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HOW DOES NEW TAX BILL AFFECT REAL ESTATE?

The real estate industry has been worried for a while now that the mortgage interest and property tax deductions and/or the generous exclusion on capital gains from the sale of your principal residence would go away. There are some tweaks but most of these will stay about the same for the average homeowner.

 

MORTGAGE INTEREST DEDUCTIONS: The bill caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14. (Loans made before that date can continue to deduct interest on mortgage debt up to $1 million.)

 

PROPERTY TAX DEDUCTIONS: The bill also keeps deductions in place for state and local income taxes and property taxes, but limits the two deductions together to $10,000.

 

CAPITAL GAINS EXCLUSION: An earlier proposal of this bill would have increased the required time that you live in your principal residence in order to exclude some of that gain from two out of the last five to five out of the last eight years, but that was struck down. So, no change that I can see in this area.

MOVING EXPENSES: The deduction for moving expenses has been eliminated except for members of the military.

POSSIBLE IMPACT: The cap on mortgage interest deductions may put a bit of a damper on home sales where the buyer has a loan between $750,000 and $1M as it will now be slightly more expensive for them. And homeowners where their combined state, local and property taxes exceed $10,000 are going to pay more income taxes.

I don’t think this will have a HUGE impact on the overall real estate market one way or the other. How it impacts the general economy, household incomes and therefore consumer sentiment and spending WILL greatly impact the real estate market.

I am not a tax expert so please consult one. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

 

HOME INSPECTOR MISSED SOMETHING

Most of time, a home buyer will obtain a home inspection during their contingency period before they purchase a home. If something major is discovered, what we call a “health and safety” item(s), the buyer will usually ask the seller to repair those items or for a credit towards those repairs. But what if the home inspector missed something major? If it’s serious enough and the buyer thinks the inspector was negligent, they may sue them.

 

Many of the home inspectors will have a contract that the buyer signs as part of their working relationship with the buyer, and they will try to limit their exposure (which is reasonable, of course). They will say that they aren’t responsible for things that they COULDN’T have known about like damage or issues behind walls, or under the floors, etc. They will also limit what parts of the home they will inspect. Some inspectors even try to limit their liability to the amount that the buyer paid them, but this limitation often doesn’t hold up in court.

 

Their contract may also limit the amount of time that the buyer has to bring suit, what’s called the “statute of limitations.” This last one is particularly interesting, in that the inspector will want that time limit to start from the day of the inspection itself. But the buyer will want the time to start when the item is discovered.

 

I did find a court case where the court agreed with the buyer, that the time period starts when the item is discovered. They said that the average homeowner won’t know anything is wrong until the situation gets to the point where they would notice it. This may or may not apply as a precedent to all cases like this.

 

I AM NOT AN ATTORNEY. PLEASE CONSULT ONE FOR SPECIFICS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

SELLER’S DUTY TO DISCLOSE

A long time ago, real estate was sold under the idea of “buyer beware.” This meant that the seller didn’t have to disclose anything, and the burden was on the buyer to find out what was wrong with the property. We’ve come a long way since then, and there are now legal requirements for sellers of property to disclose any material defects or facts that affect the value of the property if the seller has: #1. Actual knowledge of and/or #2. Should have known about these issues. We have many pages of questions that help jog seller’s memories about past water leaks, neighborhood noise problems, issues with settling, etc.

There was a recent court case that ruled that the seller had to have had actual knowledge of the problem, not just that they should have known about it. This is a pretty big shift in the burden from seller back to the buyer if this becomes a new legal precedent.

What this means to you if you are a buyer—Do your due diligence. Get your inspections. Talk to neighbors. Visit the property multiple times. Go talk to the City/County offices if there are ANY concerns about zoning, permits, etc. (you will probably need to get the seller’s approval to ask specific questions about their property).

What this means to you if you are a seller—I still advise my seller clients to disclose anything and everything that may be of interest to the buyer. This new court case does NOT mean you are “off the hook” for disclosing questionable items. If you even ask, “Should we disclose ‘X’?” that means you probably should. Better to disclose ahead of time and have the buyer potentially cancel then deal with a lawsuit later.

I AM NOT AN ATTORNEY. CONSULT A LEGAL EXPERT FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

PROPERTY TAX PRO-RATIONS

Our standard contract calls for property taxes to be pro-rated between Buyer and Seller as of the date of close of escrow. That part everyone understands, but HOW that is accomplished can be pretty confusing. The County Tax Collector only accepts full payments for each installment, so the title company has to do some adjusting on the closing figures to make it work out. Sometimes it’s a credit to the Buyer and a charge to the Seller, or vice versa. Sometimes there is a credit AND a charge, but it washes out correctly.

 

If we are closing escrow before the tax bill is due and before it has been paid, the title company will charge the Seller for the taxes they owe through the day of close of escrow, and that becomes a credit to the Buyer. They do it that way because the Buyer is going to be paying the full installment when it comes due, and that will include some time that the Seller owned the property.

 

If the Seller had already paid the installment and that covers a period of time when they will no longer own the home, then they will get a credit from the Buyer to reimburse them.

 

It gets confusing when it’s around the time that the tax bill is due. In that case, the title company will charge the Seller for the full installment (all 6 months) but then give them a credit from the Buyer for the time after close of escrow, since that time period is the Buyer’s responsibility.

 

If the Seller has an impound account with their lender, their lender will then refund them the funds that the lender had been collecting in anticipation of paying that installment. This usually comes in about 30 days after closing.

CONTINGENT OFFER SOLUTION

Last week I wrote about the challenges associated with writing an offer contingent on selling your home when your home isn’t even on the market yet. I often hear people say that they don’t want to put their home on the market until they find the home they want to buy. Their concern is that they will find a buyer for their home and then have to move out if they can’t find and purchase the home of their choice in time. But then when the “right” home does come on the market, they often lose out to other non-contingent buyers.

 

There is a potential solution available. You put your home on the market, and then when you receive an offer, you counter them with a form called “SPRP.” This stands for “Seller’s Purchase of Replacement Property.” This gives you the option to cancel the transaction if you aren’t able to locate and close escrow on the home of your choice. This alleviates the biggest concern about being homeless.

 

From the buyer’s perspective, they may not accept this contingency if they have a hard deadline to meet for their move and need more certainty that they ARE going to get this particular home by a certain date, so they just look for another house.

 

Normally, your buyer will hold off on inspections until you find the home of your choice. But there is an option in the SPRP form where you keep a contingency that you actually close escrow on the replacement property. So another concern the buyer may have is that they may have spent money on inspections, appraisal, etc. on a home that they now can’t buy. One solution is that you agree to reimburse them up to a certain amount if you do cancel the transaction at the last second.

WHEN IS IT REALLY CLOSED?

We use words in real estate that can be confusing.  One of the biggest areas of confusion is around when the transaction is actually CLOSED. Each of the steps below can take hours or even days. There are cut-off times during the day for some of these things to happen. This means that sometimes being even just a few minutes late on any of these can delay closing by a day or even a few days if it’s before a weekend.

 

“Approved for docs” – This means buyer’s lender has cleared the conditions of their approval enough to where they will print the buyer’s loan documents in the very near future.

“Docs are in title” – The loan documents have arrived at the title company and they are ready for buyer to sign.

“Buyers have signed” – The buyers have signed their loan documents.

“Docs are at lender” – The signed documents have arrived at the lender’s office and they are reviewing them for accuracy.

“Docs are approved” – The lender has approved the signatures and will wire funds at the next available opportunity.

“Lender funds have been sent”’ – The lender has sent a wire with their funds to the title company.

“Lender funds have been received” – The title company has received the wire.

“Clear to close” – Everyone that has a say in the matter says it’s OK to close the escrow.

“Deed is at County” – The grant deed has been delivered to the County Recorder’s office. (Technically ownership passes as soon as it’s stamped as “received.”)

“Confirmation received” – Later that day the County confirms with the title company that the grant deed was received.

“Wire sent” – The title company has wired out the Seller’s proceeds.

“Wire received” – The money is now liquid in the Seller’s bank account.

REAL ESTATE AUCTIONS

We are seeing auctions again in real estate, but they are mostly online, so it’s more like eBay.

 

Usually the opening bid is quite low compared to the market value. This is what usually attracts buyers to auctions as they think they may be able to get a “deal.” What most people don’t know is that there is often an undisclosed reserve price. So let’s say a home worth $500,000 has an opening bid of $300,000, and the highest bid is $400,000 when the auction ends. But it’s possible the owner of the property had put a reserve price of $475,000, which means the auction is just cancelled in this case. Auctions with NO reserve are preferred by buyers, but feared by sellers.

 

You can usually view the properties before bidding and it’s common to have normal loan and inspection contingencies. This means you normally don’t HAVE to pay 100% cash. You generally can be represented by an agent if you choose. Either you or your agent can register and bid for you. You will usually need to register and give your credit card information. This is so if you are the winning bidder, they can collect the deposit. This is also an attempt to make sure you are a real bidder. Although, we have heard several reports where the home’s owner logged in and created a fake account to try to bid the price up.

 

There will be a deadline for offers, but if an offer comes in within the last few minutes, they will usually automatically extend the deadline another 5-10 minutes.

 

Another oddity of auctions is something called a “Buyer’s Premium.” This is a fee that is paid by the buyer at close of escrow. I’ve seen them as low as 1% and as high as 10%. So it’s important to read EVERYTHING prior to bidding!

PRIVATE TRANSFER FEES

If you are buying a home, you need to be on the watch for something called a “Private Transfer Fee.” This is a fee that can come due whenever a property is sold, and it could be a cost to the buyer or the seller. (I am NOT talking about the County Transfer Tax.) It  can be a percentage or a flat amount but there is no minimum or maximum. The last few we have seen have been $300 to 1,000.

 

The most common purpose is that the original builder needed to offset some kind of environmental impact or affordable housing requirement required by the City or County, but they can actually be for almost anything. These have been around for a long time but were not very common. That’s changed as more builders are using this as a way to offload some costs to the new home buyer. We’ve come across several of these recently and mostly on homes built within the last 4-5 years. It’s coming to our attention now that some of those homes are being sold for the first time.

 

What’s concerning is that the sellers weren’t aware of this. I’m sure it was disclosed to them when they bought the home, but they just didn’t notice it because it was just a few lines buried in all the paperwork. We had a buyer in contract on a new home in a neighborhood where we just had this situation come up on a recent listing. We asked and the new home representative wasn’t even aware of it until we all really dug into it.

 

Bottom line is that you need to read EVERY line of the preliminary title report, and if you see anything that mentions a “transfer fee” of any kind, find out how much it is and who pays it.

WATCH WHAT YOU SIGN

I realize there is a LOT of paperwork in buying or selling a home and that we are often under a time crunch to get an offer submitted BUT you should still read what you are signing!

 

Here is a horrible recent example that will give you some extra incentive to read what you are signing. Some past clients of mine moved out of the area and started working with a local agent there and wrote several offers unsuccessfully. Very quickly they realized this agent wasn’t very experienced and very likely had a full-time job other than real estate. They politely told this agent they would be working with another agent and they got into contract on another home. However, their prior agent advised the new agent that the client had signed an exclusive buyer’s representation agreement with her, and they would owe her the full commission on the sale! The client says the agent never discussed this arrangement with her, but when they went back and reviewed all the paperwork they had signed with her, on the last transaction the buyer’s representation forms were quietly slipped in behind the offer documents and they did sign them. They may have to hire an attorney to fight this. These are highly intelligent people that this happened to. It’s just that after writing several offers, it’s easy to think these are the same documents as before, just on a different property and sign away. (Unfortunately, this is not the first time I’ve heard of this happening to someone.)

 

Another moral of the story is to only work with an ethical agent, but better still is to read everything before you sign it. If it’s a form you’ve seen before, maybe you can glance over it just to look for any changes. But watch for any new forms and ask questions of your agent!

BUYER LETTER WARNING

Let’s say you are non-contingent, pre-approved, putting a large amount of money down, and you are willing to pay over the list price. Even then, it may not be a slam-dunk to have your offer accepted on the hottest properties that are attracting multiple offers. What else can be done? Many buyers are writing personal letters (even videos) to the sellers as a way to make their offers stand out.

 

I think this can be a good idea to personalize your offer. Normally it won’t make the seller take your offer if another offer is thousands of dollars more in sales price, or they are willing to waive the appraisal contingency and you aren’t. But at least it may nudge the seller into giving your offer a second look and maybe give you a chance to match that other offer’s terms. I had two situations recently where it turned out that the seller (or seller’s adult children) knew the buyer very well and they did take a few thousand less than another offer just because of that connection.

 

But I think buyers need to be careful to not overdo it. I’ve seen some letters come in on my listings where the buyer gushes about how long they’ve been looking, how desperate they are, and how they love this home so much and that this is the ONLY home in the world for them, etc. This definitely swings the negotiating pendulum over to the seller’s side, either when negotiating the price, or negotiating repairs or appraisal challenges later. So tell them who you are and that you will be able to perform per the contract if your offer is selected. But keep it from sounding desperate unless you absolutely, positively have to have that home and are willing to give up some negotiating power.

 

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