There’s always something to howl about

Archive for January, 2013

Beating the IRS One Regulation at a Time

Occupational licensing is a tricky topic for those of us who have “professional” occupations. The notion that any old schmuck can simply hang out a shingle – in the case of a law practice – or open a brokerage with nothing more than a computer, smartphone, and printer – in the case of real estate – strikes fear in the hearts of established practitioners and of busybodies everywhere.

What about the ignorant public? What about the sacred profession (whichever profession) we’re a part of? What about my own livelihood?

If there are oxes to be gored, we’d prefer they be other peoples’ oxes. Not our own.

It didn’t used to be so. Occupational licensing and testing and fee-paying and continuing professional education programs didn’t really get going until the 1920s, a consequence of the progressive movement. In the 1950s, only about 1 in 20 American workers needed the government’s permission before pursuing their chosen occupation. Today, it’s almost one in three. Greg’s called this Rotarian socialism.

Enter the Internal Revenue Service. For nearly 100 years, tax preparers were unlicensed. Consumers – i.e., filers – could make their own decisions about whom they wished to hire in order to prepare their taxes. Civil and criminal statutes can punish preparers who prepare inaccurate or fraudulent returns.

But in 2011, the IRS decided these laws were not enough, and imposed sweeping changes that would require tax preparers to apply for licenses from the IRS in order to prepare federal tax returns on behalf of clients. The new regulations require all paid tax return preparers—except for attorneys and CPAS-to become a “registered tax return preparer” by taking and passing a competency examination, and paying application fees. They would also require preparers to complete 15 hours of continuing education.

The regulations did not spring ex nihilo into existence. They were largely drafted by the former CEO of H&R Block. Most occupational licensing helps big firms or brokerages which can bear the cost of training employees and paying fees, and who benefit disproportionately when small and independent providers are kept out of the business.

My good friend Dan Alban, an attorney for the Institute for Justice, a libertarian non-profit law firm that sues the government on issues relating to licensing, eminent domain, economic freedom, school choice, and the like, won a tremendous victory on January 18 when a federal district court judge struck down the the IRS’ licensing scheme, saying that the Congress had never given the IRS the power to regulate tax preparers and the IRS could not unilaterally grab this power on its own.

The IRS has since appealed the ruling, and asked for the judge to lift the injunction that has put a stop to these regulations.

I would not expect this battle to be over so quickly. The big tax preparers certainly have the ability to lobby Congress to grant the IRS this regulatory authority, even if the IRS loses on this particular issue.

That would be a shame. As I noted on my blog in a different context, there’s no evidence that compulsory educational requirements imposed by certain states on lawyers have any positive benefit for the public.

Whenever I broach the subject of the bar, the bar exam, and licensing regulations, lawyers I talk to acknowledge how ineffective these rules and requirements are. But in the next breath, they worry about the flood of people who would join the profession if we didn’t have such barriers to entry.

The idea that we should be free to pursue a profession or a job used to be a quintessentially American idea. But no longer…


There is no real estate inventory problem in Oceanside, CA

How often had you heard real estate agents complain about “the inventory problem” this past year?  I used to think their complaints were farcical until these past 3-4 months.  I have about a dozen pre-approved buyers out looking for homes.  Interest rates are low and the foreclosures are getting snapped up as soon as they hit the market.  Not one of those dozen has been able to get an accepted offer since Labor Day, 2012.

Clearly, there must be an inventory problem. 

It’s time to change gears real estate agents.  A few years back, I suggested that buyers would be controlling the market and the listings side of the business should be de-emphasized.  All the properties being offered were short sales or foreclosures.  Paperwork-intensive transactions didn’t sound so appealing to me and I recommended that agents focus all their efforts on finding buyers and getting them into contracts.  Those who followed such advice didn’t get rich but earned a darned good living these past few years.

I had breakfast this morning with Mr. Oceanside, Don Reedy.  We discussed the local market and “the inventory problem” when it hit me; there is no shortage of homes.  In Oceanside alone, there are thousands of home owners, with equity, who can sell their properties to ready and willing home buyers.  This offers the ambitious real estate agent a great opportunity.  Too often, real estate agents (and loan originators) forget that we are paid to add value to transactions.  If we’re simply acting as gatekeepers, we are no different from everyone else.  We need to “create personal inventory”–find sellers for the buyers who want their homes.

Here is my ten- step plan for real estate agents, for a great 2013…with PLENTY of “personal” inventory:

  1. Attend your local caravan meeting each week.  Pay close attention to the agents who speak during the “buyers’ needs” segment.
    Call a dozen local agents weekly who work with buyers.  Find out where the inventory problem is.  At this point, you will see a glaring opportunity in your town/market area.  If you know that those agents have 2-3 buyers, for a certain price range, in a certain area, you have identified “half” a market.
  2. Look at the property tax records in the “problem” subdivision.  Choose only properties with owner’s equity.  Generally speaking, you’ll look for homes bought prior to 2006 or in 2010.  If you’re doing a search with the local title company, and you know the homes are worth $350,000-$400,000, you could also search for sales which had recorded mortgages under $250,000 (that can eliminate a lot of problems).  Compile a lit of potential “equity sellers”.
  3. Visit those equity sellers on a Saturday morning or Sunday afternoon.  Don’t mail them.  Don’t call them.  Don’t email them.  Bang on their door and tell them that you KNOW where 2-3 willing buyers of their property are.  Ask to meet with them to discuss the idea of “equity transfer” to different property.
  4. Meet the now interested seller and explain that, when they look at their original mortgage payment (before they refinanced), and add the expected equity from the sale of their home, they might be able to buy a “better” (bigger, nicer, closer to work) home.  It might be useful to have some listings printed out, in the “better” homes’ price range, to whet their appetite.  Recommend that they speak with America’s #1 mortgage broker, to get pre-qualified for the “equity transfer” program, with mortgage payments which were equal to their original (before they refinanced) payment.  Schedule a follow-up visit and tell them you’ll have the mortgage broker call them in the morning.
  5. Speak with the agents who have willing buyers for the home.  Verify that they are still in the market and that you might have a property about to hit the MLS.  Explain that you’ll give them a “heads up”, right after the listing agreement is signed, and tell them that you’ll let their buyers “preview” the property the day the listing is entered into the MLS.  Estimate when you think that will be.
  6. At the follow up visit to the interested seller, start the meeting off by showing them the available inventory for the pre-approved amount (you’ll have a pre-approval letter from the mortgage broker).  Sell the fact that you are transferring the equity from the existing property.  If they seem excited, offer to list thee property for 30 days only.  Explain that this market is a bit of an anomaly and, if you can’t get them the price they need, to affect the “equity transfer” in 30 days, it may not make sense to sell at that time.  Have the seller sign a 30-day listing agreement along with a 60-day buyer’s brokerage agreement.
  7. Instruct them to be out of the property from 2PM-7PM on the next Friday and out of the property from 1PM-4PM on the next Saturday.  Schedule time to review offers, at 6PM on that Sunday evening.
  8. Plan to enter the listing into the MLS on Friday morning (or late Thursday night).  Schedule an open house for that Saturday.  Call the agents with buyers, and instruct them to schedule a showing on that Friday (from 2:30PM until 6PM).  Tell those agents you plan to hold it open that Saturday and that quick offers are the wisest policy.  Explain that you expect to be presenting offers all day Sunday.
  9. Find your seller a new home.  Collect commission checks for adding real value to a lopsided market.  Celebrate.
  10. Repeat.

It really is that simple.  If there are more buyers than sellers in a market, find more sellers.