The Interest Rates are Down but Has the Cost Gone Up?

A lot of buyers know that rates are down, way down, and therefore feel they don't need to be in a hurry to buy. But there's more to the story than that.

The Housing Affordability Index from the National Association of REALTORS® shows the drop in interest rates over a period of time since 2009.  The interest rates for were 4.37% in January, 2012, and down to 3.81% in June, 2012.  In January and February of 2012, the monthly payment as a percentage of income was 12.% and 12.0%, the lowest for the entire period of the chart, but increased to 13.9% in June. That means a buyer is spending a larger percentage of his/her income on mortgage payments. 

Yes, rates are low, but with low housing inventory all across the nation, and more buyers than there are sellers, there is an upward pressure on prices.

And why is that? Because the median home price went from $154,600 in January to $190,100 in June, a 23% increase. These home prices are on a national level.

So what is going on locally? Many areas are still trending downward, but upward trends are happening all around:  The average home price in Signal Hill has gone up .8% annually, and 23% comparing August 2012 to August 2011.   The average home price in Belmont Heights/Belmont Shore/Naples (90803) has gone up 10% over the last 12 months.  The median sales price in Cypress is up 8%; Long Beach median sales price is up 1.4%; Cerritos is up 11.3%; Bellflower is up 8.5%. If you would like a monthly price report on one of these areas, they are readily available to send to you.

One of the most popular posts on this blog was The Cost of Waiting to Buy which continues to tell a part of the story.

Is now the time you're ready to take action? 

Top 10 Mistakes Buyers Make

 

California Association of Realtors has made a very nice graphic about their list of buyers' top 10 mistakes in a transaction.  Since they have the experience of hearing from many agents all over the state, they would be in a position to hear the most common complaints.

Personally, I haven't had equal experience with every single one of these items when working with a buyer, but when I think about, I can come close.
Item 1:  In every market, there seems to be a certain buyer who makes a below market offer (possibly known as "lowball") and wonders why the seller didn't respond with a counteroffer, or at least hear from the listing agent. Buyers, if you are this type of offeree, please know the seller is not ever required to respond (although it's nice of them to do so) if they don't like your offer.  Even if you are totally right about the price, and sometimes you are, it doesn't matter. Because the seller has a different perception, and does not agree with yours, even if you are right. Which leads to an important point: a good contract agreement reflects a meeting of the minds. Buyers, sometimes you have to either move on, or wait and see.  

And then there's the frustration of Item 2, where the seller accepts another buyer's offer. That other

Seller Top 10 Legal Mistakes, Part IV

Not providing the buyer with legally required disclosures.

There is an important form used by REALTORS in California transaction named the Transfer Disclosure Statement (TDS) for residential sellers to make certain written disclosures about their property. This form is required by the California Civil Code, since 1987.

Sellers often forget how important it was to them as a buyer to find out what their seller could tell them about their new home. Buyers still want to know, so what is a checkbox and a few blank lines to fill in to a seller on the TDS is a world of important information to the buyer(s).

The TDS is meant for the seller to tell the buyer what is within their ordinary knowledge about their property, i.e., repairs, how recently painted, permitted and non-permitted modifications or additions, how old the roof is, new flooring, is there a sump pump under the subflooring--in other words, things that the mentally present person is not likely to have forgotten about.  There is even an additional multi-page Property Questionnaire covering numerous topics to prompt the seller's memory, a document which is not legally required but is often requested by the buyer's agent. Buyers sometimes think that sellers purposely didn't tell them certain things, like that rot that was found after the brick facing was removed from the front of the house. But things can happen that the seller may have no knowledge of, especially if they lived there for many years without spending money on maintenance. But then there's the case of the freshly painted bathroom that may have been covering over the water stains from a roof leak, which the buyer found out about on physical inspection, but where there was no disclosure about it on the TDS.  Sellers, it only upsets buyers when you're not totally forthcoming--it may be painful to negotiate during escrow and walk away with less money, but it could be saving you from an angry buyer (that did not discover a problem during escrow) and a lawsuit later on.

It's important to give this TDS document to the buyer, in the time period stated in the contract, since the buyer has the right to cancel the contract otherwise. If the seller thinks he/she doesn't have to provide this form and refuses to do so, the seller will be liable for any resulting damages (that means . . . attorneys, and more money spent).  If they seller accidentally includes wrong information, and then realizes it later, they may amend the TDS and give it to the buyer. There are certain sellers exempt from this form, such as in probate cases, and trust, plus a few other types.

And there are other required disclosures, including those about natural hazards, lead paint, special districts, and others, such as death on the property.  If someone died on the property more than 3 years prior to the buyer's offer to purchase, or if they died from AIDs, the seller is not required to disclose that fact, unless the buyer asks. If someone did die before that time, then the seller must disclose it--because if you the seller thinks the buyer won't be talking to the neighbors later on, you should think again.  Buyers should know what they are concerned about before and during their buyer investigation period, so that they are not unpleasantly surprised after they move in.

This is a more complex and lengthy subject than in this post, if you have questions please feel free to contact me.
An observation:  It's so very difficult to absorb all that is conveyed in the tiny print in these transactions, so my advice is:  turn off your TV, do not check your phone, your iPad, your computer, just sit and focus in as quiet a place as possible when completing your documents.  It is not a time for multi-tasking.

Does the 3.8% Healthcare Tax Affect You?

The Healthcare Measure was recently passed, which imposes a 3.8% tax which will affect some people.

Important things to know about this tax are that, first of all, there may be some analyses which may not be correct.  For instance, this Measure does not mean that you will be paying a 3.8% tax on the sale of your home after 2012.

As stated in columnist Kenneth Harney's article of July 15th:  "Yes, there is a new 3.8% surtax that takes effect Jan. 1 on certain investment income of upper-income individuals — including some of their real estate transactions. But it's not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year." 

The surtax does not change the current capital gains exclusions of $250,000 (single tax filers) or $500,000 (joint tax filers, i.e., couples) for the sale of your principal residence.  But, basically, any gains above those amounts on the sale of your residence and if your income is above the $200,000 (single filer) or $250,000 (joint filer) annual income thresholds, you may then be exposed to the 3.8% surtax.

Therefore, it will be important to gather documentation on your property concerning improvements and expenses--including your closing costs--which increase your tax basis in order to lower your capital gains.

The National Asssociation of REALTORS at their website shows the following sample:

Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the healthcare law, giving you a revised AGI of $350,000. Since the law imposes the 3.8% surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times 0.038).

Capital Gain: Sale of a Principal Residence

AGI Before Taxable Gain  $325,000

Gain on Sale of Residence  $525,000

Taxable Gain

(Added to AGI) $25,000 ($525,000 – $500,000)

New AGI $350,000

($325,000 + $25,000 taxable gain)

Excess of AGI over $250,000 $100,000

($350,000 – $250,000)

Lesser Amount

(Taxable) $25,000 (Taxable gain)

Tax Due $950

($25,000 x 0.038)

See Kenneth Harney's article and Health Reform scenarios at Realtor.Org.

Please consult your tax advisor for information that directly pertains to your situation.