Real Estate Wisconsin
A Publication of the Wisconsin REALTORS® Association
Assistance animals, discrimination, tenants in wheelchairs and more.
New State Budget
CFPB Mortgage Reform
What’s he up to?
How those 3,000-plus pages affect you and your clients.
CAPTURING INVESTOR clients
The new provisions that will impact real estate.
April 2013 Vol. 29 No. 7
contents April 2013 | Vol. 29, No. 7
14 8 4 Helpful “oops” 12 Assistance animals 14 Listening
How and why the WRA is listening to its membership.
A case law summary about helping out a little too much.
16 18 Thinking of investing? Fair housing Q&A
WRA legal hotline questions on fair housing laws.
These WRA products can help you be a real estate investment pro!
12 25 State budget 28 2014 election trends
What to expect from the 2013-15 state budget, introduced earlier this year.
A forecast of the 2014 elections in Wisconsin.
Sales Tips Galore!
Three’s a crowd: the well-received REALTOR® Sales Tip column is busy this month. Three guest writers share tips, tricks and insight on investment and finance.
The real estate investor market is out there — full of both buyers and sellers. Are you working with them? Real estate investment/tax guru Tom Lundstedt, CCIM, shares tips on how you can capture these investor clients in today’s market. See the full story on page 8.
Associated Bank Senior VP and Investment Officer Sara Walker, Florida REALTOR®/broker Marcus Wally, and Wisconsin Bankers Association staffer Eric Skrum offer advice and ideas on property management, tenant relations, mortgage reform and much more. Visit pages 22, 23 and 30 for this issue’s many sales tip articles.
WIREALESTATEMAG • APRIL 2013
Examine the misunderstandings about assistance animals in housing.
A Message from the President by Mike Theo
WIREALESTATEMAG • APRIL 2013
’ve had the good fortune lately to spend some quality time with our members and listen to their business concerns and ideas for improving our marketplace. Some of this quality time was spent in five focus groups held across the state as part of our strategic planning process. Some of it came from large national conferences of REALTOR® leaders and some from small meetings of brokers and agents. Regardless of the gathering or individuals involved, I’m left with a far better understanding of the difficulties and struggles endured by those of you who endured these past few years, and with a deeper respect for the tough business decisions that were required to survive this ebbing recession. In many respects, these changes have permanently changed the brokerage business. But I also heard a great deal of concern over the quality of service some brokers and agents are providing to the public. Many of you feel that as an industry, and an association, we need to do more to raise the level of professionalism of some of our fellow practitioners. Ideas included association-centric concepts like greater use/understanding of professional standards, better enforcement of the Code of Ethics, and raising consumer awareness of our professional designations. But other ideas included changes in state licensing laws to elevate the profession. In the past, we have attempted to address these concerns by increasing the number of hours required to obtain or keep a real estate license, and this has helped. But many of you thought more can and should be done.
The WRA has spent the past several years developing new legislation aimed at better protecting consumers and enhancing the level of professionalism within our industry by requiring transactional experience before real estate licensees are allowed to obtain a brokers license. To that end, the WRA has spent the past several years developing new legislation aimed at better protecting consumers and enhancing the level of professionalism within our industry by requiring transactional experience before real estate licensees are allowed to obtain a broker’s license. The new law, about to be formally introduced in the state legislature, will require two years of supervised transactional experience as a real estate salesperson within the last four years
preceding application as a real estate broker. Currently, Wisconsin is the only state in the country that doesn’t require licensees to have some experience prior to obtaining broker’s licenses and managing other licensees. In Wisconsin, an individual can receive a broker’s license, open up a real estate office, have agents work for them, all without ever participating in a real estate transaction. With the increasing complexity of today’s transactions including foreclosures, short sales and bank-owned properties, hands-on transactional experience is essential for brokers. Under the proposed law, the Real Estate Examining Board (REEB) will also be authorized to establish how agents prove their transactional experience, as well as the power to grant waivers to certain affiliated businesses and professions and to consider related experience like professional designations, certifications and education. Improving our profession and protecting consumers will be a never-ending pursuit of our association, be it through the REALTOR® organization or through state laws and administrative rules. Your ongoing ideas and input are critical in our quest to continually improve the quality of licensees and the market brand of REALTORS®. Keep those ideas coming and we’ll keep on listening.
real estate inside the wra
Editorial Staff: Publisher: Michael Theo Editor: Lauren Bizorik Advertising: Robert Uhrina WRA Executive Committee: Renny Diedrich, Chairman Steve Lane, Chairman-Elect Dan Kruse, Treasurer Paul Schieldt, Vice President Peter Sveum, Vice President K.C. Maurer, Vice President Erik Sjowall, Vice President Contact Information: 4801 Forest Run Rd., Suite 201 Madison, WI, 53704-7337 608-241-2047 • 800-279-1972 e-mail: firstname.lastname@example.org website: www.wra.org POSTMASTER: please send address changes to the WISCONSIN REALTORS® ASSOCIATION, 4801 Forest Run Rd., Ste. 201, Madison WI 53704-7337. Wisconsin Real Estate Magazine™ is published by the WISCONSIN REALTORS® ASSOCIATION. Trademark issued pursuant to Wisconsin state statute; federal trademark is pending. Wisconsin Real Estate Magazine, USPS 597-850, ISSN 1548-0526, is published monthly by the WISCONSIN REALTORS® ASSOCIATION, 4801 Forest Run Road, Ste. 201, Madison, WI 53704. Periodical postage paid in Madison, WI and additional mailing offices. An annual subscription rate of $5 is included in membership dues and a copy is mailed to every paid REALTOR® and affiliate member of the association. Nonmember subscription rate: $60. Permission to reprint or quote any material from this issue is hereby granted, provided the Wisconsin Real Estate Magazine is given proper credit in all articles or commentaries, and the WISCONSIN REALTORS® ASSOCIATION is provided with a copy of any reprint. Advertising of third party products and services herein does not imply endorsement by the WRA unless specifically stated. Furthermore, the WRA does not endorse, approve, or otherwise warrant the accuracy or legality of any information or content contained in advertisements. Any questions regarding advertising policies should be directed toward the editor.
Design and production by Joe Leschisin, Kella Design www.kelladesign.com
NAR’s REALTOR Benefits® Program When you take advantage of NAR’s REALTOR Benefits® Program, you can choose from a variety of valuable offers and savings from industry leaders. For more details, visit www.realtor.org/realtorbenefits. List is valid through April 1, 2013 and subject to change. Marketing Ifbyphone Lowe’s REALTOR Team Store® Xceligent (NEW)
Financial Services and Personal Protection American Home Shield REALTORS® Federal Credit Union
REALTORS® Core Health Insurance REALTORS® Dental Insurance Victor O. Schinnerer & Company Inc. (E&O Insurance)
Technology Dell, Inc. DocuSign® Hewlett Packard Lenovo RELAY® Transaction Management Sentrilock LLC Sprint Xerox zipForm®
Education Resources ABR® BPOR e-PRO® NAR Green Designation SFR SRES®
Office Solutions FedEx FedEx Office OfficeMax
Insurance Liberty Mutual (Auto, Home and Renter’s Insurance)
Travel and Automotive Chrysler Avis Budget Hertz
Fair Housing Conference and Luncheon Mark your calendars for April 25 and 26, 2013 for the Wisconsin Fair Housing Network’s 27th Fair Housing Conference in Kenosha! On Thursday, enjoy a complimentary tailgate buffet and a town hall meeting discussion of fair housing basics. Even though these activities are free of charge, a reservation is required. The Friday conference features sessions that highlight fair housing case law, the CFPB and fair housing for persons with disabilities. Breakout sessions will cover topics such as the foreclosure crisis, live-in aides, families with children, and application processing for immigrants. Register by April 15 and pay only $60 for Friday’s festivities (and that includes a continental breakfast and scrumptious lunch)! For more information and to register, visit www.wra.org/FairHousingConference.
Spanish Explanations Now Available! The WRA and the WRA Cultural Diversity in Housing Committee are proud to announce a new tool to enhance the ease and effectiveness of WRA members working with Spanish-speaking consumers. The Explanation of the State of Wisconsin Residential Offer to Purchase and Explanation of the State of Wisconsin Residential Listing Contract are now available in Spanish to REALTORS® and the public at no charge due to a NAR Diversity Initiative Grant received by the WRA for this project. The Explanations will provide reassurance should questions arise regarding the offer or listing contract. These tools will enhance the stature of Wisconsin REALTORS® who have the foresight to provide them to parties for whom English is not the native or primary language, especially in a matter as essentially important as the purchase or sale of a home. Visit www.wra.org/Translation for the Spanish translations. The Explanations can be printed to create a hard copy, or the link can be furnished to parties electronically for ease of distribution. Spread the word and enhance your success!
WIREALESTATEMAG • APRIL 2013
Real Estate Wisconsin
Chairman's corner by Renny Diedrich
Real Estate Investments Going beyond dollars and cents
WIREALESTATEMAG • APRIL 2013
eal estate investment — what does that mean? Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. It’s safe to assume that’s a definition we’d all agree with. But is that all it really is? No! I recall that during my interview produced by the WRA to introduce me to our membership, I was asked what homeownership meant to me. Homeownership means safety, security, family, fun, friends and relaxation. Real estate and homeownership mean investing in oneself and building a balanced financial portfolio. The financial investment element is something we can all hope to achieve. But the investment is more than just a financial one. Property owners want their investment to increase in value, and in the case of rental property, want that investment to supplement monthly cash flow. By acquiring real estate, we also make investments in our neighborhoods, communities, cities and states. That investment, in my opinion, goes far beyond the dollars and cents. It gives us a sense of who we are. My husband and I have purchased several homes over the years and have enjoyed the ups and survived the downs. Treat and manage real estate like any other long-term investment, and most likely, you will be rewarded financially and emotionally! At the WRA, we are in the final stages of our Strategic Planning. You were e-mailed a survey last month, and we were fortunate to get some very valuable feedback. We will be finishing up within the next couple of months and look forward to sharing the results with all of you. A big “thank you” goes to Dan Kruse, Strategic Planning Chairman, for his dedication in accomplishing this mission! We had another successful REALTOR® & Government Day event this year at the
Treat and manage real estate like any other long-term investment, and most likely, you will be rewarded financially and emotionally!“ Monona Terrace in Madison on March 20, 2013! Our legislative team of Tom Larson, Joe Murray and Cori Lamont picked six important issues for us to discuss with our legislators. I am not sure if your legislators were as surprised as mine when we asked for their help in helping us raise the level of experience and professionalism in our industry. We were fortunate to have Gov. Walker speak and answer several questions from the group. We were also fortunate to hear from Justice Patience Roggensack. We have supported Justice Roggensack in her reelection to the Wisconsin Supreme Court. There are three important reasons for our support: her record on cases supporting property owners is 69.5 percent, her support on WRA-filed amicus briefs is 77 percent, and she opposed efforts to require an attorney at every closing. Right around the corner is the Midyear Conference in Washington, D.C. If you have not attended this event before, I would encourage you to book this trip. It is great to share the REALTOR® and homeowner message with our friends in Washington. If you are interested in participating, please let me know, and I can discuss with you about what you have to do to apply.
Mint App Since we are talking about investing, I thought I would share another one of my favorite apps. It is called Mint. This app, as well as its website, is amazing! Mint provides a great way to aggregate all of your real estate, bank accounts and investment accounts in one spot. Mint automatically updates with your accounts to keep your balances accurate. It also helps you to develop a budget, tracks your spending, and alerts you when bills are due and when an account has a low balance. Mint is an awesome tool and money resource, unless your spouse buys something you didn’t want them to! And best of all, Mint is free! Initially, you will take some time to input your information, but once you do, you are all set. You can access Mint from your laptop, iPad or iPhone. Enjoy!
Renny Diedrich, WRA Chairman
wisconsin monthly housing report by David Clark
Housing Sales and Prices Increase Again in February WISCONSIN HOUSING STATISTICS MONTHLY ACTIVITY — FEbruary 2013 Statewide FEB-2013 FEB-2012 % Change YTD-2013 YTD-2012 % Change New Listings 8,098 9,318 -13.1% 16,401 17,819 -8.0% Closed Sales 3,601 3,224 11.7% 7,100 6,138 15.7% Median Sales Prices $122,000 $114,950 6.1% $122,000 $116,500 4.7%
ebruary marked the 20th straight month of double-digit growth in sales of existing homes in Wisconsin, with sales up 11.7 percent compared to February 2012. Median home prices also grew to $122,000 in February, which represents a solid 6.1 percent rate of growth compared to February last year, according to statistics released by the Wisconsin REALTORS® Association (WRA). “There are strong seasonal patterns in Wisconsin home sales, and the vast majority of homes sell between April and September, but we’ve had a very good housing market over the past winter,” said Renny Diedrich, Chairman of the WRA board of directors. Specifically, comparing the most recent December, January and February sales figures to those same months a year earlier, home sales increased 14.5 percent. “The housing market has been on a strong growth path since the summer of 2011, and while the growth rate has moderated slightly, this is a very good trend moving into the spring selling season,” Diedrich said. Five of the six regions in the state saw home sales rise in February. The Central region grew at a healthy 24.4 percent, and the Southeast and South central regions were up 15.5 percent and 11.9 percent, respectively. The West grew 9.2 percent, and the Northeast increased 8.9 percent compared to February 2012. The North region saw its home sales fall, but this represented a reduction of just 3 percent, or nine fewer sales in February 2013. “It’s important to note that the Central and North regions, which have sizeable second-home markets, are still running
View Online View all of the housing statistics at www.wra.org/housingstatistics. well ahead of last year’s pace for the winter selling season,” said Diedrich. Comparing the December through February months to those months a year earlier, existing home sales increased 17.5 percent in the North region and grew 19.7 percent in the Central region. Median prices in the state rose a solid 6.1 percent in February relative to February 2012 and were up 6.7 percent over the most recent winter months compared to the previous December through February period. This is well above the rate of inflation, which has averaged between 1.7 and 2.2 percent over the last three months of 2012, and just 1.6 percent in January. “While we don’t think that housing prices will continue to grow at nearly three times the rate of inflation, it’s clear that the Wisconsin home market has been tightening, and housing is likely to be a good way to accumulate household wealth going forward,” said WRA president and CEO Michael Theo. Price appreciation was especially strong in the North and Central regions of the state, which saw median prices grow between 24.2 percent and 28.1 percent in February 2013 compared to February last year. Much of the price increase in these areas was due to a shift in the mix of homes to larger properties or those in more prime locations, but some likely reflects a tightening of the
second-home markets in these areas. Median prices in the other regions were either flat, as in the Northeast; up by modest amounts, as in the Southeast; or up by solid margins, as in the South Central and the West. Although state inventory levels increased slightly compared to last month, they are still 13.1 percent below the levels of February 2012. “We’ve seen a consistent pattern of declining inventories, and the state now has 8.6 months of supply,” said Theo. He noted that most of the metropolitan counties have inventory levels that are between five and seven months of supply. Still, housing affordability remains high. The Wisconsin Housing Affordability Index shows the percentage of a median-priced home that a buyer with the median family income can afford at current mortgage rates. The index was at 291 in February 2013 compared to a modified 281 in February 2012. There has been a slight improvement in median family income, but the major reason for higher affordability is low mortgage rates, which are in the 3.7 percent range. “Still, with tightening inventories, housing prices should continue to rise, which will undoubtedly reduce affordability, so this is a great time to use an experienced REALTOR® to help identify the best value in this market,” said Theo. David Clark, Ph.D., is a professor of economics at Marquette University and serves as a consultant to the WRA in the analysis of existing home sales data. For more information, contact Clark at C3 Statistical Solutions, 414-803-6537.
WIREALESTATEMAG • APRIL 2013
Median Price Existing Home Sales Region FEB-2013 FEB-2012 % Change FEB-2013 FEB-2012 % Change Southeast $122,000 $118,000 3.4% 1,382 1,197 15.5% South Central $146,000 $136,000 7.4% 667 596 11.9% West $135,900 $120,250 13.0% 343 314 9.2% Northeast $112,000 $112,500 -0.4% 676 621 8.9% Central $103,750 $81,000 28.1% 240 193 24.4% North $100,000 $80,500 24.2% 290 299 -3.0%
Capture Your Share of the
Real Estate Investor Market
WIREALESTATEMAG â€˘ APRIL 2013
by Tom Lundstedt
Question: What do real estate and fishing have in common?
WIREALESTATEMAG • APRIL 2013
Picture this: It’s a spectacular spring day. As you drive to your next listing appointment, you pass a beautiful lake. Glancing across the water, you notice something odd — dozens of fishing boats bunched close together on one area of the lake. But on the other side, there are just a few boats spaced far apart. What does this scene have to do with real estate? Well, the lake is a good analogy for the real estate business. The bunched-up boats represent the majority of real estate salespeople, striving in a crowded marketplace, competing for the same goal: residential sales. Meanwhile, on the other side of the lake, the smaller number of boats have open space and fewer competitors. They represent real estate salespeople who confidently work with investors. The National Association of REALTORS® reports approximately 20 percent of sales are to investors. So, if you’re not comfortable dealing with investors, you’re missing one of every five buyers! But with a bit of dedicated effort, you too can capture your share of this rewarding market. Here’s a key point: our focus is on real estate investors, not real estate speculators. There’s a huge difference. Wise investors know they’re buying a business when they acquire rental property. It has to be analyzed prior to purchase and must make financial sense. A speculator often buys property without analyzing the numbers — or even knowing how to analyze the numbers — and hopes it’ll increase in value in the future. This approach is asking for trouble.
You might think, “Geez, I’m not good with numbers. In fact, I hate numbers!” Don’t worry — analyzing a property does not necessarily mean memorizing a bunch of complicated formulas. Most of the math is simple: add, subtract, multiply and divide — you learned it in grade school! It’s useful to think of a rental property as a three-legged “money machine.” Each leg must be strong or the money machine doesn’t work properly. The three legs represent income, expenses and financing, and each work in harmony to create the four financial benefits of owning investment real estate. If you understand these benefits and can communicate them, they’ll enable you to work effectively with investment buyers and investment sellers.
WIREALESTATEMAG • APRIL 2013
Helping buyers: the four financial benefits
In order to “talk the talk” and be equipped to help buyers, put yourself in the buyer’s shoes. Think like an investment property buyer. This “money machine” can produce four financial benefits: 1. Cash flow before tax: Once you collect the rent then pay your operating expenses and mortgage, there ought to be some income left over. All investment real estate has income – unfortunately it’s not always positive income! So, be careful and always run the numbers before you buy. You don’t want to invest in a money machine that loses money. 2. Principal reduction: The loan is paid down with rent collected from tenants. The tenants are essentially buying the property for the owner. You may know someone who has rented the same property for many years. For one reason or another, they don’t want to buy. Well, surprise, surprise! They are buying the property … for the owner! 3. Income tax savings: Let’s say you buy a rental property that generates $1,000 in cash flow this year. Is that taxable? Yes, the money came from your tenants. The property also produces $500 of principal reduction this year. Is this taxable? Yes, this money also came from your tenants. So your first two benefits total $1,500. Now the good news: for tax purposes, these benefits can be sheltered by depreciation. Depreciation is a “non-cash” deduction; it’s also known as cost recovery. Tax rules allow the owner of rental property to depreciate their cost over a number of years. The specific number of years depends on how the cost is allocated. It’s important to allocate the cost of the property into categories that include land, building, personal property and land improvements. Many people lose money by only dividing their cost into land and building. Each category is depreciated over a different number of years: Land Not depreciable Building 27.5 years for a residential rental building; 39 years for a non-residential rental building Personal Property (appliances, carpet, furniture)
5 years in a residential rental property
Land Improvements 15 years (parking lot, landscaping, fence) Assume that your total depreciation for the year is $5,000. Every dollar of depreciation shelters a dollar of income, starting with income from the property. So, the depreciation first shelters the $1,000 cash flow plus the $500 principal reduction. They’re completely tax sheltered. And you’ve still got $3,500 of unused depreciation left over. This leftover depreciation is reported as a “loss” for income tax purposes. For most people, this loss can be used to shelter income from a job or other sources, resulting in tax savings. That’s the third benefit: the tax savings are in addition to the tax-sheltered cash flow and principal reduction. Not bad! Why did I say most people can use the leftover depreciation to shelter their income? Well, as you know, tax law is never simple, and rules called “passive loss rules” govern when a real estate tax loss can be applied. These rules are beyond the scope of this article, so be sure to ask your good tax manager how your unique situation is affected. Be extra sure to ask about the special “exception for real estate professionals.” You’ll love it! 4. Appreciation: The fourth financial benefit of owning investment real estate is appreciation — or increase in value. We all know someone who owns a property that’s worth a lot more than they paid for it years ago. It didn’t happen overnight, but over the years. The combination of these four benefits can be a powerful wealth-building tool!
Helping sellers: return on equity Once you’re comfortable with how the four benefits affect investor buyers, you can use these same concepts to work with investor sellers. One approach is to show a property owner their “return on equity.” Consider the following. Assume an investor, Ben, bought a rental house 16 years ago. Ben invested $10,000 and borrowed the rest. He was smart and did the pre-purchase analysis. The cash flow, principal reduction and tax savings added up to net benefits of $1,400 that first year. By dividing the net benefits by the $10,000 investment, Ben’s rate of return was 14% ($1,400 divided by $10,000). Not bad — plus, the property was appreciating. He’s an investment genius! Fast-forward 16 years. Today, Ben’s cash flow and principal reduction are still positive, however, much of the depreciation has been used up over the years. There’s no longer enough depreciation to completely shelter the cash flow and principal reduction (let alone shelter income from other sources). Instead of having a loss that saves tax, Ben now has to pay tax. In order to calculate net benefits, Ben adds his cash flow plus principal reduction, then subtracts the tax he has to pay. If he divides these current net benefits by his original $10,000 investment, the rate of return might still look good. But here’s the key point: Ben’s investment is not the amount he originally invested 16 years ago. Instead, his investment is the amount he could get out of the property if he disposed of it today.
For the sake of this example, assume Ben’s loan has been paid down significantly over the years and the property has increased in value. Let’s say he could sell the rental property today and walk out of the closing with net proceeds of $80,000. If that’s the case, Ben doesn’t have $10,000 invested — he has $80,000 invested. If he divides his current net benefits by $80,000, his return on equity is probably very low. As equity grows, return on equity usually falls. Ben should consider if his $80,000 equity may perform better if invested in a different property. If the answer is “yes,” he should move his equity. The best way to move equity is by doing a 1031 exchange. Exchanging allows investors to move net equity from one property to another without paying tax. Therefore, if Ben wants to retain his membership in the “investment genius” club, he’ll exchange the equity into a different property — or properties — and re-boot his rate of return. A successful investor’s goal is to maintain the highest possible rate of return throughout their investing lifetime. This is accomplished by wisely moving equity from property to property. A REALTOR® who attended one of my seminars called me recently. He was proud to report that after the seminar, he explained return on equity to an investor who owned seven properties free and clear. After the REALTOR® demonstrated that the return on equity was only 4.2%, the investor listed all seven properties and exchanged them into two larger ones that produced a much higher return. That REALTOR® definitely captured his share!
Other important issues Before concluding, let’s touch on a few issues that are important but beyond the scope of this article. 1. Analyzing a property is only as good as the accuracy of the numbers. Be specific and verify the accuracy of income and expenses. One way to do this is by making the transaction contingent on seeing the seller’s Schedule E (the tax form reported to the IRS). Be diligent and require accuracy — otherwise the analysis is a classic case of “garbage in, garbage out.” 2. All dollars are not equal. There are significant differences in how dollars are taxed. If you earn a dollar from your job, you pay federal and state income tax plus Social Security tax (or self-employment tax) on that dollar. However, if the dollar comes from rental property cash flow, it can be sheltered from income tax and is exempt from Social Security tax (or self-employment tax). Therefore, a dollar of cash flow is better than a dollar from your job. 3. Depreciation is great while you own the property — but what happens when you sell? When you buy a rental property, the IRS says, “Climb on the depreciation bus and ride it as long as you own the property.” When you sell, you jump off the depreciation bus. Then, the bus turns around and runs over you. The depreciation deductions you enjoyed during ownership are taxed back when you sell. This is referred to as “recapture” — an accounting term, not a zoological term. But the good news is there are several methods and strategies to reduce or eliminate recapture. 4. Utilize the services of a good tax manager. By tax “manager,” I mean someone who’ll help you understand the tax implications of real estate investing; not merely prepare your tax return. Most people don’t have a tax manager … they have a tax preparer they see once a year on April 14. And the tax preparer tells them how much tax they owe! That’s not what I’m talking about. I’m talking about seeing your good tax manager throughout the year to plan ahead and proactively manage your unique tax situation. Okay, that’s it. You’ve got a good start on the basics — but there’s plenty more to learn. Investors are searching for good REALTORS® to be part of their team. If you commit to learning and improving, I’ll bet you’ll capture your share of the investment market and be fishing the entire lake in no time. I hope you catch a WHOPPER! Tom Lundstedt, CCIM, is known as the funniest investment and tax guy in America! His programs for REALTORS® have entertained and enlightened thousands of audiences from sea to shining sea. He’s a former Major League Baseball player whose striking combination of humor and real world examples makes powerful subjects spring to life. He’s the author of a series of audio CDs and Study Guides on the subjects of investment real estate and taxation. Visit his website at www.tomlundstedt.com or contact him at 920854-7046.
WIREALESTATEMAG • APRIL 2013
A successful investor’s goal is to maintain the highest possible rate of return throughout their investing lifetime. This is accomplished by wisely moving equity from property to property.
legal by Cori Lamont
Being Helpful and Staying Out of Your Own Way Recommending other professionals to consumers
I WIREALESTATEMAG • APRIL 2013
t is not uncommon for parties in a real estate transaction to turn to their agent and ask for the name of a contractor, inspector, painter, title company or attorney. While it is not illegal for an agent to provide such recommendation, the agent should do so with care. This risk is on display in Olson v. Zurich American (No. 2010AP1207, Ct. of App. 2012) www.wisbar.org/res/ capp/2012/2010ap001207.htm. In Olson, the court discusses the liability of a real estate agent who referred a seller to what turned out to be an untrustworthy title agent. It is a tale of negligent hiring, theft and misappropriation.
The players Thomas Olson intended to close and receive net proceeds in cash of over $175,000. David Reed was Olson’s real estate agent who recommended Coulee Country Title, the local office of the title company, Ibarras-McClary Global LLC (IM) to prepare the necessary title work and serve as the closing agent for the sale. Pamela Harris was an I-M employee and closing agent. Commonwealth was the title insurance
company for whom I-M served as underwriting agent. Prior to Commonwealth, I-M served as an agent for Stewart Title. The closing took place on May 22, 2006. Harris provided a check to Olson on May 23, 2006, for the total amount issued by I-M and signed by Harris. When Olson deposited the check, he learned that it was returned because the I-M trust account did not have sufficient funds to cover the check. Olson attempted to obtain his sale proceeds, but to no avail, and therefore brought action against Reed, I-M, Commonwealth, Stewart Title and their individual insurers to recover his money. Originally Harris was included in the action but was later dismissed because she was discharged in bankruptcy.
Olson’s claims Olson alleged that Stewart Title terminated its relationship with I-M in November 2005 because of irregularities with I-M’s trust account and problems with the nonpayment of premiums. However, Stewart claimed the relationship was severed because there was already another agent in the area. Olson alleged that I-M was negligent in its hiring, training and supervision of Harris
and that Stewart Title colluded with I-M and Harris to conceal why it terminated its relationship with the agency and assisted in helping I-M obtain a new underwriter. Olson also claimed that Reed was negligent in recommending I-M, and Harris was both negligent and committed theft for misappropriation. While a number of cross-claims were made, the only relevant one for this discussion is Commonwealth against Stewart Title for intentional misrepresentation and negligent misrepresentation.
The jury verdict The jury, which was presented a number of questions, found that both Stewart Title and Commonwealth were casually negligent. Commonwealth lost its cross-claim against Stewart for intentional misrepresentation. Both Stewart Title and Commonwealth were found negligent. And the jury rejected the notion of fraudulent misrepresentation and found Commonwealth’s contributory negligence to outweigh Stewart Title’s negligent misrepresentation as a cause of its damages.
The outcome The circuit court held a hearing and issued a number of judgments, and for more information relating to the circuit court holding and the Court of Appeals, review the November 2012 Legal Update, “Case Law Update 2012: Land Use and Miscellaneous” at www.wra.org/LU1211. The circuit court dismissed Reed and his insurance carrier, and the jury unanimously found that Reed was not negligent. On appeal Olson argued that Reed had a duty of care as Olson’s real estate licensee when making a referral. However, we will never know the court’s response to Olson’s argument against Reed; the court refused to address the issue because Olson’s arguments were statements unsupported by authority.
letterhead, and include a disclaimer that the company’s agents cannot personally endorse these professionals. 2. Avoid referral fees. It is wise to not ask for or accept a referral fee from any name on the referral list. Earning a fee just for referring business (except to other real estate brokers) violates the Real Estate Settlement Procedures Act (RESPA) if the contractor or company is a RESPA settlement service provider like a home inspector, appraiser or title company. The best policy is to not take referral fees unless actual goods or services are provided. 3. Let inspectors and contractors do their jobs. Licensees may wish to avoid accompanying an inspector through the house because this may imply that the licensee is supervising the inspector. Reinforce that the party hired the inspector and let the party deal directly with the inspector. Similarly, do not volunteer to inspect work performed on the house unless you wish to be considered the contractor’s supervisor. Instead, suggest that the buyer engage an appropriate expert to inspect this work if the buyer wants a professional evaluation. Remember that you want to be helpful — just not the kind of helpful that places you at risk. Cori Lamont is Director of Regulatory Affairs for the WRA.
Providing Service To Refer to your company policy and consult with your broker if the policy is not clearly stated. However, the following are practice tips to help alleviate some of the pressure and worry when referring a provider to a party. 1.
Prepare a list of professional inspectors and contractors. Do not recommend or endorse one particular contractor because a recommendation that does not present the party with options may result in liability. Instead, maintain a list with the names of at least three professionals in each field, and include any available references from past users. Any contractor included on a list of contractors should be certified in his or her field, if at all possible, and at minimum should hold all applicable credentials for the type of work being performed. Any company or agent affiliations with any of the listed contractors should be stated on the list or disclosed when the list is distributed. Put the list on a sheet of company
Metro Milwaukee Area, 262.798.4274 Metro Madison Area, 608.824.8041 Janesville Area, 608.359.9544 Green Bay Area, 920.621.8198 16871 W. Greenfield Ave., New Berlin, WI 53151 1600 Aspen Commons #240, Middleton, WI 53562
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© 2012 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in WI.
WIREALESTATEMAG • APRIL 2013
Moving forward and avoiding liability
legal by Debbi Conrad
Animals in Housing Sorting through the myths and misunderstandings Confusion and misunderstandings often prevail when it comes to a tenant or condominium unit purchaser with disabilities who asks to have a service or therapy animal in the dwelling. Finding the applicable law is often the first piece to the puzzle.
Misunderstanding # 1: The ADA applies
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One common mistake is the tendency to assume that the answer is found in the Americans with Disabilities Act. While the ADA does address service animals, in most cases the ADA does not apply to residential housing such as private apartments and condominium units. Rather, the ADA applies to places of public accommodation such as restaurants, retail stores, libraries and hospitals as well as commercial facilities such as offices/buildings, warehouses and factories. However, Title III of the ADA does cover public and common-use areas at housing developments when these areas are open to the general public, for example, a rental office. In those instances when a public accommodation is involved and the ADA does apply, the ADA definition of a “service animal” is limited to a dog that has been individually trained to do work or perform tasks for the benefit of an individual with a disability, and when reasonable, trained miniature horses. Other animals, whether wild or domestic, do not qualify as service animals. This ADA definition does not affect or limit the broader definition of “assistance animal” under other laws.
Misunderstanding # 2: Wisconsin law must apply Landlords and condominium managers are attracted to the Wisconsin statute regarding assistance animals because it provides a nice, concise set of rules and addresses recognizable assistance animals, like a seeing-eye dog. An animal that helps a person who has a vision, hearing or mobility impairment is well understood, and Wis. Stat. § 106.50(2r)(bm) also requires that the animal have training credentials. It is fairly easy to understand why an exception should be made for
such an animal and why it is discrimination to not allow the person and his service dog to reside in the housing. Wis. Stat. § 106.50(2r)(bm) also provides in the case of the rental of owner-occupied housing that the person can refuse the animal if the owner or a family member is allergic to the animal. As it turns out, Wisconsin law only applies if the property is a one- to four-unit property that is owner-occupied (the Mrs. Murphy exception). In most other cases when the question is whether an assistance animal must be allowed in a housing unit or dwelling, the answer comes from the federal Fair Housing Act.
Misunderstanding # 3: We can’t make exceptions to the no-pet rules Understandably the manager of an apartment complex or a condominium project that does not normally allow pets may assume that these rules cannot be violated under any
Misunderstanding # 4: We can charge extra for assistance animals Therapy, assistance and service animals required for disability are not considered “pets.” Animals that assist persons with disabilities are considered to be auxiliary aids and generally are exempt from pet restrictions, extra security deposits and extra pet rent. Such
animals include, for example, guide dogs for persons with vision impairments and companion animals for persons with chronic mental illness. This includes all assistance animals regardless of the label, breed or species. Wis. Stat. § 106.50(2r)(bm) specifically says it is discriminatory to charge extra compensation for the animal. If a tenant’s or unit owner’s assistance animal causes damage to the unit or the common areas, the landlord or condominium association may generally charge for the cost of repairing the damage or deduct it from the tenant’s security deposit.
Misunderstanding # 5: Assistance animals must have a training certificate The landlord or condominium cannot ask for proof that the animal is trained under the act. The federal Fair Housing Act does not include any specific requirements for registration or credentials for the animals involved. While many animals are trained to perform certain tasks for persons with disabilities, others do not need training to provide the needed assistance. For example, emotional support animals do not need training to ameliorate the effects of a person’s mental and emotional disabilities. Assistance animals do not have to be just dogs; they can also be other animals, such as cats or monkeys. On the other hand, Wis. Stat. § 106.50(2r)(bm), when it applies, requires that the animal have training credentials.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.
Resources for assistive animals in housing • Joint Statement of the Department of Housing and Urban Development and the Department of Justice — Reasonable Accommodations under the Fair Housing Act: www.hud.gov/ offices/fheo/library/huddojstatement.pdf. • Fair Housing Information Sheet #6: Right to Emotional Support Animals in “No Pet” Housing, Bazelon Center for Mental Health Law: www.bazelon.org/LinkClick.aspx?fileticket=mHq8GV0FI4c %3D&tabid=245. • “Dealing with Pets in Rental Properties: Planning and Documentation Help Protect Property Managers,” March 2006 edition of the Wisconsin Real Estate Magazine: www.wra.org/WREM/March2006/Pets. • ADA: www.ada.gov. • May 2006 Legal Update, “Complying with the ADA:” www.wra.org/LU0605. • ADA Service Animal Requirements: www.ada.gov/service_animals_2010.htm.
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circumstances and may become frustrated to learn that exceptions sometimes must be made for persons with disabilities. There also may be suspicion over whether a person requesting an assistance animal is just looking for an excuse to have a pet and anxiety over the expected reaction of other tenants or unit owners who have been told they cannot have any pets. The federal Fair Housing Act and Wis. Stat. § 106.50 prohibit discrimination in housing on the basis of disability: • Has a physical or mental disability (for example, hearing, mobility, speech and visual impairments, chronic alcoholism, chronic mental illness, AIDS, Human Immunodeficiency Virus infection, mental retardation, cerebral palsy, autism, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease and emotional illness) that substantially limits one or more major life activities; • Has a record of such a disability; or • Is regarded as having such a disability. One type of disability discrimination prohibited by the act is the refusal to make reasonable accommodations. A reasonable accommodation is a change in rules, policies, practices or services so that a person with a disability will have an equal opportunity to use and enjoy a rental unit or apartment. The law generally requires exceptions to any no-pet policy as a reasonable accommodation, as long as the accommodation does not constitute an undue financial or administrative burden for the rental property/ condominium complex, or fundamentally alter the nature of the housing. Thus the act often allows people with disabilities to keep assistance, support or companion animals, whatever the label might be, even when a rule or policy explicitly prohibits pets. If a prospective tenant or buyer needs an assistance animal, he or she should request a reasonable accommodation, preferably in writing, from the landlord, condominium association or manager. The request should state the disability if that is not readily apparent and indicate the relationship between the person’s ability to function and the assistance of the animal. In the case of assistance animals, an individual with a disability should demonstrate a nexus between his or her disability and the function the service animal provides, for example, alerting individuals who are deaf to sounds, pulling a wheelchair or fetching items. A letter or report from an appropriate professional, such as a therapist or physician, verifying the need for the assistance animal, may be requested should the need for the animal not be clear. The prospective tenant or purchaser need not disclose the details of the disability nor provide a detailed medical history, and such information should be kept confidential.
best of legal hotline by Tracy Rucka
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The Best of the Legal Hotline and Fair Housing
An agent has a client who wants to list his home but does not want to sell it to anyone who is homosexual, two people of the same sex, or a couple who are not married. Is this legal? The 1968 federal Fair Housing Act prohibits discrimination in the sale, renting or financing of housing on the basis of race, color, religion, gender and national origin. The 1988 Fair Housing Amendments Act created new protected classes based on handicap and familial status. Additional protected classes under Wisconsin law include sexual orientation, marital status, lawful source of income, age and ancestry. Wisconsin fair housing laws tell us it is illegal to discriminate based on these characteristics in the sale and rental of housing. For example, it is illegal to refuse to rent or sell housing to someone because the person is in one of the protected classes. A seller cannot lawfully set different prices, terms or conditions when selling or renting housing based on the buyer’s being in a protected class. Advertising in a manner that shows a preference or a limitation for buyers or tenants based on their class status is also illegal. The broker may refer the potential seller to legal counsel regarding fair
housing laws. The broker may elect to not enter into the listing if the broker believes the seller may attempt to engage in unlawful discrimination. A buyer’s agent was scheduling showings when the listing agent asked if the buyers have children. When the buyer’s agent told her yes, the listing agent immediately answered that she was declining the showing because the buyers had children. She said the home was simply too small for someone with children, and she did not want to waste the seller’s time with buyers who would not buy. Is this discrimination that should be reported? Unlawful discrimination in housing is based on federal, state or municipal protected class status. The 1988 Fair Housing Amendments Act created new protected classes, members of which have the right to sue persons who commit housing discrimination. Familial status was among those classes. Similar protections are provided in Wis. Stat. § 106.50, Wisconsin’s open housing law, which prohibits discrimination in housing based on family status. If the seller or listing broker attempts to discourage or prohibit a family with
children from purchasing, significant legal liability could result. Although one might initially assume that this is discrimination based on age, it appears to be discrimination based on family status. Under fair housing laws, age discrimination applies only with respect to persons at least 18 years of age. If there is evidence that the listing broker and/or seller is engaging in discrimination, the buyers or the buyers’ agent have the right to bring discrimination complaints. A tenant who is in a wheelchair had a maintenance request. The maintenance man who visited the unit reported a considerable amount of damage to the unit, including holes in the walls, scratched/marred cabinets, holes in doors, damaged trim and damaged flooring. Are people in wheelchairs held to a different standard in regards to damages to an apartment at the time of move-out? While a landlord is responsible to make reasonable accommodations and modifications, if requested, for persons with disabilities under the fair housing law, a disabled tenant would still be responsible for damage to the unit that is above and beyond normal wear and tear. The broker listed a condominium
best of legal hotline
unit recently and reviewed the WB-4 with the seller. The broker discussed lines 297-300 of the listing contract regarding fair housing, protected classes and discrimination against prospective buyers. At that point, the seller asked whether pedophiles or registered sex offenders were included. The seller does not want her unit sold to such buyers. Are they a protected class? How to proceed? Real estate licensees, landlords, property managers and sellers all will have a duty, if asked by a person in connection with a real estate transaction, to disclose any actually known information concerning any sex offenders. Specifically, if asked whether a particular person is required to register as a sex offender, about the location of sex offenders in a neighborhood, or for any other information about the sex offender registry, the licensee, owner or property manager must disclose whatever actual knowledge he or she has on the subject. However, the licensee, owner or property manager will have immunity relating to the disclosure of such information if he or she promptly gives the person requesting the information a written notice indicating that the person may obtain the sex offender registry information by contacting the Department of Corrections via either the Internet or by a toll-free telephone number. In other words, even if the licensee, owner or property manager knows something regarding sex offenders, they will have immunity if the person asking the question is referred to the Department of Corrections. Instead of answering based on what they have heard or read, the licensee, owner or property manager can instead refer the person to the Department of Corrections’ sex offender registry for factual and accurate information at www. widocoffenders.org or by phone at 608-240-5830 or 877-234-0085. Prior to entering into the listing or taking any action that limits access to housing, the broker may consult with legal counsel. Although registered sex offenders are not specifically
included in the list of protected classes under state law, the broker should check with an attorney in the area to confirm that local ordinances/codes do not expand the protected classes to include past felons and/or sex offenders. Occasionally the argument is made that being a sex offender stems from having a handicap or disability, which could place some sex offenders within a protected class. This has not been tested in the courts. Obviously this is not a black and white issue. Rather, the seller is best served making her own decision after consideration of these factors and upon consultation with private legal counsel. She may be referred to the Department of Corrections for information about what, if any, obligations or limitations there are relating to the sex offender status. The broker may review Legal Update 02.05, “Sex Offender Registry,” online at www.wra.org/LU0205, for more information about the sex offender registry and disclosure obligations.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.
More info online
Fair Housing/Equal Opportunity REALTOR® Resource page online at www.wra.org/fairhousing.
April 2005 Legal Update, “Diversity and Fair Housing” at www.wra. org/LU0504. “Best of the Legal Hotline: April is Fair Housing Month” in the April 2010 edition of the Wisconsin Real Estate Magazine at www.wra. org/WREM/Apr10/FairHousingMonth. “Thirty Years after the Federal Fair Housing Act,” at www.wra.org/LU9803.
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April 2007 Legal Update, “Avoiding Discrimination in Advertising and Racial Steering” online at www.wra.org/LU0704.
by Nichole Mickelson
Real Estate Investment: Are You Ready? Whether you are a real estate investor yourself or if you work with real estate investors, the WRA offers a selection of books for this market niche. If you are thinking of becoming involved in real estate investment, these books are filled with the knowledge and experience of seasoned and successful real estate investors.
One of the great ways to build wealth is through investing in income properties, and this is even true when investing during difficult economic times. Investing in Real Estate by Gary W. Eldred, Ph.D., evaluates many of the wealth-building opportunities that real estate investment can offer. In this book, you’ll discover how to create and utilize at least 22 sources of financial returns and use such returns to determine if a property is investment-worthy. To secure a financially sound future with few financial worries, property investment — no matter the state of the market — can provide a route to wealth. Read Investing in Real Estate to discover how to obtain this future. For more information about this publication or to order, go to www.wra.org/ pub187. Available as an eBook as well!
wisdom of over 100 millionaire investors, this “how to” book by Gary Keller offers instruction for identifying real estate investment opportunities as well as proven strategies used by millionaire investors. Common myths about money and investing are addressed as well. The Millionaire Real Estate Investor can serve as a guidebook for the real estate investor, whether novice or seasoned. For more information about The Millionaire Real Estate Investor or to order, visit www.wra.org/PUB209. Available as an eBook as well! For more books on real estate investment and finance, go to www.wra.org/books. Information about eBooks available through the WRA’s partnership with Amazon.com is available online at www. wra.org/ebooks. Click on any of the sample books listed to browse the entire library.
The Millionaire Real Estate Investor
Zip Tip: e-Sign Certificate through Digital Ink
If you are seeking financial wealth, use The Millionaire Real Estate Investor to develop a plan to guide you to the highest levels of investing. With the collective
You may encounter a lender requesting proof that your client has consented to electronic document signing, or e-sign. For your convenience, Digital
WIREALESTATEMAG • APRIL 2013
Investing in Real Estate
Ink automatically includes this with any transactions signed through its system. Below are instructions on how to access the proof of e-sign consent. Once your client has completed signing the document, follow these steps: 1. From within your zipForm account, open the transaction. 2. Click Check Status under E-Sign. 3. Select the submission of the transaction you are looking for. 4. Click View — this will take you into Digital Ink. 5. Click on View History. 6. Under the transaction history section, look under the Event column for Certificate Issued and E-Sign Consent Accepted. 7. Printing this report should satisfy the lender’s requirement for e-sign consent. For additional information or questions, contact Digital Ink Support at 586-840-0140 or online at support. zipform.com/emailsupport.asp. Also see the March 18 Legal Hottips at www.wra.org/Legal/Hottips/ Legal_Hottips_Overview for more information on Digital Ink and e-sign. The WRA legal staff has also created a number of resources to help your understanding of the laws relating to e-commerce. Find more information at www.wra.org/e-commerce.
Nichole Mickelson is the Business Services Assistant for the WRA.
April 27-28, 2013 I Kenosha www.wra.org/FairHousingConference
More than $26 million back to customers......
WIREALESTATEMAG • APRIL 2013
More than financing– You won’t find many lenders today who pay money back to their customers. this year alone, greenStone is giving more than $26 million back to its members. Share the difference with your clients today!
Top-Notch Classroom Education Whether your goal is to become a real estate sales licensee, enhance your career with a prestigious designation, or renew your license with continuing education, this section offers you the key courses you will need.
2013-14 Continuing Education The new biennium is here! Learn about the new 2013-14 required course offerings. Find your nearest CE courses at www.wra.org/ce. Watch for the distance learning options in May 2013!
Courses 1–4 (all four required)
Electives A–D (two electives required)
Course 1: Wisconsin Listings covers the listing contracts used by property owners to hire a broker to market a property. It also focuses on contract provisions such as delivery, marketing, protected buyers, extension of the listing, open houses and more.
Elective A: Bank-owned (REO), Foreclosures, and Short Sale Transactions in Wisconsin examines transactions involving distressed properties and provides an update on the process of working through short sale, foreclosure and REO transactions.
Course 2: Wisconsin Offers reviews use of the WB-11 Residential Offer to Purchase. This course explores situations that trigger disclosure obligations and provides instruction on contract provisions, acceptance and binding acceptance, and delivery including rules for electronic delivery.
Elective B: Unique Transaction Types and Issues provides instruction on less-common transaction issues that licensees will encounter in practice and also discusses the new WB-24 Option to Purchase.
Course 3: Wisconsin New Developments provides an update of recent changes in real estate law, practices and procedures. It explains changes to statutes, administrative code and case law and also examines land use regulations related to piers, boathouses and nonconforming structures. Course 4: Contingencies in Wisconsin Approved Offer Forms explores contingencies with Wisconsin-approved offers to purchase. Also covers drafting enforceable contingencies as well as recognizing competency to draft and when to request outside assistance.
QuickStart Learn the business of real estate! QuickStart helps you become confident in your practice and focused on your personal business plan. Broken into four learning modules, you’ll be ready to start your new career!
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Completing the modules and passing the exams fulfill the requirement for GRI Course 1, plus you will receive access to two free bonus modules: Facebook Best Practices and Real Estate Technology. Visit www.wra.org/ QuickStart for more.
Real Estate Sales Pre-license July 15-19; 22-24, 2013 — Madison To obtain a real estate license in the state of Wisconsin, you must first complete 72 hours of approved education courses, such as our sales pre-license course, and next, you must pass a state-administered exam. The WRA will offer an eight-day accelerated 72-hour sales program this summer in Madison. For more information, visit www.wra.org/salespl
Elective C: Wisconsin Property Management gives timely information for those currently involved in or looking to expand into property management. This elective explores lease agreements and reviews Wisconsin residential rental practice regulations, Wisconsin landlord and tenant laws, fair housing laws and more. Elective D: Agency Roles with Buyers in Wisconsin provides instruction on the buyer agency relationship and looks at the differences between a client and a customer and duties when working with both. This class also explores agency roles when working with relocation companies.
BPOs: The Agent’s Role in the Valuation Process April 18, 2013 — Appleton Whether you are experienced at preparing broker price opinions or are new to the business, this course from NAR will provide you with the resources and knowledge to reduce your risk and increase your opportunities. Learn about the multiple uses of BPOs and what they can and cannot be used for, how to evaluate and minimize the risk of the valuation process, identify and use effective tools, and filter and select comparables to create professional and accurate BPOs. Visit www.wra. org/BPOR_overview for more. Those who complete the course will need to take a free webinar and pay a one-time fee to earn the BPOR certification. For additional information, visit www.bpor.org.
The BPO course counts as one REBAC elective course to be applied toward the ABR® designation.
WRA Course Schedule Visit www.wra.org/CourseSchedule for full schedule and details. Conferences and Conventions Date April 25-26, 2013 September 15-16, 2013
Event/Course 2013 Fair Housing Conference & Luncheon WRA Annual Convention
Location Kenosha Wisconsin Dells
Real Estate Continuing Education Date Course Location Price April 16, 2013 2013-2014 Courses 1 & 2 La Crosse Call 608-785-7744 May 2, 2013 2013-2014 Courses 1 & 2 Sturgeon Bay 920-743-9651 May 7, 2013 2013-2014 Course 3 Racine 262-884-7833 May 7, 2013 2013-2014 Courses 3 & 4 La Crosse 608-785-7744 May 8, 2013 2013-2014 Course 2 Sheboygan 920-457-7908 May 23, 2013 2013-2014 Electives A & D La Crosse 608-785-7744 May 29, 2013 2013-2014 Course 1 Racine 262-884-7833
Designation Courses Date Course April 18, 2013 BPOR: The Agent’s Role in the Valuation Process
Pre-License Date Course July 15-19; 22-24, 2013 Sales Pre-License Course
Member $325 / ATD: $345
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realtor sales tip by Sara J. Walker, CFA
Trying to Make the Horse Drink the Water
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ederal Reserve Chairman Ben Bernanke is a man on a mission. He is determined to pull the U.S. economy away from the brink of deflation by enticing businesses to invest and consumers to spend. His strategy includes keeping the target federal funds rate near zero while expanding the Federal Reserve’s balance sheet to over three times its former size. By employing such an accommodative monetary policy, he certainly has led the horse to water. Now, can he make the horse drink? Recent market activity indicates at least a partial quenching of thirst. The resulting low-yield environment is driving a hunt for yield by consumers and institutions with excess cash. That hunt is leading investors to both the real estate market and the stock market. The U.S. stock market is hitting new highs, and home sales are back to 2007 levels. Interestingly, the pace of mortgage originations is only half its 2007 level. According to DataQuick, 36 percent of home sales last year occurred without mortgage financing compared to 15 percent in 2007. In their quest for yield, investors with cash are entering the residential housing market driven by attractive rental income. Does this activity portend another bubble? If left unchecked, it will at some point in some market. Anytime government policy is so skewed in favor of one outcome, for example economic growth, it results in distortion. Fortunately, both the real estate market and the stock market are supported by strong, albeit not perfect, fundamentals at this time. What do we mean by “strong, albeit not perfect”? We admit this sounds like an assessment of the latest California cabernet sauvignon vintage. There are headwinds against both markets, but there always are. Steady economic growth is the best antidote for these
headwinds, and the U.S. economy is growing steadily — but modestly. The employment report for February 2013 highlights this predicament. Normally at this stage of recovery, especially when a Federal Reserve chairman is as accommodative as Dr. Bernanke, we should see monthly job creation of at least 400,000. The February report indicated job creation at 236,000. This was about 70,000 to 100,000 better than expected. And, the average monthly pace for all of 2012 was about 180,000. One month does not make a trend, but the labor market is showing steady improvement even as business owners deal with the uncertainty emanating from Washington, D.C. One of the best supports for the U.S. economy, and therefore the
residential real estate market, is employment. We are a consumer-led economy with consumption explaining almost 70 percent of U.S. Gross Domestic Product (GDP) growth. You might be wondering if the Federal Reserve is about to raise its target interest rate given this economic improvement and attendant inflation concerns. This is where “steady and modest” is beneficial. Our economy is growing, but it is operating well below its potential. Business owners face numerous sources of uncertainty, and they are used to running lean and mean. Furthermore, the Federal Reserve recently raised its inflationary target at which it may begin to tap the brakes. Certainly interest rates can and do change even if the Federal Reserve does nothing. In the week of the February employment report, for example, the 10-year U.S. Treasury Note yield ranged between 1.84 and 2.04 percent. This type of range is expected to continue, however, as economic growth, fiscal policy developments and geopolitical concerns continue their “one step forward, two steps back” routine. Our low interest rate environment will continue for some time, and investors will continue to react to it in both the stock and the real estate markets. Their reactions are rational — rental income is attractive, housing affordability is near record levels, corporate profits are strong and stock market valuations are reasonable. We like that rationality! It brings to mind a popular Wall Street reminder: Bulls make money and bears make money. It’s only pigs that get slaughtered. Sara J. Walker, CFA is the Senior Vice President & Investment Officer at Associated Bank.
realtor sales tip
by Marcus A. Wally
Investing in What We Sell to Others My mantra to my team has always been, “buy what we sell to others.” After all, you see the new listings come up in the MLS before anyone else does. Why not buy the next solid listing you see for yourself?
Invest in what you know: real estate! Acquiring rental property as an investment in real estate can be a natural. You’ve probably heard that you should invest in what you know; and we know real estate. Although I have my MBA in finance, I don’t invest any of my hard-earned money in the stock market because I don’t know the stock market. People get in trouble when they investing in areas where they lack knowledge or expertise. Real estate is a tangible, cashgenerating asset that appreciates in value. Being a tangible asset, however, it does not function like a bond or stock that can quickly lose value; it remains an excellent, long-term way to invest. Real estate investors benefit from financial leverage, using a mortgage to build wealth in a way that other forms of investments do not. Real estate investment has proven to be a powerful method of creating wealth over time, and there are three main forms of return-on-investment (ROI): cash flow, return on taxes and appreciation. Donald Trump did not get rich by
Donald Trump did not get rich by paying cash for his acquisitions — he borrowed while conserving his cash reserves. paying cash for his acquisitions — he borrowed while conserving his cash reserves. We should all follow suit. With interest rates at all-time lows, visit your lender and find out if you can jump on this opportunity. Check out the next new listing on your MLS that looks like a solid buy. Keep in mind two important factors as you initially assess the property for your personal needs. Look at this listing with a keen eye — if buying for investment, you may want to rent it out, perhaps long-term. Next, concentrate on buying in a geographic area with terrific demand. For me, the downtown historical district was my choice. Living in our “Nation’s Oldest City” of St. Augustine, Fla., I felt secure about the future of downtown living and within walking distance of the local college.
Tenants and rents Owning real estate as an investment is a perfect match to us as REALTORS®. We can earn a handsome wage and
supplement it by owning properties that can provide extra cash monthly and super appreciation over the long haul. A few of my tenants have rented 10 to 15 years and have more than paid for the properties they live in — at least once and some twice over. A tip I’d like to share is a warning regarding raising rents. Don’t raise the rents, but instead keep the same tenants in place by treating them well and valuing them as a major part of your real estate investment plan. Increasing rents can cause the tenants to move. And if a property is vacant for any length of time, you can have used up your entire year’s profit just trying to get that extra $25 a month. And on top of that, when a tenant moves out, you may need to spruce up the place with paint, new carpets and more, which costs money and time — both of which diminish ROI. From the famous movie Gone With the Wind, a standout line is when Scarlet declares “why, land is the only thing in the world worth workin’ for, worth fightin’ for, worth dyin’ for because it’s the only thing that lasts.” Underneath all is the land! Marcus A. Wally, MBA, is an active REALTOR® in St. Augustine, Fla. Marcus is the founder and broker of New World Realty, which also manages the coaching and facilitation of education classes around the world. Marcus earned his MBA from the University of North Florida in Jacksonville. He can be reached at 904669-1081 or at marcus@newworldrealty. com. Learn more about him at www. newworldrealty.com.
WIREALESTATEMAG • APRIL 2013
f you want financial independence, don’t depend on just your sales to get you there. As the founder and broker of my company, I encourage my agents to buy for themselves what we sell to others. I’m so committed to this idea that my office manual provides the ability to purchase property with the company forfeiting commission once the agent reaches a certain level of production.
Exclusive Member Benefits We wish you success in your career and hope you take advantage of the many benefits we offer.
Save on Office Supplies and Furnishings! Have you taken advantage yet of your newest member benefit?
n 2012, the WRA partnered with Office Supplies 2U/Emmons Business Interiors (OS2U/EBI) as an exclusive WRA member benefit. OS2U/EBI is a Wisconsin-based company providing exceptional service and highquality office supplies and furnishings for more than 70 years! As a REALTOR® member, you have the ability to shop more than 32,000 items in the OS2U catalog at discounts of 45% off most items. As a member, you will receive discounted prices on: • General office supplies • IT supplies and accessories • Remanufactured toner cartridges • Breakroom and janitorial supplies • Health care and first aid supplies
Save on office supplies with Wisconsin-based Office Supplies 2U (OS2U). OS2U’s mission is to be the single-source premier supplier of business products. For more information, contact Bob Brooks at 608-441-8900, ext. 26, or by e-mail at email@example.com. Visit OS2U online at www.os2u.com.
Established in 1940, Emmons Business Interiors (EBI) has marketed and distributed quality office furnishings across Wisconsin. Through several statewide locations, EBI provides quality new, used and refurbished office furniture products. Also available are interior design services, installation, and project management and moving management. For more information, contact Tod Dean at 800-324-1691 ext. 424 or by e-mail at todd@ ebiweb.com. Visit online at www.ebiweb.com.
WRA members currently enrolled in the UPS Savings Program must re-enroll to take advantage of this new exclusive offer. Just take a few minutes to fill out the short application form available at www.savewithups.com/enroll. To enroll, use promo code NCR308. If you have any questions, call UPS at 1-800-325-7000.
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• Office furniture and design • And more! The application and ordering process is quick and easy! Download the application at www.wra. org/OS2U_credit_application and mail or fax to a customer service representative. Allow 24 hours for the application process to complete. Once the application has been processed, you can order several ways: • Online: Order online at the OS2U website www. os2u.com. • Phone: Call 888-508-6728, or fax your order to 888-296-8220. For furniture and design orders, contact Tod Dean at 800-324-1691 ext. 518 or visit EBI online at www.ebiweb.com.
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Health, Dental & Life Insurance Save on health insurance premiums with REGIT Inc. without compromising coverage. REGIT’s program provides access to customizable insurance plans to meet your needs. Call today 800-537-9786 or visit www.regitinc.com.
Website Development Interested in creating your own website? WRA members can design and maintain their own websites through Real Estate Home Pages. Software templates and easy-to-use tools for adding images and formatting text provide a professional look, usually only attained by a graphic artist or Web designer. Visit www. realestatehomepages.com for more information. You’ll be amazed at how easy and inexpensive having a website can be!
Errors & Omissions Program Pearl Insurance, the WRA-endorsed carrier for errors and omissions (E&O) insurance, offers insurance designed specifically for the real estate industry and the risks you face. Pearl provides coverage for claims of regulatory complaints, personal injury, lockbox liability or allegations of discrimination. For more information and a free quote, call 800-2898170 or visit www.pearlinsurance.com. If you have questions about one of the WRA Member Benefits, please contact Debbie Thacker at dthacker@ wra.org or by calling 1-800-279-1972.
legislative by Tom Larson
2013-15 Wisconsin State Budget Overview: Issues Important to REALTORS®
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On February 20, 2013, Gov. Walker officially introduced his 2013-15 state budget. The state budget contains more than $630 million in tax relief for Wisconsin families and businesses, and general purpose revenue (GPR) spending iAncreases at a moderate rate, rising 1.4 percent in 2013-14, and 3.5 percent in 2014-15.
ortunately, our state’s budget situation is better than it was two years ago, when we faced a $3.6 billion budget deficit, property taxes had gone up 27 percent over the last decade, and the unemployment rate was at 7.8 percent. Today, Wisconsin has a $419 million budget surplus, property taxes have gone down each of the last two years, saving the average homeowner a few hundred dollars each year, and the unemployment rate is down to 6.6 percent. Over the next several months, the state budget will be reviewed, debated and likely amended by the legislature and its budget reviewing committee, the Joint Finance Committee. Prior to the state-mandated, July 1 budget deadline, the state budget must be approved by the Joint Finance Committee and both houses of the legislature. When one political party controls both houses, like Republicans do today, the process is usually less contentious because the two houses generally share the same philosophy on taxing and spending issues. However, in Wisconsin politics, nothing can be taken for granted.
Some of the specific provisions in the proposed state budget that impact REALTORS® include the following:
Property taxes Retains current law, which places a zero percent property tax cap on local levies, but would allow increases based on net new construction and gives local governments the power to carry forward up to 0.5 percent of unused levy authority to the next year. In addition, local governments may exceed the levy limits if approved through local referendum.
$475.6 million Amount to be invested into the state public education system.
Broadband County property tax rate limits Repeals the county operating tax mill rate limit, which has been in effect since 1992. This will mean that counties, municipalities and technical colleges will be subject to the same property tax controls.
Allocates $4.7 million for a broadband grant program to increase broadband access and capacity, and expand high-speed Internet service access to underserved areas identified by the Administration Department and Public Service Commission.
Individual income tax reductions
Decreases individual income tax rates for the first three income tax brackets. For couples who are married, filing jointly, the income tax rates will be reduced in the following manner: 1. For couples making less than $14.3K, the income tax rate will be reduced from 4.6 to 4.5 percent. 2. For couples making between $14.3K and $28.6K, the income tax rate will be reduced from 6.15 to 5.94 percent. 3. For couples making between $28.6K and $214.9K, the income tax rate will be reduced from 6.5 to 6.36 percent.
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Foreign land ownership
Repeals statutory language that prevents foreign entities and corporations from owning more than 640 acres of land. The statute conflicts with federal treaties, which prevent states from enacting or enforcing laws that restrict ownership of land by foreign individuals and corporations.
Some of the economic development initiatives aimed at helping existing businesses grow and encouraging the creation of new businesses include: 1. Seed accelerator and capital catalyst programs: Investing nearly $6 million in fiscal year (FY) 2014 and $11 million in FY 2015 in Seed Accelerator and Capital Catalyst Programs at the Wisconsin Economic Development Corporation (WEDC). These programs support high-potential entrepreneurs and businesses as they start and grow. 2. Wisconsin Economic Development Corporation marketing program: Providing $10.9 million over the biennium to support WEDC’s marketing program promoting Wisconsin as a great place to do business. WEDC marketing focuses on attracting businesses, promoting investment opportunities in Wisconsin, and changing the negative perceptions that may still exist about doing business in Wisconsin. 3. Economic Development Tax Credit: Providing an additional $75
million in available credits for the Economic Development Tax Credit program. This tax credit is aimed at encouraging businesses to make capital investments, expand and retain jobs, invest in job training, and locate or retain their corporate headquarters in Wisconsin. Angel Investment Tax Credit: Lifting the cap on this tax credit program focused on encouraging private investment in start-up companies. The budget removes the maximum cap, which is currently set at $47.5 million, but retains the annual limit, effectively allowing this program to continue into the future.
Transportation Increases funding for transportationrelated projects by $824 million. Several of the specific transportation projects funded in the governor’s budget are: 1. Zoo Interchange: Allocate $550 million toward the Zoo Interchange Project, which is the busiest interchange in the state. Primary construction will begin in 2015-2018 and will improve safety and reduce congestion. 2. Hoan Bridge: Utilize $236 million toward the Hoan Bridge and I-794 Freeway. This project will ensure convenient access to the Port of Milwaukee. 3. Routine maintenance: Increase funding for routine maintenance agreements with counties by $55 million. Maintenance is vital to keeping our transportation system running smoothly and keeping long-term expenses down.
Education Invests $475.6 million in new state funds into public education and quality of education opportunities for students throughout the state. 1. K-12 education: $276.5 million in new funds will go to K-12 education, including $129.2 million in total increased equalization aid with $42.9 million in fiscal
Land cover map and geographic information system Creates a statewide geographic information system through several initiatives, including reallocating the current $5 document recording fee assessed by registers of deeds for social security number redaction projects to the department, as these projects are completed, to support the creation of a statewide digital parcel map.
commercial sites from the DSPS to the DNR. Tank and petroleum testing: Transfer the Tank and Petroleum Testing Program from the DSPS to the DATCP, which would combine the program with the Weights and Measures program. Consolidation of the PECFA Program: Transfer positions, expenditure authority and program responsibility for low- and medium-risk petroleum site cleanups from the DSPS to the DNR. The transfer will combine responsibility for all petroleum site cleanups in the DNR.
Residency requirement Prohibits local governments from instituting or enforcing residency requirements and prohibits employers from bargaining collectively with respect to a decision to impose a residency requirement. The WRA lobbying team will continue to monitor the state budget process and the various provisions impacting the real estate industry. If you have questions, please feel free to contact Tom Larson at firstname.lastname@example.org or at 608-240-8254. Tom Larson is Vice President of Legal and Public Affairs for the WRA.
212 N. 71st St. Milwaukee, Wisconsin 53213-3744 (262) 424-8814 Office (414) 837-4470 Fax
Sale of state-owned real property Modifies provisions related to the sale of state-owned real property to: 1. Require agencies to submit an inventory of all real properties to the DOA. 2. Allow the Building Commission or the DOA, with approval of the Building Commission, to offer for sale or lease any state-owned real property unless prohibited by the Wisconsin Constitution, federal law or other specific statutes. (The DOA would obtain appraisals for any properties that may be offered for sale and report this information to the Building Commission.) 3. Direct net proceeds from a sale to refund general obligation or revenue bonds. 4. Allow the DOA to attach conditions to a sale or contract that are in the best interest of the state. 5. Allow a co-owning non-state entity the right of first refusal to purchase the property. 6. Allow the DOA secretary to adjust positions and operating budgets of affected agencies.
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Transfer of programs to different agencies To achieve greater efficiencies within state agencies, the transfer and consolidation of the following programs are recommended: 1. Commercial construction site erosion: Transfer soil erosion control regulation for
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year 2013-14 and $86.3 million in fiscal year 2014-15, while keeping school district revenue limits flat. Pay for performance: Creates a new $54 million performance-based funding program that rewards schools for excellence and improvement as evidenced by school report cards. Underperforming schools: Provides an additional $10 million in grants for plans to transform underperforming schools and significantly improve student outcomes. School choice expansion: Opens the school choice program to school districts with at least two underperforming schools (report card grades), at least 4,000 students, and at least 20 students intending to participate in the program. The expansion will be capped at 500 students statewide for FY 2014 and 1,000 students statewide for FY 2015.
legislative by Joe Murray
An Early Look at 2014 Wisconsin Election Trends It’s always dangerous to look into a political crystal ball and accurately predict outcomes 19 months in advance of an election, but recent events and political history offer plenty of clues on what we might expect for the November 2014 midterm elections in Wisconsin.
ov. Scott Walker and Lt. Gov. Rebecca Kleefisch are expected to run for re-election again next year, Attorney General J.B. Van Hollen will also likely run for a third four-year term, and five Republican and three Democrat members of the Wisconsin congressional delegation will run again. In the state Legislature, 15 of 33 members of the Wisconsin state Senate and all 99 members of the state Assembly will also be on the ballot in 2014. Here’s my early big picture look at the Wisconsin political landscape today and some historical facts surrounding post-World War II midterm elections.
Top-of-the-ticket influence: “six year itch” and Scott Walker At the federal level, Cook Political Report writer Amy Walter highlighted the post-World War II midterm election historical pattern this way: “Since 1958, the party of a reelected president has lost an average of 29 House seats and six Senate seats in that midterm election, which goes by the nickname the ‘six year itch.’ Only once in those six midterm elections has the party holding the White House gained seats .” In short, the president’s party tends to have a bad midterm election, a tendency that could benefit Gov. Walker. A look at incumbent governors running for re-election, or leaving on their own terms, in Wisconsin since 1958 illustrates
the level of difficulty in defeating a sitting incumbent. There have been a total of 11 governors since 1958. Of those 11, seven were re-elected at least once (64%), two were defeated in their first re-election attempt (18%), and two failed to be elected after inheriting the office when the incumbent left early (18%).
Gaylord Nelson (D)
John Reynolds (D)
1964, 1966, 1968
Warren Knowles (R)
Pat Lucey (D)
Martin Schreiber (D)
Lee Dreyfus (R)
Tony Earl (D)
1986, 1990, 1994, 1998
Tommy Thompson (R)
Scott McCallum (R)
Jim Doyle (D)
Scott Walker (R)
Lost Won (Recall)
* Indicates leaving before term expired
Post-World War II Midterm Elections Following Presidential Re-election
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In-Party Seat Change: House
In-Party Seat Change: Senate
Kennedy and/or Johnson
Nixon and/or Ford
Source: Vital Statistics of Congress, 2008
Every 10 years, states are required to redraw congressional and legislative districts to reflect changing demographics in their state. From a purely historical perspective, Gov. Walker’s chances for re-election in 2014 appear strong. Unless the typical “six year itch” midterm dynamic is distorted or Democrats run an unusually strong candidate against Walker, he could enter next year’s election with the wind at his back. Looking back even further at Wisconsin gubernatorial elections, a Humphrey School of Public Affairs study shows governors in Wisconsin, going back to statehood in 1848, have been re-elected in 34 of 46 contests, or 74 percent of the time. Defeating incumbents from either party is very difficult.
Every 10 years, states are required to redraw congressional and legislative districts to reflect changing demographics in their state. In 2011, Republicans took full control of Wisconsin state government and immediately began the process of remapping congressional and legislative districts to their significant advantage. The results from the 2012 congressional and legislative elections are, as Milwaukee Journal Sentinel political reporter Craig Gilbert explains, “A striking testament to the power of the GOP redistricting plan adopted last year , boosting the number of Republicanfriendly seats in Madison and Washington.” In a post-election analysis of the 2012 Wisconsin elections, Gilbert broke down the numbers on how the newly drawn maps benefited the GOP: • Barack Obama carried Wisconsin by 6.8 points statewide. In spite of his strong top-of-the-ticket win, the GOP maintained their advantage in U. S. House seats, recaptured the state Senate and increased their sizeable majority in the state Assembly. • Mitt Romney carried five of the state’s eight U.S. House seats in a year when President Obama swept the top of the ticket. • 20 of the 33 Senate districts voted more Republican than the state as a whole. Republicans currently hold 18 Senate seats. • 60 of the 99 Assembly districts voted more Republican than the state as a whole. The GOP currently holds 60 seats in the lower chamber. • With so many Democratic votes concentrated in Dane and Milwaukee counties, Republicans have a numerical advantage in more districts across Wisconsin. Gilbert says there are very few districts that mirror Wisconsin’s overall partisan balance. “To create more ‘red’ Republican seats, the GOP plan moved Democratic voters from competitive districts into ones that were already very ‘blue.’ The result: more lopsided seats on both sides and fewer competitive ones.” Democrats will have to fight on Republican terrain and work with the terrible hand they’ve been dealt on the maps.
The other significant factor in midterm elections is declining voter turnout from the previous presidential election, known as cyclical “drop-off.” Political science professor Tomas Schaller of the University of Maryland describes “drop-off” this way: “‘Drop-off’ is the political science term for the decline in turnout between the high-water benchmark of presidential elections and other electoral moments: midterm elections for both chambers of congress; state and local elections for governor, state legislature, county officers and various municipal officials held in non-presidential years.” Schaller points out that “Democrats generally perform better in presidential years while Republicans tend to excel in midterm cycles: Lower midterm turnouts tend to skew the electorate toward older, white and/or more affluent voters.” This is clearly true in Wisconsin historically and even more so today in our hyperpolarized state. The turnout dynamics of the 2014 midterm election will be challenging for the legislative minority to overcome.
Bottom line With the traditional “six year itch” history and a postredistricting landscape that clearly favors the GOP in Wisconsin, Scott Walker and Republicans feel that 2014 could be a good year for their party. But redistricting isn’t the only important factor in legislative and congressional elections, and Gov. Walker could find himself in a much more competitive race if he can’t point to strong job growth after four years in office. Democrats will work hard to recruit quality candidates, raise money and run strong campaigns. But they should not use their top-of-the-ticket success in 2012 to predict their fortunes in 2014. Midterm elections are different from presidential elections in several ways. That’s why Wisconsin can elect a conservative like GOP Senator Ron Johnson in 2010 and a progressive such as Tammy Baldwin in 2012.
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Congressional and legislative redistricting
Joe Murray is Director of Political and Governmental Affairs for the WRA.
realtor sales tip by Eric Skrum
REALTOR® Communication with Lenders Will Benefit Homebuyers Mortgage reform necessitates continued discussion between agents and bankers
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s part of the 2010 Dodd-Frank Act, several major changes to the mortgage industry will take effect on January 1, 2014. Efforts by the Consumer Financial Protection Bureau (CFPB), the federal agency with rule-making authority under Dodd-Frank, to reform the mortgage lending industry from the ground up has resulted in an avalanche of new regulations, totaling nearly 4,000 pages, published in final form on January 10 this year. The nearly one dozen new regulations include changes such as: expanding the type of loans covered by the Home Ownership and Equity Protection Act (HOEPA); new initial rate adjustment notices for adjustable rate mortgages (ARMs); periodic statements for residential mortgage loans; mandatory escrow accounts for a broader category of loans; additional appraisal requirements for “higherrisk mortgages”; revisions to the content, format and timing of disclosures of interest rate adjustments of variable-rate transactions; and new error resolution and other servicing procedures and record keeping. While the goal of these regulations is to prevent another housing crisis like the one that led to the worst recession in the U.S. since the Great Depression, the sheer volume of regulations may hurt consumers more than help them. “In our opinion, the pendulum has swung too far the other way,” said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association. “Under some of these provisions, none of us would qualify for a mortgage loan.”
Qualified mortgages The reform effort is so vast that many banks are unclear on how implementing the rules will affect their customers. Of all the proposed regulatory changes, the creation of a specific definition for a Qualified Mortgage (QM) and Qualified Residential Mortgage
(QRM) have the greatest potential to disrupt the mortgage and housing industries across the board. While the QRM rules have not yet been published, it is expected that those rules, along with the finalized QM, or Abilityto-Repay rule, and their practical application, will drastically affect the housing industry. According to the CFPB rules, loans that meet the QM parameters* will be presumed to be compliant with the updated Truth in Lending Act regulations, meaning these loans will provide greater safe harbor for the lenders. This advantage is not applied to loans that do not meet the QM parameters, placing greater liability risk on the lender. QM loans are also exempt from the new HOEPA Appraisal rule, making them less costly to offer. The net effect of implementing all the rules affecting the mortgage lending industry will most likely be fewer, more difficult-toobtain loans that are statistically less risky … but also less helpful for consumers. “The intent of the rules are to help consumers, but the very people they’re trying to protect will be hurt,” explained Oswald Poels.
Adjusted appraisal rules Another change to mortgage lending is the requirement for appraisals on all higher-priced mortgages, issued in a final rule amending Regulation Z. The appraisal rule applies to mortgage loans with an APR that exceeds certain thresholds, exempting QM loans. This rule goes into effect on January 18, 2014. Effective January 19, 2014 is a second appraisal rule requiring creditors to provide applicants with copies of appraisals and other written valuations used for certain mortgage loans under the Equal Credit Opportunity Act, Regulation B. Creditors may not charge the applicant for the copy of an appraisal or written valuation but may assess a fee to reimburse
the creditor for the cost of the appraisal. Therefore, REALTORS® should make their clients aware of the potential for these fees to be added to the cost of their home should they require high-cost financing.
Effect on homebuyers Mortgage reform will most heavily impact first-time homebuyers who typically have smaller down payments and higher debtto-income ratios. One of the most popular loans currently offered by many banks that does not fit into the QM parameters in most cases are balloon mortgage loans, which are designed to assist exactly that type of buyer in obtaining financing. Buyers’ agents will need to have discussions with their local lenders to determine if the lender will continue to offer non-qualified mortgage options to consumers. If not, potential homebuyers will need to get pre-qualified and pre-approved at a variety of institutions, as different standards may apply between institutions offering exclusively QM loans and institutions offering non-QM loans. REALTORS® should be sure to keep open lines of communication with their preferred lenders to ensure that their clients understand how the new mortgage regulations will impact their homebuying experience. *QM parameters include: debt-toincome ratio of 43 percent or less; loan is eligible to be purchased by Fannie Mae/ Freddie Mac or guaranteed by the FHA or VA; the lender is a “small creditor” serving a rural area (as defined by the U.S. Department of Agriculture). Eric Skrum is the Director of Communications for the Wisconsin Bankers Association, the state’s largest financial industry trade association, representing nearly 280 commercial banks and savings institutions, their nearly 2,300 branch offices and 23,000 employees.
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The WHEDA Tax Advantage. The WHEDA Tax Advantage is an exclusive program that provides a special tax credit to qualified home buyers that saves money and makes home ownership more affordable. This special tax credit reduces a first-time home buyer’s federal income tax liability over the life of the mortgage. To learn about the WHEDA Tax Advantage and all the advantages WHEDA has to offer, visit www.wheda.com/Realtors. Income and purchase price limits apply and home buyer education is required. WISCONSIN HOUSING AND ECONOMIC DEVELOPMENT AUTHORITY 800.334.6873 ■ www.wheda.com