Existing-Home Sales Suffer Sharp Decline

Real Estate market

Existing-home sales declined for the second consecutive month in January and last month’s decrease was the sharpest in three years.

Total existing-home sales slumped by 3.2% in January to a seasonally adjusted annual rate of 5.38 million, according to the National Association of Realtors.  The annual rate during December 2017 was 5.56 million.

Sales are down by 4.8% compared to this time a year ago, which is the lowest annual drop since August 2014.

Once again, low inventory is at the forefront of the market’s problems. Housing inventory actually increased by 4.1% last month to 1.52 million existing homes available for sale. Good news, right? Sort of. Inventory is still 9.5% lower than a year ago and has fallen year-over-year for 32 consecutive months, according to the NAR. Unsold inventory is at a 3.4-month supply at the current sales pace.

NAR chief economist Lawrence Yun believes the market desperately needs a correction from a supply standpoint to satisfy rampant buyer demand.

“While the good news is that Realtors® in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace,” Yun said. “It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The good news for agents and sellers is that prices increased for the 71st consecutive month. The median existing-home price in January was $240,500, up 5.8% from January 2017.

Agents can seriously control the market by accumulating a sufficient inventory of listings. Not only can you grow your network by connecting with sellers and buyers, you’ll put yourself in a prime position to cash in on the current market conditions. Until supply meets demand, housing prices should continue to rise.

Keep generating leads and kicking the tires on prospective, hesitant sellers. Remember: those who list, last.

by Matt Barbato

Advertisements

Home Seller Tips To Having A Successful Open House

Home Seller Tips To Having A Successful Open House

Home Seller Tips To Having A Successful Open House

Holding an open house for your soon-to-be-listed or newly on the market home is a lot like being on a game show where edging out the other contestants in a short period of time is key. In TV game shows, such as “Jeopardy,” the contestants don’t automatically know answers to so many trivia questions; they study and they plan and they make it appear to viewers like they walk around with that body of knowledge every day. Open houses need to be thought of similarly. Once your home is on the market, an open house is your opportunity to plan and strategize how you are going to win over buyers in very short time.

Even in a strong real estate market where houses sell quickly, it’s still important to ask your agent to hold as many open houses as possible until the home sells. One reason is that even buyers with agents still like to look at homes on their own without feeling the pressure of a home tour. Sometimes their agent is out of town when your house goes on the market. Many buyers are not represented by an agent and the only way for them to tour a home is through an open house. Your agent will plan the open house to include everything from signage to freshly baked cookies. As a seller, you should take the following steps:

Depersonalize

Back to the game show analogy, think of depersonalizing as studying the answers and questions before trying out for “Jeopardy.” Your house is lovely for how you live in it, but buyers don’t want to see you in your house. In fact, the more your house makes it difficult to guess who lives there (age, religion, gender etc), the better. Take down personal photos, religious emblems, the cute collection of mini ceramic frogs, etc. Analyze your stuff for whether it’s morally, politically, or otherwise socially objectionable and remove all of it. You don’t want to eliminate buyers because they are turned off by your personal tastes.

Declutter

While you are depersonalizing it’s also a good time to declutter as the two go hand in hand. The more simple and understated your home is, the more likely buyers can see the home for what it is and imagine themselves in it. When you have too much stuff cluttering walls and counters and shelves, buyers turn their focus toward those things and sometimes even make the assumption in logic that if you are cluttery, then you are disorganized, which means maybe you don’t take care of the house as well or as on time as you should. A good rule of thumb is to box up or store at least half of the smaller items displayed in your home.

For example, how much is on your kitchen counter right now? Now imagine reducing that number to just three things. What would you choose to keep versus store? Some sellers are benefited by going to other open houses in their area and looking at how other people have decluttered and arranged what is left. Online pictures, such as what is found on Pinterest, can help too. Often you can get some good ideas on what works visually just by seeing how others do it. When you are all done decluttering, clean your home like never before because buyers notice dirt and grime. Hire a maid service if you have to.

Lure Them In

The outside of your home is as important as the inside, especially the front entry area. Before an open house, take care of simple yard maintenance such as mowing, edging and weeding flower beds. A fresh layer of mulch adds color especially in winter months when not much is blooming. At your front door, clean off spider webs, blown leaves, and place a large, colorful pot of annuals or anything you can buy in season.

Complete Your Honey-Do List

While you have the yard power tools out, dust of your workbench and take a walk around your house inside and out. Make a list of all maintenance issues such as wiggly door handles, missing fascia, paint that has chipped, etc. and repair them before the open house. Buyers see even the smallest of maintenance issues as an extension of the condition of larger items such as roofs, plumbing and major appliances and assume you haven’t taken care of the home. You might talk to your realtor about a pre-inspection to deal with all home maintenance and problems upfront, before you get into contract with a buyer.

Be Cautious

Once you have taken the above steps and you are ready for the actual open house, there’s one last thing to plan. Protecting your valuables and identity. It might be rare, but criminals do use open houses as a way to case a house or to find collateral to steal identities. Make sure indoor safes are locked and hidden. Store heirlooms, checkbooks, prescriptions, and valuable jewelry away from prying eyes. Utilize a reliable, trustworthy, identity theft protection service to see you through the entire listing and sales process.

Death And Taxes: Not Always Inevitable

Death And Taxes: Not Always Inevitable

Death And Taxes: Not Always Inevitable

Question. My husband recently died of a massive heart attack, leaving me a widow at a young age. I was thrust into a new life status that was not my choice or my desire. I believe I am being penalized for something that has already devastated my life in many ways.

We were fortunate to have invested wisely in our principal home many years ago, and have made more than $250,000 in profit. I want to sell, and it now appears I will have to pay the tax on any profit over $250,000, since I no longer file a joint return. If couples are making the life choice to divorce, they can sell their home prior to the divorce and get the $500,000 exemption recently enacted by Congress. A widow has no option or choice in the change that has happened in her life.

Please advise me how I should proceed; I need the money for my future more than the government.

Answer. It has often been stated that two things are inevitable: death and taxes. However, there is a measure of hope based on an often forgotten concept in the tax law known as the “stepped-up” basis. And, fortunately, this was not modified or repealed under the new tax law that was just enacted.

Oversimplified, this means the value of a person’s real property on the date of his/her death becomes the basis of the person who inherits that property.

Let us take this example: in 1995, you and your husband purchased your first home for $100,000. You took title as tenants by the entireties — which is the common form of ownership for married couples. Your husband died in 2017, and the property was valued at $800,000 on the day he died.

Your basis is as follows:

Initial basis: (half of purchase price) $ 50,000

Inherited (stepped up) basis: 400,000

New basis: $450,000

Please note that since the property was worth $800,000 on the date your husband died, you inherited his half of the property — namely $400,000.

If you sell your property today for $800,000, your profit (before excluding such items as real estate commissions, legal fees and fix-up costs) will be $350,000 ($800,000 – 450,000). As you correctly pointed out, since you are now filing a single tax return, under the current tax laws, you are entitled to completely exempt the first $250,000 of this gain. Once again, Congress did not repeal or amend this important homeowner benefit.

Thus, your capital gain tax will be on $100,000 ($350,000-250,000). Because the income tax brackets were changed under the new law, please talk with your financial advisors as to what your tax obligation will be.

However, let’s analyze this even further. Did you and your husband make any improvements to your house over the many years of your ownership? If you put on a new addition, installed a new kitchen, or significantly improved the back yard, all of the costs of these improvements are added to your basis. Thus, if the costs of your improvements were at least 100,000, you will not have to pay any capital gains tax at all.

Furthermore, try to find the settlement statement when you first purchased the property. There were a number of costs which you incurred — title examination, title insurance, legal fees — which can properly be added to basis.

Keep in mind that for every dollar you add to basis, you are going to save from paying capital gains tax. Clearly every dollar can add up to a considerable tax saving.

Although you did not raise this next issue, I want to take the opportunity to comment on a question I often get: should you put your children on title now?

Generally speaking, my answer is no. The reason is the same as discussed above — on your death, your children will get the benefit of the stepped up basis, and indeed under the circumstances may not have to pay any capital gains tax. For example, were you to die when the property is valued at $800,000, if your children sold the property for this price, they would have no gain at all — and thus no tax to pay.

However, if you were to gift them the house now, during your lifetime, their basis for tax purposes would be your basis — i.e., $450,000. The law requires that the basis of the donor becomes the basis of the donee. If they sold the property for $800,000 — and the house was not their principal residence — they would have to pay capital gains tax on profit of $350,000 ($800,000 – 450,000) At the maximum rate, this could be a nice gift to Uncle Sam.

You must, of course, fully discuss these issues with your tax advisors. These are not easy questions, and the answers are even more complex.

So much for “tax simplification.”

 

 

 

WRITTEN BY

Portability Initiative Is Designed To Help 55 and Over To Sell Their Homes And Buy Another

Portability Initiative Is Designed To Help 55 and Over To Sell Their Homes And Buy Another

Portability Initiative Is Designed To Help 55 and Over To Sell Their Homes And Buy Another

The California Association of REALTORS® (CAR) is attempting to qualify a ballot initiative, The Property Tax Fairness Initiative, that will restructure the way property taxes are calculated for buyers over the age of 55 (and also the disabled and/or natural disaster victims). In many cases REALTORS® are already circulating petitions asking for ballot-placement of the initiative, and, in short order, professional signature-gathering organizations will be engaged as well.

CAR’s approximately 200,000 members have been assessed $100 each in support of the effort; and there are expectations that the Association’s substantial reserves will also be tapped in efforts to support the initiative’s passage.

What would this accomplish and why is it needed? In what follows I will seek to summarize CAR’s answer to those questions. First: the why?

As is well-known, California is currently experiencing a shrinking inventory of housing available for sale. This lack of supply has driven up prices, which makes it extremely difficult — in many cases, impossible — for first-time buyers to enter the market. In many cases, it also makes it difficult for move-up buyers to find replacement property.

There are, no doubt, multiple causes for this, but, no doubt, a major one is this: nearly 75% of California homeowners 55 years of age and older have not moved since the year 2000!

Why? Because of the way property taxes are calculated under California’s Proposition 13. For tax purposes, properties are valued on the basis of purchase price, not current market conditions. (Example: Suppose I bought my house for $600,000 a few years ago; and that my neighbor bought the same model — as identical as can be — in this heated market for $800,000. My tax will still be calculated on $600,000, whereas his will be based on $800,000.)

CAR says, “A large part of the reason why [55 and overs are not moving] is that, even if they want to downsize or move closer to family, the prospect of a property tax increase of 100, 200, or even 300 percent, effectively locks our parents and grandparents in their homes.” Thus, CAR maintains, “…The Property Tax Initiative…will help these homeowners to sell their current homes and move without being subjected to a what is effectively a massive “moving penalty.”

How will it help? By modifying current law to expand the conditions under which those over 55 would be allowed to transfer their current tax base — based on their original purchase price — to a replacement home that they are purchasing.

Currently there are only limited conditions under which someone over 55 may transfer his or her old tax base to a newly purchased home. The Initiative would expand this. “C.A.R.’s Property Tax Fairness Initiative would allow homeowners 55 years of age or older to transfer their Prop. 13 tax base to a home of any price, located anywhere in the state, any number of times.”

CAR’s talking points offer two examples of what would happen if the Initiative should pass.

Buy Up Example

  • Original Purchase Price: $100k
  • Estimate Property Taxes: $1K/annually
  • Existing Home Sale Price: $300k
  • New Home price: $400k
  • New Property Taxes: $2k/annually

The $100k difference between the $300k sales price and the $400k purchase price is added to the original Prop.13 property tax base of $100k for a new Prop. 13 tax base of $200k. The buyer still pays their fare share of taxes but isn’t blocked from making the move.

Buy Down Example

  • Original Purchase Price: $100k
  • Estimated Property Taxes: $1k/annually
  • Existing Home Sales Price: $300k
  • New Home Price: $200k
  • New Property Taxes: 1/3 of $200k = $67k [value] or $670/year for property taxes

If a homeowner buys a less expensive home, the property taxes will be proportionally the same as for the original home. In other words, if the tax base was one-third of the sale price, the new property tax would be one-third of the new sale price. Buying down reduces the homeowner’s annual property tax bill.

Among the objections raised to the Initiative is that it will reduce revenues to local governments. In response to this, CAR says: “The revenue loss is the result of a ‘static’ analysis — it only looks at the revenue lost, not the revenue gained which a ‘dynamic’ analysis would do. All buyers of homes formally owned by a senior homeowner will have the home reassessed to market value and pay property taxes based on the reassessed value.”

Lots to think about. There’s an election coming.

 

 

WRITTEN BY