“Still Crazy After These Two Years”
We can probably agree that the last couple years have been a bit of a blur containing strange twists and turns, many of which could hardly have been anticipated. The market “craziness” continued in 2021 and globally, we are still dealing with the bug nicknamed “COVID-19”and its various iterations.
Given this environment, let us not dwell on the past, but engage in a quick review of legal-themed situations, then spend a little time discussing what might lie ahead for 2022. Now more than ever we can hardly predict with any degree of certainty what the legal issues will be in the coming year, but we can make some guesses.
2021 Common Issues & Resources
Low Inventory Issues
The residential real estate market remained “hot” with low inventory continuing to be the norm. For legal nerds who follow these cycles, we fielded many questions about multiple offers and brokers seeking a form for escalation clauses in offers (“I will pay $X over the next best offer”). These types of “offers” are rife with problems.
Buyers in multiple offer situations desperate to get their offer to the top of the stack wanted to attach “love letters” to their offers. The buyers might describe the property as perfect for their family or due the proximity to the church, mosque or synagogue. Rather than focusing on the attributes of the property, the letters focus on which people would be good buyers. This might put sellers in the position of favoring one class over another, or indeed, denying or limiting members of a protected class from buying, even if done so unintentionally.
Making the broker the counselor or the messenger of “love letters” is a dangerous game. As a result, many REALTOR® associations advise in favor of policies that would exclude “love letters” as a best practice.
As a post-script to “love letters,” Oregon enacted a prohibition in its real estate license law prohibiting licensees from assisting with distribution of these messages. Since passing the legislation, a lawsuit has been filed alleging infringement on free speech rights. Stay tuned for developments.
This crazy “hot” market also led to buyers waiving home inspections, pest inspections, financing contingencies, etc. They were making offers “sight unseen.” Again, this can be a dangerous game and one that is not recommended unless the buyer could afford to repair almost any undiscovered condition.
Independent Contractor Status
As managing brokers, it is important to remain vigilant on issues affecting independent contractor status, the oft-used contractual relationship between brokerage and agent in the real estate industry. NAR continues to monitor federal regulation on the subject.
In Illinois, the Illinois Real Estate License Act (RELA) provides that all sponsoring brokers must have a written contract with their sponsored licensees. RELA defines employment to include independent contractors and regular employees. A choice must be made, and a written agreement is required.
Managing brokers need to be mindful of all applicable laws regarding the independent contractor status of their sponsored licensees.
- The federal Internal Revenue Code has a specific provision allowing for real estate licensees to be treated as independent contractors for federal tax purposes because they:
- Are licensed
- Have a written agreement with their sponsoring broker, and
- Substantially all their compensation is paid by commission.
- Illinois state statutes contain some exceptions for real estate licensees, such as:
- Illinois unemployment insurance statutes
- Illinois workers compensation provisions
It is imperative to be aware of the different definitions of employee in applicable laws and to know if there are exceptions for real estate licensees if they don’t fit a “traditional” independent contractor “control” test. One example is the Illinois Wage Payment and Collection Act. It does not presently contain a specific exclusion for real estate licensees, even though RELA does give real estate licensees the option to work under an independent contractor agreement with their sponsoring brokers.
NAR Governance Changes
At its annual meeting in November 2021, NAR made changes to its current Board of Directors and Executive Committee after the culmination of a three-year study by its Presidential Advisory Group (PAG) that the Board and the Executive team needed to be nimbler allowing for quicker responses to industry issues. NAR Board of Directors adopted nine of ten proposals that came out of the PAG.
What’s in Store for 2022?
It is safe to assume we were all hoping the “bug” was in the rear-view mirror by 2022. Unfortunately, the variants seem to be moving along identified by subsequent letters in the Greek alphabet. Best business practices continue to involve mask wearing when indoors or in close confines, social distancing and becoming vaccinated to protect each other from transmission.
The real estate industry continues to soldier on amid this historical and global pandemic. For more on workplace policies including whether to require vaccination, check out these resources.
NAR MLS Policy Changes
In the wake of proposed investigations by the Department of Justice (DOJ) into NAR policies, and after the DOJ backed out of a fully negotiated settlement agreement with NAR, NAR took action at its annual meeting in 2021, to be effective Jan. 1, 2022, that institutes some clarifying changes to its existing MLS policies. Those changes that were adopted already apply under existing policies but the new language attempts to be crystal clear.
Competition Within the Industry
Issues involving competition within the industry will continue to make headlines in 2022. Real estate is one of the most efficient and competitive marketplaces. (This is a conclusory statement, but this author firmly believes the truth of it). NAR has a great resource page to help REALTORS® educate consumers.
Diversity, Equity & Inclusion (DEI)
Let’s all continue to keep the conversation, proposed solutions and DEI initiatives front of mind! Check out the Fairhaven exercise on NAR’s website, Illinois REALTORS®’ Diversity page and NAR’s Diversity page.
Let’s continue consciously working to expand our circles both professionally and personally. As Illinois REALTORS® 2022 President Zeke Morris says, “Let’s be comfortable being uncomfortable.” And as REALTOR® Nate Johnson aptly stated, “If you are not intentionally inclusive, you are unintentionally exclusive.”
Let’s make inclusivity our perpetual resolution and make it become the standard.