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CALIFORNIA REAL ESTATE
UPDATE #12

By Duane Gomer

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CHANGES IN BROKER COURSE REQUIREMENTS

You might have received an e-Mail from another Education Provider about proposed changes for Broker Course Qualifications. Yes, there are several proposed changes but according to our sources, nothing has passed by the State at this moment.

If you are interested in getting a Broker License, should you start now? Yes, changes could be coming and if you are registered for courses, you would probably be grandfathered into the old requirements. Also, the Commissioner has wanted to change Broker and Sales examinations, but the State budget crunch ($30 billion deficit and climbing at every press conference) has delayed the new tougher exams. The hiring freeze, purchase restrictions, etc., apply to DRE even though DRE is financed by licensees and developers. During the past year the amount of examination income is the highest in history and DRE is turning a profit, but they still have hiring freezes, etc. along with other State departments.

It is now a good time to get a brokers license. It is not as good as yesterday but it is a lot better than tomorrow. For more information go to our Web site at www.DuaneGomer.com and visit our FAQ’s on Getting a Brokers License then fax your transcripts to 949 - 455 - 9931 and we will review them and let you know how you should proceed.

LIVING THROUGH A TAX AUDIT

There are several items that you should know when you get the letter from the IRS that begins:

"Dear Taxpayer,

  The purpose of this letter is to let you know that I have scheduled the following appointment to meet with you and examine the above referenced tax return."


Welcome to sleepless nights and desperate searching of records to meet the requirements of their other form #4564 that requests everything from Auto Logs to Stock Record Books, 3 years of Corporate and Personal Returns of Stockholder, all cancelled checks for three years and verification of all business purpose travel and food, etc., etc., etc. In our case there was nothing out-of-the-ordinary on our returns. We were "randomly drawn by chance". That is probably why they looked at everything.

The original letter came May 3, 2002 and we have not yet completed the final agreement.

Even if you have the most accurate records possible there is still time for panic. This was my second Federal Tax Compli- ance Audit and I've had one State Audit. Not bad for 39 years. I seem to win this "drawing by chance" more than others.

On our Corporate Return I learned several regulations even though I've been studying accounting for years and years since graduating from Indiana University.

  1. If you have six months of automobile expense estimates they will accept it and prorate for the year so keep all your auto repair bills that show mileage and the date of the repairs.


  2. Only 50% of food costs can be deducted in most instances however if you buy food for your staff it is 100% deductible.


  3. If you retain earnings in a corporation over $250,000.00, you better have a very specific reason for doing so and put it in your minutes.


  4. Remember IRS loves to call all monies dividends when paid to an owner.


  5. If you know what Section 179 expenses are, be aware that they must be listed in the proper section of the return to the expensed.


  6. IRS has a reciprocity arrangement with California so anything IRS charges will probably also be charged by the State.


  7. If you are creative but unorganized, it is recommended that you marry someone who is organized.


  8. For interest to be categorized as deductible residential interest any loans involved must be secured and recorded.


  9. You might think that it is a long, long time from May to December for an audit but our other Federal Audit took over 2 years and the only charges were a 10% lowering of our auto expense and charges for some personal phone calls made from our office. Yes, they checked eight phone lines to see if we had made any personal calls. On the current audit in our three years of corporate returns we only have to pay 6% more on our auto expense and prorate a computer over 5 years.


  10. Incidentally, if they ever lower your auto expense in your corporation, obviously you pay more corporate tax but you also have your personal tax increased plus interest, etc. and the State wants the same "double jeopardy" taxation.


  11. So if you get the Dear Taxpayer letter, remember somebody out there (Duane Gomer Seminars) loves you and document, document, document. It is only money and it is going to support a worthy cause, the Internal Revenue Service.



PURCHASE AGREEMENT CHANGES EXAM

California Association of Realtors forms are used by far more than any other forms in the State. Buyers and sellers of real estate should have a working knowledge of its terms to avoid surprises.

Following is an exam about these CAR forms stressing the Purchase Agreement (CA-RPA) that became available after October 1, 2002. It is believed that using an exam format is an excellent method to discover the important aspects of the forms. For more information, contact your favorite Realtor.

  1. The "new" CA-RPA replaces:
    1. Two forms: RPA-11 and AEPA-11.
    2. One form: RPA-11.
    3. Two forms: RPA-11 and Seller Financing Addendum.
    4. None of the above.


  2. Some of the functions of the CAR Purchase Agreement include:
    1. An offer and completed contract.
    2. Receipt for deposit and joint escrow instructions.
    3. Mediation and arbitration agreement plus a confirmation of agency relationships.
    4. All of the above.


  3. Broker compensation from either buyers or sellers is now:
    1. Listed as both percentages and dollar amounts.
    2. Per separate agreements and not discussed on the Purchase Agreement.
    3. Set by the California Civil Code.
    4. All of the above.


  4. A new term of the CA-RPA is that within _____ days after acceptance, buyer or buyer’s lender shall provide seller with written verification of buyer’s down payment and closing costs.
    1. 1
    2. 30
    3. 17
    4. 7


  5. If the standard terms are used and the property is non-owner occupied:
    1. Tenants must vacate the premises in every sale.
    2. Tenants have 30 days after close of escrow to move.
    3. Property shall be vacant at least 5 days before close of escrow.
    4. d. None of the above.


  6. Pest control inspections plus all repairs are:
    1. Paid by seller.
    2. Paid by buyer.
    3. A matter of negotiation.
    4. Section 1 (Active Infestation) repairs are paid by seller.


  7. What is a new phrase under Conditions Affecting Property?
    1. Buyer has right to inspect property.
    2. All debris is to be removed by close of escrow.
    3. Seller discloses known insurance claims in past 5 years.
    4. Property improvements are legal.


  8. The section "Items Included and Excluded From Sale" states:
    1. Ceiling fans are not included.
    2. Seller warrants all items.
    3. Don't believe Multiple Listing Sheets, flyers and marketing materials.
    4. Some listed items have liens against them.


  9. Under standard terms seller must furnish all reports within _____ days after acceptance.
    1. 5
    2. 30
    3. 1
    4. 7


  10. With 17 days after acceptance:
    1. Escrow must closed.
    2. Loans must be funded.
    3. Buyer can cancel the agreement.
    4. None of the above.


  11. Removal of contingencies and cancellations must be:
    1. Given to tenants.
    2. In writing.
    3. Notarized.
    4. Done within 72 hours.


  12. If a buyer doesn't perform within the listed time frames, seller can:
    1. Cancel agreement by phone.
    2. Notify escrow to receive liquidation damages.
    3. Send a cancellation letter to buyer and lender.
    4. Send the buyer a Notice to Perform.


  13. On the RPA a buyer has 17 days to approve disclosure and:
    1. This time can not be changed per Civil Code 2924e.
    2. The time can be changed by mutual oral agreement.
    3. The time can be changed by mutual written agreement.
    4. None of the above.


  14. A sale is contingent on the sale or purchases of a property:
    1. This is not legal anymore.
    2. In a "hot" market the sale contingency is used more often.
    3. Is now incorporated in a separate agreement (CAR Form COP).
    4. None of the above


  15. In the default RPA-CA mediation clause:
    1. Buyers and sellers agree to mediation.
    2. Not mediating could lose a principal attorney.
    3. Applies only if arbitration is initialed.
    4. A and B above.


  16. To have disputes resolved by arbitration:
    1. Buyers and sellers must agree orally to do so.
    2. Buyers and sellers must initial the agreement.
    3. Buyers, sellers and brokers must agree in writing.
    4. Arbitration is never advocated by the California Association of Realtors.


  17. If I have 7 days to perform some aspect after acceptance:
    1. It includes only business days.
    2. The day of acceptance counts as day 1.
    3. The final day ends at 5:00 PM local time (close of business).
    4. The final day ends at 11:59 PM local time.


  18. The Confirmation of Acceptance:
    1. Must be personally received.
    2. Must be confirmed in CA-RPA.
    3. Can be given to a Buyer's Agent.
    4. A and C.


  19. Real Estate brokers:
    1. Are parties to the agreement between buyers and sellers and are all equally competent.
    2. Can give advice on how to hold title.
    3. Compensation is set by local associations.
    4. None of the above.


  20. Changes to the standard terms can be done on a Purchase Agreement Addendum and includes topics such as:
    1. Cancellation of prior sale.
    2. Seller or tenant to remain in possession.
    3. Secondary or assumed financing and short pay.
    4. Court confirmation
    5. All of the above.
These questions only touch the surface of possible transaction problems. For more information, review Bob Hunt's columns or purchase the CAR booklet, "Your Guide to the California Residential Purchase Agreement" (Phone: 213-739-8200). If we can ever be of service, please call.


ANSWERS TO THE PURCHASE AGREEMENT CHANGES EXAM



  1. A. The RPA-CA will be the only C.A.R. Purchase Agreement printed after January 1, 2003. It will replace the RPA-11 (used mostly in Southern California) and AEPA-11 (Area Edition Purchase Agreement used in Northern California). The replaced forms can still be used although it is recommended highly that Realtors start using the new forms as soon as possible. You might notice that many C.A.R. forms have an "11" or "14" in the title. It took me many years to realize that the number indicated the length of the paper.

    Licensees who are not members of C.A.R. can buy the forms at 213-739-8200. The forms are designed for use by the real estate industry, but many associations will sell them only to members.


  2. D. Statement of fact. In addition to the functions listed, the form agreement serves as an irrevocable assignment of compensation to brokers. It sure is a busy form.


  3. B. Previously, the amount of the commission due was listed on the PA. Since this is not an aspect of a buyer-seller contract, commissions are now stated in a separate agreement. In my opinion, this is a good change for all parties.

    Sometimes agents thought that entering commission amounts on a purchase agreement satisfied all conditions to receive a commission. This was not so. To be assured of receiving a commission agents need a written agreement with the parties.


  4. D. This is new. A seller must be told where buyers are holding their money. Lenders have received these verifications in the past but now sellers will have this information and can be more confident that a buyer will have the necessary funds at the necessary time.


  5. C. Currently, CAR PA's state that the property must be vacant at the close of escrow. This change establishes a 5-day period for the property to be vacant before the close of escrow. This change should help smooth out problems when tenants are involved. Another regulation that becomes effective 1/1/2003 is that tenants who have been in a property over a year must be given 60 days notice to vacate. However, an exception is that if a property is in escrow only a 30-day notice is required. Be aware that if a tenant has a lease, a sale does not negate the lease until the passing of the lease expiration date.


  6. C. This is a major change for California form. Most properties have been sold with the seller agreeing to pay for a Pest Report and for Section 1 repairs. In essence a seller was agreeing to pay for something without any idea of what the cost might be. The new PA places termite repairs in the same category as other repairs up and buyers and sellers will negotiate the termite costs after receipt of the report and within the 17-day contingency period.

    The new PA has a box in this section that can be checked and the termite situation would be handled as in the past with the seller agreeing to pay Section 1 costs per an addendum (WPA). If a seller agrees to sign this form when presented, I would recommend putting a "cap" on the repairs in a Counter Offer agreeing to pay all repairs to a certain figure. If the estimated costs are higher than the cap, the differences can be negotiated.


  7. C. Insurability is becoming a problem for buyers. In some cases buyers have been turned down for insurance because of the frequency of claims on the subject property in the past. If a buyer is made aware of previous claims, this fact can be discussed with their insurance advisor. This is a good change for buyers.


  8. C. If it isn't on this agreement, it isn't so. Multiple listing sheets, etc. are not be believed.


  9. D. Statement of fact under Section 14A.


  10. C. Section 14B. This change states that all contingencies will generally get removed at the same time, and since this is a comprehensive rather that piece meal removal, complete negotiation is possible at one time. In my classes I call this phrase "a buyer's free 17-day look at the property".


  11. B. Quoting Section 14. Any removal of contingencies or cancellation under this paragraph must be in writing (CAR Form RRCR). Passive removals of contingencies are history. If I have a 17-day right to investigate a property and don't file a written yes or no after (for example) 20 days, the contingency still isn't removed. What does the seller do? See question 12.


  12. D. Form NBP should be used and a buyer is told to either remove the contingency or cancel the transaction. (In other words, Paint or Get off the Ladder.) The recommended form gives the Buyer 24 hours to perform and if there is no action, the seller can cancel and move on.


  13. C. Section 14B.


  14. B. Section 13B. On the RPA-11 information about a contingent sale was listed on the Purchase Agreement. The terms on a contingent sale are now noted in a Form COP. Another good change. Only a minute percentage of sales were contingent on a sale of a buyers property so let's put information on a complete separate agreement. Also, the form can be used if the seller wants to make the sale contingent on their finding another property.


  15. D. Section 17A.


  16. B. Section 17B. C is not correct because brokers are not involved and CAR must advocate arbitration in some cases or why would they have this section on the form.


  17. D. In most sections on the form, the days are calendar days. But in the Joint Escrow Instruction (Section 28) the days are business days.


  18. A and C. If you think B is also correct read Confirmation of Acceptance under Section 33.


  19. D. All of them are false.


  20. E. This is an outstanding form. I recommend you read one thoroughly for it can be used for so many important changes and you wouldn't have to do a Counter Offer.

In closing: Call CAR at 213 - 739 - 8200 to order "Your Guide to The California Residential Purchase Agreement". It will answer so many questions. Also, on our Web site you can check the CAR Publication "Ten Reasons to Use the California Residential Purchase Agreement (RPA-CA)". This discusses the reasons why the PA changes were changed.

If you or your group would like a 3-Hour seminar on this subject, call Duane Gomer at 800-439-4909, or e-Mail Duane@DuaneGomer.com. It would be my pleasure to come to your area.

If you have any questions after reading them, call me and we an discuss any changes. Let's finish the year strong.

COMPLETE INFORMATION ON REAL ESTATE LICENSING

For any questions about renewal or licensing, visit Frequently Asked Questions about Renewal, Salesperson License, Brokers License, Conditional License, Internet Testing, etc. These pages should answer all of your questions. If you have to renew a California Real Estate License, remember our popular "All 45 Hours of Tests In 1/2 Day" program. (We can present live classes at your company or association.) Also, you can renew by home-study and take your open-book exams on Internet or with a monitor. If you know anyone who wants to get a Salesperson or Brokers License, contact us at once.

Send us an e-mail if there are any subjects you would like discussed in future newsletters.

Thank you for all of your support and consideration.

Duane Gomer Seminars
23312 Madero, Suite J
Mission Viejo, CA 92691

www.DuaneGomer.com
Phones: (949) 457 - 8930
Toll-Free: (800) 439 - 4909
FAX: (949) 455 - 9931
E-mail: News@DuaneGomer.com


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Copyright 2002 by Duane Gomer Seminars. All rights reserved.

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