Archive for May, 2017

Qualified Home Owners – Save in Taxes on Next Home Purchase

Tuesday, May 30th, 2017

People are always asking me how they can save money on home purchases and sales, and legislation under California Propositions 60 and 90 is one of the best ways to do just that. BUT, you have to meet certain qualifications.

Proposition 60 and 90 help home sellers transfer their current residential tax base to the purchase of a new home, saving potentially thousands of dollars in taxes. Proposition 60 is for intra-county transfers (between the counties of San Diego, Orange Los Angeles, Riverside, Alameda, El Dorado, San Bernardino, Santa Clara, San Mateo, Tuolumne and Ventura. Proposition 90 allows for the same advantage with inter-county transfers.

This all sounds great, right? Here is the fine print…in order to qualify:

1. The home owner (only one of them) must be at least 55 years of age. Co-owners cannot both qualify.

2. The home being sold must be a principal residence

3. The present home must be sold and the new home must be equal or lesser market value to the original property

4. If the property is held in a trust the seller will need to be the beneficial owner of the trust, not merely the trustee

5. The replacement property must be purchased or built within 2 years (before or after) of the sale of the current property.

6. “Your original property must have been eligible for the homeowners’ or disabled veterans’ exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.”

As an example let’s say you purchased your home many years ago for $400,000 and it’s current market value is $800,000. If you sell this home and purchase a home that is $800,000 or less, should you qualify under Proposition 60 or 90 you will be able to take your current tax basis (tax on the $400,000 home plus the increases that have accrued over the years) to a replacement home that is purchased for $800,000 or less. This is a huge savings because most counties tax about 1-1.25% on real estate purchases.

For more details on eligibility requirements to take advantage of Prop 60 or 90, click here.

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New Zillow Program Could Hurt Home Sellers, Agents

Monday, May 22nd, 2017

Today Zillow announced that it has test-launched a new program called Instant Offers, which it claims will help home sellers and agents. But upon close inspection this program is full of legal caveats for home sellers and agents alike.

The new program claims to offer options to home sellers so that they can avoid traditional marketing such as open houses and photographs. Here is how it works, according to what I read: a seller decides to use the program, which offers 3 options –

1. Sell directly to investor buyers: Without placing the home on the MLS it is offered to investors for purchase – almost like a For Sale by Owner listing. The investors can make an offer. At that point the homeowner can decide whether to take the offer or list on the MLS with an agent the traditional way (Zillow will recommend the agent). Zillow will benefit financially from the agent referral as more agents will want to advertise with Zillow). It is not clear how Zillow will benefit financially when sellers do not want to work with agents, but maybe there will be some kind of agreement between it and the investors.

2. Sell to investor buyers and use an agent recommended by Zillow to assist with the sale: If the homeowner wants to list their home Zillow will recommend one of it’s “Premier Agents.” These are agents who pay Zillow for advertising. Zillow wins here (like above) because 70% of its revenue comes from these agents who advertise.

3. Reject offers and list on the MLS with an agent: Zillow will of course recommend one of it’s Premier Agents (note that Zillow is NOT a broker, rather these agents achieve this status by paying Zillow money to advertise their names and services).

Ok…so you may think this is good – it gives home sellers options. But here are the other points to consider for all home sellers:

1. Potential lower sales price – investor buyers typically do not pay high prices – they offer a quick sale but the catch is that they want to save money. For those who have to sell quickly this could be a good thing, but for those who want to realize top dollar this is not the answer. If you have a home that is a true fixer upper an investor buyer is great as well, but there may be competing investor buyers out there on the open market and you could end up getting more if you have multiple offers, so choosing the Zillow program really puts your back against the proverbial wall.

2. High Fees – People always complain about high fees for selling homes. This program appears to charge a 9% service fee to those who choose to sell to one of the Zillow partner investors.  Rather than pay such a high fee for a likely lower net sales price, it’s better to interview professional skilled area agents. Standard commission rates in CA are around 5% but commissions are negotiable.

3. THE LEGALITIES – Selling a home is a legal transaction, with contracts, paperwork and deadlines that are imperative to get right in order to prevent a lawsuit down the road. Although Zillow says it will recommend the seller work with an agent to get through the paperwork process with the new program, sellers have the option to forgo this. This is problematic, to put it mildly.

If I can give you one piece of advice only when it comes to selling your home, it would be this: have a lawyer review all your paperwork, including seller disclosures. If you do not want to hire a lawyer, make sure your agent has a good broker and have that broker review all your paperwork (or better yet, find an agent/Broker who IS an attorney). There are also many highly skilled agents who know what they are doing – find one.

4. Errors and Omissions insurance and lawsuits – Every broker (at least here in CA) must carry errors and omissions (E&O for short) insurance. It protects them in the event of a lawsuit brought by a party to a real estate transaction. Here’s the biggest problem with Zillow’s new program – Zillow is NOT a broker. If a home seller opts into the program and elects not to work with an agent, who is going to assume liability for contractual paperwork? What happens if disclosures are not filled out correctly, or if there is a problem with the home that is discovered after closing? The seller is put in a very bad position.

Agents could be hurt by this new program if they do not advertise with Zillow, as they will not be recommended by the company program. This is a lose-lose for hard-working professional agents everywhere who do not choose to pay money to Zillow, as home sellers in their areas may not even come across those skilled agents if they opt for the Zillow recommended agent.

These and many other questions do not have clear answers and as an attorney I say this program is fraught with potential problems for home sellers. So while Zillow may think the Instant Offer program is a great new “thing,” in my opinion, or until I see otherwise, sellers should steer clear. This program is in a test phase right now and is only available in Las Vegas NV and Orlando, FL.

For more information on the legalities of selling your home please contact a skilled attorney or broker in your area, or feel free to contact me with any questions by responding to this post.

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Appraisals are Creating Issues…Again

Tuesday, May 16th, 2017

Appraisals are causing problems again for buyers and sellers for the first time in many years. Many appraisals are not coming in at value, despite comparables that support contract prices, leading to problems between buyers and sellers.

Prices have come up quite a bit in many areas in the last few years, San Diego County included. That means that when an agent goes to list a home there are usually comparables to support a higher price. But I keep hearing stories about homes that are not appraising, and it just happened to my buyers as well (even though the offer we wrote and had accepted had comps that supported our price).

So what is a buyer or seller to do if the appraisal does not come in at value?

1. Renegotiate. The first thing to do is to try and renegotiate the contract price. I had a home that appraised $8,000 under contract price (which was completely ridiculous given a smaller home had sold for more just months before). We tried to get the seller to drop the price to the appraised value, or at least meet us in the middle but he would not. He had received multiple offers and there were buyers waiting in the wings who would still move forward with the higher price.

2. Buyer contributes the cash difference. This means that the sales price will remain the same, and the buyer will have to put the difference between it and the appraised value on the table (come up with more money) in order to close. The bank will only lend on the appraised value, but this option allows the buyer to move forward and purchase the home.

3. Challenge the appraisal. This can be done only when there is information that the appraiser did not take into consideration that could alter the evaluation, such as comparable homes that were not reviewed, or maybe a comparable sale that closed immediately after the appraisal was issued which had a higher price, or a sale that closed which was not on the MLS. Or, there may be upgrades to the home of which the appraiser was not made aware. But a challenge needs validation, so the fact that parties do not agree with the appraisal is not a reason for a challenge.

4. Cancel the contract. This is the buyer’s right when an appraisal does not come in at contract value. However, it is important to take into consideration the status of the market – if inventory is low and there is a lot of competition it may be smart to stick with the sale, since getting another contract accepted could be difficult and the buyer could wind up paying even more money for the next opportunity.

In my buyers’ situation they decided to stick with the contract price (after the seller would not negotiate) and pay the cash difference. Since it was only an $8,000 difference this was the smart choice, as they ended up with a beautiful home that likely would have sold for even higher than their contract price had they canceled.

It is important to discuss options with your real estate agent and tax adviser or financial planner if needed. Every situation is different and buyers have to feel comfortable in their decision. But it is tough out there in certain price ranges for buyers right now, and inventory is low, so oftentimes it makes sense to stay the course.

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