From the category archives:

Buyers

Good News for First Time Home Buyers of Luxury Homes

I dove into the Stimulus Plan on the House Appropriations website to try and find out what kind of agreement the Senate and House of Representatives came to regarding the First Time Home buyers Tax Credit. Not the most fun reading, but extremely important to know about for any serious real estate professional.

Currently, a taxpayer who is a first time home buyer (someone who has not owned a home within the previous three years) was allowed a refundable tax credit of the lessor values of $7500 or 10% of the purchase price of the home. The credit was allowed for homes purchased between April 9, 2008 to July 1, 2009. However it would have to be repaid, interest free, over a period of 15 years, or recaptured at the time of sale.

The stimulus package modifies the current rules, but also keeps the following in place:
  • the tax credit phases out for individual tax payers you have a modified gross income of $75,000 to $95,000 ($150,000-$170,000 for joint filers). So you could buy a luxury home with a combined income and potentially still qualify for a tax credit!

  • tax payers can claim the purchase of a home on their 2008 tax return (thus the reason for the credit beginning on December 31, 2008), even if they buy their home, for example in January of 2009
The new agreed to provisions that go into effect December 31, 2008 and are:
  • extends the current home buyer tax credit for qualifying home purchases to December 1, 2009

  • increases the maximum credit to $8000 ($4000 for a married person, filing separately)

  • waives the recapture of this tax credit for homes bought between December 31, 2008 to December 1, 2009

  • if the home is sold, or ceases to be the primary residence, within 36 months of the closed date, then the rules of recapturing the tax credit apply (currently over a time period of 15 years)

The part that really stinks about the revisions is for the first time home buyers who closed on their home between April 9, 2008 -December 30, 2008. It appears they will still need to repay the tax credit of $7500 over a period of 15 years, just as originally written, and none of the new revisions will apply to them.

Don’t worry though, at least you get a tax credit. We closed on your new home in March 2008, and even though we are only 30 days out for qualifying, no soup for us!

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Selling a Historic Home

A few months ago, I had the pleasure of viewing a historic home that was going up for sale. It was in need of a lot of work, as many 150 year old homes are, but the home owner was asking way too much for the home. The kitchen had carpet for flooring and was in terrible shape. The plaster walls were cracked and coming apart, ceilings had water damage, and the bathrooms were a 100 year old disaster.

As I walked through the rooms, my rehabber eyes caught many things wrong with the home. The home owner and I sat down to discuss my thoughts on a list price, and if there was anything that could be done to make the home look better. My motto is complete honesty, and I asked how honest they wanted me to be. Of course, the answer is always, complete honesty, even when sometimes, that might not be the case.

I told the owner that if they really wanted to sell the home, that their price must reflect the repairs and updating that will have to be completed by the future owner. I could easily see 100,000 going into the home, as the kitchen and two bathrooms would be total guts. The house needed a lot of work. The response I received was mixed as the seller was having a hard time stomaching my suggested list price. They had the home on the market a year before, during the boom, and now I was telling them a price $300,000 less than what they had originally listed the home for with a previous Realtor.

They had two options:

  1. Sell at a lower price which reflects the condition of the home.

  2. Put some money into the home, fix it up, and then sell for a higher price.

Luckily, they had 100% equity in the home and had the option of pulling some money out to fix the place up. The home is now on the market, with another Realtor. (you can’t win them all) I plan on going by the home to see just how much they fixed it up, as it will be interesting to see if the home sells quicker, or languishes on the market at the higher price.

My main point is that when listing a historic home, you really have to look at the homes condition when coming up with a price. While the home might have a prime location, buyers will discount the list price according to what repairs will need to be completed upon purchase.

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How Dare You Make Money in Real Estate

I haven’t been able to cruise the big blog world out there the last few weeks, so today I took the entire day to devote to our online authors (It was raining today). One place I check out every now and then is the Real Estate Journal by WSJ. Most of the stuff can be a little boring, but I came across an article that made me actually click the link to read it.

The post, titled “From Their House to the White House”, highlights the homes that Senator Clinton, John McCain, and Barack Obama currently own, and those that they have sold recently. Now it is interesting to know what types of properties these people own because after all, real estate is what I do. I don’t know, however, if the author is just trying to state fact, or condemn these politicians for making profit on their real estate holdings.

But the article brings up an important issue. Why is it that making money in real estate is a bad thing?

During the boom years, home values increased enormously. Sellers were happy to be making more money than they had imagined, just from selling their home of 20 years. I know sellers in Florida who walked away with an average of $100,000 from appreciation. Across the county, many made more, much more. Could it just be jealousy that some people made money in real estate?

The funny thing about all the complaining going on right now, that those in the real estate industry are to blame, is that buyers were happy to pay those prices. I represented MANY buyers and not one felt they were over paying for a home. Prices were just what the market was bearing, and buyers were paying those prices gladly. So when I hear people grumble that real estate agents artificially increased the values of homes, I have to laugh because we are getting more credit than we deserve. The fact is, the market, driven by buyers wanting to get a piece of the real estate pie, drove the market to its great heights. When the number of buyers ran out, the market had no where to go but down.

So now we are at a crossroads. Those who bought the last five years, at the height of the market, are now sellers. They are finding that the record profits through appreciation that previous owners experienced is just not there for them. And they are angry, angry because they must sell for less than they paid, and some of these homes are being bought by investors, rehabbers, etc, who will most likely make a profit on the home in the future.

I have had some sellers tell me they do not want to sell to an investor because “he will make money off my bad fortunes”. These types of comments amaze me because it shouldn’t matter who buys your home, only that you get out from under it. Many owners are angry that anyone is making money in real estate today. If they are suffering, so should every one else. The reality of the matter is that these investors are in fact saving neighborhoods by buying up homes to renovate and resale.

I believe it is time for people to realize that making money in real estate is something anyone can do, not just the wealthy and politicians. Many nay-sayers are telling everyone that now is a bad time to buy. Keep telling yourself that if you are comfortable where you are. The best way to make money in real estate is to buy property that is undervalued and hold for the long term. In the current housing inventory there are tons of deals to be had, and I am sorry to say, but there is no better time than now to buy if you ARE looking to make money in real estate.

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A New Twist to the Minneapolis Real Estate Market

Everyday I hear the same old story…the real estate market is tanking, buyers are scared to buy, bla-bla-bla. Even though us real estate agents scream to the roof tops that housing markets are local, the media negativity drowns the truth out.

The only thing we do know is that the number of foreclosures has increased and so the perception is that the Twin Cities real estate market is going down, down, down. Luckily, some savvy people at the Minneapolis Association of Realtors have created a new report that better outlines what is really happening here in Minneapolis.

Some say that statistics don’t line. However, statistics themselves can be a problem if they don’t take special circumstances into account. Case in point, all the stats that come in for the Twin Cities includes data from both foreclosures, short sales, and traditional sellers, saying that median home prices have fallen 10.3% in the last year. If you were to separate the two bank related sales from traditional sales, you would have a very different look for our local real estate market. Home sales NOT related to foreclosures or short sales are actually only down 3.9% from this same time a year ago in 2007.

Yes, foreclosures do effect the market, but sellers not facing foreclosure can now look at real information that shows the future is not as bleak as the media paints it. The same goes for buyers. While the national media might be reporting the sky falling, sellers are not giving away homes as you might like. There are good deals to be had, but if you want a steal, the best bet might be too look at a foreclosure.

You can read more of the report at the link above, which also has a break down of foreclosures by price range and housing type.

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Sorry, but I Had to Throw You Under the Bus

As some of you know who might read my other blog, we recently moved into our new home we had built. We were lucky to buy one of the last lots, so the builder was giving away some great incentives to close out the subdivision.

This past week, two homes have gone up for sale in the neighborhood, and both are priced differently. The neighborhood is only two years old, so these are two of the first homes to be resold.

  • the first home is on a flat lot and was bought for $280,000 a year ago. They are now asking $300,000 for the home, but have also finished the basement. I viewed the home two weekends ago with a client, and thought that the asking price was very fair to the current market.
  • the second home just went active a couple days ago at a price of $380,000, which is the exact same price they paid for it two years ago, during the height of the market. It is a walkout lot and has a finished basement. However, I knew right away that in this current market, it was way overpriced.

Of course my husband teased me, saying that I wasn’t a very good real estate agent, not getting my name out to the neighborhood already. According to him, we have been here a month and a half and I should have already canvased the area with promotional materials. At these times, I just have to roll my eyes and ignore his “sarcasm”.

Then a funny thing happened on Monday. I received a phone call from an appraiser representing the relocation company taking care of the owners of the second home. The appraiser wanted to speak with me about our house, as it seemed to her to be a very close comparable to the home. I told her about all our upgrades, as we had many due to the huge incentives, that we had a finished walkout basement, and that our lot was far superior to the second home. Ours sits on a cul-de-sac with woods and a natural area behind it, but theirs backs up to other homes and has a smaller lot.

Of course during the conversation I told her I was a real estate agent, and we talked for about half an hour about other homes in the neighborhood that had recently closed with the builder. She then asked me the question that I knew was coming:

“In this market, what do you feel is the market value of this home?”

I told her, that “I hate to throw the agent and the owner under the bus”…but the home is not worth the money they paid for it. Looking at the current solds in the neighborhood, the house is probably worth $350,000, which is $30,000 less than they paid for it in 2006. Surprisingly, the appraiser agreed with me and stated the other comparable homes she was coming up with were not supporting the current list price either.

You can’t pull the wool over the market’s eyes. The truth will always come out, and buyer’s, with so much information at their finger tips, can easily judge for themselves what current market value is. It is sad that so many homeowners are faced with a similar situation, but they will be thrown under the bus if they over-price their homes. What’s a real estate agent to do in a market like this, but present the real picture to sellers and buyers. Unfortunately, not everyone wants to listen.

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"Writing" Up an Offer

If you plan on putting an offer in on a luxury listing, you might want to make sure you not only put in a fair price (at least what you think is fair), but also make sure the purchase agreement is typed up.

Today I had the pleasure of receiving an offer on one of my listings. The only problem was that I could barely make out the buyer’s name. It looked like a second grader, who just learned to write, had written in out by hand. I had to read the whole thing a couple of times to make sure I was reading it correctly.

The sellers were less than impressed by the offer. The reason? They felt the buyer’s agent was inexperienced. See, one of the things you have to remember when working in the upper-tier, is that sellers and buyers expect more from their agents. They definitely expect the agent to be professional, and one way of seeing this is how the agent presents themselves. Whether through dress, etiquette, hand shake, presentation, or paperwork, affluent clients are always observing how an agent acts….and they are taking notes.

So when an offer comes in that looks like it was written in Sanskrit, luxury home owners are not impressed. In fact, the offer itself might be good, yet the sellers don’t like it because of the way it was presented. It just puts a bad taste in their mouths. If you want your offer to be taken seriously, take the time to open up a Purchase Agreement in Acrobat Reader, and type in the fields. Not only will it look more professional, but is will put the seller’s mind at ease, that they are working with a competent agent.

And if you are working with an agent who does not type up their documents, you might want to consider hiring someone else to represent you!

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Gravity Furnaces in Minnesota Historic Homes

The gravity furnace is also commonly called the Octopus furnace because it has long ducts coming out of the central unit. It can be quite a sight to behold and even scares some buyers the first time they see it. These types of units were installed in homes built in the late 1800’s and early 1900’s. There are still many homes in Minneapolis and Saint Paul which have this furnace as their heat source. Slowly, home owners are replacing them with more efficient HVAC units, as well as replacing the duct-work throughout the home.

The concept of the Octopus Furnace is that heat rises and cold air falls. Heated air rises through the heat ducts and then the cold air sinks, entering the return air ducts, where it is reheated again. The original fuel source for early models was coal, but many since then have been converted to natural gas or oil. The above diagram is a great example of how it works.

Reasons you might want to replace your Gravity Furnace:

  • energy efficiency – gravity fed furnaces are 50% less efficient than a conventional heating system
  • most gravity furnaces contain asbestos. Asbestos is not harmful if left untouched, but if you do plan on replacing your gravity furnace, a licensed abatement contractor will most likely seal off the basement and safely remove any hazardous material.
  • they take up an enormous amount of space in the basement
  • you cannot install a whole house air conditioning system with this type of furnace

I have shown homes to buyers with Gravity Furnaces and many are shocked to see one for the first time. Some even fear purchasing the home, but they are easy to get along with. If you plan on purchasing a home with a Gravity furnace, DO think about replacing one in the near future. It will save you money in the long run.

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Appraising a Luxury Home

So, you are looking into buying a high-end home, most likely priced above $1 Million. You ask your buyer’s agent to pull some recent sold data and find homes which to compare against the listing you love. You think this is going to be an easy process – just pull solds from the last six months with the same square footage and whalah, you’re done!

Whoa there Nelly! Not so fast. This is not a $300,000 listing in which every home on the block is a good sold comparable. Most likely, this million dollar home only has a handful of homes similar to it, and of those, maybe one or two have sold in the last six months. You might even have to go back a few years and look at those sold figures.

What? Go back to over a year ago? You can’t do that! Everyone knows that the most an appraiser will go back for a comparable is a year. You don’t know what you are talking about!

Well, if we were talking about a home under, let’s say, $800,000, then you would be correct. But once you breach that million dollar mark, the “rules” go out the window. In some areas, there are so little high-end sales that finding something similar can prove difficult. One of the biggest problems with appraising a luxury home is working with an agent that doesn’t understand the new rules.

I ran into one such agent this weekend. She doesn’t sell luxury homes, but happens to have a “luxury” buyer. The agent presented me with some “comparables” to justify the low offer presented by her clients. Unfortunately for her and her client, these comparables didn’t compare at all to this home. Here were a few mistakes made:

  1. Some were built 12 years ago or more
  2. Some were on much smaller lots
  3. All were of lower quality construction
  4. Most were in the wrong school district
  5. Some had unfinished basements
  6. None had any luxury amenities, and lastly,
  7. she was sticking to homes sold in the last year

The problem? None of these homes are comparable. To find equivalent high end homes, you have to go back 12-22 months ago. You need to compare apples to apples, not apples to prunes. Of course I was told that this wasn’t possible. When I heard this, I knew right away the agent wasn’t familiar with how luxury home sales work. Sadly, she convinced her buyers to go the wrong direction with faulty data and they are losing a wonderful home because of it.

Luxury Home Appraisal 101

  • Sometimes you have to go way back to find a good comp
  • Don’t force the CMA by using homes of lesser stature
  • Stay in the same school district
  • Look for homes with similar acreage and lot features
  • If in doubt, hire an appraiser that has experience in high-end homes
  • Market conditions don’t affect the luxury market as much as it does lower priced homes
  • Choose an agent that specializes in luxury homes

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Certified Residential Specialist

For the last three years I have been working toward obtaining one of the most prestigious real estate designations available, that of the Certified Residential Specialist (CRS). This week it finally happened and I got confirmation just today that I am being awarded the CRS designation.

It’s not an easy one to be awarded. For one, an agent has to have production numbers that are verified by a broker. You have to sell alot of homes in order to be considered…no “one home a year” sales allowed. An agent must also complete classwork and additional education that can take years to finish. Classes only come into town so often and sometimes we have to fly to them in another state.

I have to say, the classes have been some of the best I have seen, and I have learned many new things that will help me to continually strive to be a better agent. Remarkably, less than 38,000 Realtors hold the CRS designation nationwide. With over 1 Million members in the nation, those that are Certified Residential Specialists are rare to say the least. In Minnesota, only 3% of Realtors have the production to be a CRS.

So when you think about choosing a quality real estate professional, be sure to ask them about any designations they hold. If they hold the CRS designation, then you can rest assured that they have completed extensive training on residential real estate and a have proven track record of sales transactions. The more transactions an agent has, then the more experience they have. When the average agent completes only three sales a year, is it any wonder that there are so many inexperienced Realtors in the industry. Next time you choose an agent, make sure they have the experience to back themselves up.

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Lead in Your House Paint is Worse than in a Toy

The media has been creating a lot of scared parents as of late with the various recalls on toys made in China. Seems the Q & A divisions of these companies in China have been dropping the ball and contaminating the toys with lead paint. But toys, in general, could be the least of parental concern when it comes to lead poisoning.

According to the Environmental Protection Agency (EPA), research suggests that the primary sources of lead exposure for most children are:

  • deteriorating lead-based paint

  • lead contaminated dust

  • lead contaminated residential soil

The issue of Lead Paint is nothing new to Minneapolis real estate agents. Since 1978, the United States government has banned the use of lead paint. This can be a major concern with older homes in Minneapolis, that might still have the original paint under years of remodeling. Some of the areas that lead paint is most easily accessible in an older home are:

  • Windows and window sills

  • Doors and door frames

  • Stairs, railings, and banisters

  • Porches and fences

If you are thinking of buying a home in the Twin Cities that was built prior to 1978, than you should be given a copy of the EPA brochure “Protect Your Family from Lead in Your Home” or you can view a copy online. Reading the pamphlet and understanding the cause and effect of lead, can help prevent ingestion by children or yourself. The EPA provides a checklist on how to check and determine if you have lead based paint in your home.

It is also required that you sign a Lead Based Paint Disclosure when buying or selling a home built before 1978. A sample disclosure form is available on the EPA website. If your real estate agent fails to mention this requirement, get a new agent.

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