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April 18, 2012September 22, 2018

Attractive real estate agents: the research and the hype

It is often said that beauty is in the eye of the beholder, but a recent research article has the blogosphere a buzz questioning how attractive real estate agents can help you sell your home. The article was even posted on a National Association of Realtors® blog (realtor.org); posing the question, “do attractive real estate agents sell homes for more money?”

Do attractive real estate agents help sell your home faster?

The research conducted by Salter, Mixon & King, and published in the journal Applied Financial Economics, was titled “Broker beauty and boon: a study of physical attractiveness and its effect on real estate brokers’ income and productivity” (2012. vol. 22(10): p.p. 811-825). The research was not just an attempt at pop psychology, but rather it was one of the more recent attempts to establish how physical attractiveness affects income. The authors suggest, as stated in the abstract, that, “Results suggest that beauty augments more attractive agents’ wages and that more attractive agents use beauty to supplement classic production-related characteristics, such as effort, intelligence, and organizational skills.”

As the article makes its rounds on the internet, the results have most likely become misinterpreted and distorted. Although headlines might suggest that attractive agents sell homes at higher prices than others, however, the results could be interpreted that attractive agents may actually charge you more for their services rather than selling your home at a higher price (after all, the research is how beauty affects earnings). Additionally, as some have suggested that the results indicate less attractive agents sell homes quicker, beauty does not guarantee a quick sale (or satisfaction, as I describe below).

Although beauty is in the eye of the beholder, Hamermesh & Biddle state that there is empirical evidence that “beholders view beauty similarly” (1994. Beauty and the labor market. The American Economic Review, 84(5), 1174-1174.). They also acknowledge that beauty may “alter” other characteristics – and these variables are difficult to measure. Some variables that may be part of the “beauty quotient” might include facial structure, height and weight, while other variables may also include a person’s self esteem and confidence. Although Hamermesh & Biddle make it clear that there is a “penalty” in earnings for unattractiveness, they also acknowledge there may be “unobserved” characteristics associated with attractiveness that could account for increased earnings (they suggest a possible example is that increased earnings in adulthood with appearing physically attractive may be a result of a privileged background).

Do attractive real estate agents help sell for more money?

The phenomenon of increased earnings for the beautiful is not a new concept, but Salter, Mixon & King have indicated it is factual for real estate agents. But the attractiveness quotient is not clear cut as other factors (besides physical characteristics) are brought to the table, such as networking and communication skills, previous experiences, and professional image.

But wait- there’s more to the story! There is another body of research on contrast effects and physical attractiveness that suggests that when people are surrounded by beautiful people, happiness decreases (see: Michael Levine (2001). Why I hate Beauty. Psychology Today. 34,4). So, this could be interpreted to indicate that just because you hire an attractive real estate agent (quite possibly for a higher commission) – your satisfaction is not guaranteed.

Do attractive real estate agents make more commission?

The bottom line: stick with the basics when hiring a real estate agent; which include (among other things) asking trusted sources (such as friends and relatives) for a referral , and ask agent about their license and qualifications as well as recent references.

Original published at https://dankrell.com/blog/2012/04/18/beauty-attractiveness-and-real-estate-agents-the-research-and-the-hype/

By Dan Krell

April 11, 2012

Is a home inspection good enough? Enter the Building Inspection Engineer

by Dan Krell © 2012
DanKrell.com

It wasn’t too long ago when home buyers wouldn’t even consider writing in a home inspection contingency in a contract for fear of losing the home of their dreams. Presently, of course, you can expect to find some type of home inspection in a most home purchase contracts. Some home buyers are even going a step further and employing Building Inspection Engineers for pre-purchase inspections.

With a little help from real estate agents, home buyers place high expectations on the home inspection. After all, the home buyer is making a big investment in their new home; they want to ensure the home’s condition is acceptable. To standardize expectations placed on home inspectors, the American Society of Home Inspectors (ashi.org) developed a standard of practice. According to ASHI, the home inspector will inspect the condition of visible and “readily accessible” home systems according to the standards of practice. The systems observed typically include: the HVAC system (heating/cooling depending on outside temperature); interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement and structural components.

Even Maryland’s home inspector licensing law has a thing or two to say about what to expect from your home inspector. According to the standards of practice that are described in COMAR Title 9 Subtitle 36 Chapter 7, home inspectors are required to visually inspect the structural system and components, including the home’s foundation and framing. If the home inspector suspects that deterioration exists, they are required to probe the structural component, unless probing will damage the finished surface.

However, (usually at the time of the home inspection) the home inspector will briefly explain that they are limited. They will explain that the inspection is not “technically exhaustive,” and “may not identify concealed conditions or latent defects” (home inspection limitations are described in “Limitations and Exclusions” COMAR 09.36.07.03). So, maybe home inspectors are not the super heroes we make them to be.

Enter the Building Inspection Engineer. The Building Inspection Engineer may take the home inspection to the next level. The National Academy of Building Inspection Engineers (nabie.org) was established in 1989 to establish the highest standards in the home inspection, investigation and consultation industry. Along with verifying the qualifications of engineers and architects providing these services, the NABIE has developed the Building Inspection Engineer standards of practice.

According to NABIE, their members “have demonstrated competence involving inspection of buildings and building systems;” which can include site conditions and structure, as well as mechanical, electrical, plumbing and other major systems. The building inspection engineer’s perspective of the inspection is from a “demonstrated engineering judgment.”

The standards of practice set forth by the NABIE explain that the purpose of the inspection is identified and specified for each client, as the purpose can vary from a general inspection to investigating specific problems; the level of inspection and limitations are mutually agreed upon by the Building Inspection Engineer and the client. Typical inspections are defined by four levels: A) a visual inspection of systems and components; B) a functional inspection of systems and components; C) a specialized inspection that goes beyond level B and may require invasive techniques, material removal, or destructive testing; D) a specialized inspection with consideration to repair or improvement.

Regardless of the type of inspection you choose, make certain your inspector is licensed.

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This article 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 April 9, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

April 5, 2012June 3, 2020

Medicare tax on real estate transactions

As pundits and commentators speculate about the Supreme Court’s opinion on the Patient Protection and Affordable Care Act of 2010 (PPACA), the National Association of Realtors® (NAR) reminds us that the 3.8% tax on unearned income imposed by PPACA is not a transfer tax. This is a tax collected on “unearned income” is to be applied to the Medicare Trust Fund (e.g. a medicare tax).

Although the new tax is not a transfer tax, it could apply to your home sale. Unlike transfer taxes, which are collected by state and local governments when real property is transferred between individuals; the “Medicare tax” is not calculated on the sale price nor is not applied to the proceeds from every real estate transaction. Rather, the tax provision kicks in when specific thresholds are met.

Incidentally, even though a real estate transaction may meet the threshold to be taxed under the new Medicare tax; it’s not the only “unearned income” that may be taxed under this provision. According to the NAR “Medicare tax faq”, “Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.)”

To clarify, Henry Paula explains the Medicare tax in his January 2011 article (Planning for affluent taxpayers under the 2010 healthcare reform. The CPA Journal, 81(1), 46-47); “Under the Patient Protection and Affordable Care Act (ACA) …there is a new 3.8% tax imposed on the net investment income of certain individuals, estates, and trusts considered to be high earners.”…“For tax years beginning after Dec 31, 2012, a 3.8% tax, called the Unearned Income Medicare Contribution, will be imposed on the lesser of net investment income or an individual’s modified adjusted gross income in excess of: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 if filing single.” Mr. Paula summarizes, “The 3.8% tax will affect taxpayers with business activity income from activities that are passive for the particular taxpayer and generate net investment income that, when combined with other income, is in excess of the thresholds…”

The NAR gives this example (from the Medicare tax faq), “If AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual’s net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000… If this single individual had AGI [of] $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.”

Aside from the anticipation of the Supreme Court opinion, the new Medicare tax will begin in 2013. If you’re planning a home sale, consult your CPA, financial planner, and any other tax specialist to determine if (and how) the new Medicare tax applies to your situation.

Original located at https://dankrell.com/blog/2012/04/05/medicare-tax-on-real-estate-transactions-and-other-unearned-income/

By Dan Krell

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This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

March 28, 2012

Individual mandates and housing

by Dan Krell © 2012
DanKrell.com

This week, the Supreme Court (SCOTUS) heard arguments for and against issues surrounding the Patient Protection and Affordable Care Act of 2010 (PPACA). The arguments don’t have much of anything to do with providing healthcare, but rather the arguments are about certain elements of PPACA and the Constitution. In fact, Tuesday’s arguments about the individual mandate could be applied to anything – even the housing market.

The individual mandate portion of the PPACA basically requires certain individuals to purchase healthcare insurance or pay a penalty. Individual mandates are not new, and have been enacted in the past. For example, military drafts and income tax have been mandated (the initial enactment of an income tax was found unconstitutional- so the Constitution was amended which resulted in the sixteenth amendment).

I’m not an attorney, and I’m sure that I don’t begin to scratch the surface of the issue; however, the arguments for and against the individual mandate can basically be summed up as follows: Those that oppose the PPACA individual mandate argue that this mandate is different from others such that it regulates commercial inactivity (e.g., levying a fine when a product or service is not purchased); while those in support of the mandate argue it is not a fine for non-participation, but rather a tax.

Regardless, which way you approach the mandate, some contend that a mandate is only one way to have the public engage in commerce. In an editorial that appeared in the New England Journal of Medicine, Einer Elhauge, J.D. described the individual mandate as an alternative to providing subsidies (Elhauge, E (2012). The Irrelevance of the Broccoli Argument against the Insurance Mandate. The New England Journal of Medicine 366, e1. published on December 21, 2011). Putting aside Elhauge’s reasoning and opinion of the SCOTUS case; he points out that the Government has many ways to affect industries and commerce. Typically, the Government attempts to persuade us to engage in specific businesses industries by providing incentives and subsidies, such as tax credits to industry participants or purchasers of specific products. However, rather than persuading economic activity, the PPACA individual mandate is historic in that it requires participation and fines those who do not participate.

Like other industries, the housing industry is subsidized to encourage participation; home ownership is encouraged through the mortgage interest tax deduction and low interest rate mortgage programs (and for a brief time- first time home buyer tax credits). However, it is not implausible to think that if SCOTUS upholds the individual mandate, Congress could require people to make home a purchase, renovate, or retrofit their homes with green technologies (in an effort to increase economic activity in those industries).

There are some that argue that subsidies are bad enough for the housing market; one argument is that the mortgage interest deduction has artificially elevated home prices. However, some subsidies may only influence the timing of purchases rather than value: recent data suggests that the brief first time home buyer tax credit created short-term spikes of home sales that would have likely occurred over a period of time.

On the face of it, the housing market has little to do with health care. However, this week, housing and other industries may be affected by the SCOTUS decision regarding the healthcare individual mandate. Subsidies verses mandates- it may ultimately be about semantics and interpretation.

More news and articles on “the Blog”
This article 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 March 26, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

March 23, 2012August 27, 2012

Finding a rental in a tight market

by Dan Krell © 2012
DanKrell.com

If you’re looking for a rental, you’re not alone. In fact, according to an October 28th (2011) commentary from National Association of Realtors® Chief Economist Lawrence Yun, there was an increase of 1.4 million renters in from the fall 2010 to the fall 2011; and as of the second quarter of 2011, there were about 38 million renters. As the economy and foreclosure crisis added to rental demand; Dr. Yun pointed out that the lack of multi-family construction (e.g., apartments) in the first decade of the new millennium also added to the falling vacancy rates (“Falling Rental Vacancies”; realtor.org).

Of course, as rental vacancies fall- rents increase. According to the National Association of Home Builders (nahb.org), the Multifamily Vacancy Index (MVI) fell in the fourth quarter of 2011 indicating fewer rental vacancies. Additionally, the Multifamily Production Index (MPI), which measures builder and developer sentiment about current conditions in the multifamily market, is at its highest since 2005. Furthermore, the MPI component gauging developer sentiment for market-rate rentals is at an all time high!

But don’t worry too much. Consider that while some have described falling nationwide home ownership rates and rental vacancies, the U.S Census data indicates that home ownership rates for the Washington DC region has not significantly changed during 2011. Additionally, rental vacancies increased throughout 2011 to rebound from some of the lowest vacancy rates in about ten years (census.gov).

So what does all this mean for you, the renter? First consider your budget, and then decide on your needs and preferences for your rental home. Since size, location, and amenities are some of the factors that dictate rent, you might be able to lower your rental costs by deciding which factors are more important to you. For example, renting a studio apartment close to a metro stop may be less expensive than renting a four bedroom bungalow about the same distance to the metro stop. However, if you want the four bedroom home, the rent may be less expensive as the distance from the metro stop increases.

The internet age has made finding a rental easier than ever, many apartment guides and MLS rental listings are now at your fingertips. Some apartment guides even provide virtual tours of available floor plans and amenities. The internet has many rental tools as well; one such tool is the “rentometer” (renotmeter.com), which can help you determine if your rent is in line with other area rentals. While hunting for your rental online- be careful of internet scams; Craigslist posts some very good safety tips for online home searching (washingtondc.craigslist.org/about/scams).

You might even consider hiring a real estate agent to assist you in your search. While some agents only focus on MLS rental listings, others may assist you in negotiating a rental rate and terms with rentals found outside the MLS. It should also be noted that some rental management companies also specialize in executive rental placements.

Once you found a suitable rental, be prepared for the rental application- which may include a credit check. If you’ve had financial challenges, such as a job loss or foreclosure, don’t be afraid to explain your situation; as some landlords may be willing to work with you if they have a vacancy.

As the housing market struggles to gain a foothold, the rental market remains strong. Finding your perfect rental may take a little time and effort.

More news and articles on “the Blog”
This article 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 March 19, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.