A recent crackdown by the Arizona Department of Real Estate has caused two online companies to pull out of the state, raising questions for others in the industry.
Two companies that work with property rentals have pulled out of Arizona over the last year after officials insisted that they needed real estate licenses to, respectively, take lead calls and do inspection-like property reviews.
The cases involve Florida-based Virtually Incredible, which takes lead calls about leases, and Texas-based OnSight PROS, which examines apartments to determine how much of a deposit they should get back. Both companies operate in numerous other states, and taken together the cases suggest Arizona is taking an unusual hard line on the issue of real estate licensing.
The most recent case in Arizona began this summer, when a property manager in Arizona asked Virtually Incredible if its operations were legal in the state, according to company founder Todd Breen. Virtually Incredible uses a call center in the Philippines to handle inquiries about rental units, and Breen told Inman the service helps managers and agents avoid getting bogged down in a multitude of calls that never actually lead to leases.
Staffers in the Philippines answer basic questions, Breen said, and are trained to eventually transfer callers to the U.S.-based agents and property managers who paid for the service.
“We carefully script the calls to ensure compliance with non-licensed assistant laws in most states, and escalate calls to licensees at our client’s offices as needed to ensure compliance,” Breen explained.
When the Arizona property manager asked if Virtually Incredible’s operations were legal, the company replied that “it was up to her to check on compliance with state laws, so she wrote to the [Arizona] Real Estate Commission to ask if she could use our services,” Breen said.
That inquiry sparked a chain of events that eventually ended with the Arizona Department of Real Estate issuing Virtually Incredible a cease and desist order. The Sept. 7 order describes an investigation into the company and states that its services include greeting callers, determining which property suits them, going over pre-qualifying questions, and scheduling showings.
The order concludes that Virtually Incredible violated a law requiring anyone acting as an agent or a broker to have a license. Violating the law could result in a felony charge.
In a phone conversation Friday, Breen said he disagreed with a “knee-jerk reaction” from Arizona Real Estate Commissioner Judy Lowe, who “made it her goal to tighten up everything that happens in property management.”
“She said no tasks could be performed unless you’re licensed,” Breen lamented.
The Arizona Department of Real Estate provided Inman with the cease and desist order, but did not respond to a request for further comment on the case.
But despite his disagreement with the decision, Breen decided to leave the state anyway, saying he has 500 clients across the U.S. but only a handful were in Arizona. After receiving the cease and desist order, Virtually Incredible gave its Arizona clients 24 hours notice then pulled out.
“I’ll just pull out of Arizona before I spend thousands and thousands in legal fees that I’ll never get back,” he added.
The case against Virtually Incredible follows a similar situation that unfolded for OnSight PROS last year. Company CEO James Alderson said OnSight PROS operates in about 25 cities across nine states. Agents and property managers hire OnSight PROS to create a report on the condition of a rental unit before a tenant moves in, then return and do a similar report when the tenant moves out.
“We’re boots on the ground,” Alderson told Inman, adding that in Arizona “it was a growing business. It was substantial.”
The people conducting evaluations for OnSight PROS have training, but they are not licensed real estate inspectors — and Alderson was careful not to use the word “inspection” when describing the business.
That distinction appears to be what landed the company in hot water with the Arizona Department of Real Estate late last year. Alderson said property managers first started saying they couldn’t work with the company. When Alderson eventually ended up on a phone call with Lowe herself, he was told to stop operating in Arizona.
“She said it in no uncertain terms,” Alderson said. “It was cut and dry, very curt, that we were to cease and desist because we were not licensed.”
OnSight PROS consequently stopped operating in Arizona last fall. Alderson said that he is still waiting for a promised call-back from Lowe, and that he recently spoke with his lawyer about pressing the issue with the state’s attorney general. It remains to be seen if his company, or Breen’s call service, will be able to resume operations in Arizona.
The Arizona Department of Real Estate told Inman it did not have a record of issuing an official cease and desist order to OnSight PROS, but did not provide additional comment on the case.
In the meantime, however, the loss of Arizona is a blow to the companies. Phoenix, for example, is the fifth largest city in the U.S. and has long been one of the country’s fastest growing regions. Arizona’s comparatively inexpensive housing is a major draw particularly for people fatigued with skyrocketing prices in coastal cities.
Both men also said that regulators’ strategy is going to cost the state in the long run, and is atypical compared to the other states where the businesses operate.
“It reduces the number of investors you’re going to have in your state,” Alderson said.
Breen agreed, adding that requiring licenses for everyone involved in real estate calls or reviewing rental properties makes Arizona less efficient.
“What Arizona’s real estate commission is doing,” he said, “is they’re condemning Arizona landlords to longer vacancy times.”
This post was updated after publication with new information from the Arizona Department of Real Estate.