TIC Exemption - Potentially coming soon!

TIC Exemption

NAR and the SEC are about to come to an agreement regarding TIC commissions!

Since their inception, Tennant in Common (TIC) deals have been legally controlled by the Securities and Exchange Commission (SEC), which meant they could only be sold by someone with a securities license.  For years, the National Association of Realtors (NAR) has been lobbying for equal share of these deals, based on the fact that the underlying asset is, in fact, real estate.  And years of negotiation may finally pay off for NAR, as realtors may soon have the clearance to sell TIC investments, according to the new NAR exemption.

So what’s the big deal?  Let’s first discuss what a TIC investment is.  In order to defer capital gains taxes on appreciated real estate property, investors do a 1031 exchange into another piece of real estate.  However, let’s say that investor does not want the hassles that come with property management.  His best option may then be to 1031 exchange into a TIC, where he would enjoy fractional ownership of a property with several other owner investors.  Because of the multi-ownership structure of the deal, the NASD has considered this a security ever since the IRS first outlined how fractional ownership could be used in a 1031 exchange.   And since most realtors do not have a securities license, they were not able to sell these deals.  But because growing demand for TIC deals equates to substantial potential commissions for real estate brokers, the National Association of Realtors has been lobbying for a NAR exemption, which would allow realtors to receive commission on TIC securities. 

The TIC exemption proposes that under certain conditions, realtors be exempt from the following securities rules:

• Banning advertising to the public
• Limiting TIC offerings to only high net worth individuals
• Prohibiting real estate brokers from receiving referral fees from securities broker dealers

The conditions upon which the TIC exemption relies include the following:

• The investor signs an agreement allowing the real estate broker to advise him/her on TIC deals being sold as securities
• The realtor cannot advertise Tennant in Common investments
• The securities broker dealer determines eligibility of the investor
• The seller discloses and pays the buyer’s broker a referral fee
• The realtor must show the buyer traditional real estate opportunities as well as TIC deals
• The realtor must also be familiar with commercial real estate investments.

The NAR TIC exemption equates to new possibilities for real estate brokers, who will now legally be able to show their clients attractive TIC deals and be compensated accordingly.