About Dan Krell

November 4, 2009October 5, 2019

Get proactive to sell your home!

Proactive home selling

The 2008 edition of the National Association of Realtors “Profile of Home Buyers and Sellers” indicates that a home’s condition and environmental impact are important to many home buyers. In a market where home buyers are hard to come by, your home may stand out from the crowd if you can demonstrate that your home is solid and energy efficient.

Some believe home buying to be an emotional process that is rationalized by making decisions on perceived value. Conducting pre-sale inspections, such as a home inspection and a home energy audit, can not only provide home buyers with the rationale for choosing your home, the physical data may provide home buyers an additional boost of confidence that can make their decision process easier.

NAR surveys indicated that home buyers are more apt to compromise on the price than the condition of a home (NAR Profile of Home Buyers and Sellers 2008). Be prepared by conducting a pre-sale home inspection. The inspection can provide information on the general condition of the home by examining the age and functionality of the home’s major systems including (but not limited to) roof and gutters, heating and cooling, plumbing, electric, and possibly point out any visible structural defects that may need attention. Some home sellers may also decide to conduct additional environmental tests (such as radon and lead) to possibly alleviate further concerns.

As energy prices continue to rise, home buyers are increasingly aware of home energy efficiency. NAR surveys indicated that 43% of home buyers consider a home’s heating and cooling costs important factors in their home search (NAR Profile of Home Buyers and Sellers 2008). You may allay home buyer fears of purchasing an inefficient home by conducting a home energy audit. Besides revealing the energy efficiency of your home’s furnace, A/C, and major appliances, conducting a home energy audit will also provide information on the home’s efficiency of maintaining temperature. Professional home energy auditors use state of the art equipment (such as infrared cameras and blower doors) to identify often hard to detect air loss or penetration from walls, windows, and doors.

Although some home sellers have the financial resources to make major renovations to their homes to attract home buyers, most do not. The pre-sale inspections can provide you with useful information that may assist you in preparing your home prior to listing by allowing you prioritize the items that need attention. The pre-sale inspections can identify the strong and weak points of your home; you can be prepared for making repairs and/or updates of any unsatisfactory conditions that are identified. However, if you are selling your home “as-is,” the inspections can help you price your home by accounting for any necessary repairs or updates.

By proactively attending to necessary repairs, you can limit the amount of negotiating a home buyer may initiate from their home inspections; or avoid having a home buyer walk away from the deal due to an unsatisfactory home inspection. However, you must remember that although you may be enticing a home buyer by providing pre-sale inspection results, you are still required to disclose any known latent defects in your home (defects that would not reasonably be expected to be observed by a careful visual inspection and pose a health or safety threat).

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 26, 2009. Copyright © 2009 Dan Krell

November 3, 2009October 5, 2019

Hearings on residential and commercial real estate crises

On November 2, 2009, The Committee on Oversight and Government Reform Subcommittee on Domestic Policy began witness testimony on the hearing entitled “Examining the Continuing Crisis in Residential Foreclosures and the Emerging Commercial Real Estate Crisis: Perspectives from Atlanta.”

You can read the interesting opening testimony on the subcommittee’s website:

The witnesses seem to be a cross section of those involved in the real estate industry. Interestingly, each perspective on the cause of the real estate bubble burst and its effects on the current recession (and vice verse) are different. Among the witness testimony, one blames all lenders for predatory lending practices, one blames large lenders for not lending in the current climate with government TARP funds, one blames excessive government regulation for not allowing small local banks provide loans because they are deemed “high priced…”

November 2, 2009October 5, 2019

Will home buyer tax credit replace mortgage interest deduction?

Tax credit or deduction?

The mortgage interest tax deduction (MID) has been around for a long time. In fact, the MID (along with other interest tax deductions) was allowed since 1913. Throughout its history there have been many considerations to increase tax revenue by reducing, eliminating or phasing out the MID. In recent years, the Bush administration considered alternatives to the MID, and now the Obama administration is considering the options on the disposition of the MID.

In its August 2009 report to the House and Senate Committees on the Budget (Budget Options, Volume 2), the Congressional Budget Office (CBO) presented suggested options to assist policy makers in the budget process. Included in the report was their proposal for the MID. Much like the previous’ administration’s considered changes to the MID, the CBO’s report discussed either reducing the MID beginning in 2013 (as the CBO report states, “when the housing markets are expected to have recovered from their current turmoil”), or converting the MID to a home buyer tax credit (CBO.gov).

Proposed changes to the MID have typically been met with strong opposition by housing proponents, such as the National Association of Realtors and the National Association of Home Builders. During the Bush Administration’s contemplation of reducing the MID, then NAR President, Al Mansell, sent a letter to the President’s Advisory Panel on Tax Reform stating reasons for not changing the MID. Mansell’s letter makes many points in favor of the MID, among them include that the tax system supports homeownership and makes homeownership affordable. Additionally, the removal of the MID may cause a deflationary spiral of home prices (keep in mind this letter was dated October 14, 2005).

MID opposition include many economists who challenge the need for continuing the MID with arguments that the MID does not promote home ownership (and may in fact contribute to the inflation of “affordable” housing), and (contrary to claims that it helps lower to middle income home owners) a disproportionately larger number of home owners who claim the MID are in the upper income brackets.

Studies that present housing data indicate that the MID has little to no effect on home ownership. One such study, a 2007 report by the California Legislative Analyst Office (www.lao.ca.gov), indicated that home ownership rates were higher than the national average in the eight states that do not allow for a state MID. Additionally, the report cited other studies that showed there was no clear relationship between the MID and national homeownership rates as their variances over a forty year period were not congruent.

The California Legislative Analyst Office study also reported income data that corroborated a 2006 study by the Tax Foundation (taxfoundation.org) that a higher proportion of home owners who use the MID are in the upper income brackets. The Tax Foundation study analyzed 2003 IRS data that indicated that a significantly higher percentage of home owners (nationwide) who claimed the MID had an adjusted gross income of $75,000 or more.

Proposed changes to the MID are always controversial, but the timing may right for such a change. The ultimate demise of the MID may come from an unlikely source gaining additional support to boost the housing market- the first time home buyer tax credit.

October 30, 2009October 5, 2019

Looming rental crisis

Renting is not just for those who are unprepared to own a home. These days, many individuals and families are finding that they are seeking rentals because they are being evicted by their foreclosing lenders.

Some have called the influx of renters a crisis in the making, but the extent of the crisis is not yet clear. Many seeking a rental are finding that it is not as easy as they thought; they are finding that applying for a rental is much like applying for a mortgage.

If you plan to apply for a rental (home or apartment) be prepared to provide your personal information to the landlord/management company. Much like mortgage underwriters, landlords and management companies want to make sure you have the ability to pay the monthly rent and through the term of the lease. In addition to collecting your income and employment information, they may also require references from employers and/or previous rentals. Additionally, they will check your credit report to see if you have a history of paying your bills on time.

Before applying for your rental, be prepared by having a month’s worth of pay stubs as proof of your income (self employed individuals may need to provide other forms of income verification) as well as communicating with your employer that they may be called upon to verify your income and employment history. If you’re unaware of your credit standing, be prepared by ordering a free copy of your credit report in case you may need to explain any reported derogatory information.

Additionally, along with your application you should have your first month’s rent and security deposit available. The security deposit is provided as a safeguard against damages to the home and can be equivalent to the first month’s rent or more depending on the terms of the lease and/or additional circumstances (such as pets).

Although the recent decline in home sales has made the rental market competitive, there are rentals available – but you may have to act quickly. If you waiver in your decision or just not prepared, you may lose your rental. For a wealth of information on renting, you can turn to the Montgomery County Department of Housing and Community Affairs (www.montgomerycountymd.gov/dhctmpl.asp). The DHCA offers online resources for landlords and tenants, including a rental guide and rental listings.

Many who have had recent foreclosure are finding that not all landlords/management companies are open to allowing them to rent due to their credit issues. However, some former home owners are finding that some landlords/management companies are flexible in accepting renters with past credit issues; these “understanding” landlords/management companies may require additional deposits as security.

Although there are many recently evicted home owners who are finding rentals, some are having trouble and are at risk of becoming homeless; after all, they may be financially challenged and may not have enough money for rent and security deposits. If you are or know someone who is at risk of becoming homeless, consider contacting the Montgomery County Coalition for the Homeless (301-217-0314). The Montgomery County Coalition for the Homeless is described as a non-profit and community-based organization, and a leading provider of permanent and transitional housing, emergency shelter and supportive services for people experiencing homelessness.

October 15, 2009October 5, 2019

Pending optimism for housing market

Last week, the National Association of Realtors (NAR) announced that pending home sales are up for the seventh straight month. The October 1st press release indicated that the number of signed contracts increased to the highest level since March of 2007; the August pending home sales index is up 6.4% from July and up 12.4% from August 2008 (Realtor.org).

Not to be confused with the existing home sale index, (which calculates the actual number of closed transactions as well as median home prices), the pending home sales index reports activity that is based on the number of signed contracts in any given month; the index is used to compare monthly home buyer activity.

Alone, the pending home sales index doesn’t say much other than that home buyers are interested in getting into the market. However, when combined with the recent existing home sales index, which recently reported that August home sales slightly decreased compared to July of this year (but still remained above the August 2008 sales figures); the story that emerges is one we are not used to hearing.

Although it may be true that some home buyers are being turned down for loans due to a rapidly changing mortgage industry, however, the disparity between the indices may also indicate that the state of the present market is based on delayed home sales. Until about a year ago, it was unusual for anyone to write an offer that had a closing date of forty five days or more. During the real estate boom earlier this decade, a home seller would almost certainly pass over your offer if you could not settle in thirty days or less. However, since a large number of distressed properties have penetrated the market, multi month closing delays and even unsuccessful closings (sometimes banks foreclose before a successful close of a short sale) have become common and sometimes expected. Lawrence Yun, NAR Chief Economist, stated in the October 1st press release that, “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales…”

Pending sales are also outpacing home sales here in Montgomery County (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009); however sales indicators show an overall increase from 2008. Home sales increased 24.8% in August 2009 as compared to August of 2008, however decreased approximately 16% from July 2009.

The missed story, however, may actually be the shrinking local home sale inventory. Although, national home inventory is slowly decreasing, local inventory of homes for sale has decreased significantly from last year (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009). Single family homes available for sale in Montgomery County decreased about 47% comparing the inventories of August 2009 to August 2008!

Although a shrinking inventory often means increased home buyer competition, don’t expect another historic seller’s market anytime soon. An expiring home buyer tax credit combined with an expected new wave of foreclosures and a changing mortgage industry may have a significant effect on the market. But for now, pending optimism remains for a stable real estate market.