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Real Estate Brokerage

Life after Bararsani v Coldwell Banker: Brokers must proceed with caution

The recent Bararsani v Coldwell Banker lawsuit has the real estate industry on edge, feeling our way through murky waters. Let’s take a look at what this all means, especially for independent brokers.

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Did you hear the news? Bararsani v. Coldwell Banker, the case that called into question whether agents should be classified as employees or independent contractors, was settled for $4.5M this month. In total, there were approximately 5600 members of the class action lawsuit. After paying the attorney’s fee of $1.5M, I calculate that each agent will receiving a little over $500—much less than a single commission check.

But, what does this mean for the industry? In a January 17 article on his blog, Rob Hahn writes:

The pattern in the past has always been that one lawyer gets a significant settlement, the others see the payday, they smell blood in the water, and then the swarm attacks begin. It’s happened to asbestos, to tobacco, to drug companies, etc. etc. So… it’s going to happen. It’s just a matter of time.

If Hahn’s predictions are accurate and there seems to be an historic precedent, we will be reading more on this topic in the future.

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Employee or Independent Contractor?

So, are real estate agents to be classified as employees or independent contractors?

Realty Times reports that “according to federal law (26 U.S.C. §3508 (b)), for federal tax purposes, real estate agents will not be treated as employees if a 3-part test is met: (1) The agent must be licensed, (2) Substantially all payment is made on the basis of sales or output, but not on hours worked, and (3) There must be a written contract between agent and company providing that, for federal tax purposes, the agent will not be treated as an employee.”

The IRS has a different evaluation system

Yet, the Internal Revenue Service has a different evaluation system; it’s a 20-factor test (not a 3-part test) that determines whether the status of an individual worker is that of employee or independent contractor.

So, is it a 3-part test or a 20-part test? And, without specific guidance from the National Association or Realtors®, how should brokers proceed going forward?

Moving forward: Considerations for brokers

With all of this hullabaloo, brokers and brokerages may need to rethink some of their practices. National and local franchises will likely have a dictum that come from their corporate headquarters that will expressly set forth policies and procedures relating to this issue.

But, what about the independent brokerage (which comprises over 80% of our industry)? What immediate steps can independent brokers take to assure that they will not be part of the next class action suit?

  1. Brokers should get to work right away and review their policy and procedure manuals to assure that they pass the “sniff” test. Specifically, look for language that violates the 20-factor test and make appropriate edits. After all, it’s a new year, so it is probably a good time to update the manual anyway.
  1. Brokers need to modify their scripting. Instead of telling all the agents that there is a mandatory meeting on Monday at 9:00, it would be better to remind agents of the time. Then, drip in language, which implies that the best producing agents are the ones who attend the meeting. Brokers who receive late night phone calls and texts from frantic agents can set precedent that issues are resolved at the office meetings.
  1. Cut bait or suggest that certain agents find a new home. Brokers have a duty to supervise their agents. In California, for example, the Real Estate Commissioner Regulation 2725 specifically states, “Reasonable supervision includes, as appropriate, the establishment of policies, rules, procedures and systems to review, oversee, inspect, and manage…” If you have an unmanageable agent, it may be time to cut bait. Look long and hard at your business model and decide whether the cash rogue agents brings in is worth risking the health of your business. At the end of the day, when the state licensing bureau investigator comes a-calling, the broker is usually the ultimate loser as a result of lack of agent supervision.

As I mentioned in a July 2014 article on a similar subject, it is a pickle. Eighteen months later and with a class action settlement on the table, lack of supervision is still a slippery slope. Brokers are required to supervise their agents. Adequate supervision can only happen if agents attend trainings, learn policies and procedures associated with risk management, contracts, and closings. Nevertheless, Bararsani v. Coldwell Banker puts us on high alert.

The takeaway

I’m not sure what the answer is here. But, at least the latest news reminds us that we need to look long and hard at our business practices in order to assure that they are up to snuff.

#Conundrum

Melissa is an in-demand business success speaker and author, as well as a real estate broker with thousands of short sale transactions under her belt. She leverages her experience as a short sale insider to motivate thousands of business professionals to plan their careers better, execute more effectively on their plan, and earn more because of it.

Real Estate Brokerage

The impact of the pandemic on your homebuyer clients

(BROKERAGE) While the pandemic has impacted many changes, you can reassure your clients that the homebuyer housing market is doing surprisingly well.

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For sale house reflects homebuyer growth.

This year, a great many things have been impacted by the pandemic: Company closures, setbacks, etc. The one thing that may actually be surviving well is the housing market. A news release put out by Down Payment Resource stated that 81% of homeownership programs have funds available for the eligible homebuyer. This organization assesses the market around the country and reports on the conditions it finds.

While they have noticed a small drop in those available programs, most of those dips turned out to be temporary and focused at the city and county levels. However, at the state level, these programs have remained open and have not needed to pause business during the pandemic. This has been contributed to a great deal of uncertainty about the world’s condition. This uncertainty does not seem to have affected the homebuyer market, though. Housing finance agencies have reported that they are doing as much or more business than they were at this time last year. The report recorded that, starting this past August, less than 2% of the DPAs had temporarily paused their programs due to the pandemic.

When analyzing the forbearance trends this year, DPA is reporting that the small increase at the beginning was just caution from consumers. Since then, they have slowed down and reports from the summer are showing an increase for the 8th week straight. The only dissenting comments are coming from CoreLogic, who states that delinquency rates are starting to rise.

The HPI reports an increase in the share of down payment and closing cost assistance programs. Upon analysis, all the numbers appear in the majority. The down payment or closing cost assistants’ programs come in at 78%. The only decrease they have recorded is in the first-time mortgages and the programs for Mortgage Credit Certificates (MCCs).

Overall, things are looking up for the market, at least by the numbers. However, you’ll still probably be facing some concerns from your clients around the volatile nature of the pandemic. This changing world is a scary place, but optimism remains.

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Real Estate Brokerage

Don’t settle for mediocrity: How to be a better leader

(BROKERAGE NEWS) There tends to be two camps of leaders, those who lead from strength and those from weakness. But who says you can’t do both?

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Leader in a meeting

A lot of leadership literature has become “strength’s focused” – using inventories like StrengthsFinder (developed by Gallup). The logic in many ways, is sound. Capitalizing on your strengths as a leader and those of your team is significantly more effective than attempts to cover perceived flaws or weaknesses.

The business world has been cited for being too focused on weaknesses (and now parents are too). This a natural inclination for people. For leaders however, we should be bringing our strengths (and the strengths of our teams) to work and making “it” happen.

However, an over focus on strengths isn’t without its own challenges. Tony Schwartz writes for Harvard Business Review, a “well-rounded leader” has a greater opportunity to be more effective. As we seek to leverage our “strengths” let us not forget the complexity of our skill set and how those negatives we see about ourselves can become assets – resources – that we use to manage ourselves and our teams.

Metaphors are common in leadership articles, so I won’t break tradition.

Much like in physical exercise, poor form often causes the overuse of a muscle versus a group of muscles. Poor leadership form, while doing the lifting, leads to an overuse or over-reliance on what is good and comfortable for us.

A pragmatic leader may find themselves unable to make dynamic change move forward. Today’s leaders have to deal with a more complex environment in terms of technology, skills, and demographics. One style of leading will simply not be enough.

The big lesson here is to workout things you don’t think are your best strengths. What are ways you can take those weaknesses and utilize them? How do your rebranded weaknesses make you a good leader for a project or a team? Create opportunities to use your “positive opposites” – those weaknesses that you have rebranded.

PRO TIP: Find a mentor, find a coach, or keep reading about leadership.

You may never be able to develop those skills as strong as your primary, but you will have more leadership muscle to work with. You’ll be delivering a better leader to serve, build, and develop yourself or the organization.

Schwartz discusses the role of choices. We make a lot of choices as leaders – resources, people, what risks, what resources, what costs. When we make those choices working with clients or employees we are always using our mental tool kits.

It doesn’t hurt us to have more tools, most of the time, to allow us to handle situations.

SIDEBAR: It is important to recognize that we only have a limited amount of time. You’re still going to benefit more from developing your strengths – but don’t forget to work out those rebranded weaknesses (the triceps of leadership!). I love an 80/20 perspective – spend 80% of your learning time focused on building up those strengths, spend the other 20% on flexing those rebranded weakness.

A well-balanced leader is not a one-trick pony – they are leaders who can take an organization through many life cycles. If you seek to be some kind of leader, take some time to appreciate your own mix of strengths and weaknesses, and the unique qualities that you bring to a complex world of complex organizations.

Leadership is a whole person endeavor, and don’t skip those weaknesses (just like leg day!).

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Real Estate Brokerage

Brokerages rarely write an internal communication strategy, here’s why they should

(BUSINESS) Almost no real estate brokerages have an internal communication strategy, but they absolutely should.

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internal communication strategy

It’s still early enough in the year that you can start fresh, personally and professionally. Help your organization by taking into account what’s happened in recent history and where you want to go. From there, you will determine what steps are necessary to achieve your goals.

Writing an internal communication (IC) strategy can be the first step in mapping your goals and is virtually unused in the real estate industry. According to All Things IC, an “internal communication strategy is like a map, an outline of your organization’s journey. It’s the big picture of what you want to achieve.” This can be done by a brokerage, or an independent agent alike.

Great! So, where do you start? First, know what an IC strategy needs to address. This includes the where, how, what, and why.

Write down the current state of the company, then state where you’re heading, or where you’d like to be. Create a list of objectives to support this.

Then break into your “how.” Explain how you are going to get to where you want to be, as well as how long it will take and why.

You’ll then venture over to a “what” by outlining what is involved along the way to your goal. Then, throw in a little “why” by explaining why this approach is the best for the job.

Go back to “how” and tell how you’ll know when you’ve reached your destination. This part will require tangibles, measurements to support a change in reaching your goal.

Finally, give one more “what” and address what will happen if you don’t change the way you’re currently operating. If things are working for your organization, that’s great! But, there is always room for improvement.

For an internal communication strategy, it is important to include the following: a title, an issue/purpose, structure, executive summary, audience segmentation/stakeholder mapping, a timeline, channels, measurement, communication objective, approval process and responsibilities, key messages, and an appendix.

Now, what was missing from the initial inclusions was a “who.” So, who should be the one to write this document?

Well, it needs to be someone with a strong understanding and implementation for internal communications. This can be done internally by someone on staff who is an expert; or, it can be outsourced to an expert. Regardless of who writes it, make sure it is clear and concise for the audience at hand.

What is most important to remember is that writing an internal communication strategy is just half the battle. Your work is not done once this document is agreed upon by the leadership team. And finally, you must be willing to enforce what’s written on these pages and be ready to make the changes you’ve outlined.

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