HB 33 - REAL ESTATE LICENSING CHAIRMAN LEMAN announced HB 33 to be up for consideration. REPRESENTATIVE NORMAN ROKEBERG, sponsor, said HB 33 is the culmination of over four years worth of work by a Task Force that was appointed by the Alaska Real Estate Commission. He said the primary objective of this bill is to bring professional community association managers under the licensing law . This is the result of a case where there was an embezzlement of $570,000 from 18 separate associations by one individual in the Anchorage area. The individual was convicted of felonies for conversion of funds, but it was obvious at that time there was no regulation or oversight of any of the activities of association managers. The professional managers approached him and he has letters of support from individual members in the packet. This is a consumer protection bill. It provides that there will be oversight by the Real Estate Commission, there will be fidelity bonds in place to look after the funds, it provides for handling of operational and investment funds, and the ability to make a claim against a surety fund which exists that as licensed Realtors they will be a party thereto. Additionally, the bill covers a number of areas that provide the Commission with greater statutory authority, delegates staff workload, grants the authority to the Commission to levy civil fines, expands the disciplinary power of the Board, and increases the authority to charge for licensees. It also covers and expands the ability of licensees to get their continuing education hours at other sources rather than just certified instructors in the State of Alaska. It expands that to include courses which are nationally designated, fully accredited courses for leading to designations within the real estate industry. He said he had attended many of these courses himself and many of them go as long as a week. They are full eight-hour type classes with examinations, excellent instructors, and with extremely high costs (including travel, accommodation, and the tuition). Prior to this legislation, real estate licensees were unable to get credit for these extremely expensive courses. It also provides that college courses and other technology courses in our changing environment will be accepted for credit. The key areas in this bill are expansion or clarification of what constitutes prohibitive conduct under the existing statutory scheme in the State of Alaska. REPRESENTATIVE ROKEBERG explained that it was believed that anyone engaged in a real estate transaction, as defined under law, had to be licensed under Alaskan law and there are a number of exemptions which are in the back of the bill. There are 10 exemptions from requirements of licensing in this State. This particular bill adds an additional 11 exemptions to that and expands them under the law. One of the areas of discussion in the House was whether or not individuals who own property could manage their own property. He thought that existing statute prohibits that activity. This bill expands the exemptions and exceptions to who may practice real estate in the State and allows people to have their friends for no compensation, other than expenses, manage their property. Additionally, it provides that relatives can get a fee and that management of a four-plex or less can be done. Because of the number of exceptions in property management, they looked at other prohibitive conduct and discovered recent activity (marketing kick-back mechanisms) of two or three firms in Alaska, specifically Amway Corporation, which he believes is illegal in the State of Alaska. The real estate community testified at the Real Estate Commission's meeting on December 4 and requested that they issue directives enjoining conduct on the part of some of these activities. They were advised by the State Attorney General's office that existing statute did not prohibit this activity. This bill has adopted language drafted by the Mississippi Real Estate Commission tested in federal court in order to prohibit third-party kick-backs to people who are not in the loop of the real estate transaction. The conflict-of-interest provisions of this bill are a major area where they are putting in higher standards for real estate practitioners which is the result of a legislative Budget and Audit report a couple years ago. They have added numerous definitions, allowed licensed assistants to be employed directly by the associate brokers, and have an immediate effective date, except for the regulations that will need six to nine months to promulgate. REPRESENTATIVE ROKEBERG informed them that they are talking about a company that has a market capital on Wall Street in excess of $35 billion and controls 25 percent of every home sale in the United States, and is a monolith in terms of business in this country. He also told them that there are 2,200 licensed practitioners of real estate in the State of Alaska. The same as attorneys. In 1997 there was $1 billion worth of real estate activity in the Municipality of Anchorage, alone; he thought there could be $5 billion worth of gross State product annually. This is a big part of our economy. Megan's law (sex offender) was argued in the House and whether there is a duty to disclose psychologically impaired properties. He said that at least 15 other states have laws on this issue. He didn't think it was necessary, but would be willing to talk about it. SENATOR KELLY asked if the amendments had been talked about in the House, but they chose not to adopt them. REPRESENTATIVE ROKEBERG clarified that one amendment is very technical. The amendments were not absolutely necessary. CHAIRMAN LEMAN said that Section 34 causes him some concern, especially when he looks at the Section 900 exemptions and 14 and 15, other areas where people involvement in a transaction is incidental. He didn't know why their involvement in a real estate transaction is no more significant than people whose activities are currently exempted. TAPE 98-15, SIDE B Number 580 MR. RON POLLOCK, Broker, Jack White Co., said the bill is very encompassing dealing with education and association management. The topic of major concern to him is specifically strengthening the language of prohibited unlicensed activity (kick-backs). The Real Estate Commission has been very interested in this and has believed that it requires a real estate license to receive a fee or a portion of a fee. Any monies earned should come under the scrutiny or regulatory powers of the Real Estate Commission. The affinity language, from Mississippi, is a clarification of this. The financial implications to the State, Alaska Housing Finance Co. , and the financial arena, etc. is very significant as most of the money that goes to an affinity group leaves Alaska and there isn't any added value that they bring to the transaction. The average real estate person in Anchorage earns approximately $28,000 per year. If any person is to receive a commission as a result of a real estate transaction, that person should be licensed. CHAIRMAN LEMAN noted that there are a number of exemptions currently in the bill and wanted to know why certain transactions should be exempt from the statement he just made and why other transactions that appear to be as innocuous, in terms of the transaction, should not be exempt. MR. VLAHOVICH, Associate Broker, supported HB 33 as written. MR. DAVID GARRISON, Associate Broker, NAR Investments, supported HB 33. MR. CHARLES SANDBERG, Broker, NAR Real Estate, said he was also the President-elect of the Alaska Association of Realtors. His membership gave Representative Rokeberg a lot of help in putting this comprehensive bill together. He urged the Committee to pass the bill as written. Number 523 MR. WILLIAM BRADY, Agent, ReMax Properties, said he is also Chairman of the Industry Issues for the State Association of Realtors, and the President-elect of the Anchorage Board of Realtors. They agree with a lot of the comments already made today and support HB 33 as written. MR. BOB BAER, Associate Broker, Totem Realty, said he had been involved in the banking and/or real estate industries for approximately 33 years in Alaska. He represents Concerned Advocates for Real Estate Services (CARE) with approximately 200 members. They endorse the passage of HB 33. MR. JOHN CARMEN, Partner, Homestake Mortgage, said he is also a member of Alaska Mortgage Bankers and its Legislative Committee. He said the Alaska Mortgage Bankers passed a resolution in support of HB 33. He feels this bill is very important for the continued health of the real estate industry in Anchorage. CHAIRMAN LEMAN said he wanted to make sure they didn't exclude anyone who wanted to participate in the Alaskan economy, incidentally, and yet protect real estate transactions. MS. LISA HARRINGTON, Fortune Properties, supported HB 33 and said it is very supportive of keeping jobs and money in Alaska. MS. GRACE OAKLEY, Executive Administrator, Alaska Real Estate Commission, supported HB 33. MS. RUTH BLACKWELL, Chairperson, Alaska Real Estate Commission, said they discussed HB 33 in their meeting this morning and strongly support it as passed by the House without any changes. She emphasized AS 08.88.161, licensing condominium managers, is a public protection issue that is very necessary and AS 08.88.391, the conflict of interest disclosure provision, is another public protection issue where licensees would have to disclose to their principals if they had a conflict and exactly what it was. The fourth section is 08.88.401(e) prohibited conduct regarding payment of fees for unlicensed activity. MR. CLAIR RAMSEY, Real Estate Commission Member, said he had played with numbers regarding the affinity groups and it's basically structured to send a lot of dollars out of the State with no real return. In fact, this would be quite detrimental to the State, because we would see a direct impact on the financing programs, like AHFC, and the appraisal and inspection industry within the State. HB 33 is truly a consumer bill and it is very important that it pass this session. MR. SCOTT CONNELLY, Homer, said the membership of the Kachemack Board of Realtors asked him to convey its unqualified support of HB 33 as written, in particular Section 34, regarding prohibited conduct. He feels that allowing unlicensed entities to control and direct a consumer in what should be a free market transaction really opens the door for a multitude of abuses and potentially shoddy representation for the consumer. Currently, the consumer is free to interview and negotiate with real estate agents for commissions or fees and they might lose that ability when they start coming under a blanket organization. Allowing supermarket employees to direct consumers in a real estate transaction only lessens the odds that they will end up working with an agent that best suits their needs. MR. CONNELLY said he had personally been contacted by the Amway Corporation and would elucidate on request. CHAIRMAN LEMAN asked for his reaction to them. MR. CONNELLY said he had been contacted regarding a referral for listing a home in the Homer area that was owned by a woman with whom he had previous contact. He had actually sent her a listing agreement a year ago which she chose not to fill out and ended up listing her house with another company in town. The listing has since expired and out of the blue, he received a call from the Amway Corporation asking if he wanted the referral and he replied that he had a relationship with her already and wasn't interested in the listing because of the previous relationship. He offered to have another agent call them back which he did. Within a day the Amway Corporation called again, totally by random, and talked to another agent in his office and asked him if he wanted to take this "referral." His impression is that they are basically a telemarketing firm and don't care who they are calling. They are not doing the consumer any favors in just totally randomly finding someone who is willing to pay for a referral. CHAIRMAN LEMAN asked who specifically called him and who they said they represented. MR. CONNELLY answered that they did not call themselves the Amway Corporation, but the owner of the property contacted Amway originally and this other person somehow got her name. He didn't know if the company was related to Amway or not. CHAIRMAN LEMAN asked him to fax his information to him. Number 351 MR. RON JOHNSON, Kenai Realtor, asked for clarification on the newest version on page 30, lines 19 and 20, under exceptions saying, "management of a total of four or fewer residential units by a natural person or other persons" means to him that everything below a four-plex can be managed without the benefit of a real estate license. CHAIRMAN LEMAN said it would also include a four-plex. MR. JOHNSON said a majority of property management complaints come from four-plexes or tri-plexes rather than single family and he asked them to consider language on page 31, lines 5 & 6 to be in error. He thought it could open the door for any other unlicensed activity and his understanding is that a majority of complaints are tenants who were misled. REPRESENTATIVE ROKEBERG said they included four-plexes, but not a series of four-plexes. This is one of the key provisions the House added to the bill to protect the every-day citizen of the State, so their ability to manage their apartments is not inhibited by a licensing law. He calls this the snowbird amendment, because it allows people to have friends look after a property without making a profit above expenses. MR. BARB NORD, President, Kenai Board of Realtors, supported HB 33 as written. Number 311 SENATOR KELLY asked if there was any opposition to this bill within Alaska with the exception of the outside affinity groups. REPRESENTATIVE ROKEBERG answered that there was none to his knowledge. MS. CATHERINE REARDON, Director, Division of Occupational Licensing, said that the Department supports this bill as indicated in a letter from Commissioner Sedwick. It will provide additional consumer protection and additional attributes to the State of Alaska. CHAIRMAN LEMAN asked if the Administration supported Section 34 as written. MS. REARDON answered, "Yes." MR. JIM WAKEFIELD, Realtor, Powell Realty, Vice President, Alaska Association of Realtors, supported HB 33. It has been worked over by many divergent interests and they had come together and agreed on it. MR. ERIC DYRUD, Chairman, Legislative Committee, Anchorage Board of Realtors, said this bill is the first time that 21 members agreed on something. They are very supportive of HB 33. REPRESENTATIVE ROKEBERG wanted CHAIRMAN LEMAN to ask Mr. Wakefield and Ms. Blackwell if they have an agreement with Amway Corporation or U.S. A. A. Insurance Corporation to represent them as a referral broker under the situation outlawed under Section 34. He thought they would find the Cendant Mobility Corporation is the actual moving party here. He also wanted Mr. Ron Pollock, Jack White Co., to be asked the same question. A conversation he had with Mr. Jim Jenks, U.S.A.A. San Antonio, Texas, indicates that Powell Real Estate in Juneau and Jack White Co. in Anchorage are their referring brokers for this type of activity. CHAIRMAN LEMAN asked how important it was to him that Section 34 be a part of this bill and not a piece of stand-alone legislation. REPRESENTATIVE ROKEBERG answered if Section 34 does not stay in the bill, he will not be returning to his home. SENATOR KELLY asked for someone to explain the significance of Section 34 to him. REPRESENTATIVE ROKEBERG explained that it is language adopted by the House Labor and Commerce Committee that is consistent with the language that was promulgated by the Mississippi Real Estate Commission which was tested in federal court to prohibit precisely this type of activity. This type of activity is a marketing company, such as Cendant Mobility. This company within the last 24 months was known as Home Equity. It was purchased in a corporate take-over by H.S.F., Inc., a New York Stock Exchange company with a C.E.O. and Chief Operating Officer named Mr. Harry Silverman. SENATOR KELLY asked if Section 34 was the outside affinity language. REPRESENTATIVE ROKEBERG answered, "Yes." Number 193 CHAIRMAN LEMAN said he received a letter from Amway Corporation today which had information different than submit by the testifier in Homer, but is more consistent with what Representative Rokeberg talked about. It said that Amway distributors participate in a program called the Amway Real Estate Network, administered by Cendant Mobility. Their program is available to their own distributors, not to others, and is available in 44 states. It's more common that other states have the ability for that type of participation and the number of states restricting it is six. REPRESENTATIVE ROKEBERG responded that one of the 44 states is Alaska which is typical of what that representation would mean. This is a very new program and this is why he suggested that the Chairman request this information specifically from Amway Corp., Powell Real Estate, and Jack White, Co. He has other names, also. He has second-hand knowledge that Amway Corp. has been running a telemarketing type of situation where they are making referrals to Alaskan real estate brokers who don't even know they have an alleged agreement with these people. This is why he asked the Chairman to verify the circumstance. He said they are, in effect, extorting, up to 34 percent of a real estate commission. They share that with the consumer which is not good in the long run, because it deals dollars out of the State and will have an impact on Alaskan housing. There is also a loss of the ability to bargain with the referral fee. He thought there was also a lack of choice on the part of the consumer. He said that Cendant Corp. has a $35 billion market cap on Wall Street, a $14 billion balance sheet. They own Avis Rental Cars, Howard Johnsons, Days Inn, Century 21 Real Estate, Caldwell-Banker, and ERA. They are a huge major marketing conglomerate. They are putting themselves in the position to control a substantial portion of our country's real estate markets. He said this is a consumer protection bill, a very important piece of legislation. This is not like corporate welfare; they can conduct business here. All they have to do is get a license. CHAIRMAN LEMAN said the Committee would work with him on this and adjourned the meeting at 3:20 p.m.