding” the property, as opposed to acquiring the property with the intent to retransfer the property.11 EXAMPLE 2: (QI): There are additional issues to contend with to keep within the real estate exchange requirements within Code §1031.

Taxpayer X might desire to exchange or transfer his property (called “relinquished property”) to Taxpayer Y, but Taxpayer X does not intend to acquire the Y-1 property. Rather, he might desire to have the W-1 property (labeled the “replacement property”) from Taxpayer W. To facilitate this transaction, often the arrangement is to have Taxpayer Y not tender cash to Taxpayer X; rather, Taxpayer X might request that Taxpayer Y acquire the W-1 property from Taxpayer W. Taxpayer Y would then transfer, in Step 2, the W-1 property, acquired from Taxpayer W, to Taxpayer X in exchange for the X-1 property.

Often there may be a desire by Taxpayer X to have the real estate exchange, but Taxpayer X is not certain as to the property that Taxpayer X desires. In those situations, Taxpayer X might be willing to transfer his X-1 property to Taxpayer Y, with the agreement that Taxpayer Y would place cash within the hands of a third party. The third party would hold the cash, acquire a property designated or identified12 by Taxpayer X, at some future time, when X “finds” the property he desires.

In summary, Taxpayer X desires to undertake a real estate exchange.

Taxpayer X knows that X cannot acquire cash from Taxpayer Y, because to receive cash by X would destroy the potential of using Code §1031 to defer the Federal, taxable income gain. The cases and other authority support the position that Taxpayer X could cause Y to place Y’s cash in the hands of a third party, which we might label as the “Qualified Intermediary” or “QI.”13 The Qualified Intermediary (QI), as an institution, would “hold” the cash, thereby not tainting the transaction for Taxpayer X, since X did not “receive” the cash. Taxpayer X would properly transfer the X-1 property or “relinquished property,” and Taxpayer X would properly identify the property to be acquired, the Y-1 property or “replacement property,” to complete the “tax-deferred exchange.” In other words, Taxpayer X properly conveys the X-1 property, to be transferred to Taxpayer Y, or to the QI (Qualified Intermediary), who would in turn transfer the property to Taxpayer Y. This is a setting of a “nonsimultaneous,” qualified “tax-deferred exchange,” generally meeting the requirements of Code §1031(a)(3).

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Winter 2013 33

Feature ESSENCE OF ARTICLE:

ADVERSE IMPLICATIONS:

Having stated the essence of the function of Code §1031, “tax-deferred,” “nonsimultaneous” exchange, by using a QI, this Note can now focus on the essence of this article: What happens if the monies “held” or placed in “escrow” from Taxpayer X to the third party QI are not timely used, or not used at all, to acquire the “replacement property” that X desires, when transferring his X-1, “relinquished property.”14

The negative implications of the decision by the Court in this bankruptcy proceeding sent shockwaves to those involved in the taxdeferred exchange area.

QUALIFIED INTERMEDIARY AND BANKRUPTCY: CURRENT LAW: The question raised at this point is the concern with undertaking the “nonsimultaneous,” tax-deferred exchange utilizing the third party Qualified Intermediary (QI).

There has been great concern with the tax and legal implications when the “Qualified Intermediary” (QI)15 defaults or declares bankruptcy, and, thus, fails to complete the exchange.16 What if the QI is insolvent and does not properly complete the taxdeferred exchange? What if the QI (Qualified Intermediary) absconds with the escrow funds?17 These questions raised the concern that if the QI did not properly or timely complete the real estate exchange, the damage for loss of the tax-deferred exchange, as well as, potentially, loss of the equity, could fall upon Taxpayer X.

CASES: (See full article for this coverage as this article has been abridged.)

TAXPAYER LOSES ON FUNDS PLACED WITH QUALIFIED INTERMEDIARY: RECENT LAW: In re LandAmerica: Even more detrimental results to the taxpayer was in the case of In re LandAmerica.27 In this case, the taxpayer suffered a major loss because of the actions of the QI. This 2009 case involved LandAmerica as the Qualified Intermediary that declared Chapter 11 bankruptcy. Over 85 adversarial proceedings were brought by many customers of LandAmerica. The 85+ cases involved former customers that took the position that the monies they deposited into bank accounts with LandAmerica, to support the exchanges, were “trust” funds. As such, the taxpayers argued that the trust funds should not be held as assets of the bankrupt, LandAmerica, but such funds should rather be held for the benefit of the taxpayers, and that such funds should be returned to the taxpayers as being involved in “relinquishing” their properties in “exchange” for their “replacement properties.” (There is some relief for Taxpayers under Rev. Proc. 2010-14.)

The Court concluded, and created great turmoil in doing so, that the monies in question would be held by the Trustee in bankruptcy and would not be held as exchange funds for the various parties. These parties claimed that they were entitled to a return of their funds involving the relinquished properties; the funds were to provide monies to have the acquisition of the “replacement properties.”28

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In turn, such position encourages taxpayers to consider, maybe to the benefit of the taxpayers, the risks that they face when undertaking a tax-deferred exchange involving a QI. Some states have attempted to address the issue of Qualified Intermediaries by requiring bonds, licensing, escrow accounts, disclosures and other steps to, hopefully, protect those involved in the attempted exchange.

Taxpayers and their advisors should re-examine the inherent potential risks in the non-simultaneous exchange which necessitates the use of a QI to facilitate the tax-deferred exchange and avoid the taxpayer receiving any property which is not “like-kind.” (As indicated in this Note, receipt of “non-like-kind property,” such as cash or other disqualified property, will destroy the potential of deferring taxable gain under Code §1031. This could result in Taxpayer X being required to pay taxes or actually lose the monies for the attempted tax-deferred exchange.)

CONCLUSION: Taxpayers and their advisors should consider suggestions to avoid some of the pitfalls and risks when attempting to undertake a tax-deferred exchange. There are risks when using a Qualified Intermediary. Funds could be stolen, misused, or otherwise not available to complete the tax-deferred exchange. (More suggestions to avoid the problem with default by QI can be found in the full article; it has been abridged in this summary article.)

Footnotes may be seen in the Member Resources section of the RLI website at www.rliland.com.

About the author: Dr. Mark Levine, ALC, a full-time professor and the director of the Burns School of Real Estate and Construction Management at the Daniels College of Business, has been a real estate broker, attorney, investor and professor for more than 40 years, lecturing throughout the U.S. and internationally. He is a two-time Fulbright Scholar to China, has written 52 books and over 300 articles.

Feature

RLI's Greatest Cowboy Auction on Earth!

Giddy-Up with Our Sharp-shootin' 2013 Auction Dream Team ...to the Greatest Auction on Earth!

These fine auctioneers--some of the best in the business--will be runnin' the house during this high felootin' event at the 2013 National Land Conference on March 19 at 6:30-7:45 p.m. at the Flamingo Hotel.

REALTORS速 Land Institute and the dream team are waitin' for your donations-- maybe a fishing trip, a weekend at the lodge, a cabin stay, a local brew or local artwork...or whatever suits you!

Then...let us know by calling 1.800.441.5263 or by writing to rli@realtors.org.

Make your donations by March 1 and add to RLI's Greatest Cowboy Auction on Earth!

The Auctioneer Dream Team

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John McAllister Realty Consulting LLC Terra Firma

Winter 2013 35

UNDER ALL IS THE LAN D

Official Newsletter of the REALTORS® LAND INSTITUTE 430 N Michigan Ave. Chicago, Illinois 60611

Experience the “Real Deal” with the best in the land business at the 2013 National Land Conference at the Flamingo in Las Vegas, Nevada.

The Flamingo Las Vegas, March 18-20 Register Today at www.rliland.com or call 1.800.441.LAND (5263)