3 Tips for Seller’s ‘Stay Or Go?’ Dilemma

3 Tips for Seller’s ‘Stay Or Go?’ Dilemma
Written by PJ Wade

Although the focus is on selling price during negotiations, sellers know that how they use their real estate, and all that represents, present and future, is the true measure of value. It’s this accumulated value, not just how much money they’ll get, that sellers should concentrate on when tackling the “Should we stay, or should we go?” dilemma.

Lack of experience or uneasiness with the unknown should not dissuade you from the mental adventure of weighing your options. Don’t shy away from a thorough, creative comparison of all that can be gained by staying and all that this would cost versusall that can be gained by going and all that would cost. Have fun talking to friends and exploring the internet to discover other people’s successes and experiments. Here’s 3 tips to get you started on your real estate adventure:

1. Don’t just compare possible selling price to potential purchase price.

When deciding whether this is the real estate market to jump into, many sellers concentrate on the possible selling price of their current real estate and the potential purchase price of the next property. These dollar figures get the most attention, but they are not all that buying and selling real estate involves. Yes, selling and purchasing prices matter, but it’s your TOTAL NET GAIN from the combined sell-and-buy real estate transactions that really counts:

TOTAL NET GAIN = NET GAIN from Sale + NET GAIN from next Purchase

Your real estate professional can help you estimate how much will end up in or out of your pocket after mortgages and a long list of fees (including theirs) for both the sale of your current real estate and the purchase of your next property. Add to the “sale cost” list any long-standing service contracts for which you’ll lose price benefits when you move, and any accumulated benefits like-lower-than-neighbours realty tax, earned by consistently disputing tax increases. Moving, legal, and renovation costs must be included in the equation, too. Broad strokes will get you started, so you can assess net benefits and net losses in every aspect of life and homeownership. Often this exercise reveals clear “stay” benefits or disadvantages that make deciding easier.

2. Don’t let financial promise distract you from assessing the true value ownership represents to you.

Before setting goals and scribbling down a “what comes next” action plan, assess the true value of ownership of your current real estate and all it connects you to, not just its financial value. One measure of what your home means to your life and family is whether you want to move out of the neighbourhood or just to a new location within it. If you don’t want a dramatic location change, list what you value about the neighbourhood. Will these items persist, or is social or economic change putting those value elements at risk? While you assess what’s keeping you here, consider these connections with open eyes not just nostalgia for what was. Moving to a new location brings change on many levels. How will the new neighbourhood enrich life and what will be sacrificed?

3. Don’t overlook how ‘staying’ could involve significant change.

Just because you are not handy and have never undertaken a renovation before does not mean you can’t or that you won’t be great at it. If there is a strong pattern of extensive renovation and new builds in the neighbourhood, take a close look at what these options, or a less ambitious refreshing of your property would give you and at what cost. If this pattern is common in your area, moving to a new location in the same neighbourhood may represent a lateral financial move or even require additional expenditure. Then, your choice may be to renovate your current property or move to a less expensive area. Also, check with your municipal office to see if secondary suites or duplexing would be an option for your property. Adding an income-generating suite will also give you choice in the future.

For example, you could live in the suite and spend time travelling on the rental income from the rest of your home. Tied to these considerations are modernizations and upgrades that are necessary, or will be, since 15 to 20 years is the average life of most residential systems. If you project ahead 5 or so years, what overhauls will be necessary? If a new furnace, roof, windows…are on the horizon, a renovation now may make sense. This may allow upgrades like solar panels, heat pumps, and energy-efficient windows which can also improve building efficiency, increase comfort, and reduce maintenance and costs, while increasing property value. Architects, renovation contractors, builders, and real estate professionals are the idea people to involve in these value investigations.

This mental exercise will open doors and expand horizons in ways you may not have been able to foresee. This is research, so step back from anyone intent on getting you to sign a contract for anything until you have had time to explore your options. This may take a while, especially if you have only a few gripes about your current home or cottage.

May I suggest a great place to start? Write out a two or three sentence description of how you want your life to change. Be very specific. I suggest this exercise to clients who want things to improve or who are faced with change they wish to triumph over. The clearer the future is to you, the more likely you are to achieve it. Finish this sentence with what a brilliant outcome represents to you: “When I/we are successful…”. If you don’t know where you want to end up, how will you know the best way to get there?

Onward & Upward…The directions that really matter!

Sacramento Home Prices Rise in the Midst of Low Inventory…

Sacramento-area home prices rise in February amid low inventory

 

 

Why Short Sales Take So Long…

Why Short Sales Take So Long

 

When buyers hear the term “short sale,” they typically think about distressed sellers and good deals — especially in markets where prices have ticked upwards. But the word “sale” can be misleading. In fact, many real estate agents have renamed “short sales” as “long-and-drawn-out sales.”

Here’s why short sales often take a long time to complete.

Banks and Bureaucracy

In a short sale, you need the seller’s bank to approve before you can close. Banks require dozens of pages of paperwork to evaluate whether or not to approve a short sale. Since the seller is asking the bank to accept a sale price that’s less than the mortgage amount, the bank needs to verify that a short sale is the right thing to do. Banks want to make sure the seller is indeed unable to stay in the home and can’t afford to pay off the difference between the market value and the bank’s loan amount.
Just as a bank scrutinizes a buyer’s finances in order to approve their loan, the financial institution wants to closely examine the seller’s finances to be sure that it is not giving its money away. With many thousands of dollars at stake, banks don’t want to rush through this process. By comparison, when you’re buying from a person, he or she is more motivated to keep things moving.

Paperwork Gets Lost in the Process

Banks require many documents, disclosures and signatures to complete a short sale. Many times they request that they are faxed in. If just one signature or page is missing from a file, the bank will likely hold off on the process until the file is complete. Given that these banks are losing money on short sales, they don’t allocate the same amount of resources they would to the customer service department for paying (and profitable) customers. With limited staff and so much paperwork, things get lost — and then the short sale process drags on.

Two Lenders = Double the Time

Many times a short sale seller has two loans. The larger loan is being shorted while the second, smaller loan — usually a home equity line of credit — is being completely wiped out. Often, these loans are with two separate banks. Each bank has its own system that doesn’t in any way communicate with the other bank’s system. The second bank may approve the short sale but put on a 30-day expiration. If the first bank’s approval comes at day 31, the seller must go back to the second bank and start over. As you can see, this too can drag out the short sale.

How to Expedite a Short Sale

Is it possible to work the system and speed up short sales? Absolutely.

If you’re selling a home as a short sale, don’t use an agent who doesn’t not have short sale experience. There are so many areas where short sales can get tripped up, so look for an experienced agent who knows how to push through the process.

If you’re a buyer and you found a short sale home you love, determine if the agent is an expert in short sales. If the agent doesn’t have much (or any) short sale experience, expect a long, rocky road.
Short sales are a different animal from traditional home sales — from how they’re priced, how they’re marketed and the lengthy sales timeframe. A savvy short sale agent will know exactly what they’re dealing with and what to expect, and can shorten the process immensely.

Best Regards, Chris Mesunas.

 

3 Valuable tax deductions real estate pros often overlook…

3 valuable tax deductions that real estate pros often overlook

Real Estate Tax Talk

Tax deductions are worth a lot. Exactly how much depends, of course, on your top tax bracket.

If, for example, you’re in the 28 percent federal income tax bracket, every $100 in deductions will save you $280 in federal income taxes.

If you’re self-employed, and the deduction is a business deduction, it will also save you on self-employment taxes as well — a combined Social Security and Medicare tax of 15.3 percent tax up to an annual ceiling (for 2013, $113,700 in net self-employment income) and a 2.9 percent Medicare tax thereafter (with an extra .9 percent tax for very high earners).

If your state has income taxes, your deductions will save on these, too.

So you want to make sure you claim every tax deduction you can on your 2013 taxes. Here are three potentially valuable tax deductions that real estate pros can easily overlook:

Home office deduction

Almost any real estate professional who uses a portion of his or her home exclusively for business can qualify for this deduction. This is so even if you do the bulk of your work outside your home.

This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible. If you own your home, it is not worth as much, but still permits you to deduct a portion of your utilities and other home expenses and depreciation for the area of your home office.

Even though they qualify for the home office deduction, many people don’t take it because it can be complicated and/or they fear it will increase their chances of getting audited. There is no empirical evidence that taking this deduction increases your chances of being audited. For years, the IRS has denied that the deduction is an audit flag.

In fact, the IRS has created an optional simplified version of the deduction in attempt to encourage people to take it. Using the simplified method, you merely deduct $5 per square foot of your home office space, up to a maximum of 300 square feet. The simplified home office deduction can be used only for 2013 and future tax years. So this is the first tax filing season it is available. We discussed the simplified method in detail in a prior article (see “Simplified home office deduction may not be the best option”).

State sales taxes

If you itemize your deductions, you have a choice between deducting the state and local income tax or state sales tax you paid in 2013. If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington or Wyoming, you don’t pay any state income taxes and can only take the sales tax deduction. If you live in one of the other 42 states that has income taxes, you’ll usually be better off deducting such taxes, rather than sales tax. However, this may not be the case if you bought an expensive item during 2013, such as a car or boat, that required you to pay substantial sales tax.

Since figuring out how much you actually paid in sales tax during 2013 (or any other year) is likely impossible, the IRS has estimated how much sales tax people at various income levels pay on average in each state based on that state’s sales tax rates. Its results are contained in the sales tax tables in the instructions to IRS Schedule A. But you are allowed to add to the total in the table the actual sales tax you pay for:

  • a motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle).
  • a leased motor vehicle.
  • an aircraft or boat.
  • a home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home).

To make things as easy as possible for you, the IRS has created an online sales tax deduction calculator you can use instead of its printed tables and worksheet.

Moving expenses

If you moved during 2013, the cost is deductible if your new workplace is at least 50 miles farther from your old home than your old job location was from your old home. In addition, you must work full time at your new job for at least 39 weeks during the first 12 months after the move, and for a total of at least 78 weeks during the first 24 months following the move. If you meet these requirements, you can deduct the reasonable expenses of:

  • moving your household goods and personal effects (including in-transit or foreign-move storage expenses).
  • traveling (including lodging but not meals) to your new home.

Moving expenses are figured on IRS Form 3903, Moving Expenses, and deducted as an adjustment to income on your Form 1040. This makes them a particularly attractive deduction because they are not a miscellaneous itemized deduction that must be listed on Schedule A and are not subject to the 2 percent of adjusted gross income limitation on such deductions (miscellaneous itemized deductions are deductible only if, and to the extent, they exceed 2 percent of AGI).

best Regards, Chris Mesunas.

House Passes Flood Insurance Bill…

House passes flood insurance billDeborah Barfield Berry and Ledyard King, Gannett Washington Bureau

 

Congress moved closer Tuesday to final passage of legislation that would roll back sharp increases in premiums under the National Flood Insurance Program.

WASHINGTON — The House voted overwhelmingly Tuesday to approve bipartisan legislation that would block dramatic increases in premiums paid by some property owners covered under the federal flood insurance program.

The 306-91 vote follows a Senate vote on Jan. 30 approving similar legislation. The Senate could vote on the House version by the end of the week.

"Relief is on the way,'' Rep. Maxine Waters, D-Calif., said before the vote.

Under the House bill, called the Homeowner Flood Insurance Affordability Act, premiums under the National Flood Insurance Program (NFIP) could increase no more than 18% per property annually.

The legislation was crafted by Republican Rep. Michael Grimm of New York in response to premiums that in some cases had increased tenfold.

Rep. Bill Cassidy, R-La., who worked on the compromise, said the House measure strikes "the right balance'' between fiscal solvency for the flood insurance program and consumer affordability.

Supporters of the measure, including Gulf Coast lawmakers, said the increases were making it impossible for many people to keep their homes or sell them.

Critics, however, say taxpayers will be left to foot the bill for the financially troubled insurance program.

The premium increases were required under a 2012 law known as Biggert-Waters that was designed to designed to make the government's flood insurance program financially solvent by bringing rates in line with true flooding risks.

Premiums under the program have been heavily subsidized by taxpayers, and the program is $24 billion in debt.

The House measure also would repeal a provision in the Biggert-Waters law that increases premiums — up to the full-risk rate over five years — when the Federal Emergency Management Agency adopts new flood maps.

Waters, a co-author of the 2012 Biggert-Waters law, worked with Republicans on the recent compromise.

Under the compromise, homes that met code when they were built would be protected from rate spikes due to new flood mapping.

Biggert-Waters imposes 25% rate hikes on some but not all properties that have received premium subsidies through the NFIP. The program, run by FEMA, has traditionally charged premiums at about 40% to 45% of their full cost, with taxpayers subsidizing the rest.

The Senate-passed bill, by Democratic Sen. Robert Menendez of New Jersey and Republican Sen. Johnny Isakson of Georgia, would delay some of the premium increases for four years. The Federal Emergency Management Agency would use the time to complete a study of how to make the higher rates affordable.

"I'm encouraged by this progress and hope we can bring the bill over the finish line very, very soon," Menendez said Tuesday.

The successful effort to win passage of the bill reflected a rare moment of bipartisanship in a highly partisan Congress.

But conservative lawmakers and government watchdog groups oppose the effort to roll back the increased premiums, saying taxpayers should not have to subsidize flood insurance coverage for homeowners who build or buy in high-risk areas.

"It's not going to be very affordable for taxpayers,'' said Steve Ellis, vice president of Taxpayers for Common Sense. "This program, that's $24 billion in debt to the Treasury, is going to be saddled with these changes.''

Critics of the legislation complain it didn't go through the regular committee process.

"Everybody we talked to, virtually without fail, recognize that these delay and repeal efforts are damaging and counterproductive,'' said Andrew Moylan, a senior fellow at the R Street Institute. "Rushing a vote the way that they are is an indication that in their heart of hearts, they know it's the wrong thing to do.''

Rep. Randy Neugebauer, R-Texas, chairman of the House Financial Services Subcommittee on Housing and Insurance, opposed the measure, saying the federal flood insurance program is in "deep debt and it's putting taxpayers at risk for another government bailout.''

"Maintaining these subsidies hurts everyone in the long run,'' Neugebauer said.

In addition to capping annual premium increases at 18%, the House bill also would allow people buying homes covered under the federal flood insurance program to pay the subsidized premium rate at first, rather than the higher rate reflecting true flooding risk.

The House bill would be financed through small assessments on all NFIP policyholders that would go into a reserve fund for FEMA to pay future claims.

 

Buying vs. Renting…

Buy vs. rent: What you'll pay in the 10 biggest cities

Despite rising home prices and climbing mortgage rates, it's still cheaper to buy a home than rent one in these 10 major cities, according to Trulia. Here's how much you'll save.

Despite rising home prices and climbing mortgage rates, it's still cheaper to buy a home than rent one in major cities across the country, according to real estate web site Trulia, which analyzed data in 100 metro areas.

But home prices are just one factor to consider. Deciding whether to buy or rent also depends on the location and how long you plan to stay there. In most of the Rust-Belt cities, like Toledo and Detroit, the math overwhelmingly favors buying. In more expensive coastal markets, like Los Angeles and New York, it's a closer call.

Nationwide, homebuyers who remain in their homes for seven years will save an average of 38% over renting, Trulia found. A year ago, buying was 44% cheaper.

That means all of the initial transaction costs of buying a home — the broker's commission, title insurance, legal fees and other closing costs — will be offset by benefits, like tax write-offs and price appreciation. And those costs will become cheaper than the total costs of renting, which include insurance and agent commissions.

Best Regards, Chris Mesunas.

http://bit.ly/1dmHgm2

Investors Losing Interest…

Investors Losing Interest in Housing, Despite Rise in Distressed Sales Share

Institutional investors appear to be losing interest in purchasing foreclosed properties for rentals in the face of rising property prices and interest rates and increased competition from homebuyers.   According to RealtyTrac's January 2014U.S. Residential and Foreclosure Sales Report, the share of home sales tied to institutional investors – entities that purchase ten or more properties in a calendar year – dropped to 5.2 percent in January, down from 7.9 percent in December and 8.2 percent in January 2013.  The January number was a 22 month low.

Daren Blomquist, a RealtyTrac vice president said, "Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening.  It's unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago."

The fall back in institutional investors occurred in nearly three-quarters of the metropolitan areas tracked by the Irvine California company.  Areas with particularly large declines from a year earlier included Cape Coral-Fort Myers, Florida (-70 percent); Memphis (-64 percent), Tucson (-59 percent), and Tampa (-48 percent).  Institutional activity increased in 23 of the 101 areas with Austin, Texas notable for a 162 percent rise while Cincinnati was up 83 percent and Dallas 30 percent.

Institutional investment remains a major factor in sales in several areas including Jacksonville, Florida at 25.5 percent, Atlanta, (25.1 percent), and Austin (18.0).

Sales of all U.S. residential properties including single family homes, condos, and townhomes were at an estimated annual rate of 5.126 million units in January, a less than 1 percent increase from December and up 8 percent from a year earlier.  The rate of sales declined in seven states and 17 of the 50 largest metropolitan areas.

RealtyTrac said that foreclosure-related and short sales accounted for 17.5 percent of all residential sales in January, up from 14.9 percent in December.  In January 2013 distressed properties accounted for 18.7 percent of sales.  The distressed sales breakdown in January as a percent of all sales was 5.9 percent short sales, 10.2 percent bank owned real estate (REO) and 1.5 percent properties sold at foreclosure auction.

All-cash sales accounted for 44.4 percent of all U.S. residential sales in January, the seventh consecutive month where all-cash sales have been above the 35 percent level.  In several metro areas the majority of sales were all-cash; Miami (68.2 percent), Jacksonville, (66.2 percent), Memphis (64.4 percent) Tampa (61.5 percent) and Las Vegas (56.5 percent.)

The national median sales price of U.S. residential properties – including both distressed and non-distressed sales – was $165,957 in January, down 3 percent from December but up 1 percent from January 2013. The 3 percent monthly decrease was the biggest monthly drop since February 2013.  Some of the markets which had shown the fastest appreciation posted declines in January.  Some cities where prices fell 1 to 2 percent were San Francisco, Sacramento, Memphis, Cincinnati, Phoenix, and San Jose.  Prices in each, however, were a minimum of 19 percent above year-ago levels.

Best Regards, Chris Mesunas.

 

New Homes in Sacramento Areas…

Six-acre, 55-home community planned along Madison Avenue

 

 

Mortgage Availability Improves…

MORTGAGE AVAILABILITY IMPROVES

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According to a new survey from Fannie Mae, credit availability is improving. For the first time in over three years, the majority of consumers believe it's easier to get a mortgage.

Doug Duncan, Fannie Mae's chief economist said, "The gradual upward trend in this indicator during the last few months bodes well for the housing recovery and may be contributing to this month's increase in consumers' intention to buy rather than rent their next home."

The Mortgage Bankers Association (MBA) says consumers are correct – credit availability has increased, particularly in the jumbo and refinance loan markets.

Explained Mike Fratatoni, chief economist for the MBA, "The market continues to adapt to the new QM [Qualified Mortgage] regulation by eliminating products that do not fit inside of the QM box. This tightening is being offset, both in the market for higher balance loans, where lenders continue to loosen terms for jumbo loans, and in the refi market, where more lenders are offering streamline refinance programs."

But there could be other reasons that credit is more available. Credit reporting agency Transunion announced that the mortgage delinquency rate for the fourth quarter of 2013 was 3.85 percent, down from 5.08 percent.

Delinquencies have been steadily declining over the past two years, while improved home sales and rising prices have allowed many homeowners on the edge of delinquency to sell their homes and get into something more affordable.

Credit has been extraordinarily tight since 2008, as lenders struggled with federal claims of mortgage fraud. For years, lenders raised credit standards beyond what was required to qualify for federally guaranteed loans and loans destined for purchase by the securities industry.

As the government leveled fines and made repayment settlements with many of the big banks, lenders are more willing to make mortgage loans. With the most toxic loans before 2008 foreclosed and disposed, lenders have more confidence in loans generated since them.

In fact, Transunion also reported that more loans were generated to borrowers with less-than-perfect credit in Q4 2013.

"We are on the downward slope of the mortgage delinquency curve, so we expect to continue seeing delinquency rates that have not been seen for several years," said Steve Chaouki, head of financial services for TransUnion.

With job gains growing, relatively low interest rates available and a tight supply of homes insuring equity gains, mortgage delinquencies should continue declining, and buyers should feel more confident in their decision to buy a home in 2014.

 

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