Toni's Blog

Market Conditions by Realty Times Staff

The latest report from the National Association of Realtors is reporting that existing-home sales were down in month of August by 2.2 percent.

The reason for this slight stall? NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the pendulum in the mortgage market has swung too far. "The difficulty in obtaining a mortgage increased over past couple months, making it more challenging for creditworthy borrowers to find financing," he said. "Our hope is that overly tight lending criteria can be loosened with reasonable standards and credit so that sales activity can catch up with demand. Interest rates have already declined, but there is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding."

Regionally, the Midwest and South still both saw small increases, with the west seeing nearly a 1 percent gain month over month.

These gains, however, still don't put the regions back into the pace seen in 2007. The Midwest, for example, is still 12.3 percent below the existing-sales pace of last year.

Existing-home sales weren't the only statistic to show a drop. The national median existing-home price fell as well to $203,100. This is 9.5 percent below last year.

Published: September 25, 2008

Lease-To-Buy May Be Good Option by Phoebe Chongchua

Many people who are struggling to get mortgages are finding comfort in a growing trend: lease-options. This is a contract that allows renters to lease the property and, at the end of their lease, they have the option to buy the home.

Hopeful buyers with poor credit are finding the rent-to-own option creates an opportunity to repair their credit while positioning them for homeownership. It's a win-win situation. Sellers find that properties that once sat vacant now offer cash flow.

The concept, while not new, is gaining momentum. There are a number of reasons buyers are finding this option appealing and it's not just because of bad credit. Some buyers are not sure if they're ready to own a home and take on all the responsibilities and extra costs that go with homeownership; the lease-purchase contract gives the buyers a chance to give homeownership a test drive.

Individual sellers in the housing resale market are considering this method to help get their homes sold and so, too, are developers who have found they're loaded up on properties they can't sell.

"In Boston, as is true with so of much the country, the condominium market is a little bit soft right now," says Eric Gedstad, Corporate Communications Manager, MassHousing in Boston.

So, some developers are trying the rent-to-own program in hope of getting condos sold. "There is one development where the renters sign an agreement that says 'If they would like to purchase the unit that they are renting any time within the next year, they can do so for a fixed price and they would have first dibs on that," says Gedstad.

Understanding the lease-option is very important. There are various differences in the way this type of contract can be drafted, so it is critical to hire experts to help negotiate the process to make sure you understand the terms and are protected. Here is some basic information about leasing with the option to buy a property.

Typically, in return for the landlord/seller extending the offer to buy the property after a period of time (usually one to three years) at a predetermined price, the tenant/buyer has to pay an upfront option (fee). That fee is generally non-refundable. A portion of the monthly rent may be applied toward the down payment to purchase the home.

Advantages for the buyer/tenant:

 

• Under this type of lease-option contract, for the period stated, you are the only one who has the option to buy the property.

   

• Typically a portion of your rent goes toward building equity and, when you purchase the home, is applied toward the down payment.

   

• You have a contract to buy the home when the lease is up.

   

• Usually you can buy the home at any time during the contract.

   

• You can see if homeownership is right for you by testing it out.

   

• In an appreciating market, you may get a good deal if the home goes up in value and you have already locked in a specific sale price for the home that is less than how much it appreciates. However, the reverse is true too. You could end up paying more for the home later on if it depreciates and a set price was locked in for a higher amount than what the home is worth when your lease-option is up.

   

• You have a chance to clean up your credit and build equity.

Advantages for the seller/landlord:

 

• Immediate cash flow from the tenant and the opportunity to sell your property later on.

   

• If the tenant/buyer doesn't buy your property, you keep the upfront fee (option money).

   

• You may have a larger pool to market your home to because you are marketing to traditional buyers and also renters and investors.

   

• You will likely get higher-quality tenants who take better care of the home since the tenants may want to buy it in the future.

   

• Since you own the home, you retain tax-shelter benefits while you have tenants in the home.

   

• You may get some peace of mind knowing that you have tenants in your home who are working toward buying the home.

Things to consider when utilizing a lease-option:

 

• Do a home inspection and document necessary repairs. Take photos to document the condition of the home.

   

• Make sure all payments are kept up such as mortgage, taxes, and insurance for the property.

   

• Verify if there are any liens against the property.

   

• Spell out the terms if the tenant/buyer does not exercise the option to buy the home at the end of the lease.

   

• Specify everything in writing; option contracts must have all the specific information that a sales contract would have in order to be enforceable.

   

• Prepare a draft of an undated and unsigned purchase agreement.

It's always a good idea, when purchasing real estate, to contact experts to assist you through the process to ensure that you understand the contract and ultimately complete a successful transaction.

Published: September 12, 2008

Mortgage Pre-Approval versus Mortgage Pre-Qualification by David Fialk

Is there a difference between a Mortgage Pre-Qualification letter and a Mortgage Pre-Approval letter?

The reality is that most all buyers need to obtain a mortgage loan to purchase a home. Since mortgage approval is such an integral aspect of a home purchase, wouldn't it make sense that REALTORS® have a better understanding of the mortgage pre-approval process, since so few buyers are able to buy a home and pay cash.

These terms appear to be similar, but can be quite different. Not only do they cause confusion for home buyers, there seems to be many interpretations from those in the real estate and mortgage industry as well.

Speaking as a REALTOR®, the difference is in documentation and verification. In other words, is the buyer providing copies of income paystubs and bank account statements to the Mortgage Lender or is the Mortgage Lender simply relying on verbal information provided by the buyer? More often than not, the difference between the two terms is that one is issued without any verification of information and the other starts with the buyer providing written documentation of all information provided. While neither is a considered to be a mortgage commitment, nor a written mortgage guarantee, obtaining a Mortgage Pre-Approval letter is more preferred than obtaining a Mortgage Pre-Qualification letter.

Based upon my experiences in selling real estate since 1971, and helping buyers obtain mortgage financing, Mortgage Pre-Qualification is generally a process where a buyer contacts a Mortgage Lender/Mortgage Representative, often on the telephone, who then asks the buyer to provide some information. The information requested involves a current address and how long living there, a social security number and permission to order a credit report, annual income and hopefully the amount of down payment.

After the credit check is ordered and received by the Mortgage Lender, the Mortgage Rep then estimates the amount of mortgage the buyer can afford and sends (via fax or email) a letter to the buyer with the title Congratulations, You Are Pre-Qualified, for a mortgage loan in the amount of $__ or Congratulations, You Are Pre-Qualified, for a mortgage loan in the amount of $__ and a purchase price of $__. This is usually done within a half hour or so of the initial phone call, and at best can be described as an estimate of potential mortgage ability and purchasing power, and not Mortgage Pre-Approval.

The pre-qualification letter always includes varying type disclaimer information, such as: Subject to a formal mortgage application and payment of an application fee, subject to verification of employment, subject to verification of assets, subject to credit review, subject to mortgage underwriting guidelines, interest rate to be the prevailing rate of interest for the mortgage type applied for, among many other "subject to"-like statements. In other words, we will give you a mortgage when we see that the information you provided is correct and meets certain qualifying standards.

What problems could arise when a formal mortgage application is submitted by a buyer after they've obtained a Mortgage Pre-Qualification letter like that? The mortgage application process involves somewhat standard underwriting criteria and guidelines for each particular type mortgage, whether the mortgage is VA, FHA or Conventional. The varying underwriting criteria involves guidelines, whether Fannie Mae, Freddie Mac or the Lenders specific qualifying criteria, for verification of income, income qualifying ratios, verification of down payment, cash reserves after closing, credit check scores and work history, among others.

Yes, it is possible that the buyer provided correct information, and will obtain a mortgage commitment when a mortgage application is submitted. However, there are many circumstances where even though the information verbally provided is accurate, certain other details are not mentioned which may have a negative impact on the mortgage approval process. Details like income being received off the books, down payment being borrowed (not gifted from a family member), and savings for the down payment but no other assets for closing costs or inconsistency in work history, to name just a few situations that can cause problems in obtaining mortgage approval.

While Pre-Qualification letters like the previous example are common, not all Mortgage Lenders provide them in that manner. Many Mortgage Lenders require a more thorough process in providing Mortgage Pre-Approval. In addition to obtaining a credit report, many Lenders require the buyer to provide proof of two years of work history, pay-stubs or income tax forms, copies of bank statements for source of funds verification and copies of charge card statements.

When the documentation is provided, it is then submitted to the Mortgage Underwriter for review and approval. The Mortgage Pre-Approval letter is worded something like this: Congratulations, You Are Pre-Approved for a mortgage loan in the amount of $__ and a purchase price of $__ subject to a Contract of Sale and a satisfactory Bank Appraisal on the home being purchased. While more time consuming than the previous pre-qualification practice discussed above, it is more thorough and more reliable, shortens the formal mortgage application and approval process and provides the ability for a fast closing if one is desired.

Consider the advantages of this type Mortgage Pre-Approval. First of all, the buyer and REALTOR will have confidence in a price range and confidence in obtaining mortgage approval. In submitting offers, sellers will know they have a serious buyer who has taken the time to arrange for mortgage financing first. And just as important, the buyer will be more relaxed in spending money to hire an Attorney for contract review, providing the earnest money deposit, hiring a home inspector to perform the home inspection, termite inspection, radon inspection plus any other required inspections and paying for the mortgage application and appraisal fee. Why? They are concentrating on the home they have purchased, and not worrying about the mortgage approval process.

Needless to say, I can't even count the number of real estate transactions I've noticed fall apart after a buyer has paid all those fees for the home they hoped to purchase, only to find out they were not able to obtain mortgage approval, even with a Pre-Qualification letter. These are the financial ramifications for a buyer, but what about the ramifications for the others involved in a lost real estate transaction, the selling agent, the listing agent and the seller. Consider the time, energy, emotional strains and on and on. Real estate is a people business, a service business. Not much good can occur when a real estate transaction is cancelled for mortgage denial, especially when it occurs a month or so after contract acceptance.

Provide better service to your buyer clients, review their Mortgage Pre-Qualification letter with them, and don't be afraid to ask questions. Provide better service to your seller clients, read the Mortgage Pre-Qualification letter the selling agent is providing at the contract presentation, and don't be afraid to ask questions.

Published: March 11, 2008

Better is Better by Dirk Zeller

The business environment is getting more competitive every day. New companies and new concepts are being born daily. There is always someone trying to do it better and cheaper than what has been done previously.

There is more competition in today's global economy than every before. Do you remember when the US Postal Service was the only way to send documents? Now that age-old institution has to compete with delivery services such as Fed-EX, Airborne, UPS, as well as fax machines and the Internet with e-mail. Competition is everywhere and in every business segment.

The real estate business is no different. The new companies and the remaking of the old ones challenge us. There are two key questions that must be answered if we are going to thrive, not just survive, in the future.

1. How do we make our business (ourselves) the obvious choice for the consumer?

2. How can we be different than the other competitive choices, so we can better attract customers?

These two questions are at the center of success in attracting new prospects and clients to your business.

Many companies and Agents have taken the discount route to answer these questions. Still others are adopting a fee-for-service model. Both of these philosophies are trying to attract consumers solely based on the cost of the service. I believe that this tactic is a losing proposition for the Agent, the company, the real estate community at large, as well as the consumer. Cheaper is not always better ... better is better. For some reason, we are fixated on the commission we charge. We often have tunnel vision as to how to compete. Because we lost a listing to a lower fee broker, we assume that we must lower our fee to compete.

We have been working diligently with all our coaching clients specifically on their sales skills, presentation skills, qualifying skills, and objection handling. We have scripted, rehearsed, practiced, and role-played with them to increase their levels of skills.

Here is what we found, after studying their commission structure and fees. Most have actually raised their fees because of their confidence and delivery in their sales and objection handling skills. They have consistently received the highest commissions in their respective marketplaces. Many have even added a processing fee, between $295 and $495, to all their transactions. This processing fee has further increased their profit on each transaction.

The key in all this is the skills that you possess -- the ability to handle the commission objection or the statement that another Agent will do it for less. Your sales skills will make you the obvious choice for the consumer. We all should have reasons that the consumer should select us. However, you must stop and ask yourself these three questions:

 

• Are your reasons well thought out?

   

• Are they well laid out in scripts that you know cold?

   

• Are you able to convey them with power and conviction?

If you can't answer "yes" to all these questions, you have work to do!

Step 1: List all your competitive advantages. They could be your company, your service commitment, or your statistics (listings to sales, days on market, or average list to sale price). Write down as much as possible.

Step 2: Look at the list from the customer's perspective. What do they really care about, besides lower commission? What would really set you apart in their eyes? Pick the five key services you think they want. If you are struggling, go back to a dozen past clients. Call them, and ask them why they selected you over the other Agents. You now have the consumer's perspective.

Step 3: Select five competitive advantages and script a response to them. Your ability to drive these five points home can mean the difference between a powerful listing presentation and a weak one, and could well determine if you get the contract signed that night or have to wait a week. Be prepared to say to the customer what is most important.

We then need to analyze the next question: How can we be different to attract new customers? First, you must know your business and spend your time there. We often do activities at work that don't bring a large return. I coached a lady who did thirty-five open houses in one year and made $9,000 from all that work. Once she redistributed her time to calling her past clients, her production skyrocketed. She added over $50,000 to her gross commissions earned, in less than six months. It was a matter of understanding where her revenue was coming from and investing her time there. Why invest your time in activities that generate little income?

Another technique to attract more customers is expansion of your leads by using call capture, or IVR systems, to expand the number of leads you receive. You can expand the number of leads you get daily and weekly by 50 to 100%, by using call capture technology. There are numerous companies out there that provide this service. In my opinion, the most user friendly, with the best marketing minds behind the system, is Pro-quest Technology (). They have mastered the use and implementation of this product and made it easy. As Agents, the ability to generate more leads allows us to be highly selective with the people we work with. Being selective leads to more revenue. Take the time to implement your call capture system today.

Take some time this week to reflect upon (and answer) these key questions. You are running a multi-million dollar sales company. Make sure you invest the time in planning your own course to a successful career.

Published: September 26, 2008

September 28, 2008

JUST WHAT ARE YOU WAITING FOR AND WHY ARE YOU WAITING?

Far too many people spend their entire lives waiting for that glorious day when the perfect opportunity presents itself to them. Too late, they realize that each day held opportunity for those who sought it out. If you have not formulated a plan for what you would like to accomplish in your life, don't waste another minute. When you have Definiteness of Purpose fueled by a burning desire to reach your objectives, nothing can stand in your way. Don't wait around waiting for life to happen to you. When you know what you want and how you expect to earn it, life will agree to your terms, not the other way around.

Stayin' alive in a shrunken real estate market Diary of a Real Estate Rookie By Alison Rogers, Monday, September 15, 2008. Inman News

So we just had this discussion in the office today: How are we going to increase business?

Five years ago, lots of real estate agents knew the answer to that question: We can just get a share of an ever-increasing market! Home-ownership rates had been trending up and there were about 6 million transactions a year, so eager salespeople would just sell newbies their first home or boomers their second.

Well, the U.S. home-ownership rate crested in 2004, according to the U.S. Census Bureau Housing Vacancy Survey. It's currently at a seasonally adjusted 68.1 percent. Although that's still higher than the 64 percent that was the norm in the mid-1990s, the rate is now going down. And obviously, with less pie there's just one way to increase business -- take it from the next guy.

That sounds fine as an overarching statement, but it's more difficult to implement on the individual level. My competitors have established brands. Am I going to outspend them? Undercut them on price? Hit 'em where they ain't? Outsmart them?

Well, I have a long-range vision of what my niche is -- and indeed some of it is based on "hit 'em where they ain't" -- but unfortunately my resources are limited so little is based on outspending them. That means it's all the more vital that I carefully allocate my marketing money and time.

Here are the things I am trying to do:

• I keep towards a tight geographic focus -- I am not yet quite ready to "farm," but you might say that I'm definitely picking out the right 40 acres of land. And I am constantly thinking about how my brand ties in with this focus. I want people to think of me when they think of downtown, so as I am going through my day, I think, "does returning this call tie me in more closely with downtown? What about returning that one?"

• I am constantly thinking of my competitors' weaknesses. They are legion, but one that is fairly easy to attack is a stereotype of the industry -- many of them would say or do anything for a transaction. I try not to be that person, and in fact try to swing over to the opposite side -- I try to move mountains for a relationship.

• Stay alive. My mother was a politician, an elected judge, and I was proud that she was so successful. I learned many lessons from watching her work, and one of them was: "Outlive the bastards." Well, depending on what market you're in, around 80 percent of new agents won't make it past their first year. Lots more won't make it past this downturn. The ones who stick it out will have a leg up on the next business cycle. If my profession is going to reward endurance, I try to position myself for it -- I go to the gym (not as much as I should), take vacations (not nearly enough), and take time every quarter to congratulate myself for just continuing to survive.

• Figure out what works, and do more of it. If this seems screamingly obvious, try talking to five other real estate agents about their business models and note how many are missing this step. I get a lot of client capture from chatting on the Web, but I track it -- if a site is fun for me but doesn't bring in leads, I stop visiting it. Similarly, I'm a recent-enough newlywed that I connect well with young, soon-to-be married couples. Once I learned this about myself, I trained myself to spot an engagement ring at 30 yards. I don't necessarily grab brides-to-be on the street and try to sell them apartments -- but I know that if I end up chatting with enough fiancées, some of those conversations will end up coming around to real estate.

Take that, competitors.

Alison Rogers is a licensed salesperson and author of "Diary of a Real Estate Rookie."

Real Estate, Mortgages & Taxes

Let's be honest: April 15th is a day of reckoning, the moment when we find out what we really owe for taxes. In households nationwide wallets are drained and many who were rich on the 14th are greatly impoverished by the 16th.

But for those with real estate the load is made lighter by tax rules which encourage the ownership of homes and investment property. Such rules are not only good for homeowners, they're also good for the country: About 20 percent of all economic activity nationwide is related to real estate, so policies which encourage real estate activity help everyone.

It seems that almost every year changes to the tax code require the production of new forms and a re-education process. That said, the real estate basics remain in place and they're good news for buyers, sellers, borrowers and owners.

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

1. Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
2. Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
3. Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

When a prime residence is sold, up to $500,000 in profits can be sheltered from federal taxes if married, $250,000 if single, providing the home has been used as a prime residence for two of the past five years. Generally this deduction cannot be used more than once every two years, according to the IRS.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004
safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Also, individuals in the Armed Forces and the Foreign Service may be entitled to special consideration under the Military Family Tax Relief Act of 2003 (MFTRA). For instance, you may have longer to take a capital gains deduction or to amend a tax return. There are other provisions under MFTRA that also may be helpful, so check with a tax professional for specifics.

Points may be deducible by both buyers and sellers.

Picture a situation where a home is sold for $500,000 and the owner - to help close the sale - offers to pay 1 point for the buyer. If the property was financed with a $350,000 mortgage, a point would be worth $3,500. According to the IRS, "the seller cannot deduct these fees as interest. But they are a selling expense that reduces the amount realized by the seller."

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

"The buyer," says the IRS, "reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them."

In effect, the seller gets to write-off the $3,500 cost by reducing any profit from the sale. The buyer essentially lowers the purchase price of the property when the home is sold at some point in the future - thus increasing the size of any profit. However, since up to $500,000 in sale profits may be untaxed, most buyers will effectively never pay a tax on the seller's contribution for points.

If a prime residence is refinanced then the deal with points is different: The expense of a point must deducted over the life of the loan. If the home is sold before the loan term ends, then any cost not deducted for points can be used to reduce owner's profit from the sale.

Home offices may be deductible.

If a portion of your home is used regularly and exclusively as your principal place of business or for the convenience of your employer it may be possible to write off a portion of such costs as mortgage interest, property taxes and utilities. There are a number of tests which must be met to take this deduction, see IRS Publication 587, Business Use of Your Home for details.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

• The deduction applies to loans made after January 1st, 2007.
• The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
• The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
• If you refinance remaining "acquisition indebtedness" then you can write off mortgage insurance on the new debt.
• You can take the deduction if you're married, file jointly and have a gross adjusted income of $100,000 or less. If you're single or married and filing separately the income limit is $50,000.
• The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income - this means there is no deduction above $55,000.
• The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
• Speak with a tax professional for specifics.

Natural Disasters

The Katrina Emergency Tax Relief Act of 2005 provides extensive tax benefits and assistance to those who were victims of hurricanes Katrina, Rita and Wilma. For details, go to the IRS Katrina relief page or call 1-866-562-5227.

If you have been in a natural disaster - a flood, hurricane, tornado, etc., contact your local congressional office to see if special tax help is available. Links to congressional offices can be found by pressing here.

Mortgage Forgiveness Act

Traditionally if you do not pay a mortgage in full any money not paid is regarded as "imputed" income - income which is taxable. However, with the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a bill sponsored by Rep. Charles Rangel (D-NY), if you can negotiate a partial pay-off with a lender, the amount forgiven will not be taxed by the federal government.

This legislation makes sense because people who have lost their homes, been foreclosed or gone bankrupt have no money to pay. However, the maximum write-off is limited to forgiveness worth no more than $2 million (not a problem for most folks) and - more importantly - the rule applies only to a principal residence.

$7,500 Tax Credit For First Time Buyers

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers may be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

Since most homes are valued at more than $75,000 the credit will likely be used up with the purchase of a home or condo. The property must be occupied after April 9, 2008 but before July 1, 2009 to qualify. Also, a "first-time" buyer is defined as someone who has not held title to real estate for at least three years. The credit phases out for married couples earning above $150,000 a year and for singles earning more than $75,000.

The catch.

The $7,500 is a credit against taxes due to Uncle Sam. If you owe $10,000 to the IRS you can deduct up to $7,500. But, when you sell the property the $7,500 must be repaid over 15 years - that's just $500 a year at some point in the future.

Okay, it's really a $7,500 loan - without interest and when you really need it.
For specifics, speak with a tax professional.

Investment real estate can generate substantial write-offs.

If you own rental property you must seek a fair market rental for your property. You may generally deduct mortgage interest, property taxes, repair costs, management by an outside party, depreciation, advertising, insurance, utilities, legal services and other expenses.

It's possible with rental properties to have both a positive cashflow and a loss for tax purposes. However, the ability to use real estate losses to reduce overall taxes may be phased out as income rises above $100,000.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

With a 1031 transaction, investment property is exchanged for "like" real estate. The basic requirements are that within 45 days after the "relinquished" property has been sold, a "replacement" property must be identified. The identified replacement property must then be acquired within 180 days after the sale of the relinquished property.

What's important about a 1031 exchange is that the capital gains tax on the relinquished property is deferred - but it does not disappear. What really happens is that the basis for the new property (the "replacement property") is reduced by the adjusted value of the "relinquished property" (the old property).

A 1031 exchange is complex and requires the services of a "qualified intermediary." Among other tasks, a qualified intermediary holds the money from the sale of the relinquished property and applies it to the purchase of the replacement real estate. This must be done because under the rules for 1031 exchanges, the seller of a relinquished property cannot touch money from the sale - it must be held by the qualified intermediary.

Accounting for a 1031 exchange is also complex. Essentially there is a need to figure out the sale value of the relinquished property, add back depreciation and account for financing. Ed Horan, a well-known exchange authority and the author of How To Do a Like Kind Exchange of Real Estate, has posted a free 13-page exchanging guide with an accounting worksheet that's well worth reviewing before meeting with a tax pro.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

For years the rule has been that if the couple's home was not sold by December 31, 2007 then the surviving spouse would be treated as a single home seller. In other words, the maximum write-off would go from $500,000 to $250,000.

There is a certain logic to this approach - and also a certain cruelty. If a spouse dies on November 30th the surviving spouse would have about four weeks to sell the home. This hardly seems right but now the rule has been changed.

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Sources and Publications

You can be certain that the information presented here is not a substitute for professional advice. As always with taxes, nothing is ever simple or easy. Speak with a qualified tax professional for specific advice - an enrolled agent, a CPA or an attorney who specializes in tax issues.

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040

Showing the House

 

Your house should always be available for show, even though it may occasionally be inconvenient for you. Let your listing agent put a lock box in a convenient place to make it easy for other agents to show your home to homebuyers. Otherwise, agents will have to schedule appointments, which is an inconvenience.  Most will just skip your home to show the house of someone else who is more cooperative.

Most agents will call and give you at least a couple of hours notice before showing your property. If you refuse to let them show it at that time, they will just skip your house. Even if they come back another time, it will probably be with different buyers and you may have just lost a chance to sell your home.

Homebuyers will feel like intruders if you are home when they visit, and they might not be as receptive toward viewing your home. Visit the local coffee house, yogurt shop, or take the kids to the local park. If you absolutely cannot leave, try to remain in an out of they way area of the house and do not move from room to room. Do not volunteer any information, but answer any questions the agent may ask.

When you know someone is coming by to tour your home, turn on all the indoor and outdoor lights - even during the day. At night, a lit house gives a "homey" impression when viewed from the street. During the daytime, turning on the lights prevents harsh shadows from sunlight and it brightens up any dim areas. Your house looks more homey and cheerful with the lights on.

Do not use scented sprays to prepare for visitors. It is too obvious and many people find the smells of those sprays offensive, not to mention that some may be allergic. If you want to have a pleasant aroma in your house, have a potpourri pot or something natural. Or turn on a stove burner (or the oven) for a moment and put a drop of vanilla extract on it. It will smell like you have been cooking.

If you have pets, make sure your listing agent puts a notice with your listing in the multiple listing service. The last thing you want is to have your pet running out the front door and getting lost. If you know someone is coming, it would be best to try to take the pets with you while the homebuyers tour your home. If you cannot do that, It is best to keep dogs in a penned area in the back yard. Try to keep indoor cats in a specific room when you expect visitors, and put a sign on the door. Most of the time, an indoor cat will hide when buyers come to view your property, but they may panic and try to escape.

Especially if your kitchen trash can does not have a lid, make sure you empty it every time someone comes to look at your home - even if your trash can is kept under the kitchen sink. Remember that you want to send a positive image about every aspect of your home. Kitchen trash does not send a positive message. You may go through more plastic bags than usual, but it will be worth it.

Not everyone makes his or her bed every day, but when selling a home it is recommended that you develop the habit. Pick up papers, do not leave empty glasses in the family room, keep everything freshly dusted and vacuumed. Try your best to have it look like a model home - a home with furniture but nobody really lives there.

copyright 2000 Terry Light & RealEstate ABC

Checklist to Boost your Credit Score (ARA) - The average American's credit score is 723. Having a high credit rating can give you better interest rates on credit cards, car loans and even your mortgage. It's important to know the top factors that affect your score and check your credit report for accuracy.

1. Pay on Time
The most important factor to a potential lender is whether or not you will pay your bills in full and on time.

2. Use a Variety of Credit
A variety of credit, such as mortgage loans and credit cards, can show that you are responsible for paying back both large and small financial promises.

3. Keep Accounts Open
It is a bad idea to open a credit card just to take advantage of a discount or a freebie then close it right away. The longer your credit history, the higher your credit rating tends to be.

To see all of the factors that affect your personal credit score, you should check your credit report by going online to GoFreeCredit.com.  GoFreeCredit.com instantly gives you a free detailed, personalized analysis of your credit report with advice on how to improve it. Checking your own credit report at GoFreeCredit.com will not hurt your score.

Your report from GoFreeCredit.com will show you details like accounts with past late payments, the various types of credit you've used, current balances and recent requests for credit. You also have the opportunity to fight negative or wrong information on your file. GoFreeCredit.com can refer you to a reputable credit repair service if you need it.

GoFreeCredit.com also provides a 30-day free trial of a credit monitoring service so you can receive automatic notifications of changes to your account. It's a hassle-free way to keep an eye on your accounts if you're trying to improve your credit.

Visit GoFreeCredit.com to check your credit report and start improving your credit score today.

Copyright © 2008, ARAnet, Inc.

Tax Code Helped Create Housing Bubble

The Baltimore Sun has a good article on why the Housing Bubble may have gained some inadvertent traction via changes in the tax code over the past 10 years. A worthy read.

The annual number of second homes purchased in the United States doubled between 2000 and 2004, according to new research. The boom is being driven in part by demographics - mainly a flood tide of equity-laden baby boomers - and in part by a largely unexpected ricochet effect of tax law changes in the late 1990s.

The latter factor was explained by Keunwon Chung, a statistical economist at the National Association of Realtors, who recently studied a vast pool of federal data on hundreds of thousands of second-home mortgage closings.

When Congress amended the federal tax code in 1997 to permit up to $500,000 (for married couples) and $250,000 (for singles) of gain on the sale of a primary home to be spared from taxation, observed Chung, "homeowners did not have to buy expensive [replacement] homes anymore." Under prior law, the only way to avoid capital gains taxes was to roll over sales gains to progressively larger and costlier homes.

The amended tax code, by contrast, allows primary home sellers to buy a smaller, less expensive primary (replacement) residence while using a portion of the $500,000 or $250,000 tax-sheltered gain to buy or make a down payment on a second home - for use either as a recreational property or as an investment vehicle.