Last week NAR released what the group described as a preliminary analysis of a survey of members, in which 70 percent reported an increased use of out-of-area appraisers after May 1, and 37 percent reported lost home sales.

NAHB said its own survey of about 500 builders found that 26 percent have seen sales contracts fall through because appraisals came in below the contract sales price.

Daily Real Estate News | December 5, 2008 |

Mortgage Rates Take a Big Dip This Week

For the week ended Dec. 3, Freddie Mac reported the lowest interest on 30-year fixed home loans since late January.

Source: Realty Times (12/05/08)

The rate came in at an average of 5.53 percent, down from 5.97 percent the previous week and 5.96 percent a year ago; while 15-year fixed mortgages settled at 5.33 percent compared to 5.74 percent last week and 5.65 percent in the year-earlier period.

Borrowing costs for short-term loans also were lower, with one-year adjustable-rate mortgages dipping to 5.02 percent from 5.18 percent a week ago and 5.46 percent a year ago.

Five-year hybrid ARMs, meanwhile, fell to 5.77 percent from 5.86 percent last week and 5.75 percent during the same period of last year.

Source: Realty Times (12/05/08)


Thursday, December 04, 2008 – Freddie Mac

McLEAN, VA — Freddie Mac released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage (FRM) averaged 5.53 percent with an average 0.7 point for the week ending December 3, 2008, down from last week when it averaged 5.97 percent. Last year at this time, the 30-year FRM averaged 5.96 percent. The 30-year FRM has not been lower since January 24, 2008, when it was 5.48 percent. .

The 15-year FRM this week averaged 5.33 percent with an average 0.7 point, down from last week when it averaged 5.74 percent. A year ago at this time, the 15-year FRM averaged 5.65 percent. The 15-year FRM has not been since March 20, 2008, when it averaged 5.27 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.77 percent this week, with an average 0.6 point, down from last week when it averaged 5.86 percent. A year ago, the 5-year ARM averaged 5.75 percent.

One-year Treasury-indexed ARMs averaged 5.02 percent this week with an average 0.5 point, down from last week when it averaged 5.18 percent. At this time last year, the 1-year ARM averaged 5.46 percent.

“After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages (FRMs) took a dive,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This week’s decline was the largest since the week of November 27, 1981, 2008, and 30-year FRM rates are now almost a full percentage point lower since the last week in October, 2008.”

“The recent plunge in rates contributed to the nearly 150 percent jump in conventional mortgage applications over the Thanksgiving week, led by almost a 300 percent surge in refinances, according to the Mortgage Bankers Association. Roughly three out of four mortgage applications were for refinance transactions, up from around half during the prior week.”

Seller Financing May Be Worth Exploring
If your buyers are being ignored by the bank, consider a loan from the seller.

In today’s stymied real estate market, lenders are more cautious about making loans and sellers are more inclined to agree to carry financing to sell their properties more quickly. Here’s a look at how installment sales could work for your clients.

Installment sales are structured so that the seller receives payments for parts of the purchase price over a period of time following the closing.

If a buyer makes a substantial down payment and is sufficiently creditworthy, and if the seller either owns a property outright or has the resources to pay off any remaining mortgage, installment sales can be beneficial to both parties.

An installment sale also enables a seller to defer income taxes when at least one installment payment is received after the tax year in which the transaction closed. The seller recognizes the gain over the taxable years in which the payments are actually received.

Deferring taxes can be a real benefit to home owners whose capital gain exceeds the $250,000 individual exemption on the sale of a principal residence or who haven’t held the home for the two-year period required. Installment sales also benefit investment sellers who don’t want to use a Section 1031 exchange to defer taxes.

Each installment payment consists of three elements:

  • A partial return of the seller’s adjusted basis in the property sold, which isn’t taxable to the seller.
  • A portion of the taxpayer’s realized gain on the sale, which is taxable as a capital gain.
  • Accrued interest, which is taxable as ordinary interest income. An installment note must include an adequate stated rate of interest to be paid by the buyer. An adequate rate of interest is equal to or greater than the rate published by the IRS.

Each year, a seller receiving payments from an installment sale must determine how much of the year’s payments are taxable as capital gains and how much are a nontaxable recovery of the seller’s cost basis.

The taxpayer’s adjusted basis starts with the original purchase price, including initial closing costs. It then increases by any capital improvements and the selling expenses incurred in the sale. It’s reduced by any depreciation taken during the time of the seller’s ownership. The taxpayer multiplies the non-interest portion of the total payments received in that year by the gross profit ratio for the sale.

The gross profit ratio is the taxpayer’s total anticipated gross profit divided by the total contract price. The anticipated gross profit is the contract price less the taxpayer’s adjusted basis. The contract price is equal to the selling price, reduced by the amount of any qualifying indebtedness that is assumed by the buyer.

Qualifying indebtedness is limited to the seller’s adjusted basis in the property. If the seller has refinanced the property and taken cash in an amount that creates indebtedness greater than the seller’s adjusted basis, the qualified indebtedness for purposes of calculating the contract price is limited to the adjusted basis.

Consider the example of a sale of raw land (below). In Year 1, Seller sold Black Acres to Buyer for $1.2 million. Buyer paid $200,000 in cash at closing and agreed to assume the current $200,000 mortgage. Seller agreed to finance $800,000 of the purchase price over a five-year installment note, with the first installment being due in Year 2.

The gross profit of $400,000 is divided by the seller-financing contract price of $1 million to determine a gross profit ratio of 40 percent. In applying this gross profit percentage to the $200,000 received in Year 1, the seller will recognize $80,000 of gain in the year of the sale. If the principal portion of the payments received by seller in Year 2 is equal to $160,000, the seller will recognize gain equal to 40 percent of $160,000, or $64,000 in Year 2. (Note that gain on real property that depreciates, such as an office building, would be calculated differently because gain from depreciation is taxed at 25 percent.)

Installment sellers should consult an attorney to better understand the risks of default by the buyer and inquire about ways to reduce the risk.

Calculating Gain

Selling price: $1,200,000

Less assumed mortgage: ($200,000)

“Contract price”: $1,000,000

Adjusted basis: ($720,000)

Selling expenses: ($80,000)

Gross profit (selling price minus adjusted basis minus selling expenses): $400,000

About the author: Jonathan A. Goodman is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include real estate, brokerage law, contracts, business law, and finance. He can be reached at 303-494-3000.

Yes, there are still people needing to buy a house. Now that the prices have dropped so much and the interest rates are very reasonable you’re crazy not to buy if you have the money. If you’re waiting for the bottom or that incredible deal so are many others. We’re back to multiple offers on the bargains. Especially in neighborhoods that are very desirable.

It is a difficult time no matter which side of the market you are on. Buyers have to deal with finding lenders that will give them a loan and sellers are crying over the losses they are having to incur.

In light of all that I want to keep my readers in the loop and research articles that are relevant to the marketplace.


What the heck is going on in California?

The rate of sales for resale single-family homes flew up 117 percent in October compared to the same month last year, while the median price shot down about 40 percent (see Inman News article).

The California Association of Realtors explained that the sales surge was largely driven by areas with a high concentration of distressed-property sales (short sales, sales of bank-owned or REO properties, and sales of homes in a foreclosure process, as examples).

The record year-over-year gain in the sales rate in California occurred in the same month that the National Association of Realtors reported (see Inman News) a record year-over-year drop in the national median price of U.S. resale homes (down 11.3 percent).

Check out this Inman News graphic to view some trends on some of the pricing extremes in California cities, city areas and counties, based on data provided by the California Association of Realtors and DataQuick.




2008 Cost vs. Value Report: Still Many Happy Returns for Home Rehabs

Remodeling magazine’s annual report shows that maintenance-related projects and moderately priced upgrades are providing stable paybacks, even in a slower market.

Despite home price drops in many cities, remodeling projects are holding their own as a way for owners to add value.

Many people are wondering where their money will be safest during these uncertain economic times. When home owners turn to you for your expert advice, counsel them that some things never change: Investing in their home still pays off.

NATIONAL ASSOCIATION OF REALTORS® statistics show that home prices have fallen by an average of 7 percent nationally in the past year. But the value of home owners’ investment in remodeling projects has declined only 3.86 percent on average between 2007 and 2008, according to Remodeling’s 2008–2009 Cost vs. Value Report.

Remodeling produces the Cost vs. Value Report each year in cooperation with REALTOR® magazine. REALTORS® responding to a survey in midsummer said home owners could expect to recoup a national average of 67.3 percent of their investment in 30 different home improvement projects. At the height of the housing boom in 2005, home owners could expect to recoup a national average of 86.7 percent on projects.

Remodeling remains hot in 10 cities, where, on at least some projects, home owners can recover 100 percent of their costs. In Charlotte, N.C., for example, decks, midrange kitchen remodels, vinyl siding, and window-replacement projects all would net more than they cost, in respondents’ estimation. High rates of recovery were seen in both strong real estate markets and weak ones.

Many cities with the highest rates of recovery were smaller—Jackson, Miss., and Billings, Mont., for example—which may point to lower labor and materials costs that are easier to recoup.

Seattle also made the list of cities with a cost recovery of more than 100 percent on decks and minor kitchen remodels. In fact, Pacific Coast cities recorded the best payback on remodeling by a wide margin, as they did in 2007. Although construction costs on the Pacific Coast are nearly 17 percent higher than national averages, the value of renovations at resale more than makes up for those higher prices.
The result is an average cost-recouped percentage that’s 14.8 percent higher than in the rest of the country. The toughest place to get your money back: Midwestern cities such as Chicago, Cleveland, Indianapolis, and Milwaukee.

Top 10 Project Paybacks

Once again, exterior remodeling projects lead the way for recovery on dollars spent in this year’s Cost vs. Value survey. When you compare the national averages, replacement projects that boost curb appeal—siding, windows, and decks—give you the greatest chance of recouping your money. Inside, only kitchen remodels can compare, at least on a national level.

1. Upscale fiber cement siding (86.7%)

2. Midrange wood deck (81.8%)

3. Midrange vinyl siding (80.7%)

4. Upscale foam-backed vinyl (80.4%)

5. Midrange minor kitchen remodel (79.5%)

6. Upscale vinyl window replacement (79.2%)

7. Midrange wood window replacement (77.7%)

8. Midrange vinyl window replacement (77.2%)

9. Upscale wood window replacement (76.5%

10. Midrange major kitchen remodel (76.0%)

The Real Deal: Examples from You

REALTORS® around the country helped us track down home owners who had recently completed remodeling projects. In all cases, the projects cost far less than the job cost estimates provided with the Cost vs. Value survey


Location: Oak Park, Ill.

When Rick Nagle and Eileen Deamer of Oak Park, Ill., spent more than $35,000 to convert the attic of their 100-year-old home into a combination master bedroom and office, “resale value wasn’t our concern,” says Deamer, a U.S. government employee and the married mother of two.

The transformation turned 600 square feet of makeshift office with a toilet in the middle of the room to a colonial-style bedroom/office with two walk-in closets and an adjoining sage green bath with a walk-in shower. To allow two simultaneous uses, pocket doors separate the bedroom and office spaces.


Location: Fountain Hills, Ariz.

“This is such a crazy market to try to judge how much a renovation is worth, but having a refurbished kitchen and bathrooms makes almost any house more salable,” says Shari Gay, ABR®, sales associate at RE/MAX Sun Properties in Fountain Hills, Ariz. The owner—Gay’s sister—added Saltillo clay floor tile throughout the 1,800-square-foot home, including the new bathroom. Bathroom finishes included a new cherry vanity cabinet, a tile shower, oil-rubbed bronze fixtures, and a soothing, sophisticated yellow color scheme, which all add up to a great look.

Total cost? About $5,000. “She’ll at least break even on the upgrades,” predicts Gay. “If this were a boom market, she would get even more.


Location: Honolulu

A kitchen is the heart of most homes. That’s why Hollywood set designer Wally White decided to spend most of his $15,000 renovation budget on upgrading the kitchen of his Honolulu studio condo. To spruce up the existing white cabinetry, which he left to save costs, the owner added bursts of color with celadon green granite countertops and walls painted in a complementary shade of light green. An undermounted white porcelain sink, a six-light halogen fixture on a dimmer, and brushed stainless steel faucet completed the look. It paid off.

White grossed $45,000 when he sold eight months later. “The unit sold for more than any other studio—and most of the one-bedroom condos in the building,” says Susan Weinik, a sales associate with Realty Executives Oahu


Location: West Brighton, N.Y.

In a modest 1950s ranch in West Brighton, N.Y., a midrange basement upgrade suited Bernard Fallon’s mother-in-law, Ligaya Nocon, just fine. After purchasing her home “on the high end of the market,” according to Fallon, broker at Fallon Associates Realty in Rochester, N.Y., Nocon kept basement renovation costs under $9,000.

She created a cottage feel by whitewashing the knotty pine paneling rather than replacing it. She also reupholstered the existing bar to cover wear and warmed up the room with wall-to-wall carpeting instead of wood or tile. “We just dressed it up for the personal enjoyment of my mother-in-law,” says Fallon, “but I think it will help sell the property later.”

The Spec

To help respondents determine the resale value of improvements, the survey provided specifications for each project

  • Attic Bedroom Remodel. Convert unfinished attic space to a 15-by-15-foot bedroom and a 5-by-7-foot bathroom with shower. Include a 15-foot shed dormer, four new windows, and closet space under the eaves. Insulate and finish ceiling and walls. Carpet floor. Extend existing HVAC to new space; provide electrical wiring and lighting to code. Retain existing stairs, but add rail and baluster around stairwell
  • Minor Kitchen Remodel. In a functional but dated 200-square-foot kitchen with 30 linear feet of cabinetry and countertops, leave cabinet boxes in place but replace fronts with new raised-panel wood doors and drawers, including new hardware. Replace wall oven and cooktop with new energy-efficient models. Replace laminate countertops; install mid-priced sink and faucet. Repaint trim, add wall covering, and remove and replace resilient flooring.

Basement Remodel. Finish the lower level of a house to create a 20-by-30-foot entertaining area with wet bar and a 5-by-8-foot full bathroom; construct 24 linear feet of finished partition to enclose mechanical area. Walls and ceilings are painted drywall throughout; exterior walls are insulated; painted trim throughout. Include five six-panel factory-painted hardboard doors with passage locksets. Electrical wiring to code. Main room> Include 15 recessed ceiling light fixtures and three surface-mounted light fixtures, as well as a snap-together laminate flooring system. Bathroom> Includes standard white toilet, vanity with cultured marble top, resilient vinyl flooring, two-piece fiberglass shower unit, a light/fan combination, vanity light fixture, recessed medicine cabinet, towel and paper-holder hardware. Bar area> Include 10 linear feet of raised-panel oak cabinets with laminate countertops, stainless steel bar sink, single-lever bar faucet, undercounter refrigerator, and vinyl floor tile.

  • Upscale Bathroom Remodel. Expand an existing 35-square-foot bathroom to 100 square feet within existing house footprint. Relocate all fixtures. Include 42-by-42-inch shower with ceramic tile walls with accent strip, recessed shower caddy, body-spray fixtures, and frameless glass enclosure. Include a customized whirlpool tub, stone countertop with two sinks, two mirrored medicine cabinets with lighting, a compartmentalized commode area with one-piece toilet, and a humidistat-controlled exhaust fan. Use all color fixtures. Use larger matching ceramic tiles on the floor, laid on the diagonal with ceramic tile base molding. Add general and spot lighting including waterproof shower fixture. Cabinetry includes a custom drawer base and wall cabinets for a built-in look. Extend HVAC system and include electric in-floor heating and heated towel bars.

Why Renovation Pay

Why are renovations holding their value better than home prices today? “When housing slows down, people stay put and renovate their house to make it more livable,” says Paul Zuch, president of Capital Improvements, a designing, building, and remodeling company in Dallas. And by renovating before they sell, home owners get to enjoy the new space themselves, not just make the home more appealing to buyers. “It just makes sense,” says Zuch.

Recent renovations also make buyers’ lives easier. “Home owners who remodel their home are providing a service to future buyers,” says Eileen Nelis, a broker at Savvy and Co. in Charlotte, N.C. “When buyers purchase, they don’t want to do all that painting and remodeling, and they don’t want that price tag. They may be willing to make improvements down the line, but when they purchase, they want to open the door and have everything complete. It reduces their stress.”

Making home improvements can also reduce sellers’ stress by heading off that time-honored negotiating technique—pecking away at the sales price by pointing out imperfections. “If sellers have done some improvements and dressed up their property, the improvements will help sell it,” says Bernard Fallon, broker at Fallon Associates Realty in Rochester, N.Y. “If sellers don’t want to improve their property, buyers will tick off the repairs and try to take them off the price.”

That doesn’t mean that every home owner should do every renovation, even in a more stable real estate market. Take Tulsa, Okla., where median home prices actually edged up slightly more than 2 percent in 2008, according to NAR. REALTORS® in Tulsa reported that, of the 30 remodeling projects surveyed, only 16 netted home owners at least 80 percent of the cost.

“Not every neighborhood will support the additional work,” says Jim Hemphill, a sales associate at Coldwell Banker Select in Tulsa, “but in older, more established neighborhoods, if you redo a kitchen or bathroom or add a master bath or bedroom, you’ll get your money out.”

Despite the value, the weak economy is likely to slow seller spending on remodeling, at least in the short term, predicts the most recent Leading Indicator of Remodeling Activity computed by the Joint Center for Housing Studies at Harvard University.

The LIRA for the third quarter of this year estimated that owners’ spending on home improvements will decline at an annual rate of 12 percent by the second quarter of 2009, continuing a two-year downward trend. Spending is unlikely to recover until the housing market turns around, according to the Center.

Yet, despite declines in overall remodeling dollars spent and a still shaky housing market, “people’s homes are still one of their best, most solid investments,” notes Zuch. “Even though the markets have gone through some adjustments, it’s still smart to invest in your home.”

G.M. Filisko is a freelance writer for REALTOR® magazine.

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