Sacramento Real Estate Reflections

Most don’t realize that there is a difference. The fact is, about half of the people selling real estate in Sacramento do not belong to the Sacramento Association of Realtors (S.A.R.), which distinguishes Realtors (with a capital R) from realtors. The primary thing that sets Realtors apart is the higher standard of ethics to which they are held accountable. Here’s an example: Joe realtor lists your home and a dispute breaks out between you and Joe – let’s just say, he lied about the second higher offer that came in for your home. You might be able to take him to court? With a Realtor there is immediate disciplinary action and direct recourse that you have with the regulatory body call the National Association of Realtors (N.A.R.), who governs the California (C.A.R), who oversees the S.A.R.

Bottom line, do you want representation from someone that does not subscribe to written regulations and an ethical code, with limited recourse if something goes awry?

Have you had a bad realtor or Realtor experience? Help us learn from your experience.

1. Find out how long the business has been operation – ask to see their business license. Older firms are less risky, since most survive on the merit of their work. Two years in business might be a good starting place.

1. Ask for 3-5 references from past jobs. Ask the references if the contractor was on time?; Did they meet deadlines and estimates?; Where the thorough and clean; Did they show up when they said they would?; Did they communicate well and return phone calls?

Bottom line, while you might get a better price from some, the headaches attached are not worth the savings in dollars.

1. Get an written, detailed estimate of the work to be performed. Ask for possible changes that might need to be made in the process and how much it will cost. Never pay for work that has not been done according the original specification that you will sign off on.

1. Make sure that the contractor is bonded (at least $1 million for liabilities) and has proper insurance.

1. Go with your gut – do you feel that you can work with the contractor for the duration of your project? You will end up despising the entire process if you can’t stand communicating with and being around this person. Do they listen to you? Are there other projects more important than yours?

Here is an article that clears up all the fuzziness on taxes once you sell your home…

Home Selling Exclusions: A Great Benefit for Homeowners
by Benny L. Kass
If you have recently sold your house at a significant profit, and if you have not been keeping up with the tax laws, you will be pleasantly surprised. If you are married, if you meet the legal requirements described below, you can exclude up to $500,000 of the profit you have made. If you are not married, or file a separate tax return, the exclusion is reduced down to $250,000 of profit.

For many years, there were two tax concepts which helped save homeowners from paying a lot of capital gains tax: the “roll-over” and the “once in a lifetime.” However, the Taxpayer Relief Act of 1997, signed by President Clinton on August 5, 1997, abolished both of these concepts. The roll-over and the once-in-a-lifetime exemption for homeowners over 55 years of age are real estate and tax history.

Although there are no restrictions on the number of times this exclusion can be used (as compared to the old “once-in-a-lifetime” approach) the law does contain two important conditions:

1. You must have owned and used the home as your principal residence for two out of five years before the house is sold. If you are married, so long as either spouse meets this requirement, the exclusion of gain applies. Marital status is determined on the date the house is sold. In the event of a divorce where one spouse is given ownership pursuant to a divorce decree or separation agreement, the use requirements will include any time that the former spouse actually owned the property before the transfer to the other spouse.
2. The exclusion is generally applicable once every two years. However, if you are unable to meet the two year ownership (and use) requirements because of a change in employment, health reasons or unforeseen circumstances (which have been defined by regulations promulgated by the IRS), then your exclusion is pro-rated. These pro-rations are complex, and have caused considerable confusion among lawyers, taxpayers and even the IRS.

The new regulations were finally implemented by the IRS in 2004. They provide what the IRS calls “safe harbors” — i.e. if you fall into a safe harbor category, you are entitled to take the partial exclusion. If, on the other hand, you are not within the safe harbor, then according to the Regulations, “The taxpayer may be eligible to claim a reduced maximum exclusion if the taxpayer establishes, based on the facts and circumstances, that the taxpayer”s primary reason for the sale … is a change in place of employment, health or unforeseen circumstances.”

In other words, if you are not within a safe harbor, you will have to convince the IRS that you nevertheless qualify for the partial exemption.

Let’s look at these items separately:

1. Change in employment: If you have to travel at least 50 miles farther from the house you sold because of a job transfer, or even to take a new job, and the primary purpose of selling your house was because of employment reasons, you will be eligible for the partial exclusion.

   The 50 mile distance is the IRS “safe harbor,” provided that the change in place of employment occurred during the time that the taxpayer owned and used the home. However, even if you cannot meet the safe harbor, you still may be able to convince the IRS to allow the partial exemption based on “facts and circumstances.” The Regulations include an example of a doctor who sold her condominium and moved only 46 miles away from the previous residence. Because the primary reason for the sale was to allow the doctor quicker access to the hospital for emergency purposes, the IRS would allow the partial exemption based on the facts of this case.

2. Reasons of Health: Once again, we see the concept of “primary purpose.” To qualify for the partial exemption, the primary purpose of selling the house must be based on health.

   The safe harbor here is easy. If the taxpayer’s physician recommends a change of residence for reasons of health, the taxpayer will automatically qualify for the partial exclusion. And health is rather broadly defined to include “the diagnosis, cure, mitigation or treatment of disease, illness or injury.”

   But the IRS issues a precautionary note: A sale “that is merely beneficial to the general health or well-being of an individual is not a sale … by reason of health.”

3. Unforseen circumstances: Obviously, this is the more difficult category on which to enact regulations. Each of us — at one point in time — will face conditions which could not be anticipated or even imagined before it happened, which significantly impact on our lives — and on our financial situation.

   Nevertheless, it would be manifestly unfair to be faced with a crisis — have to sell your house before the two years are up — and have to pay full tax on the profit you have made. Accordingly, Congress authorized the IRS to issue regulations governing this area.

   According to the new Regulations, a sale “is by reason of unforeseen circumstances if the primary reason for the sale … is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence.”

The IRS then lists several safe harbors:

• involuntary conversion of the residence — for example, it was condemned by a governmental agency;
• natural or man-made disasters or acts or war or terrorism resulting in a casualty to the residence. Clearly, the victims of Hurricane Katrina who lost their house would fall squarely in this category;
• death of one of the owners of the property;
• the cessation of employment as a result of which the taxpayer is eligible for unemployment compensation;
• a change in employment or self-employment status that results in the taxpayer”s inability to pay housing costs and reasonable basic living expenses;
• divorce or legal separation under a Court decree, or
• multiple births resulting from the same pregnancy.

These are safe harbors. If you fall within one of these areas — and have owned and used your house during the time since it was purchased — you will be entitled to take the partial exclusion of gain.

But, once again, even if you cannot claim a safe harbor, you still may be able to convince the IRS that there are facts and circumstances which forced you to sell your house before the two years were up. The burden will be on you, and as we all know, dealing with the IRS is not easy.

If you are eligible for the partial exclusion — either because you meet the safe harbor tests or the facts and circumstances test — this exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is 2 full years. If you are single — or do not file a joint tax return — change the $500,000 to $250,000.

The law applies to all principal residences: single family homes, cooperative apartments, and condominium units. If your boat or your mobile home is your principal residence, the exclusion can also be taken. In order to qualify as such, three things are required: sleeping quarters, a toilet, and cooking facilities.

While the new $250/500,000 exclusions sound too good to be true, there is one important fact to remember when calculating the profit you have made, and the tax you may have to pay. Real estate in the Washington metropolitan area has appreciated dramatically over the past half century. Many homeowners realized the “great American dream” over the years, and continued to sell and “buy up.” The profit that was made on each sale was deferred under the old roll-over concept. Now, when you sell your last house, and you are married, you can exclude up to $500,000 of profit, but what exactly is your “profit”?

Let us take this example. In 1968, you purchased your first house for $40,000. In 1975, you sold it for $150,000, and purchased a new house for $210,000. For this example, we will ignore such items as home improvements and real estate commissions, although these are expenses which can — and should — be taken into consideration in determining your actual profit. Because you deferred $110,000 of profit ($150,000 – $40,000), the basis in your new home is now $100,000. You determine your basis by subtracting the profit from the purchase price (i.e. $210,000 – 110,000).

In 1989, at the peak of the then real-estate market, you sold your home for $400,000 and purchased a new house for $500,000. Because the roll-over was still the law, you had deferred profit of $300,000 ($400,000 – 100,000). The tax basis of your new $500,000 home is only $200,000. Keep in mind that under the old “roll over” rules, every new home you purchased had to take into account the deferred gain which you had made on the sale of your previous home.

Here is where the tax bite may occur. If, for example, you plan to sell your house in the near future, you must calculate and be aware of your basis. If you are married and file a joint tax return (and have lived in the house for at least two out of the past five years), you will not have to pay any capital gains tax unless you sell your house for more than $700,000. But, if your spouse has died, and you can no longer file a joint tax return, you can only shelter up to $250,000 of profit. You or your accountant should make sure that you include the “stepped up” basis of the house in your calculations. This means that half of the value of the house on the date your spouse dies is added to your basis.

This is obviously complicated, and you have to have professional assistance before you sell your house.

It is absolutely critical that you keep all of your records and all of your settlement sheets. Such expenses as home improvements, real estate commissions, fix-up costs, legal and title costs, will reduce your profit — and thus reduce your tax. If you are ever audited by the IRS, you will be required to produce proof of these expenses.

As I read numerous reports weekly and talk with so many people about their perspective on the market, what strikes me is how much emotions play on our perception. Most sellers are panicking because of news that reports the infamous “bubble burst,” causing them to lower the price on their homes to invite an offer. “In normal markets, inventories and sales increase in the summer and decline in the winter. This has not happened in our market for the last five years,” said Michael Lyon, President of Trendgraphix. “Then with the rapid rise of prices, the market eventually ran out of purchasing power. The result? Inventory has been rising for the past six months. Buyers have responded by taking a step back to evaluate their options while sellers who needed to sell found themselves lowering their asking price to attract an offer.” “December, however, was a step closer to normal with declining inventory and slower sales. This is normal for most markets that don’t have inventory shortages. The question for the spring remains: with strong job growth in our region, will we continue to see a trend towards normal market patterns? This would lead to a steady increase in sales along with a peaking inventory by early summer. The experts say “yes”, but make an exception for the upper end market which has been overbuilt and may take years to recover.”

I like how another commentator put it, “Keep in mind we are discussing a changing real estate market, and not talking about a real estate bubble; we are discussing a shift in sentiment of consumers.”

I just read an interesting article on hi-tech bathrooms…

Things you can now expect to find in your new home bathroom. Okay I exaggerate, rather if you are filthy rich and have nothing better to do with your money, or maybe just a workaholic, look for…

· Mirrors that have dual functions – standard reflection and television/LCD monitor built in (get your email, news, stock portfolio update,etc. while shaving).

· Waterproof phones and waterproof touch screen monitors – work while in the shower!

· Fold out desks – Great place to work on your laptop while sitting on your “throne.”

One word, “boundaries!”

However I must say, the warming products might just be worth every cent. There are towel, floor and toilet seat warmers that come on all automatically before you even wake up!

I am always interested in the language that realtors use in advertising their listings – Descriptions and promises that borderline on flat out lies. Or on a more gracious note, it’s just fun to read between the lines:

• “Cozy Cottage” = Small House
• “Old World Charm” = Be prepared to install dishwasher, garbage disposal, HVAC, new sewer line, etc.
• “Needs TLC” = Fixer
• “Investor’s Dream” = Make low ball offer
• “Located in up and coming area” = Unsafe
• “Quaint” = Desperately in need of updating
• “Motivated Seller” = Desperate, make low ball offer
• “Cinderella waiting to be asked to dance” (yes, I really saw this one!) = Major issues

Here’s a list of words to avoid for legal reasons – words that have disputed meanings or may be considered discriminatory:

• Quiet
• Safe
• Flat lot
• “His and Hers”
• Quality Construction
• Room to expand
• Good investment
• Built to code
• Ready for pool
• Near church, temple, etc.

It sort of reminds me of the warning labels on hairdryers, “Do not use while taking a bath.” It only takes one person to litigate over lack of common sense, and we are all flooded with an insane amount of disclosure paperwork and acute term-qualification.

All homes have a history, some more colorful than others. Whether positive memories created or unexpected natural or unnatural occurrences, especially older homes have a story to tell. For instance, we lived in a 1905 boulevard park bungalow for about four years that has a full history.

The positive stories are comprised of the birthday parties in the backyard, the summertime BBQ’s on the front porch, the candle-lit dinners with my wife. I hope every home has many good stories to tell.

Some stories that we reflect on and can now (mostly) laugh about: Our sewer line that needed replacement within the first month of move-in; The used hypodermic needles we found in the rafters when cleaning (oh, and the former owner was not a nurse. We like to say he was in the “pharmaceutical business” ); The grapefruit tree that fell over in the middle of the storm; The leaky front porch stairs that where built without a permit and against Historic Preservation rules; The friendly neighbor that we met prior to moving in who boasted about our peaceful and quiet the neighborhood – sadly and ironic as it may sound he was an alcoholic, who invited the police and ambulances, what seemed to be nightly, to either break up a domestic argument or haul him to the hospital. He drank himself to death within three months of our acquaintance – R.I.P. Jimmy. OR what about the homeless people that would rummage through our trash cans in the middle of the night?; I could go on…

There is a sticky situation that arises when selling a home that has had some history. The seller always asks, “Do I need to tell the buyer about…. how the basement floods every year?; The time the tree limb fell through our roof?; The dog next door that barks us to sleep every night?; The addition we built without a permit; The roof leak that we think is fixed now?;” etc. The answer is “YES” to all of these questions.

No seller wants to say or disclose anything that will deter the buyer from falling in love with their home and go through with the purchase. However, it is absolutely necessary to be completely honest about the home’s history. The seller and many times the realtor too will end up in court over undisclosed items that are a detriment or potential detriment to the new owner.

The problem occurs when the seller and at times their realtor begin down the path of justification – “But that incident was so long ago” or, “We can just paint over that stain (evidence of mold)” or, “They will never find out about the dry root if we nail a board over it” or, “I can just claim that I was not aware of the _________ “ or “Everyone know that all houses have rats living in the attic.” You get the point. Do you? BY LAW, YOU MUST DISCLOSE EVERYTHING ABOUT THE HOUSE’S HISTORY THAT YOU ARE AWARE OF, or YOU ARE LIABLE AND MAY BE SUED.

I can hear it now, “But what about…..” The gears of your brain are turning, looking for loop holes and ways to avoid disclosing everything. Yes, there are some loop holes and exceptions, but the rule of thumb is this: The buyer should not be surprised by a pre-existing condition that negatively affects them regarding the home and its surroundings. Rule of thumb #2: If you don’t disclose, one of the neighbors will rat you out – They will inform the new buyer about your home for you! Then you begin down the path of, “I hope I have a good attorney?!”

__________________

I’m curious about your disclosure stories and questions you might have about what does and does not have to be disclosed.

Totally unrealated to real estate…

My cousin gave my son these drums for Christmas in the tradition of our Uncle John giving all the his nephews musical instruments to drive our parents mad. Thanks Steve for continuing the tradition – we are on the verge of insanity! I forgive you, but I will not forget when you start your family! Mark my words, children’s instruments will only get louder and more inexpensive to buy.

Okay, here is how it relates to my business. I use to be able to work out of my home office. My kid have driven me to actually leave the house for work. This has been a great thing for my productivity. Thanks again Steve.

Drew on Drums

Summarized article Real Estate Journal, How a Home Stager Preps Her Home Before Selling.

1. Upgrade light fixtures:

– Use higher wattage bulb to make rooms brighter, creating an inviting mood and make s the rooms appear larger

– Install dimmers to create mood lighting

1. Reconfigure rooms – for instance if a small second bedroom feels cramped, turn it into a den or craft room.

1. Repaint walls according to buyer that you are trying to attract.

– Bold colors for artsy feel

– Neutral colors for a more conservative buyer

1. Repaint laminate cabinets in the kitchen and bathrooms

– Use Melamine, a plastic-based paint

– Change out the hardware

1. Remove extra furniture and clutter from the house

– This may seem obvious, but specifically store it off-site as home buyers usually look at the basement and garage

1. Create curb appeal by putting planters out front – draw people into the house

Greetings! I hope everyone’s New Year is going great so far!

I have now been in business for 5 months and 6 transactions – what a great learning experience! I feel that I’ve done a good job putting my interpersonal skills together with strong negotiating ability to get the best value for my clients.

A few success stories:

• We received a winning, full price offer on my first listing in one weeks time!
• My second listing closed in 17 days with a close-to-full-price offer.
• For one of my buyers, we negotiated $25,000 less than asking and closed in about two weeks time.
• Another buyer will be getting into her home for at least $10,000 less than asking, with repairs done by the seller and several thousand credited back.

In short business has been good. I’ve enjoyed the challenges and people I’ve worked with. Whether or not you are buying or selling, I’m dedicated to share my contacts and resources – Just ask.

The stats for 2005 per the National Association of Realtors are in and I thought you may find them interesting:

• 7.07 million homes sold in 2005.
• That is the fifth consecutive annual record year.
• Inventories of unsold homes fell to 2.8 million in December.
• 2005 national median sales price increased 10.5% to $211,000.

Buying your own home is still the way to go. That said, David Lereah, chief economist of the NAR reports that “Speculators are pulling out.” Sales are reflecting that change. We should be seeing more price adjustments as the market slows to steady growth. Yes, there will be exceptions to well priced properties, but I am guessing that buyers will have more advantages in negotiations.

If you are ready to make a change, let’s talk. The coming months of early spring are historically a great time to take advantage of the slower winter pace.

Featured Listings:

8183 Yorkton Way, Sacramento, CA 95829 – $499,000

1151 Millet Way, Sacramento, CA 95834 – $317,000

JUST ASK

Q: When looking at my local housing market, how significant are the terms “over-valued” and “under-valued”?

A: Economists release data in the beginning of the calendar year with indexes that show housing markets that are either over-valued or under-valued. These indexes are typically based on three main aspects: income levels, interest rates, and population densities.

The significance of these indexes varies. For example, areas deemed over-valued often experience less vigorous growth over time. Yet there are reasons why those markets become so hot in the first place. The area’s restaurants, outdoor recreation, and cultural infusions are not reflected in the housing market indexes.

Each area needs to be examined on its own merits and / or drawbacks. If you would like to sit down to discuss our market area, please let me know.

Find a housing index report here: http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm

MY TOWN

Spring is almost here! Spring is a wonderful time to put your house on the market. Buyers come out of the woodwork, the sun is shining, the trees are blooming and your house looks just perfect. Or does it? The better your house looks from the street, the better the buyer’s first impression, and the better offers you will get. One of the best ways to prepare your house for market now is to spruce up your front garden or walkway. Here are some fun websites to help you get started.

http://www.gardenweb.com/ has a Hortiplex database where you can look up plants and flowers.

http://www.organicgardening.com/ offers everything from compost piles to backyard bird feeding.

Provided free of charge, the city of Austin has posted six optimal landscaping designs on this website (http://www.cityofaustin.org/greengarden/designtemp.htm) that will help you minimize water use and promote environmentally-friendly gardens.

I would love to visit your house and give you tips on inexpensive ways to spruce up the front of your house. Just let me know!

FYI

Are you getting ready to head out to Home Depot or Lowe’s to pick up some supplies for your remodel project? If so, take a look at this website: http://www.fatwallet.com/

Fat Wallet is comprised of a community of people who keep their eyes out for fantastic deals on everything under the sun. Use their search bar to type in the name of the store where you want deals and you will find coupons and savings offers!

PERSONAL UPDATE

Everyone asks me about my family and THE KIDS – so here’s the scoop.

– Drew is in his terrific twos (all parents will read between the lines here – ha ha ha). He is into everything: Climbing, running (his feet and mouth), drawing and painting, watching shows (Bob the Builder is his favorite), playing “Choo choo”, staying awake late, digging in the backyard, eating sweets, making new friends, and more.

– Luke is about 6 months old. His favorite things to do are rolling over, drooling, bouncing in his “bouncy seat”, chewing on stuff, and now eating rice cereal. Oh did I mention drinking mama’s milk?! He’s an angel!

– Char and I just celebrated our 5 year wedding anniversary. Looking back, we are so grateful for where we’ve been and the newness ahead. We both will be turning 35 this year (well I just did). It’s a great season of life.

As you may know, my growing business is built on insight, integrity, and experience, however, it flourishes by working with quality people as yourself and those you might refer. Thank you for your business.

I hope you have a great holiday and look forward to talking to you soon.

Cheers!

Keith Klassen
(916)282.6313