Good and Bad News for Realtors

I won’t exactly come across as a visionary if I point out the real estate has been in the slumps for the past few years. By the way, just in case you missed it, water is wet. Now that I’m done stating the obvious, it’s time to start digging through some of the recent numbers that the National Association of Realtors (NAR) has been kicking out regarding the future of our industry. What they mean to the industry is sometimes not that obvious.

Let me start by pointing out that recent NAR missives are pointing at an increase in residential and commercial property sales. While this is certainly good news, it’s also that time of the year. While we can all certainly hope that this continues to trend upward, at present it looks like it’s going to do so slowly and considering the glut of inventory currently in market it could be a while before we start hearing any good numbers about new housing starts. That said, getting better is better than getting worse. Unfortunately, what these trends mean for real estate professionals who are currently in the trenches is uncertain.

Part of the good news is that the competition among Realtors who buy and sell houses has improved greatly due to a sharp decline in the number of licensed Realtors talking them on. According to various numbers released by the NAR and others, in 2006 there are approximately 1.4 million NAR members. I have also seen estimates as high as 2.6 million licensed realtors for that period of time. Today, again according to the NAR, that number is under 1 million.

According to the 2011 NAR member profile poll, while things are looking up a bit, Realtors really are working harder and making less. In fact, the median income of an average realtor dropped 4.5% last year to $34,100. This was preceded by a 3% decline in 2009. Those members who list themselves as broker/Realtors earned a median salary of $48,700 while sales agents earned an average of $24,900 in 2010. Even more disproportionate is that NAR members who’ve been in the business for two years or less earned a median income of $8,900 while those who’ve been in the business for 16 years or more earned $47,100. While good news for those agents who stick it out year after year, this raises a red flag not only for the challenges that new broker/Realtor’s face in entering this market but also is going to create a generational gap between home buyers and the professional Realtors there to help them.

For example, the 2011 member profile survey shows that the typical NAR member broker/Realtor is 56 years old. Only 3% of all Realtors are under the age of 30. While age may not be a huge factor in successful home selling, when you take into consideration that many home buyers are young people who are purchasing their first home, it’s quite possible that they will respond differently to agents closer to their age who have a good handle on alternative forms of finding and marketing homes through blogs, social media tools, specialized websites etc. Again, according to the member survey, only 10% of all Realtors claim to have a blog. Of those, 18% are between the ages of 30 and 39 while 16% are younger than 29. Likewise, 83% of agents under age 29 claim to use social media tools to help find and assists their clients compared to just 52% of agents between the ages of 50 and 59.

My intention is not to be ageist, but to point out that as markets change the need for members to be flexible needs to change as well. The bottom line is that if your clients are going to use certain approaches to find a new home or to sell their existing ones, agents need to be aware of these tools and methodologies in order to meet those clients in the right place.

As people much wiser than me have pointed out “this too shall pass”. Where we are today is not we’re going to be in the future. The good news is that we’ve hit the bottom and were looking up. The bad news is that it’s still a tough slog and for many people it’s a hard way to make a living. That said, the passion that most agents have for the work they do has less to do with their paychecks and more to do with the services they provide their clients and the challenges that keep them fresh and viable the marketplace. By staying flexible, keeping a positive outlook and looking for ways to create opportunities, we can continue to rebuild this industry and make it a positive experience for everybody.

The Secure and Fair Enforcement For Mortgage Licensing Act and Your Career

As a mortgage or real estate professional, hopefully by now you’re familiar with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). This act establishes nationwide requirements for the licensing and registration of all Mortgage Loan Originators (MLOs). Although states determine the timeframe for completing the SAFE requirements, there are guidelines that need to be met by all MLO professionals in a timely manner. If you are involved in any MLO activities, this means that you need to fulfill specific requirements.

Why the Secure and Fair Enforcement for Mortgage Licensing Act?

The Secure and Fair Enforcement for Mortgage Licensing Act is designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of state-licensed mortgage loans. It serves to regulate the mortgage industry and decrease the number of faulty loans that are approved to non-qualifying buyers.

What are the Compliance Requirements for Industry Professionals?

As a professional involved in the mortgage loan origination process, you must meet the following requirements in order to become S.A.F.E. compliant. In addition to these requirements, your state may require additional action. Contact your state’s agency for specific information.

Pre-licensure Education: The Secure and Fair Enforcement for Mortgage Licensing Act requires you to complete 20 hours of NMLS approved pre-licensure education. If you are licensed in more than one state, the good news is that you only need to complete this education once. Please note, however, that there may be more than 20 hours of education required by your state – do your research to determine your state-specific information.

SAFE MLO Test: S.A.F.E. requires you to pass both the National and State Components of the S.A.F.E. MLO Test. The National Component only needs to be passed once and satisfies all state requirements – you must score 75% or better on the national part of the test. The State Component must be passed for each state in which you seek licensure.

Criminal Background Check: S.A.F.E. requires that you provide fingerprints for an FBI criminal history background check.

Credit report: The Secure and Fair Enforcement for Mortgage Licensing Act requires that you provide authorization for NMLS&R to obtain a credit report.

Continuing Education (CE): S.A.F.E. requires 8 hours of continuing education to be completed each year prior to renewal. Please note that continuing education hours are not required to be completed if pre-licensure education was completed in the same year. Each agency may require more than the designated 8 hours or require a certain number of hours with state content. For details on your state’s requirements, contact your state agency.

What Happens if Mortgage Loan Originators Don’t Complete the S.A.F.E. Requirements?

As a professional involved in the mortgage loan origination process, it is imperative that you complete the S.A.F.E. requirements by your state’s deadline. Failure to comply will result in a delay to your career because you will not be able to conduct loan origination activities. Additionally, if you do not properly prepare for the MLO test and fail to pass, you will have to re-take the exam, leading to more out-of-pocket costs and disruption to your career – there is a required 30-day waiting period between failed exams. There is no reason not to comply – get started today, avoid career interruption.

As a professional MLO, you need to complete the Secure and Fair Enforcement for Mortgage Licensing Act requirements in a timely manner so you meet your state’s deadline. Plan ahead today so you have ample time to prepare and complete all of the S.A.F.E. requirements. From the 20-hour course to prepping for the national and state components of the MLO test, the key is to be proactive. This is your career and you need to take action so that you are in compliance before the deadline.

Ten Estate Planning Mistakes That You Must Avoid

1. They have no estate plan at all. This is the worst mistake that Americans make and it is the most common mistake of all. It can also be the most expensive and lead to the worst results.

Most people postpone preparing their estate plan until they reach an age where they realize that death is not so far off. Big mistake. The reasoning may be, “I’m young, no need to worry about that now” or, “My estate isn’t big enough”, or in many cases it probably never crosses their minds.

There are no guarantees in life. Every day, we read or hear stories about someone who dies young. Even if you are in the best of health, accidents happen.

What are the consequences of having no estate plan?

First, if you are young, and have a very small estate, you likely have children who are not yet grown. Who will care for them? Who will manage your estate and pay for your children’s education? Who will be responsible for their religious training and who will be encouraging them to go to college?

If you have no estate plan, a judge will decide all these issues. A judge will pick your children’s legal guardian (managing their inheritance), and will choose the guardian of their persons, (raising them). A judge may well select someone that doesn’t match your desires. He could even appoint a lawyer, bank or professional trustee to manage the estate. These people must be paid and they don’t come cheap. Your parents or your spouse’s parents may have a strong influence over a court. Godparents are not automatic choices. The personal guardian he appoints may not share your beliefs or religion. The whole process will be in court, will also be very expensive and could take years.

Even if you have a very small estate, this is a major reason to have some estate plan. Do not leave these decisions to others.

Secondly, if you have your own business, having an estate plan is critical. With no estate plan, you will have no say as to what becomes of your business, who gets it, and all other decisions that would have to be made when you are no longer there. Also, without a living trust, every aspect of your business, including finances will become public and available to your competitors.

Thirdly, depending on your State of residence, with no estate plan the probate judge will award your estate according to the laws of distribution in your state. Normally this is a part to your spouse and the rest to your children in equal shares. Is that your desire? Or would you rather give it all to your spouse while he or she lives? If you leave no instructions behind, you will have no say in the distribution.

Finally, with no estate plan, you cannot avoid probate. The nightmare of probate should be avoided if at all possible. Probate is the court process for distribution of all estates except very small estates and those with Living Trusts. It is lengthy, public, expensive, and often devastating to families. For more information, review our website information. It’s really frightening.

2. Mistake 2 is trying to pass assets to heirs by using joint tenancy. Joint ownership is as bad as or worse than having no estate plan at all.

Joint tenancy is most frequently used to pass on the family home. If you put your home into joint tenancy with others, your home becomes vulnerable to that person’s problems. If your joint tenant goes bankrupt, your property will be one of their assets. You could lose your home. If they get divorced, your home will be involved. If they have an auto accident without enough insurance, your home could be taken to satisfy a judgment.

The biggest problem is that you lose control. You want to sell and move? You will need your joint tenant’s signature. Want to refinance? Signatures needed again. What if you change your mind? You can’t change anything without the joint tenant’s signature.

Then there is the loss of the step up in tax basis that would normally occur on your death. What that means is that after you are gone and your joint tenant owns the property free and clear, their tax basis in the property will be the same as your tax basis, (Normally what you paid for the property years ago). When they sell, their gain on the property (taxable as a capital gain) will be based on your purchase price instead of the value of the property at the time of your death. If you have owned the property for a long time, the consequences could be financially catastrophic.

3. Mistake 3 is having a Will. Most of our lives, we hear that all we need to disburse our estate is a Will. For most people, this is a bad idea.

A Will is a one way ticket to probate court.

There is no way to disburse an estate left by a Will without going through probate.

Your executor will have to hire an attorney. That attorney will likely charge a percentage of the estate as a fee, regardless of the time spent. Probate can drag on for years. Probate is public. That means that everyone who is interested can see your entire estate, including business competitors. Probate fees are expensive. Details must be published in the newspaper. A Will is easy to challenge, even if the challenger has no attorney.

Selling real estate through probate is very difficult and nearly always results in the property being sold well below market prices. Lengthy probate often leads to resentment between heirs and your executor as heirs are usually anxious to get their share quickly.

In probate court, your wishes are subject to a judges interpretation and a judges desire to consider the welfare of children over your written instructions. Your wishes may not always be followed.

People believe that Wills are cheaper than Living Trusts. This is a misconception. Yes, a simple Will is relatively inexpensive. Most people need much more than a simple Will. By the time you include all the provisions that you need, it is going to cost just as much as a Living Trust. It is true that you can do almost everything in a Will that you can do in a Living Trust. But, if your will is as complete as your Trust, it will be no bargain and will still subject your estate to probate. A Living Trust will be disbursed in weeks instead of years, is completely private, assures that your wishes will be followed, requires no courts or attorneys and the costs of each, will allow for a quick and effective sale of real estate assets, and will ease the stress on family members. It is virtually always better than a Will.

4. Leaving large gifts to heirs who are not mature enough to handle the responsibility is mistake 4. This is a hugely common mistake. People assume that they will live to an old age and that children will be mature enough to handle their inheritance. Just when you think you have everything in order, something happens to upset your best laid plans.

An unexpected illness or accident can escalate the distribution of your estate to a child who is 18 or 19. (Some children don’t mature until much later.) Even a 25 to 30 year old may not be equipped to handle a large disbursement. There’s nothing much worse than having the estate you worked so hard for be wasted in a couple of years or less by an immature heir. It happens all the time.

With a trust, you can protect your heirs from themselves or from their controlling spouses. You can provide for the inheritance to be used for college or to be used to purchase a house. You can protect heirs with special needs. There is no limit to how you can protect your heirs with a Living Trust.

5. During their lifetime, in order to avoid probate, people give large gifts to their children. This is mistake 5. You think you will beat the system by giving everything away during your life. Then you won’t need a Will or a Living Trust. Wrong!

Most people are unaware of the Federal Gift Tax. If, in any calendar year, an individual gives another person more than $12,000, ($22,000 from a couple), that gift will be taxable to the giver to the extent that the gift exceeds the $12,000 or $22.000.

That’s right, you will be taxed on the amount you give away to another person. How bad is this tax that you never heard about before? It’s 45% of the value of the excess gift. That is a huge tax. And once it is given, you cannot take it back and say you didn’t know you would be taxed.

Here is an example. You and your wife give your house to your daughter. The house is worth $300,000. After subtracting the $22,000 exemption, your tax would be $125,100. That’s your tax, not your daughter’s. If she tries to give it back to you, she may also have to pay a gift tax.

It is possible to give gifts over a long time as there is a new exemption every year, but it gets complicated and is a lot of work. There is one other problem. You are giving total control to your child. They could actually evict you if they wanted. What if you have an argument with them or they marry a controlling or abusive spouse. What if they decide you should live in a nursing home. They can sell the house out from under you.

Such a gift is fraught with danger. Better use a Living Trust where you and your spouse keep control while you live. By using a trust, you will also save your children capital gains taxes and you will avoid gift taxes altogether.

6. Mistake 6 is closely related to mistake 5. In order to limit or beat Federal Estate Tax, people give property away during their lifetime.

This is only relevant to very large estates over $2,000,000 per person. If you trust Congress to approve the end of Federal estate tax that is scheduled for 2010, no one has to worry about this problem. However, I learned a long time ago that government gives up tax sources very reluctantly. This exemption could actually be reduced, making this even more critical.

Even if you gradually give assets away during your lifetime so as to avoid gift taxes, if you die within 5 years of the gift, your gift may be treated as if you made it in anticipation of death and will be treated as if it was not made. This is true even if you didn’t know you were going to die. Your knowledge will be assumed by the government and your estate will have to prove you didn’t anticipate your death.

Of course, you will also have all the problems mentioned in mistake #5 about giving up control of your property.

Better idea? Use a Living trust to assure you get all possible allowable estate tax avoidance provisions and buy a life insurance policy, if needed, to cover federal estate tax liability. You could look into other tools, such as charitable remainder trusts and other irrevocable trusts, but these are usually only for the super wealthy.

7. Mistake 7 is choosing the wrong person, or the wrong professional trustee for your estate. This can be costly, indeed.

For the purposes of this report, I am going to use the terminology that applies to a living trust as that is the best estate plan for most people. The person who would be an executor under a Will is called a Successor Trustee under a Living Trust. While living, you are trustee of a single trust, you and your spouse are trustees of a marital trust, and if unmarried but doing a joint trust with another person, you and your partner are trustees.

When the original trustees are deceased, the person, persons, or institution named as successor trustee becomes the primary trustee. They take your place as trustee. It is this successor that we will be discussing here.

People most often name their oldest child as Successor Trustee. They think it is the traditional way and they do not want to offend their oldest child. They don’t analyze the talents of this person.

The Successor Trustee’s job is not too difficult, but it requires attention to detail. It requires someone who is trustworthy and diligent. It requires some bookkeeping. It is good if this person is even tempered and easy to get along with. It is especially good if the other heirs have confidence in this person. The person should be level headed and should have enough time available to perform the required tasks. This very well might not be your oldest child.

If the person you name is too busy or not diligent, things will not get done timely. If they are not good with detail, they may make mistakes. If the person is not trustworthy or the other heirs don’t like the person, they will question every decision the Trustee makes. If the bookkeeping skills are lacking, mistakes will happen or the heirs will not trust that mistakes were not made. If the Trustee is not trusted for any of these reasons, the recourse for the heirs is to take the matter to probate court.

This will cause all the problems with a Will to kick in. (See mistake #1 & #3, above.) This will cost your family thousands and thousands of dollars.

Picking the right person to succeed you as trustee is a critical decision. That is why the document is called a trust and the persons are called trustees. Trust is the key element. Choose your Successor Trustee wisely. Do not pick the oldest child if a younger child would be better.

If you don’t trust any of your children, pick someone else. Pick someone who is likely to survive you. If you pick a brother or sister, a nephew, or a trusted friend, be sure that the person you choose is willing to take on this responsibility. If they refuse, the matter could be thrown into probate.

There are professional trustees out there. Most large banks have trust departments that specialize in acting as trustees. These people must be licensed and bonded. While they will charge for their services, you should expect that whoever handles the estate is entitled to be paid something for their time, even if it is your child. It is a significant responsibility and there is a time commitment. Trusts usually provide for some compensation for the Successor Trustee, usually to be consistent with what a professional trustee would charge.

You can expect a professional trustee to charge.5% to 1.5% of the net value of the estate as a fee, depending on the size of the estate. The percentage goes down with larger estates. This would be true for an executor under a Will as well. There is no savings either way between a trust or a will. Of course you can specify that the trustee not be compensated, but that might result in the trustee refusing to serve. That’s a bad result.

The main downside to a professional trustee or a bank trust department is that they do not know your family and their needs as well as a family member would. They are unlikely to show special concern or compassion for an heir. I have heard it said that a professional trustee has no heart. It is a strictly business relationship. There are pluses and minuses to this.

If hiring a professional trustee or bank, be sure you pin down all fees and charges in writing. Check references. Be sure you have the right professional. A wrong choice can be very costly.

8. A related mistake is to choose two co-trustees to act together. Co-trustees are not always bad, but if you have only two and they can’t agree on a major matter, their recourse is, again, (can we say it together) Probate Court. You do not want to do anything that is likely to force the estate into probate. Choosing two co-trustees raises the possibility. If you want multiple trustees to watch each other and divide the work, consider choosing three co-trustees. Then you will usually have a tie breaking vote.

As you can see, your choice of Successor Trustee is critical. You should also have at least one backup, two is better. That way, if something happens to your first choice, and they can’t or choose not to serve, you need an alternate or two. Otherwise, it’s back to the Probate Court.

9. Mistake 9 applies only to super big estates. This occurs when people leave large sums to grandchildren. There is a tax called a “generation skipping transfer tax”. This applies to gifts to grandchildren in excess of $1,000,000.

This relates to Federal Estate tax and may also apply to state inheritance taxes in some states. The government has realized that when you give to your grandchildren, the government is losing a generation of Federal Estate Tax. They lose the tax your children’s estate would have been subject to when they left your property to their children. Your gift would only be taxed once instead of twice. You have skipped a generation.

The government is not going to allow that. Therefore, gifts over $1,000,000 will be taxed at a 50% rate. One half of the gift will go to the government. There are other vehicles to assist in making such gifts, but you need to be sure you don’t give half of your bequest to the IRS. Be very careful when providing for gifts to grandchildren. You can see how expensive a mistake in this area can be.

Of course, if the Federal Estate Tax disappears in 2010, this concern is gone. But don’t count on it.

10. The final mistake is procrastination. You see, we have almost come full circle. This very closely related to mistake #1.

The distinction is that you realize you need a Living Trust and may even have taken some steps to put it in place. But, for whatever reason, you have not finished the job. Maybe, you’re concerned about the cost and you can’t fit it in your budget. You want to wait for the holiday bonus at work, that income tax refund or the next government stimulus package. This is nearly as bad as doing nothing and having no plan. (Mistake #1, above)

A delay of a few months or a couple years may not make a difference. You don’t think anything will happen to you. You’re probably right. A delay is not likely to be a problem if you are in good health and young. But, every day, people die who weren’t expecting to die. It happens to celebrities. How about Tim Russert, Reggie White, John Candy, Heath Ledger, all the people who died in the Oklahoma City bombing or who died in the World Trade Center. None of them thought they would die when they did. Just watch your evening news. It happens every day.

For most people, a delay will not matter at all, but for someone out there, tomorrow is already too late. Please do not take a chance of dying without being prepared. It’s not that hard and not that expensive. At least get the minimum for now and upgrade when you can. If you are wrong and you have not acted, it will cost your family a veritable fortune. A Living Trust is a bargain at almost any price considering what it can save you and your family. It is highly unlikely that fees will ever be lower than they are right now. You might want to check out my document preparation fees.

Also, the best Living Trust in the world is worthless if it is not implemented. Even signing your trust is not enough. You must move promptly to get your assets into the trust. If you die and property has not been put in your trust, it will end up where? In probate, of course. You only have to do this one time, when first implementing your trust. After that, you will simply acquire assets in the name of the trust and they will automatically be there. No extra effort is required. It is so simple. But you have to transfer the existing assets. This is a very bad time to procrastinate. As Larry, the cable guy would say, “Git R Done!” There is no good excuse. Just lots of bad excuses. Procrastination ended yesterday. Today is action day!