PAR has been hearing from members who are concerned about a portion of the law that outlines ways in which the insurance will be funded, including a tax on the profits from real estate sales.

In talking to representatives from the National Association of REALTORS®, we’ve found that the tax is directed at high-income taxpayers and will have no impact on the vast majority of homebuyers.

The Health Care and Education Reconciliation Act of 2010 levies a 3.8 percent tax on the profits from the sale of real estate, residential or investment. The average taxpayer would not be affected by this tax.

Anyone with an adjusted gross income of less than $200,000 is exempt from the law. The law will apply to married couples who file a joint return if their income is more than $250,000.  (It was estimated that approximately 3 percent of U.S. taxpayers fell into this category in 2009.)

Only the sales of homes that have a “net investment income” would be considered under this tax. The existing home sale capital gains exclusion rule still applies. According to NAR, the new Medicare tax would only apply to a home sale gain realized in excess of the $250,000/$500,000 that pushes the taxpayer’s adjusted gross income over the $200,000/$250,000 income limits.

The Washington Post recently ran an article outlining how the tax would be calculated. Author Benny L. Kass gives several scenarios of how the tax would be calculated for those who fall within the income/profit guidelines.

NAR’s Myth Busters and its FAQs provides REALTORS® with additional information on the tax provisions. For specific details, consult your tax advisor.

PAR continues its work on six legislative issues but the hottest issues are Appraisal Management Companies (AMCs) and the sprinkler mandate legislation. Derenda Updegrave, director of government affairs, said that there is broad support for the AMC legislation and when session reconvenes in the fall, she is hopeful the legislation will pass. The goal of the sprinkler legislation is to roll back the mandate for at least one year. “It’s very clear that the electorate is not pleased with the mandate and it should be a choice,” said Updegrave. REALTORS® play a big part in passing legislation. “Much of our success is due to the engagement of our REALTORS® at the grassroots level,” said Updegrave.

REALTORS® have a good reason to celebrate the 2010-2011 state budget passed by the General Assembly: It didn’t include provisions for a sales tax on professional services.

PAR fought against the proposal to tax professional services, a move that would have taxed REALTOR® fees. Gov. Edward G. Rendell’s original budget plan introduced in February included a tax on every profession and service connected to a real estate transaction.  In March, REALTORS® rallied at the state capitol voicing opposition to the proposed tax. A survey conducted by PAR revealed that 70 percent of Pennsylvanians polled opposed the proposed taxes that would drive up costs for consumers in the home-buying and selling process. The governor abandoned the plan in May.

“We’re pleased to see that our efforts paid off and the tax on professional services was removed from the spending plan early in the budget process,” said Don Roth, PAR president. “With no additional tax burdens on the real estate industry in Pennsylvania, we’re hopeful that more homebuyers will take advantage of the increased inventory and low mortgage rates.”

In prior budget battles, Pennsylvania REALTORS® stood strong against any increase in the Realty Transfer Tax (RTT), reputed to be among the highest in the nation. REALTORS® fought a proposed increase of the RTT in the 2007-2008 state budget.

Gov. Rendell signed the $28 billion dollar spending plan on Tuesday morning.

NAR worked closely with Congressional leaders on both sides of the aisle to enact this important legislation. Extending the Tax Credit Closing deadline will help provide additional stability to real estate markets across the nation.

For additional information on the extension visit www.realtor.org/government_affairs.

Additionally, the United States Senate has passed the National Flood Insurance Program Extension Act of 2010 (H.R. 5569) an extension of the National Flood Insurance Program until September 30.  This will allow transactions to move forward.  The bill is retroactive and covers the lapse period from June 1 to the date of enactment of the extension.

On Tuesday, the U.S. House of Representatives passed HR 5623, the Homebuyer Assistance and Improvement Act of 2010, by a vote of 409-5, according to John DiBiase, NAR’s government affairs communications director.

The bill extends the deadline for closing tax credit eligible transactions from June 30 to September 30, 2010. The bill now moves to the Senate where the outcome is much less certain.

“It’s critical that REALTORS® are engaged and understand the issues. Our strength is in our membership,” said John DiBiase, government affairs communications director for the National Association of REALTORS® (NAR).

There are four legislative initiatives that NAR is focusing its resources on:

• Expand affordable property insurance

• Commercial mortgage market liquidity

• FHA reform and FHA loan limits

• GSE reform and GSE loan limits.

While every issue is important, DiBiase said that NAR is currently focusing its efforts on flood insurance. DiBiase added REALTORS® play a big part in getting legislation passed. “When REALTORS® engage with congressional members and remind them of how real estate is important in building a stronger economy, nothing carries more weight.”

Michelle Bradley

“AMCs in Pennsylvania are unregulated and currently operate with neither state nor federal government oversight,” Bradley, an appraiser with Czekalski Real Estate, Natrona Heights, said.  “Appraisers are subject to regulation by the State Board of Certified Appraisers and work within the nationally sanctioned Uniform Standards of Professional Appraisal Practice (USPAP). As third-party intermediaries, AMCs are not accountable to state regulation or consumers. House Bill 2334 will help create a level playing field.”

She said the bill will guarantee that those responsible for appraisal services are in good standing with the state board and will require AMCs to use USPAP record-keeping rules. Currently there is no way to identify AMCs, nor who owns and operates them.

At the root of the issue is the federal Home Valuation Code of Conduct (HVCC), which has caused significant upheaval in the appraisal process since its adoption more than a year ago. To meet the requirements of the HVCC, many lenders have increased their use of AMCs. According to the National Association of REALTORS® (NAR), only 30 to 40 percent of lenders used AMCs prior to the HVCC; today AMCs are used by 60 to 70 percent of the lending market nationally.

“Consumers also need to be protected against unscrupulous appraisal management companies (AMCs) and HB 2334 would give that protection,” Bradley said. “NAR research shows that consumers are paying higher fees to AMCs for appraisals that are frequently inaccurate and misrepresent the value of property. In many cases, closings are being delayed in the process.”

PAR worked with Reps. Dick Stevenson (R-Butler) and Sue Helm (R-Dauphin) and members of the Appraisal Institute to develop legislation to regulate AMCs in Pennsylvania. HB 2334 is currently being introduced by Rep. Stevenson in the PA House of Representatives. Eighteen states have already enacted similar legislation; 11 states are working on legislation.

HB 2334 will facilitate the process for filing a complaint against an AMC or an appraiser working for an AMC. It also grants the state Appraisal Board the authority to review the AMCs’ records.

“Ultimately, HB 2334 will guard the interests of consumers and the real estate industry,” Bradley concluded.

The court ruled that the base year system of real estate property tax assessment laws, as applied in Allegheny County, violated the Uniformity Clause of the PA Constitution. This prompted the PA Office of General Counsel to offer suggestions for fixing the state’s antiquated assessment laws.

PAR is forming a Presidential Advisory Group (PAG) to provide recommendations to present to the PAR Board of Directors, to a statewide advisory group and to focus future lobbying efforts.  

The court’s decision opens the door to challenge property tax assessments in any county that doesn’t have a uniform or systematic reassessment plan, according to Elizabeth Hensil, PAR’s local affairs specialist.

Property tax assessment issues are common in many communities throughout Pennsylvania for years. The inequities of assessment appeals and lack of regular countywide reassessments have affected real estate sales are similar problems facing many communities.

The Office of General Counsel created an advisory group to review its report and provide input. PAR is a member of this group, along with the PA School Board, PA Bar and PA Boroughs associations, PA State Association of Township Supervisors, County Commissioners Association of PA, Local Government and Legislative Budget and Finance committees, Governor’s Office and State Tax Equalization Board.

Those interested in participating in the PAG should submit resumes and applications to Elizabeth Hensil by June 23. The PAG will require a substantial commitment of time over several months and will include possible trips to PAR as well as conference calls.

Michelle Bradley, chair of PAR’s AMC Task Force, said the primary component of the bill would require every AMC to be registered with the State Board of Certified Real Estate Appraisers.

“AMCs are the only piece of the real estate puzzle that is not regulated,” Bradley, an appraiser with Czekalski Real Estate, Natrona Heights, said. “When the Home Valuation Code of Conduct (HVCC) was introduced, we didn’t even have a good definition of what an AMC is. As a result of the HVCC, much of the appraisal work is being funneled to AMCs and NAR has urged each state to push for legislation that clearly defines them.”

Bradley said eight states have passed legislation to regulate AMCs, while 16 others have legislation pending.

“At this point, AMCs are unregulated entities and are operating with no oversight or accountability,” she said. “Subjecting AMCs to registration requirements will provide the appraisal board with the authority to implement rules on AMCs. Ultimately, this will protect consumers as many have seen higher appraisal fees since the HVCC was enacted.”

Other key points of the legislation include:

• Implements a registration and renewal fee of $1,000
• Implements a $20,000 bond to secure the faithful performance
• Requires all appraisal reviews to be conducted by a certified or licensed appraiser
• Requires AMCs to adopt Uniform Standards of Professional Appraisal Practice (USPAP) record-keeping rules
• Prohibits improper influence through intimidation, coercion, extortion, bribery, blackmail, threat of nonpayment or threat of exclusion from future appraisal work.

“This last point is important because in the past unscrupulous lenders have called appraisers and asked them to appraise a property at a specific value or face losing future business,” Bradley said.

Sen. Pat Browne (R-16) with Joe McGavin, George Raad and Therese Kelley. Photo credit: Stuart Leask

PAR’s annual Government Affairs Seminar culminated Wednesday as REALTORS® marched on Capitol Hill to meet with state lawmakers to voice their opposition to the proposed sales tax on professional services, including those on real estate transactions. Following PAR’s press conference in the Capitol Rotunda, nearly 100 REALTORS® met with 30 senators and representatives.