No Fear Pricing & Negotiating ~

Q.  I am planning to sell my house soon. What is the harm in pricing high initially? I can always come down in price but can't go up. Don't buyers make offers based on what they think it is worth anyway? I don't want to miss a buyer that falls in love with my home and will pay a premium price for it.

A.  I am not a fan of knowingly over-pricing a home. A listing that might look great to a buyer at the right price might not even be appealing at an above-market price. I am also not a fan of under-pricing your home. You might not get the multiple bids you had planned on. I believe in putting it at market value and let the market tell you if it can go higher. The danger of initially pricing the home too high is the fact that it is most marketable when it is new on the market. Capitalize on this enthusiasm by presenting a good product at the right price.

In our area we are in a potentially quickly changing market. It presently is pretty stable but slower than last year. Just a jobs report or an interest rate adjustment can disqualify buyers from the market.  But regardless of the market, overpriced listings don't sell in any market. If the price is too high the market can literally pass you by.

There is more emotion involved in a home purchase than in most other business negotiations. Home buyers usually need to feel passionate about a property before they'll make an offer. Today's buyer is concerned about overpaying in a potentially softening market.

 

Q.  I want to sell my house but I must admit that the mere thought of negotiation makes me nervous.  You might negotiate the price, the length of the listing and various marketing considerations.  I am afraid I am at a disadvantage with my limited skills. Have you heard this before?

A.  These feelings are not unusual but, like it or not, buying or selling a home involves negotiation. Your first negotiations are with your Real Estate agent. You might negotiate the price at which you will offer it, the length of the listing or certain marketing considerations. Some Realtors are more adept than others in bringing buyer and sellers together. Check them out carefully.  Check their references if you haven’t worked with them before. 

Negotiation is not a bad thing. It's one of the ways we interact with others in order to realize our goals which, in this case, is selling a home. Try not to think of negotiation as combat. Although you want to sell at the highest price you can get and the buyer wants to buy at the lowest price possible, you both have the same goal: The completion of a home sale.

Send your question & look for your answer in a future column.  E-mail: Lynne@LynneFrench.com 

Lynne French is the Broker/Owner of Windermere Lynne French & Associates and a Clayton resident.  For any real estate needs or questions contact her at (925) 672-8787 or stop in at 6200 Center Street in Clayton.

Posted on March 20, 2014 at 5:49 pm
Lynne French | Category: Negotiating, Selling

Do Short Sellers still have Tax Forgiveness?

Lynne French – Real Answers

Q.  We are in the middle of a short sale.  A tax forgiveness measure was supposed to expire on December 31, 2012.  Did it expire?  If so, I heard I will be taxed on the forgiven amount as ordinary income.  If this is the case should I let the bank foreclose instead?  Would I be taxed on the forgiven amount in a foreclosure?

A.  The measure you are referring to is called the "Mortgage Forgiveness Debt Relief Act of 2007."  This measure could pertain to short sales, foreclosures, deeds in lieu of a foreclosure or modifications.  Your tax professional would determine how this would affect you in each situation. Technically it did expire for 24 hours but then was extended for 1 year.  I have no idea if it will be extended again.  So you seem to be safe for now, but please confer with your tax professional.  

Industry experts expected the bill to be extended.  It had bipartisan support in the house and the senate.   Congress didn't seem to feel it was a high priority within the "fiscal cliff" negotiations so the extension actually was allowed to expire briefly, causing much anxiety for people like you.  The National Association of Realtors and others lobbied hard to keep it in the forefront.  Forty-one state attorneys general appealed to the House and Senate for the extension.

Not to extend it at this point made no sense.  It would have hurt the very people that the short sale or loan modification was supposed to help.   How could people who can't afford their mortgage be able to afford this huge tax bill?

Some home owners who are paying their mortgages on time have suggested this tax forgiveness is unfair to them. Perhaps it is, but anything that will help keep the housing market improving is good for the economy. 

 

Q.  Our swimming pool is about 30 years old.  It could use a facelift.  We don't use it much anymore and are considering filling it in and maybe planting a lawn there versus replastering.  How would these alternatives affect our property value?  We might sell our home in 5 to 10 years.

A.  A sparkling, inviting pool can add value to your property.  If it is not spectacular an appraiser won't add much value for it.  Many buyers definitely want a house with a pool.  Most of those want one that is in near perfect shape.  They might be willing to do some repairs but any repairs needed on the pool will lower the amount they would be willing to pay for your home.  There is the other buyer who absolutely does not want a pool.  Perhaps they had one in the past and don't want to deal with the expense and the upkeep.  And there is the other buyer who is ambivalent whether there is a pool or not.  They would not buy a house with a pool that needs a lot of work though.

How large is your lot?  If the pool takes up most of the yard, it won't be appealing to most buyers.  People usually want the yard to be a recreation center.

What I would suggest you do is compare the cost of filling in the pool and landscaping the area with the cost of replastering and repairing or replacing anything else that is needed.  Also factor in the maintenance cost of each.  If you are still going to live in your house for 5 to 10 years, which type of yard would you enjoy having?  Your quality of life is very important.

I have noticed one truth in Real Estate.  If there are things about your home that you value and enjoy, it is not hard to find a buyer who will also value and enjoy your improvements. 

 

Q.  What is something new that makes an area desirable?

A.  The California Association of Realtors put out “One Cool Thing” which is the Walkability Index.  It is a new measure of the desirability of an area.  This is the proximity of amenities such as restaurants and shops, and community hubs such as schools, parks and libraries.  Walk scores range from 0 to 100, and any rating above 70 is considered “very walkable.”  You can check a walk score in a specific city or neighborhood at www.walkscore.com.   I am proud to say that Clayton has been named “Most Walkable City” in the past.  And it has been named in Money Magazine’s Top 100 “Best Places to Live” three times since 2007.  Each time they cited the extensive walking trails.

Posted on January 24, 2013 at 5:07 pm
Lynne French | Category: Government & Real Estate, Home Improvement, Real Estate in the News, Real Estate Terms, Selling | Tagged

It figures that owning makes more cents than renting

Q.  I am deciding if I would be better off financially by renting or buying a home.  How do I do the calculation?

A.  It is really simple.  If you bought a $500,000 home your property tax would be around $6,500 a year.  This is totally tax deductible.  If your payment was $2,500 a month the majority of your payment at first is interest.  Let’s say $2,300.  That is $27,600 a year.  Adding $6,500 and $27,600 equals $34,100 total deduction.

If your taxable income is $75,000 you would pay tax on: $75,000 minus $34,100, or $40,900. 

If you have a 28 percent income tax rate your tax would be $11,452 instead of $21,000 for $75,000.  If you divide the savings over 12 months, $21,000 minus $11,452 equals $9,548; $9,548 divided by 12 months is a $795.66 a month savings.  It would make your effective payment $1,704.34. 

Most rents these days are higher than this in our area.  A couple of other things you should consider: In the first year many of your closing costs are also deductible.  The other factor is appreciation of value.  You will keep paying the same payment when your property value increases over the years.  I guess this is part of the reason that home ownership is the American dream.

Q.  Our family wants to sell our house.  We don’t want to buy another home for some time.  I am worried about capital gains.  Do we have to roll over our gain into a more expensive house to defer the capital gains?

A.  The law you are referring to was in place until 1997.  That year a new and better exemption for capital gains became the law.  If you meet certain criteria, $250,000 for a single person or $500,000 for a couple, you may be exempt from taxation.  Here are the criteria:

1. You have lived in the home as your principal residence for two out of the last five years;

2. You have not sold or exchanged a primary residence during the preceding two years;

3. You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency. 

The way you calculate gain, start with what you paid for the property originally.  Add your costs of purchase, your cost of current sale and cost of improvements over the years.  Improvements such as repairs or cosmetic additions such as new carpet and paint don’t count.

For instance, if you paid $300,000 in 1990 and sold this year for $500,000 the initial gain would be $200,000.  If costs of purchase were $3,000, costs of sale were $18,000, and cost of improvements (such as a new deck, landscaping and kitchen expansion) was $70,000, that equals $91,000.  You would add $91,000 to the $200,000 gain, so your total base would be $291,000.  Now, subtract $291,000 from $500,000 for a total gain of $209,000.  This is well within the exemption for even a single owner.

You don’t have to buy again to receive this and you can do this again every two years.

 

Posted on October 30, 2012 at 11:11 pm
Lynne French | Category: Buying, Financing, Selling, Taxes

‘Echo boomers’ to drive housing recovery

LYNNE FRENCH

REAL ANSWERS

‘Echo boomers’ to drive housing recovery

Q. What do you think will drive the recovery of the housing market in the foreseeable and longer range future?

A. There are numerous factors that still can affect the housing market in the near future and beyond. One of them is the age demographic.  I found an interesting report by the Joint Center for Housing Studies of Harvard University.

They explained that starting this year 2012 and continuing over the next 20 years, the ‘echo boomers’ (born in the late 1970s and early 1980s) will drive the housing market. The study found that many adults under the age of 35 have chosen to stay at home with their parents instead of purchasing their own home; however, they do believe in the value of home ownership and do plan to buy. Another study found that 86 percent believe they will ultimately own a home and 70 percent felt this was a good time to buy. They just don’t feel the need to rush into it before they are thoroughly qualified. But, the fact is, monthly mortgage payments currently compare more favorably to rents than anytime since the 1970s.

The report projected the impact of the ‘echo boomers’ over the next two decades:  If the economic recovery continues over the next few years, echo boomers entering into adulthood should support the addition of about one million new households per year over the next 10 years. The echo boomers have the potential to spur new home demand to an even greater extent than their parents did starting in the 1970s, in the next 20 years.

This new generation already outnumbers the baby boomersat the same age. Even modest immigration will help this group to grow larger. If housing affordability continues at historic lows, more and more of the echo boomers will take the plunge into home ownership

 

Q. I heard that the government implemented some sort of stimulus to improve the housing market. Could you explain in layman terms what this is and how it will help?

A. The stimulus is called QE3 – short for “Quantitative Easing- Round 3.” I hope 3 will indeed be a charm this time.

This is a policy where the Fed buys up debt instruments or assets in an effort to push down long-term interest rates. Their hopes are that lower long-term rates will stimulate the economy by giving consumers and businesses an incentive to borrow and invest more. (It is now cheaper to borrow). Sometimes the Fed’s actions don’t do as much as theyhoped, as far as moving rates, but QE 3 seems like it will be effective because the Fed has committed to buy up “mortgages” (mortgage backed securities) of $40 billion per month. This represents about 25 to 30 percent of overall mortgage volume; this increase in demand will bring down rates. The Fed has committed to QE 3 indefinitely, too, so rates are expected to remain low for a long time.

Q. Please remind me of what expires at the end of this year pertaining to short sales.

A. It is the forgiveness for state and federal taxes on the forgiven amount on a short sale. So, if you are considering a short sale, now is the time to discuss this with a qualified Realtor and get started. There is just enough time to complete most short sales before the end of the year.

Remember, if you are not behind in your payments, you can still do a short sale. It will not affect your credit to the point that you can’t buy a lesser property immediately afterward. Also remember that a foreclosure is much worse on your credit record.

Posted on October 11, 2012 at 3:41 pm
Lynne French | Category: Buying, Real Estate Terms, Selling | Tagged , ,