real estate Archives - Page 80 of 86 - Real Estate News and Commentary

August 21, 2007October 5, 2019

Trapped and Pigeon Holed

by Dan Krell

A May 13th 60 Minutes piece that aired nationally attempted to portray a balanced view of how online brokerages have been chipping away at “standard” Realtor commissions. If you missed the segment, it was a story about the success and battles of an online brokerage called Redfin. (Interestingly, there was a similar story in the Washington Post almost a week later).

The story appeared to be an underdog piece about how Redfin is pitted against a real estate industry that is against change. Everyone loves an underdog, right? Although the story attempted to offer both sides of the story, 60 Minutes decision to interview a top real estate agent in the Seattle area made for sensationalism but little for advancing the truth and facts.

The agent interviewed was clearly not representative in income or business methods of an average Realtor. It appeared that the agent’s comments fed into the stereotypes being portrayed by her comments when challenged to lower her commissions as well as comments about home buying not being high tech.

The facts are that according to the United States Department of Labor Bureau of Labor Statistics, the average licensed real estate agent income was $35,670 in 2004. The average agent earned between $23,500 and $58,110 a year. Only the top ten percent earned more than $92,770.

Additionally, the real estate industry has embraced technology to assist in change as can be witnessed by the explosion of internet listings and computer based real estate applications. Many home buyers search for homes online before going to see the home in person. In fact new technology has allowed much of the process to become remote and impersonal; contracts and mortgage applications can be completed and signed and delivered via email. The truth is that the industry is very high tech and the National Association of Realtors is committed to technological advancement (www.realtor.org/technology/index.html).

As a Realtor in the trenches, I can tell you that commission structures have been changing for a while, however not because of “discount” brokers, but as a necessity of survival in a saturated industry. The recent record sellers’ market assisted in the growth of real estate business models that are based on flat fees. Online brokerages, such as Zip Realty, as well as “full service” Realtors have been offering closing credits, rebates, and low commission structures for some time.

How do you get a full service Realtor for a “discount” price? The truth is that although some Realtors are not negotiable on commission, many are. All you have to do is ask and chances are that you can negotiate a lower listing commission or a closing credit on your home purchase.

I was once told by a professor in graduate school that once others’ perceptions have you pigeon holed, you can never get out. Although the 60 Minutes story may be good for ratings, the one sided treatment and depicted stereotype of wealthy Realtors who are steadfast for the status quo did nothing to promote the facts. The National Association of Realtors has posted depicted misrepresentations as well as the correct facts on their website: (www.realtor.org/about_nar/60_minutes/NARRespondsToSixtyMinutesMain.html).

To CBS’s credit, some facts and rebuttal comments from the National Association of Realtors, as well as others, have been posted on the story webpage:
www.cbsnews.com/stories/2007/05/11/60minutes/main2790865.shtml

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 May 28, 2007. Copyright © 2007 Dan Krell.

August 21, 2007October 5, 2019

Real Estate Tax traps You Need to Know About

by Dan Krell

It is unfortunate that many home buyers and home sellers neglect to consult with experts and sometimes enter into situations that may not be in their best interest. There are several common situations that are associated to real estate transactions that seem beneficial, but may actually incur a tax liability to those involved. The situations are the “short sale,” rebate programs, and the use of a down payment assistance programs.

The short sale has gained popularity recently as a sluggish market has forced some desperate home sellers to reduce the price of their home below what is actually owed. A short sale is when the lender agrees to accept an amount that is less than the payoff amount in order to sell a home. The concept is simple although the process is sometimes problematic. Although there is no net profit from a short sale, the financially challenged home seller can find some relief when they engage in such a process.

Although the short sale can help you out of a mortgage crisis, the IRS looks at the difference between the actual mortgage payoff and the negotiated payoff as a financial gain to you. You will most likely be issued a 1099 at the end of the year by your lender.

Another popular practice that seems beneficial but may have some liability is the rebate program. Rebates are offered to Home buyers and home sellers as a business incentive from organizations, brokers, and Realtors to use their services. Some organizations and credit unions offer buyer rebates as a value added service to its members if an affiliated broker or Realtor is used. For example, Costco offers rebates to its members of up to 0.75% of the price of the home when affiliated service providers are used. USAA offers its members up to $3,100 when the MoversAdvantage® program is used. If you participate in such a program, you may receive a 1099 as you may have incurred a tax liability.

Although they have been scrutinized by HUD and the IRS, down payment assistance programs have been used by millions nationwide to assist in the purchase of a home. Down payment assistance programs are non-profit organizations that assist home buyers with limited funds to purchase a home by providing the money needed for their down payment. The funds provided to the home buyer are typically received by the program as a gift from the home seller. These programs have been criticized as being a circle scheme funneling extra money from the home seller to the home buyer to assist in the purchase of the home, circumventing the underwriting guidelines.

Last year, the IRS revoked the non profit status of some of these programs citing that that the amount given to the program from the seller is directly related to the amount provided to the buyer. Additionally, the amounts in question are only provided to the program if the sale closes. If you use such a program, you should consult the IRS on the tax exempt status of the program as well as any tax liability you may incur.

As any real estate transaction may have tax ramifications, you should always consult a tax expert for advice.

August 21, 2007October 5, 2019

Going once, Going twice…sold!

by Dan Krell

When you think of a real estate auction, what may come to mind is a foreclosure sale. The foreclosure sale has been popular for many years with investors and home buyers looking for a good deal. However, auctioneers have been auctioning all types of real estate (such as commercial, residential, and land) for many years.

Real estate auctions have increased so much over the last few years, such that the National Association of Auctioneers reports that residential real estate auctions have increased 8.4% from 2004 to 2005 (auctioneers.org). The growing trend is national as well as local.

Is an auction the right tool for everyone? According to Fernando Palacios, the local representative of Tranzon, LLC (a national auction company), a real estate auction would not benefit everyone. Typically, real estate auctions have been used by investors and builders to sell their inventory quickly. However, in the present real estate market more home owners have been taking advantage of the “fast track” process so as sell their home quickly. He explains that the auction process is right for you if you want a quick sale and you can set your reserve price about 10% below the market.

Why the discounted price? Mr. Palacios explained that although the goal is to get a full retail price or higher, the reserve price is set below market value to help create a “buzz.” The buzz attracts potential home buyers to the auction.

There is a lot of activity the day of the auction as the excitement builds. Sometimes several bidders bid against each other in an effort to get the winning bid, resulting in a higher than market price. According to Mr. Palacios, this happens more often in moderately priced homes.

Mr. Palacios described the benefits of an auction as having a set sale date, maintaining privacy, selling “as-is,” and receiving a “cash” offer. Having a specific date for the sale can be helpful in planning as well as being, as Mr. Palacios states, “emotionally freeing” for the home owner. The auction has one date for prospective home buyers to present their “offers” to you via the bidding process.

He continues to explain that if sell your home through a Realtor, you must maintain your home in “showing” condition and be prepared for home buyers to come by at any time. Many times, home buyers will come when it is inconvenient such as dinner time and your kid’s bed time. The auction process helps you maintain your privacy until the date of the auction, when all registered participants can preview your home.

Another benefit of the auction process is that the home is sold “as-is;” the home buyer purchases the home without a home inspection. The home owner does not have to worry about a home inspection killing the deal, or about making repairs to the home.

Getting a “cash” offer is a basic part of the auction process, which means there are no contingencies and you can count on closing in thirty days. This is to the home owner’s advantage as the home buyer has no way out of the contract.

For more information on real estate auctions and to see if it right for you, visit the National Auctioneers Association (auctioneers.org) and the Auctioneers Association of Maryland (mdauctioneers.org).

August 21, 2007October 5, 2019

FHA Comes of age

by Dan Krell

Congress recently passed H.R. 1852, The Expanding American Homeownership Act of 2007. The act is a move forward for a seventy-three year old program federal program called the Federal Housing Administration, also known as the FHA. The recent legislation was devised in the spirit of the FHA and looks to assist millions to obtain home ownership.

The FHA mortgage program (administered through the department of Housing and Urban Development since 1965) was created in 1934 when about only ten percent of Americans owned their home. At a time when home buyers needed a fifty percent down payment to obtain a three year balloon mortgage, the FHA’s progressive mortgage programs provided a spark for the nation’s stagnant housing industry (HUD.gov).

Through the years, the FHA provided progressive programs to assist those in need. The FHA took part in financing military housing in the 1940’s. During the 1950’s and 1960’s, the FHA made funds available for adult, handicapped, and low income apartments. When rising inflation and energy costs threatened many apartment buildings in the 1970’s, the FHA made emergency funds available to assist in keeping these properties operational. In the 1980’s, when lenders pulled out of oil producing states because of falling home prices, the FHA offered mortgages to those who could not otherwise buy a home.

H.R. 1852 comes at a time when the mortgage industry is in crisis and home ownership is threatened for those who need financing alternatives. The bill expands the mortgage program to offer more financing options as well as increasing FHA mortgage originators.

Reforming the FHA mortgage program will expand the program and allow home buyers who do not qualify for a conforming loan (Fannie Mae or Freddie Mac) have access to alternatives to sub-prime lending. The FHA mortgage program will be expanded by increasing loan limits, eliminating the three percent down payment requirement, and implementing a risk based pricing system.

When home buyers do not qualify for a conforming loan, they turn to a sub-prime lender. Unfortunately, many sub-prime mortgages have high interest rates and other possible unfavorable terms. By increasing FHA loan limits in high cost areas these home buyers would possibly be able to obtain more favorable mortgage rates and terms through FHA.

Additionally, many first-time home buyers do not have the funds for a down payment or closing costs. These home buyers are typically driven to the sub-prime mortgage market as well. However, eliminating the FHA three percent down payment requirement will allow many more home buyers to obtain a FHA mortgage as well.

Many credit worthy home buyers who do not qualify for conforming mortgages due to mitigating circumstances are also forced to use sub-prime lending. Implementing risk based pricing may allow many of these home buyers to obtain a more favorable mortgage through FHA.

Presently many mortgage brokers do not originate FHA mortgages because of the restrictions and rigorous qualifications. However, increasing mortgage broker participation by reducing broker requirements and eliminating mandatory auditing would increase home buyer access to the FHA program.

The expansion of FHA programs may seem counterintuitive in a time when the industry is in turmoil. However, these reforms to a venerable housing program are welcome by many as well as being reminiscent to its legacy of commitment to home ownership.

June 24, 2007November 23, 2021

Condo Craze or Just a Phase?

by Dan Krell © 2007
Google+

When you think of a condo, what may come to mind is the typical flat in a building. However, condos come in many shapes and sizes, including duplexes, townhomes and semi-detached homes. The term condo is actually in reference to ownership, rather than style of home. Condominium ownership means that your home is part of a condominium association that owns and maintains common areas, while you own the interior space of your unit. The common areas typically include the building exterior and common grounds as well as amenities, such as a pool or play ground.

Everyone in who owns a unit in the association pays a fee, typically monthly, for maintenance costs. Condo fees vary depending on the size of the association, types of amenities, and whether or not utilities are included.

For some, living in a condo offers convenience and worry free living that a single family home does not. Many condos developments are convenient to the amenities of downtown areas, such as Rockville, Bethesda, Gaithersburg, and Silver Spring. These homes can be close to metro too, reducing your need to drive a car. Additionally condo ownership typically means that you don’t have to concern yourself with mowing a lawn or repairing a roof, as the association takes responsibility for these things.

Condo living is an affordable opportunity to owning a home. Compared to single family homes and townhomes, condos tend to be less expensive and a viable option for many first time homeowners.

There is a downside to condo ownership, however. Although condos may be more affordable, history suggests that they do not appreciate as fast as other types of homes. Because some condo buildings appear densely populated, some neighbors can be noisy. Additionally, the level of maintenance may vary depending on the condo association and management company.

If you are considering purchasing a condo, here are some ideas to assist you. First, exercise your right under Maryland law to review the condo docs. The condo docs include the association rules and bylaws as well as a recent budget, which includes reserve funds for emergencies. Reviewing the condo docs can reveal rules that may impact your lifestyle, such as having a pet. Additionally, the budget and reserves can reveal how well the association manages condo funds.

If you have an opportunity, attend a board meeting to get a feel for what is happening within the association. Internal politics can impact the way the condo is managed. If you want to have input in the direction of the condo association, get involved with the association board.

Although the condo association has an insurance policy that covers the physical building, you may want to consider a policy to cover your possessions inside your unit.

Parking in your development can be easy or it could be a problem. You may have one or two reserved spaces for your unit. However, if your condo is convenient to metro or other amenities, you may find non-residents taking advantage of this.

No matter how you look at it, purchasing a condo can be a practical and affordable home for any home buyer. As there are many considerations when purchasing a condo, ask your Realtor for additional resources and ideas in helping you decide on the best home.