Real Estate Information

If competition is a buyer’s biggest concern, for goodness’ sake, get in the game. In a new survey of close to a thousand home buyers conducted by Redfin, affordability is still the number one concern but due to low inventories, competition from other buyers is moving its way up the poll.

26% identified affordability while 19% mentioned competition and 15% mentioned low inventory as their respective top concerns.

To win, athletes study the competition to come up with a plan and buying a home is not different.

1. Ask what terms are important to the seller before you write the offer.
2. Once you decide to make an offer, do it as fast as you can, hopefully, to be the only one the seller is considering.
3. Make a good (or possibly, your best) offer in the beginning; you may never get a chance at improving it. In highly competitive situations, offer above the list price.
4. Attach your pre-approval letter from a respected lender. This means you’ll need to get pre-approved before you even think about writing an offer.
5. Have your lender call the listing agent to reassure them of your ability to qualify.
6. Include a higher than normal amount of earnest money to show you are serious.
7. Eliminate unnecessary contingencies.
8. Write a personal, hand-written letter telling the seller what you like about their home and why you want it. Consider including pictures of your family.
9. Minimize seller expenses paid for the benefit of the buyer.
10. Shorten inspection times.
11. Don’t ask for personal property.
12. Be flexible on closing dates to accommodate the seller’s move.

Once you find your dream home, don’t take a chance on losing it. Write a winning offer that will be good for both the sellers and the buyers.

“It’s not far, if you know the way.” What this expression implies is that you could have a long way to go if you don’t know where you’re going or how to get there. Just like reading a map, there are some definite steps that will improve your success in buying a home in today’s market.

• Know your credit score – the best mortgage rates are available to borrowers with the highest scores. Unless you know what your credit score is at all three major credit bureaus, you don’t really know what rate you’ll have to pay.
• Clean up your credit – it is estimated that about 90% of credit reports have errors. Some are not serious but others could affect a borrower from getting the loan they want. It is your responsibility to know what is on your different reports and correct them if possible. You’re entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.
• Get pre-approved – Taking the time to make a loan application with a qualified lender even before you start looking at homes will provide peace of mind, make sure that you are looking at the “right” homes and may help you negotiate the best price on the home you select.
• Do your homework – when you find the home that meets your needs and desires, get the home inspected and research the tax assessments, school ratings, crime activity, possible zoning changes and comparable sales in the area.

Call for a recommendation of a trusted mortgage professional and an inspector.

Fair market value is the price that real estate would sell for on the open market without any unusual forces being involved. The definition is relatively simple but there certainly different methods of determining what it is.

A homeowner could order an appraisal before they put their home on the market but would incur the expense of an appraisal and more likely than not, it won’t or can’t be used by the buyer or their lender. The advantage is that an appraisal is a professional approach by a disinterested party to establish value.

Licensed appraisers use three approaches to value: the market data, the replacement cost and the income approach. The appraiser can put more weight on one approach than another based on his/her assessment of what would be appropriate.

The replacement cost looks at what it would cost to rebuild the property today less the depreciation it has experienced by age and wear and tear plus the value of the lot.

The income approach uses a capitalization rate based on the net operating income of a property to determine value. It is more applicable to commercial properties than it is for homes used by homeowners and not rented.

The market data approach relies on recent sales of similar properties near the subject. The appraiser will make monetary adjustments for differences in the comparables that are used to create a more accurate comparison.

Real estate agents use a similar approach to determine fair market value by performing a Competitive Market Analysis, CMA. Like the market data approach of an appraisal, it looks at recent sales of similar properties, it also considers properties currently for sale and what homes were unsuccessful in their attempt to sell. This approach is sensitive to supply and demand and may be more reactive to rapidly rising or declining markets.

Both appraisals and CMAs have a distinct advantage because of the personal opinion as a professional compared to online website estimates using raw data and mathematical formulas. Regardless of which method is used, it is an estimate. Obviously, some estimates are more accurate based on the experience of the person making the estimate. A price is placed on the property by the seller but value is ultimately determined by the buyer when a final sale is achieved.

Most people think they’ll have a house payment and a car payment for the rest of their lives but it doesn’t have to be with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest.

If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.

If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerable savings. People who might need the funds in the near future should carefully consider this option due to the difficulty to access equity easily from one’s home.

Make your own projections using the Equity Accelerator.

Saving the down payment may be unnecessarily keeping would-be buyers from getting into a home. They may be unaware that the funds might be available.

The NAR Profile of Home Buyers and Sellers reports that 81% of first-time buyers got all or part of their down payment from savings. Less than 4% said that all or part of the down payment came from a withdrawal in their IRA and 8% from their 401(k) or pension fund.

Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdraw up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov. 

Allowable withdrawals from traditional IRAs can be from yourself and your spouse; your or your spouse’s child; your or your spouse’s grandchild or your or your spouse’s parent or ancestor.

Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.

Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from a 401(k) that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.

A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.

Your tax professional can provide you specific information on how making a withdrawal from your retirement program might affect you. Additional information can be found on www.IRS.gov.

What's That Smell? -  
 

Homeowners may be totally unaware that their home has an unpleasant odor. It can be unrecognizable to them but immediately apparent to visitors on entering the home.

Candles, aerosol spray or even chocolate chip cookies can’t get rid of the smell. To eliminate the odor, the source of the smell first has to be removed and then, the affected areas can be treated.

Cigarette smoke is particularly offensive to people.  It is very common for buyers to refuse to even consider looking at a home where smoking is allowed. This odor permeates the air in a home and soaks into carpets, furniture, drapes, clothing and even the building materials like drywall and cabinets.

Pets may be considered part of the family but it is still a problem when the animals are not adequately house-broken. Urine isn’t just absorbed by the carpet but also the padding and in some cases, the subflooring. Sometimes, walls and floors have to be treated and sealed before painting and new floor covering can be installed.

If a casual friend doesn’t want to hurt your feelings about the jeans you’re wearing, you can bet the ranch that they won’t tell you about the odors in your home. You’ll need to rely on your closest friends to tell you the truth or maybe your mother-in-law.

What's the Point?

Prepaid interest, sometimes called “points”, is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence.  When points are paid on a refinance, they are not a current deduction but have to be taken prorata over the life of the mortgage.

For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, a deduction of $100 per year is allowed.  When the loan is paid off or replaced by refinancing again or the home is sold and the mortgage paid off from the proceeds, the balance of any un-deducted points may be taken in that tax year.

Your tax professional needs to be made aware of any of these situations so that he or she can accurately reflect the deductions in your return.  Currently, the most common situation is homeowners may be refinancing their home for the second, third or even, fourth time. If there are points that have not been completely deducted, they need to be treated in the year of refinancing.

For more information, see points in IRS Publication 936; there is a section on Refinancing in this publication. For advice considering your specific situation, contact your tax professional.

How's Your IQ on the QM?  
 

The Qualified Mortgage Rule came into effect on January 14, 2014 as one of the results to the Dodd Frank Reform Act to protect consumers from predatory lending practices.  This will affect the underwriting standards that the majority of lenders will use to qualify borrowers.

The ability to repay rule states that financial information must be supplied by the borrower and verified by the lender.  The borrower must have sufficient assets or income to pay back the loan which limits the maximum debt-to-income ratio of 43%.  In an effort to present a more accurate picture of the costs to the borrower, teaser rates can no longer hide a mortgage’s true cost.

A maximum of 3% in upfront points and fees can be paid on behalf of the borrower.  There can be no negative amortization, interest-only or balloon payments and the loan term limit cannot exceed 30 years.

While there are more requirements, most deal with good underwriting practices that are followed by reputable lenders such as considering and verifying things that affect the ability to repay the mortgage like income, assets, employment status, simultaneous loans, debt, alimony, child support and credit history.

Every Homeowner Needs One

A water meter key is like insurance; buy it before you need it.

Imagine a pipe has burst and there is water flowing like a river through your home.  There may a cut-off valve to each sink if it works and if that’s where the leak is coming from. Your home may have a master cut-off valve but if you haven't used it before, you might not know where it is. The last resort is to cut off all the water to your house at the meter.

In most cases, you'll need a key to get into the meter.  With water starting to rise in your home, concern over the damage being done may add to your anxieties.  You don’t have time to call a plumber or even go the store to buy a water meter key.

Emergencies are handled much better when you plan for them in advance and practice, even though you hope you’ll never need it.

1. Determine what kind of key you need to open your water meter. 
2. Purchase it at the home improvement or hardware store. 
3. Practice opening the meter to be able to do it quickly and easily. 
4. If your meter key doesn’t have a wrench on one end, you need a wrench to turn the water valve. 
5. Practice turning the water off just to see how it works and feels. 
6. Put the key in an obvious and conspicuous place. 
7. Have the phone number of an emergency plumber, just in case you need it.

While you’re planning for the unexpected, it might be a good idea to show some of the other family members how it works and where you keep the key.

Coffee should be hot. Beer should be cold. Mexican food should be spicy.  However, if these things are less than the standard that you expect, there are not any lasting consequences.

Reasonable Expectations

As the value of the object in question rises, either in price or gravity, the expectations usually increase and decisions become progressively more important.  Marriage, children, health and careers are certainly a few of the more important items that bear careful consideration.

The sale of the largest asset that most people own, their home, also merits having reasonable expectations.  A homeowner should expect to get the market value for their home in a reasonable period of time with as few inconveniences as possible.

According to the latest Home Buyers and Sellers Survey, more homeowners are entrusting the sale of their home to real estate professionals.  Owners can increase the likelihood of a favorable outcome by sharing their expectations with agents prior to listing their home for sale.

Challenge your agent to explain what they intend to do to:

• Price the home correctly
• Prepare the home to make a good impression
• Position the home in the marketplace

It is reasonable for a seller to expect the agent will work hard to sell the home; will tell the truth and represent the client’s interests to the best of their ability.  Agents exemplify remarkable service when they when they exceed the seller’s expectations.