DESIGNATED
REALTOR
®
ISSUE 2: April 2018
%
TAX
What the New Tax Plan Means for You Potential Changes to Real Estate License Law NJREALTOR.COM
I M P O R TA N T D AT E S
APRIL
MAY
6
NJ Realtors® Educational Foundation Scholarship Application Deadline 5 p.m. njrealtor.com/ef
17
Tax Day Executive Committee 11 a.m.
26
Constant Contact Webinar 10 a.m. “Get Started with Email Marketing” bit.ly/2EeT1eA
12
LifeLock Webinar 12 p.m.
14
Realtors® Legislative Meetings & Trade Expo, Washington, D.C. nar.realtor/midyear
28
NJ Realtors® Office Closed Memorial Day Observed
JULY
JUNE 12
10
Executive Committee Meeting 11 a.m.
4
NJ Realtors® Office Closed Independence Day Observed
Board of Directors Meeting 1 p.m.
DEC. 3-6, 2018
BROKER HOT TOPICS
NAR CODE OF ETHICS DEADLINE: 12/31/18
Aging in Place – renovations, home automation, marketing to boomers, creating a niche market for senior buyers CRMs – which one’s are best, incorporating AI technology Luxury Real Estate – how to break in, marketing strategies, connecting with boomers and millennials Teams – issues of structure, compensation, motivation, how to recruit the best talent Trends – in brokerage, economy, residential sales market, consumer trends
Designated REALTOR® | April 2018 | 1
Liza Mendez & Pedro Hernandez, REALTORS® Miami, FL
“Fair Housing
made us free
” .
Real estate runs in the family. Between father and daughter, Pedro Hernandez and Liza Mendez have over eighty years of experience in the real estate business. After immigrating from Cuba in the late 1950s, Pedro became a REALTOR® in 1966 and dove into the melting pot of the city. After the passage of the Fair Housing Act, he worked within his community to reduce housing discrimination. “Now, we are free. We don’t have that problem anymore. We can work where we want. We don’t have discrimination. That law made a big, big difference not only for the public, but for us as REALTORS.” Liza followed her father into the family business where she learned how she could be part of enforcing the letter and spirit of the Fair Housing Act. As their business grew, Liza was recognized as REALTOR® of the Year, served as the Residential President of the REALTOR® Association of Greater Miami and the Beaches, and Chairman of the Board for the Miami Association of REALTORS®. Both remain in the industry and vow to never “take the Fair Housing Act for granted.” April 2018 marks the 50th anniversary of the Fair Housing Act. We recognize the generations of brokers like Pedro Hernandez and Liza Mendez who have committed to embracing fair housing in their practice and community. We are grateful for their work and understand there’s progress yet to be made. Visit www.FairHousing.realtor to read more about Pedro and Liza and to join the commemoration.
Designated REALTOR® | April 2018 | 2
FEBRUARY 2018 FEBRUARY 2018
You Can’t Live Here: The Enduring Impacts of Restrictive Covenants You Can’t Live Here: TheActEnduring Impacts of Restrictive Covenants who could not, and were in widespread use in major cities The 50th anniversary of the Fair Housing represents an opportunity to remind ourselves not only of the The 50th anniversary of the Fair Housing Act represents importance of the law in shaping the real estate landscape an opportunity to remind ourselves not only of the today, but also to look back on what the situation was like importance of the law in shaping the real estate landscape before it was enacted, when the process of buying or today, but also to look back on what the situation was like renting a home was decidedly unfair for millions of before it was enacted, when the process of buying or Americans. renting a home was decidedly unfair for millions of Americans. During the first few decades of the twentieth century, a property’s value wasn’t defined just by architectural During the first few decades of the twentieth century, a details, curb appeal, and neighborhood features, but also property’s value wasn’t defined just by architectural by the people who lived in the community. In determining details, curb appeal, and neighborhood features, but also property value, explained a standard appraisal text in by the people who lived in the community. In determining 1931, “we must recognize the customs, habits and property value, explained a standard appraisal text in characteristics of various strata of society and races of 1931, “we must recognize the customs, habits and peoples.” The presence of an African-American family in characteristics of various strata of society and races of a neighborhood populated by whites, for example, or an peoples.” The presence of an African-American family in Italian family in a neighborhood populated by Northern a neighborhood populated by whites, for example, or an Europeans, was generally believed to have detrimental Italian family in a neighborhood populated by Northern effects on property values and social order. Europeans, was generally believed to have detrimental effects on property valuesmany and social In the early 20th century, cities order. in the South and the
Mid-Atlantic used zoning ordinances to keep blacks, In the early 20th century, many cities in the South and the whites and other ethnicities in their own neighborhoods. Mid-Atlantic used zoning ordinances to keep blacks, Baltimore enacted the first racial zoning ordinance in whites and other ethnicities in their own neighborhoods. 1910, and within a few years the practice was widespread Baltimore enacted the first racial zoning ordinance in in the region. When the U.S. Supreme Court declared a 1910, and within a few years the practice was widespread Louisville, Kentucky racial zoning ordinance as in the region. When the U.S. Supreme Court declared a unconstitutional in 1917, restrictive covenants became the Louisville, Kentucky racial zoning ordinance as preferred method of accomplishing the same end. unconstitutional in 1917, restrictive covenants became the preferred method ofcovenant accomplishing sameamong end. A typical restrictive was a the contract property owners prohibiting sales of homes to blacks or A typical restrictive covenant was a contract among other minorities for a specified period of time, usually property owners prohibiting sales of homes to blacks or twenty years. Because the covenants were private other minorities for a specified period of time, usually agreements, they were not covered under laws seeking to twenty years. Because the covenants were private prevent discrimination. They quickly became a popular agreements, they were not covered under laws seeking to method of ruling who could live in a neighborhood and prevent discrimination. They quickly became a popular method of ruling who could live in a neighborhood and
Designated REALTOR® | April 2018 | 3
such as Chicago, Seattle, and St. Louis. who could not, and were in widespread use in major cities such as Chicago, Seattle, andso St.effective Louis. in segregating Restrictive covenants proved
neighborhoods and stabilizing the property values of white Restrictive covenants proved so effective in segregating families that they soon became an integral part of the neighborhoods and stabilizing the property values of white federal government’s discriminatory housing practices. “If families that they soon became an integral part of the a neighborhood is to retain stability, it is necessary that federal government’s discriminatory housing practices. “If properties shall continue to be occupied by the same a neighborhood is to retain stability, it is necessary that social and racial classes,” stated the Federal Housing properties shall continue to be occupied by the same Administration’s influential Underwriting Manual. From social and racial classes,” stated the Federal Housing 1934 on, the FHA recommended the inclusion of Administration’s influential Underwriting Manual. From restrictive covenants in the deeds of homes it insured, and 1934 on, the FHA recommended the inclusion of instituted a policy known as redlining, refusing to insure restrictive covenants in the deeds of homes it insured, and homes in African-American neighborhoods. instituted a policy known as redlining, refusing to insure homes in African-American neighborhoods. Civil rights lawyers began challenging restrictive
covenants and redlining policies in courts beginning in the Civil rights lawyers began challenging restrictive 1930s, but met with limited success. But in the 1940s, the covenants and redlining policies in courts beginning in the massive societal changes brought about by World War II 1930s, but met with limited success. But in the 1940s, the began to change the tide, albeit slowly. In 1948, the massive societal changes brought about by World War II Supreme Court’s landmark decision in the Shelley v. began to change the tide, albeit slowly. In 1948, the Kraemer case held that racially restrictive covenants were Supreme Court’s landmark decision in the Shelley v. unenforceable in court. The following year, the FHA Kraemer case held that racially restrictive covenants were reversed course, instructing its field offices not to reject unenforceable in court. The following year, the FHA applications for mortgage insurance solely because they reversed course, instructing its field offices not to reject might violate existing restrictive covenants. The change, applications for mortgage insurance solely because they however, only applied to new applications for mortgage might violate existing restrictive covenants. The change, insurance; not until 1968 was the policy fully overturned, however, only applied to new applications for mortgage when Congress explicitly prohibited racial discrimination in insurance; not until 1968 was the policy fully overturned, housing financing as part of the Fair Housing Act. when Congress explicitly prohibited racial discrimination in housing as partand of the Housing Act. The real financing estate industry the Fair National Association of
Real Estate Boards (as the National Association of The real estate industry and the National Association of REALTORS® was called at the time) were complicit in Real Estate Boards (as the National Association of these restrictions. In 1924, the Code of Ethics was REALTORS® was called at the time) were complicit in revised to include Article 34, which stated: “A REALTOR® these restrictions. In 1924, the Code of Ethics was should never be instrumental in introducing into a revised to include Article 34, which stated: “A REALTOR® should never be instrumental in introducing into a
for middle-class Americans,” explains author Richard Rosenstein in his book The Color of Law (Liveright Publishing, 2017). “African American families today, whose parents and grandparents were denied participation in the equity-accumulating boom of the 1950s and 1960s, have great difficulty catching up today.” Although passage of the Fair Housing Act in 1968 represented a huge step towards ensuring that all Americans have a chance to live where they choose, dismantling these racially discriminatory practices has been a continual, decades-long process. For REALTORS® and others in the real estate community, there’s still much to do. neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property neighborhood a character of property or occupancy, values in that neighborhood.” The language regarding members any race or nationality, anythe individuals “race orofnationality” was removedor from Code of Ethics whose presence will clearly detrimental to property in 1950 in response to thebe Shelley v. Kraemer decision. values in that neighborhood.” The language regarding In the 4th quarter was of 2017, the Census reported “race or nationality” removed from theBureau Code of Ethics that the home ownership rate among white, decision. non-Hispanic in 1950 in response to the Shelley v. Kraemer Americans was 72.7 percent, while for African-Americans In the of42.1 2017, the Census reported the 4th ratequarter was just percent. That Bureau enormous disparity that theinhome rate among white, non-Hispanic can large ownership part be attributed to restrictive covenants and Americans was 72.7 percent, while for past. African-Americans other discriminatory practices of the “Equity that thefamilies rate justinformation, That Forwas more todisparity have in42.1 theirpercent. homesresources is the enormous mainand source of wealth can in large part be attributed to restrictive covenants and forget middle-class explains author Richard involved,Americans,” visit www.FairHousing.realtor other discriminatory practices of the past. “Equity that Rosenstein in his book The Color of Law (Liveright families have in their homes the main families source of wealth Publishing, 2017). “AfricanisAmerican today, forwhose middle-class Americans,” explains author Richard parents and grandparents were denied Rosenstein in his book The Color of Law (Liveright participation in the equity-accumulating boom of the 1950s Publishing, 2017). American families and 1960s, have“African great difficulty catching uptoday, today.” whose parents and grandparents were denied Although passage of the Fair Housingboom Act inof1968 participation in the equity-accumulating the 1950s represented a huge towards ensuring that all and 1960s, have great step difficulty catching up today.” Americans have a chance to live where they choose, Although passage of racially the Fairdiscriminatory Housing Act in 1968 has dismantling these practices represented a huge step towards ensuring that been a continual, decades-long process. Forall Americans have aand chance they choose, REALTORS® otherstoinlive thewhere real estate community, dismantling these racially there’s still much to do. discriminatory practices has been a continual, decades-long process. For REALTORS® and others in the real estate community, there’s still much to do.
whose presence will clearly detrimental to property families have in their homesbe is the main source of wealth values in that neighborhood.” The language for middle-class Americans,” explains author regarding Richard “race or nationality” wasThe removed from the Code of Ethics Rosenstein in his book Color of Law (Liveright in 1950 in response to the Shelley v. Kraemer decision. Publishing, 2017). “African American families today, whose parents and grandparents were denied In the 4th quarter of 2017, the Census Bureau reported participation in the equity-accumulating boom of the 1950s that the home ownership rate among white, non-Hispanic and 1960s, have great difficulty catching up today.” Americans was 72.7 percent, while for African-Americans the rate was just 42.1 percent. That enormous disparity Although passage of the Fair Housing Act in 1968 can in large part be attributed to restrictive covenants and represented a huge step towards ensuring that all other discriminatory practices of the past. “Equity that Americans have a chance to live where they choose, families have in their homes is the main source of has wealth dismantling these racially discriminatory practices for middle-class explains author been a continual,Americans,” decades-long process. ForRichard Rosenstein in his book The Color of Law (Liveright REALTORS® and others in the real estate community, Publishing, 2017).to“African American families today, there’s still much do. whose parents and grandparents were denied participation in the equity-accumulating boom of the 1950s and 1960s, have great difficulty catching up today.” Although passage of the Fair Housing Act in 1968 represented a huge step towards ensuring that all Americans have a chance to live where they choose, dismantling these racially discriminatory practices has been a continual, decades-long process. For REALTORS® and others in the real estate community, there’s still much to do.
For more information, resources and to get involved, visit www.FairHousing.realtor
For more information, resources and to get involved, visit www.FairHousing.realtor
For more information, resources and to get involved, visit www.FairHousing.realtor For more information, resources and to get involved, visit www.FairHousing.realtor
Designated REALTOR® | April 2018 | 4
A Quick Update on S430
O
n Monday, March 26, the New Jersey State Senate unanimously passed S430, which would update New Jersey’s Real Estate License Law. This legislation, which New Jersey Realtors® strongly supports, affects a few different areas of the license law, including: • Eliminating the referral license status to bring NJ in line with federal unemployment law • Codifies real estate licensee’s ability to act as independent contractors • Prohibits Tier 2 and Tier 3 Megan’s Law sex offenders from obtaining a real estate license • Eliminates correspondence—or “distance learning—from continuing education
• Adds Financial Literacy and Planning and Real Estate Licensee Safety as core topics for continuing education • Changes the requirements for reinstating a suspended license • Agents in a referral company will be exempt from CE requirements Next, the Assembly version of the bill, A2726, will be heard in the Assembly Regulated Professions committee. Please stay tuned to Designated Realtor® for the latest update on the legislation. If you have any questions, please contact Doug Tomson, director of government affairs at dtomson@njrealtor.com.
Leadership Team Hill Visits Last month, the NJ Realtors® Leadership Team had the opportunity to travel down to Washington, D.C. to talk with members of Congress about issues affecting private property rights and the real estate industry. This year, the meetings were focused on three key issues— the reauthorization of the National Flood Insurance Program, how the next tax reform plan will affect Realtors®, and the current state of the federal mortgage finance programs. Unsurprisingly, the New Tax Cuts and Jobs Act, which will affect residential and commercial real estate, enacted in December 2017, was a big focus of the Leadership Team meetings. This tax law is currently in the hands of regulators who will determine how the plan will be administered and applied to each state. Importantly, NJ Realtors® is focused on the 20-percent deduction on qualified business income for pass-through business entities and sole proprietors, the $750,000 mortgage interest deduction cap, the capital gains exclusion on the sale of principal residence, and the extension of the expired mortgage debt cancellation tax relief. NJ Realtors® will continue to advocate for the best interests of Realtors® in May when members will again head to D.C. to meet with legislators. Designated REALTOR® | April 2018 | 5
NJ Realtors® Treasurer Nick Manis (from left), First Vice President Angela Sicoli, Congressman Leonard Lance, and Director of Government Affairs Douglas Tomson.
NJ Realtors® Leadership Team and staff met with Congressman Bill Pascrell.
Tax Reform Update A Quick Guide to the New Tax Cuts & Jobs Act
Casualty Loss Deduction
Mortgage Interest Deduction
%
Reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and not subject to the new cap. The same limits apply to second homes. No index for inflation.
Provides a deduction for losses attributable to a presidentially declared disaster.
Updated Standard Deductions TAX
Student Loan Interest Deduction Retains current law, allowing up to $2,500 in student loan deductions, subject to income phase-outs.
State & Local Tax Deductions
Allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This applies to both single and married filers with no index for inflation.
Medical Expense Deductions Decreased the floor from 10% to 7.5% for deduction of medical expenses.
$
Capital Gains Exclusion for Principal Residence
Retains current law, which excludes primary residences from capital gains taxes at the time of sale when homeowners live there for two out of the last five years.
Provides a standard deduction of $12,000 for single filers and $24,000 for joint returns. This is indexed for inflation. This increased standard deduction means that for 90% of filers, there is no tax differential between renting and owning a home.
Moving Expenses Repeals the moving expense deduction and exclusion, except for members of the armed forces.
Qualified Business Income Deduction Provides a deduction of 20% for business income for non-personal service businesses, which excludes real estate. However, NAR helped secure an exception that will allow many real estate professionals to take advantage of the deduction. Business owners with less than $157,500 (single) or $315,000 (joint filings) can use the deduction. Above this income level, the deduction is phased out over an income range.
Like-Kind Exchanges Child Credit Doubles the child tax credit to $2,000 and keeps the age limit at 16 and younger. The income phaseout to claim the credit increased significantly to $500,000 for all filers, up from $55,000 for single filers and $110,000 for married filers.
Retains the current Section 1031 Like-Kind Exchange rules for real property. It repeals the use for personal property, such as artwork, heavy equipment, auto fleets, etc.
Designated REALTORÂŽ | April 2018 | 6
Designated REALTOR® | April 2018 | 7
Temperatures Begin to Thaw, but Housing Inventory Remains Frozen By Holly Fuller
T
he year is just getting started, but the low inventory trend continues to lead the way in 2018, according to data from New Jersey RealtorsÂŽ. Fewer homes on the market continue to drive up prices, but the number of sales is fairly stagnant. In February, closed sales saw a slight downturn, but the year-to-date median sales price rose a healthy 5.3 percent to $268,500. Thirty-year fixed rate mortgages rose to the highest level since 2014, sitting now at 4.45 percent. First-time home buyers are weary of this pressure, but the rise could spur
some on-the-fence buyers into action. Over a 12-month period, single family homes had the greatest number of closed sales, with an average of 6,866. Over the past year, single family home sellers received an average of 97.6 percent of the list price. A very small increase in new listings didn’t help the total inventory, which was down 17.4 percent throughout the state. However, with selling season right around the corner, a rise in inventory is likely for the spring market. Properties spent an average of 75 days on the market in February,
Designated REALTORÂŽ | April 2018 | 8
and while last year’s number was a week longer, it’s too early in the year to tell if this decline will continue through the rest of 2018. “The low inventory continues to be a concern we’re keeping a close eye on,” said 2018 NJ Realtors® President Christian Schlueter. “But with the busy selling season closing in, we’re cautiously hopeful for a modest uptick. At first glance, rising mortgage rates might seem like a negative for the market, but we’re actually seeing the rates motivate buyers to make a move.” Here’s a more in-depth look at the three housing categories New Jersey Realtors® tracks throughout the state. Single-Family Market Closed sales for single-family homes were up a meager 0.3 percent year-to-date and the average percent of the list price sellers received was 97.2 percent. New listings in this category have declined modestly, and the total number of homes for sale dropped a dramatic 17.7 percent which meant the months’ supply was only 4.5. The median sales price of single-family homes has increased, as was expected with the drop in inventory.
Designated REALTOR® | April 2018 | 9
Townhouse/Condo Market Closed sales fell a minute 0.6 percent in the townhomes/ condo category year-to-date but the average percent of list price a seller received remained a stagnant 97 percent. New listings in February saw a 2.2 percent increase, but for the year there was a minor 1.3 percent decline. In total number of townhomes/condos for sale, there was a significant 17.6 percent drop compared to this time last year, which brought the months’ supply to 4.3. The median sales price for the year rose gently by 3 percent to $242,000. Adult Community Market Overall, the adult community market is the most unpredictable and ever-changing of the three housing categories. Year-to-date, closed sales dropped 2 percent and sellers in this category received an average of 96.8 percent of the list price. New listings weren’t spectacular, at a mere 1.8 percent increase in February, and the housing inventory spiraled down by 16.9 percent with just 3.3 months’ supply. The median sales price for the month rose by 9.1 percent, to $174,500 but spent 71 days on the market. For more information and reports on the NJ housing market, visit njrealtor.com/data.
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