Whats the difference

There is a difference in a property disclosure, a home inspection and a home warranty and the roles they play in the purchase of a home.

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Show Them You’re Serious

June and July are the busiest home sale months of the year. When inventory is in short supply and you may be competing with other offers, it is important to show the seller you’re serious. Make your offer look as good as possible because you may not get the chance to make or accept a counter-offer.

Put yourself in the seller’s shoes.  Your home has just gone on the market.  There is lots of activity and suddenly, there is more than one offer to purchase.  The seller’s first consideration may be to accept the highest offer but there are many other things to consider like closing dates, closing costs, possible repairs, contingencies and of course, the ability of the borrower to get a loan.

Offer a fair price for the property in your initial purchase agreement.  It shows sincerity and good faith that you’re actually trying to purchase the home and not trying to take advantage of the seller.  The old adage that you can always go up later may never happen if there are multiple offers on the property in the beginning.

  1. Remove the uncertainty that you may not be approved for a mortgage by having a pre-approval letter from your mortgage company.
  2. Show your sincerity by increasing the normal amount of earnest money customary for the area and price of the home.  The earnest money will be applied toward your down payment and closing costs.  Consider placing even more money in escrow when the contingencies have been met.
  3. Specify a closing date in the contract but acknowledge that you can be flexible to accommodate the sellers’ moving date.  If it becomes an issue, it still must be mutually agreed upon.
  4. Make the contingency periods shorter if possible to make the seller feel that they’ll know sooner that the offer is solid.
  5. If the contingency really isn’t important to you, leave it out of the offer.  The more contingencies included in a contract, the more the seller will wonder what might happen to keep it from closing.
  6. Write a personal note to the seller explaining why you like and want their home.  Consider including a picture of your family and pets.
  7. If you’re not using a digital contract, physically sign the offer with a felt tip pen of contrasting color.  You’d be surprised how this adds a personal touch to the offer.

One way to eliminate the competition of multiple offers is by not procrastinating.  When you have decided to write a contract, don’t wait; do it immediately and ask your agent to deliver it quickly.  Your agent will be able to help you craft a solid offer that makes you look serious and can give you advice that may be unique to your situation.

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Temporarily Renting a Home

Cropped portrait of an affectionate mature couple standing outside

IRS has provisions for homeowners regarding the sale of a principal residence that allows for temporarily renting the home without losing the ability to exclude the gain if the home is sold under the correct conditions.

The rules for the exclusion of gain on the sale of a principal residence are:

*          Up to $250,000 of gain may be excluded for single taxpayers and up to $500,000 for married taxpayers filing jointly.

*          Ownership and Use must have been a principal residence for two of the five years preceding the date of sale (closing date).  This allows for a temporary rental for up to three years maximum.

*          Either spouse may meet the ownership test.

*          Both spouses must meet the use test.

*          No exclusion has been used in the previous 24-month period.

Let’s pretend that a person had owned a home from more than two years.  This person married and moved into their new spouse’s home two years, six months ago.  That person decided to sell the home and would have approximately $200,000 of gain in the sale.

If the property is put on the market, sold and closed prior to the three-years that they moved out, the home would still be eligible for the section 121 exclusion on the sale of a principal residence.  If the sales closes after that three-year period, the owner would owe tax on the gain.  If the long-term capital gains rate for the owner was 15%, they would owe approximately $30,000 in taxes.

If you or a person you know is in a situation like this, they should certainly seek professional tax advice as well as discussing the marketing and value of the property with their real estate professional.  This is something that I have experience with; call me at (320) 762-7106.  The timing is very important and critical to a favorable outcome.

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2018 PHBS – veteran buyers

One in five homebuyers or their spouse was a homebuyer last year.

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How long do you need to keep these?

Some documents need to be kept longer than others and these are the basic rules.

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Tech to Find the Right Home

Shot of a young couple going through their paperwork together at home

According to the 2018 Profile of Buyers and Sellers, 52% of buyers want help to find the right home to purchase.  Physically locating the home is certainly part of what buyers want from their agent but finding the right home at the right price and terms is also crucial.

87% of buyers purchased their home through a real estate agent or broker.  Slightly more than half of buyers were referred to their real estate professional by/or is a friend or relative or had used the agent previously to buy or sell a home.

There are tech tools that can be used together with the expertise and experience of your real estate professional to make the home buying process efficient and effective.

Listing Alert … while this service is called by other names, the buyer identifies the specifics about the home they want, and it will notify them directly when a new listing comes on the market that matches their needs.

Real estate smartphone apps … imagine driving a neighborhood, seeing a sign and immediately being able to know the price and specifics about the home; very convenient.  There are a variety of different apps available such as Homesnap, and others, ask your agent for their recommendation before installing one.

Digital documents … companies like DocuSign have revolutionized real estate negotiations by doing everything digitally so that you’re not going back and forth between the parties signing and initialing changes.  It is safe and secure and your agent will handle this end of it for you.

ColorSnap Visualizer … this Sherwin Williams app for iPad allows you to paint walls on a picture, match photos to find paint colors and other things before you commit to a color.

Google maps … plug in an address on Google Maps and you see street view of the home, satellite view, surrounding businesses, traffic speed and other things.

Sex Offender RegistryNSOPW, the National Sex Offender Public Website is a safety resource that provides the public with access to sex offender data nationwide.

Financial Calculators … fill in the blank applications that can illustrate the benefits of renting vs. owning, Equity Accelerator, Adjustable Rate Comparison, Cost of Waiting to Buy and many other homeowner situations.

Free Public Records DirectoryOnlineSearches provides access to public record sources like deeds and assessor and property tax records.  While this service is free, some state and county agencies may charge fees for accessing public records.

Virtual open house … an alternative to physically viewing a home is to look at the multiple photos online.  If the property is interesting, you can schedule a physical showing with your agent.

Check your credit … Order free credit reports from Equifax, Experian and TransUnion each once a year at www.AnnualCreditReport.com.

The final recommendation is your phone.  When you have a question, contact your agent.  Calling another agent may seem like an expedient way to get an answer, especially if you cannot get a hold of your agent but it could inadvertently, cause issues. Your real estate professional can assist you with these and other tools to help you find the right home. 

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Multi-ethnic team of blue collar air conditioner repairmen at work. They prepare to begin work by gathering appropriate tools from their tool box.

Your income tax is probably filed for last year by now and you’ve been through your expenses for the year.  Money spent on repairs to your home is not deductible but being aware of how much you spent last year may help you make a decision that could save you money this year.

Sellers, often, provide a home warranty to buyers to give them peace of mind by limiting some of the out-of-pocket money spent on unexpected repairs for one year.  Home warranties can be renewed by the buyer by paying the annual fee and any homeowner can purchase one for their home whether they had one when they bought it or not.

A home service contract typically covers mechanical systems and built-in appliances in the home.  Many times, these items are not covered by the homeowner’s insurance policy.  They can also include other things such as pool and spa equipment, and free-standing appliances like refrigerators, washers and dryers.

The process is simple.  It doesn’t cover pre-existing conditions.  Once a plan is in effect, you call to report a claim.  The company will assign a local profession to assess the problem and if covered, they will repair or replace the item.  You will only pay a service fee.

Home protection plans can range in prices depending on area and coverages.

Most start around $400-500 a year which could easily cover the cost for one claim alone.

For more information on home warranties in general, you can go to HomeServiceContract.org <https://homeservicecontract.org/>  which is an association representing some of the premier home service contract providers.  If you’d like to have a recommendation based on companies we work with in our area, give me a call at (320) 762-7106.

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Beautiful woman confused making thumbs up and down

Periodically, you need to rid yourself of things that are taking up you time and space to make room for more of what you like and want.

There’s a frequently quoted suggestion that if you haven’t used something for two years, maybe it isn’t essential in your life. 

If you have books you’ll never read again, give them to someone who will.  If you have a deviled egg plate that hasn’t been used since the year your Aunt Phoebe gave it to you, it’s out of there.  Periodically, go through every closet, drawer, cabinet, room and storage area to get rid of the things that are just taking up space in your home and your life.

Every item receives the decision to keep or get rid of.  Consider these questions as you judge each item:

  • When was the last time you used it?
  • Do you believe you’ll use it again?
  • Is there a sentimental reason to keep it?

You have four options for the things that you’re not going to keep. 

  1. Give it to someone who needs it or will appreciate it
  2. Sell it in a garage sale or on Craig’s List.
  3. Donate it to a charity and receive a tax deduction
  4. Discard it to the trash.

Start with your closet.  If you haven’t worn something in five years, get rid of it.  Then, go through the things again and if you haven’t worn it in two years, ask yourself the real probability that you’ll wear it again.

Another way to do it is to move it from your active closet to another closet.  If a year goes by in the other closet, the next time you go through this exercise, those clothes are on their way out.

If the items taking up space are financial records and receipts, the solution may be to scan them and store them in the cloud.  There are plenty of sites that will offer you several gigabytes of free space and it may cost as little as $10 a month for 100 GB at Dropbox, to get the additional space you need.  It will certainly be cheaper than the mini-storage building.

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Shot of a mature woman hugging her husband

If you’re at an age where you need to be taking Required Minimum Distributions (age 70.5) from your IRA, a qualified charitable contribution and some planning may allow you to lower your overall tax liability.

Let’s say that a couple’s 2019 itemized deductions include $8,000 in property taxes, $4,400 in interest and $20,000 in charitable contributions.  That would total $32,400 which exceeds the 2019 $25,300 standard deduction for married couples, 65 years of age or older, filing jointly. 

Their required minimum distribution from their IRA is $40,000 which will be taxed at ordinary income.  If this couple is in the 24% tax bracket, the tax liability would be $9,600.

Alternatively, if they made the $20,000 in charitable contributions from their IRA as a Qualified Charitable Contribution, it would not be taxable in the withdrawal.  The balance of the RMD of $20,000 would be taxable at 24% which would have a tax liability of $4,800.

Their $32,400 worth of itemized deductions would be reduced by the $20,000 because it was paid from the IRA which makes their itemized deductions $12,400.  The $25,300 standard deduction would benefit them more by an amount of $12,900 increased deductions.  At 24%, this would reduce their liability by $3,096.

In the first instance, they would owe $9,600 in taxes due to the $40,000 RMD from their IRA.  In the second example, because of the increased amount by taking the standard deduction, the net tax liability would be $1,704 ($9,600 – $4,800 – $3,096 = $1,704).

This example shows how shifting contributions to a Qualified Charitable Contribution will get the same amount to the charity but lower the Required Minimum Distribution that must be recognized as ordinary income.  The shifting also gives the taxpayers the advantage of a higher amount of the standard deduction than the itemized deduction.

As always, before taking action, you should get advice from your tax professional on how this strategy may impact you.  There is information available on www.IRS.com for IRS Required Minimum Distribution FAQs and Qualified Charitable Distributions.

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Mistakes to Deny a Mortgage

Some, not so obvious, things that can cause a mortgage to be denied.

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