Tag: real estate

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Will inflation help the housing market: how real estate is affected

by Dan Krell
© 2011
DanKrell.com

Homes for saleMany people believe that as inflation increases, home values decrease. The argument put forth is that as purchasing power decreases, so do the value of your assets.  However, some economists say that it is flawed thinking to assume that housing, like other goods, decline in value as inflation increases.

Collin Barr reported that Yale economist Robert Shiller (coauthor of the Case-Shiller Home Price Index) has spent years collecting data that indicates “that house prices over time tend to rise more or less in step with inflation” (fortune.com: Why house prices will keep falling; March 29, 2011). That’s all well and good, except that home prices far exceeded the rate of inflation during the recent “bubble years;” and is reported as still having a 25% gap from baseline. So, unless we see an increasing rate of inflation, some believe that home prices drop another 20%.

Brian Summerfield, Online Editor of REALTOR® Magazine, describes (in an April 5th Realtor.org blog post) a scenario of how inflation can lift the current housing market. By highlighting affordability, he explains the cost of housing is currently cheaper to own a home (compared to renting). Additionally, as inflation creeps up and eats more of the family budget by decreasing buying power, the a person’s housing budget will be pressured by rising rents and buying a home will be increasingly more attractive.

Of course, Mr. Summerfield’s scenario is hinged on several “caveats”: interest rates will have to remain relatively low (he says no higher than 7%); implementation of “accessible” 30 year fixed mortgage programs; housing supply will have to remain low; and no additional economic crises.

In several Realtor.org blog posts, Lawrence Yun, Chief Economist for the National Association of Realtors®, discussed inflation and housing. In an April 18th post he explained that “Unexpected inflation” does erode savings, however actually benefits borrowers. Additionally, in a September 15th post reporting that housing starts are the lowest since World War II, Yun explains that some investors are returning to undervalued real estate as a hedge against inflation. Since new housing is not on track with population growth, some believe there will be a housing shortage that will cause increased demand in coming years.

House for saleThe reality is that although there is a relationship between home prices and inflation, it does not signify causality. In other words, although one may have an effect on the other, housing and inflation are independent. Even in Brian Summerfield’s scenario, he is cautious to provide conditions to bring his vision to reality. And no one has talked about the affects of stagflation.

When talking about a recovery, the typical homeowner should remain cautious- especially in espousing a view that a home is an investment vehicle. Even though our consumer oriented society has encouraged people to pay for their lifestyles with their home’s equity, it’s now widely decried as irresponsible.

In light of the current economic conditions, many potential home buyers are becoming more pragmatic as well. Even though the basic benefits of homeownership include affordability, community, etc, many potential home buyers view owning a home as anchor that will keep them tied to a specific area. And in a time when jobs are scarce, many people want the freedom of mobility in case they have a career opportunity elsewhere.

Will inflation help the real estate market? We will only know in hindsight.

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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 November 28, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

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Take care of your vacant home

real estate for sale

According to a 2009 USA Today report, 1 out of 9 homes are vacant. Although, more so in recent times, “foreclosure” may come to mind when you hear “vacant home;” however, there are other reasons why a home may be vacant, which may include: the home owner bought their new home prior to selling; seasonal travelers head to warmer climates during the winter; job relocation; divorce; or an unsettled estate. Regardless of the reason for leaving your home vacant, making preparations prior to leaving may make your return more welcoming.

Even if your home is listed with a Realtor®, don’t assume that the home will be looked after; take care of your asset and ensure that your vacant home is cared for. Consider having a trusted person in charge of checking the vacant home regularly. Besides collecting un-forwarded mail, this person can take care of issues that may arise while you’re away.

As we are headed into winter, consider winterizing the home. “Winterizing” is jargon that describes the draining of water and pressure from the plumbing system. Experts recommend winterizing your home if you plan leaving your home vacant during the winter months. Winterizing your home may reduce the risk of bursting pipes as well as possibly reducing damage to plumbing fixtures. When winterizing and de-winterizing your home, consider hiring a licensed plumber because you may encounter unexpected high pressure, and the winterizing process may cause increased stress on the plumbing system.

Check the drainage around your home to ensure that water is removed away from the home as intended. Test the sump pump (if you have one) to ensure it is in working order. Blockages from leaves and other debris can build up on the roof and gutters as well as around basement stairwell drains (which are notorious for clogging and may cause a flooded basement). Clogged gutters and drains may cause roof and basement leaks even when a home is lived in; certainly if unattended to, can wreak havoc on your vacant home.

real estate

Cold weather is also a time when pests are seeking a warm shelter; you don’t want to return to the surprise of a home that has been infested with mice, raccoons, or other pests. A licensed pest control expert may be able to assist you in preventing an infestation by searching for and sealing pest related access points.

Theft and vandalism is often a primary concern for vacant home owners. Besides being the target of thieves, vacant homes often become the focus of vandals. Besides ensuring that valuables are safe, make certain that all doors and windows are secure.

Finally, consult with your insurance agent about your home owners’ policy. Don’t assume that you’re covered just because you have insurance. Besides describing what the insurance company deems as “vacant,” many home owners’ policies have coverage limitations when the home is considered vacant. Your insurance agent can assist you in determining if you need additional coverage while you’re away from your home.

Taking care of a vacant home is not only for lenders taking possession of foreclosed homes. Whatever your reason for leaving your home behind this winter, think ahead and take care of your asset. Consider taking preventative measures to keep your home safe and intact as well as arranging for someone to take charge of the home while you’re away.

by Dan Krell
© 2010

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.

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Transfer tax controversy brews in Maryland Counties


by Dan Krell © 2010
DanKrell.com

Most real estate issues usually do not grab people’s attention – unless they are the ones affected. Eminent domain is a prime example; those affected usually become embroiled in the controversy. One current issue that you may have heard (although you may not have become fully aware) of is the transfer tax controversy that’s brewing in Montgomery and Anne Arundel Counties. The anticipated opinion on the controversy from the Maryland Attorney General may have lasting and widespread consequences on how transfer tax is calculated in this state.

The controversy surrounds the decision from Montgomery and Anne Arundel Counties to collect transfer tax on the “forgiven” mortgage amounts in a short sale. At face value, the policy of collecting transfer tax on the unpaid portion of a short sale appears to be a way for the counties to compensate for their declining tax base; however the fundamental method of calculating state and county transfer tax may be more the issue. On January 12th, however, Montgomery County put “a hold” on the collection of transfer tax of the “forgiven” mortgage amount until the Maryland Attorney General issues his opinion.

The “forgiven” mortgage amount is the amount that the seller’s lender agrees to not collect at the settlement of a short sale. However, this amount is not literally forgiven as the lender typically either considers it income and issues a 1099 to the seller or pursues payment through a deficiency judgment against the seller. Since part of the requirement for a short sale is usually to provide evidence of a hardship, some critics have argued that the collection of transfer tax on “forgiven” mortgage amounts to be punitive.

The collection of transfer tax on forgiven mortgage amounts should not be confused with “nominal consideration” rules that are used in some jurisdictions around the country (including Washington, DC). “Nominal consideration” rules typically calculate additional transfer tax when the sales price is less than the assessed value. In Washington, DC, a transaction is considered to be of “nominal consideration” when the sales price is less than 30% of the assessed value.

Title 13 of the Tax-Property section of the Code of Maryland (COMAR) discusses the collection of transfer tax by the State and counties, as well as tax rates and possible exemptions. COMAR discusses various ways in which transfer taxes are calculated and collected; for example tax is calculated on the “consideration payable for the instrument of writing”; and the tax is “imposed on the instrument of writing.”

Some may have mistakenly thought that consideration is only the sales price and the instrument in writing is only the deed; however, others have argued that consideration also includes additional amounts involved in a transaction (such as assumed loans) and instruments in writing to also include deeds of trust. I am not an attorney and I am not attempting to practice or interpret law, but it appears that clarification from the Attorney General has become necessary in interpreting “consideration” and “instruments of writing” when calculating transfer tax in today’s market.

You might consider the collection of forgiven mortgage amounts another sign of a depreciated real estate market. However, the future of transfer tax calculation and collection (at least locally) is sure to be affected by the highly anticipated opinion of Attorney General Gansler.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

**Update—HB 590/SB 657 – Taxation of Forgiven Debt in Short Sales
STATUS: PASSED – Effective May 20, 2010.
This law clarifies that recordation and transfer taxes MAY NOT be imposed on the forgiven debt in short sale transactions.

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Coping with the stress of the real estate transaction

Unless you are under the care of a psychiatrist prescribing you Valium, “stress free” is not something that comes to mind when describing real estate. According to the American Institute of Stress (stress.org), stress is subjective and can originate from negative and positive experiences.

On the “Holmes-Rahe Social Readjustment Rating Scale” otherwise known as the Holmes and Rahe Stress Scale (Holmes & Rahe 1967), having a mortgage over $10,000 rates 31 (just above being foreclosed upon) and moving is rated as 20. This commonly used stress scale (which rates life events to determine risk of illness) is cumulative, so the rating for buying a home is at least 51. Your stress level obviously increases when you add in other life stressors such as (but not limited to): getting divorced (73); getting married (50); having a baby (39); changing careers (36).

The reason why buying a home may rate so high on the Stress Scale is that, unlike other transactions, buying (and selling) a home is a large emotional investment! Gordon Gekko, from Oliver Stone’s Wall Street, was on to something when he said, “don’t get emotional [over stock], it clouds your judgment.” Emotions often become amplified when stress increases and can interfere with judgment.

Although most real estate agents don’t understand stress (what it is or how it’s reduced), it does not stop them from lecturing and blogging about “reducing stress” during the home buying or selling process. Being prepared and dividing the buying/selling process into segments is common advice and makes sense. This guidance often helps buyers and sellers feel a sense of “control” by understanding what to expect. However, the wonderful thing about real estate is that every transaction presents a new set of personalities, conditions, and (sometimes) problems. Reactions among buyers and sellers, as well as real estate agents, vary depending on their personalities and life circumstances. So no matter how much you plan, prepare, and visualize what it may be like, stress can be produced just by going through the process (created by both positive and negative feelings).

For some, being prepared is enough to help them anticipate and deal with most circumstances that may arise; while for others, the act of preparation may actually increase stress. Emotional factors, often based on needs and fears, can play a key role in your stress levels. Sometimes your needs are beyond your control and can increase your stress level, such as the need to stick to stringent timelines. And sometimes your needs can adapt and change which can mitigates your stress, such as finding the “perfect home.”

Fears about the outcome of the transaction can increase your stress, especially if you’re a first time home buyer. Common buyer fears include mortgage approvals and rising interest rates; sometimes buyers fear that the home inspection may reveal problems with the home. Common home seller fears include the home buyer’s qualifications and the ability to consummate the sale.

Good real estate agents know how to address the needs and fears of the real estate transaction to keep stress levels in check. Regardless, some people may turn to self help, “pop” or common stress reduction techniques (such as meditation); and if the stress is overwhelming, it wouldn’t hurt consulting with your physician or a qualified mental health professional – especially if you’re already stressed by your job, family and other life stress.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Permission to use this article is by written consent only.

By Dan Krell
Copyright © 2010

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Summer-ize your home to attract buyers

Summer-ize your home to attract buyers

by Dan Krell © 2009.

www.DanKrell.com

You might think that the weather is warming up more than the real estate market, but lo-and-behold the spring market is experiencing increased activity! If you’re planning to put your home on the market, or if it is already listed for sale, you probably know that preparing your home to sell means de-cluttering and fixing those little items you’ve been putting off for some time. No matter how much preparation you do, don’t forget to summerize to make your home more appealing to home buyers.

Summerizing your home means paying attention to the items that are noticeable during the warmer months of the year; such as the curb appeal and the interior comfort. There is nothing worse than making excuses during your open house about the unkempt lawn or a broken air conditioning unit. Neglecting these items can be a deterrent to buyers or (worse yet) even make your home appear to buyers as if you are selling a distressed property.

There’s more to curb appeal than just keeping your lawn mowed! Basic curb appeal considerations include the home’s landscaping, grading, siding, deck, driveway and sidewalks.

Simple landscaping can make your lawn appear well manicured; but imagine what a professionally landscaped yard can do! Trees properly trimmed away from the home will allow your home to be seen from the street as well as not be “crowded” by overhanging limbs. Neatly trimmed and properly placed shrubs and flower beds will not only look beautiful, it will enhance your home’s façade!

Heavy summer storms can wreak havoc on poorly graded yards, which can allow water to seep into your basement. Ensure that the grading around your home diverts water away from the foundation.

Clean and properly painted siding (including facia boards and window trim) is often overlooked by home owners. If the entire exterior does not need painting, look for the areas that appear to be peeling or bare. Facia boards and window trim are often made of untreated wood and typically need more attention (even if your siding is made of artificial materials). If your home has algae or mold growing on the siding, consider having the siding power washed; power washing can not only clean the siding, but may return the new home “glow.”

Don’t let a faded or splintered deck turn away home buyers; consider adding it your power wash list. Power washing your deck and patio can give them a fresh look. You might consider staining or sealing your deck and patio to give the new home owner the possibility of a few years of care free use.

Cracked sidewalks and driveway are not only unsightly, they can also be a trip hazard. Repairing and/or sealing the walkways and driveway can not only increase safety – it can add to the appearance of your home. A newly sealed asphalt driveway can add contrast to accent the exterior of your home.

Let’s face it, air conditioning that does not keep your home cool is a buyer deterrent- especially in the hot summer months. If you don’t service your air conditioning system on a regular basis, you should consider doing so before listing your home.

Summerizing your home will not only attract home buyers, it shows pride of ownership providing incentive for home buyers bring you an offer.

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 27, 2009. Copyright © 2009 Dan Krell

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