10/23/1997 02:11 PM House L&C
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
October 23, 1997
2:11 p.m.
Anchorage, Alaska
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Jerry Sanders
Representative Joe Ryan
Representative Bill Hudson via teleconference
MEMBERS ABSENT
Representative Tom Brice
Representative Gene Kubina
COMMITTEE CALENDAR
HOUSE BILL NO. 33
"An Act relating to real estate licensing and the real estate
surety fund; and providing for an effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 33
SHORT TITLE: REAL ESTATE LICENSING
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST
JRN-DATE JRN-PAGE ACTION
01/13/97 36 (H) PREFILE RELEASED 1/3/97
01/13/97 36 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 36 (H) LABOR & COMMERCE, FINANCE
03/14/97 (H) L&C AT 3:15 PM CAPITOL 17
03/14/97 (H) MINUTE(L&C)
03/17/97 (H) L&C AT 3:15 PM CAPITOL 17
03/17/97 (H) MINUTE(L&C)
03/24/97 (H) L&C AT 3:15 PM CAPITOL 17
03/24/97 (H) MINUTE(L&C)
10/13/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
10/13/97 (H) MINUTE(L&C)
10/23/97 (H) L&C AT 2:00 PM ANCHORAGE LIO
WITNESS REGISTER
BRIAN BRITT, Professional Community Association Manager
Pioneer Management Services
P.O. Box 111358
Anchorage, Alaska 99511
Telephone: (907) 345-4858
POSITION STATEMENT: Testified on HB 33.
DEBRA BRITT, Professional Community Association Manager
Pioneer Management Services
P.O. Box 111358
Anchorage, Alaska 99511
Telephone: (907) 345-4858
POSITION STATEMENT: Testified on HB 33.
NIEL THOMAS, Associate Broker
Fortune Properties, Incorporated
2525 "C" Street, Suite 100
Anchorage, Alaska 99503
Telephone: (907) 265-9106
POSITION STATEMENT: Testified as a private individual on HB 33.
GRAYCE OAKLEY, Executive Administrator
Real Estate Commission
3501 "C" Street, Suite 700
Anchorage, Alaska 99503
Telephone: (907) 269-8197
POSITION STATEMENT: Testified on HB 33.
STEPHEN VLAHOVICH, Associate Broker
Associated Brokers, Incorporated;
Board of Directors, Glenn Haven Condominium Association
9321 Arlene Street, A-8
Anchorage, Alaska 99515
Telephone: (907) 243-2624
POSITION STATEMENT: Testified on HB 33.
ERIC DYRUD, Broker
Associated Brokers, Incorporated;
Legislative Committee, Anchorage Board of REALTORS
2509 Eide Street, Number 4
Anchorage, Alaska 99503
Telephone: (907) 258-8888
POSITION STATEMENT: Testified on HB 33.
ART CLARK
Real Estate Unlimited, LLC
Board of Directors, Anchorage Board of REALTORS ;
Board of Directors, Community Association Institute
7740 McHenry Circle
Anchorage, Alaska 99502
Telephone: (907) 345-4110
POSITION STATEMENT: Testified as a private individual on HB 33.
RON JOHNSON, Broker
ERA Real Estate Specialists;
Representative, Kenai Peninsula Board of REALTORS
610 Attla Way, Suite 6
Kenai, Alaska 99611
Telephone: (907) 283-4372
POSITION STATEMENT: Testified on HB 33.
ROBERT E. BAER, Associate Broker
Totem Realty, Incorporated
724 East 15th Avenue
Anchorage, Alaska 99501
Telephone: (907) 272-0571
POSITION STATEMENT: Testified on HB 33.
LISA HERRINGTON
Fortune Properties, Incorporated
2525 "C" Street, Suite 100
Anchorage, Alaska 99503
Telephone: (907) 265-9151
POSITION STATEMENT: Testified as a private individual on HB 33.
JOHN LEVY
Realty Executives Alaska
2800 West 80th Avenue
Anchorage, Alaska 99502
Telephone: (907) 561-2220
POSITION STATEMENT: Testified as a private individual on HB 33.
BETH SIMPSON, Associate Broker
Dynamic Properties
P.O. Box 112342
Anchorage, Alaska 99511
Telephone: (907) 261-7658
POSITION STATEMENT: Testified as a private individual on HB 33.
ACTION NARRATIVE
TAPE 97-66, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 2:11 p.m. Members present
at the call to order were Representatives Rokeberg, Cowdery,
Sanders and Ryan. Representative Hudson was present via
teleconference from Juneau.
HB 33 - REAL ESTATE LICENSING
CHAIRMAN ROKEBERG announced the first item of business, HB 33, "An
Act relating to real estate licensing and the real estate surety
fund; and providing for an effective date." Chairman Rokeberg
noted the committee was continuing the public hearing on HB 33 from
October 13. He further noted that this meeting was the fifth
formal hearing and work session on HB 33, and that a number of
other meetings had been held.
Number 0010
Chairman Rokeberg stated, for the record, that he is a licensed
real estate broker in the state of Alaska. However, due to his
legislative duties, he is not particularly active as a broker.
CHAIRMAN ROKEBERG noted an October 23, 1997, memorandum ("Proposed
changes, questions and comments to draft CSHB 33 Version H") from
himself to the committee that reflects a vast number of the changes
to HB 33. The memorandum also contains some alternate language,
and other issues brought before the committee during the October 13
work session, as well as the work session held with the Real Estate
Commission on October 15.
CHAIRMAN ROKEBERG stated he wanted to focus the meeting on the
issues mentioned in the memorandum.
Number 0037
BRIAN BRITT, Professional Community Association Manager, Pioneer
Management Services, came forward to testify. He stated, "I've
been in the business for 13 years. As the Chair indicated, I'm not
actively -- active in the business, however I do have -- keep up
with all the continuing education -- everything else that goes with
that to maintain that designation and in the profession."
MR. BRITT indicated he was interested in testifying on the issues
relating to community associations. Chairman Rokeberg cautioned
Mr. Britt that there had been some significant changes to Version
H noted in the memorandum.
MR. BRITT asked whether Section 9 had changed significantly.
CHAIRMAN ROKEBERG noted a handout Mr. Britt had brought for the
record. A brief discussion ensued regarding this handout.
MR. BRITT commented that Sections 7, 9 and 20 of HB 33 specifically
pertained to community association management.
CHAIRMAN ROKEBERG replied that there were changes in Sections 7 and
9, and that Section 20 had been deleted. He requested Mr. Britt's
opinion regarding the deletion of Section 20.
MR. BRITT said, "As an example, on Section 20 it requires that a
community association manager, or management company, purchase --
and I realize that this, with the incorporation into [the] real
estate world of being a licensed real estate broker and sales --
that a -- for a company to try to obtain a million dollars bond, or
more, is virtually impossible and/or is not economically feasible.
If that were to take place, an association could not afford to have
a community association manager working for them, because ..., in
order to recoup the costs ..., they would have to charge an
exorbitant amount of money. Now, that doesn't mean that an
association cannot have money ..., in terms of bonding, to help
protect ... their funds; as an association does, in fact, obtain
bonding along with all the other insurance policies that they
obtain: general liability, directors' and officers' liability, and
so on. So ... that insurance is sufficient, if the association
manages their business; sufficient to cover ... the funds that they
have in cash that could be available.
Number 0085
CHAIRMAN ROKEBERG asked, "As a typical example, what type of
bonding is normally granted, or given, a property management to an
association? What ... is normally required in the contract of
management?"
Number 0087
MR. BRITT replied, "First off, to call a community association
manager, property manager's [a] misnomer to start with because
we're not .... And I hate to split hairs but it really is a fine
difference."
MR. BRITT continued, "A community association management company
does not provide a bond for an association's reserve funds. Two
reasons why: One is the ability to be able to obtain that kind of
insurance ...; two, the cost of obtaining that kind of insurance;
and three, the association manager, ... if they're doing their job,
should not have access directly to those funds, and thus not be
necessary to have ... the bonding. And as I said, an association
is able to obtain bonding at a reasonable rate for any and all
funds that they would keep, whether it's $10,000 or $10 million,
through the regular course of insuring all of the business that a
community association might be involved in. And, as such, ... the
association has the ability to ... include the manager in that
coverage, so that if an association's funds are absconded with,
misappropriated, whatever you want to call it sir, to be able to
recoup. Now, an association has to be fiscally responsible for the
management of their association. If they are not, ... then that
coverage, or that protection, is not necessarily going to be
available. And that takes some education on the part of everybody,
including the associations and the homeowners, ... to know that."
Number 0104
DEBRA BRITT, Professional Community Association Manager, Pioneer
Management Services, came forward to testify. She noted that she
has been practicing community association management for over ten
years. "Alaska Housing [Alaska Housing Finance Corporation] has
(indisc.--scratching) requirements for associations to carry
fidelity bonds, (indisc.--scratching). As part of that requirement
of recertification (indisc.) each association has to provide a copy
of (indisc.) fidelity bond to Alaska Housing. So we've got a guard
already there if you're going to stay on the Alaska Housing
certification list. ... There is some protection there for the
association, as far as verification of (indisc.). The other thing,
too, is that the agents that we have been dealing with in the
insurance field, also have added (indisc.) bond as named insured.
And that, too, has been acceptable to Alaska Housing. In our
office, part of our Alaska Housing recertification addressing
insurance, we also submit to them a fiscal policy that is followed
by the association (indisc.) our office in dealing with their
(indisc.).
Number 0116
MR. BRITT added, "So, in other words, ... there is an outside
entity that ... is a watchdog for the association's (indisc.).
Ultimately, an association manager, a homeowner, a board member of
a homeowners' association, any one of those groups of people, if
the association does not (indisc.) - is not fiscally responsible -
can abscond with funds. [It] doesn't matter how much insurance you
have, doesn't matter who's all watching, the point is that they
have to be fiscally responsible."
Number 0122
REPRESENTATIVE JOHN COWDERY asked how a property management is
established. He then clarified his question: How is a community
association manager hired and who does he represent?
Number 0127
MR. BRITT answered, "A community association manager and management
company is hired by the board of directors of a homeowners'
association, and they represent the homeowners' association."
Number 0129
REPRESENTATIVE COWDERY continued, "And say if there's a decision
made that's unanimous ... what happens if ... there's legal
expenses ... incurred over this, this issue? Where does that money
come from?"
Number 0133
MR. BRITT replied, "You need to be a little bit more specific
'cause that's a very general question."
REPRESENTATIVE COWDERY continued, "Yeah, okay, say, say if they ...
decide they're going to ... put a ..."
MR. BRITT interjected, "[Are] You talking about the association,
the homeowners (indisc.) ..."
REPRESENTATIVE COWDERY replied, "Or the management."
MR. BRITT responded, "Management doesn't decide anything .... The
management company, if they're doing their job, ... execute[s] and
carries out all of the decisions that are made by the board of
directors of the homeowners' association, period."
Number 0138
REPRESENTATIVE COWDERY continued, "So the board of directors, then,
going back to that level, they may or may not have unanimous
agreement."
MR. BRITT agreed, "Absolutely ...."
Number 0140
MS. BRITT added that there have been many issues where the board of
directors is split and the majority overrules when voting occurs.
Number 0143
MR. BRITT continued with an example, "Let's assume there's five
members on the board, there's a three/two split on - on a decision,
and as a result of the decision by the three that voted in favor of
something, let's say there's a ... controversy to the point that
litigation ... ensues. Is that where ... you're headed with this?
Alright and so then, to the point that it is -- that there is ....
CHAIRMAN ROKEBERG commented, "It's in their by-laws."
MR. BRITT asked, "What's in their by-laws?"
Number 0148
CHAIRMAN ROKEBERG continued, "The decision as to how the -- those
decisions are made."
Number 0152
A brief, mostly indiscernible discussion ensued among
Representative Cowdery, Mr. Britt and Ms. Britt regarding the by-
laws, covenants, conditions and restrictions. Representative
Cowdery noted that those are normally recorded. Ms. Britt
mentioned minutes are taken.
MR. BRITT responded to Representative Cowdery's comment about
recording, "Not just normally, always, because that's what creates
an entity and all community associations are entities as a ...
business."
REPRESENTATIVE COWDERY then said, "So if somebody wanted a copy of
them, he could go to the Frontier Building ...."
Number 0155
MS. BRITT responded, "If they wanted a copy, we've gone back for
some associations, depending (indisc.) various situation, back in
history for an individual. The individuals normally -- we request
that they put together what exactly are they looking for, do they
mean minutes, do they need this that and that -- submit a letter to
us so that we can follow through ... and provide those minutes.
It's ... general public information to those individuals and
owners. It goes in the resale certificate in most (indisc.--talked
over)."
Number 0162
MR. BRITT added that copies of the governing documents were
available from the "state records department" or any title company.
Number 0167
CHAIRMAN ROKEBERG noted that the committee has removed that
provision from the bill at this point and asked Mr. Britt to move
on to his other areas of concern.
Number 0168
MR. BRITT continued, "The biggest issue that I have, and what the
majority of the information in my handout provides, is ... the
licensing of community association managers as real estate salesmen
or as real estate brokers. First off, a real estate -- a community
association management has absolutely nothing to do with real
estate sales and brokering of properties. As a matter of fact, the
business of property management has nothing to do with community
association management, because community association management is
the management of a business and its entity -- not involved in
leasing, sales or renting, or anything that has to do with the
ownership of that property. So to force a community association
manager to do business, to have a real estate license, is about the
same as having somebody learn how to fly a 747 when they're
actually driving a bus -- just not the same business. Yes, it's
transportation."
MR. BRITT continued, "Do I think that the Real Estate Commission
could be involved and could help to regulate and to insure to the
consumer -- because I think that's what the REC's bottom line is --
they ... wish to help the consumer, protect them, to make people
that are in our business accountable for what they do, to be
educated and professional in their management style. However, to
give them the license of real estate broker or salesman will do a
number of things."
MR. BRITT continued, "First off, a ... real estate broker doesn't
want a community association manager to have the same function that
they do without the education and all that goes with it. I've been
a licensed real estate sale -- all the education, all the testing
that goes with it, has absolutely nothing to do community
association management."
MR. BRITT finished, "There are many, many ways -- many
organizations that would be willing to cooperate with the Real
Estate Commission and/or any other group -- whether it's through
occupational licensing or whatever group -- to help create the
proper education and the proper (indisc.), so as to help the
consumer, or having the people that are in that business be
accountable for their actions."
Number 0195
CHAIRMAN ROKEBERG stated, "Right now the general thrust of the
transition in licensing procedures as [it] relates to community
associations has not been decided by the committee, but at this
juncture they're entertaining discussions about having limited
licenses for community association managers or provisional
licenses, one (indisc.) distinction being whether one would
ultimately have to pass a real estate examination."
CHAIRMAN ROKEBERG continued, "And that's the distinction that we're
... trying to deal with right now: whether we should, in essence,
grandfather existing community association managers and not require
them [to] pass a real estate exam; or, after a period of time, for
example three and a half years, ... make them be able to pass that
examination. ... So that's ... kind of where the issue is in terms
of that area right now .... Also the bill provides a special core
curricula be developed by the Real Estate Commission for community
association managers, as well as other specialties within ... the
real estate industry."
Number 0209
REPRESENTATIVE BILL HUDSON requested that witnesses state the
section numbers of HB 33 they are commenting on.
Number 0212
MR. BRITT responded that he was commenting on Sections 7 and 9.
Number 0214
REPRESENTATIVE HUDSON noted he had a copy of the memorandum being
discussed.
Number 0216
MR. BRITT added, "Our industry, I would have to say, is ... not
opposed to having the Real Estate Commission be the governing body
over community association managers. Nationally, they're opposed
to that -- people in this business are opposed to that, but at the
same time, the one thing that we agree with is that there are many
people that are in this industry that have absolutely no education,
and little or no experience in the community association management
business -- and that scares the hell out of us, to be quite honest
with you -- and it's not the right thing for the community
association."
MR. BRITT continued, "So if it takes something like the Real Estate
Commission that -- if we're under the auspice of that organization,
then so be it. One thing I caution you is ... be careful about
what you wish for because it may not be what everybody wants, and
it may not, in fact, provide ... the ultimate goal of what all this
action (indisc.) take."
MR BRITT stated, "I've added a section on a proposed language for
Section 9 that would -- ... it's additional language or an
additional license, if you will, called community association
managers. So instead of having just real estate sales, real estate
brokers, community association (indisc.) -- and for that matter,
maybe there should be a fourth one called property manager ...."
Number 0232
CHAIRMAN ROKEBERG commented that a certain stage of HB 33's
development had an endorsement concept with the split specialties.
However, because of the number of problems with that approach,
particularly the real estate industry's inability to accept that
concept as a major change in their way of doing business, another
method is being tried.
Number 0238
CHAIRMAN ROKEBERG asked if there were any statutory or legal
restrictions preventing entrance into the business of community
association management in Alaska. Chairman Rokeberg indicated he
was referring to legislation written.
Number 0241
MR. BRITT responded in the negative, expressing that that was part
of the problem.
Number 0243
CHAIRMAN ROKEBERG asked, " And there's no real consumer protection
as far as the (indisc.) beyond the business relationships and
contractual agreements between community association managers and
these associations throughout the state, is that correct?"
Number 0246
MR. BRITT agreed, " However, be cautious again. Just because
somebody has a broker's license, doesn't mean that ... a community
association has any protection of any kind, because there is ...
absolutely no educational process within the Real Estate Commission
to help a community association and ... their operation."
Number 0248
CHAIRMAN ROKEBERG stated, "But we are ... addressing that in part,
and if you listen to the testimony today, that will undoubtably
come up ... and hopefully that will, I think, make a major step
toward increasing the competency of the people in that type of
business. I have a couple of questions that ... are (indisc.)
technical things. Do community associations typically have a trust
account as well as an operating account when they deal with the
funds of an association?"
MR. BRITT questioned, "You're speaking of ... a reserve account or
a capital expenditures?"
CHAIRMAN ROKEBERG replied, "Well, that would be ... another account
...."
MR. BRITT said, "There are no trust accounts."
Number 0257
MS. BRITT added, "(Indisc.--talked over) two accounts, the general
operating account which relates back to the general operating
budget and then also reserve accounts ..."
CHAIRMAN ROKEBERG added, "Reserve accounts and/or there could be an
... investment account."
MR. BRITT continued, "Well that investment account is ... the
reserve account -- it's part ... of what they call capital
expenditures, for future (indisc.)."
Number 0264
REPRESENTATIVE COWDERY asked, "Do you think the system as it stands
now is broke? Does it need fixing? ... I understand ... that
we've had some frauds that existed, but ... can we legislate that
out of the system ...?"
Number 0268
MS. BRITT replied she didn't know if it was possible to ever really
legislate out dishonesty, but she noted it is always possible to
improve upon what is currently being done. She recommended working
with the community association managers, and letting them be more
active in the creation of bills and the creation of licensing.
MS. BRITT continued, "I've served with Grayce Oakley on the
original task force on the continuing education side, and I worked
with Wiley Brooks (ph) on that. ... Our original goal was to
incorporate some of the current required real estate classes and
combine them with community association management courses that are
already available through a national organization -- and I think
you've got it in the hand-out, (indisc.) education requirements
.... I'm a real stickler about continuing education and, and
training and things like this in our office, but ... I think we
need more participation in that.
Number 0281
MR. BRITT added, "Mr. Chair, one last thing to answer ... your
question, sir. Has the Real Estate Commission been able to
eliminate and, and all of the legislation that has come down, to
prevent anybody in the real estate business, whether they're a
licensed real estate agent or broker, from doing a similar thing
that has happened as of recently with a community association?
... I'm not trying to be unfair, but you just can't do that. So,
but - but can we -- can the Real Estate Commission help, and does
it help absolutely? We're a strong proponent of them. It's not
that we're against what they're trying to do or what the real
estate world is trying to do; we just want to make sure that we do
this properly."
MR. BRITT continued, "One last thing is that ... Debra Britt and
myself are the first professional community association managers in
the state. We did that with the desire to upgrade the educational
system or people that are in this business because it became known
that if you don't have a PCAM [Professional Community Association
Manager], it's very difficult to manage ... some associations,
because they wanted that level of expertise and that level of
commitment to the industry in order to have them as a ... manager
of ... their association, of their (indisc.--scratching)."
Number 0297
MS. BRITT added that their certification has encouraged other
community association managers to become certified through the
national organization. She noted that in order for association
managers to keep their certification, they must go outside Alaska
for the continuing education. She said she would love to see that
brought to Alaska.
Number 0304
CHAIRMAN ROKEBERG requested that the committee members hold their
questions until the end of testimony.
Number 0315
NIEL THOMAS, Associate Broker, Fortune Properties, Incorporated,
came forward to testify. He noted that he was speaking for himself
as a licensee, and not necessarily for his company.
MR. THOMAS stated that he didn't have much to add beyond his
October 16 letter. He commented that Chairman Rokeberg's October
23 memorandum apparently contains all of his suggestions for
changes to Version H. He offered to answer any questions regarding
his suggestions.
Number 0332
CHAIRMAN ROKEBERG stated, "(Indisc.) I had the answers to your
questions ... in regard to -- (indisc.) item number two ..., I
think that the committee appreciates you bringing this up, because
this is some language that was left over from the endorsement
concept. I think we need to look at that and ... remove or modify
the language in that particular -- that was one thing that did slip
through the cracks regarding that (indisc.). The original concept
(indisc.) included the specialized endorsements and now it does
not, therefore I think that that language does need to be
modified."
CHAIRMAN ROKEBERG continued, "Additionally, the issue on civil
fines .... I think everybody in this room should be aware that we
are granting in this bill some greater authority to the commission.
And also on item 4, page 5, line 3, I think that's a good point,
that we might want to adopt (indisc.--coughing) so, that you
brought forward to us, because, matter of fact, perhaps, if Miss
Oakley might want to respond for that particular question. In
other words, why would surety funds (indisc.) money [be] made
allowable, putting together courses for the general public, is that
what that is?"
Number 0362
GRAYCE OAKLEY, Executive Administrator, Real Estate Commission,
came forward to testify. She stated, "I assume that's the one that
you're referring to (indisc.). At the time that the surety fund
was last, the last completed audit ..., the last one that the
commission called for -- there was an attorney general opinion that
gave a very narrow definition of what was in 091 as to what we
could do."
MS. OAKLEY explained, "And so the attempt here was to try to
specify the types of ... courses. And when we put in the one --
the thing that was the hot issue at the time, and still is, I
think, more than warm, is property disclosure. And we had
envisioned putting together a course that would be for the general
public as far as how, how they could adequately, and give them some
training. We were looking at doing some videos that could be
checked out to [the] library system of how they would fill out a
disclosure form for buyers and sellers, because whether they're
working with a licensed agent or not, they are still required to
do. That was the type of general public courses that we were
talking about, that we saw as being within the scope of the surety
fund."
MS. OAKLEY continued, "Another one that has been challenged as to
whether it could, surety fund can be used or not, and it currently
is not, with the exception of ... Terry McGilberry 's (ph)
position, which is wholly funded by the surety fund -- any of the
participation in the real estate license law official organization.
It's a wonderful training ground for commission members to find out
what's happening with other commissions ... so we don't have to
reinvent the wheel with everything."
MS. OAKLEY stated, "We don't have any ... specific formalized
training for new commission members as they come on the commission.
We would like to be able to use some of ... the education
appropriation to train the commission members to do their job
better ... as it relates to what's happening in the rest of the
country. Those are the kinds of things that we were thinking about
when we, when the task force, added ... those particular categories
...."
Number 0399
CHAIRMAN ROKEBERG stated, "Well we might want to take a look at
that again .... There's a couple other things that Niel [Niel
Thomas] brought up ... about some property management (indisc.),
everything. I think the exemptions pretty well take it up. ...
I'm looking forward to some other testimony today, hopefully on the
issue of the affinity groups and relocation .... There is also a
memorandum (indisc.) legal opinion ...."
Number 0408
CHAIRMAN ROKEBERG called a brief at ease (no time noted).
Number 0409
CHAIRMAN ROKEBERG called Stephen Vlahovich to testify.
Number 0417
STEPHEN VLAHOVICH, Associate Broker, Associated Brokers,
Incorporated; Board of Directors, Glenn Haven Condominium
Association, came forward to testify on HB 33.
MR. VLAHOVICH noted that last year, when HB 33 first came out, he
commented on the condominium management association issue in
writing to Chairman Rokeberg, and also testified. He referred to
page 24, line 8, item 16 in the exceptions ("an owner of a unit of
a self-managed community association managing the community
association without remuneration;"). He requested that the phrase
"without remuneration" be deleted.
Number 0433
CHAIRMAN ROKEBERG noted that there had been discussion about that
issue in a previous committee meeting. He asked Mr. Vlahovich to
explain his position on the removal of the phrase in question.
Chairman Rokeberg noted that he understood Mr. Vlahovich's position
to also favor allowing a member of a community association to be
reimbursed.
Number 0441
MR. VLAHOVICH stated, mentioning his 80-unit association, that a
unit owner of a self-managed association would not be willing to
manage the project without remuneration. He continued, "The
reality of the world is nobody's going to do it. So you're still
stuck that you're going to have to hire somebody to manage your
project, ... they're going to have to be licensed, and this is just
taking property rights away from the owners of the units and the
board of directors of the condo association. And I don't think in
(indisc.) statutes of the state of Alaska that there's anything
prohibiting the board of directors from being compensated, or a
member of the units being compensated.
Number 0458
CHAIRMAN ROKEBERG answered, "I think you're probably right about
that, there is -- it doesn't speak to that, and that's exactly
right, and ... this, as it's written, would restrict that. On that
point, I think we had some testimony at a Real Estate Commission
work session about an instance in Juneau whereas people would
actually -- were in the same kind of a situation, where there were
members of the community association. ... They'd split the duties
up 'cause they didn't have a professional management company
available to them, or (indisc.) didn't pursue that, and, in order
to reimburse themselves for costs incurred on this division of
labor, they gave themselves expense honorarium."
CHAIRMAN ROKEBERG continued, "So then it becomes a question about
whether it's remuneration or not. It would -- it's my opinion ...
and it's something that we might want to make clearer, that any
repayment for costs incurred and so forth by members of the
association in the course of any of the management activity of
self-management should not be restricted. But you're indicating
... that there should be a compensation and profit for that
management, then?"
Number 0478
MR. VLAHOVICH replied, "I would think that you'd just have the
statement, 'An owner of a unit of a self-managed condo association
manage the association at the direction of the board of directors,'
period."
Number 0480
CHAIRMAN ROKEBERG asked, "What about the ability to reimburse for
expenses and so forth, would that ..."
Number 0483
MR. VLAHOVICH replied, "I don't think it's the business of the real
estate licensing whether they reimburse their people or not. I
think that's a corporate decision made by the board of directors,
duly elected by the owners of the unit[s]. That would allow them
to do what they needed to do, in whatever financial circumstances
the association is in, and, also, if they went outside of their
ownership, they'd have to have a licensee."
Number 0491
CHAIRMAN ROKEBERG said there is nothing in the legislation that
restricts the association from managing itself; profit-making is
the issue.
Number 0493
MR. VLAHOVICH said, "Well,(indisc.) what you're stating is the only
time you can do this is if you do it without remuneration, without
pay ...."
CHAIRMAN ROKEBERG added, "Unless you're licensed, you're a
licensee, then .... That's what it says exactly."
MR. VLAHOVICH continued, "A resident manager could be compensated,
but if they're an owner, they wouldn't be able to do (indisc.). So
you could have a tenant in somebody's leased condo, that you could
hire and compensate, but you couldn't do it as an owner. That
doesn't make sense to me ...."
Number 0505
CHAIRMAN ROKEBERG said, "Well, there is (indisc.) distinction. The
resident manager typically is one that ... resides on a rental
premise, not on (indisc.) community association property ...."
Number 0510
MR. VLAHOVICH asked, "Is that logical? You can hire a resident in
a rental condo but if the owner of a unit wants to take on that
job, you couldn't pay 'em?"
Number 0514
CHAIRMAN ROKEBERG responded that he understood Mr. Vlahovich's
point, and noted that Mr. Vlahovich was advocating for his
position.
Number 0517
MR. VLAHOVICH added, "And I've talked to other board[s] of
directors and explained this particular item and they are all
against it ...."
CHAIRMAN ROKEBERG asked Mr. Vlahovich if he meant that other board
members wished to retain a resident of the association and pay that
resident a profitable, over-expense type of remuneration."
MR. VLAHOVICH answered, "Pay them period."
CHAIRMAN ROKEBERG continued, "Well, I think there's a distinction
about -- I think the committee and myself, I would not object to
having a member that performs any function being reimbursed for
their expenses. ... That's clearly the case. And you can have a
nonprofit association that self-manages itself and covers all their
costs without running afoul of what remuneration would be."
MR. VLAHOVICH asked, "(Indisc.) how would you determine -- say one
corner of a unit is going have that as their office ..."
CHAIRMAN ROKEBERG answered, "That's all for the board of directors
and your by-laws, and it's all common sense .... That's the
distinction I make .... Hopefully that helps ease some of your
concerns, but I take it, it doesn't ...."
There was a brief discussion between Chairman Rokeberg and Mr.
Vlahovich about reimbursement. Chairman Rokeberg stated that
reimbursement could be for expenses or costs of time. He commented
that the language needed to be clarified, and "remuneration"
defined.
Number 0554
ERIC DYRUD, Broker, Associated Brokers, Incorporated; Legislative
Committee, Anchorage Board of REALTORS , came forward to testify.
Mr. Dyrud noted that he also sits in on the commission meetings for
the association.
MR. DYRUD, as a private individual, suggested an additional change
providing for the revocation of a broker's or associate broker's
license if a felony is involved. He noted this change corrects an
omission in the language: A convicted felon cannot receive a
license, but there is no provision in the language that allows a
license to be revoked if a licensed person is convicted of a
felony. Mr. Dyrud noted he had language with him to make that
change.
MR. DYRUD, in his second item of concern, spoke for the legislative
committee of the Anchorage Board of REALTORS on the "E and O"
insurance question.
CHAIRMAN ROKEBERG interjected that there had been feedback from the
commission. The commission believes that underwriting is
available. He stated that there's been a general consensus at this
stage, subject to further revision, of a $150 per annum maximum
ceiling. In addition, he noted, a "tail" would be added to the
policies, and it would be ensured that the premiums be paid
directly to the underwriter, not to the commission.
MR. DYRUD said he had not seen that proposal.
TAPE 97-66, SIDE B
Number 0008
CHAIRMAN ROKEBERG stated that it would be appropriate to revisit
this paragraph mentioned for further review, if the legislative
committee of the Anchorage Board of REALTORS wished.
MR. DYRUD indicated the legislative committee would be interested
in doing that.
CHAIRMAN ROKEBERG commented that an agreement, more or less, had
been made to that effect with Mr. Dyrud's group at the last
meeting. The agreement was that the paragraph in question would be
removed if there were no indications of interest or feasibility.
He noted that apparently it is feasible.
Number 0013
MR. DYRUD, testifying again as an individual, noted some concern
regarding "affinity groups or rebates or however you might wish to
word those." He mentioned some discussion about changes to a
current disclosure regulation that is a prohibition against paying
rebates or fees to individuals or non-licensed individuals.
MR. DYRUD commented that the committee had received an opinion from
Legal Services, Division of Legal and Research Services,
Legislative Affairs Agency. This opinion said, he related, "that
it did not appear that the regulation affected the statute, and
that there was prohibition against other payments." He asked for
clarification, noting he had been told a rebate could be paid to a
non-licensed individual but had not been unable to find any
specific language referring to that situation. Mr. Dyrud mentioned
affinity groups and recommended inclusion of Mississippi's language
discussing those items into HB 33.
CHAIRMAN ROKEBERG stated that he had previously cut Mr. Thomas
short on the same subject. He requested that Mr. Thomas "explain
to the committee what an affinity group is and how -- what that
circumstance is, and also any - any further information regarding
real (indisc.)."
Number 0030
MR. THOMAS stated that currently there are two situations being
hotly debated in the industry, referring to Internet discussion
groups among real estate agents around the country.
MR. THOMAS explained, "Let me try to describe it without putting
any bias into it .... The one situation's what you might call
relocation company situation, and it comes up this way: A
corporation transferring its employees around the country will not
necessarily use its own staff to coordinate the process by which
those employees get their houses listed for sale; or how those
employees, once they go to a new community, hook up with a real
estate agent to buy another house. They'll out-source that and
sign a contract with a third-party organization to provide those
services."
MR. THOMAS continued, "The job of that third-party contractor is to
locate qualified real estate brokers to provide marketing services
for those employees' homes. Or, in the case of an employee coming
into a community, that third-party contractor will recommend that
employee use certain real estate agents that they might have in
their network. That sort of thing has been going on for a long
time. Where it has provoked some ... controversy in the Real
Estate Commission is how these affinity groups, these relocation
companies, get paid."
MR. THOMAS continued, "It used to be that these relocation
companies uniformly went to the corporations that hired them: ARCO
[ARCO Alaska, Incorporated], BP [BP Exploration (Alaska)
Incorporated], or whoever; negotiated a contract which had fees
built into it, and that's how they secured their compensation. At
some point in the last couple of years that practice changed, and
it now, in many cases, works differently. ... It goes like this:
Third-party relocation company calls up a real estate agent who
actually may already be marketing a piece of property for a
corporate employee who's leaving town and says, 'In order for us to
be able to perform our functions for this company -- this company
is not paying us, so we want you, as the real estate agent, to pay
us.'"
MR. THOMAS continued, "And so, whether or not they actually
initiated the business that that real estate company received, a
(indisc.) incoming corporate employee or a corporate employee who's
having his house listed for sale -- instead, what happens is that
a portion of that real estate commission that would be earned in
that state gets sent out. And the fees are typically 20 to 30 or
35, or in some cases 40 percent -- gets sent out to the third-party
contractor."
MR. THOMAS continued, "Why is this happening? Basically, because
the real agents in many communities and many brokerages are willing
to pay it. And, it, in effect, reduces the corporate burden of
supporting the third-party relocation function. Well, this becomes
controversial because the question becomes, from the real estate
agents who feel like they wouldn't want to have to pay these kinds
of fees: 'Why are we doing this and sending this money to these
sort of third-party entities?'"
MR. THOMAS continued, "The Real Estate Commission's response in
Alaska has been to say, 'We don't see any reason to make this
practice illegal, but we think people ought to know about it.'"
Mr. Thomas related a recent situation at his brokerage: A
settlement statement had come through with no mention of the
referral fee the brokerage was committed to paying to a third-party
relocation company. The brokerage contacted the title company for
a corrected settlement statement listing the referral fee, but the
title company said the relocation company had not wanted that fee
information disclosed. Mr. Thomas said the brokerage's response
was to tell the title company that this disclosure was required by
the Real Estate Commission's new regulation.
MR. THOMAS continued, "So, you get the sense that these third-party
relocation services are somewhat embarrassed about all of this --
and the Real Estate Commission up to date has said, 'Well, it's
probably okay, at least we're not gonna choose to make it illegal,
but we want everybody to know, buyer and seller, that these fees
are being sent out of state -- in effect, reducing the income that
would otherwise may be get spent on marketing services, or for the
benefit of Alaska's consumers.' Now, not every real estate
commission in the country has taken the same view about this, and
that's where you've heard about Mississippi, and that's why there's
some language on the table here."
CHAIRMAN ROKEBERG clarified Mr. Thomas had been speaking
specifically about the "relocation function."
MR. THOMAS stated that the Mississippi Real Estate Commission took
a different point of view. He said they simply wanted to make this
practice illegal altogether (Mississippi Real Estate Commission
Rule IV.A.5: "... No licensee shall knowingly pay a commission, or
other compensation to a licensed person knowing that licensee will
in turn pay a portion or all of that which is received to a person
who does not hold a real estate license.").
MR. THOMAS said that the state of Alaska's Real Estate Commission's
choice has been different from Mississippi's. He noted, "The
legislature has the opportunity, I would think, to consider whether
or not it wanted, by statute, to make that process illegal.
Whether or not the Real Estate Commission could or would do it here
by regulations, I don't think anyone knows. I'm just describing
the issue as we understand it at the moment. That's the so-called
relocation scenario."
Number 0087
MR. THOMAS stated, "The other issue is somewhat different and
similar in many ways. It's the so-called affinity group question.
... It comes up in a variety of ways. The COSTCO [COSTCO
Wholesale] example is the one you're going to see here fairly ...
soon."
MR. THOMAS explained, "It goes this way: You live in Alaska and
you have a piece of property you would like to sell. If you go to
a local real estate company you can negotiate with them whatever
fees they would charge you to list your property for sale.
However, you may spot an ad in the newspaper, or somewhere else,
that says if you will come to COSTCO, and join COSTCO, and pay them
a particular type of membership fee, they will refer you to the
brokerage that they use in your community which has already agreed
to discount their fees by a substantial amount. In other words,
you would pay less if you use that broker and go through the COSTCO
network."
MR. THOMAS continued, "There's a variety of other affinity group
operations of that sort around. If you're in certain airline club
miles, or you're part of certain other kinds of organizations, you
may discover that, if you work with a brokerage that's part of
their network and marketing your properties for sale, or if you buy
a house through this particular brokerage that's tied into their
network, ... you've got certain kinds of other benefits coming.
You may get airline miles, you may get reduced prices on other
goods and services, insurance, and all kinds of other things."
MR. THOMAS continued, "What makes this whole area controversial in
the real estate industry is, is it a good idea to, in effect,
subsidize a lot of other business activities out of real estate
commissions? And should the Real Estate Commission in Alaska be
concerned about those activities? If you want to look at a
parallel, the state insurance commission is concerned about those
issues for insurance carriers. For instance, in the title
insurance industry, it used to be fairly common for title insurance
companies who compete for business to go to real estate companies
and say, 'What sort of things can we do for you? How can we spend
money, or help you do things, in order to get your business -- to
have you send us people to buy title insurance?'"
MR. THOMAS continued, "The state of Alaska insurance commission
took a dim view of that and said this: 'When you spend a lot of
insurance money to buy real estate agents' business, you're, in
effect, weakening your position as insurance carriers.' Well, it's
possible to picture the state Real Estate Commission here using the
same kind of reasoning to say, 'Things that weaken the economic
stability of the real estate industry in Alaska are not good things
for Alaska's consumers.' ... I'm throwing these ideas on the
table, not to suggest to you what the answers are [but] ... to
describe what the issue is. It's a national issue, it's being
talked about all over the place, and it's good that you're taking
the time to become aware of it."
Number 0114
CHAIRMAN ROKEBERG asked Mr. Dyrud if he could add anything to Mr.
Thomas's testimony, and if he had any reasons why the continuation
and growth of affinity and relocation service activities could be
injurious to the state of Alaska's economy and people.
Number 0124
MR. DYRUD responded that he felt it was a "tender trap." He noted
he hated to single out COSTCO Wholesale because "they're not the
only ones doing it, but they're talking about a straight cash
rebate to the consumer."
CHAIRMAN ROKEBERG asked how that could be negative for the public.
MR. DYRUD replied that giving rebates back effectively asks other
clients, not associated with the clients receiving rebates, to
subsidize those marketing efforts or the level of service provided
falls.
Number 0132
CHAIRMAN ROKEBERG questioned if Mr. Dyrud meant that the small
"mom-and-pop" real estate brokerage firm in Anchorage, employing
three to five people, could not compete with a company that has
sales of $16 billion a year and a $2.5 billion market "cap" on Wall
Street.
Number 0136
MR. DYRUD responded that a small firm can and does compete with a
large firm, although not in the same scale. There was a brief
interchange between Mr. Dyrud and Chairman Rokeberg about the
difficulty of going up against the "big boys."
MR. DYRUD said he thinks the consumer expects a certain level of
service, but doesn't end up getting that service, and doesn't
realize it, when rebates are involved. He stated, "You finally get
to the point where, if you aren't getting the compensation, you
can't do the advertising -- you can't do a lot of the things that
you normally do."
Number 0142
REPRESENTATIVE JOE RYAN asked if the previous witness's testimony
described Coldwell Banker Property Unlimited, Incorporated
(Coldwell Banker), fairly well.
Number 0147
MR. DYRUD replied that the testimony might describe several firms.
In response to comments about money going out of state, he said
that most of those are franchises. If it is company-owned, like
Coldwell Banker, the money would go out of state. If it is a
locally-owned franchise, only a percentage of the money involved
goes outside Alaska. Depending on the franchise, that amount might
be something like 4 or 6 percent.
MR. DYRUD noted that if COSTCO Wholesale did have such a rebate
program, the money would very definitely go out of state.
Number 0153
REPRESENTATIVE RYAN questioned, "Where COSTCO is making agreement
with a broker or brokers to offer a discount to get an increase in
business. It seems to be a fairly ...."
MR. DYRUD explained, "They're not actually asking for discounts --
they're willing to pay the normal commission, but they're asking
(indisc.) broker to pay COSTCO -- I understand it's 35 percent, and
then COSTCO, in turn, rebates to the member 29 percent as a cash
rebate."
A brief discussion ensued, bringing up the terms "kick-back" and
"baksheesh."
REPRESENTATIVE RYAN continued, stating he was interested in how
this issue was going to be delineated.
MR. DYRUD responded that he, as well as Chairman Rokeberg and Ms.
Oakley, think the state of Mississippi has accomplished this. In
that case, the Mississippi Real Estate Commission passed a
regulation or rule prohibiting that type of conduct. He noted that
Mississippi's actions have been subjected to court review and were
upheld. Mr. Dyrud commented that including such "legislation" in
HB 33 would probably eliminate a lot of problems.
MR. DYRUD also stated that the state board of REALTORS was having
a "key working group" meeting on October 24 at the Anchorage Board
of REALTORS .
Number 0153
ART CLARK, Real Estate Unlimited, LLC (Limited Liability Company);
Board of Directors, Anchorage Board of REALTORS ; Board of
Directors, Community Association Institute (CAI), came forward to
testify. He stated that he was on the "key work group" mentioned
by Mr. Dyrud. Mr. Clark described the October 24 meeting as a
"legislative committee meeting." Mr. Clark stated that he would be
speaking today as a private individual.
MR. CLARK noted that he wanted to reiterate a couple of items Mr.
Britt had mentioned earlier regarding licensing for community
association managers. Mr. Clark said that there is a lot of
concern in the real estate industry about giving community
association managers real estate licenses; and there is some equal
concern from the community association management side about giving
all real estate agents carte blanche to become community
association managers.
MR. CLARK stated that he does both community association management
and real estate. He has been doing community association
management for about a year and a half, having joined a friend who
was already involved in the field. He said that both areas require
different skills, and the committee needs take this fact into
consideration in its deliberations. Mr. Clark noted there were a
lot of concerns about this meeting's proceedings, stating that he
had talked with people involved in community association management
and his comments came from that direction.
Number 0195
CHAIRMAN ROKEBERG questioned Mr. Clark, "As I indicated earlier, we
are considering, in the transition phase, a couple of different
alternatives in terms of the licensing for existing community
association managers: one of which is ... a limited license, which
would ... grandfather these people in, and ... then basically allow
them to continue operating -- with any new entries in the business,
they'd have to become licensed."
CHAIRMAN ROKEBERG continued, "The other one was provisional
license. I believe the distinction I made was that if they -- they
would be grandfathered in, but they would be required after a
period of, say, three and a half years - (indisc.) would include
this licensing cycle plus one additional licensing cycle - ... to
pass a real estate examination, therefore, to become a licensed
realtor or then they would no longer be able to do business ....
And the way people would do this -- they'd have to have a year or
two years of experience before they could petition ... the
commission for a provisional, or a limited license. How does that
type of a -- those two different choices -- or do we have another
choice, or what?"
Number 0211
MR. CLARK stated some confusion on his part. He said he had talked
with quite a few association managers and many said their concern
was that they did not want to sell real estate. Mr. Clark did not
think there was a lot of opposition to taking the classes and
passing the examination from community association managers. Mr.
Clark commented he was not sure what Chairman Rokeberg meant by
provisional licensing.
Number 0218
CHAIRMAN ROKEBERG clarified the distinction between limited and
provisional licensing: One form would lead to an eventual required
examination or exit from the business; the other form would be a
strict grandfathering, an indefinite license. He noted that anyone
entering the business would have to pass the real estate
examination.
Number 0221
MR. CLARK noted he understood. He stated that it didn't seem to
make a great deal of difference. The concern on the community
association management side was still valid, he said, because the
questions asked on the real estate examination do not cover
community association management at this time, and the skills
necessary for community association management are not covered at
all in the pre-licensing.
MR. CLARK stated that he could not speak for the association
managers, noting he already has a real estate license. He thought,
however, the association managers would probably prefer being
grandfathered in, especially since they do not plan to do any real
estate work. That option, he noted, however, would probably not be
acceptable to the real estate community.
MR. CLARK suggested, as he thought Mr. Britt had also indicated
earlier, a reexamination of the endorsement concept with regards to
community association management. He noted that the concepts of
the property management and commercial real estate endorsements
have a lot of opposition in the real estate industry; however, he
said, it is possible to apply the "apples and oranges" analogy when
looking at real estate and association management.
Number 0240
CHAIRMAN ROKEBERG responded that a third possibility, from among
the infinite possibilities available, could be a special license
category for community association managers. He noted this option
would require an establishment of a full pre-licensing education
regimen.
MR. CLARK stated he did not think there would be very much argument
from the community association management side regarding the need
for pre-licensing education.
CHAIRMAN ROKEBERG added, "Just let me say in passing that there's
been some additional provisions put in the exemptions regarding
association managers .... We have allowed the collection of rents
by receptionists or staff people for people in the property
management area, but also, fees can be collected by staff people
(indisc.) aren't duly licensed -- so that's an exemption."
CHAIRMAN ROKEBERG continued, "What we've done there is endeavoring
and also bookkeeping-type functions, per se, are exempt. In other
words, a community association firm or a property management firm,
respectively, could hire bookkeepers that would not have to be
licensed individuals to perform this function, and that's - those
are broadening of the exemptions."
Number 0259
MS. OAKLEY commented that Mr. Britt had alluded to the fact, and
Chairman Rokeberg had said very specifically, that the examination,
pre-licensing and education, as it now stands, does not contain
anything specifically about community association managers. She
noted, "We're well aware of that, because right now there's no
license required. ... We were also very much aware that if they
were licensed, whether it was under the endorsement concept, or
whether it's something else that's worked out, that both the exam
and education would have to be relooked at, and the curriculum and
the exam questions, and so on, redone to incorporate those ...
areas."
Number 0269
CHAIRMAN ROKEBERG asked Mr. Clark for his opinion on Mr.
Vlahovich's point regarding compensation of association members for
management duties.
Number 0273
MR. CLARK stated he was not familiar with Mr. Vlahovich's
association, but he did have an opinion and thought he understood
Mr. Vlahovich's point. In smaller associations, where it is not a
very good idea to go with a management company in terms of basic
economics, Mr. Clark commented that some compensation for a person
handling management duties on a day-to-day basis would probably be
a requirement because the job does become quite onerous.
MR. CLARK stated that the members of the board of directors already
put in a lot of time. He noted that the business of running an
association - doing the resale certificates, paying the bills,
sending notices to homeowners that they're delinquent or in
violation of house rules - can be a time-consuming process.
CHAIRMAN ROKEBERG commented that it sounded like a business
opportunity to him.
MR. CLARK noted it could be, but on the other hand, some of the
associations with eight or nine units don't have enough income to
hire an association management company.
Number 0295
CHAIRMAN ROKEBERG noted Mr. Clark has been a realtor for many
years, and a real estate broker, and has "had many hats." He
confirmed that Mr. Clark has done both property management and
community association management work. Chairman Rokeberg asked Mr.
Clark, "When you get paid for property management and get paid for
community association management, is there any difference between
the two?"
MR. CLARK replied in the affirmative.
CHAIRMAN ROKEBERG clarified, "No, I mean the payment you get ...."
MR. CLARK replied, "Oh the payment -- money's all the same, all
green."
CHAIRMAN ROKEBERG confirmed that Mr. Clark had answered his
question.
Number 0317
RON JOHNSON, Broker, ERA Real Estate Specialists; Representative,
Kenai Peninsula Board of REALTORS , testified via teleconference
from Kenai on HB 33.
MR. JOHNSON stated that there was some discussion relative to the
common interest ownership Act during the testimony on community
association management. He said, "The common interest ownership
Act kind of addresses most of what they're required to do, and I
think that ... we might want to look at it from that perspective.
For want of a better term, throw 'em out of the real estate license
language and leave 'em under the horizontal regimes, or the common
interest ownership Act. Maybe clearly define and maybe put some
additional requirements on 'em .... We're just clouding the issue.
I think we're getting a discussion that's not benefitting us as
such."
MR. JOHNSON went on to his next point. He referred to page 14,
line 8 of Version H, relative to the reciprocal licensing ("A
person who holds a valid active real estate license issued by a
state or other jurisdiction with which the commission has
negotiated a reciprocal licensing agreement shall be granted an
equivalent real estate license in this state if the person applies
to the commission and pays the required fees.") He noted he did
not see language requiring someone coming in from another state to
go through the approximately three hour course on license law
relative to the state of Alaska licensing.
Number 0341
MS. OAKLEY responded that there is a Section 263 immediately
following, labeled "licensing by endorsement." She explained, "It
does have the requirement for the three hours of license law
instruction and passing the state portion of the exam. This one
was added ... simply in the event that the state did sign a
reciprocal agreement with any other state -- it would allow us to
recognize the license from that state, but ... it also has that
requirement for a reciprocal agreement to be in effect. ... The
commission ... does not have any reciprocal agreements with any
other states at this point."
Number 0356
MR. JOHNSON then referred to page 15, lines 7,8 and 9 ("may do real
estate business only through a principal office or from a branch
office registered by the broker by whom the licensee is
employed."). He noted he was concerned that could be interpreted
to say he has to sit in an office and do business. He noted the
evolvement of the "virtual office concept," and suggested that
language might need to be addressed and rewritten somewhat.
0362
CHAIRMAN ROKEBERG replied that Mr. Thomas had brought the same
language to his attention, referring to the examples of sales,
construction and home offices. He commented, "I think, even if we
were to add language that says nothing (indisc.) excludes the use
of marketing offices or other (indisc.). The idea is to ... have
a registered -- it has to be a registered office is the issue --
that was the problem."
Number 0370
MR. JOHNSON replied his concern was the indication he had to do all
of his business out of that office. Mr. Johnson additionally
stated he had some concern about the discussion of Section
08.88.341, page 16, relative to personal services contract listings
("All real estate personal service contracts must be in writing and
must be signed by the broker or by an authorized agent of the
broker as well as by the client or an authorized agent of the
client for whose benefit the real estate licensees will act. All
real estate personal service contracts must have a definite
expiration date that may be renewed or extended only by a written
agreement signed by the client or the client's authorized agent.").
MR. JOHNSON said, "One of the suggestions that is in here that --
it says 'all real estate contracts,' and I would call the
attention, obviously, that 'personal service contract,' i.e.
marketing listing, marketing agreement or a procurement agreement
isn't a real estate contract -- because by, if I'm not mistaken,
Black's Law describes real estate contracts as those documents
required to transfer ownership or possession of real estate. And,
well, I've been called a lot of things -- I've never been called
real estate."
Number 0386
CHAIRMAN ROKEBERG referred to the October 23, 1997, memorandum, and
noted proposed changes. The committee has two different sets of
language before it. One refers to "real estate employment
contracts," the other to "listings and management agreements." He
further noted that the language "personal service contracts" is no
longer being considered. One of the latest suggestions of the Real
Estate Commission for that language is "real estate employment
contracts."
Number 0390
MR. JOHNSON noted that change was acceptable to him. He emphasized
his concern was the suggestion to go back to "listings and
management contracts." He stated his thoughts on the listing
contract and management contract concept, "As long as we keep the
'contract' word in there, we're okay, because it (indisc.) to water
down the effect of it."
CHAIRMAN ROKEBERG confirmed that Mr. Johnson was in favor of the
change to "real estate employment contract" over "listing and
management."
MR. JOHNSON agreed.
Number 0402
ROBERT E. BAER, Associate Broker, Totem Realty, Incorporated, came
forward to testify. He stated he has been an Anchorage resident
for 32 years, and involved in the banking and real estate
industries for that time. He noted that he has been with Totem
Realty, Incorporated, for 21 years.
MR. BAER stated he had some concerns over interpretation of the
recent regulation as it applies to rebates and asked for
explanation.
Number 0413
CHAIRMAN ROKEBERG asked if Mr. Baer was referring to the October
23, 1997, memorandum to the committee from Tamara Brandt Cook,
Director of the Division of Legal and Research Services,
Legislative Affairs Agency. Chairman Rokeberg further asked if Mr.
Baer was concerned about the issue of the affinity, sales and
relocation.
Memorandum text, Tamara Brandt Cook, October 23, 1997:
You have asked whether 12 AAC 64.130(4) adopted by the
Real Estate Commission conflicts with AS 08.88.161(5).
In my opinion it does not. AS 08.88.161(5) provides:
"Unless licensed as a real estate broker, associate real
estate broker, or real estate salesman, a natural person,
foreign or domestic corporation, or partnership, or
limited partnership, or other entity may not ... (5)
assist in or direct the procuring of prospective buyers
or the negotiation of a transaction which results or is
calculated to result in the sale, exchange, rent, lease,
auction, or purchase of real estate ..."
The regulation at issue does not grant authority to pay
an unlicensed person or receive compensation from an
unlicensed person in connection with a real estate
transaction. Rather, it is a disclosure requirement. 12
AAC 64.130(4) provides: "The following acts, in addition
to those specified elsewhere in this chapter, are grounds
for revocation or suspension of a license: ... (4) any
payment or receipt of any rebate or compensation from any
licensee or any unlicensed person, entity, or association
in a real estate transaction without disclosing the
specific names and amounts, in writing, to the principals
of that transaction at the time that the following
documents are signed: (A) the listing contract; (B) the
receipt and agreement to purchase; (C) the settlement
statement."
The regulation makes the failure to disclose certain
payments by or to persons other than the principals of a
real estate transaction independent grounds for the
revocation or suspension of a license regardless of
wheter the payments are, themselves, permitted under the
law. Obviously, the disclosure of payments could, in
some circumstances, reveal a violation of AS 08.88.401(b)
which is a class A misdemeanor. That subsection states:
"A person (1) who is not a real estate broker licensed in
this state may not accept a fee or commission for the
performance of an act for which a license is required by
this chapter except that a real estate broker validly
licensed in another state may accept a fee or commission
or a portion of a fee or a commission for assisting a
real estate broker licensed in this state in the
performance of an act for which a license is required by
this chapter; (2) who is a real estate salesman licensed
in this state may not accept a fee or commission for the
performance of an act for which a license is required by
this chapter unless acceptance is authorized by the
broker who employs the salesman."
MR. BAER agreed and stated, "I think there's been a
misunderstanding on the part of members of the Real Estate
Commission and, perhaps, employees of the state, and surely members
of the real estate community regarding the fact that, perhaps,
other fees that have not been allowed in the past may now be paid
as a result of this regulation to unlicensed people."
MR. BAER continued, "For example, a recent - a past member of the
Real Estate Commission, and perhaps a past chairman -- I'm not sure
if he was the chairman or not - was recently advertising in the
paper for direct rebates to purchasers of real estate in the state
of Alaska, rebates of commissions. This is a clear violation of
anything that I've ever known (indisc.) to exist. We've been
concerned in the past about buying people a lunch or buying them a
nice gift when they buy a house, and now we have rebates, and
apparently that's being allowed by the Real Estate Commission."
Number 0432
CHAIRMAN ROKEBERG commented that his reading of Ms. Cook's
memorandum mentioned above leads him to believe that, at this time,
rebates of any kind, type or form would be prohibited by "our
statute," as would affinity groups. He noted that the concept of
affinity groups and relocation services is a major issue, and this
should be brought to the attention of the Real Estate Commission,
which can check with the attorney general's office for a
corroborating opinion. Chairman Rokeberg said that doesn't
alleviate the committee's concern to make sure the statute or
regulations are in conformance with the best interests of the
Alaskan public. Chairman Rokeberg asked Mr. Baer if he presently,
or had in the past, participated with any relocation companies.
Number 0456
MR. BAER answered yes to both parts of Chairman Rokeberg's
question.
Number 0457
CHAIRMAN ROKEBERG questioned, "Isn't it true that, in the past,
they typically had taken a relatively smaller fee and now have come
up some 350 percent in what (indisc.) charging the local agents
...?" Chairman Rokeberg asked for some background information.
Number 0460
MR. BAER replied that was correct. He recalled a few years ago the
fees may have been as low as 15 percent, rising to 25, then to 30
or 35. He said the fees are now pushing 40 percent. Mr. Baer
referred to Representative Ryan's previous question regarding
Coldwell Banker, stating there was no comparison at all. He noted
he would be glad to explain at greater length.
MR. BAER continued, "The relocation companies are really providing
no service. I have built houses, or had houses built, for people
in Anchorage and 15 years later they come back and ask to have the
house -- to have me list the house for sale, and I list the
property and a month later, I get a letter from a relocation
saying, '(Indisc.) we'd like to refer Mr. So-and-so to you and ...
we'd like you to market his property. ... In return for this, we
expect a 35 percent commission. I basically have to do that or he
doesn't get his relocation benefits. It's absolutely ludicrous,
... it's unbelievable that that can happen, and it happens all the
time."
MR. BAER continued, "And one of the problems, by the way, with the
regulation, is that it says that the - that any referral fees have
to be mentioned on the listing. A lot of these listings are listed
prior to our ever knowing that (indisc.) be a referral fee, but yet
we're put in a position where we can't say no because the supposed
referring company or the relocation company might tell us a month
later that they're going to come in and for this outgoing ARCO
employee to get his benefits, we're going to have to pay 35 percent
of our commission to them, or he doesn't get the benefits. And for
a guy who's -- I had ... a house built for 10 or 15 years ago, and
he's a good friend and a good client, wants to list his property
with me, I shouldn't have to pay anyone any ... other money, any
referral fees, but under the existing practices, we have to do
that. They provide no service at all."
0496
CHAIRMAN ROKEBERG confirmed that Mr. Baer had received his M.B.A.,
had close to two decades banking experience and had a strong
background in economics. He asked Mr. Baer, "Could you explain to
the committee, and make a distinction, if you could, between
(indisc.) relocation and the affinity group? What negative impacts
that would have on the economy, number one, of Alaska and
Anchorage; and also, secondarily, what impacts would it have on
individual consumers if these things are allowed to continue, such
as they are?"
TAPE 97-67, SIDE A
Number 0001
MR. BAER asked, "To get back to this rebate issue -- I am concerned
that there have been advertisements running allowing rebates, and
I'd like to know: Number one, what your feeling is on it; and
number two, what the Real Estate Commission will do about that; and
number three, is this letter from somebody in Juneau what we need
as a final interpretation of the statute and the regulation?"
Number 0005
CHAIRMAN ROKEBERG responded, "Well, as I mentioned before, I've
asked Miss Oakley to ask the attorney general's office through her
auspices to corroborate this, particularly in light of the
practices (indisc.) ongoing, and I think she will give it her ...
foremost attention."
Number 0008
MR. BAER questioned whether that response would be in six months,
or a year or two.
CHAIRMAN ROKEBERG replied that the previous response had been in
less than 24 hours. He further noting that Ms. Oakley needed to
have the direction of the administration.
CHAIRMAN ROKEBERG stated, "We intend to put it in statute, but it's
important to make sure that it's going to be clear, but ... there
seems to be an opportunity at hand here by the enforcement of
existing statutory and regulatory scheme here to at least have a
... chilling effect on the affinity group growth potentially ...
may well be here -- that's the legal opinion."
Number 0016
MR. BAER stated, " You asked the -- for me to differentiate, if I
may, between relocation companies and affinity groups, and I think
most people here have a basic understanding of what relocation
companies are, but let me give you just a brief synopsis, if I see
it. Basically, it's ... a transfer company, if you will, that is
contracted with large companies or small companies in Anchorage
(indisc.) all over the nation, to assist outgoing employees or
incoming employees in meeting their housing needs."
MR. BAER continued, "Those relocation companies are basically just
-- they act as almost as, I hate to say the word brokers, but maybe
as - as conduits, if I may, for money that goes from ... the
community to those relocation companies. They charge a fee for
referring, or not referring, buyers and sellers to specific real
estate agents and their companies. And for that they receive a fee
and the fee, as I mentioned before, is quite large; it goes from 25
to 40 percent. That money leaves the state, it never comes back.
It's gone, and that's kind of unfortunate, I think."
MR. BAER stated, "I don't think there's any -- there's very, very
little service provided for that fee. ... And one of the - there's
several bad things with that -- bad ways in which that can occur.
I think the state of Alaska, not only with the money leaving, but
also with individuals. I recently had a ... buyer, who was an
employee of an oil company, who was referred to me by an individual
at that oil company, and three weeks later I received a nice letter
from a relocation company, saying, 'We have so-and-so moving to
Anchorage and we'd like to refer him to you.' Well, I already had
his name and was working with him -- 'and in return for this we
want a 35 percent commission.'"
MR. BAER related, "So I took him on as a client because [of] my
relationship with the oil company and with the person who really
referred him, and once in a while - I'm sure it never happened to
you, Representative Rokeberg - but once in a while, one of these
buyers may buy a for sale by owner, as opposed to a listed
property. And in this case, that happened to me, and I continued
to want ... to service the buyer, but I couldn't very well enter
into the transaction without a fee. So we talked about a fee and
it ended up that if I had to pay -- we were talking. I guess I
could mention specifics, but probably just to write this up, I
showed him the property, to do a few things I was going to do a
reduced fee somewhere in the one and a half to two and a half
percent area. ... I was put in a position that I didn't want to be
put in, but 35 percent of that fee was going to have to go to the
relocation company ...."
CHAIRMAN ROKEBERG questioned, "You're (indisc.) a fee with the -
the (indisc.), the property owner who was selling it?"
MR. BAER relied, "In this case, it was going to be somehow
negotiated between the buyer and the seller. The fee was going to
come, but I was going to have to pay 35 percent of it (indisc.)
relocation company. I just decided, in my mind, that that was a -
a luxury that I... just couldn't afford, because we have a lot of
liability, as you know, and as Grayce [Grayce Oakley] well knows,
as real estate agents."
MR. BAER continued, "These relocation companies have no liability;
they sign off everything. The properties are sold basically as is,
and they have no liability down the road, or they don't feel that
they do, so the local agent has all that liability. I cannot
afford to take that kind of a liability on ... a small commission.
So, in this case, unfortunately, the person that introduced this
gentleman to me, the buyer himself, and well, I guess primarily
those two parties were both hurt, and the fact that they didn't
have professional services rendered. And the reason that they
didn't was because there was a relocation company involved."
MR. BAER continued, "Affinity groups, and I'll try to be brief. I
guess there were some excellent descriptions of what affinity
groups were and what they do a little bit earlier. If we need
further elaboration on that, I can do it, but I think ..."
CHAIRMAN ROKEBERG clarified, "How about the impact?"
MR. BAER responded, "The impact is tremendous. If we are going to
have our commissions reduced ... by 30 to 35 percent, and have that
money leave the state, once again, we cannot continue to accept
liability that we have in transactions. I don't think that we're
going to be able to provide many of the repairs ... and some of the
defense classes that ... are subsequently related to real estate
transactions that have closed. There'll just be more liability,
but fewer dollars to pay it. There'll be less advertising and
representing sellers."
MR. BAER state, "There a lot ... of reasons why I - I don't think
it's right, and in addition, I guess ... my main concern, is that
we're talking about rebates to unlicensed, unprofessional - in
terms of real estate - companies that will really have no bearing
upon the transaction. It's basically -- in New York we used to
call it 'payola,' -- I don't know what they call it in Juneau or
Anchorage, but it's just kind of money under the table, because
it's money that's spent ... and leaves the state - it doesn't do
the state or the consumer any good. And if we can -- and that, of
course, is the rebate question, because these affinity groups are
talking about rebating funds to buyers and sellers."
Number 0072
CHAIRMAN ROKEBERG commented, "Because wouldn't the consumer think
that, 'Oh, well, I can get $200 back if I go out to COSTCO and sign
up for their real estate referral program -- they're actually going
to sell my house and give me some money. Isn't this a wonderful
thing.' I mean, so what's wrong with that?"
Number 0075
MR. BAER replied that the consumer would receive some money, but
the majority of those funds would go to COSTCO Wholesale, or go to
whatever affinity group in question, but not to the individual.
Number 0078
CHAIRMAN ROKEBERG stated, "So you're suggesting there's some
economic violence, because they're really providing no services
whatsoever?"
Number 0080
MR. BAER strongly agreed. He mentioned that he had been schooled
to understand real estate agents had to be professional, pay their
fees, and pay their real estate license dollars which, he noted,
are going up substantially. Mr. Baer stated real estate agents had
to provide insurance, keep up with continuing education and fulfill
all the other requirements. He said, "We have a lot of liability
that accrues with that."
MR. BAER commented he had been told yesterday that rebates were
okay as long as they were disclosed, although this may have changed
because it appears that regulation doesn't override the statute.
He noted he thought there was a great deal of misunderstanding not
only on the part of the state and the Real Estate Commission, but
surely on the part of the real estate agents. Mr. Baer stated that
there would be a great deal of misunderstanding if any affinity
groups began operating in Alaska in the next month or two. He
strongly suggested the committee add the two paragraphs in the
Mississippi court decision to the existing version of HB 33.
Number 0094
MS. OAKLEY added that the April issue of Alaska Real Estate News,
the commission's newsletter, has an article specifically about
affinity groups. The article takes a single house transaction done
under four different scenarios and describes what the dollar impact
would be to the buyer, the seller and the real estate agent
involved in each scenario. Ms. Oakley noted it was a very clear,
concise breakdown written by a reporter for the agency law
quarterly.
Number 0102
MR. BAER added, "Representative Ryan asked if this were not
analogous to Coldwell Banker, for example, which is the case that
he brought up. What we're dealing with, ... franchised real estate
companies -- we're dealing with professionals who render a lot of
service to their franchisees. There (indisc.) differing opinions
on that, but there is a fee paid, sometimes of 3 to 6 percent ...
of the commission for that association. It goes into ... national
advertising, a lot of other things. So I don't think there's any
comparison between - or should be any - ... it's a completely
different topic, I think: franchise real estate companies versus
affinity groups versus relocation companies."
Number 0120
LISA HERRINGTON, Fortune Properties, Incorporated, came forward to
testify on HB 33. She noted that she was representing herself and
not her company.
MS. HERRINGTON stated she wanted to make a comment on two issues:
"1) is the condominium association, which I'm heavily involved in.
I would like to see some kind of -- after dealing with these
associations, many of them do not respond to the (indisc.) in a
timely manner. ... You order them and ten days can go by and ...
you don't have the resale certificate -- that they expect to be
paid up front. And then 2) is that, right now, in order to sell a
condominium, a seller is paying out at least $250 or more for
having the resale certificate prepared, and transferring the name
from one owner to the other. And if there's any updates or
anything (indisc.) number of fees being charged. It would be nice
if, in the future, that they disclosed their fees ... in their
contract so that people are aware of what they're getting into -
because a lot of these fees are ... coming out after the fact."
CHAIRMAN ROKEBERG commented, "That's an excellent idea and I think
something that may be beyond the scope of the statute, but ...
that's why I think the commission, having oversight, would be able
to probably get a regulation that would mandate ... either a
payment only be partial till delivery and that those certificates
must be delivered in a timely fashion for full payment. And with
some kind of incentive, retention basis. ... Something like that
really is more appropriate for regulation than statute, although we
may put something ... regarding that, authorizing the commission to
look at resale certificates and limited ...."
MS. HERRINGTON continued, "The second loophole, Chairman Rokeberg,
is that right now the buyer has to sign for the resale certificate
and they have five days to review that and rescind it with no
penalty at any time during the five days; but if the buyer ... is
not around to accept or is not willing to accept that resale
certificate, there's a loophole there as to how much time once it's
prepared and ready to be delivered, that they have to accept it.
... So that's another issue, that there's a little loophole right
now about acceptance -- ... the time period that the buyer has to
accept the resale certificate -- because sometimes it goes on for
weeks ...."
CHAIRMAN ROKEBERG asked if Alaska Housing Finance Corporation
(AHFC) had set these rules up.
MS. OAKLEY made a reference to AS 34.08.
MS. HERRINGTON continued, "We've got this five day thing where the
buyers have to sign, but then there's nothing about once it's
ready, how quickly are they supposed to (indisc.). They can give
... it to the selling agent, and they sit there and the buyers
don't come in to (indisc.) pick it up, and then at the end they
don't want to close on the transaction. And they fall under the
five day thing."
CHAIRMAN ROKEBERG noted it might be more appropriate to look at
that situation under AS 34.08.
MS. HERRINGTON continued, "And the second thing I'm here to talk
about is the affinity groups and the relocation companies. ... I
think the affinity groups are a spin-off to some degree of the
relocation companies, because the relocation companies have gone in
and worked deals with these companies ... as far as people that are
relocating them. So far as, and commanding, or demanding, I should
say, fees, whether or not they actually refer them to us or not.
And, in most instances, ... if the customer does not go with their
program, they are threatened with -- that they will not receive
their benefits, which is a direct rebate."
MS. HERRINGTON stated, "So I think the affinity groups have -- who
are seeing what's going on in the relocation market, and so that
they're coming in such as COSTCOs and saying, 'Well, we're going to
give a rebate of 35 percent to anyone who buys or sells through our
program. They will sign up with our executive membership, they
will not have to pay the executive membership, but they will be
part,' ... -- they say that they would like to be part of that
membership. ... They can be part of the membership without
actually paying the money until ... their due date. ... They sign
up for a year, and say if you sign up September 1 and (indisc.)
middle of the year you want to become part of that executive
membership -- they don't have to pay that executive membership fee
until their due date rolls around."
MS. HERRINGTON continued, "In the meantime -- ... and the other
part of their program is that once they go into a market area and
sign up several, maybe two or three, real estate companies, maybe
just one - they encourage that company to go out under their care
program, which is called Consumer Affinity Real Estate Services,
and go out and get all the companies around town to sign up with
their program and get their people into the program. So that, in
effect, is going around, getting all these corporations, (indisc.)
businesses and so forth to come into their COSTCO program and
become part of their family of services."
MS. HERRINGTON continued, "Which creates a real monopoly when
you're talking about real estate -- creates a real monopoly in the
marketplace which I don't think, in the end, is good for the
homeowner or the buying public. Because now, all of a sudden, ...
if all the business is shifted into one area, I'm not so sure ...
that we would even have a multiple listing service down the road --
that they could dictate prices and ... the services that people are
going to get. ... Right now we provide a lot of services, but if
the business is going into ... the hands of one company, they could
limit their services to what the people are paying for. ... There
could be a lot of repercussions from that."
Number 0209
CHAIRMAN ROKEBERG recognized that Mr. Vlahovich had a comment to
add.
Number 0212
MR. VLAHOVICH, referring to the COSTCO Wholesale discussion,
mentioned a conversation he had that morning with a gentleman in
California associated with AmeriNet Financial Systems,
Incorporated, which Mr. Vlahovich called the "front" for COSTCO
Wholesale. He noted that this company will be handling all the
real estate related business COSTCO does.
MR. VLAHOVICH stated, "And the program, as he explained it to me
... is there will be no fee cutting request upon COSTCO's part
(indisc.) participating realtors. There will be a 35 percent
referral fee which is standard in the 'relo' [relocation] business
... and 29 percent of that will be a rebate back to the consumer.
On top of it, they will rebate through AmeriNet Financial Services
nine tenths of a percent of the fees for the loans that they
originate and this, he said, is a concept under one-stop shopping."
Number 0236
CHAIRMAN ROKEBERG interjected, "Vertical integration? They own a
title company too?"
MR. VLAHOVICH agreed that it was vertical integration. He added,
"They have a relationship with First American and First American
has negotiated to give discounted rates on title insurance and
escrow."
CHAIRMAN ROKEBERG commented, "Discounted rates, so ... we should
call the Division of Insurance immediately."
MR. VLAHOVICH continued, "The only thing they won't have is a real
estate company themselves. PHH Home Equity [PHH Home Equity,
Incorporated], most of the 'relo' companies, own a real estate
license someplace so that they can be paid referral fees."
CHAIRMAN ROKEBERG commented, "HSS (ph) ... they actually own
Coldwell Banker and Century 21, don't they?"
MR. VLAHOVICH added, "I mean the 'relo' firm itself owns a
(indisc.) broker's license -- someplace for them to receive money.
(indisc.) that's, in essence, was this morning's (indisc.) COSTCO
...."
CHAIRMAN ROKEBERG replied, "That's excellent information. ... So
they are active ...-- we've heard the rumors -- but they are very
active in the marketplace."
MR. VLAHOVICH answered, "Yes, and they are not going to be
exclusive to any one company in the real estate industry .... The
John L. Scott [John L. Scott Realty, Incorporated] relationship in
Seattle, the Pacific Northwest, was because Lenox Scott is a
personal friend of the president of COSTCO's. ... But in the rest
of the United States they will pick multiple companies to represent
them."
CHAIRMAN ROKEBERG noted that he was familiar with the Scott (ph)
brokerage in Seattle. (Indisc.) I think they're the largest
residential broker in ...."
Number 0249
MR. JOHNSON referred to Ms. Cook's memorandum. He stated, "On the
second page it says 'A person who is not a real estate broker
licensed in this state may not accept a fee or a commission for
performance of an act for which a license is required,' and on and
on and on. Now, this ... affinity thing, while it troubles me
somewhat as well as you guys, but I'm in a littler town so ...
obviously I'm not gonna get stepped on as hard, but I'm ... afraid
it's a fact of life, it's a change of the way that we're doing
business."
MR. JOHNSON continued, "If Joe Blow up [at] the local service
station gives you a referral, ... that's not an act that requires
a real estate license. He's just giving you a name, he's just
giving you a person that's possibly gonna be able to help you make
some money. So that person is not even covered by whether or not
we can pay him a fee, that's my opinion on that. The fact that ...
we're focusing on activity that is required to be licensed, and I
think that we're putting some of the things that are required to be
licensed in the ... wrong bin."
MR. JOHNSON stated, "I don't see where -- as much as I disagree
with the concept of what the affinity groups are doing, I happen to
be with ERA [ERA Real Estate Specialists in Kenai], ERA is
(indisc.) well owned by HFS (ph), and we are getting flooded with
affinity stuff. ... It's a fact of life, it's a change the way
that we're -- we're ... doing business."
MR. JOHNSON commented, "Take a look at the ... frequent flier
miles. How many years ago did people spend most of their money
with cash because it was a better way to do business? Now, you use
credit cards so you can get frequent flier miles. There was a
session at the national association of REALTORS in San Francisco
last year where the number one economic (indisc.) said anybody that
uses cash is foolish 'cause they don't get free miles for cash."
MR. JOHNSON continued, "So I think we're just looking at a way that
our business is changing. It's changing drastically, and it's
changing extremely rapidly, and I think, rather than figure out a
way to try to legislate -- to copy Mississippi, which I imagine is
going to be just a goldmine for them to try to enforce that kind of
law -- I would say probably closer to a restraint of trade then
anything. Rather than spending our time worrying about this kind
of thing, and legislating, try to - to stop the oncoming lion, we
(indisc.) better look to simplifying things, simplifying our lives
and requirements, so we can get on about the business of providing
the kind of service that people will ... beat a path to our door to
pay for ...."
Number 0285
CHAIRMAN ROKEBERG thanked Mr. Johnson for bringing "that ERA
additional conglomerate affiliation to my attention ...." He
added, "But your opinion is the existing statute (indisc.) prohibit
somebody getting a referral fee?"
MR. JOHNSON answered, "I can't see where it does, because a
referral is nothing more, in most cases, than, 'Hey, Joe Blow down
the street said he wants to buy a house.' And I can't see where
the license is required to do that and if a license isn't required
to do that, I can just pay him to do all kinds of stuff."
CHAIRMAN ROKEBERG stated that he wasn't reading the existing
statute the same way Mr. Johnson was.
Number 0291
MR. JOHNSON said, "I've seen this kind of interpretation before,
and it's really clear what it says, but it's not real clear what it
means."
Number 0300
MR. BAER confirmed with Mr. Johnson that Mr. Johnson was a former
member of the Real Estate Commission. Mr. Baer then asked Mr.
Johnson, "Are you saying that you can pay the guy at the gas
station ... a commission for a referral?"
Number 0304
MR. JOHNSON replied, "I don't know that you can pay him a
commission, but you can certainly pay him a quarter, or a $50 or a
$100 bill -- if that's what you want to pay him for being kind of
a bird dog."
MR. BAER requested Ms. Oakley's opinion.
Number 0308
MS. OAKLEY said, "With the way the regulation of 130, number four,
was ... amended in 1994 and then again in ... '96 (indisc.) this
year, I think that that says that it can be done as long as it's
disclosed. Now, I had not seen this legal opinion prior to that
time, but that was the thought that the commission had in '94 when
they amended that a rebate or a referral fee was okay as long as it
was disclosed."
Number 0317
MR. JOHNSON agreed.
Number 0318
MR. BAER referred to the "blue book" pertaining to Alaskan real
estate statute. He confirmed with Ms. Oakley that the most recent
copy came out in November 1995. Mr. Baer stated it was his
understanding a person had to be licensed to receive a commission
of any kind. He noted he had assumed a commission included any
kind of payment and wanted to know if he was wrong.
Number 0324
CHAIRMAN ROKEBERG stated that clear direction had been given,
requesting the Real Estate Commission to seek a further legal
opinion. He noted the committee would take this matter under
advisement.
Number 0331
JOHN LEVY, Realty Executives Alaska, came forward to testify. He
stated he has been a licensee for the past eight years in Anchorage
and would be speaking his individual opinion.
MR. LEVY stated that he wanted to bring up a couple of other points
that were overlooked in the affinity group/relocation company
discussion. He noted, in some ways, these two groups were the
same, and an opportunity currently exists to "close that door ...."
MR. LEVY continued, "Whether they be referral payments to ... the
gas station attendant down the street, or to outside organizations
coming in and ... really, extorting money from agents in the
community. ... I would defer it to you, Mr. Chairman, on whether
that would best be done through legislation. It ... hasn't
happened through regulation in the past, for whatever reason -- or
through interpretation of the statute."
MR. LEVY stated, "I think a couple of ... points that need to be
brought up. One is that the average agent in Anchorage, I think,
closes probably 12 to 18 transactions a year, which would translate
to probably between 20 and 30 thousand dollars a year in
commission. If a third of that had to be given up -- and of course
the door is already open on some agents working with the 'relo'
business, but if the door is ... opened up so that becomes area-
wide, commissions start dropping. Many agents will get out of the
profession, it'll be harder for those that are in the profession to
provide the service to the consumer, and, as ... Ms. Herrington
stated earlier, you'll have more and more of the business
concentrated in just a few hands, which, I think, is ... very
damaging, ultimately, to the consumer, both in their ability to
choose representation, as well as the quality of representation
which they'll ... be able to choose."
MR. LEVY commented, "Secondly, I think there's some discussion
about the impact it will have on local financing, particularly with
these affinity groups that -- if that's considered a seller
concession under Alaska Housing regulations, it may in a fact
reduce the amount of the loan on some of those -- and I think that
needs to be investigated thoroughly as well."
MR. LEVY noted, "I just wanted to not only reiterate those
comments, and the concern, not only that previous speakers have
talked about money going out of the state, but what I've seen, when
I've worked both sides ... of both 'relo' deals. And where I think
it's detrimental to the consumer, is you have outside companies,
say in Texas, dictating how we do a transaction on a property in
Anchorage, that are totally unfamiliar with local conditions. They
don't know about building types, they don't know about 'sump'
pumps, water conditions and other things, and yet they're
negotiating contracts and dictating ... what the agents have to do
and, as previous speakers have said, there's no liability in those
transactions for them."
MR. LEVY stated, "So if you have an opportunity now, before the ...
barn doors open -- and we already see some of these groups coming
up, I think it would be an excellent opportunity ... for this state
to set an example and ultimately (indisc.) the consumers."
Number 0380
BETH SIMPSON, Associate Broker, Dynamic Properties, came forward to
testify. She noted she was speaking from her individual opinion.
MS. SIMPSON stated that she had owned a small company for about
eight years before she joined Dynamic Properties. She told the
committee it had cost her 40 to 50 percent of her gross income to
operate her company. She commented that she thought the
percentages probably weren't much different for large companies in
Anchorage today, noting the costs of advertising and so forth.
MS. SIMPSON stated, "I think any agents, ... any brokerages at this
time that are really considering doing affinity business are being
very short-sighted -- looking, possibly, at the greed of having the
bulk of the business in the community centered in their one
company. I think that if those companies today, whose brokers are
going after this kind of business aggressively, and looking forward
to it, are not going to be really thrilled when it ends up in one
company."
MS. SIMPSON continued, "I think that if it's costing them 40 to 50
percent to do business now, and that business all gets located in
one, two or three companies here locally, we're going to see a
tremendous number of agents decline -- the number of agents, as
well as the number of brokerages close within the next two to three
years. I think that we won't see real estate at all as we know it
today in three to five years."
MS. SIMPSON said, "I think that, when it comes to these 'relo'
companies, that the real estate agents themselves, with the fees
being paid out of their pockets, and what are being used to fund
the benefits that the 'relo' companies and their corporate
transferees are promoting to those employees -- and I really would
like to see that Mississippi law, which was upheld at the federal
court level, incorporated in Alaska. And if it doesn't happen, I
think that you'll see 1800 people become commercial real estate
agents rather than residential real estate agents."
Number 0412
CHAIRMAN ROKEBERG commented, "This goes to everybody in the ...
real estate community. ... They could be helpful to the committee
and their own cause if they can help define the arguments for the
economic and consumer protection, or public protection benefits on
both sides of this issue. ... We'd be most interested in having
some ... further written testimony on this issue in the next couple
of months."
Number 0419
CHAIRMAN ROKEBERG closed public hearing on HB 33. As part of the
adjournment, he noted that he wanted to bring up a couple of issues
with Ms. Oakley of the Real Estate Commission. There was some
discussion regarding Ms. Oakley's title of "executive
administrator" which is specified in statute as "executive
secretary."
Number 0430
CHAIRMAN ROKEBERG stated that he had received many comments
directly from people concerned about the new course notification
change, from 30 to 90 days, in regulation.
MS. OAKLEY responded that there had been no notification
requirement previous to the 90-day rule.
CHAIRMAN ROKEBERG asked, "Didn't they have to have approval though
...?"
MS. OAKLEY replied courses had to be approved but no reporting of
when those courses would be offered had been required. She noted
the Real Estate Commission received many questions about available
courses but did not have that information. She commented that 60
days had been proposed in regulation but the commission adopted a
90-day rule; she did not have an explanation for this change. Ms.
Oakley noted having the course information allows the commission to
act as a "clearinghouse" for related calls and inquiries.
CHAIRMAN ROKEBERG stated he has heard there can be instances when
nationally known and well-qualified "instructor-speakers" may come
to the community without enough notice for the commission or a
designee to give approval with the 90-day requirement.
MS. OAKLEY said she was not sure that was a valid argument, noting
that such instructors' schedules are "pretty much set a year or so
in advance ...."
CHAIRMAN ROKEBERG replied that the 90-day period seemed rather
long. He commented the Real Estate Commission itself met on a 90-
day cycle. He asked if the commission could designate someone like
the executive administrator to approve courses.
MS. OAKLEY responded that was not currently possible, but could be
done if HB 33 passes. Right now course approval has to go to the
full commission. She noted that the 90-day requirement was for
courses offered to licensees statewide and said if a large company
brought in an instructor to provide a course for the company's
licensees, then the notice requirement would not apply. Ms. Oakley
stated the intent of the requirement was to give the commission
that course information so they could answer questions. The
commission, she said, is working toward having the course
information available on the Internet. She said the list of
required courses is already available. In conclusion, she felt the
issue was more appropriately addressed by regulation, not statute.
CHAIRMAN ROKEBERG noted he tended to agree, but had been hearing
complaints about the commission's action from the public.
Number 0496
CHAIRMAN ROKEBERG asked Ms. Oakley if it was allowable, under
Alaskan law, for an individual to put himself out as a buyer's
agent but then collect money from the listing side for the seller.
MS. OAKLEY stated this was legal under the existing statute but the
statute says that, if the buyer's agent is going to be compensated
by some party other than the person the buyer's agent is
representing, this intent must be disclosed up front.
CHAIRMAN ROKEBERG replied, "That's the strangest thing about that
... because that turns them into either a dual agent or the agent
of the seller, then, if he's compensated by the seller."
MS. OAKLEY noted it is money that is coming out of the transaction.
CHAIRMAN ROKEBERG commented that was the whole problem, stating the
"courts have muddled this issue up because of these things ...."
He noted that his position was, "How can a buyer's agent be the
buyer's agent and be compensated by anybody else but the buyer?
... The Chair's considering making that the law of the state."
MS. OAKLEY comment that both she and Chairman Rokeberg went back
far enough as licensees to remember when that was very specifically
the case, "that if you were representing a buyer, you were paid by
the buyer, no question about it ...."
CHAIRMAN ROKEBERG added, "In the commercial aspect too, if you put
yourself out as a tenant's rep, unless you - you did disclose to
them, then you'd have to be compensated. (Indisc.) commercial guys
go in and negotiate a reduced commission just to offset that."
MS. OAKLEY continued, "And that's the way I first handled buyer
representation, as well. ... There are a number of court cases
that have evolved over the years that say that who is paying does
not determine the agency."
CHAIRMAN ROKEBERG responded that there has been the growth in
Alaska of several "buyer-brokers agencies and businesses," and to
him, these businesses are not following the "real basics of the
common law."
CHAIRMAN ROKEBERG indicated HB 33 would be held for further
consideration.
ADJOURNMENT
Number 0550
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 4:20 p.m.
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