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A Basic Guide To Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Nov 2009 04:33:00 +0000

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:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
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).
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.

Lastly, please see the information below regarding the new tax credit of up to $6,500 which is available to certain owners who obtain a contract to buy their current residence before April 30, 2010 and close before June 30, 2010.

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.

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers Extended Until April 30, 2010

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers could 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.

2009 First-Time Homebuyer Credit (Part 1)

In 2009 the deal changed. Under the American Recovery and Reinvestment Act of 2009 the credit amount was raised to $8,000 and NO repayment is required if a first-time homebuyer purchases a residence before December 1, 2009. There is still an income phase out and buyers must own their homes for at least three years.

2009 First-Time Homebuyer Credit (Part 2)

In November 2009 the deadline for the first-time homebuyer credit was extended under the Worker, Homeownership, and Business Assistance Act of 2009 from December 1, 2009 to include contracts made before April 30, 2010 and closed before June 30th.

Also, the income cap to get the full credit was raised from $75,000 if single or $150,000 if married to $125,000 for singles and $225,000 for joint filers. Above the $125,000/$225,000 levels the credit phases out to nothing at $145,000 for singles and $245,000 for couples.

New Credit for Existing Home Sellers

The November 2009 legislation also created a new tax credit for existing home sellers. In basic terms, if you have owned your home for five consecutive years out of the last eight you can get a tax credit for as much as $6,500. The contract to sell your replacement residence must be signed before April 30, 2010 and the deal must be closed before June 30, 2010.

For specifics regarding the November 2009 changes, speak with a tax professional and get a copy of IRS Form 5405. Also, see the IRS first-time homebuyer site for details regarding the new legislation.

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.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

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 and with specialized publications such as those below:

A Basic Guide To Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $6500, $8000, 2008, 2009, 2010, 2011, Buyers, capital gains, credit, existing, foreign service, intelligence community, interest, investors, limits, military, points, sale, sell, Sellers, shelter, tax, taxes

Sellers Drop Prices By $27.4 billion

Peter G. Miller — Mon, 08 Jun 2009 11:48:15 +0000

Foreclosures are impacting the marketplace and even the homes of the rich are going for less these days.

A new study by Trulia says that 23.6 percent of current homes on the market have had at least one price cut and that the reductions are valued at $27.4 billion. The company says “the average price-reduced home has seen a listing price reduction of 10.6 percent.”

The study finds that “of the top 50 cities in the U.S. based on population, 33 have seen 25 percent or more of home listings reduced in price, higher than the national average of 23.6 percent.”

U.S. cities that have seen at least 30 percent of homes reduced in price include:

Jacksonville, Florida — 36 percent
Tucson, Arizona — 32 percent
Boston, Massachusetts — 32 percent
Los Angeles, California — 32 percent
Columbus, Ohio — 31 percent
Dallas, Texas — 31 percent
Honolulu, Hawaii — 31 percent
Minneapolis, Minnesota — 31 percent
Austin, Texas — 30 percent
Washington, DC — 30 percent
Baltimore, Maryland — 30 percent
Las Vegas, Nevada — 30 percent

“Summer time is the peak season for buying and selling, and with some of the lowest prices in the last decade, we expect to it be a busy season,– said Pete Flint, Trulia co-founder and CEO. “Everyone wants to think they are getting the best deal available and price reductions are helping to spark a renewed interest in the U.S. real estate market.–

Foreclosures

The national average for price reductions on current home listings is 10.6 percent, says the company, but sellers in the areas hardest hit by foreclosures are slashing prices the most. Detroit home owners on average reduce their homes by 23 percent, while Las Vegas sellers reduce their homes by 16 percent and Miami sellers reduce their homes by 15 percent. Phoenix and Mesa are also experiencing deep price reductions with 13 percent slashed off the original listing price.

Luxury Market

Trulia also says that 24 percent of homes with a selling price greater than $2 million are seeing price reductions compared to 23.6 percent of homes on the market for the less than $2 million. While the percentage of homes seeing discounts are almost identical, discounts on luxury homes are significantly more with 14.3 percent being slashed off the original listing price compared to only 9.7 percent of homes under the $2 million dollar price tag.’, ‘Sellers Drop Prices By $27.4 billion’, 0, ”, ‘publish’, ‘open’, ‘open’, ”, ‘sellers-drop-prices-by-274-billion’, ”, ”, ’2009-07-14 07:59:06′, ’2009-07-14 11:59:06′, ”, 0, ‘http://www.ourbroker.com/?p=2994′, 0, ‘post’, ”, 0, ”, 1); (2983, 2, ’2009-06-09 08:00:57′, ’2009-06-09 12:00:57′, ‘it’s been quite a week on the mortgage front. According to Freddie Mac, as of last week rates for fixed-rate, 30-year mortgages went from 4.91 percent to 5.29 percent, both with 0.7 points.

That’s a big jump for a seven-day period, but let’s have some context here: Last year at this time the same loan was priced at 6.09 percent.

“Thirty-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“Yet, there are signs that the housing market may be moderating. Housing affordability rose in April to the second highest reading since January 1971 when records began, according the National Association of Realtors? (NAR). As a result, pending existing home sales rose for the third consecutive month by 6.7 percent in April and represented the largest monthly increase since October 2001. Three of the four regions experienced increases, led by a 33 percent jump in the Northeast, the NAR reported.”

Affordability

Of course affordability is up. If the price of corn goes from $10 for five ears to $5 for five ears you can buy more corn — but do you really want to buy more?

As to sales, a huge percentage of sales are not everyday transactions between buyers and sellers, they are now transactions which involve the purchase of lender-owned properties, typically at discount.

Negative Interest Rates

Despite the big increase this week, the point remains that mortgage rates are ridiculously low. A year ago no one would have thought they could get 5 percent financing, now you can and such rates are characterized as “high” in some quarters.

You’re kidding. These are the rates of a lifetime. it’s possible that rates may again go into the 4 percent range and in theory it’s possible that they could go even lower — during the Great Depression U.S. securities were actually priced with negative interest levels. As Forbes magazine has reported, “T-bills got so popular that for brief periods between 1938 and 1941 they carried negative interest rates.” (See: “A Brief History of Stock Fads,” September 14, 1992)

In other words, you gave the government $100 and a year later maybe you got back $99. Why would people make such an investment? Because the banks were so iffy at the time that it was safer to lose a little with the government than with banks that paid interest — but might close.

We are now into the traditional home buying season. Whether you want to buy or refinance, now is a very good time to speak with lenders and brokers. Look into fixed-rate loans, forget about adjustables. If rates do go down again, and if they go down enough, then consider refinancing with a “no cost” closing — there’s a cost in the form of a rate somewhat above market level but not in the sense of a lot of cash (or maybe any cash) needed at closing.

Sellers Drop Prices By $27.4 billion is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: discount, Foreclosures, home, luxury, reduce, reduction, sales, Sellers, Trulia

2009 Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Mar 2009 06:18:25 +0000

Mortgage interest is generally deductible.

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

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
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).
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.

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.

Points may be deducible by both buyers and sellers.

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.”

Home offices may be deductible.

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

Mortgage Forgiveness Act

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 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.

The catch.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

For specifics, speak with a tax professional before you go house hunting.

Investment real estate can generate substantial write-offs.

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.

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?

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.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

2009 Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2008, 2009, Buyers, capital gains, credit, interest, investors, limits, points, sale, sell, Sellers, shelter, tax, taxes

Marathon Home Sellers Race Reality

Peter G. Miller — Sat, 20 Sep 2008 01:32:03 +0000

A new species of real estate owner has begun to emerge: the marathon home seller. Maybe you have them in your community, owners who believe in real estate exceptionalism, the idea that their homes are growing in value while real estate prices all around are stalled or falling.

These owners truly believe that somehow their property is unique and different, a home so wonderful that general sales trends are irrelevant

Compared with last August, in my area we have evolved from a strong seller’s market to something which has more balance. Prices are up a touch, but not up insanely. Days on the market have doubled, unit sales are down 20 percent and instead of paying premiums, some buyers are getting “seller contributions” at closing.

How can you spot a marathon seller? Here are some clues:

The home has been on the market 400 days while local properties typically take 88 days to sell.
A look at the MLS in August shows a home with snow.
The property has fewer visitors than a forgotten cemetery.

When the listing expires no broker steps forward to instantly re-list the property.

When finally re-listed, the property has a higher price — even though it could not be sold at a lower value.

Much of what we’re seeing in today’s marketplace has no relation to reality. Immovable prices seem designed more to enhance throbbing egos and party-talk bragging rights rather than produce sale results.

Surely it makes sense for sellers to test the market, to select the highest possible price they realistically think they can get. But marketing tests should not continue eternally. After a reasonable time on the market — the term “reasonable” being different for different markets and different properties — owners should have some sense of what’s real and what isn’t.

Unrealistic prices not only lead to marathon selling periods, they also produce excess costs. There are mortgage and utility payments to be made each month as a home languishes on the market, plus the tax bill grows.

Worse, if a replacement home has been purchased and the first property remains unsold, there may well be two mortgages and two sets of taxes and utilities.

Given that many households can barely tolerate one set of ownership costs, doubling such expenses hardly seems attractive. A house with expenses of $3,000 of month that stays on the markets for months on end means the eventual sale price has been effectively cut by thousands of dollars.

Longer selling times also change broker economics. The old expression is that brokers who are not careful “can list themselves into bankruptcy” by taking on too many homes that do not sell — or do not sell within a reasonable period. Why? Because each property must be advertised and marketed and such things are not cheap.

Owners, having once established in their minds what a property is worth, sometimes see any lower price proposal as a “loss” when that’s not the case.

For instance, imagine a home that will not sell for $750,000 — but it might sell for $700,000. To the owners who dreamed of the first price, this is a $50,000 “loss” even though they never had a sale at $750,000.

In an environment where prices are rapidly rising you see buyers more willing to take a chance because there’s some certainty that replacement buyers can be found if necessary. But slow the market and both the math and philosophy of home buying changes. Buying is more risky because a quick re-sale at a good price is less assured.

Slower markets also change the math and thinking needed to be a successful seller. Alas, some sellers have yet to understand that when the marketplace slows it slows for everyone.

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Published originally by Realty Times on August 29, 2006 and posted with permission.

Marathon Home Sellers Race Reality is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Buyers, down, market, mortgage, perma-listings, real estate, Sellers

Is It Time To Dump Home Seller Disclosures?

Peter G. Miller — Sat, 13 Sep 2008 20:51:12 +0000

It’s time to buy and at the magic moment there is an exchange of paperwork.

“Yes,” say the buyers, “we want this house.”

“Fine,” say the owners, “here’s our seller disclosure form written by our state government which requires that we tell you all we know about the property.”

Should not the purchasers feel a wave of confidence at this moment? After all, the owners are providing a state-mandated disclosure form which surely covers every possible issue regarding the property’s condition.

Right….

Let us assume that the owners in this instance are utterly honest people who want to assure that the buyers fully understand the property and it’s condition. And so, as the sellers explain above, they have surely told all they know about the property.

And therein lies the problem. The owners are great people, totally honest, but they may not know too much — or anything — about the property, or at least anything about the stuff that counts.

You ask the owners: “Have you been in attic during the recent rain storms?”

They say, “huh.”

To the best of their knowledge — and these are entirely honest people — the roof does not leak. But you have to wonder, how can they possibly know if the roof leaks if they have not been in the attic?

You look at the form prepared by your friendly and ever-helpful state government and you ask: Can anyone answer such questions?

My favorite question comes from Virginia.

“Are there any substances, materials, or environmental hazards (including but not limited to asbestos, radon gas, lead-based paint, underground storage tanks, or other contamination) on or affecting the property?”

One phrase which interests me is the one about conditions “on or affecting” the property. How are owners to determine if an underground storage tank is buried in a neighbor’s yard. Is it okay to drill? Do you need the neighbor’s permission? Is it okay to ask neighbors if basement radon accounts for those additional fingers? Can an owner be liable for not knowing what they cannot know?

And what about the expression “but not limited to.” Is there any end to the possible liabilities represented by this phrase? For instance, is it the owner’s responsibility to detect a spot of mold behind the built-in dishwasher? Must a home be disassembled before sale to check for deficiencies?

When mandated disclosure forms first began appearing a decade ago they were designed to protect three groups:

Owners — so there would be a written record showing that sellers had correctly disclosed information regarding the property’s condition.

Buyers — so they would better understand the property they were purchasing.

Brokers — so they would have paperwork to demonstrate that property disclosures had been made. In other words, liability protection.

In theory, property disclosures are a great idea, but state-mandated forms may not ask the right questions, the questions may be literally unanswerable, and owners may be wholly unqualified to respond.

I am not among those who believe that buyer abuse should be a marketplace reality or that caveat emptor is a fair standard for real estate dealings. And yet it is fair to say that the marketplace has changed since state-written seller disclosure forms were introduced.

For instance, professional home inspections are both common and widely available. Buyer brokers are available nationwide. The use of limited home warranties is widespread.

I have grudgingly and with considerable reservation come to the conclusion that the time has come to dump mandated seller disclosure statements.

Why?

Seller disclosure statements provide assurance where none is earned. They are incomplete at best, misleading at worst. Most disturbingly, buyers may see them as a cheap way to avoid a home inspection.

In terms of reducing broker liability, seller disclosure forms serve merely as checklists for attorneys, paperwork that can be used against brokers even though brokers are not the authors of such documents.

I am aware that anything called “consumer protection” immediately and instantly has widespread support, but seller disclosure forms need to be re-thought because ultimately consumers will be better off turning to the new protections which have emerged in the marketplace.

————————
Published originally by Realty Times on March 13, 2001 and posted with permission.

Is It Time To Dump Home Seller Disclosures? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Buyers, disclosure, mandated, required, Sellers, state

Sellers’ Markets Vs. Buyers’ Markets

Peter G. Miller — Tue, 02 Sep 2008 09:51:04 +0000

Question: People talk about a “sellers’ market” and a “buyers’ market.” How do I know which we have?

Answer: A “sellers’ market” typically refers to a community with strong real estate demand and rising prices. A “buyers’ market” can be seen as a situation where home prices are more “flexible,” an expression which means prices are actually falling relative to past sales, prices are steady, or prices are the same but buyers can get more concessions for the same money.

What makes such descriptions complex is that in every market you have exceptions, homes that do not rise in value as much as others or homes which sell for seemingly-high prices. Because all homes are unique — and because all transactions are different — it means buyers and sellers must have a really good knowledge of local real estate trends to get the best possible deal. In practice, this means working with brokers who are active in your neighborhood, ignoring general marketplace labels and looking for situations that best meet your needs.

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Syndicated originally by Content That Works and posted with permission.

Sellers’ Markets Vs. Buyers’ Markets is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Buyers, market, Sellers

How Does A “Buy-Down” Reduce Mortgage Interest Costs?

Peter G. Miller — Mon, 01 Sep 2008 14:05:08 +0000

With a “buy-down” you have a below-market interest rate (it is “bought down”) because either the borrower or the seller have given additional money to the lender up front.

There are different forms of buy downs, most reduce interest costs in the first few years of the loan. For instance, if you pay an extra 1 point up front the interest rate might be reduced by .125 percent over 30 years, but perhaps by .25 percent for four years.

In a market where 30-year mortgages are available at 7 percent financing, with a “3,2,1 buy-down” the initial interest rate would be 5 percent in year one, 6 percent in year two, and 7 percent in year three and for the remainder of the loan term.

To see if a buydown is a good deal you must compare the reduced monthly cost with the payment up front and the interest you might have earned on the payment up front.

The best buydowns, of course, come from situations where sellers or builders pay up-front fees to lenders — and buyers get the lower rates.

How Does A “Buy-Down” Reduce Mortgage Interest Costs? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: builders, buy, buydown, Buyers, down, interest, rate, Sellers

Can I Deduct Seller-Paid Mortgage Points?

Peter G. Miller — Thu, 28 Aug 2008 11:36:42 +0000

If a seller pays points, the points are deductible in the year paid as an expense of selling.

If a buyer pays points, the points paid by the purchaser are deductible by the buyer in the year paid.

If a seller pays points to assist the purchaser, the BUYER may deduct the value of the points paid in the year they were paid. If the buyer deducts points paid by the seller, the buyer must reduce the sales basis of the property (increase the amount of profit) when the home is sold.

The above rules apply to owner-occupied prime residences only.

For specific information, please speak with a tax attorney, CPA, or enrolled agent.

Can I Deduct Seller-Paid Mortgage Points? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Buyers, points, Sellers

Your Real Estate Questions Answered

Peter G. Miller — Sat, 23 Aug 2008 12:18:08 +0000

Would you like to share your question in newspapers nationwide? Would you like to potentially reach huge numbers of readers?

This site receives numerous real estate questions from visitors, so in an effort to answer some of the inquiries we receive we’re going to take selected questions and use them in columns and articles.

Please understand that we cannot:

Answer all questions.
Recommend or not recommend given products, services, companies or individuals.
Provide legal or tax advice, or other professional services. As legal scholars remind us: We will try to provide accurate and authoritative information in regard to the subject matter covered. Answers to consumer questions are provided with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

Upon submission, all questions become the sole and exclusive property of OurBroker.com. If your question is selected for publication in the newspaper column, we will send a draft response to you by e-mail. Your full name and e-mail address will not be published in newspapers.

Your Real Estate Questions Answered is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Buyers, Contracts, FHA, FHASecure, financing, foreclosure, media, Mortgages, negotiation, newspapers, press, pricing, Sellers