Georgia Real Estate Commission GREC RENEWS Volume 2, Issue 9 September 2006 2006 Dates to Note September 12, 2006 Trust Account Seminar Empire Board of Realtors (404) 755-5575 September 14&15, 2006 Georgia Instructors Training (GIT) Macon State College (404) 252-6768 October 6, 2006 Trust Account Seminar Columbus Board of Realtors (706) 323-1701 November 2&3, 2006 Georgia Instructors Training (GIT) Georgia Institute of Real Estate (404) 252-6768 November 28, 2006 Trust Account Seminar I-85 North Board of Realtors (706) 335-3044 December 14, 2006 Advanced Instructor Training Athens, GA December 15, 2006 Annual School Meeting Georgia Center for Continuing Education Athens, GA GREC Disciplinary Sanctions INSIDE THIS ISSUE: Using Standard Forms 1 Escalations 2 Focus on Terminology: "CPI" Using "Standard" Forms Fortunately, some excellent "standard" real estate forms are readily available for real estate licensees. However, every real estate transaction is unique and licensees must often make adjustments to pre-printed contract forms. Filling in the blanks on a "standard" form is usually adequate for many, if not most, transactions. Yet, the occasional need for complicated contingency clauses in residential transactions or in complex commercial transactions demands the services of a good real estate attorney. In many commercial real estate transactions, an attorney drafts the real estate offer from scratch. In that situation, the real estate licensee must be careful to provide and obtain agency disclosures and commission agreements separately and in compliance with the license law. In some states, the state real estate commission requires licensees to use "promulgated" forms; meaning only specific, approved contracts and certain real estate agreements may be used by licensees. Georgia law does not have this requirement and allows licensees the latitude to use forms developed and approved by legal counsel. The licensee should take care to address a variety of issues when not using a form prepared by an attorney who is actually representing the licensee. For example, certain items may or may not be stated in the contract: the payment terms of the commission agency disclosures property condition disclosures 1 disclaimers related to providing information conditions for the escrow of earnest money clear procedures regarding earnest money disputes other paragraphs the licensee may deem needed to protect the firm's interests. Although some very good "standard" forms designed for the practice of real estate brokerage exist, the licensee may not always be in a situation to use one. The licensee must be careful to protect the firm's interests and to follow the license law when the one preparing the document is not actually representing the licensee. In these situations, the licensee often needs to get separate forms signed by the appropriate parties in the transaction. Some corporations and investors have their own contracts that actually state that no commission is to be paid in a transaction, or even that no real estate broker is involved. In those cases the licensee wants to make sure to protect the firm's commission and to be sure to make agency discourses. The Commission does not approve or endorse any particular real estate forms. Many franchise companies, national real estate firms, and real estate trade associations have developed their own forms for internal use or for use by its members, such as the Atlanta Commercial Board of RealtorsTM, ( http://www.atlcbr.com ) or the Georgia Association of RealtorsTM, ( http://www.garealtor.com ). License Law 43-40-25.1. "It shall be lawful for licensees to complete listing or sales contracts or leases whose form has been prepared by legal counsel and such conduct shall not constitute the unauthorized practice of law." Georgia Real Estate Commission Suite 1000, International Tower 229 Peachtree Street N.E. Atlanta, GA 30303-1605 CPI Calculator for Atlanta Click Here You can sign up to receive the GREC RENEWS electronic newsletter each month by visiting the GREC website or CLICK HERE TO SIGN UP RENews Newsletter Comments or Suggestions Click Here GREC Focus on Terminology: "Consumer Price Index, CPI" Volume 2, Issue 9 September 2006 A Consumer Price Index (CPI) measures a price change for a constant market basket of goods and services from one period to the next within the same city (or in the Nation)." A CPI is a useful relative measure to compare the cost of the same basket of goods over time. With technology and other advances, the contents of the basket of goods has itself changed over time. Several CPI indexes are available, and they are usually computed on two base years. CPI-U is all Urban Consumers representing about 87% of the work force. CPI-W is Wage Earners and Clerical Workers representing about 32% of the work force. In addition, another CPI covers all major Metropolitan Statistical Areas (MSA) as well as national numbers. Be careful to clearly identify the index to be used and the computation method to calculate an escalation. Tools for Negotiating Escalations Whether a rate escalation clause appears in an apartment lease, a residential income property, or an industrial lease, its negotiation has an economic impact on the parties involved in the lease. When interest rates rise, inflation is usually also rising. In those circumstances, the landlord expects to recover those increased costs. "Inflation has been defined as a process of continuously rising prices, or equivalently, of a continuously falling value of money. "* The landlord may want to include a flat percentage or dollar amount increase in the lease, or he/she could use an index produced by a reliable source. Landlords often use the Consumer Price Index (CPI) as a reference index on which to base future rental rates when inflation seems to be rising. When inflation is very low, landlords may prefer a fixed percentage increase. Consider the last five years of the annual CPI for Atlanta. Year Annual 2000 3.5 2001 3.3 2002 1.1 2003 1.5 2004 1.3 2005 3.1 Fortunately, the "Atlanta CPI-U, has been below the U.S. City Average. CPI-U, US City Average, All Items: (NSA) +4.1% since Jul 2005 CPI-W, US City Average, All Items: (NSA) +4.3% since Jul 2005 Atlanta, CPI-U, All Items + 3.1 * As the economy adjusts to rising energy costs and other factors, the CPI or some other reliable index may again become popular for future lease negotiations or other agreements incorporating escalations. If you are negotiating an escalation clause for a client, remember to identify clearly on which CPI you are basing the calculation. For more information on identifying and calculating CPI increases, visit the U.S. Bureau of Labor Statistics (BLS) website at http://www.bls.gov/cpi/home.htm. New statistics are available monthly. How to Use the CPI for Escalations Click Here Try the Inflation Calculator Click Here Quotations on this page from: U.S. Bureau of Labor Statistics Division of Consumer Prices and Price Indexes Suite 3130 2 Massachusetts Avenue, NE Washington, DC 20212-00012 URL: http://www.bls.gov/CPI Phone: (202) 691-7000 Fax: (202) 691-6325 CPI data questions: http://www.bls.gov/dolfaq/bls_ques7.htm