5 Real Estate New Year's Resolutions You Should Make

At the end of every December, people make all kinds of resolutions for the coming year. Typically, these are things they want to improve about themselves, ways to make their day-to-day personal or work life better, or ideas to put them on track for a change. Many times these surface as a result of mistakes made in the past 12 months.

When it comes to real estate, resolutions don't necessarily apply as it's unlikely that you do a real estate transaction each year. Furthermore, you can't actually resolve to buy your neighbor's house or sell your $350,000 home for $1 million. Well, you could, but you'd probably be setting yourself up for disappointment right from the start.

Some things are simply out of a would-be buyer or seller's control. But, as a would-be buyer or seller, you can learn from and make resolutions based on those who have gone before you. There exists a former buyer who, if he could, would resolve to have done more legwork before buying. Conversely, there's a current seller who resolves to take the next under-asking-price offer from a buyer more seriously.

Whether you plan to buy or sell, there are some real estate resolutions that buyers and sellers can -- and should -- make. Here are five to get you started.

Buyers: Resolve to Get Your Financial House in Order

Planning a home purchase takes time and effort, so you should consider meeting with a mortgage professional early in the year. Know your credit score and understand what your financial situation looks like from a lender's perspective. If you have credit issues, identify what they are and the necessary steps to correct them. Sometimes, it can take six months to see your FICO score move up the much-needed 20 points to get you a better mortgage rate. A good real estate agent can recommend an experienced, local mortgage professional. Local is always important, because many real estate deals are made on relationships, and being able to meet face-to-face with your mortgage professional can be a big plus.

Sellers: Resolve to Think of Your Home as a Product

Start clearing out old stuff now. If there are things deep in your closets that you don't think you'll use between January and the time you move, consider a storage locker or making space in the garage. Does your real estate agent suggest that the basement needs a paint job? Get some painting bids now. Have you always hated how the bathroom vanity takes up so much space? Consider changing it now so buyers will perceive your bathroom as bigger. This will also help you spread out the costs of home repairs and changes over several months.

Buyers: Resolve to Start Feeling Out the Market Early

You may think you only need to go to open houses once you're ready to buy. But in reality, a buyer needs a couple of months learning the marketing, understanding home values, the prices per neighborhood and the market in general. Going to open houses in the neighborhoods where you want to buy will allow you to start feeling out the market. It may also be the best way to meet your future real estate agent. Many agent/buyer relationships are forged at open houses.

Once you engage an agent, you may make several offers before you get into your dream home. Having your agent along for the ride will allow you to compare and contrast homes you've visited to the home you eventually buy. The homes you see and your experience feeling out the market will serve as the building blocks toward becoming an informed buyer and making your best offer.

Sellers: Resolve to Understand Your Timing and Exit Strategy

One of the biggest stresses on a seller is trying to plan a purchase and a sale at the same time. Can you afford to close on the new home before selling? If so, for how long? Do you need to sell the property first? If so, will the potential sale price support a home purchase in the neighborhood you want to be in? If not, what other areas should you be looking in? Selling and buying at the same time brings up all kinds of financial, emotional and physical stress.

Uprooting yourself from your home is not easy. What if you have to go into short-term housing? How will you get that set up and how long would you need to commit for? If you can afford to purchase and then sell, do they need to happen quickly? Are there things you can be doing in your current home so that once your new home closes, you'll be ready to list? It's a lot to think about and plan for, and it helps to have a strategy in place well before you have to take action.

Buyers and Sellers: Resolve to Engage a Real Estate Agent Now

Planning a home purchase or sale takes time. Engaging a real estate agent early in the process will allow you to have an expert on hand as you start to put the pieces together. A good real estate agent doesn't just show and sell homes: They can be your strategic adviser, even well in advance of any actual transaction.

On the seller side, if you pulled a permit to install some new windows or replace some dry rot in 2005, likely the contractor issued a permit. But did he close it out? A good agent will figure that out and clean it up before it becomes a transaction issue. You should use your agent to literally get your house and listing in order.

For buyers, having an agent with you from the start is like having an experienced second set of eyes and ears. Having so many transactions under the belt and years of market knowledge in their head, a real estate agent's opinions, thoughts and ideas can save you a lot of time and money. What's more, they can keep you on the right path toward identifying the best home, and they'll see you through the process all the way to the closing.

Article courtesy of Zillow.com

Will Recovery Be Steadier in 2015?

The housing market this year has been on a roller coaster. According to the National Association of REALTORS®, existing-home sales are expected to fall short of 2013's total, and price gains have slowed significantly. However, builder confidence in the new-home market has been on the rise, even as new-home sales have barely budged — at just a 1.8 percent increase in October compared to a year earlier.


Economists say the housing market is showing mixed signals because it's normalizing, leveling off after a much more rapid recovery last year that was unsustainable.
Forbes.com recently highlighted several 2015 predictions from housing experts:

1. Home appreciation will continue to slow. Prices didn't increase as fast this year, and they are expected to stick to that trend into the new year. "Easing housing inventory levels and the exit of investors from the market are helping to put the brakes on home-price escalation," Forbes.com reports. "At a deeper level, this change represents a fundamental shift in the market: We've moved out of rapid recovery phase and into a new normal." Gone are the double-digit gains of 2013. Realtor.com® predicts an annual gain in home prices of 4 percent to 5 percent next year. 
2. Buying frenzy becomes more muted. The home-buying process is expected to be less chaotic in the new year, with for-sale inventories easing and credit loosening, which could make it easier for first-time home buyers to enter the market. Investors have also pulled back in many markets. NAR statistics from October show that individual investors purchased 15 percent of homes, a drop from 19 percent year-over-year. Also, as more homes come on the market, buyers will have more choices and sellers may face more of the competitive pressure. Housing analysts note that this can help create a more balanced market for everyone: buyers in search of a competitive advantage and sellers who turn around and become buyers themselves.
3. Mortgage interest rates will finally be on the rise. The Mortgage Bankers Association still predicts that mortgage rates will increase to 5 percent by the end of 2015. Freddie Mac expects a 4.5 percent average in 2015. However, in 2013, economists had predicted mortgage rates to reach 5 percent by the end of this year. The 30-year fixed-rate mortgage has averaged below 4 percent in recent weeks. But with the end of the Federal Reserve's quantitative easing, MBA believes that a short-term fund rate hike is more likely by mid-2015, which would then push interest rates up.
4. Rent rises will outpace home value growth. Rents likely will continue to keep rising in the new year, and many housing analysts predict that an increase in rental costs in 2015 will outpace annual home-price gains. The rental market will likely remain a "landlord's market" in 2015, with vacancy rates expected to stay below 5 percent in the new year, according to NAR forecasts. That should lead to demand pushing rents up even higher and keeping them above inflation, NAR Chief Economist Lawrence Yun notes. Apartment rents are projected to increase 4 percent in 2014 and 4.1 percent in 2015. The rise in rents could push more Millennial renters to become home owners. Realtor.com® analysts predict that households headed by Millennials will drive household formations in the new year. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®'s predictions. "Next year's addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales," realtor.com® notes. 
5. Builders shift to building less expensive homes. In the last few years, builders have been building fewer, more expensive homes. But that trend may change in the new year, as more builders look to target less-expensive markets. New-home sales are expected to top the 500,000 mark in 2015, but in order to do that, builders may have to sell less expensive homes, housing analysts note. Earlier this year, representatives from D.R. Horton, the nation's largest home builder, said they planned to capture more of the entry-level market with its newly launched brand called Express Homes. The properties will be priced between $120,000 and $150,000, and they will be concentrated in Texas, Georgia, and Florida. "We wouldn't be getting into Express Homes if we didn't think it was the next segment of the market to recover," D.R. Horton CEO Donald Tomnitz told CNBC in April.
6. Foreclosures fall back to pre-recession levels. Foreclosure filings have been on the decline this year and are expected to continue their descent well into 2015. From January through November, foreclosure filings fell about 172 percent compared to the same period one year prior, according to RealtyTrac. "Every month so far this year, we've been down from a year ago," says Daren Blomquist, vice president of RealtyTrac. The only uptick has been in foreclosure auctions, which are up 5 percent in November compared to one year earlier. Foreclosures will likely fall to pre-crisis levels in 2015, Blomquist predicts.

Information courtesy of the California Association of Realtors (C.A.R) - Daily Real Estate News | Monday, December 22, 2014

Current Trends and Statistics for San Luis Obispo County

We are consistently asked "how's the market doing?" We love this question and we love giving factual information from our local Multiple Listing Service (MLS) for San Luis Obispo County. The most recent Trends and Statistics through October 2014 just came out. Here are a few graphs that show exactly how the market is doing:

Months of Inventory - The number of months of inventory is down.

Price Per Square Foot - The price per sq. ft. on closed sales is up.

Supply and Demand - Supply is down, demand is up.

Days on Market - The average days of homes on the market is up.

 

So, what does all this mean? When the inventory of homes is between 3 and 6 months we call this a neutral market. If the listings continue to increase and the sales stay at the same level, then the buyers will start to have an advantage because there are too many homes for sale. Conversely, if listings start to decease, which they did last year, and sales hold steady, the advantage will turn towards the seller. If we see either of these changes, we'll keep you posted.

Please contact us for more insight and feel free to pass this information on to anyone that has been thinking of buying or selling a home. We look forward to the opportunity of helping you! 

Top 5 Things to Know When Preparing to Sell or Buy in 2014

It's hard to believe that November is here and there are only 2 more months left in the year. The questions we've been hearing over and over is ... should we buy or sell this year?

For the first time in years, rising home prices are boosting sellers' confidence. At the same time, interest rates remain amazingly low, helping to boost potential homebuyer's confidence. Millions of Americans will decide in 2014 to put their homes on the market and/or shop for new homes, and need to understand the current houing market conditions as they move closer to buyer or selling homes.

The following "Top 5 things to know when preparing to sell or buy a home in 2014" should be considered by anyone thinking about a home sale or purchase:

Mortgage Rates as of 10/31/14 

                                                                            

Conv.- 3.875% (Up to 417k) 

FHA  - 3.5 %  

VA    -  3.5 %  

Jumbo - 3.75 %  
(from 417k and up to jumbo loan amounts) 

                                                                                             Rates courtesy of Bankrate.com

WOW!! Rates are under 4% again. VERY exciting! It's time to take advantage of this year end opportunity. Let us know if you, or someone you know,
is in the market to buy or sell a home. We'd love to help!

Ten Things to Know About 1031 Exchanges

Tax nerds may be able to spout off Internal Revenue Code Sections, but most people never get

beyond 401(k). (That’s right, your workplace retirement savings plan is named after a section of the tax code!)
Still, “Section 1031″ is slowly making its way into daily conversation, bandied about by realtors, title companies, investors and soccer moms. Some people even insist on making it into a verb, a la FedEx , as in: “Let’s 1031 that building for another.” (While Section 1031 isn’t restricted to real estate, that’s clearly where most of the discussion takes place.)

So what is 1031? Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one business or investment asset for another. Although most swaps are taxable as sales, if you come within 1031, you’ll either have no tax or limited tax due at the time of the exchange.
In effect, you can change the form of your investment without (as the IRS sees it) cashing out or recognizing a capital gain. That allows your investment to continue to grow tax deferred. There’s no limit on how many times or how frequently you can do a 1031. You can roll over the gain from one piece of investment real estate to another to another and another. Although you may have a profit on each swap, you avoid tax until you actually sell for cash many years later. Then you’ll hopefully pay only one tax, and that at a long-term capital gain rate (currently 15%).
Warning: Special rules apply when depreciable property is exchanged in a 1031. It can trigger gain known as “depreciation recapture” that is taxed as ordinary income. In general, if you swap one building for another building, or one machine for another machine, you can avoid this recapture. But if you exchange improved land with a building for unimproved land without a building, the depreciation you’ve previously claimed on the building will be recaptured as ordinary income.
Such complications are why you need professional help when you’re doing a 1031. Still, if you’re considering a 1031–or just curious–here are 10 things you should know.

1. A 1031 isn’t for personal use.
The provision is only for investment and business property, so you can’t swap your primary residence for another home. There are ways you can use a 1031 for swapping vacation homes, but this loophole is much narrower than it used to be. For more details, see No. 10.
2. But some personal property qualifies.
Most 1031 exchanges are of real estate. However, some exchanges of personal property (say a painting) can qualify. Note, however, that exchanges of corporate stock or partnership interests don’t qualify. On the other hand, interests as a tenant in common (sometimes called TICs) in real estate do.
3. “Like-kind” is broad.
Most exchanges must merely be of “like-kind”–an enigmatic phrase that doesn’t mean what you think it means. You can exchange an apartment building for raw land, or a ranch for a strip mall. The rules are surprisingly liberal. You can even exchange one business for another. But again, there are traps for the unwary.
4. You can do a “delayed” exchange.
Classically, an exchange involves a simple swap of one property for another between two people. But the odds of finding someone with the exact property you want who wants the exact property you have are slim. For that reason the vast majority of exchanges are delayed, three party, or “Starker” exchanges (named for the first tax case that allowed them). In a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you. This three party exchange is treated as a swap.
5. You must designate replacement property.
There are two key timing rules you must observe in a delayed exchange. The first relates to the designation of replacement property. Once the sale of your property occurs, the intermediary will receive the cash. You can’t receive the cash or it will spoil the 1031 treatment. Also, within 45 days of the sale of your property you must designate replacement property in writing to the intermediary, specifying the property you want to acquire.
6. You can designate multiple replacement properties.
There’s long been debate about how many properties you can designate and what conditions you can impose. The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them. Alternatively, you can designate more properties if you come within certain valuation tests. For example, you can designate an unlimited number of potential replacement properties as long as the fair market value of the replacement properties does not exceed 200% of the aggregate fair market value of all the exchanged properties.
7. You must close within six months.
The second timing rule in a delayed exchange relates to closing. You must close on the new property within 180 days of the sale of the old. Note that the two time periods run concurrently. That means you start counting when the sale of your property closes. If you designate replacement property exactly 45 days later, you’ll have 135 days left to close on the replacement property.
8. If you receive cash, it’s taxed.
You may have cash left over after the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of the 180 days. That cash–known as “boot”–will be taxed as partial sales proceeds from the sale of your property, generally as a capital gain.
9.You must consider mortgages and other debt.
One of the main ways people get into trouble with these transactions is failing to consider loans. You must consider mortgage loans or other debt on the property you relinquish, and any debt on the replacement property. If you don’t receive cash back but your liability goes down, that too will be treated as income to you just like cash. Suppose you had a mortgage of $1 million on the old property, but your mortgage on the new property you receive in exchange is only $900,000. You have $100,000 of gain that is also classified as “boot,” and it will be taxed.
10. Using 1031 for a vacation house is tricky.
You can sell your primary residence and, combined with your spouse, shield $500,000 in capital gain, so long as you’ve lived there for two years out of the past five. But this break isn’t available for your second or vacation home. You might have heard tales of taxpayers who used a 1031 to swap one vacation home for another, perhaps even for a house where they want to retire. The 1031 delayed any recognition of gain. Later they moved into the new property, made it their primary residence and eventually planned to use the $500,000 capital gain exclusion.

In 2004 Congress tightened that loophole. Yes, taxpayers can still turn vacation homes into rental properties and do 1031 exchanges. Example: You stop using your beach house, rent it out for six months or a year and then exchange it for other real estate. If you actually get a tenant and conduct yourself in a businesslike way, you’ve probably converted the house to investment property, which should make your 1031 exchange OK. But if you merely hold it out for rent but never actually have tenants, it’s probably not. The facts will be key, as will the timing. The more time that elapses after you convert the property’s use the better. Although there is no absolute standard, anything less than six months of bona fide rental use is probably not enough. A year would be better.

If you want to use the property you swapped for as your new second or even primary home, you can’t move in right away. In 2008 the IRS set forth a safe harbor rule under which it said it would not challenge whether a replacement dwelling qualified as investment property for purposes of a 1031. To meet that safe harbor, in each of the two 12-month periods immediately after the exchange: (1) you must rent the dwelling unit to another person for a fair rental for 14 days or more; and (2) your own personal use of the dwelling unit cannot exceed the greater of 14 days or 10% of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

Moreover, after successfully swapping one vacation/investment property for another, you can’t immediately convert it to your primary home and take advantage of the $500,000 exclusion. Before the law was changed in 2004 an investor might transfer one rental property in a 1031 exchange for another rental property, rent out the new rental property for a period of time, move into the property for a few years and then sell it, taking advantage of exclusion of gain from the sale of a principal residence. Now, if you acquire property in the 1031 exchange and later attempt to sell that property as your principal residence, the exclusion will not apply during the five-year period beginning with the date the property was acquired in the 1031 like-kind exchange. In other words, you’ll have to wait a lot longer to use the primary residence capital gains tax break.

Do's and Don'ts of Lending Today

Getting a home loan these days is a very interactive process. We have been told by lenders that they are amazed by how many clients they work with are unaware of all the pitfalls they face during the loan process. To help avoid any surprises while waiting for final approval, we'd like to provide you with a short list of "do's and don'ts" to follow.

Let's start with the "do's" ...
1. Do keep the process moving by responding to your loan officer's requests for documentation as soon as possible.
2. Do make decisions as soon as is reasonably possible.
3. Do convey questions or concerns you have as they develop.
4. Do continue to make all of your rent or mortgage payments on time.
5. Do stay current on all other existing mortgages.
6. Do continue to work your normal work schedule.
7. Do continue to use your credit as normal.
8. Do be prepared to explain any large deposits in your bank accounts.
9. Do enjoy purchasing your home but remain objective throughout the process to help make decisions that are best for you.

After you have been pre-approved for your mortgage you will want to refrain from the following ...
1. Do not make any major purchases (car, boat, jewelry, furniture, etc.)
2. Do not apply for any new credit (even if it says you are pre-approved or "xxx days same as cash").
3. Do not pay off charges or collections (unless directed by your loan officer to do so).
4. Do not make any changes to your credit profile.
5. Do not change bank accounts.
6. Do not make unusual deposits into your bank accounts or move money around from one account to another.

Follow these simple rules and you will help to make your loan closing as smooth and hassle-free as possible!!

How to Choose Your Listing Agent

Hiring a listing agent is crucial to your entire experience as a home seller. The person you choose will be involved in preparing your home for sale, establishing a listing price, marketing your property and negotiating the transaction.

While you might be tempted to hire a friend who has a real estate license or your co-worker’s sister, remember that the person you enjoy meeting for drinks isn’t always the best REALTOR® to represent your interests. That friend could turn out to be the right agent for you, but before you choose him or her, take the time to get recommendations for several agents and interview them.

You’ll be paying a significant commission to this person (often 6% of the sales price of your home), spending time with them, and relying on their advice to sell your home for the best possible price and as quickly as possible given market conditions.

What to Look for in an Agent

Many sellers are tempted to choose the REALTOR® who suggests the highest list price for their property and who gives their home the most compliments, but you’re better served by a realistic REALTOR®.

You need to find a REALTOR® with whom you can communicate easily, someone who knows your neighborhood well and has a good marketing plan to reach buyers who are not only interested in your home but are also qualified to buy it. Most REALTORS® have experience looking at homes and can offer advice about the condition of your home and ways to improve its appeal without overspending.

When you talk to neighbors and friends about their recommendations for a REALTOR®, ask them how easy it was to reach the agent when they had questions, and how much support and advice the agent gave them throughout the sales process.

Questions to Ask During the Interview

A REALTOR® typically has a listing presentation she provides for sellers—often in the sellers’ home so that she can get a look at the property and its condition. Some of your questions may be answered during the presentation, but if not, you may want to ask the following:

• Are you a member of the National Association of Realtors? REALTORS® must abide by the NAR’s code of ethics. In addition, each state’s real estate license requires continuing education for agents.
• How many sales did you complete last year?
• In what price range do you sell most of your homes?
• What was the average difference between sales price and list price? While this depends on your local market conditions, a REALTOR® who often sells homes well below list price may not be advising sellers to price their homes correctly or may be inadequately marketing homes.
• What is your marketing plan for my home? How many websites will include information about my home? Where will you look for buyers?
• Do you have advice for me about the condition of my home? Do you have expertise as a home stager or do you recommend that I hire a professional stager?
• Can you recommend contractors and moving companies?
• How often should I expect to hear from you when my home is on the market?
• Will you provide me with regular feedback and updates about potential buyers?

Pricing Advice

The most important conversation you will have with your agent is about the price of your home. The REALTOR® you choose should present you with a comprehensive market analysis that compares similar homes that are on the market, have sold recently and have been taken off the market.

You are paying for your REALTOR®’s knowledge and expertise, so listen carefully to the advice you receive and choose your agent thoughtfully.

Courtesy of Realtor.com

How may times have you heard these phrases:
"I'm tired of throwing money away on all the expenses associated
with being a homeowner." 

--- or ---
"If you're renting, you're throwing money away."  

Our society holds a pervasive myth that rent is "throwaway" money. But the truth, however, could also be linked to being a homeowner. In both cases, you're exchanging money for a desired good or service. The question, then, becomes: Which do you desire more? Would you be happier buying or renting? And, which one makes more sense at any given point in time?

Let's take a look at some of the factors that should play into your decision:

Advantages of Renting: 

#1 - Mobility. As a renter you have the flexibility and freedom to move to any new locate whenever you would like.

#2 - Price flexibility. As a renter you have the flexibility to change the price that you pay for housing depending on where you want to live.

#3 - Lower costs. In many areas, the cost of renting is actually cheaper than the cost of owning a home. 

Advantages of Owning:

#1 - Potential Appreciation. Many homeowners point to the rising value of their home to defend their decision to purchase a property.

#2 - Inflation Protection. If you're a homeowner with a fixed-rate mortgage, you can rest assured knowing that your monthly payments will never change, regardless of what happens with interest rates and inflation in the future. 

#3 - Emotional Satisfaction. Here's one of the biggest benefits to homeownership: You'll enjoy a home that's purely yours. 

Here is a diagram that can better help you decide 

if you can afford to buy vs. rent:

 

So, make the choice that best fits your priorities and personality. 

If you are considering a home purchase (or know of someone who is) now is a great time! 

Give us a call to see how we can help you.

We're here to Help You Make the Right Move!