Kichen isn’t out “on the street” like he used to be. Nowadays, he spends the majority of his day assisting agents and reviewing files. However, this 30+ year real estate veteran and instructor knows a thing or two about what can happen when you don’t have a BBEEA. “I tell my students that I wouldn’t put a buyer in my car if they refused to sign the agreement,” said Kichen. “[The BBEEA] takes the uncertainty out of who you work for, procuring cause and how you get paid.” Kichen also believes that as salespeople, the BBEEA shows clients you’re serious about meeting their needs and you’re serious about your business.

Cara McGuire, CDPE, ePRO, GRI, SFR and REALTOR® with RE/MAX Professionals echoes Kichen’s enthusiasm for the BBEEA stating, “I’ve used it consistently for the past four years, since the downturn.” When McGuire first started using the BBEEA, it was to ensure that her clients knew she was on “their team”. McGuire started utilizing the BBEEA as a conversation starter with her clients, laying all her cards out on the table, setting expectations and showing off her ability to negotiate at the get-go. “I’ve only had one client question me about it,” said McGuire. “He said, ‘No other agent has ever asked me to sign this, why should I?’ But, after I explained my reasons, he had no issue signing it.”

Lauren Overton, a first-time home buyer and director of operations at Allison-Shelton Real Estate Services, AMO®, signed a BBEEA with her REALTOR® and says that she’d absolutely do it again. “I would never be opposed to this – but I could see where some buyers would be,” said Overton. She added that she could see how some home buyers would be “hesitant to sign right away in fear that the agent might not find something right away and they’d be stuck with them. But if it’s not working out, I think the agent should be ok with rescinding the agreement and let the buyer go elsewhere.”

While many brokerages in Arizona don’t require the BBEEA, Kichen believes that if one did, a domino-effect would take place. “That’s what happened on the East Coast. One broker started to require it and now many do. It just takes one.”

The BBEEA and the Code of Ethics
By Carole Ridley, AAR Professional Standards Administrator

Quite a few complaint calls and complaint filings cite a member’s alleged lack of adequate explanation with regards to the Buyer-Broker Exclusive Employment Agreement. The most common issue purported is that the BBEEA was signed at the same time as a lot of other papers and the agreement’s purpose was not adequately explained.

Allegations of this nature frequently result in a claim by the complainant that they have not been treated fairly, they have been misled, and they were not provided with a copy of the fully executed agreement until it is presented with a request for compensation. These allegations can support a violation of the Code of Ethics, Articles 1, 2, and 9.

Take a few extra minutes to explain the purpose of the BBEEA with the buyers so that buyers are not blindsided when they receive notice to compensate the REALTOR® per the terms of the BBEEA, and so that REALTORS® are not blindsided when they receive an ethics complaint. Let the buyer ask questions and then provide examples of how the agreement obligates you to perform in their best interests.

By way of its bulletin, IIAB of Arizona emphasized to its members that directly obtaining and conveying a CLUE Report may result in the loss of the insurance producer’s license.  A CLUE Report is considered a “consumer report” under federal[1] and state law. Arizona defines the term “consumer report” as “any written, oral or other communication of information that bears on a natural person’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living and that is used or expected to be used in connection with an insurance transaction.” See A.R.S. § 20-2102(4).  In addition to the Federal Credit Reporting Act, Arizona regulates how “consumer reports” and the personal information contained therein must be handled and protected. See A.R.S. § 20-2113. IIAB of Arizona therefore cautions its members that “an insurance producer that provides a CLUE Report to ANYONE is subject to regulatory action such as revocation of their license, civil penalties, and civil action by the consumer.” 

As a result of the restrictions placed upon insurance producers, IIAB of Arizona has provided specific instructions to its members when responding to a CLUE Report request made by a policyholder or the policyholder’s REALTOR^®.  Specifically, IIAB has instructed its members to respond to any such request by stating, “Federal law mandates that the policyholder has a right to obtain information contained on a CLUE Report, but that process must be accomplished by the policyholder directly with LexisNexis.”  It is therefore expected that sellers and REALTORS^® will be directed to https://personalreports.lexisnexis.com when seeking to obtain a CLUE Report. This is consistent with the information contained in the Buyer Advisory which advises property owners of their right to “purchase a C.L.U.E. report online at https://personalreports.lexisnexis.com/index.jsp or by calling 866-527-2600.”

Much like REALTORS^®, insurance producers are eager to assist their clients, but must do so within the confines of the law. It is therefore important for REALTORS^® to ensure that their clients are obtaining insurance/claims information in the proper manner.

In this particular case, Granillo asked a broker from Tucson to pay a 20 percent kickback on commission received  for listings, at which point the broker alerted federal law enforcement officials. The broker then began assisting law enforcement in the investigation.  In a recorded meeting between Granillo and the broker, Granillo stated the arrangement was a “natural part of business.” In the same meeting, Granillo made arrangements to receive an $11,200 payment from the broker.

If convicted, Granillo’s charges could result in a statutory maximum penalty of 20 years in federal prison.

Note: An indictment contains allegations that a defendant has committed a crime.  Every defendant is presumed to be innocent until and unless proven guilty in court.

The entire article may be reviewed at:  http://www.justice.gov/usao/cac/Pressroom/2013/044.html

Addressing “disparate impact” or unintended discriminatory effects claims, the final rule enacted by HUD provides guidance as to how a housing provider that engages in a facially neutral (unbiased) practice can nonetheless violate fair housing laws. The rule, therefore, better enables plaintiffs and governmental agencies to challenge housing or lending practices that have a disparate impact – even under circumstances in which the practice is facially non-discriminatory and not motivated by bias or prejudice. According to the rule, impact of this nature results when a neutral practice actually or predictably:
(1) results in a disparate impact on a group of persons on the basis of race, color, religion, sex, handicap, familial status, or national origin; or
(2) has the effect of creating, perpetrating, or increasing segregated housing patterns on the basis of race, color, religion, sex, handicap, familial status or national origin.

In its final rule, which can be found here, HUD created a three-step burden-shifting system to determine liability under the FHA. First, HUD or the private plaintiff must establish that the housing practice caused or predictably will cause a discriminatory effect on a protected class. Once a disparate impact of this nature is proven, the burden shifts to the defendant to show that the practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. Any such justification must be supported by actual evidence and not be hypothetical or speculative. HUD defines a “substantial” interest as “a core interest of the organization that has a direct relationship to the function of that organization.” Finally, if such an interest is established by the defendant, HUD or the private plaintiff must prove that those same interests cannot be served by another practice that has a less discriminatory effect. If the complaining party is ultimately able to establish a practice that achieves the same interests in a less prejudicial manner, a defendant may be guilty of fair housing violations even though there is no evidence of discriminatory intent.

EXAMPLE: A lending institution maintains a policy by which it does not extend loans for single family residences for less than $60,000. The policy has been in place for eight years and does not take race, color, religion, sex, handicap, familial status or national origin into account. While the policy is therefore neutral on its face, it has been found that the policy disproportionately excludes minority applicants from consideration because of the home values in certain areas in which the minority applicants predominantly live. After discovering this disparate impact, the new rule will require the lender to prove that its lending policy is justified by a substantial business necessity. Factors relevant to the lender’s justification may include cost and profitability. If the lender is able to establish a substantial, legitimate, nondiscriminatory interest in its policy, a fair housing violation may still be found if the complaining party is able to establish that an alternative lending practice could serve the same purpose with a less discriminatory effect.

The final rule became effective on March 18. It applies to a broad range of housing activity including, but not limited to, the approval of loan applications, the provision of information regarding the availability of loans and housing options, the servicing of loans, and the approval and provision of homeowners insurance. So when a practice results in the denial of a housing related service (i.e. refusal to rent an apartment or approve a mortgage loan) or unfavorable terms and conditions under which that service is available to members of protected classes, it will violate the FHA unless the practice serves a substantial, legitimate, and nondiscriminatory interest that cannot be similarly served by a less discriminatory practice.

With the new rule in place, it is expected that private individuals, HUD and other fair housing enforcement agencies will be able to more effectively realize the objectives of the FHA by eliminating housing discrimination and creating strong, sustainable, inclusive communities and quality affordable homes for all. To the extent that this rule helps clarify objective, and non-discriminatory policies and practices, it should prove widely beneficial.

About the Author:

Scott Drucker, a licensed Arizona attorney, is general counsel for the Arizona Association of REALTORS^® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

April 2013 marks the 45th anniversary of the 1968 landmark Fair Housing Act. Each year, REALTORS® recognize the significance of this event and reconfirm our commitment to upholding fair housing laws as well as our commitment to offering equal professional service to all in their search for real property.

If you have not read the Fair Housing Declaration in a while, I encourage you to do so.

Every real estate licensee in Arizona is required to take a minimum of three hours of continuing education in Fair Housing each renewal period, so you are already well versed in Fair Housing issues. What can AAR impart to our members regarding their duty to offer equal services to all and thereby provide consumers with equal opportunity in housing? Article 10 states:

REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, or sexual orientation. REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, or sexual orientation (Amended 1/11).

You are therefore reminded that regardless of your client’s race, color, religion, sex, handicap, familial status, national origin or sexual orientation they are entitled to the same level of care and service that you take pride in offering.

In the March Code Talk column, members discussed the mechanics of listing agreements, ancillary forms for listings, MLS dissemination and advertising through the Internet as it pertains to the Code of Ethics. Standard operating procedure (SOP) 10-3 relates to listings, as well stating:  “REALTORS® shall not print, display or circulate any statement or advertisement with respect to selling or renting of a property that indicates any preference, limitations or discrimination based on race, color, religion, sex, handicap, familial status, national origin, or sexual orientation,” (Adopted 1/94, Renumbered 1/05 and 1/06, Amended 1/11). 

Mary Lee Greason, a Tucson REALTOR® and Fair Housing educator, offered some sage words of advice: “In advertising our listings, we need to remember the advice I heard years ago from an attorney [who] prosecuted Fair Housing violations, ‘Stick to the amenities of the property and not the people who might live there!’”

The Department of Housing and Urban Development recently shared two scenarios which may constitute housing discrimination:

• A gay man is evicted because his landlord believes he will infect other tenants with HIV/AIDS.  That situation may constitute illegal disability discrimination under the Fair Housing Act because the man is perceived to have a disability, HIV/AIDS.

• A property manager refuses to rent an apartment to a prospective tenant who is transgender.  If the housing denial is because of the prospective tenant’s non-conformity with gender stereotypes, it may constitute illegal discrimination on the basis of sex under the Fair Housing Act.

Finally, a reminder that Article 10 and SOP 10-4 extends discrimination to cover employment in real estate offices:  As used in Article 10, “real estate employment practices” relates to employees and independent contractors providing real estate-related services and the administrative and clerical staff directly supporting those individuals. (Adopted 1/00, Renumbered 1/05 and 1/06). 

I would like to leave you with the following from the National Association of REALTORS®:

As REALTORS®, our success isn’t measured by the bottom line. It’s measured by the trust of our clients and customers and the esteem in which we’re held by our colleagues and competitors. The National Association was founded with the goal of uniting the real estate profession through high standards to protect buyers and sellers. 100 years after its adoption, the Code of Ethics continues to be what sets us apart as REALTORS®.

About the author:

Jan Steward brings a wealth of experience to the Arizona Association of REALTORS® as the Risk Management Specialist. She is a former title company manager and escrow officer with paralegal training. As a REALTOR® and broker, Jan served the Northern Arizona Association of REALTORS® (NAAR) as board president, vice-president, director, MLS chair, delegate to NAR’s national convention and a member of the Professional Standards and Grievance Committees. Jan was honored as REALTOR® of the Year by NAAR. She also has served on AAR’s Professional Standards Committee and a variety of ad hoc committees.

The broker represents a buyer in escrow, who just informed the broker that she recently quit her job as a teacher. The buyer still intends to complete the transaction with a $30,000 down payment towards the $55,000 purchase price, while financing the remainder. The buyer has some other sources of income, such as social security, but has not updated her disclosures to the lender.

ISSUE:

What disclosure obligations, if any, does the broker have?

ANSWER:

The broker may be required to disclose the loss of the buyer’s job to the seller and listing agent.  Pursuant to A.A.C. R4-28-1101(B)(2), a real estate licensee is required to “disclose in writing to all other parties any information the licensee possesses that materially or adversely affects the consideration to be paid…including…[a]ny information that the buyer or lessee is, or may be unable, to perform.”  Accordingly, if the buyer is unable to perform in light of the job loss, that fact must be promptly disclosed in writing to the seller and seller’s agent.

Arizona REALTOR® Magazine – April 2013 | Disclosure

For organizational purposes, each advisory is divided into sections. The Tenant Advisory consists of four sections:

1. Common documents a tenant should review;
2. Tenants rights and obligations;
3. Additional information; and
4. Additional resources.

Because many real estate licensees will seek to have the tenant acknowledge receipt of the Tenant Advisory, the last page consists of an acknowledgment that contains a signature block and prompt for the tenant’s initials.

The Lease Owner’s Advisory similarly consists of four sections:

1. Owner’s responsibilities and statutory requirements;
2. Common documents and disclosures;
3. Lease owner’s rights and obligations; and
4. Additional resources.

The final page of the Lease Owner’s Advisory contains a list of ten questions a lease owner should ask when considering having their property professionally managed.

Use of these two advisories should result in more informed tenants and lease owners by providing each with valuable resources and guidance. AAR will routinely update these documents on its website as laws change and new issues arise.

AAR would like to thank the following individuals who served as members of the workgroup that drafted the advisories: Trudy Moore (Chair), Martha Appel, Sue Flucke, Kim Horn, Jacquie Kellogg and Frank Russo.

In 2013 AAR welcomed many changes. One of the most notable has been the change in the position of General Counsel.  Following Michelle Lind’s acceptance of the CEO position in December 2012, Scott Drucker assumed the role of AAR General Counsel effective January 2, 2013. Prior to joining AAR, Scott spent over a decade practicing real estate law in Arizona at the law firm of Mack, Drucker & Watson PLC (AAR’s Legal Hotline provider since 2011) and serving the interests of brokers and real estate agents throughout the state.  In his capacity as General Counsel, Scott serves as the staff liaison to the Risk Management and Professional Standards committees.  Scott will also be the primary contact for real estate legal issues warranting the attention of AAR.

DODD-FRANK

The Consumer Financial Protection Bureau Issues Additional Regulations Pertaining to Seller Carryback Financing

On January 20, 2013, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z of the Truth in Lending Act to implement recent amendments made by the Dodd-Frank Act. This final rule, which is currently set to go into effect on January 10, 2014, incorporates requirements and restrictions imposed by the Dodd-Frank Act in addition to better defining certain prohibited acts and practices.

Of significance to the issue of seller carryback financing are changes made to Regulation Z of the Truth in Lending Act, 12 CFR § 1026.  Pursuant to § 1026.36, which includes a definition of the term “loan originator,” certain seller financers are to be exempt from the definition.  Specifically, 12 CFR § 1026.36(a)(1)(i)(D) expresses that the term “loan originator” does not include “A seller financer that meets the criteria in paragraph (a)(4) or (a)(5) of this section, as applicable.”  Consequently, the following exemptions will result:

Effective January 2014, seller financing for only one property in any 12-month period can be offered if:

1.  The seller is a natural person, estate or trust;

2.  The seller did not construct the home;

3.  The financing does not result in negative amortization; and

4.  The financing has a fixed rate or does not adjust for the first five years.

Effective January 2014, seller financing for no more than three properties in any 12-month period can be offered if:

1.  The seller is a natural person or organization, i.e. – partnership, corporation, association, trust, estate, etc.

2.  The seller did not construct the home;

3.  The loan is fully amortizing, no balloon payments permitted;

4.  The financing has a fixed rate or does not adjust for the first five years; and

5.  The borrower has the reasonable ability to repay the loan.

No exemption yet exists for the financing of four or more properties in any 12-month period, meaning that, as of January 2014, such financing must be offered by a licensed loan originator.

Read more: http://www.aaronline.com/2013/02/the-consumer-financial-protection-bureau-issues-additional-regulations-pertaining-to-seller-carryback-financing/

FANNIE MAE’S NEW SHORT SALE ESCALATION TOOL

If you’re a REALTOR® who has experienced difficulties dealing with inflated property valuations in conjunction with Fannie Mae short sales or other issues related to a Fannie Mae short sale, there’s good news. In response to an increased number of consumer complaints, Fannie Mae, based on input from AAR, other Associations and NAR, recently rolled-out a new centralized web-based platform designed to enable agents to escalate short sale issues in a more productive manner. For more information, read the press release Fannie Mae recently issued. Through the new tool, agents will be able to open a case and receive confirmation that Fannie Mae is aware of their issue and is actively working to achieve a mutually beneficial resolution.

To use the escalation tool, visit www.homepathforshortsales.com (or homepath.com and click on the “Short Sale” tab). There, agents will find information regarding the escalation process, along with a tab titled “Get Started Today,” which enables the agent to escalate a variety of issues directly to Fannie Mae’s dedicated short sale team.

According to Fannie Mae’s website, agents should use this tool to contact Fannie Mae about a short sale when:

• You are ready to list a property and need a recommended list price;
• You want to contest a value Fannie Mae has assigned to a listed property;
• You haven’t heard back from the servicer; or
• You have an issue with an offer currently under negotiation.

FORMS

Revised Vacant Land/Lot Purchase Contract

Thanks to the diligent efforts of the Vacant Land/Lot Purchase contract revision workgroup led by Chairperson Jan Leighton, the Arizona Association of REALTORS^® (AAR) Vacant Land/Lot Purchase contract has been revised, effective February 2013. The workgroup additionally revised the following three related forms: (1) Vacant Land/Lot Buyer’s Inspection Notice and Seller’s Response,(now titled Vacant Land/Lot Buyer’s Due Diligence Notice and Seller’s Response); (2) Loan Status Update; and (3) Pre-Qualification form.

This collection of forms is intended to facilitate a wide spectrum of vacant land transactions throughout Arizona and be utilized in conjunction with the purchase and sale of raw land parcels, agricultural land, and parcels of land planned for residential, commercial or industrial development, including, but not limited to, vacant subdivision lots.

Read more: http://www.aaronline.com/2013/02/your-guide-to-the-2013-vacant-landlot-purchase-contract/

New Buyer Pre-closing Walkthrough form

The Arizona Association of REALTORS®, by way of a workgroup chaired by Martha Appel, drafted a Buyer Pre-Closing Walkthrough form, effective February 2013. The form is intended to encourage buyers to conduct a pre-closing walkthrough of the premises to be purchased and document their findings in a manner easily conveyed to the seller. Should the buyer conduct a pre-closing walkthrough, the new form enables them to inform the seller that the premises is in acceptable condition, or give evidence that the agreed upon corrections or repairs to the premises have not been completed or the premises is not in substantially the same condition.  Should a buyer mark box two, delivery of the form serves as the issuance of a cure period notice providing the seller with three days after delivery to cure their non-compliance.

Read more: http://www.aaronline.com/2013/02/last-look-buyer-pre-closing-walkthrough-faqs/  

LEGAL RISKS TO THE REALTOR®

Jan Steward 

In NAR’s podcast titled “Legal Risks to the REALTOR®” (http://www.realtor.org/audio/legal-podcast-deed-in-lieu-transactions), Finley Maxson and Charlie Dawson discuss REALTOR® involvement in the facilitation of Deed in Lieu (DIL) transactions.  According to Mr. Dawson, the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have been looking at ways to facilitate DILs in a more streamlined approach, and have reached out to NAR to discuss REALTOR® involvement.   Some servicers have been requesting REALTOR® assistance on DILs when they make contact on behalf of a client. On the podcast the following legal risks are identified:

• Negotiating a loan (contractual negotiation between consumer and lender): unauthorized practice of law
• E&O coverage: may be excluded if unauthorized practice
• MARS Disclosures: a licensee may need to comply with MARS regulations and State regulations for disclosure
• Licensee’s ability to act in light of applicable state licensing requirements.

For additional information FAQs may be found at:

http://www.realtor.org//law-and-ethics/risks-associated-with-representing-a-client-in-a-deed-in-lieu-transaction

ARIZONA REAL ESTATE: A PROFESSIONAL’S GUIDE TO LAW AND PRACTICE

Searchable Electronic Format

The Second Edition Arizona Real Estate: A Professional’s Guide to Law & Practice is available in a searchable electronic format. Just type in the term or phrase you are seeking in the search engine and find the answer.  Download the electronic book for $9.99 at: http://www.aaronline.com/azre-book. Traditional books are also available at aaronline.com or at most local associations and some real estate schools. For bulk orders (25 books or more) please contact Christina Smalls at christinasmalls@aaronline.com.

LEGAL HOTLINE

The AAR Legal Hotline is a valuable member benefit for brokers needing legal information. In January of this year, following Scott Drucker’s move to AAR, the name of the law firm servicing the hotline was changed to Mack, Watson & Stratman. Despite the name change, the firm remains committed to providing excellent representation to its clients in real estate, professional liability, construction, and business matters. To sign up for the Hotline, go to: http://www.aaronline.com/documents/hotline_access.pdf

In 2012, the hotline fielded a total of 4,021 phone calls and an additional 404 email/fax inquiries.  The majority of questions received pertained to contract law, followed by landlord/tenant issues.  Short sale transactions were also frequently discussed, although the number of calls on this issue declined toward the end of the year.

PROFESSIONAL STANDARDS

In 2012, a total of 96 ethics complaints were received by AAR, 74 of which were filed by members of the public and 22 of which were asserted by other AAR members.  Of those 96 complaints, 63 were forwarded along by the grievance committee.  Ultimately, 23 proceeded to an ethics hearing.

Last year, 24 arbitration requests were filed, 17 of which were forwarded along by the grievance committee.  Of those 17, 13 resulted in hearings.

Finally, AAR received a total of 35 ombudsman requests in 2012, 22 of which were resolved through the ombudsman program.

For a complete review of the professional standards statistics for 2012, go to: http://www.aaronline.com/wp-content/uploads/2013/02/AAR-2012-4th-Qtr-YTD-Stats-PS.pdf

SCAMS & FRAUDS

In January, NAR spearheaded an effort to shut down a bogus website posting false complaints against REALTORS®.  The website, www.Realtor-complaints.com, listed fake complaints about real estate practitioners, followed by a demand for money to have the complaints removed from the site. Following pressure from NAR regarding misuse of the REALTOR® trademark, the site was shut down.  Currently, the webpage consists of nothing more than a page of links operated by an advertising site.

If you are aware of a possible scam, please send the information to us at:  scamalert@aaronline.com and do not forget to check AAR’s website:  http://www.aaronline.com/legal/scams-frauds.aspx for a list of alerts.

FORECLOSURE

A January 2013 RealtyTrac report has revealed that foreclosure activity in 2012 decreased from 2011 in 12 of the nation’s 20 largest metro areas, led by Phoenix, which was down 37 percent.  To read this report, go to: http://www.realtytrac.com/content/foreclosure-market-report/2012-metro-foreclosure-report-7575.

EDUCATION

Broker Management Clinic

March 29, 2013 – Bullhead City/Mohave Valley Association of REALTORS

Effective January 1, 2013 all designated brokers, self-employed brokers, and associate brokers who have been delegated  authority (in writing) to review contracts and similar instruments on behalf of the designated broker/self-employed broker will be required to take three 3-hour  broker management clinics.

9:00 am – Noon: Statutes & Rules / 1:30 pm – 4:30 pm: Broker Policies

Register today: http://www.regonline.com/Register/Checkin.aspx?EventID=1197771

$29 per class – $50 for both

AAR Spring Convention

April 7-11, 2013 / Casino del Sol – Tucson, AZ

Program details: 

http://www.aaronline.com/increase-knowledge/events-conferences/winter-conference/

This convention provides timely risk management and other sessions on topics that affect your business.  This is also one of the best opportunities to network with your peers statewide.

In 2009 AAR published the article: Is Property Management Right for You? This month, we take a fresh look with the help of AAR President Sue Flucke, CDPE, CRB, GRI, rCRMS and veteran property manager Elise Otero, GRI, RMP.

When Elise Otero, owner of Otero Realty Group of Apache Junction, got her first taste of property management it was in the early 1980’s. She recalls, “REALTORS® that did property management [then] were not looked on favorably.” After moving from Globe to Apache Junction, she started acquiring homes “here and there.” By the mid-90’s she had 35 properties. In 2005, she opened her own company and now manages 160 properties. And she’s not alone. Arizona’s rental market has never been hotter; and the opportunities for success have never been greater. With more leases being written and a greater number of investors in the market, there’s a lot of “win-win” in property management. “However,” cautions AAR President, Director of Property Management and Associate Broker at Keller Williams Realty Professional Partners in Glendale and Goodyear Sue Flucke, “landlord/tenant issues are also the number one complaint at the Arizona Department of Real Estate. According to Commissioner Judy Lowe, her goal is to audit every property management company operating in Arizona within the next two years.” This could be a “lose-lose” if you are not adhering to state statutes and applicable standards of practice.

GETTING STARTED

Some agents start out as an “accidental property manager”. How? Maybe a client wants help leasing a property while waiting to build back up equity. Or an out-of-state or out-of-town client asks you to stop by and check on their vacant home, arrange for a landscaper or add chemicals to their pool. Oops! Suddenly you find you’ve accidentally stepped over the line into property management. Before you find yourself in hot water, there are some important things to consider.

TALK WITH YOUR BROKER

“A lot of brokers don’t want to do it because of the liability and the additional scrutiny by the Arizona Department of Real Estate (ADRE),” says Flucke, “They don’t have or want the trust account, and right now the audits by the ADRE are extensive. Several management companies have been shut down by ADRE due to mismanagement of their trust accounts.”

Even those who handle property management sometimes restrict which agents can work on which types of jobs. For instance, some brokers allow sales agents to market a property for lease, but limit the actual management of the property to those with expertise in the field.

Here are some things to consider:

• Trust Accounts. Brokers who handle property management must have a trust account and be prepared for regular and thorough auditing by the ADRE. In fact, Commissioner Lowe is promising more audits, more enforcement and fines by the department in this area.
• Insurance Needs. Brokers who oversee property managers must secure appropriate E&O insurance coverage. Some brokers also require agents to have bond insurance because they are handling money.
• Guidance and Support. Think twice about property management if your broker allows you to do property management, but does not offer specialized training or have written policies and procedures in place.
• For Brokers. Property management opens up many benefits as well as liabilities for a broker. If you’re considering expanding into property management, consider attending AAR’s Property Management Boot Camp. It will give you the basics of what you need to do as you begin.

INTERVIEW YOURSELF

“Everybody now wants to be a property manager,” said Otero. “It is an intense business and you must have the knowledge and integrity to deal with owners, renters and vendors.” Just because your license says you can do it doesn’t mean you should do it. The skill set and knowledge base are very different. Ask yourself:

• Do I have good instincts about people? You’ve got to be the type of person who relates well with all kinds of people. When you meet prospective tenants (or clients), consider the whole package not just what is written on their application. You will have to be connected with a tenant-screening service and agree to adhere to the Federal Fair Credit Reporting Act and the “Red Flags Rule.”
• Do I handle conflict well? When an angry tenant or owner comes to you will you be able to react calmly to diffuse their anger to solve the problem? If you don’t remain calm under pressure, this might not be for you.
• Can I balance the needs of my clients and tenants? The owner is your client, but it’s crucial that you also stay on good terms with the tenants. You need to understand both parties’ points of view. Otero says, “The biggest challenge on this side of the business is dealing with the owners. We have lots of great ones who allow us to do a really great job for them, but then there are a few that want to be involved in the rental…micromanaging staff…and don’t want to spend a dime on their investment property.”
• Do I like problem solving? Property managers are problem solvers for the property. It helps if you enjoy the process of researching a problem and then taking action to resolve it.

GET EDUCATED
Once you’ve received approval from your broker and have the personal skills to be a good property manager, it’s time to get educated so that you do not act outside your area of expertise. “For any REALTOR® looking to get into management, I would suggest they work for a management company and learn the ins and outs of the business.”

• Understand the Law. Landlord-tenant law is complicated and unfamiliar to most real estate agents. Be sure to study the Arizona Residential Landlord and Tenant Act. For example, new property managers often get into trouble with “wrongful eviction.” The term doesn’t necessarily mean that you kicked the tenant out, just that you took back possession of the property without due process. It’s also important that you understand the implications of the Federal and Arizona Fair Housing Acts. No one may refuse to rent on the basis of race, color, national origin, religion, sex, familial status or handicap. You should also review AAR’s Legal Hotline on landlord-tenant issues.
• Take Classes. “Any and all education you can acquire will only help you,” said Otero. She earned her GRI many years ago and also holds the Residential Property Manager (RPM) designation from National Association of Residential Property Managers (NARPM). Sign up for courses that focus on property management. The state’s real estate schools are a good resource. AAR also offers courses such as GRI 318: “Property Management for Property Managers,” rCRMS: “Leasing Essentials and Property Management Boot Camp.”
• Seek Out Mentors. “Talk to somebody who has been doing it for awhile,” suggests Flucke. In some parts of the state, property management is seasonal. You might ask an experienced property manager if you can help out part-time during the busiest season to gain some experience. Join the monthly meetings held by NARPM. “I have been a member of NARPM for many years,” said Otero. “I’d encourage anyone to join. We like each other and help each other.”
• Choose a Specialty. Within the residential property management arena, there are different areas of expertise: single-family, multi-family, vacation home, long term, etc. Decide where you want to focus your time.

DEVELOP A PLAN
Next, you’ll want to put in place a plan to minimize risk and maximize profit for your property management business.

• Establish Policies and Procedures. Ideally, you will build on what your broker has available. Well-developed policies and procedures take into account landlord-tenant law, fair housing standards and other factors. They establish standards that protect your business as it grows. For example, a good property manager does a thorough tenant screening—credit reports, criminal background checks, employment verification, identity verification and reference checks.  Another tip from Otero is to understand the accounting procedures, “the accounting is the core of any property management firm and without a strong base and understanding of accounting in general, they will not be successful.”
• Seek Legal Counsel. In property management, the lease and property management agreements are critical to your success. Hire an experienced, specialized attorney to review these important documents regularly. As a consequence, it is important that your lease agreement spell out the responsibilities of each party and available remedies when responsibilities are not met. View AAR’s lease agreement form. The property management agreement should establish clear standards, such as a maximum amount you can spend without authorization from the owner. If a hot water heater fails and replacing it will cost more than you can authorize, don’t take action until you’ve received the okay. View AAR’s property management form.
• Prepare for the Unexpected. Will you know what to do when the air conditioner goes out on a holiday weekend? Or the tenant calls that the hot water heater is leaking all over the garage – who do you call? Whether your client is obligated to fix it depends on how you represented it to the tenant. Plan ahead for problems and you’ll avoid unnecessary crises.

REAP THE REWARDS
Most property management companies are currently booming. Property management can provide a new source of income for real estate agents and brokers. And there are other reasons agents become property managers:

• Meet Client Needs. When an owner can’t sell their property for the price they want, you can offer your help finding a tenant to provide cash flow and keep the property occupied.
• Differentiate Yourself. A property management niche makes you attractive to new types of clients, such as investors and builders. “I tell agents that it’s a separate business that they can eventually sell when they are ready to retire,” says Flucke.
• Weather a Down Market. Property management can be a counter-cyclical revenue source. “We have very few vacancies right now—it’s a tight rental market,” reports Flucke. “The foreclosure and short-sale markets forced people that want to live in single-family homes into rental properties.” On the flipside, a struggling economy can lead to property management headaches, such as tenants who can’t make rent and owners who avoid needed repairs or are struggling to make mortgage payments.

SAY “NO THANKS”

• Perhaps you’ve weighed the risks and rewards of property management and decided it’s not for you. Here are a few items to keep in mind:
• Refer business to an experienced property manager. Help your clients by putting them in contact with a reputable company. Ask an attorney who specializes in landlord-tenant issues for a recommendation. Ask your broker. Or consult the NARPM website. “We belong as a company to NARPM, which handles residential rentals only. There are about 150 or so members in Maricopa County alone, representing over 60,000 properties,” Flucke explains.
• Do not give property management advice. Remember, you should not counsel your client on issues outside your area of expertise, such as whether they should make the property an LLC, how to manage the tax implications of becoming a landlord or what specifics to include in the leasing agreement. Always advise your client to consult with the appropriate professional—attorney, accountant, insurance agent or property manager.
• Avoid accidental property management. If you are a listing agent and you turn on the utilities and make sure that the pool is being serviced, you should have a written employment agreement in place giving you authority to act, spelling out what will be reimbursed and protecting you from liability. Just because you are not collecting rent or charging your client a fee will not relieve you of statutory requirements according to ADRE.

CONCLUSION
Property management can provide a steady source of income, even in a down economy. The commission checks come in each month and can build up over time. There are challenges in property management. But if you develop systems, know the rules and love solving problems, you can succeed with this specialty. “People ask all the time ‘why do I continue to do property management?’,” says Flucke. “If you do it right, there’s not a problem with it. It’s been over 20 years and I still love what I do. It is a wonderful career.”