News for the Commercial REALTOR®
November 15, 2006 Vol. 7 No. 11
O.C. Rental Rates Up 6.1% In Third Quarter
Orange County's largest landlords received average rent hikes of 6.1 percent in the year ended in the third quarter, according to RealFacts. The typical rent at a large complex is now $1,494 – up $88 in a year. The only good news for renters is that is this past quarter's rise is the slowest annual rate of rent increases on a percentage point basis since the second quarter of 2005. Why can landlords continue to ask for – and get – these kinds of rate hikes? Few vacant apartments, a byproduct of a healthy job market, and home shoppers remaining skittish. RealFacts reports that only 3.3 percent of local apartments at large complexes were empty last quarter. That's down from 4.6 percent in the second quarter and 4 percent a year ago. Industry experts think any vacancy rate under 5 percent is, theoretically, a "sold out" condition.
Source: OC Register
City of Anaheim Buys Apartments for Redevelopment
The City of Anaheim has acquired a 16-unit apartment complex in what amounts to a small deal in terms of dollars, but the city's acquisition of the complex is part of a larger plan for redeveloping the area surrounding the multifamily property. According to Sperry Van Ness, the city bought the complex at 1607-1613 Calle Del Mar, near Disneyland, from California-based Mazeltov LLC for $2 million. The Calle Del Mar complex is in an area of the city now known as Hermosa Village that was once known as Jeffrey Lynne. The city has been redeveloping it for several years in an effort to transform what was once an area known for crime, overcrowding and other problems. The Jeffrey-Lynne area’s more than 100 buildings and hundreds of apartment units were mainly built in the 1960s and in many if not most cases were in poor condition. The city’s initial efforts to redevelop the area produced opposition from residents who said they would be displaced, but that has since subsided and Anaheim has proceeded with the redevelopment. The 1607-1613 Calle Del Mar complex was built in 1963 and occupies a site of just under a half acre. The 16 units were 100% occupied at the time of the sale, with rents at about $850. The apartments consist entirely of one-bedroom/one-bathroom units and feature a secured entry with a community center and a pool.
Source: GlobeSt.com
Rents Continue To Grow As Five Markets Reach "Hot" Status
Results of third quarter data released today by RealFacts reveal overall continued rent growth, with five markets standing out at above 7%. Leading the way at 10.4% annual rent growth was the San Jose MSA, the first appearance of double digit rent growth in San Jose since the first quarter of 2001 when it registered 34.9% annual growth. The Los Angles, Phoenix, Oxnard-Thousand Oaks and San Francisco MSAs all registered annul rent growth between 7.2% and 7.6%. Showing continuing strength were the Las Vegas, Riverside-San Bernardino, and Seattle MSAs, all between 5.8% and 6.3%. Portland OR broke the 5% barrier this quarter at 5.6% annual rent growth. Three MSAs are poised to break the 5% barrier, with Reno at 4.8%, Salt Lake City at 4.6% and Tucson at 4.7%. Together, the 12 MSAs registering over 4.6% annual rent growth represent 79% of the units in the eight western and southwestern states, confirming the depth and breadth of the strong rent growth in these two regions. Overall, eighteen of the 29 major MSAs tracked are now over 3% annual rent growth, up from 13 MSAs last quarter, and double the 9 MSAs over 3% one year ago. This quarter the complete RealFacts database registered 4% annual rent growth, a 0.3% increase from the second quarter, and up from 2.7% annual rent growth a year ago. Occupancy remains strong with every major MSA above 91%. Only the Houston and Fresno MSAs showed negative annual occupancy change, both at -0.1% Houston is undoubtedly the result of shifts in population due to last years major hurricanes. Quarterly occupancy changes included 11 MSAs with negative movement, ten of these showing less than a 1% change. The minor loses in occupancy are probably attributable to the market reaction to recent rent growth. Oxnard-Thousand Oaks-Ventura MSA is new to the strong and sustained rent growth group. The MSA has shown small but steady occupancy gains for the last 8 quarters, and surpassed the Southern California regional occupancy fourth quarter of 2005. It then jumped to 5.3% annual rent growth the following quarter, with a 2% leap in rent growth last quarter. Oxnard seems to have taken San Diego's place in the strong rent growth club as San Diego rent growth has lagged in the lower 3% range despite occupancy consistently around 95%. Portland-Vancouver-Beaverton MSA is the other stand out this quarter, jumping from 3.6% annual rent growth last quarter to 5.6%, showing remarkable growth from a 0.9% rent growth rate of one year ago. With strong under lying basics, minor occupancy loses, and widespread rent growth including more markets every quarter, strong rent growth and sustained occupancy rates look like continuing well into next year. Rent growth rates might even accelerate as the "follow the leader" effect kicks in, and more conservative owners start to raise their rents as they see the success of the market leaders.
Source:RealFacts
RELAY™ Users To Receive Discounted Deductible For E&O Insurance
RELAY™, the online transaction management tool for real estate professionals, recently announced that users will receive a 50 percent reduction in the deductible amount on the C.A.R.-endorsed errors and mission (E&O) insurance program underwritten by AIG and brokered by Linsin, Sherman Associates. RELAY™ helps users manage risk through its automatic history and notes functionalities, and through the ability to track transaction progress and completion. Under the new agreement, if an E&O claim is filed involving a transaction where RELAY™ was utilized, REALTORS® under the E&O program endorsed by C.A.R., insured by AIG, and brokered by Linsin, Sherman Associates can save 50 percent off the deductible. In addition to activity management, RELAY™ also features one-click integration with ZipForm® and WINForms Online®, the electronic forms software used by nearly 400,000 REALTORS® nationwide. The one-click integration feature allows users to move both the transaction data and the completed form -- purchase agreements and disclosure documents for example -- to the RELAY™ transaction management system. For additional information about the E&O program available to RELAY™ users, visit www.linsinsherman.com.
Source: CAR
NAR Dues Formula Barrier To Membership Growth
One of the principal strategic goals of the REALTORS® Commercial Alliance (RCA) is to expand NAR’s commercial membership. The Commercial Membership Recruitment Work Group, composed of representatives from the RCA, Member Policy and Board Jurisdiction, Professional Standards, and Association Executives Committees, was created in May to develop programs to help realize that goal. Work Group Chairman Joel Criz presided over two meetings this summer during which the group determined that the Designated REALTOR® dues formula represents a significant barrier to recruiting commercial practitioners as NAR members. In effect, the NAR DR dues formula is structured so that if one member of a real estate company belongs to NAR, all members of that company must belong. This hurdle occurs because NAR assesses dues to its Member Boards based on the number of individuals licensed with each company. If only one member of a 10-person commercial firm joins NAR, the board, and therefore the company, is still billed for dues as if all 10 people were NAR members. The Designated REALTOR® for the company must also be an NAR member. Commercial brokers consistently cite this policy as the main reason they do not join NAR. Other issues also present barriers to expanding commercial membership. Commercial real estate firms operate more independently than their residential counterparts, and few list properties in an MLS or need the MLS to offer cooperative compensation to buyer representatives. Because of these differences, the Work Group believes commercial practitioners should have different membership policies than their residential counterparts. Allowing only some individuals of a commercial firm to join would provide a way to introduce commercial practitioners to the membership benefits offered by the local, state, and National Association of REALTORS ®. In turn, this expanded membership would enable local boards to increase member services and thus attract still more members. In addition, the RCA will continue to provide improved services to commercial members, including a tangible benefit for commercial members in the form of a national commercial information exchange platform. The Work Group is currently conducting research to predict the financial and membership level impact associated with its dues policy recommendations. These findings and the group’s proposal were formally presented to the RCA Committee at the 2006 REALTORS® Conference & Expo.
Source: RCA Update
IRS Increases Business-Mileage Deduction Rate For 2007
The standard mileage-rate deduction for business-related driving in 2007 will return to the record high of 2005, the IRS has announced. The 2007 rate will be 48.5 cents per mile, up from 44.5 cents in 2006. That matches the record-high rate in effect for the final four months of 2005. Usually the IRS adjusts the mileage rate once per year, but in 2005 it raised the rate a whopping 8 cents at mid-year, the steepest one-time hike eve, because of the steep rise in gasoline prices created in part by Hurricane Katrina. Fuel prices are again a factor in the IRS' decision to raise the rate, the tax agency said. "The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October," the agency said in a press release. The standard mileage deduction is limited to companies using four or fewer vehicles. For larger companies ineligible to take the deduction, the IRS standard mileage figure is widely used as a benchmark in setting reimbursement rates for employees' driving expenses. For miles driven for medical or moving purposes, the standard mileage rate will rise to 20 cents per mile in 2007, from 18 cents a mile in 2006. The altruistic will find no added relief: The rate for driving related to charitable purposes, a rate set by Congress, remains at 14 cents a mile.
The following table summarizes the optional standard mileage rates for employees, self-employed individuals, or other taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. For the three periods beginning August 25, 2005 and ending December 31, 2006, this table also lists the rates for providing donated services to charity for relief related to Hurricane Katrina, and the amount that may be excluded from income by those reimbursed for such use.
Standard Mileage Rates Year 2007 Purpose Business Charitable Medical & Moving Business Charitable Medical & Moving Rates (in cents per mile) 48.5 14 20 44.5 14 18
2006
Source: Dow Jones MarketWatch & IRS
Study Shows Risky, Least Risky Housing Markets
Some California homeowners may see home prices decline over the next couple of years, according to PMI Mortgage Insurance Co., a Walnut Creek based private mortgage insurer. PMI produces a quarterly based on local economic conditions, income, and interest rates. The statistical model estimates the probability of falling home prices over the next two years. Eight of the 10 riskiest home markets are in California, according to the analysis. They are: 1. San Diego-Carlsbad-San Marcos, Calif., 60.3 percent 2. Sacramento-Arden-Arcade-Roseville, Calif., 60.1 percent 3. Oakland-Fremont-Hayward, Calif., 60 percent 4. Santa Ana-Anaheim-Irvine, Calif., 59.9 percent 5. Nassau-Suffolk, N.Y., 59.8 percent 6. Riverside-San Bernardino-Ontario, Calif., 59.6 percent 7. Boston-Quincy, Mass., 59.6 percent 8. Providence-New Bedford-Fall River, R.I.-Mass., 59 percent 9. Los Angeles-Long Beach-Glendale, Calif., 59 percent 10. San Jose-Sunnyvale-Santa Clara, Calif., 58.9 percent
The report picks markets in Texas and the Midwest as the 10 least at risk of price declines, with Pittsburgh as the least risky. The least risky markets are:
1. Houston-Sugar Land-Baytown, Texas, 8.8 percent 2. Nashville-Davidson-Murfreesboro, Tenn., 8.6 percent 3. San Antonio, Texas, 7.8 percent 4. Fort Worth-Arlington, Texas (MSAD), 7.6 percent 5. Columbus, Ohio, 7.4 percent 6. Cleveland-Elyria-Mentor, Ohio, 7.4 percent 7. Cincinnati-Middletown, Ohio-Ky.-Ind., 7.2 percent 8. Memphis, Tenn.-Miss.-Ark., 6.8 percent 9. Indianapolis-Carmel, Ind., 6.3 percent 10. Pittsburgh, 6.1 percent
Source: Daily Real Estate News/REALTORS® Magazine Online
Cold Calling And The "Do Not Call" Alert
NAR has become aware of an individual threatening to bring claims against real estate brokerages for violating the federal “do not call” laws. The caller has used this method against other industries and has now focused his efforts on real estate brokerages. The caller is an individual whom the brokerage has never contacted and probably never had any intention of contacting. The caller’s method works in the following way. First, he contacts the real estate brokerage and asks that his phone number be placed on the company’s internal “do not call” list. He also requests that the brokerage mail him a copy of the company’s policy for maintaining its internal “do not call” list within five days. If the caller does not receive the brokerage’s “do not call policy” within five days, he will threaten to file a lawsuit against the brokerage in Minnesota state court. To avoid the lawsuit, the caller offers the brokerage the opportunity to settle the matter for around $5,000. The caller is not a lawyer.
Legal Requirements The caller’s method is not without legal support. The Federal Communication Commission's (“FCC”) regulations, enacted pursuant to the Telephone Consumer Protection Act of 1991 (“TCPA”), state that those who engage in "any telephone solicitation to a residential telephone subscriber" must also have a "written policy, available upon demand, for maintaining a do not call list"- i.e., its company-specific do not call policy, not necessarily its policy for complying with the “Do Not Call Registry” (although policy could include this information as well). The caller also relies on a 1996 FCC letter which states "even where a company does not solicit a particular consumer, we find nothing in our rules that limits a company's duty to disclose its policy if it does engage in telephone solicitation. Additionally, we believe that failure to provide a do not call policy is a prohibited act under the TCPA." Therefore, if the brokerage is engaged in any telemarketing, it must have a “do not call” policy which must be made available to send to those who request it from the brokerage, even if the brokerage has never contacted the consumer. The caller’s five-day time frame demand is not supported by the TCPA regulations or FCC correspondence. Instead, the only existing guidance from the FCC states that the brokerage must send its policy in response to a request within a “reasonable amount of time following the consumer's request". In addition, FCC rules give a company thirty days to add a consumer’s name to the company’s do not call list, further demonstrating that a five day turnaround time is likely unreasonable. Nevertheless, the faster you send the policy in response to a request, the better your chances may be of avoiding a lawsuit.
Summary A real estate brokerage’s best defense against claims like those described above is for the brokerage to be prepared to properly respond to these calls. The brokerage should have a written do-not-call policy available upon request; needs to educate its salespeople to respond to these requests by promptly transmitting the policy to the requestors; and should make sure salespeople document the transmission of the policy to the requestor. For those who do not have a do not call policy, a model policy is attached below. Note a more complete policy detailing your company’s compliance with the federal “Do Not Call Registry” is recommended, but not required- click here to learn how to create a more complete policy and so qualify for the “safe harbor” provision in the federal rules.
Source: RCA Report
1031 Myths
Once the province of commercial brokers, Internal Revenue Code section 1031 exchanges are increasingly being used by savvy residential investors to defer capital-gains taxes. Most people know the basics of a 1031, or like-kind, exchange: For a property you plan to sell, you have to identify replacement property within 45 days and close on the purchase within 180 days. Beyond that a lot of misinformation exists. Understanding these common misconceptions will help keep you and your client out of trouble. Myth No. 1: The 180-day rule can be extended if Day 180 falls on a weekend or a holiday. Like-kind exchanges must close no later than day 180 after the deed transfer date of the relinquished property. Closing in escrow doesn’t count. There must be actual transfer of ownership. The U.S. Tax Court has reaffirmed it: If your client’s 180 days are up on Sunday, you can’t close on Monday; you have to close on the preceding Friday. The no-exception date rule also applies to the 45 days given to identify a property for exchange. Myth No. 2: Residential properties transferred through a 1031 exchange must be used exclusively as rentals. You can acquire a second home or vacation home with 1031 funds for personal use as long as you follow certain guidelines. First, the property needs to be placed in a rental pool and offered for rent at market rate. The exchanger can use the property for up to 14 days per year or 10 percent of the time the property is rented, whichever is greater. In addition, if the exchanger needs to perform maintenance on the property, the exchanger can stay in the property while that work is done. Myth No. 3: Only developed properties qualify for like-kind exchanges. Most people believe 1031 exchanges are limited to developed land and “sticks and bricks.” But vacant land also qualifies. For instance, you can exchange an apartment building for vacant land. In addition, properties or land can be exchanged for anything else defined under a state’s law as real estate. For example, in Colorado, the state’s definition of real estate includes not only improved and vacant land, but also water rights, mineral rights, air rights, a leasehold interest in excess of 30 years, and even a contract to buy or sell real estate. A caution: Definitions of real estate vary from state to state, so be certain an asset is eligible as real estate before making an exchange. Myth No. 4: Exchangers must purchase replacement properties that are equal in value to the property they’re exchanging. There’s no limit to the value of the property an exchanger can buy as long as the exchanger identifies no more than three properties as possible replacement. For example, if an exchanger sold one property for $500,000, the exchanger could identify $10 million of replacement property. However, the minute exchangers identify more than three properties, the exchange falls under the 200 percent rule, which states that the properties can have an aggregate value of no more than 200 percent of the property they’re replacing. Fail to meet the 200 percent test, and the exchange falls under the 95 percent rule. Under this provision, exchangers must be able to close purchases on properties with a total value of at least 95 percent of the value of the property they’re selling or the exchange will be disallowed by the IRS. Value is defined by the IRS as either the contract price or an appraised fair market value. Myth No. 5: Your attorney or your real estate professional can act as the qualified intermediary who takes temporary title to the property for your exchange.
The Internal Revenue Code describes who can’t be a qualified intermediary. The client’s attorney can’t serve as a QI if there’s been an attorney-client relationship over the preceding two years, nor can the client’s CPA if he or she has prepared the client’s tax return within the last two years. A real estate licensee representing any party in the exchange is also excluded because of the agency relationship. To further confuse matters, there are no statutory requirements as to what constitutes a QI or the qualifications for becoming one. Myth No. 6: When you exchange property via a 1031 exchange, you defer all tax liability. Any cash not spent on the purchase of a replacement property during an exchange, called boot, is fully taxable, regardless of the client’s adjusted basis on the property. This boot is taxed at federal capital gains tax rates (currently 15 percent). In addition, exchangers may owe capital gains taxes in the state in which the property is located. If exchangers depreciated the relinquished property for tax purposes after May 1997, they may also have to pay a recapture tax of 25 percent on any boot they receive. Myth No. 7: A taxpayer can’t complete a 1031 transaction with a related party. Clients can use a 1031 exchange to buy property from or sell property to a related party, but the related party must then own that property for at least two years before selling or exchanging it. Otherwise the exchange is invalidated and the client may owe capital gains taxes. Under IRS rules, parents, spouses, siblings, and children—essentially any parties related by blood—are considered related parties. A team that includes you, the client, a QI, and the client's attorney or CPA best handles the intricacies of exchanges. Assemble that team before the client puts the property to be relinquished on the market. Otherwise, you run the risk of an error that could invalidate an exchange.
Source: REALTOR® Magazine Online
Governor Vetoes SB 540, Kehoe - Tenancy: Signs And Flags.
Existing law regulates the terms and conditions of residential tenancies and prohibits a landlord from interfering with a tenant's quiet enjoyment of the premises. This bill would prohibit a landlord from prohibiting a tenant from posting or displaying campaign signs relating to an election or legislative vote, including an election for a candidate for public office, or to the initiative, referendum, or recall process, except as specified. The bill would permit a landlord to prohibit the posting or display of campaign signs under certain circumstances, including when the posting or display is in excess of a specified period.
Source: Governor's web page
Orange County Real Estate Agents - Second Highest Number in State
Orange County had the second-highest number of real estate license holders in California, second only to Los Angeles. Below are the most recent figures available showing the total number of license holders – salespersons and brokers – in California's 8 most-populous counties: The number of Californians with real estate licenses increased 64 percent in the past five years, with more than 511,000 people – one out of every 50 adults in the state – now having a broker's or salesperson's license.
County Los Angeles Orange San Diego Riverside Santa Clara Sacramento Alameda San Bernardino Salespersons 89,924 44,438 35,283 21,485 20,769 14,511 13,531 14,283 Brokers 26,686 14,686 11,339 5,202 5,461 3,690 3,987 3,206 Total Licensees 116,610 59,124 46,622 26,687 26,230 18,201 17,518 17,489
Source: DRE/OC Register
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Loren Tilles, Editor & President.
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