Selling a home in 2016? Here’s what you need to know

home for sale

Selling a home can be a stressful experience.

If you expect to put your home on the block at some point in 2016, here are some key factors for you to keep in mind before you address issues and concerns to make the best possible deal.

It’s a seller’s market …

Many homeowners remember the fallout that the housing bust had on real-estate prices. Even though most investors think of the financial crisis as having hit its peak in 2008 and early 2009, it took three more years for home prices to hit bottom.

Yet since early 2012, prices have climbed higher, and the Case-Shiller National Home Price Index is coming within spitting distance of matching its highs from 2006 and 2007.

Related: Buy (or sell) your home … without a real estate agent

Where you live is a key factor in determining just how much of a seller’s market you can expect. Hot markets like San Francisco have seen some housing-boom-era practices return to favor, with many reports of bidding wars that result in offers well above the asking price.

By contrast, areas where economic prospects are less favorable have never fully recovered from the housing bust. The more lucrative a region’s economic future appears to be, the easier you can expect it to be to sell a home.

… but mortgages could get more expensive

One key factor in how much sellers receive for their homes is how much buyers can afford. Low mortgage rates have helped fuel price increases in recent years.

But some now fear that with the Federal Reserve having begun a new cycle of rate increases, a move higher for mortgage rates could make homes less affordable.

Related: Why mortgage rates are NOT going up now, but…

So far, the tiny quarter-point boost that the Fed made in mid-December hasn’t pushed mortgage rates appreciably higher. Historically, though, tightening has generally led to increased rates on mortgage loans. Sellers need to be prepared for greater difficulty for prospective buyers trying to get financing.

Tax benefits still favor home sales

The biggest tax break for ordinary taxpayers is still the exclusion on capital gains for the sale of a personal residence. Single taxpayers can exclude up to $250,000 in gains from the sale of a home from tax, and joint filers get a double-sized exclusion of $500,000.

Related: Half of all renters can’t afford rent

To qualify, you have to meet a couple of tests. First, the property in question has to be your main home. In addition, to get the full exclusion, you have to have lived in the home for at least 24 months in the past five years.

You can’t have claimed a home-sale exclusion on tax returns for the previous two years. In some cases, partial exclusions are available, but getting specific tax advice from your accountant or tax professional is essential to make sure you’re aware of all the tax implications of a home sale.

Get help at the right price

Most homeowners use a real-estate agent to help market and sell their homes. Historically, the typical 6% commission on home sales was sacrosanct, but some agents have increasingly been willing to negotiate lower commissions for their services.

Flat-fee brokerages have also popped up, offering a fixed cost that sellers can count on that’s often lower than the percentage-based commission would be.

Related: Where Millennials are buying homes

The issue raises a huge debate in the real-estate community, with full-service agents arguing that they fully earn their commissions by bringing in more potential buyers and eventually getting higher sale prices.

Yet with some agencies offering incentives to buyers and sellers that reduce net commission costs, sellers should realize that they have leverage in coming up with a deal that works for them.

Related: 4 reasons 2016 is the year to buy a home

Selling a home is a monumental event, and it can introduce a number of complicated financial considerations. Being aware of those considerations and making a plan to deal with them will help the selling process go a lot more smoothly.

Getting a mortgage may take longer under new rules

Diana Olick |

The goal is to make the mind-numbing mortgage process much easier for consumers to understand. It’s called Know Before You Owe, which sounds simple enough.

The means to that goal, however, is all-new paperwork and disclosure rules for lenders that went into effect this past Saturday and which some say could delay the mortgage process and cost consumers cash.

The standardized forms spell out exactly how much a borrower must pay for closing costs and how much each monthly payment will be as the loan ages and potentially adjusts, right up until its term ends.

Borrowers must get these new, standardized forms at least three days before closing on the loan, which is a shift from previous standards, which allowed changes to be made on a loan right up to and even during the closing.

Mortgage application process

Peter Dazeley | Getty Images

“I think that’s a big one because consumers have been complaining about this left and right because they would get to the signing table and suddenly everything would change,” said Jason van den Brand, CEO of Lenda, an online mortgage refinance company operating in Washington, Oregon and California. “So you get quoted something and the loan gets locked, and you get to the closing table and suddenly the rate has gone up by a quarter percent, your fees have gone up $10,000 and you’re sitting there scratching your head going, what just happened?”

This is another outgrowth of the Dodd-Frank law, passed in 2010, designed to hold lenders accountable and protect consumers against what happened during the last housing boom. Back then, lenders offered borrowers loans with complicated terms, adjustments and penalties, without having to fully explain them.

Some borrowers didn’t even know their loans could adjust to higher payments or that the loans themselves were actually growing in size. Many of those risky loan products have been banned, but adjustable-rate loans are still perfectly legal and considered beneficial for many borrowers, as long as the borrowers know what they’re getting into.

The new rules (TILA RESPA Integrated Disclosure or TRID, if you really want to know) were completed two years ago, and the final date for implementation was even delayed three more months to make sure lenders could comply. At the heart of it are two forms, one providing the loan estimate and one the closing disclosure.

Those forms are designed to simplify the process for borrowers, but lenders have spent billions of dollars updating their systems to make sure they are complying, according to the Mortgage Bankers Association, which has a TRID Resource tab on its website. Some worry that even now lenders and real estate agents are just not ready.

“I think if we see a significant slowdown, and it doesn’t have to be that significant 30 to 60 [days] is pretty significant, if we see that slowdown start to happen, we’re going to see deals fall through and lenders change in the middle, and that’s the cascading effect that we are most concerned about,” said Mark McElroy, CEO of Pavaso, a digital closing platform.

Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), which is behind the new rules, reiterated in testimony to Congress last week that there will be something of a grace period for lenders to comply.

“Nobody believes that market participants are going to be trying to abuse consumers here; they’re trying to change their systems. So we’ll be diagnostic and corrective, not punitive, and there will be time for them to work to get it right and not be perfect on the first day,” said Cordray.

With the rules just 2 days old, Matt Weaver, vice president of mortgage sales at Finance of America Mortgage, a Blackstone Company, says it appears the sky has not in fact fallen, but he does expect to see delays, especially at the big banks, where closing time could stretch out to 60 or 75 days.

“There is a fee to extend rate locks. The question is, is that cost going to be passed on to the client. From an overall perspective, the market is saying slow down. It will all work itself out, but out of the gate we certainly are going to see some turbulence with the larger banks simply because of their volume,” said Weaver.

Realtors are most concerned, however, because the majority of those buying a home today are also selling a home, and time is always of the essence. Mortgage delays caused by the new rules could throw a wrench into some sales.

“When you are trying to brace them for a longer, drawn-out closing, that causes a panic,” added Weaver.

The best advice for borrowers is to prepare for delays, have all paperwork ready before even starting the process and possibly even spend the extra money upfront for a longer lock term.

— CNBC Producer Stephanie Dhue contributed to this report.

Courtesy of your Arcadia Real Estate Agent

MANY ‘FIX-IT’ PROJECTS REQUIRE A CONTRACTOR’S LICENSE

Written by Bob Hunt on Monday, 19 January 2015 11:10 am

It is common for home sellers to need to hire someone to do maintenance or corrective work in order to facilitate a sale. Sometimes such work will be done in order to prepare a house to go on the market. Sometimes it will be done in response to a buyer’s “fix-it” list, and sometimes it will be performed in order to meet contractual requirements such as doing what is needed in order to obtain a structural pest control clearance.

When the work is hired out, as opposed to being done by the homeowner himself, attention should be paid to determine whether or not the person doing the work is required to have a contractor’s license.

California Business and Professions Code #7028(a) states, “It is a misdemeanor for any person to engage in the business or act in the capacity of a contractor within this state without having a license therefor, unless such person is particularly exempted from the provisions of this chapter. (Note: All the references here are to California law; but many states have similar regulations.) What exempts a person from the license requirement? The same code at section #7048(a) says, “This chapter does not apply to any work or operation on one undertaking or project by one or more contracts, the aggregate contract price which for labor, materials, and all other items is less than five hundred dollars ($500)…”[my emphasis]

A project whose price totals less than $500 is considered “… of casual, minor, or inconsequential nature,” and can be performed by a non-licensed person, often referred to as a ‘handyman’.

Good old American ingenuity being what it is, numerous schemes have been devised in attempts to skirt the $500 limit. Some will attempt to avoid the license requirement by breaking a job’s billing up into components, e.g. labor $300 and materials $300. This doesn’t work because the legislation clearly states that the relevant sum is the aggregate of costs.

Another ruse is to attempt to segregate the job into smaller components. “I’ll do the north side of the roof for $450, the south side for $450, etc.” This will not work either, as the code states that the exemption does not apply for a job, “…in which a division of the operation is made in contracts of amounts less than five hundred dollars ($500) for the purpose of evasion of this chapter…”

Even if the particular job (e.g. tearing out a wall) is less than $500, it is not exempt if it is, “…part of a larger or major operation [e.g. remodeling the house], whether undertaken by the same or a different contractor…” [my emphasis] Also, even if the job is less than $500, the exemption does not apply if the handyman has, through cards or advertising, held himself out to be a contractor.

Finally, it should be noted that the law requires a non-licensed person to disclose this fact to the consumer. The code provides specific language that must be delivered at the time of bid or at least prior to entering into a contract to perform work for less than $500. In 10 point boldface type the notice needs to tell the hiring person that the handyman is unlicensed, and that a license is required for work that will total more than $500. The required notice also puts the consumer on notice that, “If you contract with someone who does not have a license, the contractor’s state license board may be unable to assist you with a complaint.”

There are other headaches a homeowner might have to deal with. If the handyman has hired others to work on the project, they may be considered employees of the homeowner. If the job results in damage to some third party, the homeowner may be liable. Moreover, a “contractor” without a license is not going to have workman’s compensation. If a worker, hired by the unlicensed person, is injured, guess who will be held financially responsible?

In these situations, the homeowner is not the only one liable to incur headaches. Unlicensed “contractors” need to know that the homeowner cannot be compelled to pay them for their work. Attorney George Wolff has stated the situation succinctly and forcefully:

Even if the work of the unlicensed contractor was perfect, and the other party is perfectly happy with the work done and is using it, and even if the property owner knew that person was unlicensed before the work started that the builder was not licensed, the unlicensed contractor may not sue to recover the amount owed on the contract, and can be forced to pay back to the owner every single penny that it was paid for the work.

[my emphasis]

An unlicensed contractor doing work for which a license is required? Not a good idea for either party.

WHY CMAS AND APPRAISALS AREN’T THE SAME

Written by Blanche Evans on Thursday, 27 November 2014 8:54 am

As part of the homebuying process, your real estate agent may create a comprehensive market analysis or CMA. Later, when you apply for a mortgage, a bank appraisal is conducted by a licensed appraiser. Are CMAs and appraisals the same thing?

While both CMAs and appraisals help determine a home’s market value, their purposes are not the same. The CMA is a sales tool to help you find an offer price for the home you want to buy. The homes in the CMA include the home you want to buy plus similar nearby homes. This helps you see how the home you want compares to other homes so you have an idea what to offer.

A real estate professional may prepare a CMA for their sellers to help them choose a listing price. The CMA includes recently sold homes and homes for sale in the seller’s neighborhood that are most similar to the seller’s home in appearance, features, and general price range.

Although the CMA is used to help determine current market value, the seller’s home is typically not even featured in the CMA. The CMA is merely a guide to help the seller learn what’s happening in their local market, so they can better understand where their home fits in term of price ranges, based on location, features, size, condition and other factors.

The CMA offers the same advantages to you as a buyer. They help you better understand the local market. You can expand the search and get different results in a CMA simply by changing the zip code or the price range or the number of bedrooms and baths.

Appraisals are all about risk retention for banks and their customers. If the buyer is receiving financing through a bank, the bank will order an appraisal.

Unlike the CMA, a bank appraisal is a professional determination of a home’s value. It’s performed by a licensed appraiser, using guidelines established by the Federal Housing Finance Agency, which regulates federal housing loan guarantors such as FHA, VA and housing loan purchasers Fannie Mae and Freddie Mac.

An appraisal is a comprehensive look at a home’s location, condition, and eligibility for federal guarantees. For example, the home you want may have porch steps but no handrail. If you want to buy the home with an FHA or VA-insured loan, your seller will have to repair or install a handrail. The FHA or VA appraiser will look at the home a second time to make sure the steps were made safe.

Appraisers use the same data in their market research to find comparable homes as Realtors do. They are also members of the MLS, but they have additional guidelines from the bank to follow to minimize risk to the bank and to the borrower. If home prices are falling, the appraiser takes the number of days a home has been on the market far more seriously.

When the appraisal is finished, the bank makes the decision to fund the loan, or it may require the seller to fix certain items and show proof that the repairs have been made before letting the loan proceed. If the loan doesn’t meet federal lending guidelines, the bank will decline the loan.

Despite stricter lending and appraisal standards, most buyers’ loan applications go through to closing. One reason the system works so well is that real estate agents are preparing CMAs that are better tuned to lending standards as well as market conditions. As a buyer, it’s in your best interest to understand how lenders approach risk and to learn what the market is doing.

Simply put, you need both a CMA and an appraisal to determine market value. A CMA helps you decide what you should offer the seller. An appraisal determines what the lender is willing to lend to help you purchase a home.

Rents skyrocket well beyond wages

By

Diana Olick |

Lease a two-bedroom apartment in Miami, and you could be putting more than half your salary into the rent check. The same is true for Los Angeles and New York City—and it’s only getting worse, according to a report from real estate company Trulia.

Rents are rising most in the local housing markets where renters are already stretched thinnest. In the five least affordable markets, rents are now 7.8 percent higher than they were a year ago.

“Rents are rising because of strong demand that supply hasn’t kept up with. Nearly all the new households are renters, and young people moving out of their parents’ homes will keep fueling rental demand,” said Jed Kolko, chief economist at Trulia.

File photo: A woman walks next to a "For Rent" sign at an apartment complex in Palo Alto, California.

Paul Sakuma | AP
File photo: A woman walks next to a “For Rent” sign at an apartment complex in Palo Alto, California.

Nationally, rents for units currently listed rose about 6 percent from a year ago, thanks to strong demand and still- limited supply. Median rents for those already occupying units rose a little over 3 percent.

While mortgage lenders generally suggest borrowers pay no more than about 30 percent of their wages on housing (mortgage interest, principal, taxes, insurance), renters in San Francisco, San Diego, Boston, Baltimore, Washington, D.C., and Chicago pay more than that for a two bedroom rental, according to Trulia. It begs the question, why don’t more renters buy?

“Both rents and [home] prices are outpacing income growth, so neither renting nor buying has become more within reach of what people can afford. Plus, paying more on rent makes it harder for would-be homebuyers to save for a down payment,” Kolko said.

Rental demand is showing almost no sign of cooling off. Apartment vacancies did rise slightly in the third quarter for the first time in 4½ years, according to Reis analytics firm, but that was largely due to more rental supply coming on line. More than 46,000 units were delivered during the quarter. This is the second-highest quarterly amount since the fourth quarter of 2002. Year to date, 113,024 units have been delivered.

“Units brought online during tight market environments have a tendency to actually push rents upward, not downward,” according to Ryan Severino, a senior economist at Reis. “So landlords should still be able to push asking rent increases on to their tenants.”

Analysts, however, do believe the market has reached an inflection point where vacancies have hit bottom and will slowly start to rise. That should help ease rents slightly into 2015.

Courtesy of your Arcadia Real Estate Agent

 

Average US 30-Year Mortgage Rate at 4.13 Pct.

WASHINGTON — Jul 24, 2014, 11:33 AM ET

Average U.S. long-term mortgage rates were stable to slightly higher this week, remaining near their lows for the year.

Mortgage company Freddie Mac said Thursday that the nationwide average for a 30-year loan was 4.13 percent, unchanged from last week. The average for the 15-year mortgage, a popular choice for people who are refinancing, edged up to 3.26 percent from 3.23 percent last week.

Mortgage rates are below the levels of a year ago, having fallen in recent weeks after climbing last summer when the Federal Reserve began talking about reducing the monthly bond purchases it was making to keep long-term rates low.

The government reported Thursday that sales of new homes in the U.S. plunged by 8.1 percent in June, a sign that real estate continues to be a weak spot in the economy. Home sales had been improving through mid-2013, only to stumble over the past 12 months due to a mix of rising prices, higher mortgage rates and meager wage growth.

At 4.13 percent, the rate on a 30-year mortgage is down from 4.53 percent at the start of the year. Rates have fallen even though the Fed has been trimming its monthly bond purchases. Fed Chair Janet Yellen told Congress last week that the purchases likely will end completely at the end of October.

But at the same time, Yellen said during congressional testimony that the Fed still sees the need to keep its benchmark short-term rate at a record low near zero to give the economy support.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was 0.6 point, unchanged from last week. The fee for a 15-year mortgage rose to 0.6 point from 0.5 point last week.

The average rate on a five-year adjustable-rate mortgage increased to 2.99 percent from 2.97 percent. The fee rose to 0.5 point from 0.4 point.

For a one-year ARM, the average rate was unchanged at 2.39 percent. The fee held at 0.4 point.

Courtesy of your Arcadia Real Estate Agent