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This is the archive for February 2008

Monday, February 11, 2008

As April 15th approaches, I thought it might be appropriate to discuss a little known tax exemption on home sales. Did you know that when you sell your primary residence you can be exempt up to $250,000 for a single or up to $500,000 for a married couple? It's true, ask your tax pro if you don't believe me.

Here's how it works:
  • You must have owned your primary residence for at least two years.
  • You must have LIVED in your primary residence for two of the last five years.
  • The exemption does not apply to rental properties.
  • The exemption does not apply to properties previously acquired through a 1031 like kind exchange unless you've owned the property for at least 5 years and have lived in it at least 2 of those 5 years as your primary residence.

That's pretty much it. There are of course lots of rules and regulations to make it a bit more tough than that, but basically if you've met those requirements you qualify for the exemption. Let's see a couple of examples:

Scenario 1: Paul and Mary bought their home in January of 2006 and have lived in it since they closed on it. They decide to list it in Februrary of 2008, it sells in 2 weeks and closes February 29th. Net proceeds from the sale of their home totaled $395,000 after paying all expenses. They do not use ANY of the proceeds from the sale of their home to purchase another one. Do they qualify for the exemption? ANSWER: YES THEY DO! They occupied the home for at least two years as their primary residence, and as a married couple they can claim up to a $500,000 exemption from federal income taxes. The new law does not make any requirements for re-investing the proceeds into their next home. They can be off on a glorious trip around the world if they'd like.

Scenario 2: Sigmund is a captain in the US Army. He purchased his home in March of 2001. In May of that same year, he was deployed to Germany for 3 years. During his deployment, he rented his home to his buddy Phil. When he returned in May of 2004, he moved back in and occupied the home until December of 2005 when he was again deployed for one year to Korea, fortunately Phil was looking for a place to rent and he re-rented it from Sigmund. When he returned home in December of 2006, he moved back in and decided to sell the home in November of 2007. The home sold in one month and closed December 31st, 2007. Net proceeds from the sale of Sigmund's home were $310,000. Does Sigmund qualify for an exemption? Answer: Yes, mostly! Sigmund because he is single qualifies for an exemption of up to $250,000. The additional $60,000 would be subject to capital gains tax EVEN if Sigmund decides to re-invest that money in the purchase of a new home. Because Sigmund occupied the home for at least 2 of the past 5 years, he qualifies for the exemption. Nothing in the language from the IRS stipulates that the occupancy must be consecutive.

If you'd like to discuss other possible scenarios, feel free to give me a call. I'm more than happy to help!

The preceding article should not be construed as tax advice. You should always consult a tax professional when questions specific to your situation arise.

Sunday, February 10, 2008

As if it wasn't confusing enough to know how to protect your credit score, Fair Issac is making it more difficult. Although, the changes should be positive and add some stability back into the lending world if it works as advertised. Read on . . . .

Fair Isaac Corp., the company that devised the ubiquitous FICO credit scores, announced this week that it plans to roll out a suite of tools designed to predict future default risk.

Fair Isaac says the new products will predict how lenders can offer even more debt to consumers without taking on undue risk.

The update revamps the old credit-scoring formula so that it penalizes consumers with a high debt load more than the earlier version. FICO 08 should increase predictive strength by 5 to 15 percent, according to Fair Isaac's vice president of scoring, Tom Quinn.

FICO 08 is also expected to do a better job of determining which consumers with past defaults are "more on the road to recovery and should have more of a higher score," Quinn says.

The new index can look at three consumers with a 700 FICO score and determine which of the three could take on additional debt without defaulting, according to the company.

Source: Star-Tribune, Kara McGuire (01/22/08)

Saturday, February 09, 2008

An analysis of the real estate market in the Baltimore area shows that even in a slow market some houses sell quickly — for the same reasons they do in a booming market.

In November, when the average time on the market was 105 days, 13 percent of the 1,892 homes that sold in Baltimore and five surrounding counties had contracts in two weeks or less, according to data from Metropolitan Regional Information Systems Inc.

Those 251 homes went from listing to selling in an average of seven days. They were typically older, three-bedroom, two-bath houses that sold at an average of $304,355 — about $4,000 under the overall average sale price.

An analysis shows that fast sellers in a slow market have three common denominators:
  • They're priced better than comparable listings.
  • They show like model homes.
  • They have a full force of marketing, including enticing Internet photos, behind them.


Source: The Baltimore Sun, Lorraine Mirabella (01/10/08)

To see what a comprehensive marketing plan can do for you, give me a call for a no obligation market analysis of your home and a demonstration of my full on Guerilla Marketing campaign!

Friday, February 08, 2008

The NATIONAL ASSOCIATION OF REALTORS® congratulated the U.S. Congress for quickly passing a national economic stimulus package and thanked President George W. Bush for his leadership and willingness to promptly enact legislation that will help thousands of families, the housing market, and the U.S. economy.

“We believe the economic stimulus bill that Congress sent to the president today is strong legislation that will quickly impact the nation’s families and economy,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “We are pleased that both the Federal Housing Administration (FHA) and the Fannie Mae and Freddie Mac (GSE) loan limits have been increased, even if only temporarily. This will be a major stimulus for the housing industry and for people who want to own a home.”

Increasing FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home, according to NAR research. In addition, NAR believes that increasing the loan limits for Fannie Mae and Freddie Mac will bolster the severely stressed housing finance market by immediately infusing much needed liquidity into the nation’s mortgage market. “While such an increase will not solve the full range of housing challenges, it will play a vitally important role in improving the nation’s economy and making the dream of homeownership more attainable for thousands,” said Gaylord.

An economic impact study conducted by NAR earlier this month estimated that increasing the GSEs’ conforming loan limits would result in as many as 500,000 refinanced loans and could help reduce foreclosures by as much as 210,000. In addition, over 300,000 additional home sales could be generated, housing inventory would be reduced and home prices would be strengthened by two to three percentage points. “These are real results and will have an immediate and sustainable impact for families across our country,” said Gaylord.

Reprinted with permission from the National Association of Realtors
Please note, John does NOT promote this as a way to avoid foreclosure! Call me and we can figure out a way together to get your home sold and keep your integrity intact.

From Fortune Magazine, 1/21/08 - John Birger

Arson appears to be on the upswing as home owners try setting the house afire and collecting insurance as an alternative to foreclosure.

California's state insurance division reports that the number of "questionable residential fires" in 2007 increased 76 percent. Allstate says it’s seen an increase in arson among homes in foreclosure.

FBI crime data shows there was a 4 percent increase in suburban arson in 2006 (2007 figures aren't yet available), a reversal from the prior three years, when rates declined.

“It’s a growing problem,” says Dennis Jay, executive director of the Coalition Against Insurance Fraud.

Thursday, February 07, 2008

South Hill Puyallup residents are in for a treat when Sunrise Village opens later this year. Some anchor tenants announced are:
  • LA Fitness
  • PetSmart
  • Staples
  • "A Home Improvement Store"
  • Target
We've also heard that a new Kohl's department store will be going in across the street.
Now that winter is in full swing here in the northwest, I've been watching my Puget Sound Energy bill steadily rise. We've done many things to keep our costs down, sealing our doors and windows, using a programmable themostat, etc. but the bill keeps on climbing. Much of that has to do with rate increases, but even so, we continue to look for more efficient ways to run our home. This month in Realtor magazine, I came across an article talking about Energy Audits. A company comes into your home with fancy equiment and identifies all the potential energy wasters in your home, then makes suggestions on how to improve it. I'm currently looking for a local energy auditor and will post my results here as soon as I've found one. For now, read on:

Finding the Leaks

Charm radiates throughout the beautiful old house your clients just bought — but so does cold air in the winter and hot air in the summer. Should you suggest that your clients install new windows to increase the energy efficiency of their house?

Not necessarily. What you could do is recommend that they get an energy audit conducted by a professional third-party energy efficiency certification company.

Better yet, offer to pay for the energy audit yourself, giving it to them as a closing gift.

It’s a pricey gift, at about $350. But Candace Lightner, a sales associate with Coldwell Banker Residential Brokerage in Alexandria, Va., says you’ll garner widespread customer goodwill.

“We thought it was a fantastic gift, and what we’re learning about our house is invaluable,” says a buyer who had an energy audit conducted on her home late last year at Lightner’s expense.

The audits, which take about two-and-a-half hours, are designed to identify major energy leaks in a house. Home owners are given a thick report showing where the top leaks are and how to fix them.

Older Means Less Efficient

Surprisingly, drafty windows and doors are typi­cally not the greatest sources of energy loss, says Lee O’Neal of NSpects, an energy inspection company based in Chantilly, Va. The biggest culprits are construction shortcuts such as:
  • The absence of external building wrap around the joists between the floor and walls
  • Improperly insulated attics
  • Improperly insulated basements and crawl spaces


As you’d expect, homes that are 40 or more years old are typically far less efficient than newer ones that have been built to updated codes, says O’Neal.

New homes are more likely to have building wrap and well-insulated attics and basements. Also, newer homes tend to come with more efficient double-paned windows and heating and air conditioning systems.

Both older and newer homes tend to be inefficient when it comes to the places where pipes and wires come into them. “The holes never get sealed,” explains O’Neal.

Another problem area, even in new homes, he says, is recessed lighting. Recessed lights sit in big ceiling holes and carpenters rarely think to seal around the edges.

The Nuts and Bolts of Audits

The heart of any energy audit is what’s known as the blower-door test. It involves sealing a front door opening with an airtight nylon tarp penetrated by a large fan. The fan depressurizes the house by drawing out indoor air. This pulls in air from the outside, so every gap in the house, large and small, acts like a vacuum, and anyone in the house can feel the air streaming in from all directions. Inspectors identify the smallest penetrations using a device called a smoke pencil, which releases a thin stream of gray smoke that billows in the presence of leaks.

To get an especially detailed picture of leakage, inspectors use a camera with infrared film to photograph problem areas like chimney flues and crawl spaces. Areas with leaks will be visible in the pictures by differences in color density.

By the end of the audit, your clients should know the house’s main problem areas. The inspection report, which takes a few days to compile, will give them suggestions for repairs. It’s unlikely the auditor will recommend that everything be fixed, says O’Neal. Auditors usually focus on repairs that will provide the greatest efficiency at a reasonable cost.

“It doesn’t make sense to spend thousands of dollars to get small improvements in efficiency,” says O’Neal. “But it does make sense to spend a few thousand to get efficiencies that’ll pay for themselves in a few years.”

Reduced utility payments aren’t the only benefit your clients will see; they’ll also enjoy more creature comfort and — down the road — potentially a greater resale value.

Reprinted with permission from the National Association of Realtors, original article written by Robert Freedman

Additional Resources:
USDOE Guide to Home Energy Audits
Washington State University Energy Auditor Checklist (NOTE: PDF Format)

Wednesday, February 06, 2008

Again, the news media would have you believe that prices are plumeting all around the sound, but numbers just released actually show that most areas experienced price appreciation in 2007. Here are the statistics:

Pierce County:
  • New Construction: +9.1%
  • Existing Single Family: +6.1%
  • Condominiums: +3.3%

King County:
  • New Construction: +12.6%
  • Existing Single Family: +10.61%
  • Condominiums: +3.3%

Snohomish County:
  • New Construction: +8.5%
  • Existing Single Family: +8.6%
  • Condominiums: +14.8%

Kitsap County:
  • New Construction: -5.6%
  • Existing Single Family: +10.0%
  • Condominiums: +25.4%

Some breakdowns by pierce county real estate zip codes for existing single family homes:
Puyallup Real Estate (98371-98374): +1.4% - +9.7%
Spanaway Real Estate (98445, 98387): +1.7% - +2.9%
University Place Real Estate (98466 - 98467): -0.3% - +1.8%
Sumner Real Estate (98390 - 98391): +5.6% - +7.3%

So when you look at the ACTUAL numbers from 2007, don't believe Dennis Bounds, Steve Raible or any of those guys that tell you it's ALL doom and gloom. If you'd like numbers for your specifc zip code, don't hesitate to shoot me an e-mail or give me a call, I'm happy to help!

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