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Second-home buyers learn shocker on moving day

by Allison Simson & Joyce Nenninger

Cabin's most redeeming quality not included in sale


What you see is what you get, right? Not necessarily in real estate, unless you go out of your way to document your expectations and assumptions and make them known to the seller. This is especially true in recreational properties that are in remote locations.

According to Tom Kelly with Inman News, some years ago a couple purchased a large summer cabin on a mountain lake. While they purchased the home in the summer, the couple felt they could use the cabin in cold weather because the living room included a fireplace with a new, efficient insert. They even shared with us their feeling of relief that the getaway could be heated by wood because electricity was extremely expensive in the area. They also felt they had saved some time by not having to research other insert options or freestanding wood stoves.

When moving day finally arrived and they began setting boxes in the living room, they noticed the insert was gone. How could this be? If this was not a "fixture" that was to stay in the house, what exactly was a fixture?

Through their real estate agent, they learned the seller was an attorney who said he never even considered leaving the insert behind. The cherry on top of this dessert was that the seller had no place to re-insert the insert. But he would gladly sell it to the couple or keep it in his garage. They eventually bought their own insert. They were shocked, upset and out about $1,500.

The insert was gone because their earnest-money agreement had not included a definitive list of items they expected to find when they took possession of the house.

Most multiple listing associations and real estate companies annually review and generally add to their lists of "fixtures" included in a residential sale. The list typically is a specific paragraph in company "Residential Real Estate Purchase and Sale Agreement" forms (sometimes referred to as an earnest-money form), and usually grows as a result of complaints and lawsuits. Here's a typical paragraph in the form regarding fixtures:

"Any of the following personal property located in or on the property is included in this sale: built-in appliances, wall-to-wall carpeting; curtains, drapes and all other window treatments; window and door screens, awnings; storm doors and windows; installed television antennas; ventilating, air conditioning and heating equipment; woodstoves; fireplace inserts; doors; gas logs and gas log lighters; irrigation fixtures and equipment, electric garage door openers; water heaters, installed electrical fixtures; lights and light bulbs; shrubs, plants and trees; hot tubs; and all bathroom and other fixtures."

The paragraph has come a long way toward clarifying what is typically included in a sale, although the phrase "and other fixtures" still leaves room for dispute. What are other fixtures? Can they be washing machines attached to the wall by a rubber hose? Typically not.

But there is a case in which a real estate agent who was representing a religious congregation buying a church building assumed that the bolted-to-the-floor pews were included in the sale. A court ruled otherwise.

Attorneys for multiple listing associations say the "fixtures" list has grown due to some absurd cases that should have seemed logical to both buyer and seller. In some cases, the buyer's wishes simply fall through the cracks -- a coveted refrigerator never was included on the fixtures list, so it was not included in the sale and it was carted away by the seller. If there are beautiful rose bushes or rhododendrons in the yard, it's best to say they are included in the sale or they will not be included in the sale.

Stained-glass windows caused a recent problem. The seller assumed they were art and planned to replace them with the common windows stored in the basement. The buyer said the stained-glass was one of the reasons the home was appealing and assumed they came with the house. After shock, resentment and bitterness, the two parties settled on a lower sales price and the seller took the stained glass.

The moral to the story? When in doubt, spell it out -- especially if it's going to heat a cabin on a remote mountain © Inman News 2008.



 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

IRS rule makes it easier to swap property

by Allison Simson & Joyce Nenninger

Limited personal use OK'd for homes in 1031 exchange

Question:  Allison, What’s the latest scoop on the 1031 tax deferred exchange process?  I hear there has been a change.

Answer:  Good question!  The Internal Revenue Service has handed investors and second-home owners a new gift in the form of a safety net that provides a "safe harbor" for taxpayers who wish to swap the property via a Section 1031 tax-free exchange even though they have enjoyed personal use of the property.

According to Tom Kelly with Inman News, Revenue Procedure 2008-16, which went into effect March 10, 2008, officially allows limited personal use of an investment property and will not prevent a dwelling unit from qualifying as property held for trade or business or investment use for purposes of the tax-free-exchange rules.

Many "second homes" are actually investment properties because their owners rent them out a majority of the year. The IRS has steered clear of any personal-use language regarding a tax-free exchange, but a new court case sparked a need for clarity "in the interest of sound tax administration."

In Moore v. Commissioner, the taxpayers exchanged one lakeside vacation home for another. Neither home was ever rented. Both were used by the taxpayers only for personal purposes. The taxpayers claimed that the exchange of the homes was a like-kind exchange under Section 1031 because the properties were expected to appreciate in value and thus were held for investment.

The tax court held, however, that the properties were held for personal use and that the "mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence."

"While the IRS is fully aware that many people use their investment properties for their own vacations, the agency is now saying it will not challenge a 1031 exchange just because there was personal use of an investment property," according to Rob Keasal, real estate tax specialist in the accounting firm of Anderson ZurMuehlen. "It's the personal-use language that is new."

According to Section 1031 of the tax code, no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment.

Personal residences can't be exchanged tax-free under Section 1031 because they aren't held for productive use in a trade or business or for investment.

In light of the Moore case, the IRS has taken a more lenient approach to exchanges. It provides taxpayers with a safe harbor (and an indirect checklist) under which a dwelling unit (real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities) will qualify as property held for productive use in a trade or business or for investment for Section 1031 purposes even though they occasionally use the dwelling unit for personal purposes. The IRS won't challenge whether a dwelling unit qualifies under Section 1031 as property held for productive use in a trade or business or for investment as long as other exchange rules are met.

Strict personal-use rules of the investment property as a "second home" still apply. The period of the taxpayer's personal use of the dwelling unit cannot exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair market value.

The Moore case flunked the Section 1031 tax-free exchange test for a variety of reasons, according to the tax court. The taxpayers never rented or attempted to rent the properties. And, they did not offer the replacement property for sale until they were forced to do so by the need for liquidity in connection with the division assets incident for their divorce. In addition, they failed to claim any tax deductions for maintenance expenses or depreciation connected with the properties and claimed interest deductions on both properties as home mortgage interest rather than as investment interest.

"Although the taxpayers hoped that both properties would appreciate, the tax court found in Moore that the taxpayers' primary purpose in acquiring and holding the properties was to provide personal vacation retreats for their family," Keasal said. "You will not pass the exchange test by banking on appreciation alone. While the new guideline does provide for personal use, the IRS is clear that property has to qualify as an investment to be a candidate for a tax-free exchange."

Don't be afraid to use your lake place or ski condo even though it's an investment property and you plan to exchange it for another investment property down the road. If you limit your personal use, you will be sailing into the IRS's new safe harbor. ©Inman News 2008

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Question: 

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

Do high power lines affect property values?

by Allison Simson & Joyce Nenninger

Question: We want to build a home in Summit County and one particular lot that we are looking at is fairly close to high power lines. How do these lines affect property values?

 

Answer: A study by St. Cloud State University of Minnesota examined the effects of overhead power lines on the sale of a home, and whether the power lines were a factor in the home's sale or price. Their findings confirmed that presence of the lines weigh down home value.

Respondents were divided into homeowners with overhead power lines, sellers of homes located under power lines, homebuyers of properties near overhead power lines, and appraisers. About 51 percent of homeowners with overhead power lines said they didn't consider the lines at the time of purchase. A third of them lowered their offering price by an average of 4.1 percent, while the other two-thirds said the lines did not affect the offer price. Half of the sellers of these homes said the property's value was affected, and two-thirds said the home took longer to sell. Slightly less than half of property owners near power lines said they would have lowered their offer if the home had been within 200 yards of the power lines.

Of the appraisers surveyed, 83 percent said power lines had a negative effect on the home by lowering its property value an average of 4.1 percent, and 84 percent said the home took longer to sell. All the groups acknowledged that power lines could have a negative impact on property values, according to the researchers.
Ó2008 Information.Inc.

Question: We have been in the building industry in Summit County for the past 5 years. We want to keep abreast of what the demand is in terms of new housing. What do you feel that the “baby-boom” generation is really looking for in terms of housing?

 

Answer: The baby boomer generation is continuing to lead the way in the homebuying market, and homebuilders are scrambling to understand their needs and respond to them. The problem is that their needs are constantly changing. Five years ago, builders believed that aging baby boomers were looking to downsize their homes, but today's surveys indicate that baby boomers actually want larger homes with modern facilities.

The booming housing market has allowed many baby boomers to sell their older homes at a much higher price than when they were purchased, which enables them to afford larger and more expensive homes.

In fact, industry experts have pinpointed baby boomer preferences. Among them: design that provides value; exercise and fitness rooms; homes equipped with new technology; the desire to age in place, meaning the house's space must be flexible; and unique home designs to avoid the cookie-cutter effect. Other trends include universal designs, attached housing, variety in color, single-story homes with master suites, and retirement housing that allows them to remain in the area where they currently reside.

Of course, not everyone wants a larger home, and the submarkets that exist within the baby boomer generation present a complicated situation for builders. Del Webb has been one of the more successful homebuilding companies in terms of catering to this generation. Its size has put it in a better position to offer the diversity craved by the baby boomers, and as a result its communities feature a variety in age, amenities, and home design.
Ó2008 Information.Inc.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.   

 

Where can we go to get information about setting up a mini homeowners’ association

by Allison Simson & Joyce Nenninger

Question: We’re in the process of building a 4-plex in Silverthorne and want to set up a mini homeowners’ association. Where can we go to get information about how to set one up?

 

Answer: Are you confused about homeowner associations? Contact the Community Associations Institute, an Alexandria, Va.-based trade group that offers a variety of publications on the ins and outs of homeowners associations.

The group offers a 26-book series that gives all possible information about homeowners associations. The books can also be purchased individually, including "Transition from Developer Control" and "A Complete Guide to Reserve Funding & Reserve Investment Strategies."

Another book by the institute, "The Homeowners Association Manual," is an overview of rules, meetings, and other common activities. One book worth examining that was not put together by the trade group is Joni Greenwalt's "Homeowners Associations: A Nightmare or a Dream Come True."
Ó2008 Information.Inc.

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

 

 

Tax returns and refinanced homes - what to watch for

by Allison Simson & Joyce Nenninger

Question: We’re just preparing out tax returns and are taking into consideration that we refinanced our home last year. What should we be watching out for?

                                   

Answer: When filing taxes each year, many homeowners tend to overlook a number of possible deductions that they may have either forgotten about or are unaware of. These deductions can add up to significant savings on taxes, aside from the savings on mortgage interest that most homeowners are already aware of.

One of these possible deductions is the amortized points on a refinanced mortgage. Any time a homeowner refinances, the points are amortized, or spread over the life of the loan. The points paid each year are typically the only points that can be deducted. But if a homeowner refinances a mortgage for the second or third time, any remaining amortized points that haven't previously been deducted can be deducted in full during that year's taxes.

These unpaid points are often forgotten, but they can help homeowners save a considerable amount of money, according to Harvey Berger, associate partner at Grant Thornton.
Ó1999 Information.Inc.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

 

Remodeling information for those who can't afford a new home

by Allison Simson & Joyce Nenninger

Question: We had thought about buying a new home but just cannot find anything in our price range. Our next option is to do some remodeling. We don’t know how much remodeling we can do and still expect to get that money out of the property when we sell. Do you have any information?

 

Answer: Baby boomers are finding it difficult to find new homes in some markets, so they are instead investing their money in their existing residence.

Before homeowners indulge themselves on expensive upgrades, though, they should consider several factors.

First, keep local building codes in mind and consult their city planning or building department to find out what kind of changes are allowed and disallowed. Some areas also have architectural committees that approve architectural drawings.

The next step is to assess their investment realistically. They should build within the value of their neighborhood, keeping long-term resale values in mind.

It is important to note that while homes represent a considerable economic investment, most major remodeling projects return no more than 80 cents to every dollar spent. Homeowners should consider the personal enjoyment they would get from upgrading their property, however, as well as the economic return. Whatever the case, homeowners should know that it almost never pays to own the most expensive house in their neighborhood. On the other hand, if the home is comparably smaller, a large remodel can be worthwhile.

 

Basements are probably the best area in a home to consider for those who may want to remodel, or expand, their living quarters. The cost of remodeling existing basements start at about $20 per square foot--far less than what it costs to build an addition or enlarge second-floor space.

Not every basement is prime for conversions, however. Controlling moisture; adding ventilation and light; and finding a way around hanging drain tiles, ductwork, and wiring are all key factors in determining the practicality of conversion.

The first consideration for a basement conversion is flooding. A variety of solutions will address this, depending on severity. Simpler solutions include repairing cracks, clearing the gutter of clogs, and sloping the ground away from the house. If the problem persists, installing or repairing foundation drains is in order. The presence of radon is also a consideration when converting a basement. A simple test can reveal the level of radon in the basement; and, usually, the gas be collected and vented to the outside. Building codes are also important to consider when remodeling. Lowered ceilings, altered staircases, and emergency exits must all be accounted for--advisably before the project takes place. Basement walls can create a problem because of excessive moisture. Contractors have methods to handle this problem, usually a seal-tight wall or a looser one that allows the wall to breathe. Flooring is usually a more tolerant area, as most anything will work.

Lighting can be a problem for sub-level basements. It is important to utilize all existing natural light by removing shrubbery near windows and adding glass doors in place of solid ones. Recessed incandescent lighting is the most practical solution, as it is unobtrusive and generally more flexible than other options. Moreover, adding other amenities can drain existing electrical pads; so upgrading to a 200-amp panel is advisable, albeit more expensive. Issues concerning ventilation are, again, best addressed beforehand with an inspector rather then afterwards, when it may be too late. Fresh air is just as important to boilers, furnaces, and gas-fired water heaters as it is to people. Humidifiers or air exchangers are good solutions to regulate and maintain fresh air. Converting a basement may require some time and planning; but considering the alternatives, it is also the most economic and rewarding.

 

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

 

Help for first-time homebuyers with financing terminology

by Allison Simson & Joyce Nenninger

Question: We are buying our first home and are very confused about the financing terminology. Could you give us some help?

 

Answer: First-time homebuyers might find financing terminology to be very confusing. One of the most important elements of mortgage finance for borrowers to understand is the interest rate, which is the number that is multiplied by the loan balance to calculate the interest payment owed to the lender. Although the rate quoted on a mortgage is an annual rate, it is applied monthly.

With a fixed-rate mortgage, the interest rate is set for the lifetime of the loan. On an adjustable-rate mortgage (ARM), however, the rate is set for an initial period of one month to 10 years, after which it may change. ARM borrowers have some special considerations when shopping for a mortgage. The fully indexed rate for ARMs, equivalent to the sum of the interest rate index used by the ARM and the fixed margin of profit added on by the lender, tells lenders where the rate will go in a stable interest rate environment. Should interest rates suddenly jump, meanwhile, the maximum rate limits how high the ARM percentage can rise. The second component in the price of a mortgage is points. Each of these upfront fees is expressed as one percent of the loan amount. Points are paid in exchange for a discount on the interest rate. Conversely, rebates are points paid by the lender for high-rate loans and then used by the borrower to, perhaps, offset the costs of settlement.

Finally, mortgage borrowers should recognize that origination fees are imposed by lenders to disguise higher rates. For borrowers, points and origination fees are essentially the same--except that points are tax deductible and origination fees are not. "Junk fees" is a term used to describe any of a bevy of other upfront charges, expressed as a dollar amount of the loan, levied by the lender or mortgage broker.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

 

Internest sites tthat compare different loan scenarios

by Allison Simson & Joyce Nenninger

Question: We are shopping for a loan and would like to be able to compare different loan scenarios. We want to establish the true cost of the different loans that are available. Do you know of any site on the Internet where we could do this?

 

Answer: Fannie Mae has introduced the latest version of its true cost calculator, an online tool providing consumers with an easy way to weigh various mortgage options. The release of true cost calculator 2.0 features the ability to create a file and save multiple loan scenarios for comparison purposes without needing to re-key data.

The technology helps consumers calculate the costs of getting a mortgage, including interest rate and points, mortgage insurance premiums, appraisal and title insurance fees, and other settlement charges. The
True Cost Calculator at HomePath.com also provides a more precise estimate by factoring in how long the consumer actually plans to keep the loan. The tool provides an analysis using four key measures: the true cost rate, which is the true cost of the mortgage, expressed as an annual percentage; the true cost rate after taking into account the borrower's potential tax savings; the monthly mortgage payments; and the estimated equity the borrower can expect to amass during the anticipated loan term.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  



Cash-Outs Trade Money for Equity

by Allison Simson & Joyce Nenninger

Question: We are interested in doing a “cash out” refinance on our home. Are there any risks involved with this type of refinancing?

 

Answer: Cash-outs involve refinancing an existing mortgage and trading in home equity for cash. This option is especially popular when interest rates are down, because it allows homeowners to refinance at lower rates while gaining access to extra cash. Even better, their monthly mortgage payment usually remains the same or even goes down.

The benefits of cashing out include stretching the term of the loan to access more money at a lower rate, the ability to replace high-cost debt, and avoiding the need to cash in taxable investments.

Cashing out does involve some risks--including possibly renewing a mortgage for its full life and incurring a higher total interest cost for financing and reducing home equity. It can be detrimental if housing prices decline; homeowners who have little equity in a declining market could find that they owe more on their property than what it is worth. Also, homeowners must manage their finances carefully, using the cash-out funds to handle expenses and then keeping spending under control. Qualifying for a cash-out is also difficult. Because this type of borrowing eats into equity, it raises the risks to lenders, who, in turn, will want to carefully scrutinize applicants.

An alternative to cash-outs is the home equity line of credit, which allows a consumer to borrow on a revolving basis. Homeowners need only pay interest on the amount borrowed and will not have to reapply and pay service charges to gain access to more money. This option is most appropriate for borrowers whose cash-out will not reduce their mortgage payment and also for homeowners who want an extra source of cash for ongoing projects, rather than for a specific purpose.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. 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.  

 

 

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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