Wednesday, September 5, 2012

24-Month Active, Sold, and New Listings Summary September

 

Supporting Data:


  New Listings Active Listings Sold Listings Months Inventory
Aug/2012 9,636 20,581 7,558 2.72
Jul/2012 9,122 19,672 7,178 2.74
Jun/2012 9,586 19,306 8,376 2.30
May/2012 9,641 18,963 8,400 2.26
Apr/2012 9,493 19,333 8,427 2.29
Mar/2012 9,779 20,735 8,833 2.35
Feb/2012 9,158 22,423 7,278 3.08
Jan/2012 10,099 23,719 6,415 3.70
Dec/2011 7,573 24,853 7,657 3.25
Nov/2011 8,749 25,685 7,115 3.61
Oct/2011 9,892 25,850 7,511 3.44
Sep/2011 9,792 25,833 8,016 3.22
Aug/2011 10,292 26,557 8,738 3.04
Jul/2011 9,509 27,882 8,430 3.31
Jun/2011 10,646 29,738 10,352 2.87
May/2011 10,762 32,153 9,796 3.28
Apr/2011 11,186 35,571 9,454 3.76
Mar/2011 12,552 38,695 9,956 3.89
Feb/2011 10,837 41,419 7,155 5.79
Jan/2011 12,575 43,062 6,522 6.60
Dec/2010 9,751 44,875 8,241 5.45
Nov/2010 11,215 46,246 6,686 6.92
Oct/2010 12,287 46,196 6,520 7.09
Sep/2010 12,841 45,395 6,700 6.78

Tuesday, September 4, 2012

How to Lower the Value of Your Home and Increase Your Selling Time

The title of this article would suggest that we are offering poor advice, but in reality what we want to do is illuminate some of the pitfalls of selling a home and a few things you can do to enhance the value of your home.

Now that homes values are on the rise, many people are thinking about selling their homes in the near future.  We get quite a few questions from sellers asking what types of improvements they should make in order to bring more value to their home and what items they should skip.  We thought we would put together a list of do’s and don’t to better coach future sellers so that they may get the most for their homes when it is time to sell.  These pointers only apply to people who are looking to gain an extra $5000-$10,000 or more for their homes. For sellers who are offering a discount due to the house being classified as a “fix-up”, then these rules do not apply.   Simple corrections guarantee a higher net for the seller.

First impressions: (Exterior)

Rule #1 - Poor street appeal will lower the value of your home and prevent people from wanting to look at it.  Examples of items that cause poor street appeal are as follows: 

 
·         Clutter on the porch (ie: statues, pots with dead flowers and yard ornaments).

·         Dead or dying trees, overgrown trees and bushes

·         Oil stained driveway

·         Un-swept porch, dirty paint and cobwebs hanging from the porch ceiling

·         Dirty front door with faded paint or stain and/or scratch marks on the bottom from a pet

·         Rusty or out-dated door hardware

·         Torn screen on the security door

·         Dented garage door

·         Poor exterior paint (meaning old and also poor color)

 
Simple corrections:

Power wash the driveway to remove any stains;  clean the front door and ceilings to remove the dirt, dust and cobwebs; remove excess yard clutter;  bring in more rock; clean and trim the landscaping, replace decrepit door hardware and repaint exterior and front door if necessary.

 First impressions  - Interior:

Once buyers enter the front door, they have to feel comfortable in the house and they have to feel that the house is in move-in ready condition.  Issues that can cause a buyer to be turned off are as follows:

·         Bad Smell – cigarette smoke, pet smell, strong smell from last night’s dinner, etc.

·         Dirty wall paint and baseboards

·         Wild colored paint and worse, a poorly done wild colored paint job

·         Furniture or excess clutter blocking or crowding a smooth pathway into the rest of the house

·         Excessive amount of pictures or decorations on the walls

Rule #2:  Remove all excess clutter from the entire house. 

Rule #3: Thoroughly clean all baseboards and walls.

Rule #4: Professionally repaint the entire house in neutral colors (light beige or off-white).

Rule #5:  Ensure that the house smells fresh. 

Rule #6:  If you have pets and you are listing your home for sale, you have to make it look like no pets live there

Simple corrections:   If you cannot completely remove the pets, then completely remove the items that show a pet lives in the home like dirty dog dishes, bones, litter boxes, pet droppings in the yard.  Secondly, barking dogs or pets wandering around the house during showings will decrease the value by causing a buyer to be “turned off”.  Restrain from cooking foods with heavy spice during the listing period.   Burning strong scented candles is also a problem as certain people are allergic to candles and t certain scents may turn them off. 

If you know you are going to move for sure, move all unnecessary items to the garage.  Excessive clutter distracts the buyers and makes the rooms appear smaller.  Remove excess pictures from the wall, particularily family photos and patch and repaint the holes.  Remove extra or extra- large pieces of furniture that crowd a room. 

Ensure that the main selling points of the house are maximized and displayed properly.  For example, if a home has a gas fireplace, the seller needs to make sure that the fireplace is not blocked by large furniture pieces or crowded by other pictures or wall decorations.

Rule #7:  Do-it-yourself jobs may save money initially, but end up costing more in the end when future buyers see an unprofessional job that needs to be redone.  We recommend that all improvements be done by a qualified professional.

Again a seller should not create another reason for the buyer to second guess the home.  Unfinished projects are definitely a deterent as well.

Backyards:

In Arizona people spend quite a bit of time in the backyard during the fall and spring months. Having a great backyard is very important.  Even if the backyard is simple (a little grass in some curbing), rock around the edges, a couple of trees and some bushes), it makes a huge difference.  People want to be able to sit under their patio and see something appealing.  Homes that have just dirt or partially-completed backyards will give the buyer a reason to second guess the home as they see that extra work must be done at their expense.  Yards that contain all rock not only make it difficult for a new buyer to add irrigation and foliage, but adds extra heat to an already hot backyard.  When homes are initially built, the exterior dirt is leveled for proper drainage.  If a yard has not been landscaped for a period of years, the levelling will ruined by wind and rain.  Contractors recommend that homeowners maintain a 5 foot perimeter of rock around the perimeter of the house and slightly sloped downward to maximize drainage potential and maintain the termite protection by not having moist areas around the foundation of the house.

Pool homes sell as a premium due to the high interest level of Canadians and buyers form the northern states flocking to sunny Arizona to be warm.  The majority of these buyers seem to be focused on pool homes because this is a new concept for them.  In recent years, pools add about $10,000 to a home’s value, but this year they have added almost the value of a new pool.  If a seller is thinking about adding a pool, keep in mind that traditionally they will only recover about $10,000 of the total cost.  In our current market, they will recover closer to the full cost.  The market can change however, so give it careful thought before spending the money to add a pool if you are not planning on keeping the house for several years.  Self cleaning pebbletech pools are the most popular from a buyer’s prospective.

Above ground pools will decrease the value of the home. 

Rule #8:  Backyards and sideyards should be landscaped, even if it is simple landscaping.

Rule #9 :  No above ground pools. 

Rule #10: The house must be spotless.

The cost to correct most of these issues is far less than being forced to sell the house under market value to make up for the lack of buyer appeal.  The house must appeal to 80% of the buyer pool in order to sell for market value or above.

 When we list your house, we hire a professional photographer and provide staging assistance to maximize the quality of the photos.  With a reported  85% of buyers on the internet before and during their home search, it is crucial that sellers have a strong internet presence resulting from amazing pictures and description.

If you are thinking about selling your home and need some professional advise to prepare for the listing, please contact us so we can visit your home and give you the feedback you need to help maximize your selling potential.

Friday, May 4, 2012

WHY THE MORTGAGE DEBT FORGIVENESS ACT RARELY APPLIES TO ARIZONA HOMEOWNERS


AN UNFORGIVING STATE: WHY THE MORTGAGE DEBT FORGIVENESS ACT RARELY APPLIES TO ARIZONA HOMEOWNERS


           As the year continues, many Arizona real estate agents, lawyers and brokers are warning of the impending end of the Mortgage Debt Forgiveness Act. They profess that if homeowners miss this tax break, the financial consequences could be catastrophic. As a result, homeowners are being pressured to sale their properties prior to the end of the year. But here is the rub; the Mortgage Debt Forgiveness Act does not apply to ninety percent of mortgages in Arizona and these scaremongers are advertising under the ruse of an inapplicable tax provision to accelerate homeowners into listing their properties.

A. Cancellation of Debt Income

           Generally, when a debt is forgiven the debtor has to pay taxes on the forgiven debt. The rationale behind this tax is that the taxpayer never paid taxes on the original loan amount because that loan was eventually going to be paid back. As a result the IRS does not consider a loan to be income. But, once a loan is forgiven, because it will not be repaid, the taxpayer has effectively received income. The taxpayer enjoyed the benefit of the forgiven loan and unless that income is taxed, it would be tax-free money. For instance, if I lend a taxpayer $100 dollars and that taxpayer spends it on a boat, after I forgive the debt, the taxpayer would still own the boat. Unless the government taxes the forgiven $100 dollars, the taxpayer would have bought a boat with tax-free income, creating a windfall for him or her. The Internal Revenue Code eliminates this potential windfall by taxing forgiveness of debt.

           At times, forgiveness or cancellation of debt income can create harsh results on taxpayers. To alleviate these harsh results, there are provisions in the tax code that mitigate the effect on taxpayers. The Mortgage Debt Relief Act is one of those mitigating provisions.

B. The Mortgage Debt Forgiveness Act

          The Mortgage Debt Forgiveness Act is found in the Internal Revenue Code under section 108.[1] Section 108 is titled "Income from Discharge of Indebtedness" and only covers cancellation of debt income. What that means is that section 108, and therefore the Mortgage Debt Relief Act, only applies when a taxpayer receives income from the discharge (forgiveness) of indebtedness.

         So what is the problem? In a short sale, we have a home that is upside down. The short-sale price is less than the outstanding mortgage. Therefore there is a remainder and the bank must have forgiven the remaining portion - correct? No - that is incorrect. When a loan is non-recourse, and the owner disposes of the property, there is no forgiven debt, therefore there is no cancellation of debt income and therefore the Mortgage Debt Forgiveness Act does not apply! Let me explain.

         Here in Arizona, under the anti-deficiency statute, most purchase money mortgages on real property are non-recourse obligations.[2] A non-recourse loan means that the lender's only recourse against the homeowner is the property itself. In other words, the lender cannot sue for any deficiency. Under Arizona law, if a mortgage is a purchase-money-mortgage, is secured by a property that is two and half acres or less, and is utilized either as a single one-family-dwelling or a single two-family-dwelling, then the mortgage is non-recourse. If the property and loan qualify, then regardless of any language in the contract, the mortgage is non-recourse.

         The reason why it is important to differentiate whether a loan is recourse or non-recourse is not just because it affects whether the lender can sue the homeowner. This distinction also has profound effects on the tax consequences. If, as in almost all instances of purchase money mortgages in this state, a loan is non-recourse, it will not lead to cancellation of debt income[3] and therefore cannot be covered by the Mortgage Debt Forgiveness Act.

         Instead, what happens is that the amount of non-recourse debt is considered to be the sale price of the property. In other words, the true sale price is ignored and is instead replaced with the amount remaining on the non-recourse loan.[4] That is a difficult concept to grasp. Essentially, the United States Supreme Court ruled that because the lender cannot pursue the borrower for any outstanding deficiency there is no debt to forgive. However, just because a mortgage is non-recourse does not mean the homeowner is off the IRS's hook. Instead the total amount of the debt immediately prior to the foreclosure or short sale will be considered the sale price. The adjusted basis (AB) is the purchase price less any depreciation plus the cost of any major improvements. The taxpayer's gain or loss is the difference between these two numbers.

         One last point worth considering on non-recourse debt: if the taxpayer has owned and used the property as a principal residence for periods totaling at least two years during the five year period ending on the date of foreclosure/short-sale, then the taxpayer may exclude up to $250,000 ($500,000 for married couples filing jointly) from income. Any excess must be reported as capital gains.

Example

Taxpayer bought a single-family residence in January 2005 and lived there until December 2011. The original purchase price was $220,000, the home is worth $100,000 at short sale, and the mortgage principal remaining was $200,000.


Amount property closed at short-sale = $100,000
Total amount of debt prior to foreclosure = $200,000
Original purchase price = $220,000

           The taxpayer ignores the sale price at the short sale ($100,000) and instead uses the amount of the loan as the sale price for tax purposes ($200,000). Because the taxpayer bought the property for $220,000, the taxpayers gain or loss is $200,000 less $220,000, leaving a long term capital loss of $20,000

          The taxpayer would realize long-term capital loss of $20,000. However, because the property is the taxpayer's principal residence, it is not a business loss and the taxpayer cannot use that loss to deduct against income.

C. Conclusion

           Arizona is in the minority of states that have enacted statutes making most residential property purchase-money mortgages non-recourse. As a result of these statutes, the Mortgage Debt Forgiveness Act only applies to a small subset of the population. Unless, you took a cash-out refinance and reinvested the money into your home, the Act probably does not apply to you. That being said, a short-sale may be beneficial to upside-down homeowners. In fact, many Arizonans would benefit from reducing their monthly housing payments and acquiring a property in which they can begin building equity. However, the decision to short sale should be made by informed individuals working from sound financial principals. Not scare tactics.

           Arboleda Brechner's tax, real estate and mortgage mediation groups are well versed in the consequences of disposing of distressed property.

Carlos Arboleda, Esq

Paul Valentine, Esq

Carlos Arboleda graduated University of Arizona School of Law and was admitted to the Arizona Bar in 1996.

Paul Valentine obtained is LLM in Tax from NYU Law School and is a federally authorized tax practitioner. He is admitted to the Massachusetts Bar.






[1] IRC § 108(a)(1)(E).

[2] A.R.S. § 33-729.

[3] The Supreme Court Case Commissioner v. Tufts held that non-recourse debt is included in the amount realized and not treated as cancellation of indebtedness. Thus, if there is any difference between basis and amount realized it is treated as a capital gain/loss. See also Treas. Reg. § 1.1001-2(c).

[4] Id.
ANY FEDERAL TAX ADVICE CONTAINED IN THIS DOCUMENT SHOULD NOT BE USED OR REFERRED TO IN THE PROMOTING, MARKETING OR RECOMMENDING OF ANY ENTITY, INVESTMENT PLAN OR ARRANGEMENT, AND SUCH ADVICE IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE.

Thursday, April 5, 2012

Market Overview For Maricopa County - March

Average Sales Analysis:
Sellers:

We have been watching this statistic very carefully to determine if the increase in average sales price was just a blip or a trend.  From all indications, we can now see a trend, and that we hit the bottom of the market in August.  Since then, we have seen a 20.8% increase in the average sales price.  March saw an 8.97% increase over the month of February. This is the highest price we have seen since June of 2010! The average sales price increased from $172,603 to $188,088.It will be important to monitor the impact this trend begins to have on appraisals and finding qualified buyers at these higher prices.
.
Buyers:
For buyers, it is absolutely critical to be aware of this shift in the price of homes.
This increase means that buyers once again have less buying power than they did in the prior month.
There is no doubt that the low inventory has created competition for the current inventory, and that this high demand is impacting prices.More than ever, you need to work with your real estate professional
to make sure you have the best possible information regarding the market value of homes
and to carefully monitor this trend to see how it will impact the availability, pricing,
and terms associated with purchasing a home



Distressed Sales Analysis:
A bank owned/foreclosure home is one that the seller no longer owns – it has been taken over by the lender(s) who had a note on the home.  Short sales are homes where the seller is negotiating with the bank to “forgive” a portion of the debt in order to avoid foreclosure. 

March statistics show that the pieces of the pie are definitely continuing to shift toward a more traditional market-- March bank-owned sales decreased by 2%. Short sales decreased by 2%, and traditional sales INCREASED by 4%.

This statistic means that the competition from foreclosure properties continues to decrease while traditional sales from sellers with equity continue to increase the percentage of activity in our current market. Sellers and buyers need to monitor this trend to see how the market continues to respond to the current inventory.

Pending Sales Analysis:
Sellers:

Pending sales continue to increase.  March saw another increase in the number of sales moving to pending status – a staggering 9.3% increase over the month of February.  Although this isn’t the highest number of properties moving to pending status in the 36 months, it is important to remember that there is much less inventory now, meaning that a much higher % of properties are moving to pending status. Sellers should continue to monitor these numbers to determine what type of activity there should be on their homes. This jump in pending sales should show up as an increase in closed sales over the next few months.

Buyers:
Buyer activity continues to remain very high as the available inventory decreases in today’s market.  Educated and savvy buyers understand that a competitive market gives them fewer options for home choices, negotiating on price AND looking for concessions from a seller.  Although this may vary from area to area AND from price range to price range, buyers need to make sure they are fully informed regarding the individual market in which they have an interest.  This will give them the best chance of being competitive in the search for a home.
                     
             MARCH  2012    
MARCH OVERVIEW      # of Expired & Cancelled listings   1 month averages------------------------------------------------------------------ 
Price range 1,000s  # of Active listings  # of Pendings & AWC Pending Ratio  # of Closings Last month   Average List Price of Sold Homes   Average Sold Price  List to Sales Price Ratio Days on Market (Agent) Days on Market (Cumul)
0 - 99,999            1,671              6,274 375.5%                  545              2,621  $             65,768  $           66,007 100.4% 76 83
100,000- 124,999               643              2,092 325.3%                  155                  909  $           113,697  $         111,491 98.1% 69 75
125,000- 149,999               791              2,170 274.3%                  167                  913  $           137,985  $         135,734 98.4% 66 75
150,000- 174,999               639              1,490 233.2%                  101                  623  $           162,040  $         159,170 98.2% 73 85
175,000- 199,999               713              1,127 158.1%                  100                  562  $           188,236  $         183,247 97.3% 80 90
200,000- 224,999               463                 729 157.5%                    69                  311  $           212,946  $         208,294 97.8% 81 94
225,000- 249,999               598                 782 130.8%                    70                  355  $           237,289  $         231,413 97.5% 75 85
250,000- 299,999               963                 998 103.6%                  127                  476  $           275,535  $         267,227 97.0% 100 112
300,000- 349,999               707                 611 86.4%                    88                  273  $           325,948  $         315,558 96.8% 87 101
350,000- 399,999               655                 475 72.5%                    93                  213  $           375,032  $         361,893 96.5% 102 122
400,000- 449,999               417                 258 61.9%                    58                  116  $           428,929  $         414,755 96.7% 111 117
450,000- 499,999               366                 198 54.1%                    53                  110  $           477,204  $         458,768 96.1% 100 120
500,000- 749,999               929                 441 47.5%                    95                  216  $           606,668  $         578,282 95.3% 111 129
750,000- 999,999               564                 166 29.4%                    51                    73  $           858,497  $         818,871 95.4% 182 199
1 million +            1,182                 177 15.0%                    97                    90  $       2,132,238  $     1,749,010 82.0% 234 260