Wednesday, March 20, 2013

7 Costly Mistakes When Selling Your Home

There are always appropriate steps to investing in real estate and hopefully, you've garnered many of them right on these pages. However, there are also inappropriate steps sellers can walk down when it comes time to put their house on the market.
For instance, the seller who thought the half bath the builder had located at the front of the house would really be better situated toward the back of the main level (though all the other similar models had the powder room in the same place for the previous 20 years). He got hung up on this detail so much, that he just had to move it -- and did -- for thousands of dollars, just so he could get it on the market the "right way." His hang-up may have settled some deep-seated emotional need for him, but it didn't draw any more buyers, and it drained his bottom line. You might say, that was a costly mistake.
Real estate broker and author Sid Davis has identified another seven costly mistakes that many sellers make when it comes time to put their home on the market. In my business, I've seen each one of these mistakes played out and it just makes me shake my head as to why, sellers forge ahead with unwise strategies, instead of listening to the voice of an experienced professional.
The seven costly mistakes

Mistake 1: Putting the home on the market before it's ready. Most times this happens because the seller gets impatient or is a procrastinator and has pushed himself up against a moving deadline without getting the pre-sale work done. So it comes on the market with the horrible carpet (that gets replaced during the marketing of the home); or they are painting it while it goes on the market. Presentation is everything -- so get the work done before marketing the property.
Mistake 2: Over improving the home for the neighborhood. This happens with additions, bump outs, and upgrades that make the home stick out from among its competitors so much that it's an anomaly, instead of a nice addition to the community.

Mistake 3: Pricing the home based on what he seller wants to net. This pricing strategy always ends in failure. Sellers can control the "asking" price, but they don't control the "sales" price. The market does. It doesn't matter what the seller wants, the price is determined by the black-and-white, matter-of-fact reality of the market. If all the comparable houses next to you are selling at around $250k, then pricing at $275k (unless you have mega upgrades that all the other homes don't) will only increase your days waiting on market, and make your house less desirable to buyers as time goes on. Put it on right around market value, and watch buyers fight for it!

Mistake 4: Not hiring a REALTOR. Make sure you're hiring a professional REALTOR. It might be nice to hand over your largest asset to your nephew or sister who just got their license -- but when it comes to selling your home, you want someone who has experience, qualification, recognition, and a company behind them to have your back. 
Mistake 5: Getting emotionally involved in the sale of the home. This is one of the biggest challenges home sellers face when putting their house on the market. Once you decide to sell your house, it's no longer a home, but a commodity. It needs to be prepared as a commodity, marketed as a commodity, and priced as a commodity. It doesn't matter what you "want," only what the market can bear on pricing. People are going to come in to kick the tires, so to speak, and you can't get emotional about how they may or may not appreciate the nuances of your home of seven years.
Mistake 6: Trying to cover up problems, or not disclosing them. Most states have a property disclosure/disclaimer form -- use it wisely. Just because you disclaim doesn't mean you cannot be sued later for the leaky basement, or dilapidated heating/air system that's discovered 30 days after settlement.
Mistake 7: Not getting your ducks lined up before trying to sell. This would involve financing, reading the fine print on your current mortgage to ensure no pre-payment penalties, not listening to the particulars of your local market, etc. If your local market is dictating lower home prices, then lower it early, not later -- it will cost you more. If the local market dictates selling your home first, then buying second, do it in that order, or vice versa.
Avoiding these mistakes is not that difficult. There are plenty of resources and professionals, who are there to help you step over the pitfalls. Do the research early, and listen to that voice in your head (it's probably the whispers of the finance, real estate, insurance person who's warning you of a hole you're about to step into). Sell well! Call me if you'd like any more information or a consultation absolutely free!

Thursday, March 7, 2013

7 Tax Deductions for Home Owners

Owning a home can pay off at tax time. For 2012, you might be able to take advantage of these home ownership-related tax deductions, credits, and strategies to lower your tax bill:

Mortgage interest deduction
Private mortgage insurance deduction
Prepaid interest deduction
Energy tax credits
Vacation or second home tax deductions
Home buyer tax credit repayment
Property tax deduction

PMI and FHA Mortgage Insurance Premiums

Prepaid Interest Deduction
Prepaid interest (or points) you paid when you took out your mortgage is 100% deductible in the year you paid them along with other mortgage interest. 
If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year. 
But if you refinance to get a better rate and term or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the term of the loan. Say you refi for a 10-year term and pay $3,000 in points. You can deduct $300 per year for 10 years.
So what happens if you refi again down the road?
Example: Three years after your first refi, you refinance again. Using the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3 years) so far. That leaves $2,400, which you can deduct in full the year you complete your second refi. If you paid points for the new loan, the process starts again; you can deduct the points over the term of the loan.  
Home mortgage interest and points are reported on IRS Form 1098. You enter the combined amount on line 10 of Schedule A. If your 1098 form doesn’t indicate the points you paid, you should be able to confirm the amount by consulting your HUD-1 settement sheet. Then you record that amount on line 12 of Schedule A.

Home Buyer Tax Credit
  • There were federal first-time home buyer tax credits in 2008, 2009, and 2010.
  • Members of the armed forces who served overseas got an extra year to use the first-time home buyer tax credit. If you were abroad for at least 90 days between Jan. 1, 2009, and April 30, 2010, and you bought your home by April 30, 2011, and closed the deal by June 30, 2011, you can claim your first-time home buyer tax credit.
    The IRS has a tool you can use to help figure out what you owe.
  • If you claimed the home buyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.
  • If you used the tax credit in 2009 or 2010 and then sold your house or stopped using it as your primary residence, within 36 months of the purchase date, you also have to pay back the credit. Example: If you bought a home in 2010 and sold in 2012, you pay it back with your 2012 taxes.
  • That repayment rules are less rigorous for uniformed service members, Foreign Service workers, and intelligence community workers who 
  • get sent on extended duty at least 50 miles from their principal residence.

Mortgage interest deduction:
One of the neatest deductions itemizing home owners can take advantage of is the mortgage interest deduction, which you claim on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home — and your home can even be a house trailer or boat, as long as you can sleep in it, cook in it, and it has a toilet.
Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home.
If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.
If you use loans secured by your home for other things — like sending your kid to college — you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.
Helpfully, the government extended the mortgage insurance premium deduction through 2013. You can deduct the cost of private mortgage insurance as mortgage interest on Schedule A — meaning you must itemize your return. The change only applies to loans taken out in 2007 or later.
What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).
If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you lose 100% of this deduction (10% x 10 = 100%).
Besides private mortgage insurance, there’s government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.

Energy Tax Credits

The energy tax credit of up to a lifetime $500 had expired in 2011. But the Feds extended it for 2012 and 2013. If you upgraded one of the following systems this year, it’s an opportunity for a dollar-for-dollar reduction in your tax liability: If you get the $500 credit, you pay $500 less in taxes.
    Varying maximums
    • Biomass stoves
    • Heating, ventilation, air conditioning
    • Insulation
    • Roofs (metal and asphalt)
    • Water heaters (non-solar)
    • Windows, doors, and skylights
    • Storm windows and doors
    • Determine if the system is eligible. Go to Energy Star’s website for detailed descriptions of what’s covered. And talk to your vendor.
    • The product or system must have been installed, not just contracted for, in the tax year you’ll be claiming it.
    • Save system receipts and manufacturer certifications. You’ll need them if the IRS asks for proof.
    • File IRS Form 5695 with the rest of your tax forms.

    Some of the eligible products and systems are capped even lower than $500. New windows are capped at $200 — and not per window, but overall. Read about the fine print in order to claim your energy tax credit.

    Property Tax Deduction
    You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.
    If you bought a house in 2012, check your HUD-1 Settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.
    This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

    Vacation Home Tax Deductions
    • If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you can deduct mortgage interest and real estate taxes on Schedule A.
    • Rent your vacation home out for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Those expenses get deducted using Schedule E.
    • Rent your home for part of the year and use it yourself for more than 14 days and you have to keep track of income, expenses, and divide them proportionate to how often you used and how often you rented the house.
    The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.


    If this is just too much for you, talk to my favorite tax accountant John Ghaly at 714.396.5066

    What Would My Total Monthly Mortgage Payment Look Like?

    Rents are still high, vacancy rates are still very low, and interest rates are still excellent (though we experienced them going up for the last few weeks, which was a bit scary). Thankfully, this week rates went back down a bit to 3.55%, from 3.64% last week. 
    So what does a total mortgage payment look like? Some of those mortgage estimate websites only calculate your principle and interest, but forget about important fees like taxes, insurance, and mortgage insurance!
    Let's do a couple case studies - you might be pleasantly surprised:
                      Purchase Price: $200,000
    Downpayment: 3.5%                            Downpayment: 20%
    Interest rate: 3.55%                            Interest Rate: 3.55%
    Taxes: $1000/year                             Taxes: $1000/year
    Insurance: $1000/year                        Insurance: $1000 year
    ~Mortgage Insurance: ~$201/mo          Total Monthly Payment: $889/month!
    Total Monthly Payment: $1239/mo
    *Note: After 5-7 years, you won't have to pay mortgage insurance any longer, and your total monthly payment will be $1038!                       
                       Purchase Price: $400,000
    Downpayment: 3.5%                          Downpayment: 20%
    Interest rate: 3.55%                            Interest rate: 3.55%   
    Taxes: $2000/year                              Taxes: $2000/year  
    Insurance: $1000/year                         Insurance: $1000/year
    ~Mortgage Insurance: ~$401/mo           Total Monthly Payment: $1695/month!
    Total Monthly Payment: $2395/mo
    *Note: After 5-7 years, you won't have to pay mortgage insurance any longer, and your total monthly payment will be $1995! 
    If you need more estimates on different purchase prices and downpayments, please contact me!

    Best Denver Market in 12 years?

    Best market in 12 years? Well, home prices in the Denver metro area rose 8.5% in December 2012 over December 2011, marking the 12th straight month of year-over-year gains, according to the S&P/Case-Shiller Home Prices Index released Tuesday.
    The report said it was Denver's largest annual increase since 2001!
    Sellers, have I mentioned to you that it is a COMPETITIVE market for buyers right now? The Denver Post interviewed an agent who had this to say: "I've sold real estate that long, and I can tell you this is the hottest market of my career," said Michelle Ackerman, Redfin's managing broker for the metro area. "Prices are up - that's a proven fact. Inventory is loosening up a bit, and we're seeing multiple bid offers all over the metro area. It's a seller's market, and it's extremely competitive. I've been doing things I've never done before to capture a home."
    I have the same experience. As soon as a house is put on the market, I have to take my buyers there the same day, and they know they have to decide that same day whether to write an offer or not, because chances are it will be gone very soon. A few years ago, buyers had a few days or weeks to decide whether they wanted to put an offer in on a house. It's not that way anymore. It's hot right now. 
    Let me know if I can help you compete!

    Tuesday, March 5, 2013

    Staging Secrets When Selling Your Home

    HGTV recently gave 15 staging secrets to highlight the strengths of your home, and minimize its weaknesses. This is what they said:

    1. Bye, Bye Clutter
    The most important thing you can do to prepare your home for sale is to get rid of clutter. Make a house rule that for every new item that comes in, an old one has to leave. One of the major contributors to a cluttered look is having too much furniture. When professional stagers descend on a home being prepped for market, they often whisk away as much as half the owner's furnishings, and the house looks much bigger for it. You don't have to whittle that drastically, but take a hard look at what you have and ask yourself what you can live without.

     2. Furniture Groupings
    There's a common belief that rooms will feel larger and be easier to use if all the furniture is pushed against the walls, but that isn't the case. Instead, furnish your space by floating furniture away from walls. Reposition sofas and chairs into cozy conversational groups, and place pieces so that the traffic flow in a room is obvious. Not only will this make the space more user-friendly, but it will open up the room and make it seem larger.

    3. Musical Furniture
    Give yourself permission to move furniture, artwork and accessories among rooms on a whim. Just because you bought that armchair for the living room doesn't mean it won't look great anchoring a sitting area in your bedroom. And try perching a little-used dining-room table in front of a pretty window, top it with buffet lamps and other accessories, and press it into service as a beautiful writing desk or library table.

    4. Room Transformations
    If you have a room that serves only to gather junk, repurpose it into something that will add to the value of your home. The simple addition of a comfortable armchair, a small table and a lamp in a stairwell nook will transform it into a cozy reading spot. Or drape fabric on the walls of your basement, lay inexpensive rubber padding or a carpet remnant on the floor and toss in a few cushy pillows. Voila - a new meditation room or yoga studio.

    5. Home Lighting
    One of the things that make staged homes look so warm and welcoming is great lighting. As it turns out, many of our homes are improperly lighted. To remedy the problem, increase the wattage in your lamps and fixtures. Aim for a total of 100 watts for each 50 square feet. Don't depend on just one or two fixtures per room, either. Make sure you have three types of lighting: ambient (general or overhead), task (pendant, under-cabinet or reading) and accent (table and wall).

    6. Make It Bigger
    To make a room appear to be bigger than it is, paint it the same color as the adjacent room. If you have a small kitchen and dining room, a seamless look will make both rooms feel like one big space. And make a sunporch look bigger and more inviting by painting it green to reflect the color of nature. Another design trick: If you want to create the illusion of more space, paint the walls the same color as your drapery. It will give you a seamless and sophisticated look.

    7. Neutral and Appealing
    Painting a living room a fresh neutral color helps tone down any dated finishes in the space. Even if you were weaned on off-white walls, take a chance and test a quart of paint in a warm, neutral hue. These days, the definition of neutral extends way beyond beige, from warm tans and honeys to soft blue-greens. As for bold wall colors, they have a way of reducing offers, so go with neutrals in large spaces.

    8. Color Experiment
    Don't be afraid to use dark paint in a powder room, dining room or bedroom. A deep tone on the walls can make the space more intimate, dramatic and cozy. And you don't have to go whole hog - you can paint just an accent wall to draw attention to a dramatic fireplace or a lovely set of windows. If you have built-in bookcases or niches, experiment with painting the insides a color that will make them pop — say, a soft sage green to set off the white pottery displayed within.

    9. Vary Wall Hangings
    If your home is like most, the art is hung in a high line encircling each room. Big mistake. Placing your pictures, paintings and prints in such stereotypical spots can render them almost invisible. Art displayed creatively makes it stand out and shows off your space. So break up that line and vary the patterning and grouping.

    10. Three's Company
    Mixing the right accessories can make a room more inviting. When it comes to eye-pleasing accessorizing, odd numbers are preferable, especially three. Rather than lining up a trio of accessories in a row, imagine a triangle and place one object at each point. Scale is important, too, so in your group of three be sure to vary height and width, with the largest item at the back and the smallest in front. For maximum effect, group accessories by color, shape, texture or some other unifying element, stagers suggest.

    11. Raid Your Yard
    Staged homes are almost always graced with fresh flowers and pricey orchid arrangements, but you can get a similar effect simply by raiding your yard. Budding magnolia clippings or unfurling fern fronds herald the arrival of spring, summer blooms add splashes of cheerful color, blazing fall foliage warms up your decor on chilly autumn days and holly branches heavy with berries look smashing in winter.

    12. Serene and Inviting
    Create a relaxing bedroom setting with luxurious linens and soft colors that will make a potential home buyer want to hang out. Bedroom staging trick: If you don't have the money to buy a new bed, just get the frame, buy an inexpensive air mattress and dress it up with neutral-patterned bedding. And remember to declutter. By cleaning out your closets, you're showing off your storage space, which sells houses - it always ranks high on buyers' priority list.

    13. New Faces
    If you can't afford new cabinets, just get new doors and drawer fronts. Then paint everything to match and add new hardware. And instead of replacing the entire dishwasher, you may be able to get a new front panel. Check with the manufacturer to see if replacements are available for your model. If not, laminate paper, which goes on like contact paper, can be used to re-cover the existing panel.

    14. Repaired Wood
    Unfinished projects can scare off potential buyers, so finish them. Missing floorboards and large cracks in the sidewalk on the way to your door tend to be a red flag, for example, and they cost you less to fix than buyers might deduct from the asking price.

    15. Prim and Polished
    Having tile professionally painted can make a bathroom look brand new. And accessorizing can make buyers feel like they're in a spa. Put out items like rolled-up towels, decorative baskets and candles. It's a great way to create a polished look, and it doesn't cost much to do.

    Colorado Residents: 2nd Highest Sense of Well-Being in the USA

    What states have residents with the highest sense of "well-being," meaning physical health, outlook on life, job satisfaction, and other factors that affect quality of life? Gallup and Healthways produce an annual report on the "Well-Being" of each of the 50 U.S. states and their respective communities, and measure the highest "well-being" of its residents.  

    The research is extensive. "The research and methodology," says the report, "underlying the GallupHealthways Well-Being Index and the Community, State and Congressional District Well-Being Reports are based on the World Health Organization definition of health, which is, “...not only the absence of infirmity and disease but also a state of physical, mental and social well-being.”

    After #1 honeymoon State Hawaii, Colorado ranked #2 "State of Well-Being" in the entire country. No surprise there. 

    As far as large communities, Denver ranked #4 in the country. For top mid-sized communities, Boulder ranked #2 in the United States. 

    Some of the states with the worst "well-being" included Ohio, Indiana, Oklahoma, and West Virginia.