Real Estate & the Economy

Business Week televised a couple of good items about the real estate industry as a whole yesterday. Their video can be seen here: http://feedroom.businessweek.com/index.jsp?fr_story=1164424c0c16afd06ab22f7edc11e1b8de2f5ab5 I've pulled information from other current videos as well.

Some of the bullet points I thought were important are:

Buyers still have an edge in real estate.
Seller's are becoming more flexible and responsive to buyers' terms. It was specifically pointed out that buyer's who low-balling the selling price won't produce the desired result and indicated that 10% below asking was a reasonable price reduction to request.

Seller's can increase their returns by upgrading with environmentally friendly improvements. Shown by the trend in eco-friendly home buyers.
Sellers were directed to post at least 6 high-quality photos (recommended by Realtor.com) because 80% of home buyer's check out listings online before touring in person.

Buyer's too have some work to do like; giving a boost to their credit score, and finding the best deal (budget friendly) on a mortgage.

Mike Mandel, Business Week Economist, talked about the economy as a whole & the real estate market's effect on it. He says there are factors other than the mortgage market that consumers should be keeping an eye on.
Mike pointed out that 30 year fixed rates are actually lower than they were a year ago and that borrower's who have an adjustable rate mortgage, and decent credit will have little trouble re-financing into a fixed rate and will be "sitting pretty".

As a whole the mortgage market is doing just fine, though the sub-prime market is in a bit of trouble. The market will no doubt affect the economy but won't cause a recession according to Mandel. One of the more important aspects to watch closely is business investment which he says have slowed and is at very low levels.

Also the increase in foreclosure activity was localized to areas that didn't have strong real estate markets in the first place.

Home Loans and Homework

When shopping for a home loan, it is important to choose reliable sources that offer reasonable rates, and that don't make claims that seem far fetched.

I like Mortgage Lenders that allow you to research your options before signing up for anything. The internet is an excellent resource for doing just that. Sites that have posted current rates and terms upfront are best. By doing a little homework ahead of time, you will be better able to make the right choices for you and your personal financial situation. In the end, it all makes for a smoother transaction.

Mortgage Lenders , is a lender site that we tried and really liked. The information is current and accurate and the website is easy to navigate. (essential because our attention span is getting shorter)

The Five Factors of Credit Scoring

There are five factors that impact consumer credit scores. They are listed here in order of importance:

• Payment History has a 35% impact. Paying debt on time and in full has a positive impact and late payments, judgements and charge-offs have a negative impact.
  
• Outstanding Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account; the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest incurred by moving a balance form a 0% card to a 23% card will be minimal relative to what the increased mortgage debt might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio, provided they can do that without a hard credit inquiry.
  
• Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A seasoned borrower is stronger.
  
• Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only.
  
• Inquiries have a 10% impact. Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries receive a special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as only 1 inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquires beyond that [11+] in a six-month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.

You Credit Score

A good credit score can mean the difference between a low mortgage rate with conventional financing and a restrictive, higher-rate loan. There are some simple but very important steps you can take to clean up your credit.

1. Look for any past due balances on the credit report and bring them current.

2. Reduce all outstanding debt to as close to a zero balance as possible. If unable to pay all debt down, evenly distribute any remaining debt among open credit cards, or consider opening a new line and transferring some of the balances. Try to keep balances below 50% of available credit; below 30% would be even better. Do not close existing accounts.

3. If married, keep separate credit cards. This provides flexibility in transferring some or all of the balances to one spouse to increase the credit score of the other. This provides the possibility of one spouse becoming the sole borrower and it does not change the ownership of the home.

4. Request an increase in available lines on cards to reduce debt ratio, but only if your credit card company can that without a hard credit inquiry.

5. Pay off past dues and charge-offs within the last two years. Beyond two years, it will have no impact on your score if wiped out. In fact, the act of paying it off can actually take your score down temporarily.

6. Request that creditors and credit bureaus delete any outstanding debt that is incorrectly charged to you or has yet to be cleared. They have an obligation to react within 30 days. If you choose to pay off an outstanding debt (less than two years old) mark the back of the check "accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit." You may be able to use the cancelled check if the outstanding debt is not removed.



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Its Tax Season Again

Its Tax Season Again.

This year Tuesday, April 17, is the deadline to file your federal tax returns. And this is a good time to remind our friends to double check your returns before sending them off whether electronically or the old fashioned paper method.

The IRS has been touting via public relations officials with the agency, its increased audit efforts. On the radio this morning a spokesman for the IRS stated that the agency has upped its audit efforts and is trying to close the gap on non-payers. He also reminded listeners that not filing a return in many ways is more serious than not being able to pay your taxes, or willfully filing incorrect information. That is because the fines and penalties for not filing, are higher than other tax infractions.

Having been audited myself several times, I know it’s a pain in the butt and I would not wish the experience on anyone. In order to avoid being an audit victim, and I say that with all sincerity, make sure to keep your records organized and available. Remember that there is no statute of limitations for the IRS to come after you for failing to file. Here are a few questions and answers you’ll find useful.

Q: WHO NEEDS TO FILE?

A: Anyone who is employed, receiving earnings more than $8,450 in this tax year, and anyone who is self-employed or independent contractor, earning ‘net’ (after expenses) income over $400. (yes four hundred).

Q: WILL YOU HOLD MY HAND WHILE I AM BEING AUDITED?

A: Yes, I Will.

Q: WHERE CAN I GET GOOD TAX ADVICE?

A: I think the IRS itself is a good source of information. The website has every single form and publication available for download, or you can request that they be mailed to you. I would urge you to request your forms now, because, they won’t get to you in time to do any good if you wait much longer. The IRS website is http://www.irs.gov.

If you don’t have internet access, please e-mail me at john.wall1@century21.com and let me know how you are reading this blog.

Q: WHEN YOU WERE AUDITED, DID YOU CRY?

A: Only once.

Q: WHAT MAKES YOU SUCH AN EXPERT ON TAXES?

A: I am not! You should seek the advice of a qualified tax professional, and I would suggest you find someone who can represent you during an audit.

Some things I would like to remind you of is the long distance phone tax credit available this year. Every individual who has paid for long distance phone service is likely to qualify for this credit. You must however request it on your tax form (any of the 1040 forms) or if you don’t need to file a return, but want to receive your credit, you can file form 1040EZT. The EZT version of the 1040 is used only to request the credit.

Also, make sure you look at other available credits like the EIC or Earned Income Credit. While we are at it, I would like to mention that TAX CREDITS are better for most filers because a CREDIT means REFUND! When a tax credit is available to you, it means the IRS is holding money just for you. The caveat is that you must ask for it in order to receive it. Whereas, a deduction is a dollar amount that reduces your taxable income and possibly your tax liability (the amount you owe the IRS).

Remember a self employed person earning more than $400 must file a return? In theory if you earned $100,000 but had $99,600 in expenses that are deductable on your return, you would meet the qualifier for not having to file a federal tax return. (Don’t take my word on that – this is theoretical)

Some other things to remember are if you file zero income tax returns because you subscribe to certain beliefs such as ‘taxes are illegal’, you might end up in jail. The courts have tried many cases like these and the filer always looses. When the IRS comes after you, it will most likely cost you more than you would ever pay just filing an honest return.

For our home sellers and buyers, remember to get your 1031 and IRC 121 figures together now because in my personal experience, these transactions are audited more frequently (the IRS officially disputes this). If you are audited, don’t panic – Until you are called into an IRS field office. In which case, you shouldn’t go alone. Bring along your CPA, Tax Advisor, or advocate.

Having said that, most tax audits are ‘correspondence audits’ which are very painless, and easy to complete. They’re scary for tax payers because the notice comes in ‘official IRS – you’re about to be horse whipped stationary’. But really, this type of audit basically says, “Hi – This is the government. We have a question about line 22 of your tax return. Would you mind clarifying it please?” See, that’s not so bad! Just answer their questions and all will be okay.

A final thought; tax auditors are not the brutal, meanies that they are portrayed as in comedy sketches. In fact, I’ve never met one that wasn’t pleasant, friendly, and helpful except for one and he’s a jerk.

Go Download Publication 17 for more information on taxes – and remember that taxes are the cost of free society.



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Week in review

YOU KNOW WHO IS LOOKING FOR STOCKS? NOBODY! Last week's volatility in the stock market stabbed at the hearts of both the Stock and Bond markets, with home loan rates swinging higher and lower throughout the course of the week. Economic news releases took a backseat to the massive movements in Stocks. Amazingly, when all the smoke cleared, home loan rates were unchanged to slightly improved for the week overall.
What happened? First, remember that the Stock and Bond markets compete for the same investment dollar. This means that when Stocks are worsening and investors are selling off their holdings, some of that money gets moved over into the Bond market, which helps home loan rates improve. And vice versa, when Stocks move higher and investors are buying into the Stock market, some of that money comes back out of Bonds, which causes home loan rates to worsen.
Last week's volatility began with the Chinese Stock market plunging, setting off a string of worldwide stock selling. Our own Stock market was ripe for a reversal lower, and money flowed out of Stocks and into Bonds, helping home loan rates improve. The next day, Stocks began to rebound, moving money back out of Bonds and causing home loan rates to worsen. But the "see-saw" action continued for the balance of the week - and may not be done yet, causing high amounts of volatility in Stocks and Bonds - and therefore, home loan rates.

Compiled by TeamResults Affiliates as a service to our clients. Always seek advice from your own experts. E-mail TeamResults@Century21.com with questions, comments or concerns.

All about real estate commissions

Every buyer and seller wants to save on commissions paid to a real estate broker. We've had discussions before about when to ask for discounts and negotiating the commission amount. So far we haven't talked about what the commission really is and how it works. That's what we're going to do today. {FYI: for the purpose of this discussion, BROKER and AGENT are used interchangeably}


First off, the usual and customary real estate commission is at or around 6%. Business and investment property can be in the upper 10% area. ALL REAL ESTATE COMMISSIONS ARE NEGOTIABLE BETWEEN THE CLIENT AND BROKER.


Usually the seller pays the commission through sale proceeds at the close of escrow. The great majority of real estate sale transactions involve more than one broker (or agent). The seller's agent takes the listing, lets say at 6%. This agent begins a marketing program and lists the property in the local MLS (multiple listing service).


Another agent (most likely) may bring a client over to see the house and write an offer to purchase. If the seller accepts the offer, the other agent will be paid 3% of the 6% commission when escrow closes. This is called the 'Split'.


As an example, lets assume a sale price of $100,000. At the close of escrow the commission settlement may look something like this:


Sale Price: 100,000 x .06 = 6,000 /2 (split 50/50) = 3,000 to each broker.


This example doesn't account for fees and costs each agent incurs in the course of doing business which easily can eat up 1/3 of the commission paid on each transaction. So the take-home pay for agents in our example might only be $2000 and since they are usually self-employed; at least 30% of that will get set aside for taxes. Leaving 1,400 to pay the rent and keep the lights on.



So that is what the commission is. It's a fee for a service and that fee gets split between the service providers. Again, the commission is always negotiable and your transaction may have higher or lower amounts than our example. Every transaction is different and the workload for each transaction is different also.

For tips on negotiating the commission on your purchase or sale, e-mail John.Wall1@Century21.com or Call (562) 449-8421. I'd be happy to help.

Median Sales Price LA County

Los Angeles County – The median sales price for single family homes rose 6.5% since this time last year. Even with a 12.9% drop in sales, prices have remained strong and continued to climb. Homes may sit a little longer on the market, but, there is no longer a rush on housing.

The market is correcting itself (as any free-market should) after a steady climb for the past couple of years. Although, many realtors and professional real estate players are calling this market a “buyer’s market”, many buyers disagree. According to the Los Angeles Times today, Mr. Brandon Brennan has been trying to purchase a home by making [buyer’s market] offers only to be rebuffed by seller’s who can’t even be bothered to counter-offer.

Home-sellers know that offers will come in and someone will come along with a fair market value offer. That is the offer that sellers are holding out for. Brennan finally closed on a home, eventually paying more than he had hoped, but less than the original asking price, and only beating other offers by offering to close the deal within 2 weeks.
So for seller’s I guess, I’d say it’s a seller’s market and to buyer’s I would say it’s a buyer’s market. For a market analysis of your home please give me a call at 562-433-1914 or e-mail john.wall1@century21.com. Buyer’s too – for a complete Buyer Potential Report use the same e-mail link.