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The Truth About Capital Gains

Capital Gains sounds like a scary inevitable cost when selling your home at a profit. BUT once you understand how it’s computed and who qualifies for exclusions you’ll see you can most likely breathe easy. Most people DO qualify for the exemption which allows for up to $250,000 per individual or $500,000 per couple.

What are Capital Gains?

You can determine the capital gain on your home by subtracting applicable costs of selling your home (ie: commissions, advertising) plus the cost of any qualifying home improvements (you can find specific details on the IRS website) from the original purchase price of your home.

Ex: Original Purchase Price = $200,000 + $25000 Costs = Cost Basis of $225,000 Selling Price = $325,000 – $6500 Commission (You saved by selling BuyOwner!) so you receive $318,500 – $225,000 = $93,000 in Capital Gains. You will not pay tax on this gain if you meet the exemption requirements noted below.

Qualifications for Capital Gains Exemption?

The following requirements must be met in order to qualify for the capital gain exclusion when selling your home:

  • You must have owned your home for at least 2 years.
  • The home must have served as your main personal residence for at least 2 years.
  • During the 2 year period ending on the date of sale (Note: If you’re close to this date, negotiate your closing to ensure it occurs after the 2 yr qualification has been met), you didn’t exclude gains from the sale of any other home.

YAY: You can use the capital gain exclusion over and over again as long as you meet the requirements.

BOO: If you take a loss from your home sale, you do NOT get to take the loss as a tax deduction.

NOTE: To Always ensure that you are receiving max tax benefits, consult your tax accountant or review thoroughly the applicable information on IRS.gov

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HOA Pros and Cons

Homeowner’s Associations have grown in number especially with homes built within the last 10 years. Some think that’s great and others have discovered the downfalls of living under the thumb of their HOA. So let’s address the possible pros and cons. Then decide whether you want to live with the extra cost and rules.

Pro: Because of the rules established by your Homeowner’s Association, you can be pretty assured that your neighborhood will be well maintained. Some typical items under the HOA’s control are: Keeping your lawn manicured; Garbage cans must be put out after a certain time and brought back in within x number of hours after pickup; Restrictions on street parking or leaving boats/trucks in the driveway; Limitations on exterior home paint colors creating a uniformity within the neighborhood.

Pro: Many of your upkeep costs are shared by all members of the HOA ie: Common lawn areas and entries of the subdivision; Community snow removal which can definitely be a plus after big snowfalls guaranteeing that your streets will be plowed and you can get out and to work or the kids to school; Upkeep of community amenities like pools, fitness center, clubhouse party rooms, social areas, trails, boat docks, playgrounds, parks, etc; Newsletter distribution with updates, announcements and community events; some even offer 24 hour emergency maintenance!

Pro: Community Amenities might be included in your fee providing activities for your family that you might otherwise have to pay seasonal fees or costs to take advantage of ie: Pool, Clubhouse, Fitness Center, Social Activities like game nights, cards, billiards, tennis courts, etc.; Parks, Trails, Kid’s pools and playgrounds; Manned and unmanned gated entry to the subdivision and in some cases Security Patrol as well.

Pro: By participating in the HOA ( by joining the board or participating in community sponsored events) you have the opportunity to meet and get to know more of your neighbors, which can be a real plus if you’re new to the area.

Pro:  In the event you and your neighbor find yourself disagreeing about something that pertains to your properties, you can ask your association to mediate by filing a grievance with your HOA Board or your Management company.

Con: HOA Dues. When determining how much home you can afford, you will need to definitely factor in your monthly dues + any reserve funds required in the event there are major repairs necessary in the neighborhood. You DO NOT want to get behind on your HOA fees as they have the ability to put a lien on your home and even foreclose in spite of the fact that your mortgage is current.

Con: If you purchase a home and then decide you want to expand on it say with a screened patio, or a deck or even in some cases planting flowers, you may have to get permission from your board to do so and they very often say no so even though you own your home, you don’t own what you do with it.

Con:  If your HOA is poorly managed and gets into financial problems, it could bring down the values of all the properties in the subdivision and even affect your ability to get a loan on your home if you’re trying to refinance your mortgage or take out an equity loan.

Con:  You have to follow the rules even if you don’t agree with them. You can petition to try and get the rule changed but will have to live with the result even if it’s not in your favor.

The point is, HOAs can be very very good BUT they can also be very very bad. Before you purchase a home, condo, townhome that lives within an HOA, take the time (and it will take time) to read the entire bylaws. It will be time well spent so you can make an educated decision on your true dream home!

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And They Lived Happily Ever After!

So you’re moving to a new city where you don’t know anyone but want to find a home in a neighborhood that suits your personality, lifestyle and family needs. How do you find your perfect home?

  • Family Friendly:  If you have children and are hoping to find a neighborhood where there are other children close in age and schools that are ranked for excellence then spend some time driving through areas you’re considering on a Saturday or Sunday.  Look for people with strollers, kids on trikes or bikes, parks where kids are playing sports, etc. Also research school districts online. All  pertinent information regarding recognition, class size, or problems are readily available via multiple websites. If you really want your kids to be able to walk to school, remember to do a walk from the home you’re considering to elementary, middle and high school.
  • Community Involvement: If you’re seeking an area where block parties are  common, community parades, events and social activities are the norm then        pumpkincheck out the city’s website. They will have details of recent and upcoming events plus typically include a photo gallery to let you know how much fun it is to live there. If you don’t see any of that on the city’s website, you might want to reconsider your location.
  • Singles Amenities: Check out the area on Thursday, Friday and Saturday nights. Are you seeing active night life in restaurants, bars or clubs? Maybe you want to partylive near a sports stadium…ie: Wrigleyville in Chicago offers night time games, lots of bars and restaurants and lots of into the night activities. So, if that’s what you seek, check it out in the evening or late night. If you’re looking for a quiet night neighborhood, you’ll know this isn’t the place for you even if you like the homes available.
  • Automobile Friendly:  If you’re looking into urban areas and you own a car, you might want to check out included garage or deeded parking spaces. If there’s permit street parking that could be good for you but could be a problem if you like to entertain. Check out accessibility to highways and public transportation if commuting is going to be a factor in your decision.
  • Access to Shopping: Do you want to be able to run to the grocery store in under 5 minutes? Then a rural area is probably not a good fit for you and both suburban and urban areas might offer their own challenges so if you find a neighborhood you like, take the extra time to explore how close you are to stores and malls. Too close because you don’t want the added retail traffic? Or too far because you don’t want to have to run 20 minutes away for some needed milk or bread.
  • Crime: There are numerous sites online where you can simply put in an address with crime rating and you will be able to learn a lot.
  • Walking Score: Typically this is more specific to urban areas and includes neighborhoods agreeable to both families and singles.

Urban vs suburb vs rural vs acreage…..Sit down before you even begin looking and decide what type of area(s) fit you and suit your wants, needs and don’t forget…your budget. Take your time to research both online and in person. Make an educated vs emotional decision and you can live your happily ever after!

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Maximize Your Ad…Maximize Your Results!!

Unlike in days of old when you could tease your buyers with a few photos and, if intrigued, they would come and view your home in person, modern day online shoppers want to walk entirely through your home visually before they take their time to do so physically. You have one chance at a first impression. Here are a few tips to help you maximize on your advertising to effectively intrigue the most potential buyers.

  • Your photos will either encourage your discourage prospective buyers. If you take mediocre photos, consider having them done professionally (offered with both BuyOwner Elite and Premium ads). The reality is, if someone doesn’t like your photos, they aren’t reading your description. They’re moving on to the next home.
  • If you have a 4 bedroom home, unless not possible due to clutter you can’t clear, show all 4 bedrooms. If you only show one, buyers are creating their own reasons why you’re choosing not to show the others ie: too small, bad closet, damaged walls or floors, etc…..none of that may be true…except in the buyer’s mind. Next!
  • Take your time when taking your photos. It’s not ok that the laundry is laying on the floor next to the bed or that dishes are in the sink or you can’t see the daylight through the dirt on your window.  Your friends might not care but if your home looks messy and unkempt in your photo, prospects are probably thinking how much worse it must be behind the refrigerator. Next!
  • Consider eye distractions.  Those pretty towels hanging on the door of your oven look attractive in person BUT in a photo, they’re an ‘eye distraction’. What that means is that when the photo opens, your buyer’s eyes are drawn to the towels instead of your Kitchen.  Unless you’re selling your home fully furnished, your goal is to showcase your spaces, not your stuff. An easy test to know if you need to remove something is to stand in the doorway, turn around and then quickly turn back to your room. If your eye sees something instead of the room, that’s what needs to come out before you take your photo.
  • Capitalize on natural light. Nothing is more enticing than sunlight wafting across a hardwood floor and nothing is harsher than a photo discolored or filtered by the glow from a lamp or overhead light. Abundant natural light is typically a very positive draw with buyers so capitalize on that feature if offered by your home.  Tip: Recessed lighting typically enhances a photo while illuminated lamps do not. Tip: Shoot photos on a partly sunny day so your photos are clear and not hazed over from too much sunshine coming in through the windows.
  • When writing your description, be direct and to the point. The days of cozy, charming cottages and fluff filled adjectives is for the most part, gone. In our fast paced world of short attention spans, people want facts instead of fiction. That doesn’t mean cold and industrial. You can be ‘warm’ without being wordy.
  • Put the buyer in the ad and take yourself out. Ex: “We’ve loved having our whole neighborhood and family over for Thanksgiving  dinners”  vs “You’ll enjoy hosting holiday dinners and parties in your spacious, formal Dining Room.”
  • Choose your words wisely:  Ex: Use the word ‘home’ instead of ‘house’. Though on the surface this might seem minimal, a house is a building,  a home is the place where you want to relax at the end of the day and raise your family.           Ex2: Instead of detailing every upgrade in your Master Bath try “Luxurious en-suite Bath”.  When you’re writing, say the words out loud and you’ll ‘feel’ the difference.  Fact is, unless a buyer is an investor, more homes are purchased emotionally than pragmatically.

When your prospective buyers are looking at your ad, they are asking themselves one main question, “Why should I pay this price, for this home in this location?” The job of your ad is to answer with “this is why, this is why, this is why.” If your home ‘makes sense’ to them they’re coming for a closer look!

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Budget Friendly Updates

So you want to get your home looking fresh and new but don’t have the big bucks to make major changes?  Here are a few ideas to help you look like you spent more than you did and create a market ready home!

  • Can’t afford new kitchen cabinets? Give them a good cleaning with a product like Cabinet Magic, or even try a Mr. Clean Magic Eraser to remove the daily dirt, grease and splatters. Top with Old English or Murphy’s Oil. Then replace the cabinet knobs with more updated styles. Before you pay full price at a big box store, try shopping at a  “Restore” store which benefits Habitat for Humanity. However you buy them, count all the drawers and cabinet doors to ensure you buy enough to complete the job.
  • To add a custom feel to your base cabinets, add roll out shelves (available at Container Store, big box stores and online). Easy to Install yourself.
  • Can’t afford to repaint the whole kitchen or baths? Wash the walls. (Again a Magic Eraser is great for easily cleaning grease, oils and dirt from painted walls without scrubbing the paint off). Then clean and paint the door and window trim with semi-gloss paint. Just refreshing the edges will create a freshly painted look.
  • Bathroom updates: Do the same cleaning and trim painting as you did in the kitchen. Then replace the faucets, showerheads, hardware, towel racks and toilet paper holders as needed. Make sure they all match to create a customized renovation. Scrub the tub, toilet and sink so they gleam. If they need to be replaced, do so and then promote as “brand new”.  Can’t afford a new tub? You can get one reglazed for a few hundred dollars.  Again, a stop at a Restore location can help you find some high end materials at a fair price and support Habitat at the same time.
  • A new shower curtain will add a fresh look BUT make sure you replace the outdated, rusty shower rod and curtain hooks. Also, put up fresh, clean matching towels with no ragged edges or stains.
  • Update your light fixtures. There are lots of places where you can find updated versions at a not so upscale price. New fanlights, chandeliers and ceiling lights can take your home from outdated to modern with minimal cost and effort.
  • Now this might seem like an obvious notion, but is often overlooked. Take time to go through your home and clean all your switch plates and outlet covers. Hands leave lots of prints and dirt. A clean white switch plate against a freshly washed wall and trim can do wonders. If they’re too far gone, invest in new ones. It will be worth the minimal cost.
  • Wash your windows. Then clean your curtains, draperies and blinds so your buyer sees only the beautiful sunbeams pouring through.
  • Also clean your rugs or carpets. If they are too far gone and you can’t afford to replace them, consider offering a flooring allowance to your buyers. At least then they can look past how worn they are knowing they will be able to replace them once they purchase your home.

These should give you some great starting points and may inspire you to think of more things you can do that will cost you more in elbow grease than they do in dollars while producing very positive results toward achieving your home selling goals!

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Considering Multiple Offers (or even just one)!

Receiving multiple offers (or even just one) on your home is a problem that every home seller wants to have. Sure, it’s certainly something to celebrate. But before you kick back and pop open the champagne, you have a decision to make. Going for the most money may seem like the obvious choice, but it’s not necessarily that easy. While it’s natural to be attracted to the offer with the highest price, it’s important to realize that the highest offer isn’t always the best offer. You might choose to accept a lower offer from a buyer who is better qualified or an offer with more appealing conditions.There are three important factors to consider when dealing with multiple offers or again just one.

Amount Offered

Of course the amount of the offer is important when deciding which buyer to choose, but you should also look at other aspects involved in the offer price, such as which potential buyer will be putting more money into the down payment. If you had two offers with the exact same price, the cash down payment amount might just be your deciding factor. BUT keep in mind just because someone doesn’t have as much to put down does not necessarily mean they are not as strong a buyer. So considering a few more factors will help you make your best choice.

Buyers’ Financial Status

When doing business with someone it is necessary to know about financial status, and even though selling your home can be a personal, emotional experience, it is also the ultimate business transaction. You have the right to find out if the potential buyers are in good financial standing. Don’t be afraid to put right in your ad that you are only interested in pre-qualified or pre-approved buyers with documentation. In today’s marketplace, particularly if your home is in a high desire area, most serious buyers know this is a valuable tool when negotiating against other competing buyers. It’s also good to decide before you ever put your home out into the marketplace, what types of financing you’ll accept. Of course, accepting all types (Conventional, FHA and VA). The condition of your home may play a factor in that decision since FHA and VA inspections may be more challenging than one with conventional financing. So it’s a good idea to find out if they will be seeking a loan, and, if so, what kind of loan.

Contingencies

The final factor to consider when deciding which offer to accept is whether there are any contingencies involved. Does the buyer need to sell a home in order to close? Maybe there are other issues, such as inspections, that would hold up the sale for an extended period of time. Make sure you have all the information so you can weigh your options.

It may sound simple, but deciding which offer best suits your needs can be complicated. It’s never a bad idea to sit down and actually write out all of the elements involved in the sale and decide what is most important to you. Then create a list using those elements to compare the potential buyers. That way you can look at all of the significant factors involved, including the total amount offered for the property, the amount of the down payment, the closing date, any contingencies involved, the buyers’ financial standing and how much extra money a particular deal may cost you after inspections. (If your home needs a lot of repairs, you might want to sell it As Is with those repair estimates reflected in your asking price.) Creating a comparison list will help give you a straightforward comparison of the potential buyers and will show you their pros and cons.

BEWARE: Don’t get overconfident or underconfident and blow the deal or regret what you’ve accepted after the fact. Take your time (don’t allow buyers or their agents to rush you) and consider each offer seriously. If you don’t feel emotionally able to make the decision on your own, have a trusted friend or your attorney walk through each offer with you. Listen to their opinion and why they are offering it. Then you decide what is best for you. Now, proceed with confidence into the next part of your life journey!

 

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“AS IS” Selling or Buying

First thing to consider is the definition of “As Is”.  This can range all the way from “there was a fire/flood and whatever issues that exist, you’re buying them” to “Some minor issues might come up in an inspection (outside needs to be painted/slight seepage in the basement of an older home/windows need sealing, etc.) and I’m not going to fix them”. It could also be something as simple as that the home has never been updated yet the structure and guts of the home has been very well maintained giving you a great investment opportunity especially if you’re able to perform the updates/repairs yourself.

SELLING: If you choose to sell your home “as is” consider noting in your advertising the nature of the issues and how you’ve taken that into allowance when pricing your home. If you aren’t really sure what the issues might be with an inspection, consider the cost of having one done prior to putting your home on the market and use that to explain your asking price. Don’t be afraid to show comparisons of what other homes have sold for that had similar issues or have sold for more than you’re asking to reflect the deduction you’re making with your price.

Options: (1) Decrease your asking price to reflect the buyer’s cost to make needed repairs.  (2) Offer an allowance to be credited to your buyer at closing. (ie: If you know the exterior needs scraping and painting, get 3 estimates from painters and offer the average cost as an allowance. Use the estimates to justify what you’re offering.

BUYING: Don’t shy away from a property you that meets all your criteria simply because it is being sold “AS IS”. It could just be that the owners can’t afford to or just are choosing not to make the repairs or updates prior to selling and so are using this manner to possibly get out of a bad situation or get a quick sale making this a great opportunity for you. Again, this is especially true if you’re a hands on homeowner with skills to do the repairs yourself. Even if the seller shows you an inspection they had done, you may want to consider bringing in your own inspector just to get another opinion. Even though the seller is not willing to pay for any repairs that come up in an inspection, you can still make your offer contingent on having an inspection done. Once you know what needs to be done, you can calculate your offer + cost of repairs and then decide whether or not you want to proceed.

Whether Selling or Buying, “As Is” can create both positive and negative situations so the key is to educate yourself, have a thorough inspection done, work the numbers and decide if this label benefits you and your home selling/buying goals.

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BEWARE OF RENTAL and RENT TO OWN SCAMS!

You’ve probably seen several listings online (often posted on Zillow and Craigslist) that seem “too good to be true” because of how low the rent is or because you can rent to own the property with very little down, low rent and a less than stellar credit score.  They seem too good to be true because most likely they are. These scams have become much more prevalent over the last couple of years and though your head might be screaming “This is a scam” your heart may be saying, “Wow it would be great to live in that neighborhood and maybe it’s true that the owner is building a bridge in Nigeria or has already moved and just wants to know that someone will love the home as much as they did”  and is looking for a perfect renter/buyer. Below are some red flags to look for and hopefully wave you in the other direction!

* They can’t meet you in person and show you the home because they are out of town or out of the country BUT they trust you so as soon as you send funds via wire transfer or Western Union to cover the security deposit and/or first or first and last month’s rent, they will send you the keys. Note: If they send you a long heartfelt email about why they can’t be there or share a sob story, google search the first couple of lines of the email and you may find that it is one that is used over and over again in the scam market. Run!

* Don’t assume because the ad includes a realtor’s name that this is an actual listing. Research the name, agency and phone number to see if they exist and are actively working in the marketplace. Even if you discover that they do exist and are actively working, take the extra very important step to see if the home is listed differently on the realtor’s website. If so, and clearly their listing has been hijacked by a scammer, take a moment and call the agent to let them know so they can handle it on their end and protect their client. Good Karma!

* They will always ask you for your personal and financial information either via the internet, an email or over the phone. SCAM! Hang up or shut down. Never provide any financial information over the phone or online to anyone you don’t know, haven’t met or cannot verify as legitimate.

* If you cannot tour the home with an agent or the owner prior to committing to the rental, take a pass! This is Scam 101!

* If they try to rush you because there are so many others who want the property and it’s first come “with the deposit”, think twice. This might be the case sometimes, but never rush without doing due diligence.

* If you see a home with a big Rent To Own regardless of credit or Rent to Own this home for a few hundred dollars move on to the next listing. These are typically fraudulent. Don’t hesitate to notify the site or even local law enforcement of these scams so as to protect others who might not have read this blog!

KEYS: Be diligent. Do your research. Don’t rush into anything. Decide with your mind and not your feelings. And as always, remember that usually if it seems too good to be true, it is!

 

 

 

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Comparative Pricing: Set the Right Selling Price for Your Home

The most important thing to do when selling a house is pricing it correctly and fairly. You don’t want to overprice the house because you will lose the freshness of the home’s appeal after the first two to three weeks of showings. People will just not put an offer in if it’s not fairly priced. Pricing it low, on the other hand, will give you and the buyer wiggle room in the negotiations process.

While considering price ranges, we suggest that you take these rules of thumb and consider them as you come up with a price for your property. 

Basic Comparisons

It is important to know and understand the listing prices in your area. Why are some properties low and some high even if they are in front of each other? 

We suggest that you go through the history of the homes in your neighborhood and think about your home in relation to that data. 

Look at listings from your area in the past six months and look for the following:

-Distance and proximity to central locations. Are there homes close to major streets, freeways or railroads? Is your one them? Homes that are close to main intersections will have a much higher price that those that don’t.

-Compare the age of the homes. One neighborhood might consist of homes built in the 1950s and 1980s. Values between the two will differ. When was your home built? 

Market Dependent Pricing

After you have collected all your data, the next step is to analyze the data based on market conditions. 

In a buyer’s market… 

In a buyer’s market your sales price might allow some wiggle room for negotiation, but you’ll have to lower your price to do so. To sell in this market, you might need to price your home to go down to about a 10%. 

In a seller’s market… 

In a seller’s market, you might want to add 10% more to the last comparable sale in your area. When there are little homes on sale and many buyers, you can ask more than the last comparable sale, and likely get the deal. 

In a balanced or neutral market… 

In this kind of market, you may want to set a price in relation to the last comparable sale and then adjust to fairly priced homes around your neighborhood. 

Active Listings Comparisons 

Go around your neighborhood and check out the other homes on sale. To see things from a buyer’s perspective, tour these homes and put yourself in their shoes. What are these homes missing? What do they have that your house doesn’t? Try to apply those details that you did not find in the other homes. Whether it’s a matter of design or lacking essentials, set a budget and spend it wisely. 

The idea is to get as many offers as possible because you own the best home on the block!

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Four Renovations to Consider Before You Sell

Whenever we think about remodeling homes, we think of creating the perfect home for yourself and your family. Shows like HGTV’s Property Brothers make us fantasize about spending less to have more cash for dream renovations. As a home seller, the last thing you want to do is spend your savings on making a better home for someone else. It seems unintuitive to remodel a home you will not be living in, but did you ever stop to consider the benefits of selling your home at a higher price and getting your remodeling investment money back? 

Today is the time to add the essentials that you were missing before…

The Basics 

We are not talking about adding pools or Jacuzzis; please save that money and spend it on your new home. When we talk about basic renovations, we refer to the very fundamentals that your current home is missing or needs some fixing. Do you have a leaky roof? When was the last time you gave your walls a fresh coat of paint? 

Make sure you budget this money appropriately. You don’t want to spend too much money and then not get it back when you sell your home. Having your house appraised is very important before you even consider the basic renovations. The current selling price of the house should influence how much money you should be using for renovations. Want to sell your home for another 20 grand? Spend at least 7 or 10 on making it safer and more appealing to potential buyers. 

Some other basic renovations to consider: 

-Updating gutters and downspouts 

-Replacing A/C Unit 

-Updating floors

The Kitchen 

The kitchen is one of the most important features of a home. If yours is not up-to-par, its time to make some changes; your buyers will notice them! 

Complete kitchen remodels can be complicated and costly; consider a small remodel with a small budget, instead. We recommend focusing on small “face-lift” projects, such as painting your cabinets, switching out the fridge or stove, installing a tile backsplash, or replacing the countertops. These tasks don’t require a contractor, and you can easily get it done with little money, and in a very small amount of time. 

The Bathroom 

Are you worried that your outdated bathroom will scare buyers away? An easy, cheaply fix is a must. You may be able to install a one-piece vinyl floor, or replace the vanity, sink, and faucet by yourself. These types of projects can often be completed by the handy DIYer for about $1,000 or less. A new coat of paint and some sophisticated design aspects (for the house showing) is always a good idea, too. 

Curb Appeal: First Impressions 

Let’s face it, no one wants to buy a home with a neglected front porch/yard; it looks messy, and it speaks volumes about what the home might look like on the inside. 

Curb appeal items include a nice green lawn, attractive landscaping, fresh paint inside and out, new carpet and new appliances. These are worth the investment as this will be the first impression a buyer will get from them home as they walk into a showing. Bake a pie or cookies if you are expecting prospects; let them associate warm, happy feelings with your home as soon as they walk in!