The Perils of Social Media

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Cybercrime: Data Security Protocols

Data breaches and cyberfraud are becoming increasingly common. A recent study by Javelin, a Greenwich Associates LLC company, found that 12.7 million adults in the U.S. became a victim of some form of identity fraud during 2014.

Unfortunately, the real estate industry is not immune to cybercrime. In fact, Arizona real estate transactions continue to be targeted by hackers perpetrating wire transfer fraud (read more here).

For these reasons, the National Association of REALTORS® recommends that REALTORS® “create, maintain and follow a comprehensive Data Security Program” and properly dispose of consumer information. But in doing so, REALTORS® must balance state imposed record keeping requirements with federal law, namely The Fair and Accurate Credit Transactions Act of 2003.

Arizona Record Keeping Requirements
Arizona state law mandates a number of record keeping requirements, including those imposed upon members of the real estate industry. For example:

  • Each licensed employing broker must retain completed transaction and employee files for a period of at least five years from the date of the termination of the transaction or employment. See A.R.S. § 32.2151.01(A).
  • Property management firms must keep a residential rental agreement and related residential rental agreement documents for one year from the expiration of the rental agreement or until the rental agreement and related documents are given to the owner at the termination of any property management agreement. See A.R.S. § 32.2175(A).
  • Property management firms must keep all financial records pertaining to clients for at least three years from the date each document was executed, including bank statements, canceled checks or bank generated check images, deposit slips, bank receipts, receipts and disbursement journals, owner statements, client ledgers and applicable bills, invoices and statements. See A.R.S. § 32.2151.01(C).

While the Arizona Department of Real Estate audits compliance with state statutes, REALTORS® must also consider how to properly dispose of records once their retention obligations are at an end.

The Fair and Accurate Credit Transactions Act of 2003
The Fair and Accurate Credit Transactions Act of 2003 (FACTA), 15 U.S.C. § 1681, regulates the disposal of consumer credit information in an effort to reduce the risk of consumer fraud, including cyberfraud. Any business or individual who uses a consumer report for a business purpose is subject to the requirements imposed by FACTA and failure to comply can result in per-violation liability that may prove to be very expensive.

Under FACTA, any person or entity that maintains or otherwise possesses “consumer information” for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with disposal. See 16 CFR 682.3(a).

Consumer information is defined as any record about an individual, whether in paper, electronic or other form, that is a consumer report or is derived from a consumer report. Consumer information also means a compilation of such records. See 16 CFR 682.1(b).

Real estate firms are governed by FACTA, along with lenders, brokers/agents, landlords, property managers, title agents, and short sale negotiators, all of whom maintain significant amounts of confidential third-party information. For example, short sale applications, rental applications, credit reports and leases all contain personal information of the nature targeted by cyber criminals.

So, what constitutes proper disposal? Generally speaking, the disposal rule mandates practices that are reasonable and appropriate to prevent unauthorized access or use of consumer information.

According to the Federal Trade Commission (FTC), the standard for proper disposal is flexible and allows those covered by FACTA to reasonably determine what measures are appropriate based, in part, on the sensitivity of the information, the costs of compliance, and advances in technology. While FACTA does not dictate specific disposal measures, the FTC provides examples of disposal methods that may prove appropriate, such as:

  • Burning or shredding papers;
  • Destroying or erasing electronic files so that the information cannot be reconstructed; and
  • Retaining a document destruction contractor, after due diligence on the company is performed.1

Businesses and individuals governed by FACTA must also consider that it requires them to protect against unauthorized access to or use of confidential information in conjunction with its disposal. The FTC has emphasized that this requirement applies both during and after the disposal process and affects not only the processes and procedures employed, but also the personnel retained to implement them.

Conclusion
As recommended by the National Association of REALTORS®, brokers should consider establishing and implementing internal policies and procedures dictating how confidential information is handled, and the manner in which it is disposed. These guidelines should include such things as defining confidential information, explaining how the information will be stored and transmitted, setting timelines for retention and destruction, and outlining procedures by which consumer information, including that in digital form, will be purged.

Clearly, the threat of data breach and cybercrime has changed the landscape and as a result, the days of simply tossing files and reports in the garbage are over.

Scott M. Drucker, Esq., 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.

1The National Association for Information Destruction is a Phoenix-based trade group that certifies destruction contractors and dictates standards for the industry.

Arizona Registrar of Contractors Licensing Requirements

Courtesy of the Arizona Registrar of Contractors

Just as an individual working unlicensed as a real estate agent negatively impacts the livelihoods of licensed agents and poses untold financial and safety risks for the public, contracting work performed by unlicensed entities poses devastating effects on the safety and welfare of the public and livelihoods of Arizona’s licensed contracting professionals.

The Arizona Registrar of Contractors is a state agency and serves two core functions; licensing and regulation of the licensing of contractors.

Currently, there are approximately 38,000 licensed contracting entities in the State of Arizona with 106 classifications ranging from landscaping and painting to general contracting and carpentry, remodeling and repairs.

The importance of a residential buyer or seller using a licensed contracting professional begins with the assurance that the work will be completed by an individual with the knowledge and experience required to perform the work and ends with their potential access to a restitution fund, known as the Registrar’s Residential Recovery Fund, if the contracted-for work fails to meet professional industry standards.

As one can imagine, Arizona Revised Statutes and Rules related to contracting can intimately relate to the work encountered by Arizona’s licensed real estate agents on a daily basis.

Though certainly not an exhaustive list, the Arizona real estate industry likely comes into contact with work impacted by ROC contracting licensure requirements, including ARS 32-1121(A)(14); ARS 32-1121(A)(5) & (A)(6); ARS 32-1151; and ARS 32-1169.

The term handyman is one many use to generally mean an individual who can fix many, if not all, small projects around the home. In Arizona, however, statute dictates the work allowed to be done by an unlicensed individual acting as a handyman. The so-called “handyman exemption,” is as follows:

§32-1121. Persons not required to be licensed; penalties
A. This chapter shall not be construed to apply to:
14. Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, is less than one thousand dollars. The work or operations that are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply:
(a) In any case in which the performance of the work requires a local building permit.
(b) In any case in which the work or construction is only a part of a larger or major operation, whether undertaken by the same or a different contractor, or in which a division of the operation is made in contracts of amounts less than one thousand dollars, excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, for the purpose of evasion of this chapter or otherwise.
(c) To a person who utilizes any form of advertising to the public in which the person’s unlicensed status is not disclosed by including the words “not a licensed contractor” in the advertisement. (emphasis added)

According to the Arizona Republic, more homes were flipped in Maricopa County, AZ than anywhere else in the nation between April 2013 and March 2014. Did you know there are specific licensure and statutory requirements addressing a property owner attempting to sell such property after improving or building structures or appurtenances with the intent to sell. The specific statutes are as follows:

§32-1121. Persons not required to be licensed; penalties
A. This chapter shall not be construed to apply to:
5. Owners of property who improve such property or who build or improve structures or appurtenances on such property and who do the work themselves, with their own employees or with duly licensed contractors, if the structure, group of structures or appurtenances, including the improvements thereto, are intended for occupancy solely by the owner and are not intended for occupancy by members of the public as the owner’s employees or business visitors and the structures or appurtenances are not intended for sale or for rent. In all actions brought under this chapter, except an action against an owner-occupant as defined in section 33-1002, proof of the sale or rent or the offering for sale or rent of any such structure by the owner-builder within one year after completion or issuance of a certificate of occupancy is prima facie evidence that such project was undertaken for the purpose of sale or rent. For the purposes of this paragraph, “sale” or “rent” includes any arrangement by which the owner receives compensation in money, provisions, chattels or labor from the occupancy or the transfer of the property or the structures on the property.

6. Owners of property who are acting as developers and who build structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor licensed pursuant to this chapter and owners of property who are acting as developers, who improve structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor or specialty contractors licensed pursuant to this chapter. To qualify for the exemption under this paragraph, the licensed contractors’ names and license numbers shall be included in all sales documents. (emphasis added).

Finally, licensed real estate agents often encounter questions surrounding the permitting of projects and whether a seller secured them and whether a buyer needs to secure one for a project.

AZROC would recommend real estate agents be familiar with ARS 32-1121(A)(14)(a)1, ARS 32-11512 and ARS 32-11693 as they relate to the need for a licensed contractor to perform work requiring a permit, the prima facie evidence of the existence of a contract when permits are secured, and the need to list a licensed contractor when pulling a permit.

Just as for real estate, requirements for contractors are detailed, extensive and explicit in rule and by statute. If you have specific questions regarding involvement you may have in any of the activities listed above, AZ ROC recommends consulting with an attorney.

If you have questions regarding which licensed contractor you would suggest a buyer or seller to hire to complete a project, you can refer them to the Contractor Search at AZROC.gov or call 877.692.9762.

1§32-1121.A.14 Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including
natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, is less than one thousand dollars. The work or operations that are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply:
(a) In any case in which the performance of the work requires a local building permit.

2§32-1151. Engaging in contracting without license prohibited
It is unlawful for any person, firm, partnership, corporation, association or other organization, or a combination of any of them, to engage in the business of, submit a bid or respond to a request for qualification or a request for proposals for construction services as, act or offer to act in the capacity of or purport to have the capacity of a contractor without having a contractor’s license in good standing in the name of the person, firm, partnership, corporation, association or other organization as provided in this chapter, unless the person, firm, partnership, corporation, association or other organization is exempt as provided in this chapter. Evidence of securing a permit from a governmental agency or the employment of a person on a construction project shall be accepted in any court as prima facie evidence of existence of a contract.

3§32-1169. Local proof of valid license; violation; penalty
A. Each county, city or other political subdivision or authority of this state or any agency, department, board or commission of this state which requires the issuance of a building permit as a condition precedent to the construction, alteration, improvement, demolition or repair of a building, structure or other improvement to real property for which a license is required under this chapter, as part of the application procedures which it utilizes, shall require that each applicant for a building permit file a signed statement that the applicant is currently licensed under this chapter with the applicant’s license number. If the applicant purports to be exempt from the licensing requirements of this chapter, the statement shall contain the basis of the asserted exemption and the name and license number of any general, mechanical, electrical or plumbing contractor who will be employed on the work. The local issuing authority
may require from the applicant a statement signed by the registrar to verify any purported exemption.
B. The filing of an application containing false or incorrect information concerning an applicant’s contractor’s license with the intent to avoid the licensing requirements of
this chapter is unsworn falsification pursuant to section 13-2704.

Help Protect the Value of Being a REALTOR®

The Arizona Association of REALTORS® (AAR) holds the copyright and exclusive right to AAR branded forms. Protection of this copyright is of critical importance to all REALTORS®.

“If a member of the public desires to use an AAR form, we want them to hire a REALTOR® who has the knowledge and understanding of that form,” said 2015 Risk Management Committee Chair Martha Appel. “If the public can independently access and use AAR forms, the value of being a REALTOR® is undermined and the public puts themselves in potential harm’s way if they don’t understand the terms and conditions to which they have agreed.”

Nonetheless, whether intentional or by mistake, unauthorized use of federally protected AAR forms does happen.

Impermissible use of AAR forms typically occurs when: (1) a non-member copies, distributes and/or utilizes blank forms without AAR’s permission; (2) a non-member removes the AAR branding and changes a few words throughout the form in an effort to make it their own; (3) a REALTOR® member displays blank copies of partially completed forms on their website without the word “SAMPLE” stamped across each and every page; and (4) a REALTOR® member gives a valued client, family member, or friend blank copies of AAR’s forms for their personal use.

Additionally, another impermissible use of AAR forms, which does not involve the general public, occurs when brokers display blank copies of the forms on their internal platforms for their agents’ use. Under each of these circumstances, the unauthorized user has violated federal copyright laws.

A copyright violation is clear when the form displays AAR branding and is distributed to, or utilized by, an unauthorized user. Although not as clear, a violation again occurs when AAR branding has been removed and the offender has changed words throughout the form. In such situations, Arizona law provides that the applicable standard is whether the two works are “substantially similar.” See Scentsy, Inc. v. B.R. Chase, LLC., 942 F.Supp.2d 1045, 1052 (9th Cir. 2013).

Pursuant to this standard, even if a court does not deem the offender’s actions “direct copying,” AAR would still establish a violation by proving that the offender: (1) had access to sample AAR forms via the internet; and (2) the offender’s forms are “substantially similar” to those of AAR.

The creation and development of AAR forms involves countless volunteer and staff hours. AAR therefore aggressively pursues and protects its copyrighted forms. Moreover, the forms are one of the most utilized REALTOR® benefits and are a way in which REALTORS® can distinguish themselves to demonstrate added value.

In other words, although the general public may not always know the difference between a “REALTOR®” and a “real estate agent,” AAR forms are a great way for REALTORS® to start a conversation with potential clients to set themselves apart from non-REALTORS®. But if that member of the public can access blank AAR forms without utilizing a REALTOR®, the significance of being a REALTOR® is diminished.

In order to protect its copyrights, AAR will continue to vigorously pursue all offenders. To do so as effectively as possible, AAR needs your help and asks that you report to AAR all copyright infringements of AAR forms. Working together, we can protect the value of being a REALTOR®.

Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. 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.

Prepossession and Post Possession Risks

Prepossession and Post Possession agreements carry inherent risks and raise a variety of issues. However, there are times that a buyer would like to move into the property before close of escrow (prepossession) or the seller would like to stay in the property following close of escrow (post possession). For instance, the buyer’s lease may be terminating before close of escrow, or the seller may not be able move into their new home until after close of escrow. While these are situations that seemingly warrant prepossession or post possession of a property, both parties should be aware of the many issues that can arise in a prepossession or post possession. For that reason, Commissioner’s Rule R4-28-1101(K) provides that “A salesperson or broker shall recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post possession of a property.”

Because of the issues involved with prepossession or post possession of a property, a buyer and seller should enter into a written agreement so as to ensure the parties’ rights and obligations are documented. Numerous times in the past, the Arizona Association of REALTORS® Risk Management Committee has considered requests to develop a “standard” prepossession and post possession agreement. However the committee has never approved the development of such a form due to the inherent risk and liability. Consequently, some brokers have developed prepossession or post possession agreement forms but many advise against the agreements altogether.

Prepossession

Typically, the seller is responsible for any damage to the property prior to close of escrow.  However, in the event a buyer prepossesses the property, the buyer is now responsible. More specifically, the Purchase Contract at the “Seller Warranties” and “Risk of Loss” provisions provides that the seller is responsible only until close of escrow or possession, whichever is earlier. Accordingly, once the buyer prepossesses the property, the seller is no longer responsible for seller warranties or damage to the property because those obligations are terminated under the terms of the Purchase Contract.

If the buyer and seller opt to enter into a lease agreement for the prepossession, the parties’ rights and obligations during the tenancy are now governed by the Arizona Residential Landlord and Tenant Act (“ARLTA”). This can be problematic as ARLTA provides that the landlord is responsible for maintaining fit premises. A.R.S. §33-1324. In other words, under ARLTA, the landlord/seller is responsible to ensure that the electrical, plumbing, and heating/cooling are in good and safe working condition during the tenant’s tenancy. Thus, if the parties enter into a lease agreement, the seller is again responsible for the property despite the fact the seller has moved out and the home is now exclusively occupied by the buyer.

Due to the inherent conflict between ARLTA and the Purchase Contract, the buyer and seller should probably opt to enter into a prepossession agreement by way of an addendum rather than a lease. Significantly, if the parties make the prepossession agreement an addendum to the parties’ Purchase Contract, ARLTA should not apply. See A.R.S. § 33-1308.

Items the buyer and seller may want to address in a prepossession agreement are:

  • Insurance: Who is responsible in the case of damage to the property? What damage is insured? The seller of the home should review their homeowners policy and confirm with their insurer whether a tenant in the property changes any of the terms of their policy. Additionally, the buyer may want to purchase renter’s insurance until the buyer legally owns the home.
  • Walkthrough: Did the parties agree on the condition of the premises prior to the buyer’s prepossession (e.g. walk through inspection)? What if the buyer claims the property is not in substantially the same condition and requests additional items for the seller to correct?
  • Repairs and Maintenance: Who is responsible for repairs? The parties should address who is responsible for any repairs and maintenance of the property during the prepossession. The parties may want to consider purchasing a home warranty that will cover the property prior to close of escrow.
  • Occupancy Rights: Who will occupy the property? Are animals allowed? Is smoking allowed?
  • Rental Payments: How much rent will be charged for the prepossession? Who pays the utility bills during the prepossession?
  • Security Deposit: Will there be an additional security deposit in case the sale falls through and the property is damaged?
  • Buyer Contingencies: What if there are contingencies that have not been met prior to the buyer’s prepossession? Have the parties decided to waive the contingencies or are they still in place therefore allowing the buyer to cancel the Purchase Contract if a contingency is not met?
  • Alterations: What if the buyer moves in and begins to alter the property and later finds out they cannot purchase the property?
  • Buyer’s Remorse/Failed Transaction: What happens if the sale is not completed? When does the buyer/tenant have to move out? What happens if the buyer/tenant refuses to move out?

Post possession

Because the obligations in the Purchase Contract are fulfilled following close of escrow, the parties can choose to either enter into a lease agreement (which would be governed by ARLTA) or a post possession agreement. The decision of which type of agreement is appropriate may include a discussion of whether the post possession is for 3 days or 30 days. Regardless of which avenue the parties decide, the parties should be aware that the obligations to repair and maintain the property are no longer the seller’s responsibility; they are the buyer’s responsibility. Accordingly, at a minimum, the parties should address the following:

  • Insurance – homeowners and renters: The buyer will most likely have a homeowners policy. The seller should purchase a renters policy.
  • Property Condition: The condition of the property prior to tenancy should be well documented and agreed on by both parties (e.g. move in/move out inspection). The parties may further want to consider purchasing a home warranty.
  • Term: The tenancy period should be determined. The parties should further discuss what happens if the seller needs to stay in the property for a longer or shorter period of time than the agreement states.
  • Security Deposit: Will there be a security deposit in case the seller damages anything in the property during seller’s tenancy? If using a lease agreement, ARLTA provides that a landlord cannot charge more than 1.5 times the amount of one month’s rent. SeeR.S. §33-1321.
  • Rental Payments: How much is rent? Will rent be prorated?
  • Occupancy Rights: Who will occupy the property? Are there any animals? Is smoking permitted?
  • Utilities: Who pays the utility bills?

Due to the risk and liability involved with prepossession and post possession of a property, the best practice is for the parties to not enter into a prepossession or post possession agreement. However, if the parties insist on entering into such an agreement, the real estate agent should consult with their broker and advise their client to seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks.

 

About the Authors: Arizona Association of REALTORS® (“AAR”) Chief Executive Officer K. Michelle Lind is an attorney, a State Bar of Arizona board certified real estate specialist, and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice. AAR is the largest professional trade association in the state comprised of 40,000 members involved in the real estate industry, allied industries and firms.

Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. 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.

 

All The Buzz About Drones

Updated July 29, 2016

Effective August 29, 2016, real estate agents can operate drones for some real estate related activities, such as aerial photos of property listings, as long as certain requirements are met.  See NAR’s FAQ for more information here.


Updated June 21, 2016
DOT and FAA Finalize Rules for Small Unmanned Aircraft Systems – June 21, 2016


Stay Away From Drones – For Now

Updated February 20, 2015

The use of drones is an innovative tool for marketing real estate. However, recently there has been a lot of controversy over whether real estate agents, amongst others, are allowed to use drones or unmanned aircraft systems (UAS) for that purpose. More specifically, the Federal Aviation Administration (FAA) maintains that drones or UASs may only be used for hobby or recreational use. Nonetheless, the FAA permits the commercial use of drones on a case-by-case basis, and an FAA certificate of airworthiness is required. Accordingly, if a drone is used for a commercial purpose, such as to market real estate, the FAA asserts that the user is in violation of FAA regulations and the user could be subjected to a $10,000 fine.

Although the FAA does not currently approve of the use of drones for marketing real estate, the FAA is developing a system for integrating commercial use of drones into the national airspace. To protect and promote real estate agents interests, the National Association of Realtors® (NAR) is working with the FAA to expedite the development of rules to allow real estate professionals to use drones to market properties. However, until clear-cut regulations are released, NAR “recommends against members use of drones for real estate marketing purposes and against hiring companies to do the same until such time as the FAA issues regulations providing for the commercial use of unmanned aircraft.”

For more information regarding drones, go to http://www.realtor.org/field-guides/field-guide-to-drones-and-real-estate and http://www.realtor.org/articles/national-association-of-realtors-policy-statement-unmanned-aerial-vehicles.


Droning On

Update as of February 20, 2015

On February 15, 2015, the FAA issued proposed rules to allow commercial use of UASs. The proposal offers safety rules for UASs that weigh less than 55 pounds. Additionally, amongst other items, the rule addresses restrictions such as time of flights, height restrictions and operator certification. See http://www.faa.gov/uas/nprm/.

Once the proposed rule is publicized in the Federal Register (found at www.regulations.gov), the public may comment on the proposed rule for 60 days. Id. NAR supports the proposed rule and plans on submitting comments. However, until the final rule is published, NAR continues to discourage REALTORS® from using UAS for commercial purposes without an FAA exemption. See http://www.realtor.org/news-releases/2015/02/realtors-applaud-faas-proposed-rule-to-allow-commercial-drone-use-for-real-estate.

Update as of January 15, 2015

While many have heard the recent news that Arizona REALTOR® Douglas Trudeau received permission from the FAA to fly a UAS, it does not mean any real estate agent can use a drone to market their listings. Rather, agents should not use a drone to market real estate unless they receive an exemption from the FAA, like Mr. Trudeau. Stated differently, the FAA prohibits the use of drones to market real estate unless the drone operator receives an exemption from the FAA. Notably, amongst additional extensive rules, Mr. Trudeau’s exemption required either a temporary airman certificate or a private pilot certificate. Accordingly, unless the agent has received an exemption from the FAA, the agent should not fly a drone to market property. Similarly, if a company does not have a drone operator that has received the FAA exemption, agents should not hire that company to market a property for sale.

For more information regarding the FAA’s exemption, go to http://abcnews.go.com/Business/guy-arizona-fly-drone/story?id=28033378.

 

About the author: Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. 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.

Broker Survey of Common Claims Issues

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The Handyman Exemption: Is it Really That Simple?

When considering a buyer’s request for repairs, REALTORS® know that repairs costing in excess of $1,000 must be performed by a licensed contractor while repairs under $1,000 can be performed by an unlicensed handyman. But is it really that simple?

A.R.S. § 32-1121(A)(14) is commonly referred to as the “handyman exemption” as it enables persons other than licensed contractors to perform tasks for which the aggregate contract price is less than $1,000. But there is much more to this statute.

To better grasp Arizona law governing the licensing and regulation of contractors, it helps to understand the purpose behind the statues. Licensing requirements for contractors constitute regulatory measures designed to protect the public against “unscrupulous and unqualified persons purporting to have the capacity, knowledge and qualifications of a contractor.” Northen v. Elledge 72 Ariz. 166, 172, 232 P.2d 111, 115 (1951). This sentiment was echoed years later by the Arizona Court of Appeals, which found that the purpose of the statutes was to “regulate the conduct of those engaged in the business of contracting so as to discourage certain bad practices which might be indulged in to the detriment of the public.” Security Ins. Co. of New Haven v. Day, 6 Ariz.App. 403, 406, 433 P.2d 54, 57. (App. 1967).

Even though the legislature deemed it imperative to protect the public in this regard, it also understood the importance of allowing individuals other than licensed contractors to make minor repairs. It for this reason that A.R.S. § 32-1121(A)(14) was enacted, which carves out an exemption for:

Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items… is less than one thousand dollars.

But in addition to the requirement that the aggregate contract price be under $1,000, the statute also demands that the work being performed must be “of a casual or minor nature.” Therefore, even if the work totals less than $1,000, unless it is “of a casual or minor nature,” it must be performed by a licensed contractor. While the type of work must obviously be considered in determining if it is “casual or minor,” additional factors that can be considered include the dollar amount and duration of the repair contract. See Arizona Commercial Diving Services, Inc. v. Applied Diving Services, Inc., 212 Ariz. 208, 213, 129 P.3d 497, 502 (App. 2006). Furthermore, if the work requires a local building permit, a licensed contractor must be used regardless of the contract price. See A.R.S. § 32-1121(A)(14)(a).

So while it is true that repairs under $1,000 can generally be performed by an unlicensed handyman, additional factors can change this analysis and must therefore be considered.

To read A.R.S. § 32-1121, go to: http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/32/01121.htm&Title=32&DocType=ARS

About the Author:  Scott M. Drucker, Esq., 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.

Seller Beware

For many sellers of real property, an open house is an effective marketing tool that provides potential buyers with an opportunity to view a home that they are interested in purchasing. Open houses have therefore been a long-standing tradition in the sale of residential real estate.  Nonetheless, it must be remembered that an open house is an invitation for others to enter the home, regardless of their motives. Sellers should therefore be mindful of commonsense steps they can take to protect their property.

Medications:  One of the most commonly stolen items during an open house is prescription medications.  While medications may not immediately come to mind as a valuable possession, thieves and addicts target prescriptions either for personal use or resale.  Sellers should therefore remove medications from plain sight, drawers and cabinets.

Valuables:  It is equally important for sellers to set aside important possessions or remove them from the home prior to staging an open house. Jewelry, collectibles and other small items can easily be taken without attracting attention.  Even placing these items in a drawer is inadequate as it is simple for a thief to open drawers and cabinets while the agent is distracted or in another part of the home.

Mail:  Items such as bills and bank statements that contain account numbers and other sensitive personal and financial information should always be removed from the home to prevent identity theft.

Electronics:  Desktop computers are often too large and inconvenient to remove from the home.  Items of this nature must therefore be password protected to prevent access to the seller’s private files.

Keys:  Do not leave spare door keys, mailbox keys, gate keys or garage door openers lying around the home during an open house.  Doing so invites a thief to later gain entry to the seller’s home or mailbox.

Calendars:  Calendars typically contain private information, including dates and times on which the seller will be away from the home.  Sellers should therefore close and put away all calendars prior to opening their home to the public so as not to publicize this information.

Doors and Windows:  At the conclusion of the open house, the seller should immediately check all doors and windows to ensure that they are securely locked.  Thieves will often unlock doors and windows during an open house with the plan to gain entry to the home later that night or the next day when the seller is at work.

Multiple Agents:  Depending on the popularity of the open house, it may prove beneficial to have more than one agent present to better keep an eye on people moving throughout the home.  Some would be thieves make two visits to the home.  The first time, the thief will “case” the property to evaluate the security measures in place and identify items worth taking.  The individual may then come back later with a partner.  While one of them talks with the agent in an effort to distract him or her, the other moves about the home.  Having an extra set of eyes helps combat this scheme.

Open houses remain a primary source of information for interested buyers.  Although most individuals attending an open house are genuinely interested in learning about the home, some individuals have ulterior motives.  And while different listing contracts contain different terms, this concern is recognized in the ARMLS Exclusive Right to Sell/Rent Listing Contract which states, in part, “Owner acknowledges that Owner’s or occupant’s property could be damaged or stolen or persons visiting the Premises could be injured.  Owner shall be responsible for obtaining appropriate insurance to cover such possible events.”  In light of the risks associated with open houses, sellers should be advised to take appropriate precautions to protect themselves and their belongings.

About the Author:

Scott M. Drucker, Esq., 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.

 

 

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