The value of the land UNDER the house has taken an even more dramatic jump than the price of homes. By one estimate, the average price of a lot has jumped 420 percent since 1973. It has doubled in the last six years alone. Chances are that land accounts for over 25 percent of the cost of a home today compared with 18 percent only 15 years ago.
Estimating the value of a lot separate from its house is tricky because the two typically come as a unit. However, you can get a ballpark figure by subtracting the estimated value of the average house (floor space times cost per square foot) from the total sales price. This specific dollar value is not so meaningful as the percentages of land to buildings and how they change over the years. Real estate investors should also keep a sharp eye on the mix of land and property values. Although the cost of buildings can be depreciated for tax purposes over time, land cannot.
If you have arranged an appraisal of your home, whether it be for legal, tax or pre-sale reasons, you can make the appraiser’s job quicker, more accurate and more efficient if you have some documents ready before the appraiser arrives.
Try to have copies of your deed and mortgage; the professional survey of your property; the local tax map; your last tax assessment; any professional reports on environmental conditions in your home (such as a test for radon); and a home inspector’s report if you have one.
Also list major improvements you have made with invoices that document their cost. If your house is fairly new, note any special features for which you paid extra. Also list personal property that will be included in the sale, as well as items attached to the house that you’ll take with you when you move, such as a dining room chandelier.
DON’T SELL A HOUSE - SELL A HOME
If you are considering selling your home, remember this: buyers are not looking for a roof to keep the rain out - they’re looking for a new lifestyle. You are not selling a house - you’re selling a HOME!
Set this “home” stage for buyer showings:
Keep your home clean, neat and cozy at all times. You might have to show it on short notice. The kitchen is the focal point of any home. Everything should be spic and span, with dishes washed and excess paraphernalia tucked away. Beds should be made, and kids’ clothes stowed and not left where kids usually leave them.
Decorator touches help a lot: vases or pots of flowers, colorful pillows, mirrors on the walls to make rooms look more spacious. Mow the lawn, touch up any peeling paint. Don’t start major renovations, but do make obviously needed small repairs, such as a leaky faucet, torn screen or peeling paint. Remember, you’re selling a “home”.
If you need 140 degree hot water for your dishwasher, turn your heater up just before dinner so the water will be hot when you need it. After your dishes are done, turn it back down. You don’t need 140 degree water for your morning shower and it’s a waste to have it sitting in your tank all day while you pay to keep it hot.
While you’re at it, don’t forget to put an insulation blanket around the water heater and drain the sediment every six months. A dirty heater is inefficient and more expensive to operate.
How much do you know about your home and appliances?
1. T/F: There is little difference in heat efficiency between a fireplace and a wood-burning stove? Answer: False. Wood-burning stoves generally give off more heat.
2. T/F: You use more water washing your dishes by hand than by running your dishwasher daily. Answer: True.
3. T/F: Frequent vacuuming will eventually wear out fibers in your carpet. Answer: False: Imbedded dirt will wear away at carpet fibers, so frequent vacuuming is essential for long wear.
4. T/F: Aluminum storm windows are more effective than wood-framed ones in keeping out the cold. Answer: False. There is little significant difference in efficiency between wood and aluminum-framed windows.
5. T/F: When remodeling your home, improvements should not exceed 30% of the home’s current value. Answer: True.
Did you ever notice a neighbor’s home for sale being videotaped? It’s not a
Today’s camcorders are lightweight and versatile. Many operate single-handedly at the touch of a button with no experience required. The results can be reviewed instantly (or at your leisure). Camcorders are being used everywhere for every occasion. Why not for house hunting?
Whether a camcorder can be used is entirely the option of the individual home seller. However, many sellers welcome the high-tech attention to their homes. Buyers interested in using a camcorder can check with my office. I will seek pre-approval from sellers whose home will be viewed on that day.
It’s not an easy task to straighten out the affairs of a single parent who has died. Paperwork and forms are one thing, but how do you go about selling the home if it’s located quite a distance away? Once the house is emptied of furniture, you’ll have to be concerned with its security and maintenance. In this situation there is only one logical route to take. List it with a local agency and let them take the problems off your back.
For security and maintenance reasons, time is usually of the essence. You may wish to offer the property at a competitive price to ensure a speedy sale. Still, it does take time to sell a home at any price. A suggestion would be to find an agency who will offer you combined services of “manager” and “marketer.” The agency would be selling the property, and, at the same time, check the house on a regular basis to be sure it is well maintained and secured. I can work out arrangements of this type.
Do you know what’s in your credit file? Your local credit bureau may have detailed information on your financial status which they sell to interested parties. When you apply for a mortgage loan, the bank will review your bill paying history as reflected in your credit file. Negative information, even if it’s wrong, can cause your application to be rejected - or at least questioned. Don’t wait until you NEED credit before checking out your credit history. Ask your bank how to find your credit bureau.
Under the Fair Credit reporting Act, you have the right to receive a copy of your credit report. There is normally a small charge ($5 to $15) unless you’ve been turned down within the last 30 days (in which case you can review your file for free.)
You can require the bureau to investigate any item which you think is incorrect or incomplete. It must correct all mistakes and notify anyone who recently looked at your file of any correction.
Buying a home has never been an easy task and it’s not getting any easier. Home values continue to increase faster than the cost of living. I see would-be buyers who have searched for months to find a “dream home” only to find out they could not qualify for a loan for that price house.
Ironically, it’s a heartache most buyers can avoid simply by doing a bit of arithmetic and talking with their Realtor or Lender BEFORE they start hunting for a new home. If you know how much the bank will lend you PRIOR to your house hunting, you won’t waste time looking for a house you may not be able to afford.
I am familiar with the local bank and can recommend a loan officer to visit with. Bring your financial numbers along (assets, debits, gross income, expenses, etc.). You’ll get an estimate of how much the bank will lend you and have something solid to work with to look for a home that fits your budget.
If you think a 5 or 10-year auto loan is a long time to pay off a car, get ready for the 40-year mortgage. It’s just popping its head over the horizon now. Climbing real estate values are forcing some borrowers to stretch home loan payments beyond the conventional 15 or 30-year periods.
So far, these 40-year mortgages have caught on only in such high-priced real estate markets such as
If the 40-year mortgage becomes more popular, it should be treated gingerly - as a last resort for folks anxious to own a home at any price. That crucially lower monthly payment may sometimes make the difference for certain buyers to qualify for a loan. However, you’ll pay for the opportunity with a decade of extra interest. This could be a lot - like $60,000 on a $100,000 loan.
All lenders must now meet disclosure requirements for adjustable rate mortgages (ARMS). Among these are: an historical example of how the requested loan would have worked during the last 15 years; how to convert that example to the borrower’s own situation, and a worst-case illustration of how the loan could perform if rates go up through the roof.
To show how the loan will perform under the worst possible circumstances, the example starts at the initial rate and moves rapidly up to the top interest rate and payment possible. Lenders must also explain how the index is adjusted and how future interest rates and payments will be determined.
As you know, interest rates can change either upward or downward with an adjustable loan. It’s nice to know how these rate changes (in either direction) will affect your future monthly payments. That’s what the disclosure will tell you.
What can you do when you have serious damage to your home but not enough insurance to cover the loss? If the damage was not fully paid for from insurance proceeds, you can take a deduction on your federal income tax. What kind of losses qualify for this deduction?
Generally, to qualify for the federal casualty loss tax deduction, the cause must occur quickly and unexpectedly and not be a routine event. Examples include a fire, flood, theft, accident, earthquake, vandalism, tornado, broken water pipes, hurricane or earth slide. You should be prepared to prove such losses in case of an audit. To prove your losses, you should have before-and-after photos, professional appraisals, repair bills, police reports, purchase receipts and insurance settlement appraisals.
The amount you may deduct on a casualty loss is the decline in the property’s market value, less insurance payments and a $100 deduction. Frankly, you’re better off having enough insurance.
First impressions are important, but don’t let them keep you from missing a real gem of a home. Stop and consider the possibilities.
Does the place need just a few cosmetic improvements to feel right? Would new carpeting, appliances, contemporary hardware, different light fixtures or fresh paint and paper make the place feel like home? These are fairly minor changes and are relatively easy alterations to make.
Check your storage needs against the possibilities for expansion. How about bathrooms? If the addition of a first floor powder room would make this house perfect, is there room for one? Look at all the nooks and crannies as having potential “growing room.” Remember interior spaces can be reworked, walls removed, spaces reoriented and traffic redirected to make a chopped-up floor plan flow like magic. Built-in bookcases can be added and windows and doors can be replaced with a style and decor which feels more like “home” to you.
Cars have emission standards - now, wood stoves do too. The EPA has set strict standards on how much soot, gas and pollution can go up the chimneys of all wood-burning products. Some units now on the market already meet or exceed these standards. New technology has allowed wood stoves to clean up their pollutants and operate at new levels of efficiency.
Most of the new wood stoves are using a catalytic combustor to meet the EPA requirements. Placed on the baffle or damper inside the exhaust vent, a catalytic combustor burns the gases that otherwise would escape up the chimney. The result is 80 to 90 percent less emission and increased heat output.
Catalytic combustors can be retrofitted to existing wood stoves, although these are less efficient than built-ins. The combustor will need replacement after two to five years, but by burning only well-seasoned hardwoods, you can reduce this problem.
If you want to get maximum value out of the home you buy, whether it’s brand new or used, make sure it’s properly landscaped. Good landscaping can enhance the appearance of a new house and make it look “established.” It can compliment the architecture and provide a pleasant environment for outdoor living. Landscaping can also help create privacy and reduce noise. Landscaping can act as a windbreak and can also keep the home cooler in hot weather.
Good landscaping can often increase by 10 or 15 percent the price you can get when you sell the property.
But do remember that a good landscaping job can cost a lot of money. If you want a lot more than the minimum that builders usually provide, think about having the builder coordinate with a landscape architect to install it when you buy the house, add it to the cost of the home and then you can pay it off over the length of the mortgage rather than parting with a lot of cash at the outset.
You own a rental property that has appreciated over double in value. Now, you want to buy another property that has about the same current value. Would it make more sense to sell the first property and then buy the second?
Not really unless you want to pay unneeded capital gains tax. It would be wiser to consider a tax-free swap. In this way, you would not have to pay any gains tax on the big profit you’ll make on the original property. In fact, you could keep the excess cash you receive over the deposit you’ll need for the second property as a tax-free gift from Uncle Sam. A swap is a swap and not a sale.
You can only exchange like properties (like rental property for rental property) not an apartment house for a yacht or a private residence. Also, you must find a new property within 45 days and buy it within 180 days. Make sure you have professional real estate and legal help. An exchange is not for amateurs.
Some first-time buyers (actually 20 percent) are fortunate enough to buy their first homes with help from their parents. In these cases, parents typically provide half the down payment for would-be homeowners who otherwise would not have savings and incomes large enough to qualify for a mortgage.
Parents tend to make a gift rather than a loan in such cases because too much debt can count against prospective borrowers when qualifying for a loan. As long as the buyers ante up a fourth of the down payment, lenders don’t care if family generosity makes up the difference. However, they WILL ask for a gift letter, a simple document acknowledging that parents do not expect repayment.
On the other hand, if there is an actual LOAN being made from parent to child, it should be secured with the same sort of paperwork that a bank would use. That way, the interest repaid will be fully deductible as a home acquisition loan.
QUESTION: What effect does the present tax law have on capital gains tax when I sell my home?
ANSWER: It has a tremendous effect and it could not be better for the homeowner. The latest tax law now allows homeowners to avoid paying taxes on the first $500,000 of profits in a home for joint filers, or on the first $250,000 of profits for single filers at the time they sell the home.
To make matters even better, a homeowner can use this $500,000 tax exemption repeatedly, as long as he or she lives in each house for at least two years.
If you are one of the few whose profit is over $500,000, there’s more good news. The top tax rate on capital gains has dropped from 28 percent to 20 percent. For those in the lowest tax bracket, it falls from 15 percent to 10 percent. The new tax look is here and it is great for home sellers.
Once you get a loan commitment, don’t take it for granted that you will get the loan. Since lenders take a risk when committing to a fixed-rate loan, they often put in conditions.
For example: a commitment can become null and void if the borrower fails to qualify, the appraisal falls short of the contract price, the loan isn’t closed before the commitment expires or a third party fails to provide necessary documents. To protect themselves against wide swings in interest rates, some lenders will insert a clause which releases them if rates change more than a certain amount. Often, fine print clauses allow the lender to back out should the original terms no longer be advantageous.
This is why it is extremely important that the buyer utilize the services of a real estate professional. Knowing what to look for, understanding the terminology and being able to explain every minor detail to clients is a valuable service Realtors can provide.
Most first-time buyers are renters. As such, the best time to close on a house is when your current lease ends. Don’t sign another year-long lease if you expect to buy a home before the lease period expires. Doing so will end up with a dent in your pocketbook from writing rent and mortgage checks. If you can’t time your closing correctly, approach your landlord about a shorter lease - say, three to six months in length. One alternative is a month-to-month lease. You may be able to ask your landlord to include an escape clause in your new lease that will allow you to get out of your lease with 30 or 60 days’ notice.
Coming from a cramped rental, almost any home will look good. Try to avoid jumping at the first house you see. Look at many to see what’s on the market. Inspect different types of homes including condos, duplexes, townhouses and single-family homes. Some objectivity should have returned. Now make your choice.
There are two truths about home renovation: Every project costs more and takes longer than expected. So, before you start, keep your cost estimate high and remember the words, “Return on investment.” Whether you hire professionals or do the renovation yourself, be aware that your investment will not always result in dollar-for-dollar increase in the value of your home. Although some homeowners do make a profit on their remodeling, history tells us that some homeowners won’t even recover their costs.
Do your homework. Get estimates on the costs. Study the local real estate market to be sure you’re making improvements that home buyers want and will pay for.
Don’t go overboard. Getting your money out of a house priced well above neighboring houses will be difficult. As a general rule, the value of the home AFTER renovation should not exceed the value of any house in your neighborhood by more than 20 percent.