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August
29

Today's housing market conditions are truly unique and have never been seen before. The genesis of this housing cycle came about as a result of the 2008 Great Financial Crisis (GCF). The GFC and related housing crash caused a contraction in the broader housing industry and those effects are still with us today.  

At that time, homeownership rates for American families were at 69%, the highest they have even been, and the annual residential resales were nearly 7 million units. This is compared to today's rates of 64% and 5 million respectively. As we can see by these numbers, this housing cycle is far off that of the GFC. 

The story of today's market is about inventory and demographics. One of the major ripples from the GFC is that home building production and builders were each negatively impacted. The production of new residential housing units has escalated by 40% over the last 10 years, while the population continues to grow. This has been exacerbated by a cumbersome and expensive approval process at the state and local levels for new homesites and other forms of housing.    

Two demographic trends  are also putting significant pressure on the existing housing supply. First, 62 million millennials have come of age and are entering the housing market in large numbers. The notion that was held several years ago that millennials would not be homeowners (which always seemed surprisingly naïve) has proven to be grossly incorrect. As they are entering the family formation stage of their lives, they want the same sense of home for their children as they had growing up and this generation has proven to be more financially stable from a younger age than previous generations 

The second trend is the 55 million Baby Boomers who are living healthier and longer lives, therefore are staying in the housing market beyond expectations and in many cases remaining in their family home. What might be a starter home for a millennial could be a retirement home for a Baby Boomer. In many cases, both groups are competing for the same limited supply of inventory.   

Is This a Housing Bubble Like '08? 

The short answer is no. As previously mentioned, the dynamics of this market are entirely different than those of any other time. It is the quintessence of a classic supply and demand relationship. In fact, this is textbook Economics 101 where there are more consumers than available product. 

There are also significant fundamental factors in today's housing cycle as compared to those that triggered the GFC 14 years ago.   

Here is a comparison:  

  • Required credit scores for today's buyers are significantly higher. 
  • General mortgage underwriting standards are far more stringent today.  
  • There was an oversupply of housing in 2008, not so in today's market. 
  • Speculation was rampant in 2008, very little speculation today. 
  • Exotic mortgage programs with low first year teaser rates, subprime underwriting, interest only loans and so on, were common to attract the less qualified borrower to the market.  By and large those programs are not prevalent today. 
  • Household and corporate balance sheets today are at their highest levels in recent memory. 
  • Home equity loan usage is very low today compared to the GFC period. 

What's Next for Housing? 

Because of the inventory and demographic factors, we have discussed that the seeds were sown for this tight housing market, regardless of the Pandemic. The Pandemic certainly heightened the inventory tension, but on its own the Pandemic didn't create the market. 

Issues such as demographics and inventory shortages are long term in their development, therefore long term in their solutioning. These conditions will remain in place for many years. At the current rate of new construction home starts and given the numerous demographic cohorts interacting with housing, the market could upwards to a decade behind in supplying adequate inventory.   

It is certainly not hard to reason that consecutive years at 20% appreciation is not sustainable.  What we are seeing in the second half of 2022 is a slow down to more sustainable levels of activities so consumers and prices can both catch their breath. More reasonable annual appreciation rates in the range of 7-12% which are strong historically, are likely in the years to come as the market ebbs and flows in concert with other economic influences. Although interest rates have recently increased, they are well within historically low levels as well. A negative equity scenario would be hard to imagine given the long-term prospects of an imbalance in the supply to demand relationship.

April
20

By now, most of us have heard about cryptocurrency and blockchain technology. Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies have entered the mainstream. Financial institutions like JP Morgan and Goldman Sachs are trading cryptocurrencies and creating investment vehicles for customers.

With the mainstreaming of Bitcoin and Ethereum and their adoption globally, blockchain real estate applications have transitioned from theory to reality! Blockchain technology has the potential to revolutionize numerous industries, including real estate. By using an advanced network of computers and algorithms, blockchain real estate applications are already beginning to disrupt the housing sector in meaningful ways.

In this post, we will explore and define cryptocurrency, NFTs, and how blockchain technology impacts residential real estate and the real estate industry.

Cryptocurrency, NFTs, and Blockchain Defined

If you are not familiar with this new technology, we will start by offering quick definitions of three major components.

Cryptocurrency – Cryptocurrency is a digital, virtual currency secured by cryptography. This makes it nearly impossible to counterfeit or double-spend. As a decentralized currency, it can circulate without a central monetary authority like a bank. Bitcoin was the first and is the most popular cryptocurrency. Today, there are over 4000 different cryptocurrencies.

NFTs – Bitcoin, Ethereum, and Litecoin are examples of fungible tokens. Fungible means that there are many tokens, and all are exactly the same. NFT stands for Non-Fungible Token, and it is basically a one-of-a-kind digital asset that belongs to a single investor or small group of owners. Today, the most popular NFTs are artwork and music, but real estate can also be tokenized.

A Blockchain - A blockchain is a digitally distributed, decentralized, public ledger that exists across a network of computers and nodes. It is made up of blocks that contain many transactions. Every time a new transaction occurs, a record of it is added to every ledger. A blockchain is a series of connected data blocks. Blockchain is a system of recording information in a way that makes it difficult to change, hack or cheat the system.

What is a Real Estate Blockchain

Today, blockchain technology has become synonymous with popular cryptocurrencies like bitcoin, litecoin, and ethereum. However, the blockchain in real estate is not relegated solely to crypto assets. Cryptocurrencies take advantage of a blockchain's ability to act as an anonymous ledger across a vast computer network and its ability to track transactions and records. This technology can be used by cryptocurrencies and almost every industry, including real estate.

In its most basic form, a real estate blockchain uses a network of computers and nodes to act as a more secure and advanced escrow company. Instead of trading closing documents for s check, a real estate blockchain can extend to almost every facet of a deal. A real estate blockchain may help participants exchange currency, records, legal documents, and other types of information over a secure, safe, encrypted network.

Let's take a step by step look at a blockchain real estate exchange:

  1. A seller accepts an offer and requests the money sent over a blockchain.
  2. The seller's request is facilitated by a decentralized network of computers known as nodes.
  3. For the exchange to take place, the nodes must verify the request.
  4. Verifications are determined by each party involved in the exchange
  5. The transaction takes place just once and can be verified – much like an escrow company.
  6. When verified, the blockchain ledger is updated with a new block of data, forming an additional link in the chain of data (hence – blockchain)
  7. Once the newly created block of data is added to the blockchain, it can no longer be altered in any way.

The Tokenization of Real Estate

Earlier, we defined NFTs or non-fungible tokens. These are unique individualized crypto assets that can make the concept of shared ownership easier. The real estate blockchain concept can be easier to understand if you view it through the lens of tokenization.

Tokenization is the process of turning equitable interest in a property (or another asset like art, music debt, or cash flow) into a token. Like any store of value, a token becomes a digital representation of equitable interest.

For example, let's say two investors form a partnership to buy a commercial property. If they tokenize their equitable interest in the asset on a real estate blockchain, they will receive digital tokens equal to their ownership in the property. If they are equal partners, each gets the same amount of tokens. However, if their interest differs, for example, if one partner invested more, the tokens will reflect the difference. When added together, all of the tokens equal the asset's total value. Separately each investor's tokens represent their share of ownership. The tokens are used to document, store, and verify ownership of the asset.

Once a real estate asset is tokenized, it can be easily traded, sold, or liquidated via a real estate blockchain. The process isn't very different than a traditional transaction where assets are exchanged for fiat currency.

Homeowners are tokenizing their properties and, as a result, can gift a portion of their homes to family members using cryptocurrency and blockchain. Tokenizing real estate and utilizing the blockchain is already happening. Tokenization facilitates quicker transactions more securely and eliminates the need for an expensive third-party escrow company.

The Impact of Blockchain

Blockchain, cryptocurrency, and NFTs have entered the mainstream, are changing the financial landscape, and can potentially change the foundation of the real estate industry. Blockchain and decentralization can democratize the industry and make it available to anyone!

Blockchain technology and tokenization are already changing the industry for the better. As the platform develops, blockchain technology will improve the industry by:

  • Creating trading platforms and online marketplaces for residential, commercial, and industrial properties
  • Eliminating the need for intermediaries
  • Blockchain will allow real estate to become a more liquid asset
  • Blockchain also allows for fractional ownership of properties
  • Blockchain will also cut costs and digitize documents

Blockchain is here and already changing the real estate industry. As this technology and decentralized finance go mainstream, many sectors, including the real estate industry, will change for the better.

January
12

NFTs, Cryptocurrency, and The Blockchains Impact on Residential Real Estate

By now, most of us have heard about cryptocurrency and blockchain technology. Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies have entered the mainstream. Financial institutions like JP Morgan and Goldman Sachs are trading cryptocurrencies and creating investment vehicles for customers.

With the mainstreaming of Bitcoin and Ethereum and their adoption globally, blockchain real estate applications have transitioned from theory to reality! Blockchain technology has the potential to revolutionize numerous industries, including real estate. By using an advanced network of computers and algorithms, blockchain real estate applications are already beginning to disrupt the housing sector in meaningful ways.

In this post, we will explore and define cryptocurrency, NFTs, and how blockchain technology is impacting residential real estate and the real estate industry.

Cryptocurrency, NFTs, and the Blockchain Defined

If you are not familiar with this new technology, we will start by offering quick definitions of three major components.

Cryptocurrency – Cryptocurrency is a digital, virtual currency secured by cryptography. This makes it nearly impossible to counterfeit or double-spend. As a decentralized currency, it can circulate without a central monetary authority like a bank. Bitcoin was the first and is the most popular cryptocurrency. Today, there are over 4000 different cryptocurrencies.

NFTs – Bitcoin, Ethereum, and Litecoin are examples of fungible tokens. This means that there are many tokens, and all are exactly the same. NFT stands for Non-Fungible Token, and it is basically a one-of-a-kind digital asset that belongs to a single investor or small group of owners. Today, the most popular NFTs are artwork and music, but real estate can also be tokenized.

A Blockchain - A blockchain is a digitally distributed, decentralized, public ledger that exists across a network of computers and nodes. It is made up of blocks that contain many transactions. Every time a new transaction occurs a record of it is added to every ledger. A blockchain is a series of connected data blocks. The blockchain is a system of recording information in a way that makes it difficult to change, hack or cheat the system.

What is a Blockchain in Real Estate

Today, blockchain technology has become synonymous with popular cryptocurrencies like bitcoin, litecoin, and ethereum. However, the blockchain in real estate is not relegated solely to crypto assets. Cryptocurrencies take advantage of a blockchain's ability to act as an anonymous ledger across a vast computer network and its ability to track transactions and records. This technology can be used by cryptocurrencies and almost every industry, including real estate.

In its most basic form, a real estate blockchain uses a network of computers and nodes to act as a more secure and advanced escrow company. Instead of trading closing documents for s check, a real estate blockchain can extend to almost every facet of a deal. A real estate blockchain may help participants exchange currency, records, legal documents, ad other types of information over a secure, safe, encrypted network.

Let's take a step by step look at a blockchain real estate exchange:

  1. A seller accepts an offer and requests the money sent over a blockchain.
  2. The seller's request is facilitated by a decentralized network of computers known as nodes.
  3. For the exchange to take place, the nodes must verify the request.
  4. Verifications are determined by each party involved in the exchange
  5. The transaction takes place just once and can be verified – much like an escrow company.
  6. When verified the blockchain ledger is updated with a new block of data, forming an additional link in the chain of data (hence – blockchain)
  7. Once the newly created block of data is added to the blockchain it can no longer be altered in any way.

The Tokenization of Real Estate

Earlier, we defined NFTs or non-fungible tokens. These are unique individualized crypto assets that can make the concept of shared ownership easier. The real estate blockchain concept can be easier to understand if you view it through the lens of tokenization.

Tokenization is the process of turning equitable interest in a property (or another asset like art, music debt, or cash flow) into a token. Like any store of value, a token becomes a digital representation of equitable interest.

For example, let's say two investors form a partnership to buy a commercial property. If they tokenize their equitable interest in the asset on a real estate blockchain they will receive digital tokens equal to their ownership in the property. If they are equal partners, each receives the same amount of tokens. However, if their interest is different, for example, if one partner invested more, the tokens will reflect the difference. When added together, all of the tokens equal the asset's total value. Separately each investor's tokens represent their share of ownership. The tokens are used to document, store, and verify ownership of the asset.

Once a real estate asset is tokenized, it can be easily traded, sold, or liquidated via a real estate blockchain. The process isn't very different than a traditional transaction where assets are exchanged for fiat currency.

Homeowners are tokenizing their properties and, as a result, are able to gift a portion of their homes to family members using cryptocurrency and the blockchain. Tokenizing real estate and utilizing the blockchain is already happening. Tokenization facilitates quicker transactions more securely and eliminates the need for an expensive third-party escrow company.

The Impact of The Blockchain

The blockchain, cryptocurrency, and NFTs have begun to enter the mainstream and are changing the financial landscape. This technology has the potential to change the foundation of the real estate industry. Blockchain and decentralization can democratize the industry and make it available to just about anyone!

Blockchain technology and tokenization are already changing the industry for the better. As the platform develops blockchain technology will improve the industry by:

  • Creating trading platforms and online marketplaces for residential, commercial, and industrial properties
  • Eliminating the need for intermediaries
  • The blockchain will allow real estate to become a more liquid asset
  • The blockchain also allows for fractional ownership of properties
  • The blockchain will also cut costs and digitize documents

The blockchain is here and already changing the industry. As this technology and decentralized finance go mainstream, many industries, including the real estate industry, will change for the better.

November
10

What Is A Section 1031 Exchange, And How Does It Affect Tax Liabilities

Real estate has always been a great way to build wealth. When you buy a property by putting a relatively small amount of money down and obtaining a mortgage, you're leveraging your investment; in other words, you're getting an asset worth significantly more than the money you've invested as a down payment. 

If your home increases in value, you build equity based on the total price of the asset. Another significant benefit of real estate is the tax breaks. When you live in the home, the interest you pay on your mortgage is tax-deductible if you itemize your return. Thanks to the Taxpayer Relief Act of 1997, another tax break comes in reduced capital gains taxes. For example, when you sell your home, the first $250,000 gains are free from capital gains taxes ($500,000 for married couples). These tax advantages make owning a home a wise investment for many of us and allow us to build wealth relatively tax-free when investing in a residence.

If you're a commercial real estate investor, there is another rule you can also use to defer capital gains on your investment property to build wealth. It's called the 1031 Exchange Rule, and it has many moving parts. Real estate investors must understand the law before attempting to use it, and it can be complicated to follow. An exchange can only be made with like-kind properties. In addition, there are tax implications and time frames that must be strictly followed, or it may be problematic. 

If you're considering using a 1031 Exchange or want to learn more, we're going to help you gain an understanding of this investment benefit in this post.

What Exactly is a Section 1031 Exchange

In simple terms, a 1031 exchange (also known as a like-kind exchange) is a swap of one investment property for another. Although most swaps are taxable as sales, if you meet the requirements of 1031, you'll pay no tax or a limited tax due at the time of the exchange.

In effect, you are changing the "form" of your investment in the eyes of the IRS without cashing out or recognizing a capital gain. This allows you to grow your investment tax-deferred. Because there are no limits as to how many times or how frequently you can use 1031, you can continue to roll your capital gains from one investment property to another, and another, and another.

Even though you may be profiting from each swap, you avoid paying any taxes until you finally cash out many years (or even decades) later. If it works as planned, you'll pay a single tax at the current long-term capital gains rate (currently 15 or 20% depending on your income).

Most exchanges must meet the criteria known as "like-kind." However, this phrase doesn't necessarily mean what the name implies. For example, you can exchange an apartment building for raw land or a ranch for a strip mall. The rules are surprisingly liberal. You can also exchange one business for another. However, there are "traps" of which you need to be aware.

The 1031 rules are for investment and business property, although they can apply for a former primary residence under certain conditions. It's also possible to use the 1031 Exchange for swapping a vacation home, but this loophole has been made much narrower in recent years.

When You Might Want a 1031 Exchange

As a real estate investor, there are several reasons that you may consider using a 1031 exchange. These include:

  • You're looking for a property with better prospects for an ROI, or you might want to diversify your assets.
  • If you own investment real estate, you might be looking for a managed property rather than managing it yourself.
  • You may want to consolidate your holding for estate planning purposes, for example, dividing a single property into several assets.
  • To reset the depreciation clock (more below.)

The main benefit of a 1031 exchange over simply selling one property and buying another is the tax deferral. By deferring capital gains taxes using a 1031 exchange, you're freeing more capital for investment in a replacement property.

Bear in mind that 1031 might require a higher minimum investment and a longer holding time. 1031exchange transactions can be complex and should be handled by professionals.

Understanding Depreciation and Why It's Important

It's essential to understand the concept of depreciation to gain a proper understanding of the benefits of a 1031 exchange.

Depreciation is the percentage of the cost of an investment property written off every year, recognizing the effects of wear and tear. When you sell a property, capital gains taxes are calculated based on the property's net-adjusted basis, which combines the property's original purchase price plus capital improvements, minus depreciation. 

If your property sells for more than its depreciated value, you may need to "recapture" the depreciation. That means the amount of depreciation is included as taxable income when you sell.

Since the size of depreciation increases with time, you might want to consider a 1031 exchange to avoid the significant increase in taxable income that recapture would cause. Depreciation recapture is a factor to account for when considering a 1031 exchange.

The Replacement Property: Timing and Rules

The classic exchange involves a simple swap of one property for another between two people. However, it's long odds to find someone with the exact property you want, who wants the exact property you have. As a result, the majority of exchanges are delayed, three-party exchanges.

In a delayed exchange, you need a qualified intermediary or middleman. He or she will hold the cash after you sell your property and then uses it to purchase the replacement property for you. This is a three-party exchange that is classified and treated as a swap. Here are two essential timing rules you need to follow in a delayed exchange.

The 45-day Rule

This rule relates to the designation of a replacement property. Once a sale occurs, the intermediary receives the cash. Within 45 days of the sale, you must designate the replacement property in writing to the intermediary, specifying the property you wish to acquire. The IRS rule states that you can select three properties as long as you eventually close on one of them. 

The 180-day Rule

The second timing rule you need to be aware of in a delayed exchange relates to closing the replacement property. You must close on the new property within 180 days of the sale of your original property.

One crucial fact to be aware of is that these periods run concurrently. That means the clock starts when you close on the sale of your original property. For example, if you designate a replacement property exactly 45 days after you close, you'll have just 135 days left to close on the replacement.

Tax Implications

While there are plenty of benefits to 1031 exchanges, it's essential to understand potential pitfalls if the transaction isn't handled correctly. For example, you may have cash left over after your intermediary acquires the replacement property. If so, they will pay it to you at the end of the 180 days. This cash is known as "boot," will be taxed as the partial sales proceeds from the sale of your property, typically as a capital gain. 

One way people can get into trouble with this type of transaction is by failing to consider loans. You must consider any mortgage loans or other debts on the replacement property. If you don't receive cash back, but your liability is reduced, that is treated as income to you – just like cash. 

For example, if you were carrying a mortgage of $1 million on your old property, but the mortgage on the replacement property you receive in the exchange is only $900,000, you will have a $100,000 gain. This is classified as "boot," and it will be taxed.

The Bottom Line...

While we've just touched on the highlights of 1031 exchanges, the fact is, 1031 is an intelligent tax-deferral strategy that real estate investors can use to build real wealth. The bottom line is that while using a 1031exchange strategy is a savvy business move, there are many complex moving parts that not only require you to understand the rules. It is important to enlist professional help, even if you're a seasoned real estate investor. 

November
3

Planning to Sell Your Home? Be Aware of the Cost to Sell a House

Selling your home is both time-consuming and expensive, often more than a homeowner might expect. It's easy to get excited when you look at the latest Zestimate and seeing how much more your home is worth than when you bought it. However, if you're considering selling your home, you need to factor the cost to sell a house into your calculations. 

It's important to factor in and be prepared for the hidden and sometimes overlooked cost to sell a house. Some expenses are negotiable, but sellers need to expect to pay the costs of selling their homes. Today we're living through one of the biggest seller's markets in our lifetimes, on average in a typical market, homeowners will spend seven months planning and preparing to sell their home, and three additional months with their home listed, pending, and closing. 

What follows is a breakdown of what a homeowner can expect when determining the cost to sell a house.

The Cost of Selling a House: The Common Expenses

Some expenses are common, and you can expect to pay them when selling a house. Some costs may be hidden or not commonly considered. 

The typical cost to sell a house includes:

  • Agent Commissions- The seller's agent typically charges 5 to 6% of the home's purchase price when the deal is completed. This is likely the highest cost you'll pay, aside from paying off your mortgage. When shopping for an agent, ask them about their commission fee. Some may be willing to negotiate their rates. Make sure you get any agreement in writing. The seller's agent may split their commission with a buyer's agent, but this does not affect you.
  • Taxes and Neighborhood Fees -You'll owe a prorated share of your property taxes when you sell. This amount might be close to zero if you've recently paid your taxes or several thousand dollars if the due date is coming up. In some states, you may also be charged a local transfer tax. This is a fee the seller pays to transfer the title to another person. Depending on the location this tax is typically .01% to 2% of the final sale price.  If you profit more than $250,000 ($500,000 if married) you may also be liable for capital gains taxes unless you can use a 1031 Exchange. You may also be liable to pay a prorated membership fee if your neighborhood has a homeowners association and possibly an HOA transfer fee.
  • Title Insurance for the Buyer - This is protection for the buyer in case there is an issue with the home's ownership. Buyers may also purchase a title policy if they apply for a mortgage, but this policy protects only the lender. In some areas, the seller pays for a separate policy for the new homeowner. The average cost is around $1000.
  • The Mortgage Payoff - Unless you own your home outright when you sell you'll need to pay off your lender. The payoff amount may be different from the balance due listed on your last mortgage statement because of interest charges. You'll want to know the exact payoff amount. If your mortgage has a prepayment penalty, that will be added to the amount due.
  • Home Repairs - Your buyer will most likely order a home inspection before closing. If the inspection finds any issues, you may be asked to pay for any repairs.
  • Moving Costs - Whether you buy and pack your own boxes and rent a truck or hire a moving company, you'll want to budget for your move after the sale is closed.

The Cost of Selling A House: The Optional Costs

Depending on how competitive your local market is, it may make sense to pay for extra services to attract more potential buyers. Many of these are optional, but they can help alert you to potential problems and help make your home stand out from others in the market.

  • Pre-Sale Home Inspection - This one is strictly optional, and it can cost you around $400 or more, but it can be worth it. Some sellers choose to make this investment to find any significant structural or mechanical problems before a potential buyer does.  Getting a pre-sale inspection allows you to make major repairs ahead of time. This removes the possibility of a buyer demanding them or using them as a negotiating tool to lower the price. Discuss this with your real estate agent. Remember, if the inspection reveals material defects, you'll need to repair or possibly disclose them, depending on your state's disclosure rules.
  • Home Staging - It's always a smart move to remove clutter and give your home a good deep clean before listing. Your agent may suggest going a step further and hire a home stager to make your home more appealing. A stager may re-arrange your existing furniture, change your interior design and replace old worn furniture. The typical cost is $500 to $2000.
  • Buyer's Closing Costs - Buyers are typically responsible for mortgage fees, home inspections, and appraisal expenses, which can often add up to be 2% to 5% of the final selling price. If you're in a slow market, or your buyer is on the fence, you can offer to pay some of these closing costs to help seal the deal.

Selling your home can be challenging and exhilarating at the same time. In today's super hot seller's market, it can also be lucrative. If you are planning or considering selling your home, make sure you factor both the typical and potential cost of selling a house into your plan. A REALTOR® can help you to better understand the exact cost of selling your home.

If you're considering selling your home, contact the REALTORS® at Masiello Residential Real Estate. We can help you get the best price for your New England home, can assist you to find the perfect new home to meet your needs, and understand the true cost of selling your home.

October
27

How To Lower Your Costs and Maximize Your Profits When Selling Your House

When selling your house, a primary goal is to make as much money as possible from the sale. Your profits can be rolled into a new house or used to fund another investment; either way, it's worth making an effort to maximize the profit from that final check! 

Making the interior and exterior more appealing, staging, upgrading your home's operating systems, and lowering your costs, are things you can do to make the most profit when selling your house.

Here are some actionable tips to maximize your profits and lower your costs when selling your house!

Eight Tips to Get The Most Profit From Selling Your Home 

Selling your home isn't always a straightforward endeavor. Sometimes for your sale to be a success, you need to take some simple steps and think outside of the box to create demand in creative ways. Here are some common ways to make your home stand out to get the most profit when selling your house.

  1. Research and Understand Your Local Market

Read your local papers, and consult with a local Realtor® to help you navigate the ever-changing real estate market in your community. Finding the right Realtor can help you understand the complexities of your market. 

  1. Improve Your Home's Curb Appeal

First impressions are crucial in real estate. They can leave an indelible mark on prospective buyers. Making significant improvements like replacing worn vinyl siding or installing a new door can boost your home's curb appeal and add to your home's value. 

If costly repairs are outside of your budget, simple improvements can make a difference. Ensure the hedges and trees are trimmed, give exterior accents some fresh paint, and pressure wash the driveway to clean up your home's look for prospective buyers.

  1. Landscaping

A well-landscaped lawn and a clean patio with comfortable garden furniture is a relatively inexpensive improvement that will add to your home's appeal and up your asking price. 

  1. Upgrades to Kitchens and Bathrooms

The kitchen and bathrooms are the most used rooms in the house. They are also the rooms that can help sway buyers when selling your house. Even minor remodeling and upgrades to countertops, cabinets, fixtures, or hardware can make these rooms look new. Upgrading appliances can also increase the value of your home and up its resale price. 

  1. Clear The Clutter

You always want to present your home in its best light. Before you begin showing your home, remove all clutter and clean and organize your rooms. A clean, well-organized space gives a good impression and can make your home look more substantial. Wipe down baseboards, cabinets, and vents to clean the home of dust and dirt.

  1. Upgrade With Smart Home Technology

Advances in Smart Home Tech have made automation and remote-controlled home systems standards in new homes. Smart thermostats, blinds, locks, and safety systems save money, add security, and up your home's saleability. Younger buyers expect this type of technology that can be run and monitored from their smartphones and tablets. 

  1. Price Your Home Accurately

Avoid going too high with your initial asking price in the hopes of getting more than it's worth. Even in a seller's market like today, pricing your home above the fair market price can cause your property to stay on the market much longer. Many professionals recommend pricing your home slightly below market value. This can attract more attention, and multiple offers giving you more negotiating power.

  1. Take Advantage of Digital Marketing

We live in a digital world, and we rely on the Internet for everything today. Take advantage of online marketing opportunities in the real estate industry. Investing in professional photography or a video can up your home's appeal and generate more interest in your property.

Part Two: Reducing The Costs of Selling Your House

The secret to maximizing your profit when selling your home comes in two parts. The first half is taking the steps listed above to prepare your home for sale by putting it in the most presentable condition that you can. Part two of the equation is controlling the costs of selling. 

The first step to controlling costs is to start by understanding where the costs come When you know that, you can then put together a strategy for lowering them. Costs can vary depending on several factors, but in general, you can count on these costs at the time of your sale:

  • Repairs and Staging – Chances are you'll need to do some repairs (beyond those listed above) before you can sell. There are plenty of little issues homeowners put up with that a buyer will not want to deal with. You may need to stage your property for showings, and that can involve anything from painting walls or patching holes to renting furniture and putting yours in storage.
  • Agents Fees – Your agent is going to take 6% of your sales price. Often there are two agents involved in the sale – the seller's agent and the buyer's) and they will each take 3% as a commission. While it might not seem like much, 6% can be painful at the time of closing.
  • Other Closing Costs and Fees – The buyer typically picks the closing company, which means the seller is at the mercy of the closing company for fees. These can include paperwork processing fees, titling fees, and other line items that can add up. Speak with your broker about their fees and what you can expect at closing.

There are some steps you can take to minimize your costs, like:

Use a Flat-Rate Broker

Agent's fees are one of the substantial expenses you'll face when selling your house. They will be taking between 3 and 6% of the sales price, and that's a considerable sum. One option is to look for a flat fee real estate broker. Some companies will provide the services of a traditional agent, but at a flat rate so you can know exactly what you'll pay.

Do Repairs Yourself

Repairs and staging costs can add up quickly. One way to combat these costs is to do the work yourself. You can save thousands by doing any repairs yourself before putting your home on the market. Things like interior painting, cleaning, and minor repairs can be done on your own. 

Negotiate Fees

Many companies present their fees as non-negotiable, but that's rarely the case. Whatever fees you get presented, whether from the closing company, your agent, your lawyer, or the plumber who's doing repair work, don't be afraid to negotiate. 

Understand Your Tax Benefits

Another area that can eat into your profits is your tax responsibilities. Circumstances may vary depending on what you plan to do with the money from your sale. For example, if you use it to purchase another home, you'll face a smaller tax bill. There are several ways to lower your tax liability,  like taking deductions for things like advertising, closing costs, and even your agent's fees. Speak with an accountant to determine what you may be entitled to.

Selling your home can be stressful, challenging, and confusing. With a little work upfront, and with the help and advice of a REALTOR®, you can take proactive steps to minimize your costs, maximize your profits, and make the process run much more smoothly. 

October
20

Learn the Pros and Cons of a Rent-Back Agreement When Selling or Buying a New Home

If you're buying a new home while selling your current one, it's a good idea to get familiar with something called a rent-back agreement. Timing-wise it can require some good luck to get it right if your home sells before you've closed on your new one or even found a place. Without a rent-back agreement, your choices are couch-surfing or paying to stay in a hotel. Either way, you'll have to move twice... and no one wants to do that!

A rent-back agreement gives you, as the seller, a third choice. With a signed rent-back agreement, you will have extra time to live in the home after closing. It essentially gives you the right to become the new buyer's temporary tenants. Most don't last long – there are typically time limits built into the agreement – but it gives sellers a chance to close on their new home, pack up, and arrange for the big move.

For the buyer, offering a rent-back agreement can also provide a couple of serious benefits. For example, in a competitive market, an offer that's flexible on move-out dates can give you, as the buyer, an edge. Plus, the rent the seller will pay can help you recoup those hefty closing costs. 

When it's done right, a rent-back agreement can be a win-win for everyone.That being said, there are a few considerations before you jump in the pool!

What Exactly is a Rent-Back Agreement?

A rent-back agreement is a legally binding agreement made in writing between the seller and the buyer with terms much like a leasing agreement between a landlord and a tenant. However, some issues can get a little tricky, so it's crucial to understand how one works.

Essentially, the seller becomes a tenant in their old home, and the buyer becomes a landlord for the home they are about to possess, possibly with no experience.

The typical rent-back agreement covers the basics in a few areas:

• Terms and Possession

Before closing, all of the details of a rent-back agreement need to be worked out, including how the rent will be paid, what it will cost, and when the seller/tenant will move out. As a buyer, you just can't assume that the seller will agree to anything or behave as you expect just because you bought their home. The rent-back agreement needs to be written up with the same care as the purchase contract. While it is not common, you should make sure you understand the eviction laws where you purchased, just in case the seller decides they're going to stay as long as they can.

• Rent, Security Deposit, and Late Fees

Like any rental agreement, the buyer/landlord can collect a refundable security deposit. Both buyer and seller need to agree to fair market rent. At closing, the buyer pays closing costs, and the seller pays a security deposit and upfront rent. After the close, the buyer gets the keys, and the seller stays in the home. 

• Utilities

The agreement needs to specify which party is responsible for utilities. Usually, sellers will have the utilities switched to the new buyer at the close. However, in a rent-back agreement, it may be in the buyer's best interest to have the seller keep the utilities in their name and continue to pay them.

• Entry Rights

Make sure to cover the right to enter is in the rent-back agreement. If the buyer wants to begin painting or making any changes to the home while the seller is still living there, they will need to give proper notice, typically 24-hours, before entering the home.

• Maintenance

The agreement should also cove who is responsible for maintaining the interior and exterior of the home. Maybe the seller will continue doing the yard work, but if the stove or refrigerator stops working, the seller will call the landlord to get a new one. Specify maintenance to make sure there is an understanding for handling any unforeseen circumstances.

• Insurance

The new owner will have to have insurance coverage as per the lender's requirement – and because they are the new owner. However, the owner's insurance won't cover the tenant's possessions, so your agreement will need to include terms for the tenant to carry renter's insurance. As the buyer, include the right to ask for proof of insurance.

• Inspections

The new owner should walk through the property before the close to note its condition. Take photos to document. Do another walk-through upon taking possession at the end of the seller's rental term to determine any damages that may require compensation which can be taken from the security deposit.

The Pros and Cons of a Rent-Back Agreement

There are positives and negatives both for the buyer and the seller with a rent-back agreement. Here are a few to consider:

For the Seller:

A seller might want to consider a rent-back agreement if there is a significant gap between closing on the sale of their home and the purchase of their new home. In a tight market, getting some additional time to find your dream home can be a lifesaver. While a rent-back agreement is typically short-term – 30 to 60 days, that extra time can often make a big difference. On the downside, while you're still in the property, you need to remember that it isn't yours anymore. Technically, you now have a landlord. That means if you cause any damages, are late with the rent, or vacating the property, you may be liable and held financially responsible. 

For the Buyer:

If you're not in a hurry to move in, a rent-back agreement can be a factor in landing you your dream home. It is a way to make your offer stronger and stand out to the seller. However, there are some factors to consider since you are now technically a landlord. This means that you may be responsible for any repairs, for example, replacing a broken water heater or fixing a broken stove. And you may need to make the repairs immediately. You also need to be concerned that the sellers will move out on time. They rarely drag their feet, but it does happen. If it does, you may need to go through the legal process of having them evicted.

The Bottom Line...

All that being said, when properly and thoughtfully executed, a rent-back agreement can be a win-win situation for both the buyer and seller. Your REALTOR® and attorney can help guide you to create a proper rent-back agreement that is fair and beneficial to both parties. Just make cover all the bases and make sure that the terms of the agreement are very specifically spelled out. 

If you treat this situation like you would any other business relationship you should be ok. Buyers should never let sellers retain possession of the home without a formal occupancy agreement. A well-written agreement will protect both the buyer and the seller. 

October
13

Just Because It's A Seller's Market Doesn't Make It The Right Time To Sell

Before COVID, the housing market was robust as low interest rates and limited supply combined to make it a competitive market. Today, after spending 24 hours a day at home for the better part of a year, many renters have jumped into the market looking to buy, and many existing homeowners have decided they need additional square footage. 

When you add limited inventory and historically low interest rates into the mix, we've entered the hottest seller's market in recent memory, with no end in sight. The Federal Home Mortgage Corporation currently, there are 3.8 million fewer homes than needed in the US.

So that means it must be the perfect time to sell, right? Not necessarily. Believe it or not, it actually might not be the best time to sell your home. 

In this post, we will look at the reasons why a seller's market might not be the best time to sell. We will start by asking and answering a few key questions.

If You Sell, Where Will You Go?

Sure it is a hot seller's market in New England, but the market is hot EVERYWHERE! So if you sell, where will you go? If you do not have a second home or are not relocating for work, are you willing to go through the hassle of finding a place, putting your possessions into storage, and moving into a new situation? 

Some sellers are building rent-back agreements into their marketing – sometimes up to a year after closing. This arrangement can work for some buyers, for example, if they are looking for an investment property to write off of their taxes and have no immediate need to take occupancy. But how many buyers will fit into that mold? Most buyers want to move in immediately, especially if they have been renting.

When You Sell, What Will You Buy?

If you do sell and do not want to rent, you will need to buy another home... in the hottest seller's market in recent memory. Good luck! Depending on what you are planning to buy, it may not be the best time to sell after all. 

On the one hand, it is great to be a seller in this market. However, when you sell you then become a buyer and may find yourself in a tough spot if you can't find what you are looking for. It depends on where you are planning to go and what you plan to buy. 

You need somewhere where your dollar will go farther. Will that be the same market in a different part of the area or the suburbs versus the city? You need to do your due diligence and think through the entire prospect. If you end up moving to another location with an inventory shortage, you could end up overpaying, or worse, may not find anything. 

What About Custom Build – When and How Much Will it Cost?

Some people who cannot find a replacement home may consider building one. But right now, thanks to the pandemic, lumber prices are skyrocketing! The National Association of Home Builders reported that the cost of building a home v increased an average of $35,872, putting custom builds out of the reach of many. Lumber is up 300% over last year, there is a concrete shortage, and builders are in high demand and booked for months in some areas so you may have a bit of a wait!

Even Though It Is A Seller's Market, Can You Get the Best Price?

Even in a seller's market, you should do your due diligence. Find out what neighboring homes and comparables are selling for before you place your home on the market. Are people in your area getting a premium, and if so how does it compare to when you purchased your home? If you wait, you might be able to get even more if you are willing to hold on to it.

Do not skimp on the updates. Presentation is the key to getting the maximum value. Have you done smaller improvements or updates recently? If you don't have someone already booked, it might be challenging because everyone else is updating before selling. Contractors are in high demand.

Even in a seller's market, (or especially in a seller's market), your home still needs to look its best to attain the highest price. You do not want to leave money on the table because you did not fix the kitchen cabinet door. Put a fresh coat of neutral paint, freshen up the bathroom grout, and take care of any details that give your home a "lived-in" look or make it look like it needs work.

A Different Approach – Turn Your Home into an Investment Property

Before you rush out and put your home on the market, consider taking a slightly different approach. Explore the possibility of turning the home you are moving out of into an investment property, and you may see significant benefits.

Low interest rates coupled with double-bottom-line financial benefits you will get from rent payments and appreciation make an investment property an attractive choice. It may make more sense to hold onto your home for a while longer. Consider these three factors driving this market: interest rates, housing supply, and housing demand.

1. Interest Rates

Mortgage interest rates remain near all-time lows, which essentially allows buyers to purchase more homes for the same payment. Rates will likely tick up in the coming years, but no one anticipates a surge. The Fed has said as much

2. Housing Supply

Inventory is at half the level of a year ago. If supply does increase, it will likely take months to be meaningful. Building materials are up as much as 300% over last year, and so are builder's prices. It is unlikely we will see major inventory increases soon.

3. Housing Demand

In terms of demand, there are signals it is pent-up based on the number of homes entering bidding wars that drive prices even higher. When the neighbor's house enters a bidding war, the value of your house goes up as well.

With these three factors being in play, home prices will logically continue to rise. If you sell now, you will almost certainly lose out on the appreciation in value you would see if you hold on to your home.

The good thing about real estate is unlike stocks that change in value day-to-day, real estate values and market shifts generally take months or years to play out. To know when it is time to sell, watch inventory. As inventories fall, prices go up, like today's market. When inventory stops falling or holds steady near a multi-year low, that will be a signal that it is time to sell. Even for a few months beyond the change.

Whatever You Choose, Work With A Real Estate Professional

Whatever you decide to do, whether it is selling into this market or converting your current home into an investment property and renting it out, the best course of action is to work with a professional real estate agent or REALTOR®. They can help you make sense of your options. A REALTOR® can help you market your home to get the maximum return or work with you to find a renter. Then, when it makes sense, they can help you prepare and list your home for maximum return!

Your real estate professional understands the local market and can help you to navigate through the current complexities of this seller's market. If you are looking to maximize your home's value, talk to your local REALTOR®!

October
20

6 Reasons You'll Win by Selling with a Real Estate Agent This Fall | MyKCM

There are many benefits to working with a real estate professional when selling your house. During challenging times, like what we face today, it becomes even more important to have an expert you trust to help guide you through the process. If you're considering selling on your own, known in the industry as a For Sale by Owner (FSBO), it's critical to consider the following:

1. Your Safety Is a Priority

Your family's safety should always come first, and that's more crucial than ever given the current health situation in our country. When you FSBO, it is incredibly difficult to control entry into your home. A real estate professional will have the proper protocols in place to protect not only your belongings but your family's health and well-being too. From regulating the number of people in your home at one time to ensuring proper sanitization during and after a showing, and even facilitating virtual tours for buyers, real estate professionals are equipped to follow the latest industry standards recommended by the National Association of Realtors (NAR) to help protect you and your family.

2. A Powerful Online Strategy Is a Must to Attract a Buyer

Recent studies from NAR have shown that, even before COVID-19, the first step 44% of all buyers took when looking for a home was to search online. Throughout the process, that number jumps to 93%. Today, those numbers have grown exponentially. Most real estate agents have developed a strong Internet and social media strategy to promote the sale of your house. Have you?

3. There Are Too Many Negotiations

Here are just a few of the people you'll need to negotiate with if you decide to FSBO:

  • The buyer, who wants the best deal possible
  • The buyer's agent, who solely represents the best interest of the buyer
  • The inspection companies, which work for the buyer and will almost always find challenges with the house
  • The appraiser, if there is a question of value

As part of their training, agents are taught how to negotiate every aspect of the real estate transaction and how to mediate the emotions felt by buyers looking to make what is probably the largest purchase of their lives.

4. You Won't Know if Your Purchaser Is Qualified for a Mortgage

Having a buyer who wants to purchase your house is the first step. Making sure they can afford to buy it is just as important. As a FSBO, it's almost impossible to be involved in the mortgage process of your buyer. A real estate professional is trained to ask the appropriate questions and, in most cases, will be intimately aware of the progress being made toward a purchaser's mortgage commitment.

Further complicating the situation is how the current mortgage market is rapidly evolving because of the number of families out of work and in mortgage forbearance. A loan program that was available yesterday could be gone tomorrow. You need someone who is working with lenders every day to guarantee your buyer makes it to the closing table.

5. FSBOing Has Become More Difficult from a Legal Standpoint

The documentation involved in the selling process has increased dramatically as more and more disclosures and regulations have become mandatory. In an increasingly litigious society, the agent acts as a third-party to help the seller avoid legal jeopardy. This is one of the major reasons why the percentage of people FSBOing has dropped from 19% to 8% over the last 20+ years.

6. You Net More Money When Using an Agent

Many homeowners believe they'll save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent's commission. The seller and buyer can't both save on the commission.

study by Collateral Analytics revealed that FSBOs don't actually save anything by forgoing the help of an agent. In some cases, the seller may even net less money from the sale. The study found the difference in price between a FSBO and an agent-listed home was an average of 6%. One of the main reasons for the price difference is effective exposure:

"Properties listed with a broker that is a member of the local MLS will be listed online with all other participating broker websites, marketing the home to a much larger buyer population. And those MLS properties generally offer compensation to agents who represent buyers, incentivizing them to show and sell the property and again potentially enlarging the buyer pool."

The more buyers that view a home, the greater the chance a bidding war will take place.

Bottom Line

Listing on your own leaves you to manage the entire transaction by yourself. Why do that when you can hire an agent and still net the same amount of money? Before you decide to take on the challenge of selling your house alone, let's connect to discuss your options.

October
19

The #1 Reason Not to Wait to List Your House for Sale | MyKCM

Many industries have been devastated by the economic shutdown caused by the COVID-19 virus. Real estate is not one of them.

Mark Fleming, Chief Economist for First American, just reported:

"Since hitting a low point during the initial stages of the pandemic, the only major industry to display immunity to the economic impacts of the coronavirus is the housing market. Housing has experienced a strong V-shaped recovery and is now exceeding pre-pandemic levels."

Buyer demand is still strong heading into the fall. ShowingTime, which tracks the average number of buyer showings on residential properties, just announced that buyer showings are up 61.9% compared to the same time last year. They went on to say:

"Normally, real estate activity begins to slow down in the late summer, but this year it peaked in July, August and into September."

There Is One Big Challenge

Purchaser demand is so high, the market is running out of available homes for sale. Just last week, realtor.com reported:

"Since the beginning of the COVID pandemic in March, nearly 400,000 fewer homes have been listed compared to last year, leaving a gaping hole in the U.S. housing inventory."

The National Association of Realtors (NAR) revealed that, while home sales are skyrocketing, the inventory of existing homes for sale is dropping dramatically. Below is a graph of existing inventory (September numbers are not yet available):The #1 Reason Not to Wait to List Your House for Sale | MyKCMHomebuilders are increasing construction, but they cannot keep up with the high demand. Bill McBride, founder of the Calculated Risk blog, in discussing inventory of newly constructed houses, notes:

"The months of supply decreased to 3.3 months...This is the all-time record low months of supply."

What does this mean for sellers?

Anyone thinking of putting their home on the market should not wait. A seller will always negotiate the best deal when demand is high and supply is limited. That's exactly the situation in the real estate market today.

Next year, when the pandemic is hopefully behind us, there will be many more properties coming to the market. Don't wait for that increase in competition in your neighborhood. Now is the time to sell.

Bottom Line

 

 Contact our expert real estate professionals to create a safe and effective plan that works for you and your family.

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