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What Fed cuts really mean for mortgages

by Allison Simson & Joyce Nenninger
Commentary: Average rates on mortgages unchanged in recent surveys

According to Lou Barnes with Inman News, contrary to the conviction of deeply confused civilians and reports by lazy news media, mortgage rates are unchanged, about 5.75 percent for the lowest-fee 30-year paper.

Barnes says, if you don't believe me, visit www.freddiemac.com and its weekly survey. It is unbiased by sales jive, although it suffers from "survey lag" (early-week data released on Thursdays always misses real-time reality), and assumes a fractional origination fee. Last week's "5.48 percent" captured the one-day hysterical bottom when the industry could not log onto rate-lock Web sites. Yesterday's "5.68 percent plus 0.4 percent origination" is still about right, and all but identical to the prior week's "5.69 percent plus 0.5 percent."

Yet, the media refer constantly to "dramatically lower mortgage rates." They are better, but ... drama? Freddie's average for the whole of 2007 was 6.34 percent. A half-percent drop is nice for buyers, and a help to a few refinancers, but no fire sale.

"How can it be the same ... !?!" says the client, after a cumulative 1.25 percent cut at the Fed in only eight days? Answers follow.

Brand-new January economic data are not that bad. They're not bad enough to justify the Fed's panic, let alone to anticipate more cuts. Payroll growth slipped to flat in January (negative 17,000 is within the huge range of error and revision), unemployment down to 4.9 percent in a workforce statistical quirk -- soft, but hardly a recession. The purchasing managers reported their first gain in six months, likewise soft, but with persistent strength in foreign orders. Fourth-quarter GDP grew by a mere 0.6 percent; however, aside from a temporary drawdown of business, inventories grew at 2 percent.

The Fed's form is disturbing to long-term investors. Central banking is not figure skating, but Fed Chairman Ben Bernanke has departed his predecessor's 17 years of gradualism for lurching on the rink. A Fed that will lurch down will lurch up.

Investors bought long Treasurys and mortgages at these levels 2002-2004 because former Fed Chairman Alan Greenspan said after every meeting into 2006: Excessive monetary stimulus most likely will be "removed at a measured pace." Translation: You're safe for now, and we'll give you time to get out before we kill you.

In those late Greenspan years, deflation was the problem. Today, inflation is rising all over the world: Australia at a 16-year-high of 3.8 percent core; Europe at a 14-year-high of 3.2 percent; U.K. at 2.6 percent core; China at 6 percent-plus; and an economy completely out of control beginning to export inflation to us. Each time the Fed has lurched to a catch-up ease, all the way back to August, it has rescued stocks, commodities, oil, gold, and tanked the dollar.

I have chewed on the Fed for its inaction and credit-wreck oblivion. However, this situation is NOT a monetary problem: It is a banking-system near-insolvency that may morph into a recession, each making the other worse. The crying need for six months has been transparency of credit loss and bad-asset firewall. Cuts in the overnight cost of money may intercept recession, but inflation means that these cuts cannot be maintained or removed at a measured pace.

A central bank chairman must be prepared for the ultimate sacrifice: No tough inflation problem was ever solved by slow growth. It takes a recession. It takes higher unemployment and crushing the commodity spiral. To get long-term rates down, Bernanke must get the good out of this slowdown: He must let it get ugly. Instead, he has rescued inflation-pushing markets again and again.

Two non-Fed forces holding up mortgage rates: Credit fear about Fannie and Freddie has the spread between mortgages and the all-defining 10-year Treasury (3.57 percent today) over 2 percent for the first time ever. Second, somebody by accident may arrive at an effective credit-wreck bailout: The giant bond insurers, Ambac and MBIA, may be resolved in days. If no collapse, then credit fear will give way to inflation fear.

The Fed's cuts have had a dramatic effect on ARM adjustments, and should revise estimates of housing doom to the better -- also reducing bond-market fear. This month, common one-year Libor-floating loans will adjust DOWN to 5.125 percent.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lba[email protected].

 

 

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.  

Industry reacts to Countrywide, BofA deal

by Allison Simson & Joyce Nenninger
Question:  Allison, we’ve heard so much about the Countrywide/Bank of America merger.  What is the industry buzz?
Answer: Good question.  Most of my research shows that the merger is seen as better than the alternatives. According to Matt Carter of Inman News,Bank of America Corp.'s plan to acquire troubled mortgage lender Countrywide Financial Corp. was welcomed by mortgage industry professionals Friday, who said a merger is preferable to other alternatives including a government bailout of Countrywide or bankruptcy.

Some also wonder whether Bank of America is making the right move, assuming it can close the deal, which must be approved by regulators.

"I have mixed feelings -- I think it's great because the government will not be forced into a bailout if this actually goes through," said Larry Bettag, Midwest region vice president for Denver, Colo.-based Cherry Creek Mortgage Co. "Putting those two together, it's going to be a monster company."

Paul McFadden, a mortgage planner and licensed loan originator with Exact Financial Group of Renton, Wash., said that while he does not originate loans for Countrywide, the company's failure would have caused problems for everyone in the industry.

"The buyout, I think, is a good thing, because on its own, Countrywide wasn't going to survive," McFadden said. Last summer, when American Home Mortgage closed its doors, other lenders tightened up their standards. "I think if Countrywide had not made it, all the other lenders would have reacted" by tightening underwriting further.

The all-stock transaction is expected to close in the third quarter, after an agreement was approved by both companies' boards.

News of the merger failed to cheer Wall Street investors Friday, as the $4 billion deal was overshadowed by a New York Times report that brokerage firm Merrill Lynch needs to raise that much to offset $15 billion in losses on bad mortgage investments.

Bank of America has not been immune to the housing downturn, announcing in October plans to close down its wholesale lending division and lay off 3,000 workers (see Inman News story). With BofA also exiting correspondent lending, one question about the merger is what the bank will do with Countrywide's wholesale and correspondent lending businesses.

Wholesale lenders fund loans that are originated by independent mortgage brokers, which are often bundled together as collateral for mortgage-backed securities that are sold to investors. Correspondent lenders purchases mortgage loans from other lenders such as banks, savings and loans, credit unions and builders.

"If they cut the mortgage broker out of the picture, that creates a potential problem for us," said Robert Ashby, president of Solid Rock Mortgage Corp., a mortgage brokerage in Pembroke Pines, Fla. "It's probably not that big a deal, because we can go somewhere else to get the loans."

McFadden said that he has 40 to 50 lenders to work with, and that if Bank of America shuts down Countrywide's wholesale loan division, he would not be affected.

Bettag said Countrywide has been "a big competitor" to Cherry Creek Mortgage. But Cherry Creek is also a correspondent to Countrywide, selling prime loans to the lender.

"We source a lot of our 'A' paper to them, and we actually grew by a hair last year in a market where everyone else blew up," Bettag said. "So we're curious to see how (the merger) will change the playing field."

In a press release, Bank of America said it "will benefit from Countrywide's broader mortgage capabilities, including its extensive retail, wholesale and correspondent distribution networks." That suggests Charlotte, N.C.-based BofA intends to allow Countrywide to continue funding loans originated by mortgage brokers, and buying loans from other banks.

Bank of America said it plans to continue to operate Countrywide separately under the Countrywide brand until at least 2009.

"I wondered when Bank of America got out of wholesale (lending), whether there might be behind-the-scenes maneuvering to acquire Countrywide," McFadden said, noting that competitor Washington Mutual has kept its hand in that game.

Another question about the merger is whether Bank of America will lay off more Countrywide employees in areas where the two companies have redundancies.

Countrywide employed 50,600 workers at the end of December, down 17.8 percent from 61,586 in July, after laying off nearly 12,000 loan originators.

In a presentation to investors in December, Bank of America Chief Executive Officer Ken Lewis said consumer real estate was "a significant growth opportunity" for the bank.

In 2007, Lewis said, Bank of America became the largest direct-to-consumer consumer real estate lender in the U.S., gaining market share through a "no-fee" mortgage loan and cross-selling home-equity loans to existing customers.

"We have not had the share of this business that our presence would imply," Lewis said, noting that only 9 percent of Bank of America customers hold a mortgage from the bank. Bank of America estimates that it's originated only 12 percent of all loans held by its customers.

Bank of America customers hold more than $4 trillion in loans from other institutions, Lewis said, and the bank's strategy "is to reduce that number."

 

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.  

Washington Report: Capital Gains Takes on Change

by Allison Simson & Joyce Nenninger

Question:  Allison, I heard that Congress recently changed some of the capital gains laws.  What have you heard?

Answer: Hardly anybody noticed it, but Congress tucked away a valuable bit of holiday cheer for real estate when it passed its final tax bill of the year.

It was the first substantive change in years to the generous capital gains rules governing sales of principal homes.

According to Kenneth Harney, most homeowners and real estate professionals can recite these rules in their sleep: Married, joint-filing sellers of houses can exclude up to $500,000 of gain, and single-filing sellers can take up to $250,000 … provided they've used the property as a principal residence for a cumulative two of the previous five years.

But what happens when a married home owner dies? Does the surviving spouse still qualify for the full $500,000 -- or does she or he only get to exclude $250,000?

The answer from the IRS has been this: you only get the full $500,000 if you sell during the tax year in which you were married and filing a joint return. Otherwise, the tax code sees you as single, and then you're limited to $250,000.

In other words, if your wife or husband died in June of 2007, you can only claim the full $500,000 benefit if you sell before December 31, 2007.

After that, as long as you remain unmarried, you're capped at the $250,000 limit for single taxpayers.

As a practical matter, most surviving spouses inherit their husband's or wife's share of the property at what's known as a "stepped up" tax basis, with no capital gains tax liability at the current market value.

But here's the problem: Some surviving spouses complain that they feel rushed into sales by the current tax rules. This is especially true for people who've lost their loved ones during the final few months of the year.

With everything else going on, they don't want the additional pressure of having to make the decision to sell the family home quickly. They want more time. Fair enough.

Well, now they've got it. Legislation signed into law before the holiday recess gives surviving spouses two full years to qualify for the $500,000 exclusion -- even though technically they're single.

And who says Congress doesn't have a heart?

Since your tax professional may not be familiar with this yet, here's the official citation: The bill is H.R.3648. The capital gains change is in Section 7.

 

 

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.   

Benefits of working with someone locally versus working with an Internet lender?

by Allison Simson & Joyce Nenninger
Question: Our goal for this next year is to buy a home in Summit County. We want to get some information on financing and are considering using an Internet lender. What would be the benefits of working with someone locally versus working with an Internet lender?
 
Answer: There are numerous advantages when using a local mortgage lender as compared to a mortgage lender obtained over the Internet.
 
Customer service is the number one advantage. A local mortgage lender is familiar with the properties in their area, whereas an Internet lender may have limited knowledge of the requirements associated with a resort area.
 
With a local lender the borrowers will have an individual who is personally working on their loan application, as every borrower's needs and financial situations are unique. The borrower also has a contact person to check the status of their application and to answer any questions they may have. Plus they will be able to speak directly with a local lender without having to play phone tag or leaving messages in voice mail that can be associated with the larger mortgage corporations. This can be frustrating to the borrowers.
 
The lender is responsible for ordering the appraisal on the property, which should be from a local appraiser. This is very important. A local appraiser is familiar with the area and the values of the properties and any changes in the area that can affect those values.
 
When purchasing a condominium unit, local lenders will be familiar with the condominium projects in the area and will know if the project meets the lender's requirements.
 
There is also the working relationship with the local title companies, surveyors and insurance companies to meet the state's requirements to provide each borrower with clear title to the property. There are several steps that must be completed to take a borrower from application to approval to the closing date. Working with the local mortgage lenders, title companies, appraisers and surveyors makes all these steps come together. You have the advantage of the individuals familiar not only with the area but also the requirements of each purchase contract.
 
Purchasing a home whether it's your first home, vacation home or a rental property can be stressful, working with your local professionals can make this process a lot easier.
 
 
 
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.   

Benefits to hiring an interior decorator to "Stage" your home.

by Allison Simson & Joyce Nenninger
Question: Our Realtor has suggested that we hire an interior decorator to “stage” our home. Is there any benefit in this?
 
Answer: Originally popularized in California, staging helps homes sell quickly and for more money.
Staging concentrates not on changing the interior in terms of painting or adding carpeting, says Carole Talbott of home decorating company Visual Coordinations. These are things the buyers would most likely prefer to choose themselves. Rather staging depends on "selling the space."

When a home is staged, it's reorganized--first with the furniture, then artwork, and finally by accessories. The furnishings remain the same, except for well-worn pieces or those that break up the design. Many times accessories are used to add color to a room.

Stagers charge approximately $500 to $750 for a three-bedroom, two-bath home; Talbott advises owners to stage only the main living areas to avoid high costs.

Some staging advice for homeowners who want to go it alone: furniture should be kept away from walls by grouping at angles in the middle of the room; colors should be chosen from artwork and fabrics, and accessories should be chosen to accentuate them; collections should be kept together; and mirrors should be placed in locations where favorable scenery will reflect. To attract attention to the exterior, the front door should be the first thing painted or decorated.  
 
 
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.   

How important is it for the Homeowner's association to have a capital reserve fund?

by Allison Simson & Joyce Nenninger
Question: I am thinking of buying a condominium in Summit County and want to find a property with low homeowner’s association dues. How important is it for the association to have a capital reserve fund?
 
Answer: Condominium buyers should be wary of associations that lack adequate reserves--money set aside to pay for emergency or major repairs--because they could be forced to pay special assessments to cover costs when the association cannot. Additionally, a future sale or refinancing could be denied based on the association's reserves; and it is difficult to find a buyer under such conditions.

Insufficient reserve funds can lead to declining property values, as educated buyers refrain from purchasing condos in the community, according to the Community Associations Institute, a national nonprofit organization that educates and provides resources to homeowner groups.

Annually, an association's board of directors is required to predict the next year's income and expenses--usually through a reserve analysis study. This report consists of a property evaluation--architectural and engineering--by qualified engineers. The engineers determine the useful life and repair costs of things like boilers, elevators, and roofs to determine how much money should be set aside each year to plan for future replacement.

The reserve funds are generally collected from the condo owners on a monthly or quarterly basis and deposited into Treasury bills or other secure government-insured funds. If a repair is necessary and the association needs to raise the money immediately, there are three steps it can take: increase the monthly assessment amount; impose special assessments, in which the owner immediately pays a fee based on the percentage interest he/she has in the association (sometimes amounting to hundreds of dollars); or get a loan.

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.   

Reverse Mortgages Wrong for Some Seniors

by Allison Simson & Joyce Nenninger

Question: I am interested in a reverse mortgage but am not sure that this is my best option. Do you have any information on reverse mortgages?

 

Answer: Although reverse mortgages are an ideal fit for many senior homeowners, they are not the best option for all of them.

A reverse mortgage would not be in the best interest of someone who intends to make a move in the foreseeable future, the AARP and other sources note. Reverse loans usually come with stiff upfront fees and closing costs of up to 10 percent of the loan amount, which are distributed over the life of the loan. Owners who sell their homes quickly will also lose their equity quickly.

Reverse mortgages may not be suitable for seniors who want to leave a free-and-clear property behind as a legacy to their heirs. At the same time, some experts say elderly homeowners should consider a reverse loan as a way to meet living expenses or settle medical bills while they are alive, without worrying about what will happen when they die. Their offspring still can keep the property by paying off the reverse mortgage with funds from the estate or with their own money, or by taking out a new mortgage.

Experts warn that reverse loans may not be the solution for the youngest seniors, because longer life expectancy qualifies borrowers for less money, or for those in the midst of a temporary financial emergency, who might be better off taking out a home equity line instead.

Finally, another alternative, such as selling the property and using the proceeds to downsize into a smaller house or to rent, might make sense for some seniors.

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.   

Books or other references for the first time- second home buyer?

by Allison Simson & Joyce Nenninger
Question:  Allison, do you have any books or other references that you recommend to the first time- second home buyer?
Answer: If you are thinking about buying a vacation or second home, first read "Second Homes for Dummies" by Bridget McCrea and Stephen Spignesi. It will alert you to many of the pros and cons of owning these unique properties, which are often hundreds of miles away from one's primary home and are frequently for personal use and renting to tenants.
According to Bob Bruss, formerly of Inman News, McCrea, a former real estate agent, explains virtually all the considerations of buying a second home. Although the book starts out very slow and basic, it picks up pace in the second half where the author gets away from the home-purchase basics and into the specifics of vacation homes, such as supervising from afar and avoiding costly mistakes. There is even a chapter about buying a foreign vacation home, but it is very incomplete and hardly worth reading.
The book could have used more personal examples, but the author shares her few limited experiences with vacation homes and managing rentals from long distances. She never really says it, but making sure renters don't trash your vacation home appears to be her theme of the sections about renting second homes.
About all McCrea can do is alert readers to the possible pitfalls and explain the importance of having reliable neighbor "informants" and possibly a property management company specializing in short-term rentals.
In the chapters about selecting a vacation or second home, the author spends considerable effort discussing the usual home-purchase precautions, including working with a local buyer's agent and other real estate professionals. Heavy emphasis is placed on hiring an experienced professional home inspector to alert buyers about possible undisclosed defects of the home under purchase contract.
However, one key topic that was missing was the vital subject of water and sewer connections. Because many vacation properties are not on community water systems and do not connect to a city sewer, these can be major problems for uninformed buyers.
Lack of adequate well water and/or a poor septic system is something most buyers of vacation homes don't think about until after they hold the title to the property. Detailed advice on this topic would have been invaluable, including the importance of well water and septic system tests.
Most of the book is about topics which first-time buyers of vacation or second homes might overlook. The importance of location is heavily emphasized, both for rentals and for potential resale appreciation in market value. McCrea explains the pros and cons of buying in a resort area where, if you plan to rent to tenants for part of the year, competition from other rentals is an important consideration.
Because the book raises so many topics that might easily be overlooked, it should be read from cover to cover, perhaps skipping only those topics in which the reader is not interested, such as buying a vacation home in a foreign country.
Chapter topics include "The Lowdown on Buying and Owning a Second Home"; "Figuring Out Whether You Can Afford a Second Home"; "Relying on the Experts When Buying Your Second Home"; "Inspecting Your Second Home Before You Sign on the Dotted Line"; "Setting Up Your New Digs"; "Renting Out Your Second Home to Pay for Itself"; "Handling the Maintenance and Upkeep on Your Second Home"; "What Uncle Sam Wants to Know: Important Tax Implications"; and "Selling Your Primary Home and Settling into Your Second Home."
One topic that looms in the background throughout the book is the possibility the reader will buy a vacation or second home now and later convert it into a retirement home. McCrea explains special considerations for buyers who may be thinking of future retirement use. On my scale of one to 10, this excellent new book rates a solid 10.
 
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.  

What should we look for in a final walk-through inspection?

by Allison Simson & Joyce Nenninger
Question: Allison, we have just put a contract on a place in Frisco and notice in the contract that it talks about a “final walk through”. What should we look for in a final walk-through inspection?
Answer: Basically, the property should be in same condition as day you signed the contract.
Most home buyers will have at least two opportunities to inspect their property before closing on the purchase.
First, most buyers will include a contingency in the contract that allows them to do a professional home inspection by the home inspector of their choice. This inspection typically happens right after the sales price has been agreed to, usually within a week or 10 days.
If the home inspector finds anything wrong in the property or decides further inspections (perhaps for radon, heating and air conditioning systems, or mold) are called for, the home buyer will be able to hire specialists to figure out if there is an insurmountable physical problem with the property.
Assuming those inspections go well, the second opportunity to inspect the property is just before the property closes. The pre-closing inspection, or final walk-through, as it is often referred to, is a home buyer's last opportunity to walk through the property before closing.
According to Ilyce Glick of Inman News, what you're looking for here is not at the same level as the initial professional home inspection. In a preclosing inspection, you simply want to make sure that the property is in the same condition as it was on the day you agreed to buy it.
To avoid getting burned, you schedule the walk-through as close to the actual closing as possible, certainly within the 24 to 48 hours prior to closing. If possible, the sellers should have already moved out.
The whole point of the walk-through is to protect yourself and your future property from sellers who aren't as nice as they seem to be or who are actually as nasty as they appear. By inspecting the premises, you're making sure the seller has lived up to his or her agreements in the sales contract. And if he or she hasn't, you want to know about it in advance of the closing so remedies (both monetary and otherwise) can be agreed upon before money changes hands.
What should you look for in a walk through inspection? To start with, you want to make sure that the condition of the home hasn't changed since you signed the contract several months earlier.
Believe it or not, a lot can change in the ensuing weeks. To make sure the home is in the same condition, you'll want to turn on every appliance, open every door, make sure nothing's broken (lights, fixtures, windows, etc.), be certain everything the seller agreed to leave is actually there and in good shape, and be certain that when the sellers moved out, they did no damage to the home.
Sometimes movers can accidentally scrape a wall or pull up carpet in the process of packing up the contents of a house. If you do your walk through inspection while the movers are there, you'll have a harder time getting around them to make sure that the property is in good shape.
If you get there before the sellers have packed anything up, you might wind up with some unpleasant surprises on the day you move into the property.
Ilyce Glick learned the hard way that sometimes sellers just don't want you to find out certain things until you've closed on the property.
Nearly 20 years ago, her husband and she bought their first place. It was a vintage co-op built in the 1920s. The sellers were seniors, and they were a bit quirky. The property hadn't been touched in years.
When they did our final walk-through, they noticed that the water was turned off in the kitchen sink. They wanted to run the dishwasher, which was really old, but didn't want to turn on the water if it was off.
“Looking back”, as she says, “it's hard to imagine why this wasn't a red flag for us. But we were really happy to be buying our first place, which was taking just about all the money we had in the world. We didn't question it. We just bought it and moved in.
The first night we unpacked the dishes and decided to run a load in the dishwasher. At well past midnight, my husband turned on the water and we put in the dish soap and turned on the machine. We went to bed.
We were awakened early the next morning with pounding on our front door. Our downstairs neighbors came into their kitchen and noticed that the liquid contents of our dishwasher had dripped down through the ceiling into their kitchen, ruining their window shade.
My husband and I looked at each other and we knew why the water had been turned off. Too bad we didn't find that out ahead of time. Still, the damage could have been worse.
As I recall, it cost us $600 to fix the damage in our neighbor's apartment.”
Take some time to do your walk-through inspection. It might just save you time and money later.
 
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.  

Can a second home qualify for 1031 tax-deferred exchanges

by Allison Simson & Joyce Nenninger
Question: Allison, we’ve heard a lot about 1031 tax-deferred exchanges and would like to know if our second home would qualify for a like-kind exchange with another piece of property that is closer to our home. We have never rented our current property, but consider it an investment due to it’s appreciation the past few years.
Answer: Your question is a good one – and one that has been in the media and in the courts quite a bit in the past few months. To get an accurate assessment of your particular situation, I recommend you speak with a company that specializes in 1031 tax-deferred exchanges. According to Inman News, a similar case to yours was tried in court. Here are the details. In 1988 Barry and Deborah Moore purchased a second home on Clark Hill Lake. It included a home to which the Moores added a deck and other improvements.
The property was a three-hour drive from their principal residence. The Moores and their children visited the property two weekends each month between April and September each year.
But in 1995 the Moores changed their primary-residence location, making the drive to the Clark Hill Lake property a five- to six-hour trip. As a result, they used the property only a few times each summer.
The Clark Hill Lake property was never offered for rent to short- or long-term tenants. On their income-tax returns, the Moores deducted their mortgage interest and property tax payments as personal itemized deductions.
In 2000, the Moores found a five-bedroom, four-bathroom house on 1.2 acres of land adjoining Lake Lanier, just a few hours from their home. It has five screened-in porches, a party deck and veranda.
They decided to make an Internal Revenue Code 1031 tax-deferred trade of the Clark Hill Lake property for the larger and closer Lake Lanier property. They justified the exchange by stating both properties were held for "investment" rather than for personal use.
Upon audit, the IRS denied the IRC 1031 tax-deferral on the sale of the Clark Hill Lake property. The IRS auditor noted the property had never been rented and was used only by the Moore family on weekends. But the Moores argued they held the property as an investment for future appreciation in market value. They took their dispute to the U.S. Tax Court.
If you were the judge would you allow the Moores to defer the capital gains tax on the trade of the Clark Hill Lake property as an investment?
The judge said no!
To qualify for an IRC 1031 tax-deferred exchange, the judge began, both properties involved in the trade must be held for investment or for use in a trade or business. Although the Moores pointed to the appreciation potential of the Clark Hill Lake property, he continued, "It is a taxpayer's primary purpose in holding the properties that counts."
"Property held for investment is property held for the production of income," the judge explained. "We accept as fact the Moores hoped that both the Clark Hill and Lake Lanier properties would appreciate," he noted.
"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," the judge emphasized. There was no convincing proof either property was held for the production of income as a rental since the family used both properties primarily as vacation retreats, he added.
Because the evidence strongly showed both vacation homes were held for personal use, rather than for production of income, neither property qualifies for an IRC 1031 tax-deferred exchange, and the Clark Hill Lake property sale is taxable, the judge ruled.
Based on the 2007 U.S. Tax Court decision in Moore v. IRC, T.C. Memo 2007-134.
 
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