Minnesota REALTOR®
 December 1999, Vol. 20 Number 9
Inside This Issue:
  • Y2K Bug
  • Commission Disputes
  • Legal Hotline
  • Tax Facts
  • Home Ownership Model
  • MAR Newswire
  • MAR Website
  • Mobile Homes
  • Economy
  • From the President
  • Proper Use of Logo
  • Tax Deferred Exchange Hotline
    •  

    We Now Have Less Than 31 Days
    Until 2000 and the Y2K Bug.

    We now have less than 31 days until 2000 and the Y2K bug. Have you checked your computer equipment to be sure you are Y2K compatible? Not only does this affect computer hardware, but it also affects your computer software.

    First, let's take a look at the computer hardware. Every computer has a Real Time Clock (RTC) which is a battery powered internal digital clock that keeps track of the date and time. It only keeps track of the last two digits of the year (i.e. 1999) not the century. It is the BIOS (Basic Input/Output System) that keeps track of the century (i.e. 1999) Depending on the age of your computer and BIOS, it may or may not be capable of turning over to the next century. There are tests available to check your hardware. I will reference this later.

    Secondly, software may be affected with the Y2K issue. Software is really a set of instructions for the computer. The operating system controls the workings of your computer. You may know this by "Windows 95, Windows 98 or Windows 3.1. The other software programs are actually applications to do things on your computer such as word processing, spreadsheets, databases, communications software etc. These types of software perform particular tasks. You will also need to test all your software for Y2K compatibility.

    If you have an IBM compatible PC (personal computer), Microsoft's Internet site (microsoft.com) has links to major manufacturers of computers where you can test your computer for Y2K readiness. The test checks the Real Time Clock, BIOS and the roll over to the next century. Some will also test for leap years. If your computer fails, the manufacturer may have parts available to upgrade or you may have to purchase a new computer. Remember, do this test before the end of the year in case you have to purchase a new computer. You could write that purchase off on your income taxes if you use it for your business. Also at the Microsoft site, you can test all of your Microsoft software, including your Windows, and any other Microsoft applications. If the software doesn't pass the test, you can download patches for the software to "fix" it. Any other non-Microsoft software, you will need to check with the manufacturer of the software. Dates are the main issue. We are used to using a two digit date (i.e.99 for 1999) because the software automatically puts in the 19__. If the software can handle moving to the next century and your hardware can handle moving to the next century, your files that contain dates should be ok. I personally have gotten into the habit of using all four digits on the year when working with dates.

    By now you should have detected a theme in this article - "Prepare for the worst and hope for the best", besides that, being connected to the Internet. If you do not already have Internet access, be sure to get it! This will be the fastest and easiest way to get the information you need to be certain your computer equipment is ready to handle Y2K issues.

    The Microsoft site is microsoft.com. Click on Y2K, then click on Microsoft Year 2000 Guide for Home and Small Business Computers on the left of the screen, then click on the Taking Action Hardware on the Right side of the screen, scroll down, click on next. This will bring up the hardware manufacturers testing sites. For software testing, click on Microsoft Product Analyzer under Learning More on the right hand side of the screen.

    For hardware not listed on this site, or for third party software, check the manufacturer's web site of the product.


    By: Val Brones, Director of Communications and Technology
     


    Commission Disputes: Who Gets Paid

    By Linda Modlinski, Senior Vice President

    We are often asked how a determination of who gets paid is made by a hearing panel when a commission is in dispute. The National Association of REALTORS® has taken the position that an award should not contain findings of fact or rationale for the arbitrator's award. An arbitration hearing panel must carefully consider the entire course of events relating to the transaction when they make their decision. There are no predetermined factors nor do "rules of thumb" or prior decisions have any bearing on the decision. It is also important to understand that agency relationships, in and of themselves, do not determine entitlement to commission. It is a factor that a panel will look at, but it is never the sole determining factor for an award.

    Let's look at three case studies which are meant to give you some insight to the issues hearing panels consider in commission disputes:

    Case #1:

    Broker Bob placed a listing in the MLS and offered cooperation and compensation to other agents. Broker Sally showed the property to Buyer Harry on Sunday and again on Tuesday. On Wednesday, Broker Kevin wrote a purchase agreement on behalf of Buyer Harry which was presented to the seller by Broker Bob and accepted. At closing, compensation is paid to Broker Kevin. Broker Sally subsequently filed an arbitration request against Broker Bob, claiming to be the procuring cause of the sale.

    Analysis:

    This is an arbitrable matter since Broker Bob promised to compensate the procuring cause of the sale. Because Broker Bob had already paid Broker Kevin, he enjoined Broker Kevin in the arbitration so that all competing claims would be resolved in a single hearing and to avoid the possibility of paying two commissions. In the hearing, the panel will consider among other things, why Buyer Harry wrote the purchase offer with Broker Kevin instead of with Broker Sally. If it is determined that Broker Sally initiated a series of events which were unbroken in their continuity and which resulted in the sale, Broker Sally will likely prevail.

    Case #2:

    Listing Broker Bob placed a listing in the MLS and made an offer of cooperation and compensation to other agents, including subagents, buyer agents and nonagents. Broker Sally (a subagent) showed the property to Buyer Harry, who appeared uninterested. Broker Sally made no effort to further contact Buyer Harry. Six weeks later, Broker Kevin (a buyer agent) wrote an offer on the property on behalf of Buyer Harry; presented it to Broker Bob and the seller accepted it. Broker Sally subsequently filed for arbitration against Broker Bob, claiming to be the procuring cause of the sale. Broker Bob enjoined Broker Kevin in the request so that all competing claims could be resolved in one hearing.

    Analysis:

    The hearing panel will consider Broker Sally's initial introduction of the buyer to the property. They will also look at the period of time between Broker Sally's last contact with the buyer and the time that Broker Kevin wrote the offer. They will also inquire why the buyer did not ask Broker Sally to write the offer. Given the length of time between Broker Sally's last contact with the buyer, the fact that Broker Sally had made no subsequent effort to contact the buyer, and the length of time that transpired before the offer was written, abandonment of the buyer may have occurred. If this is the case, the panel may conclude that Broker Kevin instituted a second, separate series of events that was directly responsible for the successful transaction.

    Case #3:

    Listing Broker Bob placed a listing in the MLS and offered cooperation to other agents. Broker Zeke, a REALTOR® but not a participant in the MLS, called to arrange an appointment to show the property to a prospective purchaser. There was no discussion of compensation between Broker Bob and Broker Zeke. Broker Zeke presented Broker Bob with a signed purchase agreement, which was accepted by the seller. After closing, Broker Zeke was not compensated by Broker Bob and subsequently, requested arbitration to settle the dispute.

    Analysis:

    While Broker Zeke may have been the procuring cause of the sale, Broker Bob's offer of cooperation and compensation was made only to members of the MLS. Broker Bob never offered compensation to Broker Zeke, nor did Broker Zeke request compensation at any time prior to instituting the arbitration request. There was no contractual relationship between the two brokers, therefore no issue to arbitrate and the matter would be dismissed and not come before a hearing panel.
     


    Legal Hotline

    By Don Smith, MAR Legal Counsel, Thomsen & Nybeck, P.A.

    Q. A broker is contacted by a divorced husband for the purposes of listing his homestead. The former wife continues to live in the homestead and the broker later discovers that the wife is the owner of the house and the husband was awarded all of the equity in the house under the terms of the divorce decree, together with a lien against the homestead for the equity. The broker had the husband sign a listing agreement initially. Subsequently, after discovering that the wife was the owner, the broker had the wife sign a listing agreement. The husband wanted to put the property on the market for $126,900.00 and the wife wanted to put the property on the market for $119,900.00. The husband and wife continue to have poor communication between them and are angry at each other. What course of action should the broker take under the circumstances?

    A. The Broker is put in an impossible situation in this scenario, because both parties have an interest in the property (the wife has ownership and the husband has a lien against the property), the broker was correct in having both parties sign the listing agreement. However, the broker owes fiduciary duties to both parties and the parties have different objectives and different listing prices. The broker must advise both the husband and wife that they must reach an agreement on the sale price and must give him consistent instructions from both of them and not mixed messages. Until that happens, the broker is going to have trouble moving this transaction forward. The broker will need both parties to sign the purchase agreement because both parties have an interest in the property. The wife will have to release his lien at closing. Therefore, both parties must be in agreement on the terms of the purchase agreement. To the extent that they are at odds at this point in time, there is a strong likelihood that they will continue to be at odds. Therefore, until and unless the husband and wife can develop a common game plan with respect to selling the house, the broker can do very little to adequately serve their interests.

    Q. A buyer comes to a real estate agent and asks if that agent will represent him in looking for a home. The agent asks the buyer if he is under contract with another agent and the buyer says he is. The agent then informs the buyer that the agent cannot represent him while there is an outstanding exclusive buyer representation agreement. In a subsequent conversation, the buyer advises the broker that the exclusive buyer rep contract has now been canceled. Can the agent rely on that representation or must he secure proof of cancellation?

    A. The better practice would be for the buyer to provide a copy of the cancellation to the broker. However, a real estate agent should have the right to reasonably rely on the representations of a buyer. The difficulty is that many buyers do not understand the nature and significance of documents they sign. That is why it is better to avoid any confusion and to ask the buyer for a copy of the cancellation of the exclusive buyer representation contract.

    Q. Recently a newspaper ad was published describing properties and stating "soon to be listed." Is this permissible?

    A. Section 2805.1200(1) of the Department of Commerce Real Estate Rules provides as follows: "Licensee shall obtain a signed listing agreement, or other written authorization, from the owner of real property or from another person authorized to offer the property for sale or lease prior to advertising to the general public that the property is available for sale or lease."

    Unless the licensee has a written authorization to advertise the properties under the Department of Commerce Rules, it would be improper for a licensee to advertise properties as outlined in the question above because there is no signed listing agreement in effect as is evidenced by the ad itself.

    Q. Is a licensed real estate agent allowed (able to) cancel a listing with a seller or must the designated or actual broker do this action to make it official?

    A. If the broker has permitted agents to sign listing agreements on behalf of the broker, that agent has the implied authority to sign the cancellation of that listing unless the seller has been advised that only a broker can cancel a listing.
     


    Tax Facts

    By Miles H. Locketz, CBA, CPA & Steven E. Warren, MBT, CPA

    "E-commerce" is in and ever growing. The 1998 sales over the Internet have been estimated at $17 billion and are expected by some to reach $183 billion by the year 2001. State and local taxing authorities have been working overtime tying to figure out how to tax Internet sales.

    Existing Court Cases
    The U.S. Supreme Court ruled that the imposition of state and local taxes on out-of-state mail order businesses is permitted only if, among other requirements, the business has a "substantial nexus with the taxing jurisdiction." Substantial nexus was not defined in the case, but is generally thought to be present when there is physical property owned or rented by the business within the taxing jurisdiction, or if employees are working there. The mere solicitation of business within a state does not result in nexus. The definition of substantial nexus is far less clear for Internet sales.

    Interstate Taxation
    The U.S. Constitution contains the Due Process Clause and the Commerce Clause to help limit the taxing ability of states and local governments. These laws were written before computers and there is disagreement on whether they apply to Internet activity.

    The U.S. Supreme Court recently addressed the due process limitation when it said a taxpayer could be subject to a state's jurisdiction if the taxpayer "purposefully direct(s) its activities" at in-state residents. It has been suggested by some observers that advertising through a Web site joined with making sales to persons in the state over the Internet may satisfy this standard.

    The Commerce Clause provides that the taxpayer must have a "substantial nexus" within a state to be subject to its income tax. The U.S. Supreme Court found that an out-of-state mail order business with no direct in-state activities did not have nexus with North Dakota because the business had no "physical presence" there. Might an Internet service provider's computer server in a state create substantial nexus? Does the contracting with an agent in the state create substantial nexus? These are questions which have no clear answer at this time.

    Sales and Use Taxes on Internet Purchases
    Consumers are charged sales taxes on most purchases unless there is a specific exemption such as Minnesota's exemption for prescription drugs, clothing, items purchased with the intent to resell, and items purchased by an exempt organization (ex. church or school). Businesses that sell products to out of state consumers generally are not required to charge sales tax but the consumer is responsible for submitting to his or her state the "use" tax for the purchase. Use taxes are applied at the same rate as sales taxes.
    Minnesota based Internet retailers must charge Minnesota sales tax on sales of taxable items made to customers located in Minnesota. Out of state companies that have a physical presence in Minnesota are also required to collect and remit Minnesota sales or use tax on taxable items sold to Minnesota customers over the Internet. If the seller does not charge a sales or use tax on a taxable purchase for use in Minnesota, the purchaser is required to pay a 6 ½ % use tax directly to the state. Minnesota allows individuals (there is no exemption for businesses) a sue tax exemption for taxable purchases upt o $770 in a calendar year. Such purchases of more than $770 are fully taxable.


    Congress Acts
    In an effort to address Internet taxation issues, Congress enacted the Internet Tax Freedom Act. The Act established a three year moratorium on the imposition of state and local taxes on sales of Internet access services and certain other sales made over the Internet between October 1, 1998 and October 21, 2001. The three year period was created to allow Congress time to develop an equitable system for taxing authorities to assess taxes on electronic commerce.

    Over this three year period, state and local taxing authorities cannot assess "discriminatory taxes" upon businesses that transact over the Internet. This apparently means a sale over the Internet is not subject to tax if the sale would not have been subject to tax had it been conducted by another method (such as mail order). While there has long been confusion regarding various interstate taxation issues, Congress has an increasingly important law to write with the rapid growth of electronic commerce.

    Internet taxation and interstate taxation are both very confusing areas of law. Whether sales, use, income, or another form of tax applies to a transaction is often unclear. We suggest you consult your CPA when contemplating interstate or electronic commerce.


    Tax Facts is published for general information only. The reader should consult his/her own tax advisor for application of the ideas and concepts. Mr. Locketz and Mr. Warren are associated with the accounting firm of Lehrman, Flom & Co., P.L.L.P. and can be reached at 612/546-5306.
     

    Homeownership Services Model Launched Across Minnesota

    Pretend for a minute that you're thinking about purchasing a home in Anytown, MN. You've never owned a home before but are very interested in a house down the block from your apartment. You don't know how to go about buying a home, so you call your folks and ask them. They say just call the REALTORÒ and they can help you. At work you talk to your peers and they tell you stories - both good and bad - about buying a home. You decide to do a little investigating before purchasing - where do you go?

    A number of people are heading for Web sites. Looking at real estate, mortgages and general consumer help sites. They can find out about neighborhoods, taxes and crime rates. Internet users can even see the inside of the house by just clicking on the picture.

    Another option available is the library. A plethora of books about buying and selling real estate await the savvy reader. In some situations, they can even find out how to get rich - quick.

    A third option is homebuyer training. Attend a seminar that may last from one to eight nights. Real estate companies, non-profits, churches and even schools, offer some of these programs. In some areas attendance is mandatory if you are using 1st time homebuyer funds or other special financing.

    In Minnesota, the Minnesota Housing Finance Agency (MHFA) devised a program called HomeStretch. This eight-part comprehensive homebuyer training class was the result of a collaborative effort by REALTORSÒ, Lenders, Closers, Title Companies and Inspectors. The class is taught in a variety of ways utilizing local talent for specific subject areas. This program has gained wide popularity across the state and by national groups interested in improving homebuyer training in their states.

    Based upon this program's success, The Homeownership Center began looking at gaps in the delivery of all homeownership services. In September of 1998, over 100 homeownership support service organizations from across the state gathered for a daylong assembly to discuss ways to strengthen the delivery of homeownership support services statewide.

    Following the assembly, a 21 member Design Team representing various geographic, continuum and service specialties worked to draft a comprehensive home services delivery model. Dave Snaft, a REALTORÒ with Coldwell Banker Burnet and Chris Galler from the Minnesota Association of REALTORSÒ were a part of the final Design Team.

    This group used ideas from the assembly to build a model that included reaching all homeowners in Minnesota, building consistency in service, creating standardized definitions and identifying a funding plan for delivering the services.

    After a year of meetings and a number of presentations throughout the state, the Partnership Delivery Model for homeownership services was rolled at the Saint Cloud Civic Center. The new model breaks the state into 7 regions that will collaborate to provide homeowners with a full range of services. REALTORSÒ are welcome to participate as many service providers have recognized a need to include REALTORSÒ in the delivery of the various housing services.

    If you are interested in more information or on whom to call in your region, please contact Chris Galler at 800-862-6097, Metro at 612-912-2663 or e-mail him at cgaller@mnrealtor.com.
     

    MAR Newswire

    Year Continues Strong in New Residential Construction

    The Builders Association of the Twin Cities reported the local housing market has continued strong all year with little indication of a down-turn. September housing permit figures are off only slightly from August, and up almost 20 percent over September of 1998.

    Residential permits issued in the four weeks of September in the metropolitan area were at 1,045 for a total of 1,658 planned units at a value of $213,490,918. This compares to August figures of 1,061 permits, 1,458 planned units and a value of $204,488,939; and to September of 1998's 873 permits, 1,286 units, and a value of $164,276,945.


    Burnsville Resident Wins Parade of Homessm Mexico Vacation Trip Giveaway

    The Builders Association of the Twin Cities announced Betty Lemcke of Burnsville, MN was the lucky winner of the Parade of Homessm Mexico vacation trip giveaway. Her name was pulled from more than 2,000 entries that were submitted during the Parade of Homes Fall Showcasesm and Remodelors' Showcasesm held during September and October. The family vacation trip is to the Robinson Club Tulum on the Cancun Tulum coast of Mexico.

    Consumers and Agents Flock to HomeGain.com

    HomeGain.com, the Internet's first home seller Web site created to match consumers with qualified real estate agents, is among the top four fastest growing Web Sites for unique users, as measured by independent research conducted by PC Data Online of Reston, Virginia.

    According to PC Data Online's October list of the 1,500 Fastest Growing Web sites, HomeGain.com ranks number four overall, attracting more than 1.1 million unique visitors in the month of October.

    HomeGain.com is based in Emeryville, Calif. Is the first home seller Web site specifically designed to match consumers with real estate agents. Founded by online real estate pioneer Bradley Inman, HomeGain.com allows homebuyers and sellers - for the first time - to choose a qualified, professional real estate agent online by instantly comparing and contrasting qualifications and proposals from a number of local agents, anonymously before choosing the right real estate agent for them. The site also includes the most extensive online real estate library available for homebuyers and sellers, including thousands of articles, consumer guides and online tools.
     

    Revamped MAR Website

    Is there any worse feeling than not being able to answer a client's question? You know the situation, it's 8:15 pm on a Thursday, your clients are interested in the new listing on Oak Street and they have just asked you a question about the underground storage tank. You haven't sold a property like this for quite some time and can't remember exactly how storage tanks are handled off the top of your head. You call the office but your broker is out and the other agents are unavailable. You could call the association, but it is closed. What can you do to help your clients?

    Two solutions - one is to review the Minnesota Association's REALTOR® Desktop Reference Guide back in your office. Each office received a copy of this detailed and annually updated guide on the most common issue questions received by MAR staff.

    The second option is an on the spot solution. Use your computer to access the MAR website at www.mnrealtor.com. The Minnesota Association of REALTORS® web site has been designed to be easier to navigate and find the information you are looking for.

    This new site contains two parts. A general portion open to all web browsers and a Members Only site for Minnesota Assn. members. For the member only site, you will need a username and password. If you have used the old site, the username and password are the same as before. If you need the username and password, please email Val Brones at valb@mnrealtor.com giving your name, company and broker name.

    The redesigned web site will give you access to the information you request most often. Items you'll find include:

    · Governmental Issues: from Agency Law to Environmental Issues. You'll find information on Property Taxes, Real Estate Assistants, RESPA, Time of Sale Inspections and Sex Offenders.

    · Commerce Department Regulations: issues like Material Fact Disclosure, Trust Accounts, Commissions and intrusions on Agency relationships.

    · Legal Issues are addressed in the Best of the Legal Hotline section. You can even submit questions that you may have for us to post in future editions.

    · Political Affairs: everything from Minnesota's REALTORS® Political Action Committee (MN-RPAC), who you elected state officials are, e-mail connections to legislators, links to the Department of Commerce, Revenue, Human Rights, Housing Finance (MHFA) and the Metropolitan Council. You will also find links to federal officials, political parties and various other political links.

    · CRS, GRI and general continuing education postings can be found at mnrealtor.com so you can easily find places to take your CE.

    · REALTOR® Arbitration and the Code of Ethics, how to file a compliant and the needed forms are all located conveniently on the MAR website.

    Besides helpful information to help you in your everyday business, the MAR website will also provide you with information about MAR. You will be able to find all of the following information:

    • MAR President, President-elect and Treasurer's - names, addresses, phone numbers;
    • MAR's Board of Director members - names, addresses, phone numbers;
    • MAR Governance Committee Members;
    • MAR Board of Director meeting minutes and notices;
    • MAR Governance Committee meeting minutes and notices;
    • MAR staff reference guide with who you can call with your questions;
    • Minnesota CRS Chapter information and how to become a member
    • MAR member benefits are featured on the mnrealtor.com site. These include group medical insurance, Errors and Omissions and even discounts to Disneyland;

    The newly improved mnrealtor.com will be a place to add to your favorite sites or bookmark on your browser and visit often for updated information. The new site will be revamped in mid-December. Be sure to check mnrealtor.com and visit weekly if not daily.

    We're also looking for your comments. How can we make the web site better? What would you like to find? Please let us know. The mnrealtor website is your site for quick and easy access to real estate information. MAR is the Real Estate Resource, and with your input we can make this your most valuable web resource.
     

    Competition Increasing in Manufactured Housing Sales

    REALTORS® are seeing more and more competition in the residential market place. Vendors and competitors from outside the industry are threatening its very foundation. As if this wasn't enough, enter the Minnesota Department of Administration's Building Codes and Standards Division. In a rulemaking procedure, the Department would like to allow dealers and the owners of manufactured home parks the ability to sell, offer for sale, solicit and advertise for sale used manufactured housing units without a Minnesota Real Estate License.

    This proposed change was published in the Department's Notice to Adopt Rules without a Public Hearing. This means that unless 25 requests for a hearing are made to the Department this rule change will be approved.

    WHAT DOES THIS MEAN TO REALTORS®? Competition from individuals not licensed to re-sell housing units. The proposed expansion in the rules will allow "Dealers" to sell both new and used manufactured housing units without having to conform to the Commerce Department's real estate license law. It also allows manufactured housing park owners to sell up to five units per year without having to become real estate licensees.

    The most astonishing piece of the proposal for many REALTORS® is that this is not a legislative action, but instead an agency initiative to expand the role of Dealers and Limited Dealers to enter the real estate marketplace - and compete with you - without having to meet the same stringent licensing requirements.

    WHAT YOU CAN DO. Send a letter to the Minnesota Department of Administration before December 15, 1999, to request that a public hearing be held on the proposed amendments to rules governing Manufactured Homes. Please copy the Minnesota Association of REALTORS®, (by fax: 612-935-3815) so that we can monitor the number of requests being received by the Agency.

    Your written request for a public hearing on the Minnesota Rules, Chapter 1350 should be directed to: Scott Simmons, Building Codes and Standard Division, 408 Metro Square Building, 121 7th Place East, St. Paul, MN 55101 or Fax: 651-297-1973. Your comments should identify your concern with dealers and limited dealers re-sale of manufactured housing. (Subp. 15 and Subp. 34a) The request must include your name and address.

    If 25 requests are received the hearing will be conducted on January 5th, 2000, at 8:30 am, Conference Room B, 408 Metro Square Building, 121 7th Place East, Saint Paul.

    If you have any questions or concerns, please contact Susan Dioury or Chris Galler at MAR - 612-935-8313.
     

    The New Economy: Knowledge, Speed and Flexibilit

    The economic base of the United States is shifting from industrial to knowledge and service. It wasn't many years ago, that many people were questioning how we could have an economy that didn't just produce "hard goods." There is no questioning today of the value of knowledge and ideas. Peter Drucker has studied the dynamics of this change and has delineated the challenges and problems associated with it. Drucker believes that the shift toward the post-capitalist society began with the G.I. Bill of Rights, created after World War II, for American military personnel returning to civilian life. This piece of legislation signaled the shift to a knowledge society by providing the means for thousands of veterans to further their educations.

    Furthermore, this shift poses two primary challenges to the United States. First, the knowledge worker must consistently improve productiv-ity. Second, the dignity of the service worker needs to be preserved. The service worker may lack the education to be a knowledge worker. Drucker writes, "And in every country, even the most highly advanced one, service workers will constitute the majority." This new era will be characterized by constant change, forcing all workers, knowledge and service, to "ac-quire new knowledge every four or five years, or else become obsolete."

    The key to success in the post-capitalist society is the ability to add knowledge to knowledge. The real estate industry will become a key figure in this transformation. Specifically, with MLS data increasingly available of the Internet, the industry must shift strategy toward supplying knowledge that enhances the MLS data. MLS data is rote information and easily incorporated into a multitude of computer technologies. Agent-enhanced knowledge and time-savings is what the new consumer is demanding. Professional, competent REALTORS® will provide the knowledge to the consumer. Capital will serve the worker instead of the worker serving the capital. The real estate company's most important resource will be qualified, knowledgeable, and dedicated people. This will also be true within your REALTOR® Associations.

    Organizations will also make knowledge productive by increas-ing specialization. Outsourcing will continue to be the wave of the future, offering opportunities for organizations that most efficiently perform given tasks. Outsourcing has become part of the American industrial land-scape, not merely because of the economies involved. It also provides opportunities, jobs, and dignity for service workers.
    The service worker, by definition, can see an improvement in wages only if productivity improves. Outsourcing provides that opportunity. It gives service workers the chance to earn income closer to that of knowledge workers.

    Outsourcing will also help promote more equitable income distribu-tion, because it results in higher productivity for both high-skilled and low-skilled work. Businesses initially successful at providing value-added activities will have to continue to evolve and improve in order to survive. They must be constant innovators.

    Perhaps most important, firms/Associations must be responsive. They will have to make decisions quickly. Decentralization will be the key to success in this new era. American firms have become adept at effecting positive change. Perhaps chiefly because of its flexible labor force, American firms have willingly taken sometimes-painful steps in order to answer the challenges that the changing structure of the economy poses. Now, many American firms are lean and mean, and arguably the most proficient in the world at re-sponding to change.
    CONCLUSION :It is imperative that the federal government address its spending habits be-cause today's strong revenue stream could decline should the economy slow down. Private retirement accounts must replace Social Security. The pay-as-you-go system will not be able to support future generations.

    The shifting demographics of the United States are recognized as a dynamic economic force. If the thinking in this article is correct, all of us are about to witness an economic boom unlike any seen in recent history.

    Comments/ideas for a column to: gsdorfman@mnrealtor.com
     

    From the President

    Hi Everyone,

    Well the summer has succumbed to fall . . . .my second favorite time of the year. Second only because I know how long the next season is. The other day when I came home from showing houses, one of my neighbors was burning leaves in his "brush burning" yard fireplace. Have you ever had a "smell" trigger a memory from your childhood? Well those leaves burning and that wonderful smell immediately brought me back to my earlier days and a thousand memories of things I hadn't thought about for more years than I care to think about. I was back at my folks house in South Minneapolis when we used to rake the leaves out to the curb and jump in them, ride as fast as we could through them on our bikes, bury our little sisters in them and then when we were all done, we would rake them all up again and burn them. Great memories. Then I was back at the cabin in Cross Lake when the kids were little and we would have a bon-fire at night and watch the ga-zillian stars visible in that clear northern sky. It's funny what stuff we have hidden in our minds that a smell or old song can resurrect. I saw a card in the Hallmark store a week or so ago and it had the poem "If" by Rudyard Kipling. It's a poem that I learned when I was in 7th grade at Sanford Jr. High. Mr. Reiter was my English teacher and one of the best I ever had. I stood there and again was back in 7th grade English and to my considerable surprise I was able to recite that poem with very little help.

    Part of that wonderful poem goes:

    If you can keep your head
    when all about you are loosing theirs
    and blaming it on you.

    If you can trust yourself when all men doubt you
    And make allowance for their doubting too.

    In our busy, hectic, competitive and high-pressure occupation, juggling business with our home life, kids schedules, customers needs and demands and all of the other financial and emotional things we face every day, sometimes it is hard to "Keep your Head" when it seems like all about you are loosing theirs (and blaming it on you).

    This all brings me to this point. When I look at the number of Professional Standard hearings and Arbitration hearings between agents, I think about the poem. "If you can keep your head when all about you are loosing theirs, and blaming it on you", and I wish all of us, our entire "Family" of professionals, could keep our heads. Wouldn't it be great if we could "half" the number of hearings next year. Not by ignoring a violation or accepting a wrong done to us, but by each of us doing everything we can to be ethically without compromise and fair beyond reproach. Today's standards seem to tell us "To do to others before they do to you". I am calling on each of us to take a step back "smell the burning leaves" practice the original Golden Rule and lets Do To Others What We Would Have Others Do To Us. . . and Make No Exceptions.

    Thanks for listening and have a wonderful Fall and I hope your memories are as nice as mine.

    David

    P.S. Here is the entire poem "IF"

    IF

    By Rudyard Kipling

    If you can keep your head
    when all about you are loosing theirs
    and blaming it on you,
    If you can trust yourself when all men about you
    and make allowance for their doubting, too.
    If you can wait and not be tired by waiting,
    or being lied about, don't deal in lies,
    Or being hated, don't give way to hating
    and yet don't look too good nor talk too wise.

    If you can dream and not make dreams your master,
    If you can think and not make thoughts your aim,
    If you can meet with triumph and disaster,
    and treat those two impostors just the same.
    If you can bear to hear the truth you've spoken
    twisted by knaves to make a trap for fools,
    Or watch the things you gave your life to, broken
    and stoop and build them up again with worn-out tools.
    If you can make one heap of all your winnings
    and risk it on one turn of pitch and toss,
    and lose and start again at your beginnings
    and never breathe a word about your loss.

    If you can force your heart and nerve and sinew
    to serve you long after they are gone,
    and so hold on when there is nothing in you
    except the will that says to them "hold on".

    If you can talk with crowds and keep your virtue,
    or walk with kings nor lose the common tough,
    If neither foes nor loving friends can hurt you,
    If all men count with you but none too much.
    If you can fill the unforgiving minute
    with 60 seconds worth of distance run,
    Yours if the Earth and everything in it.
    and what is more, you'll be a Man, my Son.
     

    Proper Use of CRS Logo
    Members who have earned the CRS designation must maintain membership in the National Council of Residential Specialists in order to use the CRS logo. This includes use of the logo on business cards, letterhead, signs and all other advertising. Failure to comply with these requirements would result in a violation of the Code of Ethics. To verify your CRS membership status or for information on the state CRS Chapter, please contact Gary Carlson at 612/431-9816 or gary@garycarlson.com
     

    Tax Deferred Exchange Hotline

    Question:
    Developers are aggressively buying farmland at the fringes of the Metro area. They often want the seller to carry financing or sell their property in stages. How does this transaction structure affect a seller wishing to perform an IRC §1031 Tax deferred exchange?

    Answer:
    Seller-financing, whether by contract for deed or mortgage, creates a nuisance for the potential seller wanting to utilize the tax deferral benefits of an exchange. Despite the inherent problem, there does exist a few solutions.

    In a regular sale, the installment note is given favorable tax treatment, as a portion of the gain is attributed to the note and the seller is able to delay payment of capital gains tax until the note's principal is received. However, seller-financing in an exchange creates a concern. The note or contract represents equity in the property being sold which is necessary as a down payment for the Replacement Property to fully defer the gain. When the terms of an exchange sale require an installment loan from the seller/exchanger there are a number of techniques available to avoid having the note characterized as "boot" and therefore taxable.

    The most common approach employed is to have the contract/note drafted in favor of the Qualified Intermediary that is facilitating the exchange. At some point prior to the acquisition of the Replacement Property, the note is then sold to the exchanger at face value. This generates the missing equity needed by the Intermediary to purchase the Replace Property. It gets the note outside the exchange and thus is not taxed

    This procedure works well when the note is relatively small or the exchanger possesses the financial wherewithal to purchase the contract/note. In a transaction of several million dollars, another possibility needs to be explored.

    A flexible Replacement Property seller always presents an opportunity to structure an exchange in a creative manner. One possibility is to draft the note generated from the sale of the existing property in favor of the Intermediary. The Intermediary then assigns its interest to the seller of the Replacement Property as consideration for the purchase. This structure works well, however, most sellers are unwilling to accept an unseasoned note without requiring a substantial discount, making this an undesirable technique for the exchanger.

    Another possible structure is to convince the developer/buyer to purchase the farmland in specific portions. Once the first section is transferred, those funds can be used by the Intermediary as a down payment on the Replacement Property. Provided the seller of the Replacement Property is willing to finance the balance with a contract for deed or other security instrument, the entire property can be acquired jointly with the Intermediary. The Intermediary would convey corresponding interests in the Replacement Property to the exchanger each time the developer acquired another section of the relinquished property until the entire property is ultimately conveyed to the exchanger. Each transfer must be treated as a separate exchange since the exchange period lasts only 180 days once a property is conveyed. This procedure is aggressive and should only be used with the advice of tax counsel.

    Question:
    A client is planning to sell a lake cabin they have owned and used as a vacation home for many years. It is on a lake where property values have increased dramatically. Can they perform and exchange of vacation property?

    Answer:
    Vacation homes fall into a category of property that does not appear to fit within the definition of personal residence or business/investment property. If a property is considered a personal residence, then a large portion of gain could be excluded under the sale of personal residence rules enacted in 1997. If a property is business or investment property, generally raw land or income generating property, then the gain can be deferred under the rules of an IRC Section 1031 tax deferred exchange. Consequently, a seller of a vacation home owned for their personal use will most likely be subject to capital gains tax on their profit.

    A property owner considering selling their vacation home can do some advance tax planning by limiting their personal usage and by renting it out for at least a year prior to placing the property for sale. This would give the owner the opportunity to perform an exchange. An alternative solution would be to move into the property and occupy it for at least two years. Upon its sale, the gain could be excluded under the sale of a principal residence rules.
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