Erie Real Estate

What is a "Short Sale"?

A short sale is when the seller is short money.  A short sale is a transaction in which Seller's proceeds are less than the amount necessary to pay off liens secured by the property.  A few examples: mortgage(s), home equity lines of credit, tax claims, homeowners' association/condominium fees, and legal judgments.

A short sale does not necessarily mean that the property is going to foreclosure or that the Seller is in financial difficulty. 

Is the seller obligated to disclose to a potential buyer that they will be short?  The question is asked on The Pennsylvania Association of REALTORS Seller's Property Disclosure Statement: “Are you aware of any judgment, encumbrance, lien, overdue payment on a support obligation, or other debt against this property of Seller that cannot be satisfied by the proceeds of this sale?”  

Does the buyer have the right to know this prior to making an offer?  Would you want to know before you made an offer on a property?  I would.

2 weeks ago I attended a closing that was a short sale.  The offer was accepted in September.  Yes, 5 months earlier.  A short sale can take many months to close.  Buyer should be well informed...

 

 

Top 10 Things You Need to Know About the 3.8% Tax

There is a lot of confusion and myth associated with the 3.8% Tax.  It is not a transfer tax.  There we just dispelled one.  Now for more, please see below and as always, consult an accountant.

1. When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will not be subject to this tax.
2. The 3.8% tax will never be collected as a transfer tax on real estate of any type, so you’ll never pay this tax at the time that you purchase a home or other investment property.
3. You’ll never pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.
4. If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will not pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.
5. The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
6. The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.
7. In any particular year, if you have no income from capital gains, rents, interest or dividends, you’ll never pay this tax, even if you have millions of dollars of other types of income.
8. The formula that determines the amount of 3.8% tax due will always protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would never be imposed on more than $1,000.
9. It’s true that investment income from rents on an investment property could be subject to the 3.8% tax. But: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.
10. The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.

How to compute your real estate taxes

Do you know how to compute your real estate taxes?  I'm finding out that many local real estate agents seem to be clueless.  They're confused because of the new assessment number that came into effect as of 1/1/13.

It's really simple:  take the assessed value and times it by the millage rate.  Nothing has changed!  Just the numbers are different - assessed value and millage rate.

For your municipal and county taxes use the 2013 Millage chart.  Municipal and county taxes go from 1/1/13 - 12/31/13.  They are computed and billed on a calendar year basis.

The school districts run from 7/1/12 - 6/30/13.  They are computed and billed on a fiscal year basis.  July 1st to June 30th of the following year.  To figure your school taxes you should use the 2012 Millage chart along with your 2012 assessed value.

Do you qualify for the Homestead or Farmstead Exclusion(s)?  How about Clean and Green?  These can reduce your tax bill.

Understanding Agency Relationships

It’s important to understand what legal responsibilities your real estate salesperson has to you and to other parties in the transaction. Unless you select a business relationship by signing a written agreement, the licensee is NOT representing you.

Seller Agent 

A seller's agent is hired by and represents the seller. All fiduciary duties are owed to the seller. The agency relationship usually is created by a listing contract.

Buyer Agent 

A buyer’s agent is hired by prospective buyers to represent them in a real estate transaction. The buyer's agent works in the buyer's best interest throughout the transaction and owes fiduciary duties to the buyer. The buyer can pay the licensee directly through a negotiated fee, or the buyer's agent may be paid by the seller or through a commission split with the seller’s agent.

Subagent

A subagent owes the same fiduciary duties to the agent's customer as the agent does. Subagency usually arises when a cooperating sales associate from another brokerage, who is not the buyer’s agent, shows property to a buyer. In such a case, the subagent works with the buyer as a customer but owes fiduciary duties to the listing broker and the seller. Although a subagent cannot assist the buyer in any way that would be detrimental to the seller, a buyer-customer can expect to be treated honestly by the subagent. It is important that subagents fully explain their duties to buyers.

Designated Agent

This is a brokerage practice that allows the managing broker to designate which licensees in the brokerage will act as an agent of the seller and which will act as an agent of the buyer. Designated agency avoids the problem of creating a dual-agency relationship for licensees. The designated agents give their clients full representation, with all of the attendant fiduciary duties. The broker still has the responsibility of supervising both groups of licensees.

Transaction Licensee

A transaction licensee provides real estate services without having any agency relationship with a consumer.  In this relationship the agent owes no duty of loyalty or confidentiality.  

What about Dual Agency?  When is an agent a Dual Agent?  How does this affect the fiduciary duties of the agent?  How should it be disclosed? 

5 Common First Time Home Buyer Mistakes

1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys the house.
3. They don’t find the right agent who’s willing to help them through the homebuying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy.

What mistakes have you made when you purchased your last home?

Prepare Your Home for a Virtual Tour

With more buyers shopping for homes on the Web, photos and virtual tours are a must. There are many things you can do make your home shine on camera.

1. Understand the camera’s perspective. The camera’s eye is very different from the human eye. It magnifies clutter and poor furniture arrangement. To make a home shine in a virtual tour or video presentation, cater to the lens.
2. Make the home “Q-tip clean.” Because the camera magnifies grime, each room must be spotless. Don’t forget floor coverings and walls; a discolored spot on the rug might be overlooked by prospects during a regular home showing, but that stain becomes a focal point for online viewers.
3. Pack up the clutter. But leave three items of varying heights on each surface. For example, on an end table you can place a lamp (high), a small plant (medium), and a book (low).
4. Snap pictures. This will give you an idea of what the home will look like on camera. Closely examine the photos and list changes that would improve each room’s appearance: opening blinds to let in natural light, removing magnets from the refrigerator, or taking down distracting art.
5. Pare down furniture. Identify one or two pieces of furniture that can be removed from each room to make the space appear larger.
6. Rearrange. Spotlight the flow of a space by creating a focal point on the furthest wall from the doorway and arranging the other pieces of furniture to make a triangle shape. The focal point may be a bed in a bedroom or a china cabinet in a dining room.
7. Reaccessorize. Include a healthy plant in every room; the camera loves green. Energize bland decor by placing a bright vase on a mantle or draping an afghan over a couch.
8. Keep the home in shape. You want buyers who liked what they saw online to encounter the same home in person.

Don’t get tricked into overpaying for deed

At a recent closing, I heard about homeowners receiving letters suggesting that they should obtain a copy of their deed. Conveniently enough, the companies sending those letters are more than willing to help out – and they only charge about $90 or so to handle it for you.  DO NOT DO IT!

A homeowner can get a copy of their own deed for a few dollars – and possibly for free, depending on what online access is available in your county.  If you are a new homeowner, you will get a copy of your deed after settlement of your new home.

This issue has come up around the country and now in Pennsylvania.   

Here are a few simple, common-sense tips that will help you know what to look out for. 

1. Ask the title company or attorney handling the closing how long it usually takes for them to get copies of a filed deed back to a new homeowner.  Timelines may vary depending on their workflow and the time it takes each county to process new filings, so it will help to know of any regional or company-based differences.
2. Let buyers know to expect a copy of the deed, about when it should arrive, and what to do if they don’t get it.
3. Remember as a Buyer, you might get a letter that looks like this.  If you do, just throw it out. 
4. If you believe that a particular entity has crossed the line with their solicitation, consider filing a complaint with the Pennsylvania Attorney General’s Office of Consumer Protection.

Market comparison 2011 -vs- 2012

How is the market this year compared with last year?  Here is some data showing the first 4 months of 2011 and 2012.  This is for SFR properties only.  I am comparing the City of Erie, Millcreek and Fairview.

City of Erie:    413 Active Listings    -    Avg Days n Market    125

                      117 Pending Listings  -    Avg Days on Market  108

2011 Sold        190 Sales    -    Avg Days on Market    104

2012 Sold        196 Sales    -    Avg Days on Market    102

Millcreek:        217 Active Listings    -    Avg Days on Market    112

                      103 Pending Listings  -    Avg Days on market    83

2011 Sold        116 Sales    -    Avg Days on Market    118

2012 Sold        135 Sales    -    Avg Days on Market    90

Fairview:         61 Active Listings    -    Avg Days on Market    127

                       25 Pending Listings  -    Avg Days on Market    66

2011 Sold         30 Sales    -    Avg Days on Market    103   

2012 Sold         41 Sales    -    Avg Days on Market    84

The biggest difference that I noticed is the D.O.M. for Active Listings compared to the Sold and Pending Listings.  Would you like to know information for any other area?  I can provide this.  Also, high/low/avg sale price is available if it would be helpful to you.  Just let me know.  

3.8% Sales Tax - included in the US Health Care Reform Bill

Beginning 1/1/13, a new 3.8% tax on some investment income will take effect. This new tax will affect some real estate transactions, NOT ALL.  It’s a complicated tax, so it won’t effect every buyer or seller the same.

The NATIONAL ASSOCIATION OF REALTORS® has developed this informational brochure.  Many examples are available.

There is a 3.8% real estate “sales tax” or a transfer tax created in health care bill, correct? No.  the tax applies to a limited group of taxpayers.

The new 3.8% tax will apply to the "unearned" income of "High income" taxpayers.  They are those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.) 

Does the tax apply to the yearly appreciation of an asset?  No. Capital gains are subject to this new tax only in the year when the asset is sold.

This was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans.

Will you be affected by this Tax?  Please contact your accountant in advance if you think that you maight be subject to the tax.  That way you can make an informed decision.

Harborcreek Mall - Senior Citizen Housing

To the delight of Harborcreek Supervisors and               

neighboring residents, work has begun on the

120 unit senior citizen apartment building on the

site of the former Harborcreek Mall.

40 of the units have reportedly already been

spoken for even before the building takes

shape.