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Making an Offer: Tips for Painless Purchase

by Allison Simson & Joyce Nenninger
Making an Offer: Tips for Painless Purchase
Question: Allison, what is the best way to make an offer on a property?
 
Answer: The large number of properties on the market and very-attractive interest rates make now an excellent time for first-time buyers to purchase a home, as well as for existing homeowners to trade up.

Prospective buyers should obtain written mortgage approval from a lender for the amount they will spend on a home, or in the case of a condo, Buyers should also make sure their lender is able to lend on the type of complex they are interested. Using a lender who is local to Summit County and familiar with lending in Summit County is critical in this time of unsure mortgage lending practices. Finding a Realtor who knows the local market and is skilled in negotiating is also essential. The Realtor will be able to find answers to questions that could influence the purchase price.

When negotiating, prospective buyers should avoid “low-balling” their first offer; but they should have a good idea of how much room they have to negotiate. They should never reveal how much they are willing to pay and should be prepared for counter-offers. The average list to sell ratio in Summit County is 97%. Remarkably, it has been this way for roughly the past 20 years. That number, while valuable, can be misleading because it doesn’t take into consideration any price reductions that the property may have had. Basically, property in Summit County will sell, on average, for 97% of the listing price once it’s priced correctly! Ask your Realtor if the property you are looking at has had any price reductions and how many days it has been on the market. It’s also fair for your Realtor to ask the listing broker if the property has had any other offers.

Make your offer as “clean” as possible and keep in mind that having too many conditions will make your offer less attractive to the sellers. Prospective buyers should focus on trying to get their dream home at a fair price.

Finally, prospective buyers should never sign a contract for purchase and sale until they have reviewed the document very carefully.  
 
Question: I am going to remodel an older home in Silverthorne. What types of remodeling projects give the greatest increase in property values?
 
Answer: Many homeowners upgrade their residences with property value increases in mind. The key for these consumers is to determine which improvements will produce the most value for the money.

According to Remodeling magazine's annual Cost vs. Value report, kitchen remodels are the most profitable upgrade, offering homeowners an 88 percent return on project costs. Some homeowners actually stand to lose money on a sale if they fail to modernize their kitchens and bathrooms, says Vince Butler of the Northern Virginia Building Industry Association Remodelers' Council.

On the hand, homeowners only recoup an average of 55 percent on the costs of a home office, making it the least profitable improvement. Remodeling investment returns are tied to the properties' values, as well as local market conditions.
 
Question: Allison, what is the difference between appraised value and assessed value?
 
Answer: A home's appraised, assessed, and market values can sometimes vary drastically, because different criteria are used to judge each value.

Sellers and salespeople consider factors such as the number of bathrooms and bedrooms; curb appeal; the local school system's quality; and the home's proximity to public transportation to set a sales price. But some buyers are willing to pay tens of thousands of dollars above market price, if they fall in love with a property, says American Society of Appraisers Executive Vice President Edwin Baker.

An appraiser will determine a house's value based on the prices of similar homes that have recently sold in the area, as well as the number of bedrooms and bathrooms, yard size, additions, and the property's overall condition.

The assessed value--used to calculate the amount of property tax the homeowner must pay--is typically less than appraised and market values. To determine the home's worth, assessors will either compare recently sold homes, factoring in influences that may have boosted or reduced the sales price; tabulate the cost of replacing the home with a similar one; or calculate how much income the property would generate if it was rented.
 
 
 
For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s
long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Swapping vacation homes easier under IRS rule

by Allison Simson & Joyce Nenninger
Swapping vacation homes easier under IRS rule
Feds clear up confusion over qualifying properties
Question: Allison, I hear we have some new rules regarding 1031 exchanges. We own a home in Summit County (Breckenridge) and we’re thinking of exchanging it for one at the beach. What do we need to know?
Answer: Great question! Many investors are taking advantage of the like-kind exchange, which is authorized under Section 1031 of the Internal Revenue Code. These exchanges are commonly referred to as "Starker" exchanges.
But if you own a vacation home, there has been a lot of confusion as to whether that property qualifies for the exchange.
According to Benny Kass, of Inman News, indeed, back in September 2007, the Treasury Inspector General for Tax Administration (TIGTA) issued a scathing report about the lack of IRS oversight of the capital gains (or losses) deferred through this kind of exchange.
The TIGTA report recommended that the IRS "must provide clear guidance to taxpayers regarding the rules and regulations governing like-kind exchanges with respect to second and vacation homes that were not used exclusively by owners."
The inspector general expressed concerns that "the absence of clarification on this issue leaves unrebutted the sales pitch of like-kind exchange promoters who may encourage taxpayers to improperly claim deferral of capital gains tax by selling non-qualified second and vacation homes through 'tax-free' exchanges."
The IRS agreed and promised to issue guidelines by March 15, 2008.
True to its word, effective March 10, 2008, we now have what is known as a "safe harbor" for these vacation-home exchanges.
In order to have a valid Starker exchange, only investment properties can be swapped with other investment properties. There are other tax benefits for homes used as the principal residence, such as the ability to shelter up to $500,000 of the profit you have made (if you are single or file a separate tax return, this exclusion is limited to $250,000 of gain.)
According to Revenue Procedure 2008-16, the property must be a house, apartment, condominium or similar improvement that "provides basic living accommodations including sleeping space, bathroom and cooking facilities." This can include mobile homes and boats.
When discussing the 1031 exchange, one must use the proper terminology. The property that you currently own and want to dispose of is called the "relinquished property." The new property that you want to obtain by way of the exchange is the "replacement property."
A safe harbor simply means that if you follow the guidelines promulgated by the IRS, your tax return will not be challenged.
To qualify the relinquished vacation or second home for the exchange, it must have been owned by the taxpayer for at least 24 months immediately before the exchange. (The IRS refers to this as the "qualifying use period.")
And in addition, for each of the two years within the qualifying use period, the taxpayer must have rented the property at a fair rental for at least 14 days. Furthermore, the taxpayer cannot have used it personally for the greater of 14 days or 10 percent of the number of days during each 12-month period that the property is rented at a fair rental.
Sounds confusing, but it is the law. The IRS does not want taxpayers to claim that their property is "investment" when in fact they take their families to the beach for the entire summer.
You can, of course, periodically go to your second home to inspect it, and make any necessary repairs. However, if that use exceeds the use restrictions described above, you will not be able to do a Starker exchange. Confirm this with your own accountant.
What is fair rental? The IRS falls back on its standard formula: It will look to the facts and circumstances of each case. To be on the safe side, have at least two real estate agents provide you with a written market analysis of the rents being charged for similar properties in the area where both the relinquished and the replacement properties are located.
What about the replacement property? Here, the same rules apply. If you swap one property for another, you must rent it out for at least two years or the exchange will fail. According to the IRS:
"If a taxpayer files a federal income tax return and reports a transaction as an exchange under §1031, based on the expectation that a dwelling unit will meet the qualifying use standards ... and subsequently determines that the dwelling unit does not meet (those) standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange..."
That could be calamitous. You did a 1031 exchange, and by law, you have to use all of the proceeds from the sale of the relinquished property in order to obtain the replacement property. Now, you have failed to comply with the requirements and have to file an amended return -- and pay the tax on the capital gain. Where will you get the money to do this?
If you follow the rules, a 1031 exchange is a very valuable tool. For example, if you purchased your investment property for $200,000 and sold it for $400,000, you would in most cases have to pay the IRS $30,000, in addition to any state or local tax. However, if this property were sold in connection with a Starker exchange, and you obtained another investment property worth at least $400,000, you would not have to pay any capital gains tax. Instead, the basis of the old property would be transferred to the new one; you would have to pay the tax only when you ultimately sold the replacement property and did not engage in yet another 1031 exchange.
But you must understand that a 1031 is not a "tax free" process; it simply defers the time when you have to pay the capital gains tax.
And even if you follow the vacation rules outlined in the recent Revenue Procedure, you still have to comply with the general requirements of a like-kind exchange. While you must consult your tax and legal advisors about your specific situation, here is a brief synopsis of the rules.
You must identify the replacement property within 45 days after you have gone to settlement on the relinquished property. The identification must be as specific as possible. You can identify up to three such replacement properties. However, if you want to identify more, the aggregate fair market value of the identified properties cannot exceed 200 percent of the aggregate value of the relinquished property (or properties).
The price of the replacement property must be at least equal to the sales price of the relinquished property. All of the sales proceeds from the relinquished property must be held in escrow by a qualified intermediary; under no circumstances can you have any access to that money. It must all go into the purchase of the replacement property.
And finally, you must acquire the new property within 180 days from the day you disposed of the relinquished property.
The rules are complex, and must be followed religiously. A successful 1031 exchange is a valuable tool for investors, but any misstep will cause you to have to pay the capital gains tax you are trying to defer.
Copyright 2008 Benny L. Kass

 
 
For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s
long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Housing bill cuts reverse-mortgage fees

by Allison Simson & Joyce Nenninger
Housing bill cuts reverse-mortgage fees
But confusion still looms around loan limits
Question:  Allison, can you explain the changes in reverse-mortgage that have come about with the passing of The Housing and Economic Recover Act of 2008? We own a home in Frisco and we’re looking into a reverse mortgage as an option, but we’re confused about many of the details.
 
Answer:  According to Tom Kelly with Inman News, "Some people will say reverse mortgages are absolutely too expensive, while others will tell you they are the greatest deal on earth. What all the years of talking to seniors about reverse mortgages has taught me is that you can show somebody what something costs, but you cannot tell them what it's worth to them," said Ken Scholen, founder of the nonprofit National Center for Home Equity Conversion.
The reverse mortgage has been around for a long time- but it hasn’t been utilized by a huge volume of people primarily because of the high cost. According to a 2007 AARP survey, cost is the reason 63 percent of reverse-mortgage shoppers ultimately decided against applying for the loan. In fact, 69 percent of actual borrowers believed that reverse-mortgage costs were high, the survey revealed.
Some help is right around the corner. The Housing and Economic Recovery Act of 2008 is several hundred pages long and includes many different items that will have to be implemented during the weeks ahead. One critical item is the amount of origination fees lenders can charge on the country's most popular reverse-mortgage program.
A reverse mortgage is a loan against a home that is not payable until the homeowner dies, sells the home, or permanently moves out of the home. Reverse mortgages allow homeowners age 62 and older to turn the equity in their home into cash without having to move, give up title or make a monthly mortgage payment. There is no minimum credit or income requirement to qualify for a reverse mortgage.
The Federal Housing Administration, a branch of the U.S. Department of Housing and Urban Development, insured 107,367 Home Equity Conversion Mortgages (HECMs) in 2007 compared with 43,131 for 2005. The HECM is the most popular reverse-mortgage program and accounts for nearly 85 percent of the reverse market.
The housing bill recently reduced the maximum fee to 2 percent on the initial $200,000 of the home's value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of your home's value or the county lending limit, whichever is lower.
The new formula for maximum origination fees will become effective concurrently with the implementation of the new HECM loan limits. The loan limits still need to be clarified. Peter Bell, president of the National Reverse Mortgage Lenders Association, said the group still does not have a definitive answer as to whether the bill establishes a single national loan limit at $417,000, or $625,500, or a sliding scale somewhere in between.
"Because one section of the bill points to another, and then the other section references prior legislation, etc., there is some confusion and variation of opinion on exactly what the language in the bill means," Bell said. "We have had great legal minds interpreting it on our behalf and have been in constant discussion with Hill staffers and FHA. In the end, the conclusion drawn by HUD's counsel, in consultation with congressional staff, will determine where we have come out."
HUD expressed serious concern about companies that market reverse-mortgage products with new loan limits before HUD actually figures out what those limits might be. Companies that do so might find themselves subject to disciplinary action for false or misleading advertising, and were advised to wait until the issue is resolved before sending out any marketing information based on new loan limits.
"More seniors are recognizing that traditional retirement tools, such as IRAs, pensions and 401(k)s are not providing sufficient income to help fund everyday living expenses and healthcare," Bell said. "Through proper education, more retirees are recognizing that the home they have lived in for so many years can now take care of them by using a reverse mortgage to access the equity accumulated over 20, 30, 40 years to help them living more comfortably."
Reverse-mortgage proceeds can be used for any purpose, and can be taken out as a lump sum, fixed monthly payments, line of credit, or a combination. The loan amount depends on the borrower's age, current interest rates, and the value and location of the home. A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower's estate. A senior's home does not have to be owned free and clear to qualify for a reverse mortgage. Reverse mortgages are often used to retire existing debt on a home.
The early reverse-mortgage programs got a poor reputation because some were flawed and contained huge appreciation shares for the lender coupled with big-time upfront fees. Now, with the federal government insuring a majority of the reverse mortgages with no lender equity shares, the concept has become more acceptable and recognized by consumers.
Thanks to the new housing bill, reverse mortgages will be less expensive to get. Copyright 2008 Tom Kelly Inman News
For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s
long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

What Your Money Can Buy

by Allison Simson & Joyce Nenninger
What Your Money Can Buy
 
Views of the Snake River, Wetlands and Slopes at Keystone
 
If you’re looking for a ground floor condo that offers easy accessibility, this Cinnamon Ridge mountain property is just the place for you and your family! Located in the Mountain View neighborhood at Keystone, this central location is on the shuttle route at Keystone and is a hop, skip and a jump away from the Mountain House base area. Reap the benefits of one of Keystone’s best locations without being right in the thick of it all; Cinnamon Ridge is a very quiet complex. Cross the bridge over the beautiful Snake River and wetlands and you are ready to hit the slopes. Enjoy views towards the south of the slopes and river from your large and sunny deck. Besides being walking distance to the Mountain House, you can walk and grab a bite to eat from the Snake River Saloon or a cocktail and live music at The Goat. 
 
2 bedrooms and 2 full bathrooms is what you’ll find in this open and welcoming 828 square feet. Not only do you have an exterior private entrance, but this A-1 Cinnamon Ridge condo is also an end unit to offer you even more privacy. There’s plenty of room to store all of your mountain gear in the extra roomy closets and even the exterior storage closet is definitely bigger than your typical ski locker! Both bedrooms are large and offer their own bathrooms, so there will be plenty of room for family and friends because this condo can sleep 8 people comfortably. The kitchen, dining area and family room are all open for ease of entertaining. Imagine, standing at your kitchen sink doing dishes and being able to see the beautiful wetlands, river and ski slopes. This condo also offers a wood burning fireplace to gaze at and keep you warm on a cold winter day, or your eye might be caught by the big flat screen tv above the fireplace! You don’t have to worry about leaving the condo to do your laundry, a stackable washer and dryer make this set up complete. 
 
Priced at $354,900, no Keystone transfer tax and with low HOA dues of $254.00 per month, you’ll reap the benefits of your investment right away. Taxes in 2008 were $854.00 and estimated short term rental income is between $17-22,000 gross annually. This property is priced to sell as the last sale in this complex sold for $365,000.00 At $428.00 per square foot and compared to other 2 bedroom and 2 bathroom condos at Keystone this is one of the most affordable! Don’t wait to get into the mountain real estate market, give us a call and come take a look at this wonderful condo in Cinnamon Ridge! 
 
Looking to Buy? Not ready to speak to a broker? Visit www.SummitHomeBuyer.com
 
Meet Lynn Sustad, Kelie Gray and Meta Winn, the Buyer Specialist Team at Summit Real Estate-The Simson / Nenninger Team. Devoted to working only with Buyers, these Specialists tour hundreds of homes and commit to having the most comprehensive knowledge in the market. A member of the Buyer Specialist Team can be reached at (800) 262.8442 or (970) 468.6800, www.SummitRealEstate.com or email us at [email protected]
 

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Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker