Does your firm have a sound strategy for taking advantage of the housing boom? Real Estate Investment Trusts (REITs) clearly aren't the only option, and few offer a direct play on home prices, probably the hottest sector of real estate. In fact, real estate investment is a viable but often

overlooked option that financial advisors should be prepared to discuss with their clients. As with so many other investment options, however, the real estate marketplace has changed dramatically in recent years. To be effective, planners must understand how competitive pressure, opportunities presented by technology and new laws and regulations have affected the industry.

Christopher Zehnder, a planner in St. Cloud, Fla., says keeping 30% of a client's portfolio in real estate is the policy of his affiliate firm, Cambridge Advisors in Franklin, Mich. Because at least 70% of his clients are real estate professionals, he lets them raise their real estate weighting to between 50% and 60% of their portfolios. Many of his real estate broker clients are invested directly in single-family homes. Housing in St. Cloud, home of his company, Zehnder Wealth Management, averaged a 16% price increase last year.

David Diesslin, principal and founder of Diesslin & Associates in Fort Worth, Texas, has used another successful real estate strategy for years. Diesslin, who has both a CFP and real estate broker's license, has suggested that some clients buy land in the area where they think they might wish to retire.

Though he receives no broker's commission on the transaction, he does use his broker's license to assist clients. "We're about helping clients with a return on life," he says. "The secondary issue is the return on investment."

By paying cash for land early on, clients are locking in part of the price of their retirement home, he says. Yet, they are absorbing one-fifth of the risk they would experience in other forms of real estate transactions. By merely owning land, clients are not obligated to visit it or spend all vacations in that area, as they might be with a more expensive vacation home. Plus, they avoid the headaches of rentals.

Most people don't retire to the location they originally had selected, Diesslin says. If that happens, they can sell the land and probably profit on their investment. "Twelve to 16 (clients) did this," Diesslin says.

One significant change in the industry is that real estate agents no longer always represent the seller. Nor can you assume that the seller pays the real estate commission.

A patchwork of state laws specifies the responsibilities of real estate agents and brokers, based on the type of relationship to which buyers or sellers agree. The type of relationship could determine whether your client gets the best deal in a transaction.

Today, agents can be contracted to represent the buyer, the seller, both or neither. Some real estate agencies work only with buyers. They find available properties, handle negotiations and provide other help for buyers, but they don't list homes for sale. A "dual agency" arrangement may occur when a real estate firm owns a listing, and an agent from the office acts as a representative for a buyer and shows the property to him or her. Your client should examine any potential conflicts of interest that could arise from such a dual agency relationship, which not all states allow.

"Almost all states have some form of disclosure requirement," says Michael Thiel, attorney with the National Association of Realtors in Chicago. "Consumers, when they get that disclosure, need to read it and understand it."

One hot trend in Florida is the "transaction broker," who represents neither party, but merely exists to handle the transaction. If a broker has no allegiance to either party, can financial advisors obtain referral fees for sending clients to them? No. The federal Real Estate Settlement Procedure Act prohibits it.

Even if it were legal, those who have the CFP designation would have to disclose they were accepting the fee, says Meg Hogan, director of the professional review department of the CFP Board. Practitioners, she adds, also could face code of ethics and suitability questions.

The real estate scene gets even more complicated. Who pays the real estate broker also is up for grabs. If an agent representing the seller sells the property, the seller normally pays the commission, which is divided among the agents and firms involved in the transaction.

However, a buyer's broker agreement could have virtually any type of commission structure on which a buyer and agent agree. In fact, either the buyer or seller may pay the commission. Advisors need to evaluate how effective a buyer's broker is apt to be if his or her commission is paid by the seller.

The good news is that real estate brokers' commissions are dropping and have become more negotiable. Many states even permit the broker to rebate a portion of the commission to a party in the transaction. In fact, in today's competitive market, "real estate agents are digging into their own pockets," says Zehnder, who also holds an inactive real estate sales license. "I've seen real estate agents put heaters in people's homes, pay for air conditioning systems and a variety of different landscaping challenges."

There are brokers who will accept commissions as low as 2% instead of the traditional 6% or 7%. However, your client must be careful to weigh deeply discounted commissions against the quality of service provided.

Technology is fueling a new wave of limited-service brokers by cutting operational costs, while Internet Web sites have broadened the potential market for homes. Coldwell Banker, based in Parsippany, N.J., is believed to be the first large national real estate broker offering such a service. Under a subsidiary, Blue Edge Realty, it charges the seller a 2% commission to sellers who are willing to forgo a coveted listing on the Board of Realtors' multiple listing service. In Blue Edge's Pittsburgh office, the company will view, inspect and measure a property for the low commission and a $150 transaction fee, according to office manager Gregory Japalucci. It also will take a digital photo of the house, list it on its Web provide a sign, the local newspaper's discounted classified rates and information about conducting an open house.

The firm also arranges appointments to view the property, tries to qualify the potential buyer through its mortgage affiliate and may arrange title work through a title company affiliate. The seller does the rest. The Pittsburgh office had an active base of 230 listings at this writing and sells about one-third of its listings monthly, according to Japalucci.

Technology also is making it easier to get a better deal on a property. You can help your client access property listings, find an agent and determine what a property is worth on the Internet, says Matt Carrick, senior analyst at Gomez Inc., an Internet research and consulting firm in Waltham, Mass.

Perhaps the largest site to track property listings is, owned by the National Association of Realtors. It has at least 90% of the listings that appear on local real estate board multiple listing services.

Nevertheless, don't expect to see all of the detailed information contained on the multiple listing service. is an advertising medium and omits such items as technical property descriptions and the seller's name and contact information.

Another large national site to view listings is, Carrick says. In addition, you can obtain listings online directly from real estate brokerage Web sites.

Your client can visit and for agent referral networks. Key in the type of property your client is searching for, and agents bid for the business.

Other new sites, including and, are discount commission real estate brokers. Although these agencies might offer lower commissions, Carrick says, they are new and have yet to establish a track record.

Want to learn what a property is worth? The largest portal to view recent sales in a neighborhood is, Carrick says. Between that and, he says, "you should be able to get a good idea as to the value of a property."

Another site used by appraisers is, which hyperlinks to area tax departments, many of which now keep records online.

There are newer rules for landlord clients. A 1996 amendment to the Fair Credit Reporting Act requires a landlord to send a potential tenant an "adverse action" notice if a lease is denied based on information in an applicant's consumer credit report. The notice must state the reason for denial. A notice also must be sent if a co-signer is required, if there is a deposit requirement that doesn't exist for another applicant or if the rent is higher than it would be for another applicant.

Another change hitting the real estate market is the availability of much easier financing-including low-downpayment mortgages-and a broader array of programs for many who previously might not have qualified.

Also, a large number of Housing and Urban Development foreclosures are coming on the market due to job losses after September 11. These properties are purchased through a bidding process that often excludes an appraisal. The problem: Some people are purchasing properties at prices more than 20% higher than what the actual value is, so it is important to advise your client to get an independent appraisal. Also, Zehnder suggests you examine clauses in your client's contract that explain how much the seller must pay for any necessary repairs.

One thing is for sure: Real estate investing isn't what it used to be. Technology has made the real estate markets more accessible. To help your clients, you need to be on your toes to spot opportunities in land, as well as residential and commercial ventures. You also must be mindful of how you deal with different types of real estate agents. By staying on top of all aspects of a deal, you can save your clients thousands of dollars.

Gail Liberman is a licensed real estate agent and mortgage broker. Her latest book is More Rags to Riches: All New Stories of How Ordinary People Achieved Extraordinary Wealth! (Dearborn).