Real Estate November 30, 2022

Real estate is the safest investment you can make today, millionaires say—Here’s why

If not in stock and bond markets, where are affluent consumers currently parking their wealth? The answer to that question can be a lot of things: art, handbags, jewelry. One should always check with their investment advisor, but in reality, luxury real estate is considered one of the safest long-term investments one can add to their portfolio.

This year, my team at Coldwell Banker put a closer lens on the habits and sentiments of the affluent to get a pulse on the top trends currently dominating the luxury landscape. We conducted a survey of more than 2,000 U.S.-based high-net-worth consumers, paired with our annual fall report newly dubbed, “The Trend Report.”

80% of the respondents agree that real estate is a safe investment. In addition, consumers are more than three times more likely to think that 2023 will be a better time to invest in real estate than was 2022—rising by a whopping 42% from only 11% a year ago.

Together, these insights help us better understand what else is driving affluent consumers’ desire to invest in real estate, where they’re purchasing properties, and their attitudes on the value of a trusted advisor.

Through the Coldwell Banker Global Luxury program, our affiliated agents sold $267 million in luxury homes sales every day during 2021—up 59% from 2020. With the guidance of our luxury specialists, clients have been able to reap huge returns on the sale of their homes by making property enhancements—in addition to installing chic furnishings and lush landscaping—paving the way for them to place those profits growing their real estate investment portfolio.

SEEKING STABILITY

Affluent consumers are gravitating towards real estate that gives them financial, emotional, and psychological security.

I spoke to industry legend Jade Mills, president of Jade Mills Estates and Coldwell Banker Global Luxury Ambassador, about her firsthand expertise in the luxury market. According to Jade, “luxury buyers still have leverage to purchase investment properties, with many of them taking advantage of lower prices in areas where the market is softer.”

Real estate has always been one of Americans’ favorite long-term wealth-building assets—and it shows in our survey. More than 77% respondents currently own an investment property, with nearly two-thirds of them owning two or more investment properties.

“Real estate is the best investment one can ever make,” noted Jade. “I don’t just sell property, I own property too, and it has done nothing but go up. For example, there are certain areas in California where prices never really go down. You just don’t make that kind of return on investment in the stock market.”

Not only can a long-term investment in real estate generate income to obtain financial security, but it also creates a path to generational wealth. More than 45% of survey respondents say they purchase real estate as an inheritance for their children.

SHIFTING LIFESTYLE FOOTPRINTS

Many wealthy buyers today are looking for smaller secondary homes and investment properties, particularly in traditional centers of luxury. 72% of survey respondents who are planning a home purchase in the future said that the new home would be a second residence, rental property, or vacation home.

“People want homes that are move-in perfect; there’s currently a sweet spot for homes priced between $3 to $4.5 million in Southern California,” Jade explained. “Not only that, but the neighborhood, schools, and community amenities are all major factors that buyers look at when purchasing a home. As real estate agents, we keep up with these insights to be ‘in the know’ for our clients.” Again, for true investment guidance, one should still seek the opinion of their investment advisor.

Interestingly, 25% of respondents who purchased a home during the pandemic were dissatisfied, and location was found to be one of the primary drivers of their discontent. Nearly 41% of respondents cited that their next purchase would be based on investment opportunity, eyeing prime locations like New York and California.

Among their reasons? 40% said that quality of life remained at the top of their priority list, underscoring the long-term strength of these historic epicenters of wealth.

PROFESSIONAL GUIDANCE

The unparalleled advice and white glove service of a trusted advisor when buying or selling a home has never been more vital than today. Nearly 90% of survey respondents have used a real estate agent to assist them in the purchase of their home, and plan to do so again in the future.

Star agents like Jade have quickly become the key to aspirational lifestyles. These agents understand luxury buyers’ unique needs for privacy and have the connections to access the other specialized amenities they desire.

“The deep connections I’ve built—both in real estate and across other luxury sectors within fashion, design, exotic cars, etc.—have helped me deliver incomparable service and expertise to my clients that keep them coming back,” Jade said.

GOING FORWARD

Despite the headlines, the trends tell a clear story about the resiliency of luxury market segments today and their value beyond the price tag. As buyers seek stability, safe-haven investments, and security, the demand for luxury continues to drive the resilience of the market.

To read the full Trend Report and learn more about Coldwell Banker’s exclusive luxury insights, please visit https://blog.coldwellbankerluxury.com/the-trend-report-2022.

Michael Altneu is vice president for Coldwell Banker Global Luxury. Follow Michael at @cbgl.michael on Instagram and @MAltneu on Twitter.

Uncategorized November 16, 2022

7 Reasons It’s Worth Buying a House at the End of the Year

The end of the year is upon us, and you still haven’t found a new home. Friends and family are likely advising you to put your real estate search on pause until spring, but something tells you this isn’t the best idea.

This is definitely a time to go with your instincts and keep searching, as your dream home — and an amazing deal on it — might currently be on the market or soon making its debut. GOBankingRates spoke with several real estate agents who shared seven advantages of buying a house at the end of the year.

Connect With a Highly Motivated Seller

“Ask yourself this, who thinks it is a good idea to put their home on the market around the holidays or sell their home so they have to move during the holidays?” said Greg Hriso, a real estate agent at Homie Colorado. “Typically, a more motivated seller.”

During this time of year, he said buyers can take advantage of the opportunity to pick up a home with little-to-no-competition.

“Once the snow flies, most sellers still on the market have a pretty important reason for selling,” he said. “Otherwise, why deal with strangers with snow on their shoes touring your home at inconvenient times?”

If you’re concerned about the affect rising interest rates will have on your monthly payment, he said buying at this time of year can help you save money.

“There is also a better chance of getting seller concessions to buy down the interest rate this time of year,” he said.

Score Builder Incentives

“Depending on a home builder’s fiscal year, there may also be more incentives to get existing inventory off their books,” Hriso said. Therefore, he said buyers might be able to get some of the best builder incentives of the year to move into a brand new home.

“One of the best deals I ever got for a client was on a builder’s existing inventory that they really wanted closed before December 31,” he said. “The client and I still talk about what a great deal that was every time we see each other.”

Be Home for the Holidays

“I have had buyers that wanted to close a week before the major holidays like Thanksgiving and Christmas to be able to enjoy the city and host in their new homes,” said Andy Feiwel, a real estate agent with Compass in New York City. “New York City is always an extremely festive and vibrant place during the holidays with window displays, tree lighting ceremonies and lots of socializing and parties.”

Whether you happen to live in New York City or elsewhere, securing your new home for the holidays can be an amazing gift to yourself and your family. Host a gathering or simply enjoy the comfort of knowing you have your own oasis to come home to amid the chaos of the season.

Enjoy Tax Benefits

Buying a home at the end of the year offers a huge tax advantage, said Ron Wysocarski, a real estate broker and CEO of the Wyse Home Team Realty in Florida.

“The benefit is the ability to save tax from property taxes or by deducting the mortgage interest,” he said. “The seller benefits from minimizing deductions and is therefore always open to discussion.”

He said even accepting a loss that will balance their income can be acceptable to a seller. “The transfer of ownership results in significant tax advantages for both the seller and the buyer during this [time of] year,” he said.

Cash In on an Income Property

If you’re thinking of purchasing an income property before the end of the year, Ryan Pineda, CEO of Tykes, said this can be a lucrative idea.

“For many investment properties, you have the opportunity to do a cost segregation and get a huge write-off for bonus depreciation,” he said. “Tax write-off is a huge advantage before the end of the year.”

See the Property at an Off-Peak Season

In many parts of the country, the end of the year brings less-than-ideal weather. This gives you a unique advantage, according to Michael McGivern, a real estate agent with Keller Williams Integrity Lakes, because it’s a lot easier to make a home look pristine in the summer months.

“When homes are on the market in quarter four, suddenly, you realize how daunting raking the front and back yard is, there are a couple of rough patches in desperate need of fresh sod and there is a lot of moisture in those windows in need of replacement,” he said. “Ownership comes with home maintenance, and people who buy in the summer often realize their home isn’t faultless in the fall.”

If you find a place that looks great at the end of the year, he said you can probably feel confident it will look even more amazing next summer.

Get All the Help You Need Without a Wait

Moving is hard work, but during peak homebuying months, it can be hard to find professionals with availability to take on new projects.

“Due to the lower demand for movers and contractors in the colder months of the year, you should have no problem getting help,” said Cameron Berens, a real estate agent with B&B Home Advisors in Kentucky. “Whether it’s hiring movers, or getting that kitchen remodel started right away, the wait time should be less this time of year.”

 

By Jennifer Taylor

November 15, 2022

 

Uncategorized November 16, 2022

Mortgage rates are soaring. Is it still OK to refinance your home?

Mortgage rates, over 7% or so, are at their highest levels in 20 years and loan applications are down. So, it should follow, that homeowners looking to refinance loans would also be headed to the sidelines in droves.

But according to experts, it might still make sense for homeowners to refinance. Why? Rates, even at current levels, can still be a decent deal compared to alternatives.

“People would still be refinancing if they need the cash, so they are withdrawing equity, even at much higher rates. ​This is (still) cheaper than other forms of credit,” Richard de Chazal, macro analyst at William Blair & Company, said in a statement.

According to Freddie Mac the current mortgage rate on a 30-year fixed mortgage surpassed 7% last week. With climbing rates, applications for mortgages fell 1.7% for the week ending October 21, but only because they were so low to begin with — down 86% from a year ago, according to Mortgage Bankers Association.

Not great news for those in the business of refinancing mortgage loans. But many homeowners still need the money and refinancing may still be a good way to raise cash.

According to Black Knight, there are currently about 133,000 U.S. homeowners who can save about $325 off their monthly payments by lowering their rate to 7.08%, the smallest population since 2000, when the analytics company started tracking this metric. (This population of homeowners got their mortgage from 2008 or earlier.)

To be sure, many homeowners sit with a mortgage lower than today’s average causing refinancing to be less attractive. There are, though, a few circumstances when refinancing can be helpful.

The first is for someone struggling with their finances.

“It’s people that are consolidating and using their mortgages to lower overall debt costs but that’s not going to make sense for the average person that’s holding a 2.75% mortgage now from well over a year ago,” Tim Pagliara, Chief Investment Officer at CapWealth, told Yahoo Finance in a phone interview.

The homeowner, who is willing to take a higher mortgage rate, believes “it’s still cheaper to borrow against your home than it is to have an 8% car loan,” Pagliara added.

Following two years of stratospheric home price appreciation, some borrowers may be willing to eat a higher mortgage rate when using a cash-out refinance option, this is a type of mortgage refinance where you replace your existing mortgage with a larger mortgage and your lender gives you the difference in cash.

“You could borrow up to 80% of the value of the house on a traditional conventional or FHA loan on a cash or refinance. You’re just borrowing on a certain percent of equity on the value of the property,” Tina Pecoraro, producing branch manager at Nationwide Mortgage Bankers Inc, told Yahoo Finance.

Another potential borrower, who would also consider refinancing, has a mortgage that’s about to end.

“Homeowners with shorter duration mortgages could be refinancing for longer duration to pay less, so again​, it frees up some cash without perhaps removing equity” Chazal said. For example: extend a traditional 30-year mortgage that has only 10 more years to go.

“We have seen volume drop on the refinance side,” Pecoraro said. But “we are seeing refinancing where people are looking to pay off high interest credit card debt or do home improvements instead of taking out a home improvement loan because those rates are still higher than where rates are today.”

Pecoraro, though, is optimistic that the refi business will claw its way back as the industry faces more layoffs.

“It depends where the rates turn back around,” he said. “Rates will one day go down and again, of course that’s just how the market is. I’ve been doing this for about 18 years, rates will go back down again.”

Market TrendsReal Estate November 8, 2022

Will Homeownership Soon Be A Thing Of The Past? The Strategy Millennials Are Using To Enter Real Estate Market

As the economy teeters on the brink of a recession, potential home buyers wrestling with high-interest rates, low affordability, and overpriced homes are asking themselves how to build the wealth they need to purchase their first primary residence.

According to a consumer insights report issued by tech-enabled real estate company Mynd, millennials have found the answer.

A growing number of young adults are prioritizing “rentvesting” over homeownership.

What is Rentvesting?

Mynd says 43% of adults under the age of 40 are considering becoming “rentvestors” — the act of prioritizing buying an investment property (while renting a home) before a primary residence, in order to shore up the funds needed to purchase their dream homes.

The strategy refers to investing in, or buying and renting out an investment property in an affordable, up-and-coming area, while continuing to pay rent for your primary residence in your preferred location.

Naturally, the idea of owning investment homes to complement the primary residence has been around for a long time, but millennials are making an effort to control the expanding industry with a variety of instruments, like micro-investing, at their disposal.

How do I Rentvest?

It’s easy. And, Benzinga has the tools — check out how you can invest in a rental property for as little as $100 (or more, depending on your appetite). Really, it’s that easy.

The trend, which first gained popularity in Australia’s main cities, reflects how young people are unwilling to lower their standards of life in order to participate in the real estate market.

The goal of rentvesting is to safeguard your financial future without compromising your way of life. If done correctly, rentvesting’s diversification strategy enables you to live where you want, rather than relocating to a neighborhood where you can afford to buy a house.

 

BuyingMarket Trends November 8, 2022

Buyers Embrace Adjustable Mortgages as Rates Surpass 7%

Rising interest rates have increased the average monthly loan payment by a whopping $1,000 year over year.

With the rate for a 30-year mortgage rising to 7.08% this week—the highest average since April 2002, according to Freddie Mac—the average monthly loan payment is now $1,000 more than a year ago, Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the Economists’ Outlook blog.

That’s prompting a sharp pullback in the housing market as home buyers digest the higher rates. Mortgage applications for home purchases—a gauge of homebuying activity—are nearly half of what it was a year ago, the Mortgage Bankers Association reported this week.

Trying to snag a lower rate, more home buyers are reaching for an adjustable-rate mortgage, which tend to have lower introductory rates for a set period of time before resetting. Though ARMs are viewed as a riskier loan product, home buyers are being tempted: This week’s rate for a 5-year ARM is 5.96%. The share of home buyers applying for an ARM has more than quadrupled since the start of the year, MBA reports.

Higher mortgage rates are creating a “greater stagnation in the housing market,” says Sam Khater, Freddie Mac’s chief economist. “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month. In fact, many potential home buyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

S&P’s CoreLogic Case-Shiller Index shows home prices fell at a record pace in August, dropping 2.6% in monthly comparisons from a year ago. Existing-home sales also are sliding, down 24% year over year in September, according to NAR data. And problems continue to brew for the new-home market, which saw sales plunge nearly 18% in September compared to a year earlier, prompting home builders to press the brakes on future construction, the Commerce Department reports.

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 27:

  • 30-year fixed-rate mortgages: averaged 7.08% with an average 0.8 point, up from last week’s 6.94% average. Last year at this time, 30-year rates averaged 3.14%.
  • 15-year fixed-rate mortgages: averaged 6.36%, with an average 1.4 point, up from last week’s 6.23% average. A year ago, 15-year rates averaged 2.37%.
  • 5-year adjustable-rate mortgages: averaged 5.96%, with an average 0.3 point, increasing from last week’s 5.71% average. A year ago, 5-year ARMs averaged 2.56%.

Freddie Mac reports commitment rates along with average points to better reflect the upfront costs of obtaining the mortgage.

 

By: Melissa Dittmann Tracey

BuyingMarket Trends November 3, 2022

Yikes! Every Time Mortgage Rates Rise, Buyers Need To Make This Much More To Afford a Home

For home shoppers who thought 2022 would be their year, a pervasive sinking feeling is taking hold. They’re realizing the monthly payment for a home they thought they could afford—perhaps just barely—is now hundreds or even thousands of dollars more than they would have paid earlier this year. Their dream home is getting further and further out of reach.

The pain these higher rates have wrought on the housing market is already showing up in the high numbers of buyers who can no longer qualify for a mortgage—or are simply giving up as their purchasing power continues to plummet. Sellers are slashing prices or pulling their homes off the market. Home sales are dropping, and homes are sitting on the market longer.

And sure, we all realized that rising mortgage rates were going to mean higher monthly payments. But how much, exactly? We wanted to give prospective homebuyers a real road map to what’s going on—and what’s going to happen in the coming weeks and months. So the Realtor.com® data team crunched the numbers to find out just how much turmoil each mortgage rate increase is having on homebuyers.

How much does the pool of homebuyers shrink with each percentage point increase in the mortgage rate? And how much more do households need to earn in order to make monthly payments on a new home?

“People are just stopped in their tracks, watching, waiting to see what happens next,” says Rocke Andrews, a mortgage broker at Lending Arizona in Tucson. “It’s basically a frozen market until prices come down more or rates come down, or both.”

The numbers tell the tale: Roughly 3 out of every 4 U.S. households can no longer afford the monthly mortgage payment on a median-priced home of $427,250 with a mortgage rate of 6.7%. (This was the median list price in September using the most recent Realtor.com data.) Mortgage rates have more than doubled since the start of the year, rising from the low 3% range to nearly 7% for 30-year fixed-rate loans, according to Freddie Mac.

That means buyers need a six-figure household income of about $124,000 to buy the median-priced home, according to our analysis. However, just one year ago, when rates were about 3%, buyers would have needed to earn only about $89,000. That difference equates to around 20 million U.S. households that are priced out of the median-priced home in the span of a single year.

“A lot of people are very frustrated. Their income has stayed relatively stable. Their savings are roughly the same. But through no fault of their own, the costs are going up,” says Shmuel Shayowitz, the president and chief lending officer at Approved Funding in River Edge, NJ. “They’re rightfully very focused on the monthly payment—and it just keeps rising.”

If rates go up to 8%, which some real estate experts are predicting, buyers would need an annual household income of $137,356 for a median-priced U.S. home.

At 10%, they would need to bring home nearly $160,000 a year. Also at 10%, the median-priced home would be accessible to only about 1 in every 6 U.S. households.

To come up with our findings, we calculated the monthly mortgage payment for a median-priced home with a 6.7% mortgage rate on a 30-year fixed loan. This includes taxes and insurance and assumes buyers put down 10%. It works on the assumption that homebuyers are spending no more than the recommended max of 30% of their gross income (what they earn before taxes and deductions) on housing.

Higher mortgage rates have cut into affordability much more than most folks realize.

“When you reduce or raise interest rates by 1%, it increases or decreases buying power by about 12%,” says Andy Walden, vice president of enterprise research and strategy at Black Knight, a housing analytics company.

The real-life version of that math: If someone can afford just a $500,000 home at a 3% mortgage rate, when the rate rises to 4%, the same buyer would be looking at being able to afford something closer to $440,000.

As mortgage rates have climbed, and buyers don’t have as much money to spend on homes, prices have slowly begun correcting. Sellers have been forced to reduce asking prices, and buyers are negotiating them down even further.

“Prices will respond, as they already have,” says George Ratiu, senior economist and manager of economic research at Realtor.com.

Though it’s not a quick process, he warns. “It will take a while to drop below where they were a year ago.”

Across the nation, home prices are either plateauing or dipping, especially in the markets that became red-hot in the past few years. These are places like Austin, TX, and Phoenix, which became ultrapopular during the COVID-19 pandemic.

It isn’t just higher rates that are problematic. The lack of homes for sale is responsible for sky-high home prices. There are far more people in the market than there are homes available for them. That keeps prices high—and the remaining buyers frustrated.

And because incomes have not kept up, there’s been a growing affordability chasm.

Low mortgage rates of the past decade conveniently masked that problem, to some extent. Since rates were lower, buyers could purchase more expensive homes and still have reasonable payments.

“The incredibly low rates in the 2010s allowed people to stretch their budgets,” says Ratiu. Today, “mortgage rates surging at 20-year highs are making it prohibitively expensive for many buyers to afford a home purchase, and compounding the challenge of rising inflation cutting workers’ wages.”

As challenging as the housing market is right now, it’s been worse. When it comes to mortgage rates, much worse.

Following the 1979 energy crisis, the global economy plunged and high oil and gas prices pushed inflation to double-digit highs. That spurred the Federal Reserve to raise interest rates far beyond any point since. Mortgage rates followed. At their peak, mortgage rates were nearly 19%, according to Freddie Mac data.

That’s more than 2.5 times the rates now. Yet, people continued to purchase homes.

Rates came down slowly, through the late 1980s and early 1990s. Rates hovered near 6% during the 2000s, then dipped below 5% and stayed there during most of the 2010s. It wasn’t until the pandemic that they dropped below 3% for the first time in Freddie Mac’s recorded history, fueling the rapid home price growth.

However, home prices were much lower in the 1980s, when mortgage rates were in the double digits

Buyers in the 1980s “love to remind us” how high rates were when they purchased homes, Ratiu says. But median home prices in the early 1980s were in the $60,000 to low $70,000 range, according to National Association of Realtors® sale price data for existing homes (excluding new homes). Home prices today are about six times higher.

Walden, of Black Knight, looks at home prices compared with median household incomes over time. This helps him to figure out how much of their income buyers need to spend to become homeowners.

In January 2021, buyers spent about 20% of their income on becoming homeowners. Now, it’s nearly 40%.

“That’s the highest it’s been since 1984,” he says. “That’s significantly higher than it’s been over the last couple of years.”

Since 2000 or so, home prices have outpaced incomes by so much that mortgage rates largely took a backseat to a home’s price tag.

“When you go from that 18% interest rate environment in the early ’80s, and you get it all the way down to 3%, obviously, that has massive impacts on the amount of home that you can buy with the same amount of income,” Walden says. “And so if you look at the last time home affordability was at the levels it is today, interest rates were actually at 13%.”

Walden says home prices are roughly 35% higher than what current incomes should support. For the housing market to truly come back into balance—a combination of home price adjustments and higher incomes—it could take years.

Rates could continue to rise—making it even more challenging for already stretched buyers—but not to the levels seen in the 1980s.

“I could see 7.5% or, in more extreme cases, 8%,” Ratiu says. “In the next six to eight months, I don’t see them coming down.”

This doesn’t mean that those who need to purchase homes won’t ever be able to do so.

Mortgage lender Shayowitz says his clients are getting more creative. They’re trying to increase their down payments so their loans, and therefore monthly payments, will be lower and bringing on co-signers to help them qualify for mortgages. They’re also exploring adjustable-rate mortgages, where the interest rate is lower for a set period of years in the beginning of the loan and then readjusts down the road.

“It needs to be a situation where buyers sit down with their agent. You talk about location, you talk about affordability, you have to strategize,” he says. “People who do that are still able to make it work.”

 

By Evan Wyloge

Oct 17, 2022

 

Buying October 19, 2022

Common Mistakes When Closing on a Home

Ever notice that when you’re unprepared, it heats up stressful situations? Take the preclosing stage of the home buying process. You may keep thinking about the money at stake, while forms, disclosures, and reports fly at you. It’s enough to overwhelm anyone. Anyone who isn’t well prepared, that is.

You can get a head start, though, by following advice from three title professionals:  Cynthia Durham Blair, an attorney at Blair Cato Pickren Casterline in Columbia, S.C., and a past president of the American Land Title Association; Charles J. Esposito, managing attorney at JK Closing Attorneys in Coconut Creek, Fla.; and Cheryl Monahan, an escrow officer at Clark County Title in Vancouver, Wash.

7 Common Mistakes When Closing on a House

Here’s a list of the most typical closing-on-a-house problems the title pros see IRL and how you can steer clear of them.

#1 Sprinting Through Documents and Emails

Attention spans are short in the digital age, and you’re probably not in the habit of reading thousands of words at a single sitting. That’s understandable, but you must read every word in documents and emails your lender, agent, appraiser, and title officer put in front of you. And you must read them carefully.

Yeah, it’s a lot of reading. But you’re making the biggest purchase of your life. The details are important. “Contracts are legal documents, so what they say matters,” Esposito says. “Once a contract is signed, it’s legally enforceable.”

#2 Paying Too Little Attention to the Paperwork

Monahan describes a buyer who didn’t read all the paperwork and was left high and dry – literally. “It was a fast close for out-of-town buyers,” she says. The sellers were flippers who had never lived in the house. They checked the “don’t know” box in the section of the disclosure form that asks if the home’s water system has problems or needs repairs. The buyers didn’t read the disclosure form carefully, so they didn’t see that the condition of a major system in the home was unknown. The buyers closed on the house and a few weeks later found out the well had dried up. “They didn’t have a drop of drinking water,” Monahan says.

Esposito recommends asking your title representative for a copy of as much of the paperwork as you can get before the closing date and reading it a few days in advance. He says you should be able to get everything but the lender documents, which aren’t available until the close. “Reading them early gives you time to make notes or ask questions,” he says.

That said, it’s OK to wait until the closing to read some of the docs, even if it means making everybody wait while you delve into the minutiae of the escrow statement, sales agreement, or deed of trust. “Buying a home is a huge and important decision,” Esposito says. “Take your time!”

#3 Leaving People Out of the Loop About Major Life Changes

This deal involves several people: you, the seller, your agent, the seller’s agent, the lender, and the title rep. Keep relevant participants in the know about every bit of information, or you could delay your closing. If you have a job change right before closing, let the lender know. If you and the seller do a handshake deal on a credit for a last-minute repair, notify your agent and the lender.

“The paperwork has to reflect any deals,” Blair says. If the lender knows about the deal, they’ll capture it in the paperwork.

Esposito has seen buyers who were laid off or furloughed during the nation’s initial COVID-19 outbreak after being pre-approved for a mortgage but before closing. They didn’t tell anyone. “They thought we wouldn’t find out,” Esposito says.

Lenders always find out, he explains. They do a second check on your employment just before the closing date. Speak up when you have a job change, so that your lender can restructure the deal. It’s better than being silent and having the sale fall through at the last minute.

#4 Using Inconsistent Versions of Your Name in Your Documentation

Have you recently gotten married or divorced but not updated your driver’s license with the name change? If so, you could run into trouble at closing.

On closing day, a notary will look at your license to be sure the name matches the name on your paperwork. “If the names don’t match, we can’t sign the title,” Monahan says. You’ll either have to get a new ID with a name that matches the one on the paperwork or redo the paperwork to match the name on the ID. “Either way, you’re not closing on your house that day,” she adds.

To avoid this snafu, make sure your state-issued ID has your current name on it. At the beginning of the deal, tell your lender, agent, and title officer your full legal name – your first, middle, and last name as it appears on your ID. No nicknames or stage names allowed.

#5 Being in the Dark About the Home Closing Process

A lot of buyers, especially first-timers, don’t understand their role in a home closing. Blair, Esposito, and Monahan have seen buyers who:

  • Brought their checkbook to a closing, thinking they could pay with a personal check
  • Didn’t know the location of the closing or who should come with them
  • Were surprised to learn they would be reading and signing a stack of important documents

Spend some time learning about the steps and the players in the home buying transaction. That way, you’ll know what’s expected of you.

#6 Forgetting to Line up Your Wire Transfer or Cashier’s Check or Not Allowing Enough Time

As mistake #5 indicates, you can’t use a personal check to cover the amount you owe at closing, including the down payment. You’ll need to pay the balance with a wire transfer or a cashier’s check.

You can get a cashier’s check at a bank where you hold an account, assuming you have enough money in your account to cover the transaction and all recent deposits have cleared. Keep in mind that some banks require advance notice, so it’s not a good idea to plan on a quick stop on the way to closing.

Most banks send wire transfers electronically. You can request the wire transfer in person, over the phone, or sometimes over the internet. Even though this sounds fast, delays can happen. The money might need to be sent to a corresponding bank, or you may miss your bank’s cutoff time for sending wire transfers or lose time waiting for an approval.

If you’re trying to decide between the two options, consider the fact that some closing agents  won’t accept cashier’s checks at the closing table. “It’s a risk,” says Esposito. “The funds won’t be available in their escrow account until the next business day. So, when [closing agents] accept a cashier’s check, they are closing the transaction with insufficient funds. The larger the amount of the cashier’s check, the less likely it will be accepted.”

With either a wire transfer or a cashier’s check, ask questions about payment requirements and be sure to allow enough time.

#7 Asking Too Few Questions at Closing

If you see an acronym you don’t recognize, ask. Is there a word you don’t understand? Ask. Do you wonder if the well has been checked? Ask. No question is too big or too small.

Blair suggests calling the title company and asking questions a few days before closing. “If a buyer calls us in advance and asks us to walk them through the transaction, we’re happy to do it, either on the phone or in person,” Blair says. “It means the process will go smoothly on closing day.”

You can ask questions at the closing, too. Remember, your agent and the title officer are there to help. “At some point we were all first-time home buyers,” Monahan says. “We were all scared; we understand. Don’t be afraid to use us.”

You may think the stress of closing is a given. But you can keep your cool if you communicate and ask questions, read the documents, and understand the home closing process.

Appraisals October 19, 2022

Quick, the Appraiser Is at the Door!

Take the listing? Check! Sell the home? Check! Inspection completed? Check!

Appraisal okay? Things could have gone better! What happened?

Everyone benefits when appraisers and listing agents work together. Often a low appraisal value could have been avoided if all parties knew their roles at the beginning of the assignment instead of at the end.

It’s okay for a listing agent to communicate with an appraiser, but it’s inappropriate to demand a particular value. Per the Uniform Standards of Professional Appraisal Practice (USPAP), appraisers must arrive at their own supported conclusion. Look at the appraiser as an important part of the team but one who must remain independent, impartial, and objective. The appraiser is not, and cannot be, an advocate in a mortgage assignment.

That said, don’t wait until the appraiser is at the door to begin thinking about the appraisal. It’s a reality that the appraiser has already completed most of the work on the assignment before arriving at the house and would prefer information sooner rather than later.

Appraisers can do their best job when fully and properly informed. Brokerage professionals work with buyers and sellers every day and are experts when it comes to current market conditions. It’s appropriate to discuss your market knowledge with appraisers. A good appraiser doesn’t take any offense when it comes to reliable data and great information.

How else can you help an appraiser? Meet the appraiser during the appraisal inspection and provide the appraiser with a package, which at a minimum includes the following:

  1. MLS printout for the subject home
  2. Copy of the contract
  3. Spreadsheet of other offers received
  4. Property data sheet or brochure used during the marketing period
  5. List of improvements that includes year completed and cost
  6. Description of special features that make the subject property stand out from other homes in the area
  7. MLS printouts of sales you want the appraiser to consider
  8. MLS printouts of pending sales with actual contract prices
  9. MLS printouts of current listings
  10. Realtors Property Resource® (RPR) report using the Refine Value tool to offer your own opinion of value
  11. Survey of the property, if available
  12. Floor plan and measurement of the home, if available

Be reasonable with the selection of comparable sales. Take the time to learn the guidelines that an appraiser is required to follow instead of providing randomly selected sales, which may not even be allowed for consideration. Generally speaking, the best comparable sales to provide have the best combination of being located in the same marketing area, closed within the past three to six months, are in the same or similar condition, have a similar gross living area (- +/-5% ), and have the same number of bedrooms and bathrooms. Fannie Mae and Freddie Mac, FHA, and VA appraisal requirements vary. Not all appraisals are based on the same beginning instructions. Find a copy of each agency’s standards to be aware of the assignment conditions.

Regarding comparable sales, consider approaching the appraiser like this: “Here are comparables I used in pricing the home.” This type of a statement is very non-demanding and could go a long way toward establishing a good relationship with the appraiser.

Prior to an appraisal inspection, educate your clients on how to best prepare for the appraisal, which is really the same instructions you’d provide for showings:  beds made, house clean, lights on, yard looking its best, clutter gone, owners and pets gone, no smells, and so on. Sellers shouldn’t relax just because a house is under contract. It’s just as important to keep things looking their best straight through the closing.

What if the appraisal comes in below the sales price? Don’t call the appraiser directly to discuss it. Instead, ask the lender if you have the right to submit additional information for the appraiser’s reconsideration of value. Ask yourself for next time, could this information have been provided in “The Package”?

What if you feel the appraiser doesn’t have the proper experience to work in the subject area? Or, perhaps the appraiser isn’t familiar with the particulars of the property being appraised? It’s best to articulate your concerns to the lender early and in writing; when doing so, always being respectful of the appraiser and the lender.

The bottom line is that real estate agents and brokers can be advocates for their clients whereas an appraiser’s assignment is unrelated to a predetermined value or the attainment of a stipulated result. However, by having great documentation, keeping interactions professional, and keeping the home in order,  listing agents and homeowners can open the door to a smooth appraisal process.

 

Buying October 19, 2022

As the Housing Market Corrects, Is It Better To Rent or Buy?

Q:I’ve heard the housing market is ‘correcting’ and home prices are falling. However, mortgage rates and rents keep going up. So should I wait to buy until prices go down further and rent now instead?

Whether to rent or buy a home has long been on the mind of potential homebuyers. Soaring mortgage and rental rates are just making the calculations tougher. Way tougher.

Many are unsure which is better: to stomach the steep rent increases for now, waiting to buy until prices go down further, or to jump into the for-sale market before mortgage rates go up even further and they’re priced out of homeownership.

Rents shot up this year, rising 9.8% in August compared with a year earlier, according to the most recent Realtor.com® data. Nationally, the median rent was $1,771 a month in August. Over a year, that adds up to $21,252 that renters are forking over to their landlords. Those are large numbers to make peace with.

However, buying a home right now isn’t easy—even if the housing market is slowing down. It’s mired in a drawn-out process of sorting itself out as higher mortgage interest rates have slammed the brakes on record-high home prices and insane bidding wars. That’s led home prices to fall a little from their peak over the summer, giving many first-time buyers hope that prices will fall even further if they wait a bit longer. But rising mortgage rates have the potential to erase any savings.

In other words, there are no easy answers here. So let’s boil it down a bit further.

Should first-time buyers wait for prices to fall before pulling the trigger?

No one knows what will happen in the housing market as it continues to correct. Some real estate experts are predicting home prices will drop 10% to 20%—if we go into a recession. But no one wants that. And much of this will depend on which direction mortgage rates move.

Many buyers, especially first-timers, are learning they can no longer qualify for mortgages at these higher rates. Or they can’t afford a home they could have just a few months earlier, so they have to consider considerably cheaper properties or farther-out locations.

But mortgage interest rates have more than doubled in the past year. They’ve ratcheted up close to 7% for 30-year fixed-rate loans.

Factoring in the roughly 14% year-over-year price hike, someone buying a home today will pay about 74% more each month than they would have just a year ago.

So even if folks want to buy instead of rent, they might not be financially able to do so. Hence the dilemma.

Buying a home means you can lock in your monthly housing payment—to an extent

Still, with rents soaring, many tenants are still giving homeownership another look. If you purchase a home, you can mostly lock in your monthly housing payment over the long term. You’re not dependent on the whims of a landlord who can up your rent every year.

You may still face rising property taxes, but generally, that makes up a minimal amount of your home payment. So your housing payments are fairly fixed. Your costs, however, are not.

What they don’t tell you when you buy a house is that you’re now on the hook for anything in your home that goes wrong. And there is just so much that can go wrong.

Homeowners should budget 1% to 4% of the purchase price of the home for repairs and maintenance every year.

In my first week of homeownership, the boiler overflowed and flooded a small area in my basement. It cost more than $500 to fix. Then a bathtub faucet broke; the repair set us back an additional $150. And that’s just the minor stuff.

If your fridge breaks, you can’t call a property manager to come fix it. If a pipe bursts, you’re stuck calling a plumber and praying there’s no significant damage. Then there’s the expense of regular maintenance such as having the gutters and chimney cleaned and staying on top of the landscaping. And you need to factor in energy costs, which can be substantial. Those things add up big-time.

I’m not trying to scare first-time buyers away from homeownership. It’s a great way to lock in your housing payments so that you’re essentially paying today’s prices for a home for the next 10 or 20 years—or however long you live there.

I wish I could gaze into a crystal ball to see whether it’s better to rent or buy a home, if mortgage rates will stop rising, and if home prices will drop next year. Instead, I can advise you to be realistic about your finances when you run your numbers to see if it makes more sense for you to rent or buy.

 

By Clare Trapasso

Oct 5, 2022

Selling October 3, 2022

Tax Breaks for Older Couples Who Sell Their Homes

Consider Irene, who recently became a widow when her husband, Henry, died. Like most married couples, they held the title to their home in joint ownership with the right of survivorship. In plainer language, this means that co-owner Henry’s death results in his loss of all ownership in their dwelling. Surviving co-owner Irene automatically acquires all ownership in it.

Irene is uncertain what to do with her highly appreciated home. One option is to quickly sell it and move to where her daughter lives. But Irene should go slowly when it comes to major decisions such as home sales. Other options are to wait several years and then sell, or just stay put, in which case the residence would eventually wind up with her heirs.

Irene wants to know the tax consequences of selling or staying. First, she needs to understand the tax breaks for individuals who sell their principal residences.

Exclusions. The law authorizes “exclusions” that allow home sellers to sidestep income taxes on most of their profits when they unload their principal residences. The profit exclusions are as much as $500,000 for couples filing joint returns and as much as $250,000 for single persons. Sellers are liable for taxes on gains greater than $500,000 or $250,000.

Irene decides to sell. Can she exclude $500,000 or $250,000? The answer depends on the sale date and whether she remarries. Though she’s no longer married, recently widowed Irene still qualifies for the higher amount — as long as she sells within two years of Henry’s death. It’s the lower amount if she sells after the two-year deadline.

Irene remarries. If her new husband, Steve, then lives in the place as his principal residence for at least two years out of the five-year period that precedes the sale date, the profit exclusion will once again be $500,000.

Usually, a seller also has to own the place for those two years. That requirement doesn’t apply to Steve. That means his name doesn’t have to be on the title.

Moreover, the IRS says that Irene and Steve needn’t be married for all of the two years that precede the sale date. What do they need to do before the sale occurs? Just marry. This holds true even if their wedding precedes the sale by just one day.

Even if Irene doesn’t remarry — and even if she doesn’t sell within two years of Henry’s death — her taxable gain may be smaller than she fears. Suppose, as is likely, that Irene’s long-term capital gain profit from her home’s sale exceeds her exclusion ceiling and she’s liable for taxes on the gain.

Tax rates for long-term capital gains. For most sales, the tax rate usually is 15%, increasing to 20% for lots of high-income sellers. It goes as high as 23.8% for those who are in the top income tax bracket of 37% and subject to the Medicare surtax of as much as 3.8% on income from certain kinds of investments, including profits from home sales.

State income taxes. On top of Uncle Sam’s take, state income taxes may also be owed. I caution Irene that she might not be able to deduct all those taxes.

The Tax Cuts and Jobs Act. This legislation imposed a $10,000 ceiling on write-offs for state and local income and property taxes. Another snag: Irene forfeits any write-off for state income taxes if she’s subject to the alternative minimum tax.

Step-up in basis. While my recitation of federal and state tax rates dismays her, Irene is pleased to get some good news that the government authorizes exceptional condolence gifts for Irene and other bereaved individuals who sell inherited homes, stocks and other assets that have appreciated in value. In tax lingo, the basis (the starting point for measuring gain or loss) of inherited assets “steps up” from their original basis (the cost upon purchase, in most instances) to their date-of-death value. It’s as if the inheritors had bought the assets that day.

On Henry’s death, a step-up in basis for their home benefits Irene when she sells her dwelling. What happens if she never sells? On Irene’s death, there’s a second step-up in basis that benefits her heirs.

The first step-up is only for Henry’s half interest. There’s a step-up of his adjusted basis (typically, half the original purchase price and half the cost of any subsequent home improvements) to what that half-interest is worth when he dies. If the couple lived in a community property state, the step-up is for the entire basis.

On Irene’s death, there’s a step-up of her adjusted basis (previously boosted by the step-up for Henry’s half interest) to what the entire home is worth when she dies. When the heirs sell the home, they’re liable for capital gains taxes only on post-inheritance appreciation.

The bottom line for Irene and her heirs: Whereas a sale by Irene of a home that has appreciated immensely can trigger sizable federal and state taxes, a sale by the heirs dramatically shrinks or even erases those taxes. Irene—and others in similar positions—should work with tax and estate planning professionals to ensure they’re making the best decisions for their long-term future plans.