Pools still raise a home’s value—in L.A., the average bump is $95K


The study, which analyzed 26,000 properties sold in the L.A. metropolitan area last year, found that homes with a pool sold for an average of $95,393 more than similar homes without them.

Of the 20 metro areas analyzed, that’s the highest by far. Orange County ranked second, with pools adding an average of $55,885 to a home’s value. Austin, Texas, ranked third at $52,228.


“Our climate is the biggest contributor,” said Lindsay Katz, a real estate agent active in the San Fernando Valley. “Pools rarely freeze here in the winter, and it’s not as hot as Phoenix or as humid as Tampa Bay in the summer.”

Phoenix ranked second-to-last on the list, with pools adding an average of $11,591 to a home’s value. At the bottom is Boston, a city with brutal winters where homes with pools actually sold for $15,484 less than homes without them.

L.A.’s affluence also plays a role, Katz said. If you can afford a multimillion-dollar house, you can probably swallow the cost of a pool, but less wealthy homeowners elsewhere may not want to drown in cleaning, repair and water bills, which can amount to hundreds monthly.

That would explain why Los Angeles — where the median home value as of February was $694,200, according to Zillow — is so much higher on the list than other California cities. Riverside pools add $44,750 to a home’s value; Oakland pools add $29,487; Sacramento pools add $20,616; and San Diego pools add $20,001.

How Much Is A Pool Worth?

Rank Metro area Value pool adds to a typical home Percentage of homes sold in 2018 that have a pool
1 Los Angeles $95,392.96 23%
2 Orange County $55,885.37 18.3%
3 Austin, Texas $52,228.18 4.7%
4 Riverside $44,750.31 21%
5 Fort Lauderdale, Fla. $36,964.24 45.6%
6 Houston, Texas $35,736.25 16.6%
7 Charlotte, N.C. $34,917.17 2.2%
8 Las Vegas, Nev. $30,169.53 25.3%
9 Tampa, Fla. $29,611.08 29.6%
10 Oakland $29,487.12 8.7%
11 Tucson, Ariz. $27,285.26 2.6%
12 Atlanta, Ga. $26,482.52 3.6%
13 Cape Coral, Fla. $26,115.47 6.7%
14 Hampton Roads, Va. $23,570.55 8%
15 Orlando, Fla. $21,300.36 18.7%
16 Sacramento $20,615.83 22.1%
17 San Diego $20,001.29 15.3%
18 San Antonio, Texas $18,540.88 11.6%
19 Phoenix, Ariz. $11,590.71 32.1%


Public pools often take the place of private in less expensive cities, but that’s not an area where Los Angeles excels. There are 1.18 million pools in California, according to Metrostudy, but L.A. has fewer public pools per 100,000 residents than cities such as Cleveland, Pittsburgh, Atlanta, Omaha, New Orleans, Orlando and Denver.

Of the 26,000 L.A.-area homes included in the study, about 6,000 had pools, or roughly 23%. Katz added that she wouldn’t be surprised to see that number rise, estimating that 60% of San Fernando Valley home buyers consider a pool a priority.

“Many of my clients live far from the ocean, and without much access to public pools, there aren’t many places to swim unless you have your own,” Katz said.

She recently listed an Encino home for $1.5 million, but because its backyard was too small for a pool, she lost potential buyers.

“At that price point, a pool’s not required, but it’s definitely expected,” she said.

Matt Barash, president of custom pool-building company Coastal Aquatic Creations, said he’s selling more pools than ever.

He’s been with the company since its genesis in 1994 and said sales have been steady, but last year was its best. This year is off to a promising start as well, with business booming on the Westside in Venice, Mar Vista, Westchester, Cheviot Hills and Beverlywood.

However, he’d be surprised if the average pool really resulted in a nearly six-digit jump in a home’s value.

Most projects take six to twelve weeks, with cost ranging from $50,000 to $70,000. He’s installed eye-catchers that cost half a million, but his business strategy right now is to focus on volume.

“Everything’s being torn down and rebuilt by developers,” he said. “Adding a pool is usually part of those renovations.”

Clean-line pools are the rage at the moment. Rectangular and minimalist, they pair well with the Cape Cods and modern farmhouses popping up across the city.

Don’t forget the spas; at this point, Barash estimates that 90% of pools include a hot tub.

When consulting with families, he said that few view a pool as an investment opportunity. Overwhelmingly, his clients are parents hoping a cool backyard will be a catalyst for keeping their kids at home. If it nets a few more offers when they sell down the road, all the better.


Plan to dramatically increase development would transform some L.A. neighborhoods

Plan to dramatically increase development would transform some L.A. neighborhoods
A bill in Sacramento could “upzone” much of L.A., allowing a greater number of four- to eight-story apartments and condominiums to go up near rail and bus routes. Above, a multistory residential project is under construction at Cesar Chavez Avenue and Broadway near Chinatown. (Kent Nishimura / Los Angeles Times)

For decades, the question of where Los Angeles should build housing has been a local matter.

Real estate developers have mostly relied on an elaborate web of city zoning rules to figure out how tall a new residential building can be, how many parking spaces it must have, and how many homes can be built on a particular piece of property.

Now, a bill under consideration in Sacramento would upend that arrangement, allowing multistory apartments and condominiums in neighborhoods where city leaders have long prohibited them. Senate Bill 827, written by state Sen. Scott Wiener (D-San Francisco), would loosen or eliminate restrictions on height, density, parking and design for residential properties near major rail and bus stops.

The impact could be huge. A Times analysis found that about 190,000 parcels in L.A. neighborhoods zoned for single-family homes are located in the “transit rich” areas identified in SB 827. Residences in those neighborhoods could eventually be replaced with buildings ranging from 45 to 85 feet, city officials say.

“While we are still evaluating the full effects of the bill, close to 50% of the city’s single-family homes would be impacted under SB 827,” said Yeghig L. Keshishian, spokesman for the Department of City Planning.

Less clear is SB 827’s effects on neighborhoods that already have apartments and condominiums. The bill could increase height limits and eliminate parking requirements in those locations, but have fewer impacts in areas such as downtown, which already allows high-density development.

Los Angeles Times

Wiener views his bill as a muscular tool for attacking traffic congestion, climate change and, most importantly, skyrocketing housing costs. With so many Californians struggling to pay their rent, the Legislature can no longer permit city councils and county supervisors to place strict limits on housing construction near major transit stops, he says.

“Public transportation is exactly where you should be putting housing if you’re serious about getting more people onto transit, reducing gridlock, reducing carbon emissions, giving people the option of driving less,” he said.

Foes of the bill say the city already has the planning tools to put more homes near bus and rail. And they warn SB 827 will trigger widespread redevelopment in single-family neighborhoods, low-rise commercial areas and historic preservation districts.

“In the process, you will destroy neighborhoods, destroy the sense of place that many of our neighborhoods and our villages represent,” said former Los Angeles County Supervisor Zev Yaroslavsky, who is now director of the Los Angeles Initiative at the UCLA Luskin School of Public Affairs and the Department of History.

Wiener’s bill would apply to a huge expanse of the L.A. basin because it is crisscrossed with bus routes and, to a much lesser extent, rail lines.

SB 827 would allow residential buildings up to five stories — and on wider streets, up to eight stories — on land within a quarter-mile of a location where buses arrive every 15 minutes during rush hour.

Developments the same size would be allowed within a quarter-mile of subway stations, light rail platforms and places where two major bus corridors intersect. Within a half-mile of such stops, apartments and condominiums could be as tall as four or five stories.

Sen. Scott Wiener
State Sen. Scott Wiener, standing in the Capitol last year, has a bill to allow four- to eight-story apartment buildings in locations where they are currently prohibited. The bill is opposed by local homeowner groups, historic preservationists and renters’ rights advocates. Rich Pedroncelli / Associated Press

The proposal has been greeted with alarm by an array of L.A. tenant groups, homeowner associations, neighborhood councils and historic preservationists.

Opponents contend the bill will deliver a financial windfall to landlords and homeowners, while placing new burden on low-income renters. With rules allowing taller, denser buildings, property owners would see a significant increase in the value of their holdings — and have a new financial incentive to sell to developers, they argue.

Shashi Hanuman, a directing attorney for Public Counsel, fears those developers will, in turn, demolish rent-controlled buildings and replace them with larger, more expensive ones.

“If you think of a building that’s four to eight units, and it’s upzoned to allow 40 units … the land value will increase and the pressure to tear down that building will increase,” said Hanuman, whose group advocates for low-income families.

Another tenant advocate was more blunt.

“It’ll be gentrification on steroids,” said Larry Gross, executive director of the Coalition for Economic Survival.

Backers of the bill say it has provisions to prevent the displacement of low-income residents. For example, companies that raze a structure using the incentives available under SB 827 would have to pay up to 42 months of rent to each family forced out.

The bill requires that those same families be offered the chance to move back into the replacement building at their prior rent, at least for the first year. And developers would be barred from demolishing rent-controlled buildings unless the City Council passes an ordinance explicitly allowing them to do so — a provision that, so far, has not reassured critics in L.A.

Wiener disputes the idea that his bill would produce a wholesale destruction of older housing stock. Neighborhoods will evolve gradually, as developers acquire building sites and the proper permits, he said.

“This is not some overnight transformation,” he said recently. “It’s going to happen over time.”

The Times relied on the city’s most recent bus and rail stop data, information compiled in September, to examine the locations that could be affected by SB 827. Within those areas are more than 86,000 rent-controlled buildings, or about 537,000 total units.

After the bill was introduced, city officials began taking a fresh look at local bus routes to see if they actually run every 15 minutes during rush hour. They say they are still analyzing the areas affected by SB 827.

La Cienega Boulevard
A Metro bus stops on La Cienega Boulevard. Senate Bill 827 would allow multistory apartments and condominiums near major bus stops. Brian van der Brug / Los Angeles Times

Since it was proposed two months ago, Wiener’s bill has received national attention, drawing praise from academics, urban planners and YIMBYs — pro-housing advocates who have adopted the slogan Yes In My Backyard. The bill went public just as state legislators were trying to tackle multiple housing and environmental challenges at once.

For decades, the state has not built enough new homes to keep pace with demand, forcing prices higher. Public spending to subsidize housing for the state’s poorest residents is annually billions of dollars short of the need. And to meet California’s ambitious climate change goals, state regulators have determined new growth needs to be concentrated near existing jobs and transit rather than urban sprawl.

Wiener’s bill forcefully tackles both the housing shortage and environmental concerns, said Marlon Boarnet, chair of the Department of Urban Planning and Spatial Analysis at USC’s Price School of Public Policy. “This is a bold vision,” he said.

Wiener’s legislation will almost certainly see further changes. Yet even if it is defeated, it will have shifted the conversation around housing in the state legislature, said Lisa Ann Schweitzer, an urban planning professor at USC’s Price School of Public Policy.

Until recently, the authority that cities and counties had over local development was unquestioned. With the state’s housing shortage more acute, policymakers are questioning that dynamic, she said.

“I think the writing is pretty much on the wall … that local governments are not going to upzone voluntarily unless something radical changes,” Schweitzer said. “I think a lot of people are hoping that the state is the lever that unlocks the gridlock around zoning.”

Backers of SB 827 say the need for change can be found on each side of Wilshire Boulevard west of Koreatown, where construction crews are at work on a $3.2-billion extension of the Metro Purple Line subway. Several neighborhoods along the route, such as Hancock Park and Beverly Grove, have restrictive zoning — a fact that confounds local business leaders.

Jessica Duboff, vice president of public policy for the Los Angeles Area Chamber of Commerce, said residential streets near three planned Purple Line stations — La Brea Avenue, Fairfax Avenue and La Cienega Boulevard — should be rezoned to allow taller apartments and condominiums.

“Those are employment corridors. Those are tourism corridors. And those places are where a big chunk of our transit dollars are going,” she said.

Brad Kane
Brad Kane, president of the Pico Neighborhood Council, opposes Senate Bill 827. He fears that Spanish Colonial Revival homes in his community will be replaced by much taller apartment buildings. Myung J. Chun / Los Angeles Times

Attorney Brad Kane moved to the South Carthay section of Los Angeles in 1999, lured in part by the Spanish Colonial Revival architecture — rows of houses and duplexes with smooth plaster and red-tile roofs. “It was a beautiful island,” he said. “It was beautiful and it was centrally located and it was protected, or so I thought, from major development.”

Kane is now president of the People Involved in Community Organizing, or Pico Neighborhood Council, which has come out against SB 827. The council serves South Carthay and 10 other neighborhoods — an area bordered by major bus routes. As a result, it is almost entirely covered by SB 827.

Because it is bordered by bus routes, one neighborhood council would see all but a tiny sliver of its territory covered under Senate Bill 827.
Because it is bordered by bus routes, one neighborhood council would see all but a tiny sliver of its territory covered under Senate Bill 827. Los Angeles Times

Wiener contends his bill would defer to local rules that protect historic structures from demolition. But Kane is not convinced, and fears that developers will use the city’s rules on renovations as a workaround to raze and replace those homes.

Council President Herb Wesson is backing a resolution to oppose SB 827, which comes up for vote Tuesday. Meanwhile, Mayor Eric Garcetti wants to make sure the bill has renter protections, affordability requirements and “better respects existing neighborhood character,” said Ben Winter, the mayor’s top housing aide.

“As currently written, SB 827 would effectively rezone most of the L.A. Basin — from the Hollywood Hills to the 105 — and large swaths of the Valley,” Winter said in a statement.

SB 827 would have similarly large effects in other big cities across California. Almost all of San Francisco would be rezoned to allow for more housing, according to a report prepared by the city’s planning department.

San Francisco is also considering a resolution to oppose SB 827, with candidates in the city’s June mayoral election divided on the measure.

By contrast, the bill has major backing from San Jose Mayor Sam Liccardo, who said his city is working to increase density around public transit.

Liccardo complained that neighboring communities in Silicon Valley haven’t done enough to increase the supply of housing. He said he’d give up some of his power over zoning issues in his own city if it meant San Jose’s suburbs would have to permit more home building.

Upzoning neighborhoods, he said, “requires having local government with a backbone.”


Realtor fined $450 for marketing violation warns colleagues of mistake

Facebook post sparks conversation over NAR’s ad rules and how they are regulated
On the morning of Dec. 4, Alexandria, Virginia-based Realtor Abraham Walker received an email from the Northern Virginia Association of Realtors (NVAR) stating that Walker had violated the National Association of Realtors’ (NAR) Standards of Practice for advertising.

Those standards, 12-5 and 12-9 of the NAR Code of Ethics, require agents to clearly disclose brokerage associations in all advertising and licensure information on their webpage and other marketing platforms. The notice came with screenshots of Walker’s Facebook page and website, provided by the anonymous tipster who reported him, along with a notification of that the violation would cost him $450 — $150 of which would go toward administrative fees.

Before and after of Walker’s website.

Walker immediately renamed his Facebook page from “Ask A Walker A Northern Virginia Real Estate Company” to “Ask A Walker powered by Keller Williams Realty Kingstowne” to highlight the brokerage affiliation and added his and his wife’s licensure information to the footer of their webpage.

Walker says although he didn’t have the brokerage name included in his original Facebook page name, he’s always listed his brokerage affiliation in the story section of the about page.

The “Ask A Walker” Facebook Page about section.

“I don’t think I knew where to put it at,” said Walker, noting that his brokerage affiliation is also listed on his webpage. “They sent me a screenshot of a specific place, so that’s when I changed my business name to have my broker’s name included in it, which it still isn’t clear if that’s what I needed to do.”

Walker paid the fine, and he then decided to share his story on Raise the Bar in Real Estate, hoping to prevent other agents from making the same mistake.

“I recently received a fine from my board for an Article 12 ethics violation. It cost me $450,” wrote Walker. “If you’re a Realtor, you could get hit with the same ethics violation in your market. Be sure to have the proper disclosures on your website and Facebook business page.”

“Learn from my mistake,” he concluded.

NAR’s Code of Ethics standards for advertising.

Walker shared before and after photos of his Facebook page and website to show the changes he made.

Many commenters thanked Walker for his transparency, saying they weren’t aware of the advertising requirements and planned to immediately update their Facebook pages and websites.

Other commenters focused on the $450 fine, which they felt was unfair — especially since Walker didn’t receive a compliance warning first.

“Did they waive the fine after you made the correction?” wrote Dawn Pfaff. “I’m sure you didn’t do this intentionally.”

“Man. Not even a warning first of noncompliance,” added Aaron Hoffman. “That sucks.”

Walker responded by saying whoever reported his Facebook profile and website were simply doing what they were supposed to, which keeps “this profession honorable.”

“Let us not waste energy focusing on the individual who followed the rules by anonymously reporting an obvious error. Instead, use this opportunity to review your advertisements for compliance issues,” he wrote. “Do not pity me. I’ve made a few $450 in my nine years as an agent.”

To cite or not to cite

NVAR caught wind of the conversation on Raise the Bar in Real Estate and held a Facebook Live event that explained how the NVAR citation system works.

Two grievance committee members — Dallison Veach and Frank Dillow — explained that consumers and Realtors alike can file a complaint, and the validity of that complaint will be examined based on the NAR Code of Ethics as well as Virginia’s Department of Professional and Occupational Regulation (DPOR)’s advertisement requirements.

They also made it clear that committee members are not eligible to file complaints, responding to conversations in a private Facebook page for Northern Virginia-area Realtors that implied NVAR board members were filing complaints and doling out fees to increase NVAR’s revenue.

“The grievance committee’s job is to look at the data and look at the information (assuming that it is true), whether it qualifies for a specific citation or qualifies for a specific violation of the Code of Ethics,” explained Dillow. “Then we move it onto professional standards to make the next level decision.”

When it comes to Code of Ethics violations and the subsequent fines, Veach and Dillow explained the system “isn’t set up to give a warning,” but rather to determine if there’s been a violation and fine Realtors on the first offense.

Furthermore, NVAR says the current citation system was voted upon and approved by the Board of Directors for the six local Northern Virginia associations, which include Arlington County, Fairfax County, City of Fairfax, City of Falls Church, Town of Vienna and the City of Alexandria.

In order for the current system to be changed, members would need to make a request that would “work its way up” to the Professional Standards Committee as a recommendation to the Board of Directors.

Lastly, Dillow says that switching to a warning system would disproportionately shift the cost burden to the association considering the man-hours it would require for the complaint to travel through the grievance process and for committee members to decide to give a warning or charge a fine.

Dillow and Veach also said members always have the option to keep one another accountable by quickly pointing out violations rather than filing a formal complaint.

“We’d prefer that you take the extra effort to warn a fellow Realtor about a violation,” he added. “That would make everything so much nicer. I think everyone would rather get the warning [from a colleague].”

Rely on your common sense

NVAR also noted that brokers must bear some of the onus for educating their agents about proper advertising practices.

“We look to the brokers, and say, ‘Hey, you should be educating your agents and monitoring the advertising in your office,’” said Veach before listing the array of educational tools NVAR provides to agents and brokers. She also suggested that agents, especially new agents, reach out to their brokers to get guidance about advertising standards.

But according to commenters on Walker’s post, brokerages and associations alike could be doing more to educate their agents on advertising standards and provide specific examples of what compliance looks like.

“NAR and state associations want us to include both brokerage and state licensure on all media, then frankly they should spend more time and effort educating us on it than the [stuff] we’re subjected to on an annual basis,” wrote Bo Bromhal.

“Your original page, which lists you as a KW agent, in VA, is either sufficient or someone should — without any violation — explain to us all what they want.”

NAR general acting counsel Ralph Holmen says the association doesn’t provide “explicit, articulated guidance on how exactly [advertisements] have to be done.” Instead, NAR relies on agents and brokers’ ability to properly interpret and execute what “reasonable and readily apparent manner” means for their advertising materials on all platforms.

“If it’s in a tiny two-point type at the very bottom corner of the page where it wouldn’t be easily visible, then it obviously wouldn’t satisfy that standard (12-5 and 12-9),” he said.

When it comes to some NVAR members calling to give a warning citation rather than fine on the first offense, Holmen says he doesn’t believe associations have an “obligation” to provide a warning, and that it’s ultimately up to the association to decide the best method for handling violations.

NVAR senior director of communications Ann Gutkin says the association is doing all it can to ensure members are in compliance with NAR and DPOR advertising standards, such as offering digital and print articles as well as subject-specific videos on the NVAR site and YouTube channel.

Furthermore, Gutkin says members are encouraged to call the online legal hotline to get advice from staff attorneys.

Although Walker believes NVAR needs to provide “more clarification” on how to meet standards, he says his brokerage has tried to be proactive.

On the day he received the fine, his brokerage sent reminders on NAR and DPOR advertising standards and has helped revise everyone’s Facebook pages, websites and other marketing materials, changes he hopes will prevent another $450 fine from coming his, or his colleagues’, way.


New home sales surge 18.9 percent in September, highest level in 10 years

  • New home sales soared 18.9 percent in September.
  • Economists surveyed by Thomson Reuters anticipated new home sales falling 0.9 percent for the month.
  • New home sales unexpectedly fell 3.4 percent in August.
A new home is constructed on July 26, 2017 in Miami, Florida.
Getty Images
A new home is constructed on July 26, 2017 in Miami, Florida.

Sales of new U.S. single-family homes unexpectedly rose in September, hitting their highest level in nearly 10 years, offering hope that the housing market was regaining speed after appearing to stall in recent months.

The Commerce Department said on Wednesday new home sales surged 18.9 percent to a seasonally adjusted annual rate of 667,000 units last month amid an increase in all four regions. That was the highest level since October 2007 and followed August’s upwardly revised sales pace of 561,000 units.

The percent gain was the largest since January 1992. August’s sales pace was previously reported at 560,000 units.


Economists polled by Reuters had forecast new home sales, which account for 11 percent of overall home sales, falling 0.9 percent to a pace of 555,000 units last month.

New home sales, which are drawn from permits, are volatile on a month-to-month basis. Sales soared 17.0 percent on a year-on-year basis in September. The housing market has trod water for much of this year, amid shortages of homes available for sale, skilled labor and suitable land for building.

Activity was also hampered by Hurricanes Harvey and Irma, which weighed on homebuilding in September and hurt sales of previously owned homes in the South. Housing is expected to have been a drag on economic growth in the third quarter.

In September, new single-family homes sales raced to a more than 9-1/2 year high in the Northeast. Sales in the South hit their highest level since July 2007. There were also strong gains in the West and Midwest last month.

More than two-thirds of the new homes sold last month were either under construction or yet to be started.

With sales surging in September, the inventory of new homes on the market was unchanged at 279,000 units. At September’s robust sales pace it would take 5.0 months to clear the supply of houses on the market, down from 6.0 months in August.

A six-month supply is viewed as a healthy balance between supply and demand.

‘Nonprime has a nice ring to it’: the return of the high-risk mortgage

Rows of houses in Las Vegas.

Jacob Kepler | Bloomberg | Getty Images
Rows of houses in Las Vegas.

It was about a decade ago that Dan Perl chucked it all in to go surfing in Mexico. As a veteran underwriter of subprime mortgages, he’d seen enough by April 2007 to know that there was serious trouble ahead. So he pulled down the shutters, took an extended break in Baja, California, and then lay low for a few years, trading loans for a New York firm, Carl Marks & Co.

But now he is back in the game, leading a small band of lenders making subprime loans once more. Or “nonprime”, as they prefer to call it these days. The sector is on course to produce about $10bn this year — a tiny slice of America’s $1.6tn overall home-loan market but one that’s growing rapidly.

Plenty of people told Perl, 68, that he couldn’t bring this stuff back so soon after the global financial crisis, and after regulators all over the US radically tightened rules on mortgages. People said he was risking his net worth, that he’d “be sued into oblivion”.

“How many times we hear that, Kyle?” he asks, turning to his protégé, 39-year-old Kyle Gunderlock, who was a VP of sales at Perl’s old firm and is now president of the new one, known as Citadel Servicing Corp, based in Irvine, California.

“‘You guys are going to get f***ing arrested,’ is the one I always remember,” says Gunderlock.

The way Perl and his peers see it, there’s nothing shady or menacing about the business of subprime. On the contrary, they say, specialist lenders in this area are performing a vital service for the world’s largest economy. For every comfortably off professional who could walk into a branch of Chase or Wells Fargo and get a home loan without any fuss, they argue, there are many more who would struggle. People who are self-employed or on variable incomes, for example, may not check all the boxes a big bank needs. Ditto new immigrants with thin credit histories, or people with a few scratches and dents in their files.

“Making credit available to borrowers who are subprime is national policy and it is an important part of economic growth,” says Julian Hebron, head of sales at RPM Mortgage in Alamo, California. “It’s untrue to call it a scourge.”

But what’s worrying some economists is a feeling that we’re on a slippery slope; that the same forces which fed the crisis last time round — rampant demand for yield among investors, skewed incentives on Wall Street and a government determined to relax regulatory restraints — could feed another.

Under President Donald Trump, for example, agencies are under orders to review just about every financial rule that emerged under Barack Obama. In June, the Treasury department put out a report saying that tight underwriting standards were partly to blame for “anaemic” growth in housing, which accounts for almost one-fifth of GDP.

The market for securitising subprime loans is picking up, too, spreading the risk of default in much the same way as before. Fitch, the credit rating agency, expects $3bn of issuance of nonprime mortgage-backed securities (MBS) this year, up from about $1bn over the previous 18 months. (Back in January, it was predicting $2bn for the year.)

Meanwhile, some old characters are re-emerging, including a few who gained a certain notoriety a decade ago. Kyle Walker, the former head of Fremont, a big mortgage firm that was rapped by federal regulators for “unsafe” practices in March 2007, is back running a nonprime shop called HomeXpress in Newport Beach, California. Dan Sparks, a former Goldman Sachs trader mentioned more than 500 times in a Senate report on the mortgage meltdown, is now buying low-grade loans from a hedge fund up in Stamford, Connecticut. (Walker did not respond to requests for comment and Sparks declined to comment.)

All of this is happening without a proper reckoning from the last time around, says Richard Bowen, a former chief underwriter at Citigroup, which ranked as America’s top subprime lender in 2007. Bowen says he tried to raise the alarm internally about rampant fraud in mortgage applications, before being stripped of underwriting responsibilities. He left the group in 2008. He draws a contrast with the savings and loan crisis in the US in the 1980s, after which about 800 senior bankers went to jail. The running total from the crisis that began in 2007? Zero. Even though it was “many, many, many” times worse, says Bowen, “no one has been held accountable. And I can assure you it’s not because of a lack of evidence.”

On the morning I meet Perl, on a blazingly hot day in June, he’d been up the hills behind his house in San Juan Capistrano with his white Labrador Ella. Now he’s showered and holding court in his office, dressed in jeans, loafers and a checked shirt.

He was born in Brooklyn to a conservative Jewish family but grew up in Sherman Oaks, a relatively spacious suburb of Los Angeles, and Santa Monica. After a degree from UCLA and an English teaching job at Santa Monica High, he formed a loan brokerage in the mid-1970s with his college pal Bill Ashmore, who now runs Impac, another mortgage firm based a few miles up the San Diego Freeway from Citadel.

After the crash of 1987, Perl-Ashmore parted ways; Perl into subprime (or “Bs and Cs”, as lower-grade loans were called then) and Ashmore into “Alt-A”, slightly classier yet not quite prime. In the 1990s Perl’s business grew strongly, partly on the back of a loan he invented called the NINA — aimed at customers with “no income, no assets”. He was known as the Big Kahuna.

But by 2005, says Perl, it was clear that things were slipping out of control. His outfit, then known as First Street, was a top 20 underwriter nationwide, in a sector which produced about $1tn of subprime mortgages — about one-third of the total US mortgage market — that year. Also clustered in Orange County were some of the best-known subprime shops in the country, such as New Century, Ameriquest and Fremont.

But margins were shrinking and loans were being written that should never have been written. At one point New Century had a 2 per cent error rate, meaning that one in every 50 of its borrowers never made a single payment. The company’s collapse in early April 2007, owing $8.4bn to banks including Morgan Stanley, Barclays and UBS, was one of the defining moments of the crisis.

Mike Fierman, managing partner and co-CEO of Angel Oak of Atlanta, Georgia, was also in the thick of it back then, running a firm called SouthStar Funding. He says he had no choice: if he wanted to compete, he had to drop standards. Like Perl, he bailed in April 2007, after Goldman and Lehman Brothers said they’d had their fill of subprime. But until that point they and other investment banks had hoovered up everything he’d offered them. They’d then wrap it up into MBS, on which credit rating agencies — competing between themselves to win the most business — would typically slap an attractive rating.

“Everyone was complicit,” says Fierman. “You felt trapped; investors were demanding more loans than could be produced in a responsible way. The only way to produce that kind of volume was to be irresponsible.”

Brokers were going after “gardeners and serving maids and house cleaners and gas-station attendants and strippers on poles,” says Perl. “That’s not lending. That ain’t the way you do it.”

He got out about 18 months before the collapse of Lehman brought the world economy to the brink of ruin. “Honest to God, Ben, do you ever just get a bad vibe?” he asks me. “Do you ever walk down a dark hall and say, ‘This is not a place I should be?'”

This time it’s different, say the lenders. Thanks to the Dodd-Frank Act of 2010, the nonprime loans being written now bear little relation to the sludge that stunk up the system a decade ago.

Perl and Gunderlock say they spent weeks going through the 800 pages of Dodd-Frank that was relevant to mortgages, as they looked to crank up the machine again. There were all kinds of proscriptions on funding and closing and servicing a loan, says Perl, but in the end it came down to this: “People have to be relatively reasonable about how they treat borrowers. You can’t lie, you can’t cheat, you can’t steal.”

Gone, as a result, are some dubious features that caused trouble last time round, such as zero deposits or low teaser rates that adjusted sharply higher in two or three years. Gone, too, are the negative amortisation loans that allowed borrowers to pay less than the interest due, so that the loan balance actually grew.

There’s no more “stated income” either: whatever the borrower declares, the lender has to check by looking at pay stubs and tax returns, rather than assuming it’s the truth.

Granted, standards in nonprime are generally looser than those that apply to mortgages eligible to be bought by government agencies such as Fannie Mae. Such loans are known as “qualified mortgages”, or QM, and they account for the vast majority of America’s home-loan market.

But today every mortgage has to conform to an overarching standard known as ATR, or “ability to repay”. Unless a lender can be convinced in eight separate ways that the borrower has the means to pay the thing back, it can be sued down the track if the loan goes bad.

The new regulatory framework is “actually pretty rational”, says Matt Nichols, founder and CEO of Deephaven Mortgage, who set up the Charlotte, North Carolina-based firm in 2013 after more than a decade running Goldman’s residential mortgage business. So far he’s bought about $1bn of nonprime loans from a network of 100 or so brokers, and has resold about half of that into the MBS market.

In a $250m MBS deal in June, more than 40 per cent of borrowers who got mortgages bought by Deephaven had had a prior “credit event” such as a bankruptcy, foreclosure or short sale, according to Kroll, a credit rating agency. The deal was roughly six times oversubscribed, nonetheless.

“Ability to repay, as a rule, is common sense,” says Nichols. “You’ve got to rely on something other than their word for it, right?”

Perl and others note that investors in these new classes of nonprime MBS have extra degrees of comfort. Under Dodd-Frank reforms that took effect in 2015, sponsors of a deal need to retain an interest of at least 5 per cent of the aggregate credit risk of the assets they’re turning into securities. It’s known as “skin in the game”: if originators are on the hook for losses, the theory goes, they’ll take a lot more care over what they’re producing.

Before the crisis, there was no minimum ownership, resulting in mortgage firms simply flipping all kinds of dross at Goldman or Merrill or Bear Stearns. “This is not an originate-to-sell model; it’s an originate-to-own model,” says Fierman of Angel Oak. His firm, which buys nonprime loans from other brokers as well as originating its own, has been the most active of MBS issuers, completing four deals since 2015 worth a total of $630m. He says that Angel Oak has gone well beyond the basic 5 per cent threshold, owning as much as 10 per cent of its MBS deals at various points. “Trust has to be built with investors,” he says. “They’re watching us closely.”

Some of the big names on Wall Street have already tiptoed back in. Pimco, the world’s biggest bond house, has 25 per cent of the equity in Perl’s Citadel, according to a person familiar with the ownership structure. Blackstone, the private equity giant, has a cluster of nonprime investments, including a stake in Bayview Asset Management, a firm which buys mortgages from Coral Gables, in Florida.

Will the big US banks get back into subprime? Inevitably, says Guy Cecala, CEO and publisher of Inside Mortgage Finance, the industry bible. He notes that overall mortgage originations in the US have slipped about one-fifth this year, mostly because a rise in interest rates has caused refinancing business to drop.

“At the end of the day, every lender out there, unless they want to see their business decline, has to look at alternative products,” he says.

In the meantime, other banks are taking supporting roles. Credit Suisse and Nomura, for example, are supplying lines of credit to originators and underwriting securitisations of subprime mortgages. Fitch, DBRS and Kroll, the credit rating agencies, have given their stamps of approval to a succession of securitisation deals.

Even Standard & Poor’s, which paid $1.4bn in 2015 to the US Department of Justice to resolve a probe into ratings inflation, is back on the scene, rating five deals this year. (Moody’s, which settled with the government in January this year, has yet to re-appear.)

Some investors, for their part, are reluctant to dive in. Tracy Chen, a fund manager at Brandywine Global in Philadelphia, says she’s tempted, but wants the MBS market to increase to about $20bn in total before she would feel comfortable trading in and out of positions. “The market is still not very transparent, and there’s not much trading volume. I need to wait for it to scale up before I enter.” The caution is understandable: she was at UBS in the run-up to the crisis, when the Swiss bank took tens of billions of dollars of losses on its subprime portfolio.

But even the more cautious investors may change their minds, in time. As long as interest rates stay near historic lows, “anyone will scramble for what yield they can find”, says Bowen, the ex-Citigroup whistleblower, who now lectures on ethics.

He cites the sale of junk bonds in August by Tesla, the trendy carmaker that is still consuming much more cash than it is earning. The $1.8bn deal, which lacks restrictions to stop Tesla issuing more debt whenever it wants to, is “insane”, he says.

For now, loan books are in good shape. At Impac, just a handful of non-QM loans written over the past three years are more than 60 days delinquent, says Ashmore, the CEO. Only one loan is in foreclosure, among about 2,200 in total.

He expects the total nonprime market to increase to $100bn before long. “I believe if I can deliver superior risk-adjusted returns, there’ll be more than enough capital.”

At Citadel, which normally aims a notch or two below the typical Impac customer, in terms of credit score and debt-to-income ratios, there are seven foreclosures among 3,500 or so loans. That has prompted Perl to push out the boat a bit. In August he launched a new loan called “The One”, allowing a self-employed borrower to qualify based on one month’s bank statement rather than the usual 12.

The move has “got everyone a little nervous”, he admits, despite a long list of safety features. But he reckons he has another four to five years of “clear sailing” before the market starts to turn once more.

One regret? Not trademarking “nonprime”, which he thinks he coined five years ago.

As for “subprime”, he never liked it.

“It sounds kind of Neanderthal, doesn’t it? It sounds almost like you’re a monkey and humans are better. But nonprime has a nice ring to it.”


Courtesy: Ben McLannahan

GSEs usher in appraisal-free loans

For decades, home appraisals have been a standard feature in a home sale. Now a borrower may no longer need one when buying a house with the nation’s most popular loans.

The government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae have announced they won’t require a traditional appraisal in some home-purchase deals beginning next month. The enterprises will use big data and their automated tools to confirm the value of select properties.

appraisalsThe GSEs, which finance roughly half of all home loans made by lenders, have accepted automated appraisals in some home refinances. It will be possible to skip a full-blown appraisal in a home purchase for eligible properties after Sept. 1. 

Fannie and Freddie’s initiatives are similar in a number of ways. Sales involving single-family homes and condominiums, including second homes, could be eligible to skip the appraisal. A number of property types won’t be eligible, such as investment properties, two- to four-unit homes, or homes located in previous disaster areas.

To be eligible for an appraisal waiver, borrowers also will have to chip in a healthy downpayment of at least 20 percent on the home.

A new controversy? 

The move could prove to be controversial, however. 

“We have significant concerns about it,” said Jim Amorin, president of the global trade group, the Appraisal Institute. “We think it is going to result in a race to the bottom, create a lot more risk for taxpayers and be a significant issue for the taxpaying public in the not-too-distant future,” he told Scotsman Guide News.  

Amorin said the GSEs have gone down this road before to bad results. In 1994, bank regulators exempted loans sold to Fannie and Freddie from requiring a full-blown appraisal. The GSEs ultimately loosened their standards, and granted appraisal waivers on a significant number of the loans purchased by the enterprises up to the time of the last housing crash and financial crisis, when the GSEs were bailed out and taken into conservatorship.   

“Fannie and Freddie did this in the 2000 timeframe, which led up to the last crisis,” Amorin said. “It is as if everyone forgets the past.”   

Post-financial crisis, the GSEs have required a traditional appraisal on nearly all purchase loans. Since the crisis, new federal rules on the industry have tightened standards to ensure the accuracy of an appraisal, and have kept appraisals at an arm’s length from lenders.

Amorin said Freddie has indicated to the trade group that it could grant waivers on up to 35 percent of its loans, whereas Fannie has been more conservative and less than 10 percent of its loans will be eligible. He said that the industry will continue to push the GSE regulator, the Federal Housing Finance Agency (FHFA), to clamp down on the use of appraisal-free mortgages in property sales. 

“They should be very concerned about using appraisal waivers on purchase-money mortgages,” Amorin said. “If they want to continue to do that on refinancing where there is an established credit history for the borrower… that probably makes some sense,” Amorin said. “On the purchase of a new home, we think it is an incredibly risky venture, when the markets are starting to approach their peak, or beyond their peak. FHFA is doing a disservice to the American taxpayer by allowing this.”

In a June letter to the FHFA, the Appraisal Foundation, which establishes federally-mandated standards for professional appraisers, said it was “a step 180 degrees in the wrong direction.” The organization also said the moves are poorly timed. Fannie and Freddie are rolling out these programs at a time when homes may already be overvalued.  

“Frankly, using ‘backward-looking’ data to project a property’s value based on transactions that occurred at the height of a market creates a recipe for disaster,” the Foundation letter says. 

The Foundation asserted that while live appraisers do use historical data, their expertise is needed to recognize market shifts. The Foundation also expressed concern that Fannie and Freddie don’t appear to have adopted identical criteria to allow for a waiver.  

Appraisal experts told Scotsman Guide News in June that automated appraisals using computer modeling will likely become more common in housing sales. The current technology, however, tends to yield accurate results only for newer houses in neighborhoods with similar property values. These tools are not as successful in evaluating older properties, or in neighborhoods with a lot of variation in the housing stock. Also, automated valuations aren’t likely to work in rural and remote areas with sporadic property sales, where it often is difficult even for a live appraiser to get a handle on the property’s worth. 

Karen Mann, the owner of Mann & Associates and a working appraiser in Discovery Bay, California, said a number of factors that determine a property’s value can be easily missed by statistical modeling, such as if a school district boundary moves. 

“I happen to live in a unique property on the water with my boat floating in the backyard in the Sacramento delta area in a custom home,” Mann said during a telephone interview Wednesday. “Every house in my development is completely different, and one of the contributions to value is how close you are to the area where you don’t have to go 5 miles an hour [in a boat]. We call it fast water. So, how do the statistics account for things that are not identical?” 

Mann, who spoke to Scotsman Guide News on behalf of the American Society of Appraisers, said that the GSEs have been able to do this now because the market has been on an upswing.  

“The appraisers main job is to be the eyes and ears of the lending institution, and we are supposed to blow the whistle if we see issues,” Mann said. “Where many of the lenders are now, there are so few issues. They are not worried about it.  And if they are Ok with [appraisal waivers], well, I guess the appraisers shouldn’t get too upset about it, but we kind of take our job seriously.” 

In a news release on Friday, Freddie said it will use its automated-collateral evaluation tool to determine whether a property is eligible. That system sorts through multiple listing data, historical sales and public records to determine whether the value is in line with a lender’s estimate.

Freddie said that it could save borrowers up to $500 and cut down on closing times by seven to 10 days.

“By leveraging big data and advanced analytics, as well as 40-plus years of historical data, we’re cutting costs and speeding up the closing process for borrowers,” said David Lowman, executive vice president of Freddie Mac’s single-family business. “At the same time, we’re providing immediate collateral representation and warranty relief to lenders.”

This story was updated from the original version to include comments from the Appraisal Institute and American Society of Appraisers. 

Fannie Mae Just Increased What You Can Borrow

Government-sponsored mortgage giant Fannie Mae will raise its debt-to-income limit from 45 percent to 50 percent on July 29, 2017. This would increase the pool of approvable borrowers for home sellers, and allow homebuyers to spend more.

The decision came on the heels of a study that concluded higher DTI ratios don’t increase the rate of mortgage default. Fannie Mae researchers examined over 15 years of data from borrowers with DTI ratios between 45 and 50 percent. They found that many of these borrowers had good credit and were not likely to default.

This change is a big deal, because according to the Washington Post, a too-high DTI is the most common cause of mortgage denial.

Your debt-to-income ratio compares your gross (before tax) monthly income to your total monthly debt payments on all debt accounts. Accounts include auto financing, credit cards, and student loans, plus the projected payment for the new mortgage.

How DTI Affects Your Loan Amount
If you earn $4,000 a month, previous guidelines allowed you to have total payments of $1,800 per month. If you had accounts totaling $700, your housing expense, including mortgage principal, interest, taxes and insurance (PITI) couldn’t exceed $1,100 per month.

After July 29, you’d be able to have payments totaling half of your gross income. If you earn $4,000 a month, you can have bills and housing payments up to $2,000 a month. If your other payments equal $700, you could qualify for a PITI of up to $1,300 a month.

How Much More Can You Borrow?
The new change will let some applicants with DTI ratios over 45 percent borrow more. How much more? That depends on your income and monthly debt.

You can see how allowing higher DTIs would increase what people can borrow. The borrower in the example above, earning $4,000 a month, can spend up to $1,100 a month for housing. Under new guidelines, the borrower can spend up to $1,300 a month.

Assuming that taxes and insurance come to $250 a month, this homebuyer can pay $850 a month for PITI under the old guidelines, and $1,050 under the new ones.

At a four percent mortgage rates, you could borrow $178,000 under the old rule. And $220,000 under the new one. That’s a loan amount over 20 percent higher!

Who Qualifies For Larger Loans?
To qualify for a mortgage with high debt-to-income ratios, you’ll need a strong application. That usually means a substantial down payment, or really great credit scores. Another plus is having savings after you close on your loan — enough to make several months’ mortgage payment if your income stops temporarily.

You’ll know if you qualify in seconds, once your loan officer or broker submits your file for automated underwriting.

That’s the beauty of Fannie Mae’s Desktop Underwriter software. You can get a decision quickly. In addition, your lender can run the program again and again. You can try out several scenarios until you find a way to get approved.

What Are Today’s Mortgage Rates?
Current mortgage rates edged up slightly after James Comey testified and the White House didn’t burn down. Political and economic uncertainty in Europe has been affecting interest rates here, but investors have remained optimistic about US markets.

Stocks ended yesterday with mixed results, changes that you’d not expect to warrant a major change in mortgage rates.




Fannie Mae announces new programs to break through student loan roadblock

Cash-out refinance, new debt-to-income calculations spur homeownership

Confirming what sources told HousingWire yesterday, Fannie Mae this morning announced a significant expansion of its student loan cash-out refinance program and introduced new policies to help borrowers with student loan debt get qualified for mortgage loans.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, vice president of customer solutions at Fannie Mae. “These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”

The level of student debt in the U.S. has spiraled over the last decade to $1.4 trillion, effectively locking out millions of potential homebuyers from the market. The new Fannie Mae programs address specific roadblocks that these borrowers face, providing a jump-start to a whole generation of homebuyers.

Fannie Mae’s new solutions include:

  • Student loan cash-out refinance: Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.
  • Debt paid by others: Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else.
  • Student debt payment calculation: Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.

The new student loan cash-out refinance option expands a program Fannie Mae rolled out with SoFi in November. Lawless said the overwhelmingly positive reaction to that program convinced Fannie Mae to broaden its scope.

“We were really testing market reception and we got a lot of interest from consumers and a lot form interest from lenders who wanted to have access to this same type of program. The market reception was such that we were really confident this was needed,” Lawless said.

Fannie Mae created the new programs to help counter the stifling effect student debt was having on the housing market, Lawless said. Many potential borrowers have been unable to get past the debt-to-income threshold to buy their first house, while parents who helped pay for education have also been hit.

“We arrived at these product ideas after seeing the size of student loan debt, which is $1.4 trillion. But there’s another number to pay attention to — $8 trillion in home equity,” Lawless said. “There is enough housing equity in California alone to pay off the student debt of the entire nation. We wanted to find a way to unlock that equity.”

The cash-out refinance allows homeowners to pay off not only their own student debt, but any debt they took on for their kids’ education.

“By tapping into their equity, parents could directly free up the next generation of homeowners,” Lawless said. 

And the change in the debt-to-income calculation is going to be a huge benefit to the industry, Lawless said.

“We spent a lot of time with our customers, who are lenders, hearing their frustrations and looking for new opportunities,” he said. “The biggest challenge today is being able to qualify people with student debt for mortgage loans. It’s exciting to make it easier for lenders and help more people become homeowners.” 


Credit: HOUSINGWIRE – Sarah Wheeler

Real estate regulators crack down on individual agent, team branding

California Real Estate Commission warns agents pretending to be brokers

Key Takeaways
State agency cautions agents not to represent themselves as “independent” and reminds brokers to supervise agent advertising.

California’s real estate regulator appears to be getting fed up with agents who mislead consumers into believing they are brokers — and with the brokers that support the practice — and it’s not alone.

What constitutes misleading consumers? It could be as simple as an agent using a fictitious business name ending in “Real Estate” or an agent branding him- or herself as an “independent” real estate professional.

In March, the California Bureau of Real Estate (CalBRE) issued a licensee alert warning that agents who violate these laws — and brokers who let their agents engage in such activities — risk significant fines, license revocations and even criminal prosecution.

Other states are also contending with the gray area of agent branding, and this latest advisory indicates that the issue will continue to be a regulatory focus in the Golden State and beyond.

This year, a South Carolina bill banning the use of “real estate,” “realty” and related terms in agent team names went into effect, while a bill that makes many real estate signs prominently featuring agents (rather than the brokerage) illegal in Michigan was signed by the governor in January.

In general these regulations are designed to protect consumers from getting duped into thinking agents or teams are brokerages, but other stakeholders say these types of rules represent a nationwide push by traditional brokerages to curb the growth of teams and argue that they stifle the personal touch that an agent’s individual branding can convey.

Massachusetts-based broker-owner Gary Rogers, however, expressed his understanding of such legal boundaries: “I do see a lot of illegal signs promoting a team brand and little and sometimes zero mention of the office they work for,” he commented in a related real estate industry Facebook thread.

“Sometimes there’s only one agent on that team, which cracks me up.”

What’s the context for California?

The alert from CalBRE was “supplemental” — it was preceded by a similar September 2015 alert penned by California Real Estate Commissioner Wayne Bell.

Wayne Bell
The second alert was also authored by Bell, along with Special Investigator Mark Tutera, and made clear that the agency was not happy to have to repeat itself by pointing to continued “bad practices” identified in the original alert.

“CalBRE has taken notice of the use by some real estate salespersons of names and designations (and attendant Internet and marketing materials) that suggest to the public — and mislead consumers into falsely believing — that such salespersons are real estate brokers,” the alert said.

They explained that under California’s two-tired licensing system, “real estate salespersons cannot provide — or advertise that they can provide — real estate services independently of their responsible brokers.” Salespersons must also be affiliated with and “reasonably supervised by … a responsible broker in order to engage in real estate licensed activities in California. The law provides no exceptions.”

Supervision includes broker review of the advertising used by the broker’s agents, they added.

Where agents can go wrong

CalBRE specifically outlined two unlawful scenarios the agency said it had seen repeatedly. The first is that an agent, say John Doe, uses a fictitious business name such as “Doe Real Estate” that would lead consumers to incorrectly believe that the business is run by a real estate broker.

“Doe advertises using that business name, and the advertisements are connected to, or accompanied by, a webpage and other materials that extol the virtues of Doe Real Estate,” CalBRE said.

“The public would not think that Doe is a salesperson who must be supervised by another, and would most certainly conclude that Doe Real Estate is a real estate broker or brokerage. And the above practices are unlawful.”

Secondly, many agents continue to brand and identify themselves as “independent” real estate practitioners and practice and advertise as such, the agency said.

Unless those agents are operating as teams and in compliance with state laws governing teams, representing themselves as independent is also unlawful, the agency added.

Teams must disclose the name of the responsible broker, and the team name must include the surname and license number of at least one of the licensee members of the team and use the terms “team”, “group” or associates,” according to CalBRE.

Team names cannot include terms that would lead consumers to believe that the team offers brokerage services independent of a broker, including terms such as “real estate broker,” “real estate brokerage,” “broker,” or “brokerage.”

Industry reactions across states

A petition against the Michigan bill, which requires the brokerage name to appear as 100 percent of the size of an agent’s name on any and all advertising, has gained over 1,000 signatures.

“This law actually decreases competition by putting more emphasis on the broker and less on the agent,” Jackson, Michigan-based Realtor Tim Creech commented on the petition.

“All agents are 1099 self employed and creating brand and image is critical in building our personal identity. This law is unfair and serves no purpose other than creating larger companies controlling business and hurting small business.”

Shaun Simpson, a Realtor from the Midwest, noted on a Facebook thread that Ohio also has an equal prominence rule, but in practice, the regulation isn’t clear cut.

“It is very difficult to define and many violate it,” Simpson wrote. “With DBAs (doing business as) and the like as well as logos, not many have a good understanding. I think equal is difficult for signage and it ends [up] making the signs look more confusing.”

In Tennessee, a bill revised in January requires that all advertising clearly show the brokerage’s firm name and telephone number.

Nashville-based Kathryn Royster of Houselens indicated that the disruption such laws bring to agents’ business is temporary. “It caused some significant but one-time headaches for a number of our customers who had to redo their business cards, signs, etc.,” she noted.


Disciplinary Advisory to Real Estate Salespersons Who Mislead Consumers into Falsely Believing that They are Brokers

In September 2015, the California Bureau of Real Estate (CalBRE) issued an advisory which was captioned “Disciplinary Warning to Real Estate Salespersons Who Act, Conduct Themselves, and/or Advertise as ‘Independent’ Real Estate Professionals — and a Simultaneous Caution to Brokers Who Allow or Support Such Practices”.  


Licensees of CalBRE are well advised to review that prior advisory since we continue to see some of the same bad practices identified in that writing.

This discipline “advisory” is being issued as a supplement to that prior warning since CalBRE has taken notice of the use by some real estate salespersons of names and designations (and attendant Internet and marketing materials) that suggest to the public – and mislead consumers into falsely believing – that such salespersons are real estate brokers.

A scenario that we have repeatedly seen is the use by a salesperson (who for this illustration we will identify as John Doe) of a fictitious business name that would lead members of the public to incorrectly believe that the business is operated and managed by a real estate broker. In this example, salesperson Doe conducts business using the name Doe Real Estate.  Doe advertises using that business name, and the advertisements are connected to, or accompanied by, a webpage and other materials that extol the virtues of Doe Real Estate.  The public would not think that Doe is a salesperson who must be supervised by another, and would most certainly conclude that Doe Real Estate is a real estate broker or brokerage.  And the above practices are unlawful.

In addition to the above, many salespersons continue to brand and identify themselves as “independent” real estate practitioners, and they practice and advertise as such.  Unless those salespersons are operating as “teams”, in full compliance with the California laws and rules pertaining to teams (e.g., the disclosure of I.D numbers and the name of responsible broker, and the surname of at least one of the licensee members of the team along with the use of the terms “team”, “group” or associates” with regard to the team), that is unlawful as well.

Further, and depending on the specific language employed with respect to the name(s) and designation(s) used by the real estate salespersons, there might be a violation of the law relative to the use of fictitious names.  Please see the prior guidance given by CalBRE on the proper use and licensing of fictitious names.

As was also stated in the prior warning, under California law, with its two-tiered licensing system, real estate salespersons cannot provide – or advertise that they can provide – real estate services independently of their responsible brokers. 

Likewise, salespersons must be associated or affiliated with, and be reasonably supervised by (which supervision includes broker review of the advertising used by the broker’s salesperson or salespersons pursuant to Commissioner’s Regulation 2725(e)) a responsible broker in order to engage in real estate licensed activities in California.  The law provides no exceptions.

CalBRE will take appropriate disciplinary action (including the imposition of significant fines, and  – where appropriate – the revocation of licensure) against real estate salespersons who engage in the unlawful activities discussed above, and against real estate brokers who permit their salespersons to engage in such activities.


By Wayne S. Bell, California Real Estate Commissioner and

Mark Tutera, Special Investigator