IN THE NEWS
Table of Contents
3 cut-rate ways to sell your home
Real Estate's Turf War Heats Up
NAR concerned with Eminent Domain Ruling
Supreme Court text on Eminent Domain
Why Title Insurance is Necessary
Eliminating Inspections: What Could Go Wrong
Keeping in Touch After the Move
Is It Time To Buy Less?
Online Curb Appeal Brings Buyers to Your Home
When Should You Invest
Avoiding 7 Costly Mistakes of Selling Your Home
3 cut-rate ways to sell your home
There's no need to pay top dollar to sell, especially if you live in a white-hot housing market. The best option for you depends on your home, your market and your time.
By Liz Pulliam Weston
Jennifer and Dave Hampton of Atlanta tried, and failed, to sell their home without a real-estate agent. But the replacement house they purchased was FSBO, or for-sale-by-owner, so they know it can be done.
The seller priced the house about $30,000 below comparable homes, Jennifer Hampton said, but still came out ahead since he didn't have to pay a 6% commission to an agent.
"We had a great experience. No hassles, and everything except the closing was handled between the previous owner and ourselves over his kitchen table," Hampton said. "We were nervous and hesitant at first, but it worked out great and saved us both money by not paying the (agent) commission."
Traditionally, sellers have coughed up 4% to 7% of their home-sale proceeds in commissions, with half typically going to their own agents and half to the agents representing the buyers.
But if you live in an area where home prices are soaring and houses sell within days, you may well wonder if the agents deserve such a hefty cut. Even if your market isn't white-hot, you may be tempted to save a little money by reducing or eliminating the commission.
3 ways to reduce costs
Real Trends, a company that tracks the 500 largest real estate firms, says the average commission on residential property has dropped in recent years to 5.1% from 6% as sellers cut better deals.
So you do have options besides paying the full load, but whether you should take them depends on your home, your market and your available time. Three popular options include:
" Selling it yourself.
" Selling with the help of a discount or flat-rate broker.
" Selling with a real estate agent, but negotiating a lower commission.
Before you decide how to proceed, you should take the following steps:
Research your market. Is it a seller's market, with homes selling fast for more than their asking price, or a buyer's market, with houses sitting for months before a purchaser can be found? Is your house in great condition in a top neighborhood or a falling-down wreck next to a freeway? The worse the market, the house and the location, the more you may need the skilled intervention of an experienced real estate agent to market your home.
Prime your house. Regardless of who's showing it, your home typically will sell faster and for a better price if it's in decent shape. Don't embark on major remodels, but fix whatever is obviously broken, rid the rooms of clutter and freshen up with new landscaping and clean windows.
Get three proposals. Getting "comparable market analyses," or CMAs, from three experienced agents can help you determine the best selling price. Smart agents will cooperate even if you let them know you're thinking about FSBO'ing, since 80% of do-it-yourselfers give up and hire an agent, said real estate expert Ilyce Glink, author of "50 Simple Steps You Can Take to Sell Your Home Faster and for More Money in Any Market."
Once you've taken those steps, you're ready to decide which option fits your needs.
For sale by owner
Glink has sold two properties this way, and cautions that it's a big investment of time.
In addition to all the tasks an owner usually does -- prepping the house, keeping it clean, containing kids and pets -- you have to perform the tasks usually overseen by the agent, such as:
" Setting the asking price;
" Advertising and marketing the property;
" Showing the house to prospective buyers (often with little notice);
" Differentiating between well- and poorly qualified buyers;
" Making disclosures required by federal, state and local laws;
" Negotiating the final deal;
" Opening an escrow; and
" Ordering a payoff for your mortgage.
Real estate agents often caution that FSBO sellers can invite lawsuits by failing to make proper disclosures about their properties. Glink says there are two remedies for that problem:
" Educate yourself on what's required in your state (which is often listed on your state Department of Real Estate's Web site), and
" Hire a good real-estate attorney to review your contract.
You can get sample contracts from the attorney or from books like "House Selling for Dummies," by Eric Tyson and Ray Brown.
Glink also recommends noting on your sign and in any advertising that you'll "cooperate" with buyer's agents, meaning you're willing to pay their customary commission (usually 3%). Otherwise, she says, many agents will simply avoid showing their clients your property.
Donald DeWeese, a Seattle mortgage broker, let buyers' agents know he was willing to pay their commissions when he sold a rental property several years ago. He received two full-price offers during a three-hour open house -- both from realtors, although one was representing her son and willing to waive the 3%.
"Obviously, she won out," DeWeese said. "We subsequently netted $7,920 more than if we had listed with an agent. Not bad for three hours' work."
Of course, in less competitive situations your proceeds may be trimmed if your buyer expects to share in the savings. Someone who knows you're not paying the 3% seller's commission might expect you to sell the house for 1% to 3% less.
Using a discount broker
A major disadvantage of selling a home all by yourself is that you can't advertise on the Multiple Listing Service, the database used by real estate pros to market properties. A listing in the MLS isn't necessarily required to sell your home, particularly in hot markets, but it does vastly increase your house's exposure to potential buyers.
You don't need to pay full price for MLS access, however; discount brokers also can get you listed. Owners.com, for example, allows you to advertise your property on the MLS for a $499 fee plus a 3% commission for the buyer's agent. (No commission is owed if the seller, rather than an agent, finds the buyer.)
Many discount brokers, also offer flat-fee arrangements for handling paperwork.
Still other discount brokers promise full service for less.
Catalist and Foxtons, by the way, dismiss the conventional wisdom that lower-than-average buyer's commissions can discourage home sales. The companies say most home seekers do at least some independent searching for homes, typically using the Internet, and aren't as vulnerable to being "steered away" by buyer's agents.
Author Tyson remains skeptical.
"You really should set the commission to be paid to the agent bringing you a buyer at about the same level being offered on comparable homes for sale," he said.
Negotiating with a full-service agent
Another cause for skepticism: a seller's agent who pretends commissions are set in stone. There's no legal minimum for commissions, Tyson said, and any agent who pretends otherwise should be dumped.
How motivated a particular agent will be to negotiate depends on several factors, though. In a buyer's market where a home will need lots of marketing and time to sell, an agent may well insist on 6% or 7%. In a seller's market where agents desperately need listings, the motivation to knock a point or two off the usual rate will be much stronger.
An agent's ability to negotiate also may be hampered if he or she works for a broker that insists on holding the line on commissions. The agent's commissions are split with the broker, and both parties usually must agree to any discount.
If you do negotiate a discount, you probably should make sure the breakpoint skews in favor of the buyer's agent, Tyson and Glink said. Regardless of how wonderful your home is, it's still competing with many others in the same price range that offer a buyer's agent the full commission.
Travis Mack of O'Fallon, Mo., said he negotiated a 5% commission with a full-service broker after trying a discount broker for two months with no offers. His home sold within two weeks.
"The split was 2.9% buyer and 2.1% seller," Mack said. "The typical (commission) is 6% to 7% in this area."
You also might consider a tiered arrangement, such as 6% for the first $100,000, 5% on the next $500,000 and 4% thereafter, Glink said. But she warned against using a sliding scale, where the commission decreases the longer a home takes to sell.
"You don't want to give the agent incentive to sell faster" rather than for the highest price, Glink said.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
REAL ESTATE'S TURF WAR HEATS UP
For years a battle has been looming between traditional real estate brokers and Internet-based insurgents
whoe are threatening to turn the market inside out. Now as the Internet companies gain clout and the fight heats
up, the battle lines are becoming clear. In one camp, the traditional real estate companies and the
industry-freindly state commissions that regulate them. In the other, the Internet upstarts and Washington.
On Mar. 31, the Justice Dept. filed a complaint against the Kentucy Real Estate Commission, arguing that local rules
prohibiting brokers from giving consumers rebates on real estate commissions violate antitrust laws.
The Kentucky suit could be just the opening salvo from Justice. Given theat eight to 10 other states have similar rules,
many in the industry expect Justice to file comparable suits around the country. That could give
a huge boost to the Internet camp. Such rebates are a key strategy for brokers such as ZipRealty Inc. that do
most of their marketing online. Similar gimmes are also used by broker referal services.
Clearly the old-line industry is worried. Realtor associations around the country are backing so called "minimum service"
laws like the proposed rules in exas that could soon be passed by the state legislature. The Realtors argue
that letting on-line brokers sell a stripped-down service, without performing such hard-nosed taks as negotiating
prices, would leave unwary consumers in the lurch. "These rules were put there for consumer protection by the
legislature," says Austing lobbyist Bill Miller, who represents the Texas Association of Relators
VAST SAVINGS
But those rules have also turned the buying and selling of houses into a money machine for real estate brokers. Commission to sell homes
top $60 billion a year. The industry is domincated by local brokers who buy franchises from national giants Cendant Corp (which runs Century
21 and Coldwell Banker) and Re/Max International as well as large regional independents. Most chard a commission of 5% to 6% of the purchase price for
services. By contract, the online discounter Foxtons North America Inc. charges 5% to 6% but fives "rebates" of 25% of the commission
to sellers. Some brokers with more limited services charge far less. In exchange for cheaper commissions or other bennies, Web players
expect consumers to do more of their own work of pay additional fees for more service. That can include arranging
open houses and shelling out big bucks for escrow and legal fees. Many consumers seem to think thats find: Foxton
expects to have up to 5% of the suburban New York Market this yearm, CEO Van Davis says. ZipRealty, which went public in 2004,says
it will earn as much as 10 million this year in revenue, even though it has yet to reach 1% market share in any market where it
does business.
The online brokers since eahc house sale required far less work. That meand means they can handle more clients at a time than tranditional brokers. ZipRealty
says its agents sell about twice as many homes as its rivals'. It cuts costs by having few offices and finding clients via telemarketing or
online advertising, rather than by having reps in every suburb.
Whatever their strengths, however, online brokers cntinue to be held back by the raft of industry-backed state
regulations that blocks discounts on commissions. But as the Justice Dept. has shown in Kentucky, those regs could
soon come tumbling down.
By Timothy J. Mullaney in New York
Resources Coming in Wake of High Court "Takings" Ruling
The NATIONAL ASSOCIATION OF REALTORS® is developing resources to help members concerned about the impact of the U.S. Supreme Court’s eminent domain ruling this summer. The ruling takes a weaker view of “public use” in condemnation cases than some state laws.
The high-profile case, Kelo vs. the City of New London, raises key property rights issues. The court sided with New London, Conn., city officials whose economic development plan calls for taking homes in a working class neighborhood to make way for private developers. The Supreme Court’s decision only reaffirms New London, Conn.’s, right to act based on what’s allowed in Connectictut law. It doesn’t set a federal standard.
Typically, cities have exercised their eminent domain rights for projects with a direct public purpose, such as schools and bridges, or to remediate blight. In this case, the neighborhood isn’t blighted, and the property is to be turned over for development on the assumption that new commercial property that includes a research facility and a hotel, among other pieces of a planned “urban village,” will boost investment and increase tax dollars.
NAR had filed a friend-of-the-court brief jointly with the National Association of Home Builders, arguing for a stricter standard on the public use question. The court rejected NAR’s position, determining that it was inappropriate for others to second-guess the city’s comprehensive economic development plan.
NAR is identifying states, including Arizona and Michigan, that have a more restrictive definition of public use than the federal definition delineated in the New London case. This information, along with other resources, will be made available to state REALTOR® associations to enable them, if they choose, to seek adoption of a stronger public use definition in their state laws.
Robert Freedman, REALTOR® Magazine
Text of the decision:
U.S. Supreme Court opinion (PDF: 318K)
Why Title Insurance is Necessary
by Al Heavens
My plumber called me a few weeks ago with a problem that I found easy to answer.
It seems that his vacation home (a manufactured home permanently affixed to a site in the foothills of Pennsylvania's Pocono Mountains) was found to be about two feet into his neighbor's property.
The neighbor was selling his land, and since he had owned the property for 50 years, he had just paid for a survey. The neighbor wanted a lot more money than my plumber was willing to pay for about 10 square feet of additional land.
Do you have title insurance on the property, I asked.
My plumber paused.
"Yeah, I took an owner's policy when I bought the property," he said. "I'd paid cash but since I have one on my house, I figured it was a good idea."
And what a good idea, even though my plumber had completely forgotten about the policy.
According to the American Land Title Association, about 25 percent of all residential real estate transactions have issues with the title. Most are resolved before closing; however, any claims or challenges that arise after closing will be paid by the policy as long as the owner and his or her heirs retain an interest in the property.
My plumber had an owner's policy, which is typically issued in the amount of the property's purchase price. An owner's policy protects the buyer. A loan policy protects the lender, but, as I've said, the plumber paid cash for the land. What if a loan had been involved? The title association says that in a typical residential transaction, the title policy that is often required by the mortgage lender will not safeguard the rights and interest of the home buyer. Therefore, a separate owner's policy is recommended.
A loan policy assures the lender of the "validity, priority and enforceability" of its mortgage, protecting the lender's security interest in the property. A loan policy is issued in the amount of the loan. Liability decreases as the mortgage debt is reduced.
The major difference between title insurance and other kinds of insurance is this: Other insurance types assume a particular risk and provide financial indemnity if the risk occurs. Title insurance tries to prevent loss by eliminating risks created by title problems that arise from previous situations.
This emphasis on loss prevention means that title insurers pay fewer claims than other lines of insurance. But to accomplish this, preventing loss and clearing title issues is expensive and labor intensive.
How much? The land title association says that expense ratio for title insurers averages 90 percent, while the expense ratio for property and casualty companies is less than 30 percent.
What is involved in a title search? Researchers look into official records for mortgages, judgments, street and sewer system assessments, special taxes and levies and other matters.
Information about a piece of property and any liens against it may be filed in different ways. They can be filed under the seller's name, the owner's name, by lot number or street address. To reduce the complexity of the search process, many companies have created "title plants," which contain nearly all the information that are found in official records but are indexed in a consistent manner – for example, by name or lot number.
Thanks to these title plants, the title can be searched and title insurance issued within 24 to 48 hours in most metropolitan areas.
My plumber's problem with his neighbor was easily solved to the satisfaction of both parties. It would have been better had a more thorough title search been done at the start, however. One example of a problem that is better handled at the beginning of the process goes like this:
The title search discloses that two acres that are being purchased were once part of a five-acre tract. A previous deed to the five acres included a restriction on the use of the property to a single-family dwelling and the usual outbuildings. The other three acres already had a single-family dwelling, so there was a question about whether the buyer could build on the other two acres.
The title company helped the buyer obtain releases from the appropriate parties to remove the problem and allow the houses to be built.
Not all title problems have happy endings. A buyer was about to close on a property when a search found pipeline, utility, flood and road easements across the property that would have restricted his use of the land. The sale was canceled.
Published: August 4, 2005
Eliminating Inspections: What Could Go Wrong
by M. Anthony Carr
There are plenty of inspections a purchaser could select in the home buying process. The most well-known inspection, is of course, the home inspection. This is the one where you get together with someone that knows a lot more about houses than you do, who arrives with a flashlight, ladder, screwdriver, and hopefully a T-shirt long enough to hide any unsightly crevices during the process, and meander through your future home to find all the defects you care to discover.
After all, who would want to purchase a lemon, right? Who would be that stupid? It's interesting, in market's across the country, buyers are paying more attention to their car purchases (for roughly $20,000) than they are the house they're buying (roughly, average national price $200,000 -- but of course, in the Washington, DC, area, it's more than double that amount).
But what are you to do in a scenario where the ultimate goal of the purchaser and his/her agent is to get the house, period? Forget good price, condition and location -- just get the darn thing. How can a buyer protect him or herself?
It's not iron clad, but here are a few suggestions you can take with you in that next competitive home visit. Some Realtors are going to be very irritated at my answers, but, hey, this is war.
Treat your home visit more like an inspection when you walk through it.
Along with your agent, take a couple of tools -- a flashlight and a receptacle tester, at least. As you go through the house start testing a few things like you would while buying a car. No honest car owner would be upset if someone asked to look under the hood, crank the engine, goose the gas pedal and to take it for a spin -- you would be thought crazy if you didn't.
Since many jurisdictions are in seller markets, keep in mind this visit may be your only chance to make sure all the toilets flush. With your flashlight, start looking in crevices, nooks and crannies throughout the house.
While you don't want to "invade" someone else's property, at least do a little prodding to make sure the basics are in working order. Turn on every light switch. Try every faucet and spigot. Open every cabinet. Pull out all drawers and test all doors. If accessible, open a few windows. Look around the base of hot water heaters and furnaces for leakage of water or any other fluids -- oil, rust, etc.
Insist on an information-only inspection in your contract.
What this means is that you basically want to know what you're getting into, but you're not making the contract "contingent" on a satisfactory home inspection. What you'll be able to do with this contract, however, is to determine if certain items that are supposed to be working even without a contingent home inspection are actually in working order.
In the Washington, DC, area, that would be Paragraph 3 of the Regional Sales Contract. Plumbing, electrical, appliances, heating/air, etc., must be in working order even without a home inspection. Sellers would be well advised to accept such an inspection so that they don't receive letters from attorneys when the buyer moves in and finds problems with these systems later.
In conjunction with this type of inspection, the buyer should invest in a home warranty (roughly $350 - $500) to cover these systems in the first year of the homeownership. While the policy will carry various provisos and limitations, it can help provide piece of mind for the new homeowners.
I've seen many homeowners who's policies more than paid for themselves through the repair or replacement of an air conditioner, heat pump or certain appliances.
As the market continues at a heated pace, buyers need to take matters seriously and try to inspect what they expect in their home purchase.
Published: June 24, 2005
Keeping in Touch After the Move
by Carla L. Davis
Keeping in touch with friends and family after a move can be difficult.
It's easy after a move to become quickly involved in activities, becoming so busy that a week or more can pass without us talking to even the oldest of friends. Just remember that although you have moved on the new and exciting things, there are loved ones you have left behind.
Here are three quick and simple ways for you to keep in contact with your loved ones:
Emails and Egreetings
Keep in contact by writing emails. I recommend setting up a "correspondence routine" of sorts. If Sundays are your least busy days, then set aside 30 minutes on that day each week to write emails to family and friends.
Mention what new developments there are in your life, perhaps tell a funny anecdote from your week, and be sure to ask how they have been.
If you are are really crunched for time, try what is popular among college students: the "update" email, in which the writer sends one mass email to all of their friends and family, so that even if they don't have the time to write 50 separate emails, those they care about still hear from them on a semi-regular basis.
Also, consider sending Egreetings. There are numerous websites that offer these free online greeting cards. Send them for birthdays, anniversaries, holidays, or simply to say hello. You can Google the phrase "free egreetings," or visit a site I have used called 123greetings.
Handwritten Notes
Another option is traditional letter writing. These don't have to be pages long. Even a few handwritten lines can carry a lot of emotion. Get into the habit of writing a traditional, handwritten letter every weekend to one of your loved ones. The only cost will be the 37 cent stamp (for now).
Phone Calls
This is the most time consuming of the three options, but it can also be the most satisfying. Keep in mind that many cell phones now offer unlimited minutes on nights and weekends and many long distance carriers have plans that allow for unlimited long distance at a set fee.
If you plan on keeping in touch by phone, I would recommend being sure you have some sort of phone plan that allows you either unlimited long distance or a considerable amount of minutes. You should never have to make the decision not to call a loved one simply because it will cost too much.
So remember, keeping in touch after a move can be difficult, but with just a few minutes, clicking on the "send" button or pressing the stamp onto the envelope, you and your loved ones can be a little bit closer.
Published: June 20, 2005
Is It Time To Buy Less?
by Peter G. Miller
It has been a most-interesting few weeks in one of the nation's hottest real estate markets, the area just outside my front door.
As someone now in the process of selling, I am elated by current market conditions: As long as the check clears I heartily approve of interest-only loans; I believe the availability of 100-percent financing is a Constitutional right and if lenders are content with drive-by appraisals it's okay by me -- even if the investment property I'm selling is barely visible from the road.
But I'm not a seller every day. When the property settles I will be a buyer and my view will quickly change. And regardless of which side of the transaction one is on, financial sanity on a national level is important to us all.
All of which brings us to Alan Greenspan, the chairman of the Federal Reserve. Despite all the yammering and mooing about a national real estate bubble, Greenspan has finally explained what readers of this column have long heard: There is no national real estate market. There are many local markets. A nationwide drop in average prices would have a modest economic impact in most areas and no impact at all for many owners.
"Although a 'bubble' in home prices for the nation as a whole does not appear likely," says the Fed chairman, "there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels."
"The housing market in the United States is quite heterogeneous, and it does not have the capacity to move excesses easily from one area to another. Instead, we have a collection of only loosely connected local markets. Thus, while investors can arbitrage the price of a commodity such as aluminum between Portland, Maine, and Portland, Oregon, they cannot do that with home prices because they cannot move the houses. As a consequence, unlike the behavior of commodity prices, which varies little from place to place, the behavior of home prices varies widely across the nation."
In other words, as has been said here repeatedly, real estate is a localized commodity. Looking at national trends does not tell us what's happening down the street or across town.
One of the realities which dampens real estate speculation is that homes actually have a "use" value, it's a place to live in or rent. If you own a house and local price trends moderate or even fall, it's not great news but the practical impact may be zero, especially if you have a fixed-rate loan and no urge to sell.
So why do we talk about the national real estate market? Because it's an easy benchmark to watch. What we really need to talk about are sales in the neighborhood and sales in a ZIP code as we see with the Market Reports posted online by local brokers.
"Speculation in homes is largely local," says Greenspan, "especially for owner-occupied residences. For homeowners to realize accumulated capital gains on a residence -- a precondition of a speculative market -- they must move."
There is a different market for mortgage financing, however. That market is nationwide and growing numbers of high-risk loans should make us all nervous.
It is here that my thoughts as a seller differ from my thoughts as a citizen. Yes, I am elated to sell property to anyone with a check of the proper size, but I wonder why lenders make such risky loans and whether the economy is well-served by such financing.
"The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern," according to Greenspan. "To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace."
Lastly, in an oblique way, Greenspan touched on the matter of real estate commissions.
It is routinely said that real estate commissions should fall because commissions have dropped for stock brokers, travel agents and such. However, the electrons required to sell 100 shares at $2 each are no different than the impulses needed to sell 100,000 shares at $20 each -- in both cases we merely have a few electronic blips moving from here to there.
But homes are not interchangeable -- economic theory holds that real estate is a "nonhomogeneic" commodity -- a fancy word meaning all properties are unique.
Greenspan says that "because of the degree of customization of homes, it is difficult to achieve significant productivity gains in residential building despite the ongoing technological advances in other areas of our economy. As a result, productivity gains in residential construction have lagged behind the average productivity increases in the United States for many decades. This shortfall has been one of the reasons that house prices have consistently outpaced the general price level for many decades."
Uniqueness, of course, is why no one buys a home over the phone, sight unseen. It's also the reason local brokers who physically exist in your ZIP code consistently have value while brokers far away in some distant galaxy are irrelevant.
Greenspan says, "Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications."
If Greenspan's comments had subtitles, they would say In English that even if home prices fall, they won't fall everywhere and the overall impact is likely to be minimal on a national scale.
That said, do your part. If it requires interest-only financing, a stated-income loan or a 100-percent mortgage to buy property, if you can't finance the home of your dreams with a fixed-rate loan, look toward the future: Buy small, buy less, save more and stop racking up credit card debt. You'll be grateful if and when interest rates rise and home sales moderate on your street.
For more articles by Peter G. Miller, please press here.
Published: June 14, 2005
Online Curb Appeal Brings Buyers to Your Home
by Phoebe Chongchua
Most of us have been to open houses where the wafting smell of fresh-baked cookies coming from inside a home lures us to the door. Curb appeal is a necessary tactic to get buyers and real estate agents into your home.
But nowadays the importance of curb appeal is taking on a more vital role, especially when the vehicle that first gets buyers to see your home is not a car, but an internet browser.
Curb appeal is no longer simply what you see from your realtor's car when you're driving by a house. Today, according to a study done by the National Association of Realtors, 74 percent of all home buyers use the internet as an information source when they are researching homes. Very often this is the first time a prospective buyer will see a home.
"The trend tends to be that they use the internet to do their window shopping and to get a lot of information and then they go to a realtor or licensed agent after they do their homework first," says Lorrie Mowat of the San Diego Association of Realtors.
That's why sprucing up photos of homes for sale is getting greater attention these days. Virtual tours of homes online are the next best thing to being there in person to view a home.
"A virtual tour will allow you to walk through the home online. You can see the front of the house, all the rooms on the inside, exactly how it lays out, which will give you an idea of the livability of the house before you ever go to look at the house or call an agent," says Christian Coleman, District Director for ZipRealty.
Online curb appeal can be the catalyst for getting buyers and real estate agents to your property. Consider these tips to enhance online curb appeal.
Use colorful plants surrounding the exterior. Stand back and evaluate your home. Does it need color or landscaping fill-in? Are there any eyesores that distract from the home?
Remember that when a home is photographed, lighting is very critical. Make sure you have light coming in from the outside so that the home appears cheerful and bright. Shooting with natural light rather than flash often gives a more desirable look.
Make sure photos are taken of those extra-special areas that make your home stand out, such as a sitting area in a master bedroom, the beautiful garden view from a window or a yoga/meditation room. Even if they're described in a written summary, capturing them with a photo speaks to people's senses.
Picture your home through the lens of a camera. Actually take a few photos with a digital camera. It's amazing what a camera can capture that the eye doesn't always see when the photo is being taken. You'll often find that a home is too cluttered; some furniture may need to be stored or moved to another room.
If you leave in a condo/townhouse, virtual tours can be even more beneficial.
"Virtual tours when it comes to condominiums can help out a lot because they'll also show common areas. And the way that downtown [San Diego] is changing, and all the condos that are coming online, it can really help the buyers to not only see the unit and the size and the way that their furniture will fit in, but all the common areas. Does it have a swimming pool? If so, what does the pool look like? Does it have a gym? Does it have a concierge service?" says Coleman.
Curb appeal whether online or in person is the first step to getting buyers to notice your property, so, just like first impressions, make it a good and lasting one.
Published: June 6, 2005
Issues You Should Consider Before You Invest in Real Estate
by Clifford A. Hockley
You may think that investing in real estate is simple, but you first must decide what your investment objectives are. This is equally important for sole owners of real estate, those investing in Tenant in Common investments (TICs), and those with limited or general real estate partnerships.
Sample Investment Objective Questions:
Are you sheltering income and need losses to write off against it?
Are you building your assets with an objective to break even or generate cash flow?
Do you need the cash flow to live on?
Are you a real estate agent?
Are you actively involved in managing/developing your real estate assets?
To use the question of sheltering income as an example, we see that with every separate situation the tax implications are different, so you should consult with your CPA to make sure you are correctly understanding the expected tax results.
Passive Activity and Material Participation:
A passive activity is any activity involving the conduct of any trade or business in which the taxpayer doesn't materially participate. Rental activities are passive activities. Material participation requires involvement in the management or rental operations of property on a regular, continuous and substantial basis. You are considered to be materially involved if:
You participate in the activity for more than 500 hours in the day to day operations during the year, or
Your participation was substantially all of the participation in the activity, or
You participated in the activity for more than 100 hours in the tax year and at least as much as anyone else for that year.
Participation includes making rental decisions, repairs, hiring vendors, inspecting property, reviewing financial documents, and establishing financing or refinancing.
For real estate professionals, rental real estate activities are not subject to the passive activity rules, if during the tax year:
More than 50 percent of your personal services are performed in real property business in which you materially participated, and
More than 750 hours are spent in real property businesses in which you materially participated.
Real property businesses are those that are actively involved in real estate development, conversion, rental, operation, management, leasing or brokerage.
Passive Losses:
Passive losses, generated by passive investments, are deductible only against passive income. Unallowed passive losses cannot be used to reduce non-passive income, like income from your work, dividends or interest unless you qualify due to low MAGI, as explained below (Unused passive losses are carried over to future years and can be used to offset future passive gains).
Modified Adjusted Gross Income (MAGI): If your MAGI is less than $100,000, it is possible to deduct passive losses up to $25,000 from rental real estate. If your MAGI is over $100,000, passive losses can be used to offset non-passive income at the rate of 50 cents for every dollar up to $150,000 of adjusted gross income. No passive losses are currently deductible when MAGI exceeds $150,000. These limitations are illustrated in the following table.
Phase-out of $25,000 Passive Activity Loss Allowance
If Your Modified MAGI is Your Passive Activity Loss Allowance is
Up to $100,000 $25,000
$110,000 $20,000
$120,000 $15,000
$130,000 $10,000
$140,000 $5,000
$150,000 or more
Your MAGI is most of your non-passive income. It is the same as your adjusted gross income without including any of the following:
IRA contributions
Taxable social security benefits
Adoption assistance payments
Income from U.S. savings bonds that you used to pay higher education tuition and fees
Interest on qualified student loans
Passive activity loss in real property businesses
The ½ of self-employment taxes deduction
The tuition and fees deduction
Any overall loss from a publicly traded partnership
Married persons filing separate tax returns who lived together at any time during the tax year may not claim this offset on their tax returns. Married persons filing separate tax returns who lived apart at all times during the tax year are each allowed a $12,500 maximum offset for passive real estate activities.
The rules related to the deduction of losses from real estate rental activities are very complex. You should consult with your CPA when determining how those rules impact your real estate activities.
For additional information on limits on rental losses, refer to Chapter 10 of IRS Publication 17, "Your Federal Tax Income," Publication 925, "Passive Activity and At-Risk Rules," Publication Tax Topic 425, "Passive Activities - Losses and Credits."
References:
1. Somerset CPAs P.C. Tax letter for individuals, regarding Passive activities,
2. RealTax, Get the most from your Passive Losses, professionals/passive losses
3. Turbotax, Passive Activity loss limitations and rental properties
4.IRS Publications:
a.Publication 925, Passive Activity and At-Risk Rules
b.Form 8582, Passive Activity Loss Limitations
c.Topic 425, Passive Activities – Losses and Credits()
d. IRS publication 527, Residential Rental Property
Published: May 25, 2005
Avoiding 7 Costly Mistakes of Selling Your Home
by M. Anthony Carr
There are always appropriate steps to investing in real estate and hopefully, you've garnered many of them right on these pages. However, there are also inappropriate steps sellers can walk down when it comes time to put their house on the market.
For instance, the seller in Virginia, who thought the half bath the builder had located at the front of the house would really be better situated toward the back of the main level (though all the other similar models had the powder room in the same place for the previous 20 years). He got hung up on this detail so much, that he just had to move it -- and did -- for thousands of dollars, just so he could get it on the market the "right way." His hang-up may have settled some deep-seated emotional need for him, but it didn't draw any more buyers, and it drained his bottom line. You might say, that was a costly mistake.
Real estate broker and author Sid Davis has identified in his book "A Survival Guide to Selling a Home," another seven costly mistakes that many sellers make when it comes time to put their home on the market. In my business, I've seen each one of these mistakes played out and it just makes me shake my head as to why, sellers forge ahead with unwise strategies, instead of listening to the voice of an experienced professional.
Mistake 1: Putting the home on the market before it's ready. Most times this happens because the seller gets impatient or is a procrastinator and has pushed himself up against a moving deadline without getting the pre-sale work done. So it comes on the market with the horrible carpet (that gets replaced during the marketing of the home); or they are painting it while it goes on the market. Presentation is everything -- so get the work done before marketing the property.
Mistake 2: Over improving the home for the neighborhood. This happens with additions, bump outs, and upgrades that make the home stick out from among its competitors so much that it's an anomaly, instead of a nice addition to the community.
Mistake 3: Pricing the home based on what the seller wants to net. This pricing strategy always ends in failure. Sellers can control the "asking" price, but they don't control the "sales" price. The market does. It doesn't matter what the seller wants, the price is determined by the black-and-white, matter-of-fact reality of the market.
Mistake 4: Hiring an agent based on non-business factors. Make sure you're hiring a professional with a proven track record. It might be nice to hand over your largest asset to your nephew who just got his license -- but make sure he has a mentor to keep your deal from going south.
Mistake 5: Getting emotionally involved in the sale of the home. This is one of the biggest challenges home sellers face when putting their house on the market. Once you decide to sell your house, it's no longer a home, but a commodity. It needs to be prepared as a commodity, marketed as a commodity, and priced as a commodity. It doesn't matter what you "want," only what the market can bear on pricing. People are going to come in to kick the tires, so to speak, and you can't get emotional about how they may or may not appreciate the nuances of your home of seven years.
Mistake 6: Trying to cover up problems, or not disclosing them. Most states have a property disclosure/disclaimer form -- use it wisely. Just because you disclaim doesn't mean you cannot be sued later for the leaky basement, or dilapidated heating/air system that's discovered 30 days after settlement.
Mistake 7: Not getting your ducks lined up before trying to sell. This would involve financing, reading the fine print on your current mortgage to ensure no pre-payment penalties, not listening to the particulars of your local market, etc. If your local market is dictating lower home prices, then lower it early, not later -- it will cost you more. If the local market dictates selling your home first, then buying second, do it in that order, or vice versa.
Avoiding these mistakes is not that difficult. There are plenty of resources (like this publication) and professionals, who are there to help you step over the pitfalls. Do the research early, and listen to that voice in your head (it's probably the whispers of the finance, real estate, insurance person who's warning you of a hole you're about to step into). Sell well.
Published: March 18, 2005
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