Follow Best Practices
NAR has compiled tips and best practices from subject matter experts, law enforcement, and industry veterans to help keep REALTOR® safe. View the resources on the REALTOR® Safety Tips from NAR webpage.
Always meet new clients at the office or in a neutral location, like a coffee shop
Share your schedule with a colleague, assistant, or family member
Communicate safety concerns on your listing (poor cell phone signal, etc.)
Do not overshare about your personal life
Do not host open houses alone
Check your cell phone battery and signal before heading to an appointment
Direct clients to walk in front of you when touring a property, do not lead them
Never go into attics, crawl spaces, or garages where you could be trapped
NAR has provided a toolkit to assist Brokers with providing and implementing safety measures to ensure the security of agents. Visit https://www.nar.realtor/safety/realtor-safety-toolkit-for-associations-and-brokerages
to view materials and resources.
Most leases attempt to answer this question. A typical lease may say that when the term ends, “fixtures” or “improvements” stay and “trade fixtures” go with the tenant. But “fixtures” and “trade fixtures” are confusingly similar labels for improvements that get treated very differently in typical leases. Besides, these labels are vague , overly broad terms that have no specific legal meaning. Hence they invite confusion, misunderstanding, and disputes when the term ends.
A recent Michigan case illustrates this problem. In this case a hair-salon tenant learned the hard way that a special counter with sinks was not a “trade fixture” that the tenant could remove when the term ended. Instead, the counter belonged to the landlord.
When the lease was being negotiated, the prospective tenant wanted a counter with sinks installed in the space. The tenant would have purchased and installed this counter, but it didn’t have the cash. So the landlord agreed to purchase and install the counter. The rent would be increased to cover the landlord’s $60,000 cost. The landlord told the tenant the tenant would own the counter at the end of the lease term. So far, so good.
But unfortunately, the lease language didn’t read that way. It stated that improvements made by the landlord remained the landlord’s property. The tenant could remove, at the end of the term, only those improvements that that tenant had installed. So the counter stayed, because the tenant wasn’t the one who installed it.
Someone didn’t take a few minutes to compare the lease description with the actual deal. You can do better for your leasing clients.
What can we learn here?
Lesson #1: as hard as it may be when the lease is being negotiated, take the time to identify what happens to each improvement when the lease ends. Avoid relying solely on vague terms like “fixtures” and “trade fixtures”. Consider:
1. What improvements are we talking about? Counters, partitions, special lighting, plumbing fixtures such as sinks, etc.
2. Who installs each improvement? Who pays for each one?
3. What happens to each item on this list when the lease term ends? Your choices include:
1) The item stays, period.
2) Landlord has the option to require the tenant to remove the item (and restore the space to original condition).
3) Tenant must remove the item (and restore the space)
4) Tenant has the option to remove the item or leave it behind.
5) For possible improvements the tenant may want to make later on during the term, agree that if the landlord gives its consent, the topics of removal and restoration will be addressed at that time.
Lesson #2: remember the landlord’s promise that the tenant would own the counter when the lease term ended? Unfortunately for the tenant in this case, the lease had a standard so-called “zipper clause”: a statement that the written lease controlled over anything either party may have said to each other. So the landlord’s promise was unenforceable. The lesson: take a little time with your client to make sure any oral promises that matter are written into the lease.
You’ll serve your lease clients well by getting them to focus up front on what happens when the lease term ends. You’ll be avoiding disputes that can lead to litigation, and no landlord or tenant wants that.
Biden proposed a package (during his presidential campaign), that includes using the estimated $50 billion in tax revenues generated from eliminating 1031 exchanges, for investors with a net worth of over $400,000. The purpose is to pay for improved childcare and healthcare for seniors. The $400,000 level is an unclear number and subject to interpretation. Few if any news outlets questioned or challenged Mr. Biden on the full effects of the elimination. We have participated in conference calls including industry experts and have identified many reasons why this is not a quick stroke of the pen solution.
There a few people who would argue that childcare and healthcare for seniors are not important. Assisting these group hardest hit by the COVID 19 pandemic is important. Biden's economic recovery plan may have many initiatives, but there may be better funding sources rather than the elimination of the 1031 exchange.
Personally, I grow tired of legislators who reference the 1031 exchange as a "loophole". There are long term benefits from 1031 exchanges by deferring capital gains and depreciation taxes. However, the economy realizes far-reaching, long-term benefits from the process as well. Section 1031 of the Code is an engine for growth that pays for itself many times over. This includes jobs, taxes, increased revenue to states and municipalities and potential financial security for the individual investor.
In my opinion simply looking at how to capture the deferred taxes politician may be oversimplifying the far-reaching benefits. Politician may harness a myopic view and ignore all the other benefits that have far reaching effects downstream and upstream. Many experts have opined that commercial real estate may drop 15-20% if the 1031 is eliminated. Naturally there are those who may challenge a drop in commercial real estate. However, the pandemic is already affecting real estate values in certain section of the country. That is another topic for in-dept analysis.
It's not just a paper transaction it is "Jobs, jobs, and more jobs"
The IRS 1031 Exchange rules do involve documentation and paperwork as well as strict time requirements. The impact and scope of the exchange reaches beyond a single investor looking to defer tax payment. Investor often use the funds that may have gone to pay taxes to make upgrades to the property. The investor may diversify their holdings and improve the community. Once a property is acquired there may be additional spending on building supplies and improvements that funnel money back into the local economy as well as sales tax revenue. As properties sell in local municipalities the increased assessed value adds incremental tax revenue to the local budgets and economy.
The impacts go beyond just the materials. The upgrades may include the services of architects, contractors, electricians, plumbers, laborers, and others. There is also the need for all the services that are utilized to complete the exchange including qualified intermediaries, lawyers, appraisers, and escrow agents. All pay federal and state income taxes.
Research has shown there would be a clear negative impact to the economy should 1031 exchanges be eliminated. 1 A 2015 Ernst & Young study found that repealing 1031 exchanges could shrink the economy by more than $13 billion, discourage investment, and lower tax revenues. Municipalities that would rely on the increased tax revenue could be the most effected.
Let's pause to understand how far 1031 exchange benefits reach
As mentioned, before we need to refrain from looking myopically at grabbing the immediate tax gain missed during a real estate transaction. This is part of the fight that involves the lens through 1031 is viewed. 1031 has been around for 100 years and needs a broader view to understand why this statue has been around so long. Facts are that Individual investors and small businesses are among the biggest users of 1031 exchanges. Using a 1031 could help to a secure financial future, a key financial planning tool, and an income stream for retirement.
Let's talk about the farmers
Many farmers have land holdings that have been in the family or generations. Often the farmers are a forgotten segment of 1031 exchangers. They are in a unique position to use the provision to secure their futures and assist their communities. Farmers are able to sell land that is no longer productive for farming to aid conservation efforts by selling easements that restrict crop production or other farming activities. They can also exchange property for non-farm property investments to protect multi-generational wealth. If the farmers sell the land for development, there is an immediate increase in tax revenue with a new development. Under all is the Land! This may be the only asset the farmer owns.
Education before action on 1031 exchanges
We urge all stakeholders to take an in-depth look at the 1031 exchange and fully understand the value of this 100-year-old section of the tax code before taking any action.
On the surface there is the ability to defer taxes by reinvesting the proceeds from the sale of one property into another. This provides a multitude of positive outcomes including the investors flexibility to spend more on property improvements, secure the income needed to last through retirement, accumulate generational wealth. There are also the facts that the 1031 exchange process generate jobs, and fuels economic growth. This may be the wrong time to consider eliminating certain property owner's ability to perform a 1031 exchange. The economy is still struggling in the midst of a pandemic. While programs that help children and seniors have universal appeal, funding them through the elimination of the IRS Section 1031 exchange has the potential to provide a short-term bump while unintentionally limiting long-term prospects.
1 Ernst & Young 2015 study results: www.1031taxreform.com/wp-content/uploads/...
Each year, RPAC sets a fundraising goal which is divided by the number of members of the Michigan Realtors to arrive at a “fair share” fundraising goal for each member. The 2020 ROAC fundraising goal was $1,160,000.00, making the fair share amount for each MI Realtors member $35.57. Consequently, the fundraising goal for CAR, with its 332 primary members, was set at $11,811.00.
I am happy to report that for the 7th year in a row we have exceeded our RPAC fundraising goal by at least 30%. RPAC’s 2020 numbers through October 31 show we raised $16,739, or 141.7% of our goal of $11,811. Additionally, each association across the state has a membership participation goal of 37%; CAR exceeded that goal by having 46.4% of its members participate in RPAC fundraising efforts this year.
Where does the money go? In an election year like this one, the RPAC Trustees oversee a process through which candidates for state and federal office can receive campaign donations from RPAC, specifically from a fund called RPAC I which is designed to support candidates and their campaigns. Local associations handle candidate interviews for state representatives serving their areas; MI Realtors then receives recommendations for endorsement from the local associations and suggests a donation amount based on the office, historical experience with the candidate, and the perceived importance of the race or seat in question. Those contributions are then approved by the RPAC Trustees. The Trustee board also conducts some direct interviews with candidates for state Supreme Court, Governor, US House of Representatives, and US Senate. For the judges and Governor candidates, contribution amounts are recommended by MI Realtors and approved by the RPAC Trustees; for the federal offices, contribution recommendations come from NAR. This year, MI Realtors and the RPAC Trustees saw 96% of the endorsed candidates win their races.
On behalf of the RPAC Trustees board, I would like to thank all of you who contributed to our RPAC fundraising efforts this year. For those of you who are still thinking about it, there’s never a bad time to get involved. I and the other members of the Political Affairs & Government Committee are always happy to answer any questions you might have.
Retailers will try to make it through the holiday season, which in the past has been such a profitable time. Some of the projections are that nearly 60% of retailers and restaurants closures will be permanent (Kreznar). Those business which have remained open have forced many operators to defer their rent payments and landlords will have to make the difficult decision on whether or not they continue to be flexible on payments or if they should recapture the space and start the process of looking for new prospects. As we look towards the beginning of the new year, we are undoubtedly going to see a rise in vacancies occurring in Q1 and Q2. Many of those vacancies will be the larger spaces and in-line spaces will be difficult to release as many retailers prior to Covid-19 had begun to recognize that they did not need as much space.
While the numbers continue to grow for bankruptcies and closures of businesses there have been several businesses that have thrived during this period. Essential businesses who remained open throughout the pandemic have seen record sales. Walmart, Target, Dollar General and many other big and medium box retailers often face the difficulties of empty shelves due to a strong demand. Restaurants with drive-thrus also saw strong sale volumes even when forced to shut down their dining areas. Uber Eat, Grub Hub and other delivery service apps become widely used as dine in options were at limited capacity.
As we progress into 2021 there are a lot of unknowns, but the one thing remains, the resilience of the American people. There will be business which fail and go under, but there will be those who learn from 2020, thrive in 2021 and the years to come. This year was one that no one anticipated, and it will surely impact how businesses move forward from this moment.
Kreznar, Christian. “Small Businesses Are Closing At A Rapids Pace, With Restaurants And Retailers On The West Coast Among The Hardest Hit”. https://www.forbes.com/sites/christiankreznar/2020/09/16/small-businesses-are-closing-at-a-rapid-pace-with-restaurants-and-retailers-on-the-west-coast-among-the-hardest-hit/?sh=67bbeae25033