Curb Appeal: Best face forward

Spiffing up a listing’s exterior can mean the difference between a drive-by and a signed deal.
By: CHUCK PAUSTIAN: REALTOR® Magazine Online
Warm. Welcoming. Arresting. Appealing. Although landscape and real estate professionals differ about how to define curb appeal, they agree that a home’s first impression can make a huge difference in how well it fares on the market.

“People who prepare their homes—inside and out—before they put them on the market are the ones who have quicker sales and who receive top dollar,” says Mary Harker, ABR®, CRS®, a broker-associate with Keller Williams Realty in Dallas.

There are several improvements, from minor repairs to major yard overhauls, you can suggest to sellers that will add pizzazz to listings. The course of action will depend on the owner’s budget and how much time you have to sell the house. Some experts say, for example, that owners should spend between 10 percent and 20 percent of a home’s value on landscaping. But that’s for owners who are staying put; it wouldn’t be advisable to spend that much unless the sale was a year or more away. For a more typical sales cycle—30 to 60 days—practitioners say spending between 1 percent and 2 percent of a home’s value is a reasonable investment in curb appeal.

“Some homes need more attention than others,” says Jim Albrecht, ABR®, a broker with First Weber Group, REALTORS®, in Waukesha, Wis. Tammy Fadler, CRS®, GRI, broker-owner of Signature Properties in Festus, Mo., agrees: “I look at what the owners can spend and then recommend improvements accordingly.”

Sometimes consumers balk at the idea of spending money to improve a house they’re about to leave, Albrecht says. So you may need to underscore the benefits of the investment. “People cost themselves a lot of money in terms of the offers they receive by not paying attention to the appearance of their house,” he says. “Even if the project amounts to basic maintenance that homeowners can take care of themselves, they’d get back at least what they put into it.” Industry experts say new landscaping can add two to three times its cost to the home’s sales price.

The basics

At a minimum, everything a potential buyer might notice about a home’s exterior and lot should be in working order and well maintained. For the most part, homeowners can take care of this work themselves with a little money and a lot of elbow grease.

Items such as burned-out lightbulbs, broken doorbells and fountains, cracked panes of glass, and damaged trim should be repaired or replaced. Windows and siding should be clean, and any metal objects, such as doorknobs, mailboxes, and kick plates, should be polished.

“If the house shines like a pretty penny, it’ll sell quicker,” says Ed Huck, ABR®, CRS®, an associate broker with Realty One Real Living in Westlake, Ohio. “When I started out, curb appeal wasn’t such a big deal. But now it’s become huge.”

Keep sidewalks and driveways clean and passable. Lawns should be cut, edged, and green. A bag of fertilizer from the local hardware store or garden center and some regular watering will perk up grass in a week or two. In addition, all bushes and trees should be trimmed, and flower beds should be weeded and covered with fresh mulch.

“If the yard is overgrown and weedy, it’s a turnoff,” says Steve Griggs, president of Land Design Studio Inc. in Blauvelt, N.Y. If bushes are beyond trimming, the homeowner should remove them unless they’re covering up an unattractive feature. “It’s better to have minimal landscaping than bad landscaping,” says W Scott McAdam, president of McAdam Landscaping Inc. in Forest Park, Ill.

After homeowners get the outside in tip-top shape, they must maintain the property, because potential buyers could drive by at any time. Remind sellers to turn on any exterior lighting so that a home’s features can be seen at night. The home has to say buy me” at all times, says Harker.

Must do vs. should do

Once the owners have covered the basics, the line between “must do” and “should do” projects becomes blurred, with budget and timing of the sale often determining which tasks to tackle.

Encourage owners to pursue some projects even though they carry potentially high price tags and might require hiring professional contractors. “The roof is a biggie,” says Albrecht. “If the shingles are starting to cup and curl, owners should consider replacing them.” Painting a home’s exterior, replacing damaged gutters and shutters, repairing broken concrete in walks and driveways, and adding exterior lighting should also be high on the list.

Fadler adds that if painting isn’t an option, the seller can hire someone to power wash the exterior “so that it looks nice and fresh.”

Other projects fall into the optional category. Landscaping is a good example of the type of improvement homeowners can pursue, but only if they have the money and time. A yard makeover can have a dramatic effect on a home’s curb appeal, but the cost can easily run into several thousand dollars or more, and the improvements might take weeks to install and several months to mature.

To add splash when owners have limited money and time, real estate and landscape experts recommend adding larger, more mature plants. They cost a little more individually but will add immediate color, texture, and interest, and the homeowner won’t need to buy as many. If flower beds are scarce or nonexistent, fill flowerpots to add splashes of color.

“Yellow and red flowers are buyer colors. They really seem to stop people in their tracks,” says Harker. “If there’s room, add a bench to the front porch. If not, try putting it in the yard.”

Another cost-saving suggestion is to focus on plants and not worry about projects such as putting in a brick pathway. “Plantings tend not to be the expensive part of the job. It’s usually the hardscape that adds a lot of expense,” says Howard Cohen, vice president of Surrounds Landscape Architecture and Construction in Sterling, Va.

Planning ahead

Sellers often have more than 60 days to prepare their home for sale. A recent survey by Hebert Research for HouseValues Inc., based in Kirkland, Wash., found that the average home sale takes 9.3 months from the time the owner thinks of selling to the closing date. That perspective gives sellers more options.

“I’m working with two clients now who’ll be putting their homes on the market next spring,” says John Widener, president of Shaded Leaf Landscaping in Columbia, Md. “We’re planning now for plants that will be blooming when they put up the For Sale sign.”

Fadler says about 2 percent of the people contacting her want to sell in a year or more. The added lead time allows sellers to spread out expenses and consider more elaborate plans, she says.

“If you’re looking to sell in six months or more, you might not have as much cost on the landscape installation,” says Tammy Key, president of Garden Spaces Inc., a San Francisco landscape design company, noting that the additional time gives homeowners the option of using seeds and smaller plants that require more time to grow and are less expensive than mature plants.

Whether the listing period is a week or six months, real estate pros say sellers will maximize their home’s marketability by investing in a few well-chosen exterior touches.
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Taking the Plunge! Ten Reasons Why Sellers Should Market a Home Now

Why should I list my house now?
By: Jim Remley: Pro Performer Seminars
In today's hot real estate market sellers can have many legitimate fears about selling their home, not the least of which is finding another one to buy!

The ultra competitive environment of escalation clauses, multiple offers, and endless showings is daunting for the listing agent, let alone a seller considering listing their home. In making the largest financial decision of their lives many sellers are hesitant to jump in to the deep end of the pool.

Ten Reason to Market Your Home Now!

    1. Pricing Power - In most markets sellers are able to sell for top dollar as
       low interest rates and high demand has fueled a rush of buyers into the
       market place.

    2. High Demand - Low inventory in most markets means that the number of buyers
       competing for each home is higher than it has ever been. This also means that
       the time it takes to secure an acceptable offer has dropped considerably.

    3. Low Interest Rates - Interest Rates have remained at 30 year lows despite the
       fact the Federal Reserve has hiked rates for the past several quarters.
       Today's low rates mean more buyers can afford to purchase more amenities and
       pay higher prices than in the past.

    4. Fewer Contingencies - Because many buyers have been able to sell their homes
       quickly many are able to write offers that are not contingent on the sale of
       their home.

    5. Flexible Financing - Many buyers today are able to enjoy hundreds of
       different possible loan programs from ARMS, to reverse amortization
       mortgages, and even no-documentation loans. This flexibility means more
       buyers can afford to buy homes than ever before.

    6. Timing Control - Sellers who need more time to move, find a replacement
       property, or move into a rental can be more selective in choosing which offer
       best suits their needs. They can also specify their timing needs in advance.

    7. Tax Savings - Sellers who have owned their home for two of the past five
       years, and lived in their home for two of the past five years may be able to
       take up to $250,000 as a single person or up to $500,000 as a married couple
       in tax free gains out of the sale! See www.irs.gov for details.

    8. Nationwide Market Expansion - The national housing market is now at record
       levels. This may mean more out of state buyers than ever before as potential
       buyers for a sellers home.

    9. Home Ownership Rates - The number of American families who own a home is at
       all time high - 70%! This is good news for sellers - as more, and more
       families recognize the value and wealth building potential of owning real
       estate.

    10.Discounted Rental Rates - Although home prices have climbed steadily over
       the last several months, rental rates in most areas of the country have not
       kept pace. This can be good news for sellers who would like to take their
       time finding their next home.

The future is unpredictable. The housing market like all financial markets is a volatile mix of perceived values, real values, and future values. None of us really knows what tomorrow may bring although there is one thing we can all be sure of which is that - today, right now in almost every market in America it is absolutely one of the best times to sell a home in human history!

So dive into the deep end of the market!
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Florida: Foreign Buyers Flock to Sunshine State

REALTOR® Magazine Online
Foreign buyers are adding fuel to the U.S. housing boom, especially in Florida where they account for a solid 15 percent of all home sales and make up a growing share of real estate practitioners’ business volume.

That’s according to the just-published results of a survey by the NATIONAL ASSOCIATION OF REALTORS®, which focuses on sales to foreign buyers in the Sunshine State but also provides general insights on the homebuying preferences of this significant buyer segment.

Of the nearly 1,000 REALTORS® who responded to the May 2005 survey, 87 percent said they completed at least one home sale transaction with a foreign buyer in the previous 12 months. Of those, 66 percent had one to four of such deals; 13 percent had between five and 10; and 10 percent completed 10 or more.

When asked whether home sales to international buyers made up a larger percentage of their business, nearly half of respondents—49 percent—said yes. Another 45 percent said their dealings with foreign buyers have remaining about the same, and just 6 percent reported a decline.

While Florida’s international homebuyers came from more than 100 countries in all areas of the world, the majority—58 percent—of all home purchases by foreign buyers in Florida were made by Europeans. And more than half of the buyers from Europe are based in the United Kingdom.

Spanish-speaking buyers from South and Central America and the Caribbean Islands comprised 29 percent, while buyers from Brazil accounted for 3 percent. There also were buyers from Asia, Africa, Australia, and New Zealand, but results for those areas did not yield a large enough sample size to analyze.

For both Latin American and European buyers, the main reason for purchasing a home in Florida was to have rental property for investment. More than a third of Europeans and 23 percent of Latin Americans planned to use the home as a vacation venue. And nearly a third of Latin American homebuyers planned to use the property as a second home for their part-time work in the U.S.

NAR worked in conjunction with the Florida Association of REALTORS® to conduct the survey. Their goal was to fill a gap in formal research on international homebuyers and to better understand why those buyers purchased homes in the United States, what types of properties they bought, and for what purpose.

The full report can be viewed online in PDF format.

To learn more on international real estate, visit REALTOR.org’s International section. You also can visit REALTOR® Magazine Online’s new resource on Servicing Your Multicultural Clients, which includes articles and tips on successfully working with clients from different cultural and ethnic backgrounds.
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More Investors Become Landlords

REALTOR® Magazine Online
Scores of real estate investors are assuming the role of landlord, looking to turn a profit by renting out their properties.

Landlords must handle several responsibilities, aside from collecting monthly rents. They must locate tenants, which can be difficult in markets where investors are aggressively competing for renters. Such competition, coupled with an increase in home sales, also can force landlords to discount rents.

Landlords additionally must draw up leases, keep track of income and expenditures for tax purposes, obtain adequate insurance coverage, and make repairs as necessary. They would be wise to assemble a network of professionals who can help—such as attorneys, accountants, plumbers, and locksmiths.

A property manager is a must for those who do not live near their investment real estate. Finally, they should consider purchasing Quicken's Rental Property Manager program to facilitate record-keeping tasks.
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Real estate gems abound during late-peak sales season

Low rates, new loan products foster favorable environment
By: Robert J. Bruss: Inman News
You probably have been reading and hearing about the record home sales volumes and prices in most communities. Although it's summer when home sales volume usually slows after the peak sales season of April, May and June, it's not too late to sell your home if you are motivated. If you are a home buyer, bargains appear as the peak sales season cools and buyer competition becomes less intense.

Home mortgage interest rates remain near record lows. Procrastinating buyers are still in the market, hoping to find their dream homes.

Mortgage lenders are advertising terms too good to be true. A few days ago I heard a radio ad for no down payment home loans even for buyers with FICO scores as low as 600.

The major trend in home mortgages is interest-only loans. Some lenders call them "option" mortgages. The result is home buyers can pay rock-bottom fully tax-deductible all-interest monthly payments, or they can select partial or fully amortizing payments.

If you are the home seller, you don't care how the buyer finances the sale as long as the cash is green. Just be sure, when accepting a purchase offer, the buyer has a pre-approval letter or certificate for the necessary mortgage.

TODAY IS STILL AN EXCELLENT TIME TO SELL YOUR HOME. If you are motivated to sell your home, and are not just "testing" to see if you can get your outrageous grossly inflated dream price, this is a great time to sell. In most markets, there is a balanced inventory of homes listed for sale to meet buyer demand. Few markets have a glut of homes for sale without qualified buyers.

But before putting your home on market for sale, and interviewing prospective listing agents, it pays to get it ready to earn a top-dollar sales price. A fresh coat of exterior and interior paint, new light fixtures, fresh landscaping, new wall-to-wall carpets or hardwood floor refinishing, and a general cleaning are inexpensive ways to add thousands of value dollars and special appeal to home buyers.

Purely by accident, a few weeks ago I discovered another inexpensive value adder. It's called a "power washer." I was having my deck power washed to clean off the grime. Then the handyman asked if I would like my house power washed. How much? About $200 he said. I figured that was far cheaper than repainting so I gave the go-ahead.

After the job was finished and I realized my house didn't need repainting, my neighbor asked if I was getting ready to sell. I took that as a compliment although I have no plans to sell. That $200 house power wash saved me several thousand dollars, which I was planning on spending to repaint the exterior.

INTERVIEW THREE SUCCESSFUL REALTY AGENTS TO GET TOP DOLLAR. If you are serious about selling your home during this late peak sales season, after your home is fixed up in its best ready-to-sell condition, it's time to interview successful local realty agents about listing it for sale.

Even if you are thinking of selling alone without a professional agent, it pays to interview three successful agents to learn what is involved in the sales process.

The primary reason it pays to interview at least three realty agents is then you won't be misled by one who estimates a sales price too high or too low. Each agent interviewed should give you their written comparative market analysis (CMA).

This CMA form shows recent sales prices of comparable nearby homes, asking prices of neighborhood homes listed for sale (your competition), and asking prices of recently expired competitive listings (probably overpriced). In other words, the CMA is a mini-appraisal of your home's market value and probable sales price.

While you are separately interviewing the three or more agents, be sure to ask each agent what documentation is involved in your home sale.

In addition to the buyer's purchase offer, there will probably be a seller's defect disclosure form, lead-based paint disclosure and booklet for the buyer, professional inspection report, termite or pest control inspection report, and other forms such as radon inspection, building code compliance, energy efficiency, and possibly more depending on local ordinances and customs.

BE CAREFUL ABOUT SIGNING A LISTING AGREEMENT. Even if you think you can sell your home alone without a professional agent (known as a "for sale by owner" or FSBO), ask each agent you interview about his/her listing terms. Some might demand a long six-month exclusive right to sell listing. But others will recommend a 60-day or 90-day listing.

For most home sellers, the 90-day listing gives the listing agent plenty of time to market the home, but without tying up the seller for an unreasonable time just in case the buyer chose the wrong agent.

Even if you decide to try selling your home as a FSBO, the agents you interviewed won't mind. The reason is they know most FSBO sellers are unsuccessful and wind up listing their homes with one of the agents interviewed in 30 to 60 days.

When I visited Las Vegas a few weeks ago, in the newspaper real estate section I saw an ad by a local Realtor that said: "Selling your home FSBO? Call me and I'll help you." When I phoned him and identified myself as a real estate writer, he said that ad works so well to get listings from unsuccessful FSBOs he only runs it when he is short of listings.

SUMMARY: Most communities are still enjoying a peak sales season for homes, fueled by abnormally low mortgage interest rates and innovative mortgages from lenders eager to help home buyers.

To earn top dollar, after getting their homes into tip-top condition, motivated home sellers should interview at least three successful agents who sell nearby homes. Only by consulting at least three agents, and obtaining their CMAs, can home sellers be sure their asking price is correctly based on recent comparable sales prices.
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Fixer Upper To One Is Cosmetic To Another

Everyone wants the quick fixer upper resulting in the quick buck. In some communities, that's very doable, while others are just unaffordable even when the house is about to fall in.
By: M. Anthony Carr: RealtyTimes
I receive emails regularly from people wanting to find the diamond in the rough so they can walk away with tens of thousands of dollars in one transaction like all the people on the infomercials.

Everyone wants the quick fixer upper resulting in the quick buck. In some communities, that's very doable, while others are just unaffordable even when the house is about to fall in. Even I would take such a treasure. I toured one such property recently with a fellow investor and the house truly needed a lot of fixing up.

It had been a rental for several years by the sight of it. The carpet was in a mess with bare spots throughout. It was simply filthy -- there's just no other way to describe it. It wasn't even "broom clean" which is what most contracts require when a renter or former owner moves out.

The walls had needed painting several years ago and the flooring in the kitchen had cuts and gouges all over. On the back deck, we had to be careful not to step too firmly as to not fall through and the back yard (it was a townhouse) was overgrown and unkempt. The fencing was fraught with rot and mold.

The bathrooms were also filthy with rust in the sink and tub, and the faucets needed replacing. The owner had turned off the water, so we couldn't test if it was working or not. There were only a few light bulbs throughout the house so that we could get a good look at the crevices of the dwelling.

In the basement, the ceiling was drooping from previous water damage from above, the carpet needed replacement. There was also a smell of mildew throughout.

We were drawn to the property because the listing remarks said: "Priced below other comps. Needs cosmetic fixes."

Well -- what I was seeing was more than cosmetic. In addition, when you see that the interior is in such disrepair, you have to wonder about all the stuff you can't see in a casual visit -- the attic, roofing, rot around the base of the house, termites, etc.

The investor-owner used the house truly as a commodity and did not take care of the product. However, in our escalated market, the asking price was $359,000. So is this the type of fixer-upper you're looking for? A comparative market analysis of that area today -- 60 days later -- shows properties of that type selling for upwards to $410,000. In a market such as the Washington, D.C. area, such a gamble may be worth it.

The problem with this target property is that the owner was not offering the property up as a fixer upper, but the market showed it could be moving up to that level. The property needed at least $25,000 in repairs and then the marketing costs would be about another $20,000 to $25,000 -- so there goes the equity and your quick-turn profit.

If you're in a more normal market, you need a lot more equity to walk into before being willing to start polishing that diamond. There should be a projected profit margin of at least double your expenses -- thus after fixing up a property and selling it, all those expenses should equal your profit.

Example: You purchase a fixer upper for $150,000, put in $25,000 to fix it up, and sell it for $225,000. Your gross profit would come in at $50,000, subtract commission and closing costs of 7 percent and you're down to $34,250. To be sure that you're going to get the amount of money here that you want, you MUST insist on a thorough home inspection by a qualified (preferably, certified) home inspector. This person will be key in finding out how much money you're about to put out in return for your investment. In addition, you want a Realtor involved who can give you comps of the area so you know what your target price will be.

When it comes time to your first fixer upper investment the key point here is patience and don't let dollar signs in your eyes blind you to the reality of the return on your investment.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.
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The Weekend Guide! July 28- July 31, 2005

The Weekend Guide for July 28 - July 31, 2005.
Full Article:
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Make Moves Less Traumatic for Children

By: Patricia Long Allbee: REALTOR® Magazine Online
More than 10 million children in the United States move prior to the start of the new school year, and there are several measures that can make the transition less stressful.

Youngsters might want to consider keeping a journal, detailing their worries or aspects about the move that are exciting. They also should surf the Web to familiarize themselves with their new neighborhood, as the local Chamber of Commerce site generally features information about activities, schools, restaurants, and other amenities.

Children can take a greater role in the move by planning the design of their new bedroom; while putting together a scrapbook with pictures of their old residence, neighborhood, and friends can help them say goodbye.

Other suggestions include contacting a church or other local organization to find a pen pal in their new school and throwing a going-away party with a "White Elephant" gift exchange or yard sale to rid themselves of belongings that would otherwise be thrown away.
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Condos Fuel Rise In Existing-Home Sales

In June, condominium purchases boosted home sales to a record annual rate.
By: KEMBA J. DUNHAM: The Wall Street Journal Online
Home sales rocketed to new highs last month, led by America's insatiable appetite for condominiums.

The National Association of Realtors said sales of existing, or previously owned, homes rose 2.7% in June from a month earlier to a seasonally adjusted annual rate of 7.33 million units, the fastest pace on record. The previous record was 7.18 million, set in April.

Sales rose for all types of homes in all regions of the U.S., but the star performers were condos and cooperatives, where the sales pace has been running twice as fast as for single-family homes. The trade group's report said sales of condos rose 4.5% in June to a seasonally adjusted annual rate of 960,000 units, the fourth consecutive month that sales of condos hit a record.

Sales of single-family homes rose 2.4% to a seasonally adjusted annual rate of 6.37 million, also a record.

During the second quarter, condo sales were up about 37% on an annualized basis, compared with 22% for single-family homes.

Prices for condos also are higher than and are rising faster than prices for single-family homes. Last year, the nationwide median price of a condo was $193,600, up 17% from the previous year, according to the group. The median price of a single-family home was $184,100, up 8.3% from the previous year.

In June, the national median existing-home price for all housing types was $219,000, up 14.7% from a year earlier. The June rise was the strongest increase since November 1980, when year-over-year price appreciation was 15.6%. The median price of a condo was $223,500 last month, up 14.8% from a year earlier. Median means that half of the homes sold for more and half sold for less.David Lereah, the Realtors association's chief economist, attributed the strength in condo sales to empty nesters who are downsizing from larger single-family homes and young professionals who might have rented in previous years but now are tending to buy instead of rent. The jump in condo sales and prices also reflects investor purchases, he said, as well as interest-only loans being used to finance many condos. "That worries me, because I'm not that comfortable with the stability of interest-only loans," he added.

Condo sales are strong nationwide and have reached frenzied levels in Miami, Las Vegas and San Diego. There is some concern that these markets could peak soon, just as developers are adding lots of new supply to the market. In Chicago, for instance, some condo developers have reported slower-than-expected sales in recent months because buyers have so many choices.

As inventories rise, economists expect home-price appreciation to begin to slow. Total housing inventory levels rose 3.8% at the end of June to 2.65 million existing homes, which represents a 4.3-month supply at the current sales pace. The supply of homes on the market has been inching up since January's record low of 3.8 months, but is still relatively low.

"We don't want to see this measure going up too much, but I would be more concerned if we start to see the month supply of new homes going up as opposed to existing homes," said J.P. Morgan Chase economist Haseeb Ahmed. "You can't just take new homes off the market."

Mr. Lereah of the Realtors group said he expects home sales to remain robust in the second half. "There's a lot of momentum right now, with all the major housing measures going strong," he said. "There will be signs of a slowdown only if mortgage rates go up."


Email your comments to rjeditor@dowjones.com.
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Reverse Exchanges: A twist on 1031 exchanges helps make this tax-deferring investment strategy more viable

An alternate route
By: ROCHELLE STONE, JOHN MANGHAM: REALTOR® Magazine Online
Betty vacations at the beach each year. This year she decides to buy an investment property there. With the help of a real estate salesperson, she finds the perfect condo unit—at a below-market price of $400,000. Betty wants to use the proceeds from the sale of her rental house, another investment property, to buy the condo. To defer taxes on the capital gain, she plans to use a 1031 tax-deferred exchange. However, because of the hot beachfront market, Betty is afraid to wait to make an offer on the condo until she’s found a buyer for her property. To solve the timing problem without losing the deal, the salesperson suggests a reverse exchange.

A reverse exchange shares similar requirements with the more common deferred exchange. In a delayed exchange, once an exchanger has sold the property to be relinquished, the person must use a qualified third party (an intermediary) to receive the sales proceeds at closing and then use the money to acquire title to the replacement property.

However, in a reverse exchange, a second intermediary, called an accommodation titleholder, takes title to either the relinquished or the replacement property since the exchanger can’t hold title to both properties at once. The AT may remain as the owner for 180 days, allowing the exchanger time to locate a buyer for the property to be relinquished. Note: The two intermediaries in a reverse exchange can be the same person.

Like the more common delayed exchange, in which the property the exchanger owns is sold first, a reverse exchange allows exchangers to defer taxes completely if they use all net proceeds from the sale of a property to purchase a replacement property of equal or greater value.

There has been a significant increase in reverse exchanges since 2000, when the Internal Revenue Service issued Revenue Procedure 2000-37, which set guidelines for those transactions. In fact, some investors look for replacement properties before marketing property they intend to relinquish.

Reverse basics

Under IRS rules for reverse exchanges,

∙ Investors must use an AT to purchase and warehouse either the relinquished or the replacement property for up to 180 days.

∙ The AT can’t be the exchanger undertaking the exchange or a disqualified person, as defined by the Omnibus Budget Reconciliation Act of 1989. A disqualified person is anyone who has acted as the exchanger’s agent within the preceding two-year period, including an attorney, an accountant, an investment banker, or a real estate broker.

∙ The AT must be named on the title of either the replacement or the relinquished property.

∙ There must be a written qualification exchange accommodation agreement between the exchanger and the AT defining the intent and obligations of the parties and the restrictions on the proceeds by the exchanger.

∙ The exchange agreement must state that the AT will be treated as the beneficial owner of the warehoused property for federal tax purposes, including reporting interest and depreciation.

∙ The property to be exchanged must be identified in 45 days, and the transaction completed in 180 days, just as required for a delayed exchange.

∙ The exchanger may make and guarantee loans with the warehoused property as collateral, lease or manage the property being warehoused, or supervise construction or act as the contractor for improvements on the warehoused property before the exchange is final.

Structuring reverse exchanges

A reverse exchanger must have liquid financial resources to make the exchange viable. Reverse exchanges can be structured in two ways, depending on the exchanger’s resources and the financing available.

Option 1. The exchanger has sufficient funds to purchase the replacement property for cash, or the seller of the replacement property will take back financing. Under this option, the exchanger “lends” the AT the money to buy the replacement property. Once a buyer purchases the relinquished property, the intermediary uses the proceeds from the sale to acquire the replacement property from the AT and deed it back to the exchanger.

Option 2. When the exchanger doesn’t have the funds to purchase the new property for cash, the transaction must be structured differently. In this case, the exchanger must obtain cash from a line of credit or other source and then “lend” those funds to the AT so that the AT can purchase the relinquished property. The sale to the AT means there are proceeds the intermediary can use to purchase the replacement property.

The intermediary then deeds the replacement property to the exchanger, who can now use the property as collateral for the new mortgage loan. The subsequent sale of the relinquished property by the AT provides the funds to pay back the exchanger’s loan to the AT.

Although reverse exchanges are complicated and require financial strength, real estate practitioners and their investor clients would be well served to add this powerful financial tool to their portfolio.

Stone is the president and founder, and Mangham, CPA, is the southwest regional manager of Starker Services Inc., a national company that performs all types of 1031 tax-deferred exchanges. You can reach the authors at rstone@starker.com or 800/332-1031.
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NAR: Existing-Home Sales Smash Record Again

By: NAR: REALTOR® Magazine Online
Existing-home sales surpassed market expectations and reached another record in June as low mortgage interest rates and favorable market conditions continued to attract buyers, according to the NATIONAL ASSOCIATION OF REALTORS®.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.7 percent in June to a seasonally adjusted annual rate* of 7.33 million from an upwardly revised pace of 7.14 million in May. Sales were 4.4 percent above the 7.02 million-unit level in June 2004; the previous record was 7.18 million in April of this year.

David Lereah, NAR’s chief economist, said home sales were expected to ease slightly from peaks reached over the last couple of months. “Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise,” he said. “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 5.58 percent in June, down from 5.72 percent in May; the rate was 6.29 percent in June 2004. “Job growth and economic improvement also are boosting home sales,” Lereah said.

The national median existing-home price for all housing types was $219,000 in June, up 14.7 percent from June 2004 when the median price was $191,000; this is the strongest increase since November 1980 when annual appreciation was 15.6 percent. The median is a typical market price where half of the homes sold for more and half sold for less.

NAR President Al Mansell, of Salt Lake City, said home sales are expected to ease as the year progresses. “When the housing market eventually slows from red-hot levels, we should see some cooling in price gains,” he said. “Home prices continue to be bid-up in tight markets across the country. Eventually, appreciation rates will slow and come down to normal levels when the shortage of homes on the market improves and comes closer into balance, hopefully, by the second half of next year.”
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Stone is a Growing Trend for Home Décor

It's as old as time, but as popular as ever.
By: Phoebe Chongchua: RealtyTimes
Stone is rapidly making its way into homes as perhaps one of the fastest growing decorating trends. The European Old World look brings with it not only a luxurious style but also an ease and comfort that gives a home personality.

Homeowners are leaving behind the once-preferred 70's looks of wall-to-wall carpeting throughout the house, linoleum kitchen floors and vinyl tiles in the bathroom, and instead choosing natural stone, Versailles patterns, travertine, and limestone, with honed-matte finished surfaces. For countertops, homeowners are using two tones, finishing their kitchen island in maybe limestone and the surrounding kitchen countertops in granite materials for a unique style.

At one time granite and marble were only seen in office buildings, while rustic style stone only was used in vacation homes.

"People are trying to personalize their homes more than they did before. Before you used to go through the house and you'd do everything pretty much the same overall. Now people are bringing in different types of materials like glass tile, mosaics, different designs, different sizes, textures, into the same room. They tend to want to give each room more personality by adding different types of products," said Giovanna Gomes, President of Stones Unlimited on Miramar Road.

What is completely losing a place in homes is the white tile countertops that was the staple in every home for decades. "White tile used to be typical when building or remodeling a house. Now we're seeing all white ceramic tile is being replaced with solid surface countertops such as granite which has no grout lines and is easier to care for," said Lilliana Bosforo, Director of Fabrication for Stones Unlimited.

There are many different choices, sizes, textures and styles of stone. Pricing varies depending on the type selected. Some very expensive flooring is even brought back from old chateaus and farmhouses in Europe that are scheduled for demolition. The 100 to 200-year-old stone material is brought to the US for cleaning, sanitizing, sizing and cataloging.

The chic look and durability of stone makes it appealing to homeowners. But experts caution that before it's put in homeowners should understand the maintenance required and the issues that may come up. One of the most common problems is stains. Because stone is very porous, if you spill things on it, the stone can easily absorb the liquid. However, proper care such as sealing the stone can alleviate this problem.

Gomes also said that you should consider how much foot traffic you have in various areas of your home before putting in stone floors. "Honed surfaces are usually the best because they're matte finishes so they don't wear like a polished material would. A polished marble will scratch and if you drop something acidic it'll etch which means the polish will be removed in that particular area. So there are more maintenance issues with polished surfaces," said Gomes.

However, honed surfaces show less wear pattern. Gomes said you can also be more aggressive with your cleaning, "It'll always look beautiful."

For countertops Bosforo recommends granite because it is dense and easy to maintain. "You're going to have your least amount of problems with a granite over marbles or limestone which some people do put those in their kitchens, but we let them know that there will be more maintenance with a marble or a limestone and, of course, you'd want to do it honed," Bosforo said.

Another reason granite is recommended over marble or limestone is because acids in some foods can etch the stone and cause it to leave marks or rings on the materials.

When deciding which stone to choose, keep in mind these handy tips from Stones Unlimited:

    1. Granite is most suitable for kitchens and bar counters because it is the most
       dense. It also resists hot and cold. Acidic foods will not etch the polish.

    2. Marble is not as dense as granite but is more so than travertine. Marble
       works well for bathroom flooring, on back splashes and fireplaces.

    3. Travertine is not as dense as marble but is more so than limestone.

    4. Limestone is the softest and most porous of the stones. It requires more
       frequent sealing.

    5. Slate is an excellent choice for outdoors or indoors.

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Overnight real estate rates march higher

30-year fixed rate up at 5.31%; 10-year Treasury down at 4.22%
By: Inman News
Long-term mortgage interest rates continued rising Friday, and the benchmark 10-year Treasury bond yield fell to 4.22 percent.

The 30-year fixed-rate average rose to 5.31 percent, and the 15-year fixed-rate gained to 4.91 percent. The 1-year adjustable was up at 3.74 percent.

The 30-year Treasury bond yield sank to 4.44 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average gained 23.41 points, or 0.22 percent, finishing at 10,651.18. The Nasdaq rose 1.14 points, or 0.05 percent, closing at 2,179.74.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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New tax law affects rental real estate

Tax-deferred exchange rule applies to home sales after Oct. 22, 2004
By: Robert J. Bruss: Inman News
DEAR BOB: In a recent response to a reader, you said Congress enacted legislation effective Oct. 22, 2004, affecting rental property acquired in an Internal Revenue Code 1031 tax-deferred exchange. Does this apply to all such property, or just to rental property acquired after that date? – Harry S.

DEAR HARRY: The amendment to Internal Revenue Code 121 affects a rental property, later converted into a principal residence, and sold after Oct. 22, 2004. The date of property acquisition in a tax-deferred exchange doesn't matter.

Thousands of savvy realty investors have sold their rental properties, such as apartments, commercial property, or a business property, and made IRC 1031 tax-deferred exchanges for single-family residences of equal or greater cost and equity.

To qualify for the IRC 1031 exchange, the acquired property must be held for investment or business purchases. After renting the house for a reasonable time, perhaps six to 12 months, the investors often move in to convert it to their principal residences.

Then, after owning and occupying the principal residence at least 24 of the 60 months before its sale, it can qualify for the IRC 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly).

However, the Oct. 22, 2004 tax law change now requires the acquired property be owned at least five years before the principal residence can qualify for the IRC 121 $250,000 or $500,000 sales exemption. The sales date is what matters; the date of acquisition is irrelevant. For full details, please consult your tax adviser.

UNLESS YOU CAN FIND THE OWNER, YOU CAN'T ACQUIRE TITLE

DEAR BOB: There is a vacant lot next to our house we want to buy. Our purpose is to build a modest house for my wife's mother so she will live nearby but not in our house where we don't have extra room. But we can't find the owner of the vacant lot. Title is held in a trust which is apparently managed by an out-of-town bank. My letters and phone calls produce no results. The property taxes haven't been paid for 16 months. How can we locate the lot owner so we can negotiate a purchase? – Neil W.

DEAR NEIL: Until you find the owner, there's nobody to convey title to you because the bank trustee can't act without the approval of the trust beneficiary.

One approach I used years ago to get the attention of a bank trust department was to deliver a client's purchase offer on an apartment building with a $10,000 deposit check to the bank trustee. As a fiduciary, the bank had a legal duty to deliver my client's purchase offer to the property's owner.

Eventually, after about six months my client bought the property held in the trust. But until that purchase offer was made, bank trust department wouldn't even disclose the name of the trust beneficiary. The same technique might work for you.

UP TO $500,000 EXEMPTION FOR HOME SALE IN YEAR OF SPOUSE'S DEATH

DEAR BOB: My wife died in April 2005. If I decide to sell the house where we lived together almost 50 years, can I qualify for a $250,000 or $500,000 tax exemption? I am receiving conflicting answers – Fred W.

DEAR FRED: If the house was the principal residence for both you and your late wife, if at least one of you held title, and if both spouses occupied it at least 24 of the 60 months before its sale, then you can qualify for up to $500,000 tax-free capital gains if the sale closes by Dec. 31, 2005.
The reason is 2005 is the last year you and your late wife can file a joint income tax return.

However, don't rush to sell by the end of 2005 if you don't want to do so. If your wife's name was on the title, and if you inherited her half of the house, then you receive a new stepped-up basis to market value on the date of her death for that half. If the house was community property, then as surviving spouse inheriting her share you get a 100 percent stepped-up basis. For full details, please consult your tax adviser.

The new Robert Bruss special report, "The Whole Truth About Senior Citizen Homeowner Reverse Mortgages," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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Turning Real Men Into Appliance Shoppers

Manufacturers are giving a shot of testosterone to fridges and televisions.
By: CHERYL LU-LIEN TAN: The Wall Street Journal Online
Retired pro-football player Jerry Ostroski recently splurged on a hulking piece of steel equipment that he's been showing to his buddies on weekends.

A new workout machine? The latest All-Terrain Vehicle? Actually, a giant freezer/refrigerator. Whirlpool Corp.'s "Freezerator," at $1,099, comes with rugged tread-like pattern on the steel.

Gladiator GarageWorks Freezerator Price: $1,099 Comment: Appliance where the freezer is the larger compartment on the bottom; designed for the garage, with a silver tread-plate finish.

Appliance makers have long targeted men with gear like fire pits and recliner chairs. But now they're giving a hefty shot of testosterone to a broader array of appliances, from fridges to TVs.

The Taiwanese company Hannspree California Inc. has a new line of 10- to 23-inch televisions ($499 to $1,399) that look like baseballs, basketballs and golf balls. The baseball one comes wrapped in Major League-quality horsehide.

Refrigerators don't tend to get men's pulses racing, but appliance manufacturers and retailers are trying to change that. Heartland Appliances Inc. recently introduced a line of fridges for motorcycle enthusiasts that the company's pitch promises will "bring the thrill of the open road into their homes."

The $5,800 to $6,500 Ten50 refrigerators come with black doors that feature huge, Harley-Davidson-style flames. Some have handles that look like motorcycle handlebars and chrome frames that resemble car grilles. (The company is also developing fridges for fishing fans that have doors plastered with the image of a jumping walleyed pike.)

Heartland Appliances Ten50 refrigerator Price: $5,800 to $6,500 Comment: Bikerthemed refrigerators with Harley Davidson-style flames and chrome detailing.

Electrolux AB's Frigidaire brand is selling the "Beverage Center," an $899 stainless-steel fridge that has a spigot on the front and can hold and dispense a 16-gallon keg of beer.

This effort to get men to think beyond grills and pool tables comes as sales of some appliances are leveling off. Unit shipments of combo refrigerator/freezers are expected to increase less than 1% this year after growth rates of 2.8% to 5.8% in each of the past three years, according to the Association of Home Appliance Manufacturers. And unit shipments of freezers have been fairly flat, hovering at about 2.5 million since 2002.

The good news for manufacturers and retailers is that men are increasingly trying to carve out their own hang-out areas in garages, entertainment rooms and outdoor kitchens. More than a third of new homes being built now have recreation or media rooms, up from less than 10% a decade ago, according to the National Association of Home Builders. At the same time, garages are getting bigger: They're expected to be an average of 22 feet by 22 feet this year, compared with the usual 20-by-20, says Gopal Ahluwalia, the association's director of research.

Marvel Industries Humidrawer Price: $599 Comment: Airtight drawer designed to store cigars; made for installation in Marvel wine refrigerators

Because women are often still the driving forces in most of these purchase decisions, the manly pieces can sometimes be a hard sell. In January, Sears Holding Corp. stopped carrying Maytag's Skybox vending machine-style beverage dispenser for the home. The $499 appliance, which was introduced in August, dispenses cans or bottles of soda and comes with panels that can be customized to display the logo of your favorite sporting team. Sears said it ultimately concluded that the fridge was too much of a niche product after selling fewer than it expected.

But that's not stopping appliance companies from using sports tie-ins to get the attention of the male gender. This fall, Avanti Products, which sells low-price refrigerators and wine cellars, plans to start displaying its refrigerators with huge magnetic or acrylic panels festooned with the logos of Nascar stars or college teams.

Hannspree California baseball TV Price: $539 Comment: TV with 10-inch screen and leather frame with baseball-style stitching

The refrigerators, which are sold at retailers such as Kmart, will come with order forms that homeowners can use to buy the $19.99 to $399 panels. "It'll help make the sale," says Mike Flynn, Avanti's vice president for sales. "And for women, if you don't want the decal, you don't have to order it."

Mr. Ostroski, who played for the Buffalo Bills and now lives in Tulsa, Okla., says he'd never thought much about refrigerators until he saw the "Freezerator," which is part of Whirlpool's Gladiator GarageWorks line, on a TV segment about two months ago. "I thought it was awesome -- there's nothing feminine about it," says Mr. Ostroski, who adds that he had always let his wife pick their appliances. He installed the Freezerator in a part of his garage where he hangs out with his friends to watch TV, drink beer and play videogames.

To reach men like Mr. Ostroski, manufacturers have started tweaking their marketing tactics for these appliances. At the Las Vegas kitchen industry show in May, Electrolux turned a section of its booth into a "men's lounge" complete with a plump leather chair and sports pennants -- a setting designed to show off its Frigidaire keg fridge. And Heartland has been trucking its Harley-Davidson-style refrigerators to bike rallies. "The response from the males is that they want one," says Brad Michael, Heartland's president and CEO. "But the females say, 'you've spent enough money on your bike already.' "
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Can woman in assisted-living center claim home-sale tax break?

Son gives wrong advice about residency requirement
By: Robert J. Bruss: Inman News
DEAR BOB: I am 84 and in excellent mental health. Everyone says I'm "sharp as a tack." But my body is declining. For the last two and a half years I have lived in a beautiful assisted-living center. Thankfully, my son insisted I move here (practically dragging me) and I am very happy with the superb care I receive. The only problem is my house. When I moved out, my son rented it to a lovely young couple. Their rent pays most of my bills. They visit me every month or so to beg to be allowed to buy my house. Last month, they brought their brand-new baby girl to visit, too. But my son says if I sell my house to them, I will have a huge capital gain tax to pay. He says because I no longer live in the house, I cannot qualify for that $250,000 home-sale tax exemption you often discuss. Is that true? – Naomi R.

DEAR NAOMI: No. Your son sounds like a wonderful person. But he is mistaken about Internal Revenue Code 121, which entitles you to a principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly).

To qualify, you must have owned and occupied your principal residence any 24 of the 60 months before its sale. You appear to qualify.

The property need not be your principal residence at the time of its sale. You can rent it to tenants for up to three years after moving out and still qualify, as explained above.

But you better get busy to complete the home sale while you still qualify for the $250,000 tax exemption. For details, please consult your tax adviser.

RECOMMENDED BOOKS FOR REAL ESTATE AGENTS

DEAR BOB: I will soon be leaving my current job to become a real estate agent. Some time ago, you highly recommended a book for new real estate salespersons. But I failed to write down the title. What book should I read? – Nicholas H.

DEAR NICHOLAS: There are several excellent books for real estate sales agents I reviewed within the last year.

They are "Double Your Income in Real Estate Sales, Third Edition" by Danielle Kennedy; "Success as a Real Estate Agent" by Marilyn Sullivan; "The Millionaire Real Estate Agent" by Gary Keller; and "Real Estate Agent's Field Guide" by Bridget McCrea. All are available in stock or by special order at local bookstores, public libraries, and www.amazon.com.

LIFE ESTATE IN A HOME ISN'T WORTH MUCH

DEAR BOB: My late husband left me a life estate in one of our two homes. My estate attorney seems unsure how a life estate should be valued. Any information will be appreciated – Elaine C.

DEAR ELAINE: I don't understand why you need to value your life estate in the home. Most life estates aren't worth very much. The reason is, when you die, your life estate terminates.

To be blunt, if you get hit by a truck while crossing the street, your life estate ends and becomes worthless.

If you want to sell your life estate, buyers are virtually nonexistent unless they can also buy the interest of the remainderman who receives full ownership of the house after you die.

Years ago, I received a letter from a Texas homeowner whose neighbor held a life estate. She offered to sell that life estate to the neighboring letter writer. I advised him not to pay very much and to take out a life insurance policy on the life estate tenant.

Life estates aren't worth very much, except to a life tenant like you who can enjoy the property as long as you want to live in it. For more details, please consult a local real estate attorney.

WHAT IF BUYER BULLDOZES PROPERTY BEFORE SALE CLOSES?

DEAR BOB: My father died five years ago, leaving 72 acres to his five daughters. For the past three years we have been working with a realty agent to sell the property. Last March we signed a sales contract for $190,000. The buyer discovered a thin strip running through the property belongs to the power company. Then we had to reduce the price by $7,500. Next, he wanted a $1,000 reduction for a defective septic system. But the buyer's wife is the real estate agent handling the sale and she let him start bulldozing the property. Our lawyer says no matter how outraged we are we shouldn't do anything to mess up the closing. We are five sisters without a lot of money. What should we do about the buyer occupying and bulldozing our property before the closing? – Pat M.

DEAR PAT: You have a smart lawyer. If you file a lawsuit against the buyer or the real estate agent for damages, it will be difficult to prove any loss. And you won't get rid of that property and receive your money.

I suggest you get the sale closed. After the closing and you have your money, you might want to file a complaint about that real estate agent with the state real estate commissioner for violation of her fiduciary duty to you.

CAN LANDLORD INVADE PROPERTY FOR LANDSCAPE WORK?

DEAR BOB: I rent a house in a quiet neighborhood. My landlord decided to replace some landscaping. She has been coming over, unannounced, by herself or with landscapers. My family uses the yard for kids to play. I am upset our privacy is being invaded for beautification we did not request. While we're paying rent for the house, doesn't our space include our yard? We're moving out in two months when our lease expires. Can we stop our landlord from further landscaping? – Zoenda McI.

DEAR ZOENDA: Yes. When you and the landlord signed the lease, as the tenant you became entitled to exclusive possession of the rented house and its yard. The landlord is entitled to inspect the property without advance notice only in the event of an emergency, such as a fire or a broken water pipe.

Otherwise, the landlord must give you at least 24-hour advance inspection notice. However, if the landlord's frequent inspections of the grounds are unreasonable, you do not have to consent.

When the landlord shows up unannounced, your appropriate remedy is to refuse admittance and phone the police to report a trespasser if the landlord enters your rented premises without permission since you don't want any landscaping work. For further details, please consult a local real estate attorney.

CAN LANDLORD FORCE TENANTS TO MOVE OUT EARLY?

DEAR BOB: We have tenants living in our house. Their lease ends on Oct. 1. But we are moving back to the area and would like to live in our home as of Aug. 1. Since it's my house, can I give my tenants notice to move out as of August 1? – Claudia S.

DEAR CLAUDIA: No. You must wait until the tenant's lease expires on Oct. 1. However, you could politely ask the tenants if they would like to move out early.

If that doesn't work, you can "encourage" them to move out early, perhaps by payment of $1,000 or $2,000 cash moving money.

WHAT RECOURSE IF NEIGHBOR CAUSES LATE-NIGHT NOISE?

DEAR BOB: When my husband and I bought the lot where we built our home, we asked the developer what was going to be built in back of our house. He said he didn't know. It turns out a Wal-Mart store was built adjacent to our home. We are living in a nightmare. All night long there are noisy trucks delivering to Wal-Mart. It is almost impossible to get a good night's sleep. I've talked to the city mayor, city attorney, planning manager, etc., but they refuse to help us. What can we do? – Darolyn B.

DEAR DAROLYN: The situation you describe is legally a private nuisance because it only affects you and perhaps a few neighbors.

If you can prove the loud late night noise would disturb normal persons, you may have a cause of action against Wal-Mart and the shopping center property owner for damages. Your situation is much like a neighbor's barking dog that howls all night, disturbing your sleep.

Fortunately, you have "deep pocket" defendants such as Wal-Mart and the shopping-center owner. Please consult a local real estate attorney for details about a private nuisance lawsuit.

The new Robert Bruss special report, "The Whole Truth About Senior Citizen Homeowner Reverse Mortgages," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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What Renovations Are Worth Doing?

Pointers from "The Wall Street Journal Guide to the Business of Life" on real-estate basics.
By WALL STREET JOURNAL STAFF REPORTERS
A growing area of coverage for The Wall Street Journal is what we call the business of life. The intent is to report the latest news in a way that helps readers make sound decisions about their own lives. The new book, "The Wall Street Journal Guide to the Business of Life," edited by Journal editor Nancy Keates, offers strategies on everything from getting the best medical care to helping a child get into his or her top college.

Below is an excerpt about how consumers can choose their home renovations wisely to get the best return on resale.

* * *

What's Worth Doing?

It's long been known that when it comes to renovating your home, it isn't how much you spend -- it's how you spend it. Bathrooms and swimming pools have always added value, but some other home improvements are more susceptible to fading in and out of fashion.

A study sponsored by the National Association of Realtors analyzed the effect of various housing characteristics on residential property values these days, shedding light on what renovations have integral value and what kind of housing styles are gaining or losing popularity.

What homeowners are currently willing to pay more for:

· central air-conditioning and fireplaces
· eat-in kitchens
· utility rooms
· in-ground swimming pools

What they aren't:

· dining rooms
· dens or studies
· intercom systems
· kitchen pantries
· above-ground swimming pools
· home offices
· in-law suites

More Things Worth Doing

As reliable as the daffodils, each spring the housing industry encourages owners to renovate their homes to enhance resale value. Remodelers talk about investing in new bathtubs or windows, while real-estate agents tout the value of new carpeting and countertops. It makes sense, at least on the surface. But experts say that unless an upgrade is to correct something functionally obsolete -- say, to add a second bathroom in a four-bedroom house -- most remodeling projects return only a fraction of their cost. Studies by organizations ranging from consumer groups to trade magazines show that, on average, improvements made in the year before a home's sale return only about 70 or 80 cents on the dollar. There are exceptions, of course. Studies have shown that larger, upscale remodelings in hot housing markets like Washington, New York or San Francisco can even turn a profit for the homeowner. But whether your house is in a sizzling market or one that is stagnant, you have to be smart about the kind of improvements you undertake.

The trick is to bring your home up to neighborhood standards, but no higher. But how do you know the difference between an improvement that's excessive and one that will help sell your house -- and maybe pay for itself? The Wall Street Journal asked a number of experts which modest upgrades would bring the best returns in today's market, and which are a waste of money. Since remodeling for resale value is a dicey proposition, we limited our inquiry to projects or products that cost less than $10,000.

Worth Doing:

1. Granite countertops: Price: $3,600 for 90 square feet. At $40 a square foot or more installed, granite is about 40 times as expensive as plastic laminate. But upscale-home buyers have come to expect it. Although honed, light-colored granite is trendy, stick with polished black stone -- it's elegant-looking, and more durable.

2. Carpets: Price: $6,375 for 2,500 square feet with a 10-year wear warranty.

Yes, how boring, but next to a paint job, nothing makes a house look fresher. Though the Federal Housing Administration demands a minimum of 3⁄8-inch pad and 23-ounce density carpet, choose a half-inch pad and a 27-ounce density. And don't stray from earth tones.

3. Pull-out kitchen faucet: Price: $300 for a European-style chrome faucet. Faucets occupy center stage in a kitchen, so they attract buyers' attention. Trendy finishes like brass and nickel cycle in and out of style, so stick to standard polished chrome. Gooseneck styles high enough to put a pot under are currently popular, but pull-out styles with a hose are the most versatile. Forget redoing bathroom faucets, though. They're more a matter of personal taste, and a buyer may just junk yours.

4. Melamine closet systems: Price: $1,600 for a walk-in closet with three rods, six shelves and five drawers. Coated-wire systems are okay for mid-range homes, but upscale buyers shun them. On the other hand, furniture-finished wood is overkill if you're remodeling for resale. Spring for shelves made of melamine-surfaced particleboard or medium-density fiberboard. Melamine is a plastic laminate available in different finishes, but consider a wood-look finish.

5. Synthetic entry doors: Price: $1,730 for a fiberglass door with beveled glass inserts and two sidelights. Front doors are the first things a buyer sees up close, so they shouldn't look dumpy. Five years ago, most synthetics looked fake, but improved veneers and finishes have made fiberglass and steel doors resemble the real thing. And though fiberglass dents and steel rusts, both provide better security with less maintenance than solid wood, especially if the door faces the sun.

6. Laminate wood floors: Price: $1,630 for a 15-by-15-foot room. Made of either thin-wood veneers encased in plastic, or photographs of wood on a plastic base, laminates have also become more realistic looking in the past couple of years. Because you can wet-mop it, laminate has become more popular than real wood for areas subject to spills, like kitchens and basements. It can't be refinished three or four times like real wood can, but if you're moving soon, who cares?

7. Body-spray showerheads: Price: $2,383 for shower tower with two telescoping overhead sprays, four moveable body sprays and a handheld spray. Multiple-showerhead systems do everything from misting to massage. They're still rare enough to get a buyer's heart beating faster.

8. Garage storage systems: Price: $220 for hanging storage-wall starter kit with 11 hooks, a wire basket and a shelf. A recent survey by real-estate brokerage Century 21 found that the garage is the most important amenity to buyers, outranking a large kitchen, formal dining room or big backyard. And what they prize most about the garage is its storage capacity. But you don't need to add pricey cabinets, which can easily push the bill for a storage wall into the thousands. Just give buyers the idea of how they can personalize, while you get your hoes and rakes off the floor.

And...More Things To Skip

1. Wet bars: Save the $1,875 average price. Novel in the '80s, wet bars have become clichés. Unless you plan to turn a corner of your basement into a wine cellar, they're losers.

2. Concrete countertops. At around $9,000 for an average installation, they're hot and trendy -- but Realtors report far too many buyers hate them. Plus, they need resealing twice a year and are prone to cracking. Moreover, they tend to bring out the inner artist in homeowners -- we've seen owners incorporate everything from computer chips to toy plastic people into designs. Remember: Another person's art may be hard to live with.

3. Chandeliers. Save the $4,000 for the Italian crystal gold-leaf model. Like concrete countertops, they alienate too many buyers in a world in which chic recessed lighting is increasingly popular.

4. Structured wiring. It seemed a good idea five years ago to spend $5,000 to hardwire your home for broadband PC networks and stereo speakers. But wireless has come and changed all that.

5. Saunas. Spend the four grand if you like them, but like wet bars, they're yesterday's ideas.

6. Indoor swim spas. The $5,000 you spend on one of these 14-foot-long tanks that lets you swim against the current will attract a certain kind of fitness-inclined buyer, but too many others will worry about maintenance, leaks, humidity and mildew.

Some Basics To Remember

1. You're in for the long haul. The National Association of Home Builders says to count on a major home remodeling taking as much as twice as long as you'd planned.

2. Expect the unexpected. The National Association of the Remodeling Industry recommends setting aside as much as 20% of your budget for contingencies.

3. Relationships with contractors are everything. One common mistake -- many people don't complain at the beginning, then blow up at the end. Communicate all the way through.

4. Details, details. Count on as much as a fourth of your budget being taken up by finish-work, which includes everything from light switches to the kitchen sink.

5. Don't pay too quickly. If you do, you won't have leverage if something goes wrong. Experts recommend holding back 10% of fees.

-- Adapted from "The Wall Street Journal Guide to the Business of Life," edited by Nancy Keates (Crown Publishers/Wall Street Journal Books, 2005). For more information, please visit http://wsjbooks.com.
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Real estate booms not always followed by busts

Economists weigh in on debate
By: Tom Kelly: Inman News
WASHINGTON, D.C. – How do you define a housing boom? Does a bust always follow a boom? What's the difference between a significant slowdown and an absolute bust?

With real home-growth prices (appreciation minus inflation) rising to their highest levels since the data was first collected in 1977, the Federal Deposit Insurance Corp. has brought some definition to the amazing national housing picture, announcing that there were 55 boom metro markets at the end of 2004, up from 32 a year earlier.

Boom markets, where real price-growth increases at least 30 percent over three years, were heavily concentrated in California (21), the Northeast (18) and Florida (11). And, according to the FDIC, boom does not necessarily lead to bust – only 17 percent of all housing booms ended in busts. Most busts were preceded by a significant stress in local economies, such as loss of jobs. A bust is defined as a nominal drop of 15 percent over five years.

"One of the factors that is fueling this market is the number of investors who have no intention of ever occupying the home they are purchasing," said David F. Seiders, chief economist for the National Association of Home Builders. "In fact, some of them have no intention of even renting them out. But when you look at the risk involved, you begin to understand why they are investing in the housing market."

Seiders and other analysts say that the two other factors contributing to the run-up in sales and prices are the prevalence of "innovative" mortgage products and lower-than-expected interest rates. More European dollars, especially from France and The Netherlands, have also been dumped into United States Treasury securities, surprising bond traders and supporting lower long-term home mortgages rates.

"I think the bond market has totally misread the tea leaves," said Seiders, who, like most everyone, thought higher home-loan rates would have begun to reign in home-sale activity by now. "Long-term rates have continued to go down, yet I do think they will begin to move up toward the end of the year. I just don't know when they are going to behave as I have forecasted."

What caught the housing industry by surprise was the recent statement by Richard W. Fisher, president of the Federal Reserve Bank of Dallas, that the country was "in the eighth inning" of a monetary tightening process, sending long-term interest rates lower and the stock market higher.

David Lereah, chief economist for the National Association or Realtors, said that some of the financing tools offered by lenders to investors really amounted to renting because there was no positive stake in the property.

"If you take out an interest-only loan or a negative amortization loan, is it really owning?" Lereah asked. "It's more like renting. And, if you end up owing more than you originally borrowed, it's not going to help anybody involved."

The most worrisome aspect of the current housing market is the "hidden supply" of homes – those units swept up by investors that will be put back on the market after making a quick buck or at the first sign of a housing decline. Jack McCabe, managing partner of a Florida-based research firm, estimates 70 percent of some Florida condominium communities in the past few months will be back on the market within two years. John Cox, senior vice-president for Avalon Bay Communities, said the percentage was about 25 percent in the District of Columbia area.

"Some of these people see what has happened the past few years, think they are going to make $100,000 in a hurry and then put the place back on the market," McCabe said. "That's going to create downward pricing pressure. We will get to a point where people will not pay over-inflated prices."

Seiders said some builders were so concerned about "hidden market" homes that they were writing contracts that included a $50,000 penalty if the home were sold within 12 months of purchase. Or, the builder had the right to repurchase the home at the original sales price, plus a modest increase.

"Some builders were reporting that the $50,000 penalty was even going to stop them from selling within a year," Seiders said. "They anticipated their gain would be much greater."

Sounds like many folks are still betting on the boom.

Tom Kelly's new book "The New Reverse Mortgage Formula" (John Wiley & Sons) is now available in local bookstores and on Amazon.com. Tom can be reached at news@tomkelly.com.
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'Workout' to Prevent Home Foreclosures

Terri Cullen looks at how lenders and borrowers renegotiate mortgage terms to help people keep their homes.
By: TERRI CULLEN: The Wall Street Journal Online
While many potential home buyers are eager to revel at the real-estate party, some homeowners are sobering up the hard way.

Dorothy Monroe is one of many homeowners who took advantage the low interest-rate environment of the past few years to refinance her mortgage and borrow more cash against the equity she'd built in her home. The 60-year-old Wilmington, N.C., resident used her new mortgage to consolidate her debts. "I was making good money then and could easily afford the payments," she says. "But it turned out to be the biggest mistake I've ever made."

After being laid off from her job as a kitchen manager, she suffered a cash crunch that left her unable to make the payments on her mortgage. After three months of missing payments, the foreclosure notice arrived.

Many homeowners who end up in this position resign themselves to losing their homes, but Ms. Monroe managed to avert foreclosure by finding new employment and negotiating a new loan with her lender, known in the industry as a loan "workout."

Workouts can take the pressure off homeowners with bill-repayment or loan-restructuring plans that roll the missed payments into a new loan or allow the borrower to catch up on delinquencies by increasing the amount of a few future months' mortgage payments.

This week, I'll look at how workouts and other tactics can help some homeowners prevent foreclosure.

Understand the Risks

Typically, mortgage delinquencies and foreclosures result from an unexpected financial crisis - a job loss or medical illness that leaves homeowners unable to pay the bills. But now experts are warning that homeowners who - thanks to low rates - have taken on more debt than they should have, face a growing risk of mortgage delinquencies and foreclosures.

Indeed, the first signs of it are starting to emerge. The number of homeowners seeking loan workouts reached 89,741 in the first quarter of 2005, compared with 155,495 for all of 2004, according to the U.S. Department of Housing and Urban Development.

Last month, Standard & Poor's Ratings Services in New York said the risk of defaults is growing on certain adjustable-rate mortgages. These loans initially can lower monthly mortgage payments, allowing some buyers to purchase homes they otherwise couldn't afford. Some borrowers may face increases in their monthly payments of 50% to 90% when the low-rate period ends, S&P warned, and homeowners who haven't planned carefully, or whose income proves insufficient, may default.

"With some of the very unique and potentially risky loan products out there now, and the very high rate at which they're being used, it could turn into the full employment act for loan workout specialists," says Laurie Maggiano, deputy director of the office of single family asset management at HUD.

Evaluate Your Options

If your finances suddenly become tenuous, don't wait until you've missed a mortgage payment to attempt to fix the problem, those in the home-loan industry say.

"It's a very cold, hard world when it comes to debtor-creditor relationships and some lenders can be really tough once they know they have you over a barrel," says Ellery Plotkin an attorney with Cacace, Tusch & Santagata in Stamford, Conn., who represents homeowners facing foreclosure. "Make decisions now while you're still in control."

Get out of a bad situation. If you're a borrower with an ARM that is about to see a rate spike, and you're clearly going to be in over your head, it's time to make some hard decisions about your ability to remain in the home, says Ted Cornwell, editor of Mortgage Servicing News, a trade publication in New York.

Most often people in this situation choose to sell the home and downsize to a more affordable home, or rent, he says. But because mortgage rates have remained so low, he says, homeowners may be able to refinance now to a longer-term hybrid ARM, which combines a fluctuating rate mortgage with a fixed-rate introductory period, or a 40-year fixed rate mortgage.

Consider a "workout." When selling your way out of potential foreclosure isn't an option, it's time to bring in the lender. Ideally a homeowner should contact the lender as soon as it's clear a payment is going to be missed. The clock starts ticking on the foreclosure process after a payment has been delinquent 90 days. Experts say homeowners who reach out early are more likely to succeed in avoiding foreclosure.

Through their loss-mitigation department, lenders may allow homeowners to modify their existing mortgage terms through a workout, to avoid the expense of proceeding with a foreclosure. A foreclosure can cost lenders more than $50,000 in attorney fees and closing costs, according to Ronald Khan, a real-estate attorney in New York.

"Banks don't want to take ownership of homes, particularly in depressed markets where it may take months to sell," he says.

Workouts typically take the form of a bill-repayment or loan-modification plan.

In cases where borrowers have faced temporary financial hardships that they've now put behind them, lenders may allow a portion of the missed payments, say 1/2 or 1/4 of the monthly payment due, to be added to payments going forward, until all the missed payments have been made up. In cases of a current job loss or illness, a homeowner may be eligible for forbearance, where a lender will agree to suspend monthly payments for a period of time, say six to 12 months, until the homeowner can get back on his feet.

Loan-modification programs generally are granted when an individual's financial circumstances have changed for the worse, with no end in sight. They are essentially refinanced mortgages without any upfront costs. The lender may change the terms of the loan entirely, either by extending the loan term to make the monthly payment more affordable, or rolling the missed payments into the mortgage balance to bring the loan current.

Either way, with a repayment plan or loan modification, there generally aren't any direct fees, but the borrower can end up paying more in interest payments on the loan over the long haul. For example, a homeowner with a $250,000 mortgage on a 6% 30-year fixed mortgage who has missed three $1,500 payments could have the $4,500 tacked onto the loan, increasing it to $254,500. The bump would result in the homeowner's paying $5,213 in additional interest over the life of the loan.

It's up to the homeowner to explain what's wrong and work with the lender to come up with a solution. Take a hard look at your financial resources and your basic living expenses, then consider what kind of payments you could realistically make. You'll also need to present your lender with copies of your pay stubs, monthly bills, medical bills and financial accounts and tax records. If you've suffered an illness, a letter from your doctor explaining your condition can be helpful as well.

Above all, be truthful in what you can afford and be prepared to explain how you intend to come up with the money to cover the loan. For example, Ms. Monroe, the homeowner, was able to prove her determination to keep her home by taking on two part-time jobs to cover the one she lost, while she looks for a better-paying steady full-time job.

When a "workout" doesn't work out. If lenders aren't willing to negotiate a workout that you can agree upon, or if you feel uncomfortable approaching the process on your own, consider turning to a pro. Local organizations, such as the regional offices of the U.S. Department of Housing and Urban Development and the Association of Community Organizations for Reform Now may be able help homeowners negotiate workout packages with lenders for little or no cost, or direct them to legitimate, for-profit mediation services.

But beware "foreclosure rescue scams." No doubt by now you've seen the flyers: "We Buy Homes for Cash." The National Consumer Law Center last month released a report showing that scam foreclosure-mediation services are rampant. Read this report to learn more about what to look for, and what pitches to avoid before you start shopping for professional help with a foreclosure.

Finally, even if you're comfortably carrying your monthly nut, take nothing for granted. Create your own foreclosure-prevention plan by socking away at least three months' worth of living expenses to help you weather any short-term financial crisis.
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The Weekend Guide! July 21 - July 24, 2005

The Weekend Guide for July 21 - July 24, 2005.
Full Article:
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California: Downtown Renaissance in L.A.

By: Sara B. Miller: REALTOR® Magazine Online
Los Angeles has long lacked a traditional downtown area, but developers are converting empty buildings into upscale lofts and condominiums, transforming the city into what many are calling SoHo West.

"It's the real creation of a true downtown community," says Ken Bernstein of the Los Angeles Conservancy. The conservancy reports that 44 of the city's 50 convertible historic buildings have become residences or are works in progress.

Additionally, the Los Angeles Downtown Center Business Improvement District estimates that the number of downtown housing units has hit 16,000, up from 12,000 before 1999.

Among the projects in the works is a $1.8 billion development to include 2,000 residential units, a park, gourmet store, and entertainment facilities.

The downtown renaissance is putting luxury units just blocks from the area called home by hundreds of homeless people, but it is this reality that is luring some artists from the suburbs.
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Housing Prices Aren't Fed Target

Alan Greenspan says he rejects using monetary or regulatory policies to control a potential bubble.
By: GREG IP: The Wall Street Journal Online
Recent warnings by bank regulators on risky housing-related lending aren't meant to rein in a potential bubble, Federal Reserve Chairman Alan Greenspan said.

"The regulatory system is not designed to influence or control asset bubbles, but rather to ensure that bubbles, should they develop, do not lead to unsafe lending practices," Mr. Greenspan said in a letter to Rep. Jim Saxton (R., N.J.), chairman of the Joint Economic Committee of Congress.

The remarks, dated July 11 and released yesterday by Mr. Saxton's office, show the Fed has rejected using either of its major tools -- monetary or regulatory policy -- to rein in housing prices. Mr. Saxton had asked whether the Fed and other bank regulators that had recently issued guidance on risky home-equity loans, were using "regulatory suasion" instead of higher interest rates to rein in a housing-price bubble.

In his letter, Mr. Greenspan also said that the economy is "coping pretty well" with higher oil prices and that the shrinking gap between short-term and long-term interest rates isn't a worrisome sign for the economy. But Mr. Greenspan said his staff expects the rise of crude-oil prices to the range of $60 a barrel to reduce U.S. economic growth by about three quarters of a percentage point this year from what it otherwise would have been, a bigger effect than in 2004.

Mr. Greenspan has long rejected the use of interest rates to tame asset bubbles, such as the stock bubble of the 1990s. He has argued that bubbles are difficult to identify in advance and reining them in may require interest rates so high that they do more damage than a burst bubble. Still, some have speculated the Fed might use its regulatory sway over banks to tamp down the mortgage lending that is now fueling housing activity. In May, the Fed and other bank regulators warned lenders about interest-only home-equity loans, loans made with little or no documentation of the borrower's credit-worthiness, and higher loan-to-value and debt-to-income ratios. Similar guidance on mortgage loans is expected.

But Mr. Greenspan said the guidance isn't a form of bubble-pricking. "It was a response to indications that some banks were not appropriately managing risks in the home-equity area," he wrote. The factors cited by regulators in May "have not necessarily had a material effect on housing prices. The possibility that home prices may be unsustainably high does, however, contribute to the risks associated with such lending, since it may suggest that the value of some loans' collateral may be vulnerable to declines."

The shrinking gap between short-term interest rates and long-term bond yields isn't a "foolproof indicator of economic weakness," Mr. Greenspan wrote. Moreover, forecasting models based on that gap spell "continued moderate" growth "for the foreseeable future," he wrote.

-- Joseph Rebello contributed to this article.
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Real estate purchases inch up

Refinance loans increase in latest survey
By: Inman News
Overall mortgage applications inched up slightly last week, going up 1.2 percent on a seasonally adjusted basis from the week before, according to the Mortgage Bankers Association’s weekly survey.

The MBA seasonally adjusted purchase index went down by 0.1 percent to 488.7 from 489.0 the previous week. The seasonally adjusted refinance index increased 2.5 percent to 2618.2 from 2554.3 one week earlier.

The refinance share of mortgage activity increased to 45.7 percent of total applications, from 45.1 percent the previous week. The adjustable-rate mortgage share of activity increased to 28.5 percent of total applications, from 27.9 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.72 percent from 5.62 percent one week earlier. Points including the origination fee decreased to 1.14 from 1.26 for 80 percent loan-to-value loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.28 percent from 5.21 percent one week earlier. Points including the origination fee decreased to 1.26 from 1.28 for 80 percent loan-to-value loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 4.63 percent from 4.56 percent the previous week. Points including the origination fee decreased to 0.99 from 1.01 for 80 percent loan-to-value loans.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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SoCal real estate prices reach new heights

San Bernardino-area home values rise more than 30% annually
By: Inman News
Both sales counts and prices reached new highs in Southern California real estate markets last month, according to DataQuick Information Systems, a real estate information company.

While the appreciation rate continued to ease, a new price peak was reached in each of the Southland counties, the company reported. And led by a surge of buying activity in the Inland Empire, sales topped a monthly record set in 1988.

A total of 35,454 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in June. That was up 14.8 percent from 30,886 in May, and up 2.1 percent from 34,731 for June last year, according to DataQuick Information Systems.

June's sales count edged past the 35,339 reached in August 1988, which, until last month, had been the highest in DataQuick's statistics, which go back to 1988.

"Seventeen years ago, about one of six homes sold in Southern California was in the Inland Empire. Now it's about one in three. While the region is attracting buyers from coastal counties, it's also generating demand on its own this time around," said Marshall Prentice, DataQuick president.

The median price paid for a Southern California home was $465,000 last month, a new record. That was up 2 percent from $456,000 in May, and up 14.5 percent from $406,000 for June 2004. The year-over-year price increase was the lowest since March 2002 when the $257,000 median was up 12.7 percent. Year-over-year price changes peaked in May last year at 26.9 percent.

A wide variation in year-over-year price increases reflects how far along individual markets are in their local cycles, DataQuick reported San Diego County started seeing double-digit price increases in early 2000, and last month's annual increase was down to 6.3 percent. In San Bernardino County, double-digit increases started in mid-2002 and last month's median was up more than 30 percent.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,021 last month, down from $2,028 for the previous month, and up from $1,928 for June a year ago.

Adjusted for inflation, current payments are about 5 percent below their peak in the spring 1989.

Indicators of market distress are still largely absent.

Foreclosure activity has bottomed out, but is still low. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity, DataQuick reported.

Median prices were up 30.9 percent in San Bernardino County from May 2004 to May 2005, DataQuick reported. Prices were up 23.2 percent in Riverside County in that time, up 16.8 percent in Ventura County, and up 14.7 percent in Los Angeles County.

The lowest median-price increases were in San Diego County, at 6.3 percent; and Orange County, at 11.7 percent. The number of home sales in San Diego dropped 8.8 percent from May 2004 to May 2005, while increasing 16.4 percent in Ventura County and 9.5 percent in San Bernardino County.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
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Fed's action finally expected to hike long-term rates

Economic slowdown 'nowhere in sight'
By: Lou Barnes: Inman News
Upward pressure on interest rates continued to build last week, although 30-year mortgages held at 5.75 percent. The all-important 10-year T-note maintained a tenuous grip below 4.2 percent, but more good economic news – or the Fed – could cause an upward break at any moment.

The inflation reports were ideal: core producer prices fell .1 percent in June, and core CPI increased only .1 percent. June retail sales soared 1.7 percent, and excluding artificially boosted auto sales still had a strong .7 percent gain. Deals offered by Ford and GM have reached a new level of giveaway (all buyers get the employee discount) – anything to keep production lines going. There is no profit, but sales and production count in the real world, keeping suppliers in business and employees at work.

The gain in industrial production doubled expectations, up .9 percent (autos again, partly), and industrial capacity in use reached the important 80 percent level – 10 points above blown-bubble bottom in '02. Consumer confidence surveys are improving, especially in a "jobs-are-plentiful" attitude.

Tax revenue is now running $100 billion over the '05 forecast. Politicians are all over it, left-side quibblers dismissing a one-time increase from real estate and stock sales, and the Republicans declaring budget victory.

Forget the posturing (both sides are mistaken): economies generating $100 billion in surprise revenue are doing pretty damn well, thank you – well enough that the Fed has reason to worry about leftover liquidity from the bubble-rescue percolating into speculation or inflation. The much-anticipated economic slowdown of last spring, the one sure to follow an aggressive Fed, is nowhere in sight.

The behavior of interest rates from short to long maturities continues to be peculiar, and a new pattern is developing now. The last year of Fed tightening pushed up short-term rates, but left long ones unusually low. Now the Fed is creating a bulldozer effect, shoving all rates upward in a single heap.

In the last week, as it has become clear that the Fed will keep going after a hike to 3.5 percent on Aug. 9, all Treasury rates have risen toward convergence. The most Fed-sensitive 2-year T-note has gone from 3.58 percent on July 8 to 3.85 percent on Friday, and the 5-year from 3.67 percent to 3.99 percent, each three times the move in the 10-year T-note from 4.08 percent to 4.18 percent. There may be a recession-signaling inversion up in the fours somewhere (if the Fed went to 4.5 percent in January, and the 10-year began to sink toward 4 percent, then look out below...), but it seems more likely that all rates will rise with the Fed, very grudgingly at the long end, until the Fed thinks it has reached equilibrium.

This bulldozed heap already shows in mortgage rates. Teaser rates aside, assuming no points or origination, the rate Friday for every mortgage in America – fixed, adjustable, conforming or jumbo – is somewhere between 5.5 percent and 6 percent.

OFHEO, the regulator for Fannie and Freddie, has published a brief but extraordinary study: "Single-Family Mortgages Originated and Outstanding: 1990-2004." It opens by describing the unreliable and approximate data available on mortgages, even at the Fed.

The tables following show some amazing things: $8 trillion total outstanding, $1.4 trillion ARMs; FHA and VA mismanaged to insignificance, only 8 percent of the total.

There was a surge in ARM borrowing in 2004, but it was very much the same as in two prior years of Fed tightening: 1994 and 2000. Rates came down after those two peak-Fed years, leaving ARM borrowers feeling impervious to the Fed. This time, the Fed has tightened for two years, and its cyclical peak may be years away.

Awareness of the inevitable ahead has hardly begun among ARM borrowers.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Picking the perfect paint for home exterior

Process is equal parts instinct and homework
By: Paul Bianchina: Inman News
Ever notice how the exterior colors of some homes really catch your eye, while others leave you totally flat? Or how some colors just seem to suit a particular house and its surroundings, while others seem somehow out of place? Selecting the perfect color combination for your home is equal parts instinct and homework, and with a little effort your home can become the envy of the neighborhood.

IT ALL STARTS AT HOME

Chances are, if you're ready for a paint job you have been giving some thought to what colors you like. Your house may have been yellow ever since you've lived there, and you're really ready for a change. Or it's a nice shade of green with white trim, and it blends so well with the landscaping that you want to use that combination again, but maybe a little brighter, or a little more subtle. Study what you have, and make note of what you like and don't like about it.

Next, check in with your homeowner's association. Some associations have very strict rules about exterior colors, which may limit your choices no matter how much you love that deep shade of purple. Your home may reside in a historic neighborhood, and that may place restrictions on your color choices as well. It pays to find out early in the process what you can and can't do, and what the process is – if any – for having a color choice approved.

GRAB SOME COLORS

Next, make a trip to a couple of local paint stores. Pick up some exterior color selection brochures, which contain samples of exterior color combinations that work well together for siding and trim. Don't worry about whether you like "morning mist" better than "seaside serenity" at this point – just grab those brochures.

While you're in one of the stores, borrow a paint fan. Paint fans are a collection of every color available in a particular brand of paint, grouped together by shades. Most fans contain hundreds of colors, with 60 different greens fading into 75 shades of blue, but don't panic. Probably 95 percent of the colors in the fan either won't appeal to you or won't work well with your particular house, and you'll narrow things down quicker than you think.

CHECK OUT THOSE NEIGHBORS

Spend a little time walking or driving around some different neighborhoods, your own included. Look at colors and combinations of colors that really catch your eye, and try and decide why they appeal to you. Look at the style of the house as well, and compare it to your own. What works well on a three-story Victorian might not look as good on a one-story ranch, and you need to take that into consideration.

If you see something that really appeals to you, go knock on the door. Ask if the owners would mind if you held some of the colors in your brochures or your fan deck up against their siding or trim to make some comparisons. Write down the color names you like, since "autumn russet" and "spicy cinnamon" can look confusingly alike when you get home. If the homeowner is particularly accommodating and you happen to have your digital camera with you, snap a photo (always ask permission first).

DO SOME COLORING

Back home, check some of those colors against your own home. It's tough with those tiny chips, but see if anything is beginning to jump out at you. Even if you can just narrow it down between green and brown at this point, you're making some good progress.

Next, take a photograph of the front of your own house. Make a print, and then make several black and white photocopies of the print. This will give you a blank canvas to work from as your creative juices flow, so grab your crayons or colored pencils and start trying a few combinations.

If coloring is not your favorite pastime, try the high-tech computer option instead. Most paint stores have computerized color selection programs available, either in the store or as software that you can purchase inexpensively to use at home. There are also a growing number of Web sites that offer color selection programs you can use online.

A color selection program shows different styles of homes and allows you to "paint" them on screen. Just select a style that's as close to your home as possible, then play with different color combinations. Start with the body color, which is all the siding, then add a trim color and perhaps an accent color for the windows, doors, and shutters.

When you've finally narrowed it all down, buy a quart of the color(s) you like and try them out at home. Paint small patches of siding and trim at eye level in a few areas around the house, where they'll catch different natural lighting. Your home will have a bit of a splotchy look for a few days, but seeing the actual colors on the wall in something other than a tiny paint chip will do wonders for the selection process, and is well worth the investment.

Remodeling and repair questions? E-mail Paul at paul2887@direcway.com.
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How can I build or repair my credit?

Don't let bankruptcy dissuade you
By: Robert J. Bruss: Inman News
When learning how to build or repair your credit, don't go to those "credit repair" firms, most of which are high-priced scams. But many large cities have non-profit free or very low-cost consumer credit counseling agencies, which can be very helpful to clean up your credit problems.

If you have no credit, force yourself to start building credit. To illustrate, years ago, my dad did that. He and mom were in the habit of paying cash for everything, including the house where I grew up. Yes, mom had department store charge cards, but I remember dad's banker talked him into financing the purchase of a new car to build up his credit. That was a "big deal" around our house. But after about six months, dad hated those monthly car payments so much he paid off that auto loan. However, by then he had started building his credit file. The only major purchase I recall mom and dad buying on credit after that was when they were in their 70s and they bought their condo with a 10 percent down payment and a 90 percent 30-year mortgage (it was one of the rare times they listened to my advice!). Years later, mom (who was the shrewd investor in our family) thanked me for "forcing" the low down payment purchase of their condo, which, dollar for dollar, was the best investment my parents ever made.

The easiest places to get credit cards if you have no credit file are usually gasoline companies and department stores. If you buy a car, finance it – but be sure there is no prepayment penalty if you want to pay off the car loan in a few months – and be sure you finance with a major lender who reports to the credit bureaus. It does no good, for example, to finance your auto purchase at Jake's Used Cars if Jake carries the paper himself and doesn't report to the credit bureaus. Watch out for auto loans that have stiff prepayment penalties. Don't take the dealer's word for this – read the fine print about prepayment before signing the auto finance contract.

If you filed bankruptcy, start rebuilding your credit as soon as you are "discharged" from bankruptcy court jurisdiction. If you filed Chapter 7 bankruptcy and were discharged from all or most of your debts (except secured debts, such as a real estate mortgage), be sure to pay all your obligations on time from now on.

Chapter 7 bankruptcy offers a "fresh start." But that bankruptcy will remain on your credit reports for 10 years. As I write this, Congress is considering a plan to toughen the federal bankruptcy laws, so watch for changes. If you are thinking about filing Chapter 7, my best advice is try to avoid doing so unless you have no other recourse. Although Chapter 7 wipes out most of your debts, lenders and credit grantors will be very hesitant to approve you for future credit.

Because you cannot file Chapter 7 bankruptcy again for at least seven years, some mortgage lenders will approve your application as soon as 12 months after your Chapter 7 bankruptcy discharge. However, you won't get the lowest interest rate! Also, mortgages are secured by the real property so mortgage lenders will eventually get their money, even if you again file bankruptcy in the future.

But Chapter 13 bankruptcy, often called the "wage earner reorganization plan," is different. When an individual files Chapter 13, he or she submits a plan to the U.S. Bankruptcy Court to repay unsecured debts over as long as 60 months. But secured debts, such as mortgages, remain secured by the property.

If a Chapter 13 debtor doesn't keep up payments on secured debts, plus paying the unpaid arrearages as agreed in their wage earner plan, the mortgage lender can get relief from the bankruptcy "automatic stay" and foreclose on the property. Filing Chapter 13 bankruptcy often delays foreclosure loss of the property but foreclosure loss of the property won't be avoided if the debtor doesn't keep up the payments. Having both a bankruptcy filing and a foreclosure loss on your credit report is definitely not good!

Mortgage lenders will not loan to debtors who are still in Chapter 7 or 13 bankruptcy. The reason is the bankruptcy judge's approval is required for the debtor to take on new debt, such as a home mortgage. Also, bankruptcy court approval is required to sell a property while the debtor is in Chapter 7 or 13. However, after discharge from Chapter 13 bankruptcy, there are many mortgage lenders who are willing to make new loans – but not at the lowest interest rate.

Filing Chapter 11 bankruptcy is very similar to Chapter 13 except Chapter 11 is for business bankruptcy. To illustrate, as I write this, U.S. Airways and United Airlines are in Chapter 11 business bankruptcy reorganization to obtain relief from their creditors and to reorganize their finances.

Chapter 11 business bankruptcy is not the stigma it used to be. I know several small business owners who filed Chapter 11 business bankruptcy reorganization and are now doing just fine, much financially stronger than before filing. Whether you consider Chapter 7, 11, or 13 bankruptcy, please consult several bankruptcy attorneys before proceeding because your credit will be at least temporarily ruined.
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New ranges, cabinetry improve kitchen design

Appliances get safer, more efficient
By: Katherine Salant: Inman News
In the home-building industry, everything makes its debut at the high end. It can also disappear up there, if it doesn't meet expectations or creates headaches, warranty issues and service calls for the manufacturer and builder. But, if a luxury item survives the initial vetting process of the marketplace, it will eventually reach the majority of consumers, though this can take years and the product may be considerably modified.

What aesthetic or technological innovations may be in the pipeline for you? At this year's Kitchen and Bath Industry Show in Las Vegas, held in May, I saw some interesting developments in ranges, cooktops and cabinetry.

About 30 years ago, Subzero slimmed refrigerators down from an industry standard of 30 inches to 24 inches. With this shallower depth, a kitchen could have a sleek, streamlined look without a big clunky box intruding into a designer's vision. Since then, however, clunkiness has returned in the form of six- and eight-burner professional ranges that can be, like those old refrigerators, as deep as 30 inches. To bring things back into aesthetic balance, De'Longhi, an Italian appliance manufacturer, now offers a professional-feature range in a slimmer, 24-inch depth.

The smallest, slim-line De'Longhi range has a 24-inch width (4 burners with gas, electric or dual fuel – gas burners with electric oven for $1,800). That may interest downsizing baby boomers who have said they want smaller houses with smaller kitchens, but just as many perks.

The larger ranges are gas-only. The 36-inch-wide model (5 burners, $3,000) and the 48-inch-wide model (6 burners, $7,000) have two ovens so that two ovens, so that you can broil or roast your dinner in one while you bake the dessert in the other. The gas ovens on all the ranges have an infrared broiler feature that sears meat during the initial 60 secondsof cooking, retaining all the juices in it and producing a steak that tastes as good as the one in your favorite restaurant.

The De'Longhi gas ranges also have a larger 16,800 BTU burner (the largest unit has two) for wok cooking or boiling large amounts of water for pasta or lobsters. Like all new gas ranges and cooktops, each burner has an electronic ignition instead of a pilot light. In addition, the De'Longhi models have a unique safety feature called a valve shut off. Without this feature, the gas keeps flowing if the burner is turned down very low and the flame goes out. Some gas units have a re-ignition feature. But when the flame goes out because a window is open and a breeze is blowing, for example, the burner continuously re-ignites and the gas keeps flowing until you shut the window or manually turn it off.

It will take a while for the features on the De'Longhi ranges to migrate to the mainstream, but at least one revolutionary method of cooking is already there. I saw induction cooktops offered by luxury manufacturer Diva de Provence (5 burner cooktop for $3,600) and Sears Kenmore Elite(4 burner cooktop for $1,500).

What is the radical departure here? A conventional gas burner, electric coil burner or a halogen electric burner generate heat. This warms up the cooking pot, which in turn heats and cooks the food. With an induction burner, an electric coil below the glass top generates a small electromagnetic field instead of heat. When a pot containing iron is placed on the burner, this energy agitates and excites the iron molecules in the pot. The agitated molecules give off heat, which cooks the food.

The induction method of cooking is extremely efficient. About 90 percent of the heat produced is utilized to cook the food. With gas, only about half the heat generated actually is used to cook the food; the rest goes out into the kitchen, which is one reason it can get unbearably hot during the summer. With electric burners, summers aren't quite as bad – only 35 to 40 percent of the heat generated diffuses into a kitchen.

Because the induction method is very efficient, it cooks the food faster. It also cooks faster because a burner can operate at a high temperature almost as soon as it is turned on. For example, with the Sears unit, a quart of tap water reaches a full boil (68 to 212 degrees F) in 98 seconds. The Sears unit has 16 gradations of heat from high to low; the Diva de Provence has 12 gradations, many more than most chefs ever use, both manufacturers said.

Another advantage of the induction burner is that the stovetop itself does not get hot. Food spills do not cook on, so the cleanup is easy, and household members will not get burned, a great safety feature.

The only downside to induction cooking is that you can only use cookware with iron content; the unit won't operate with aluminum or glass pans. To make the switch to induction easier, Diva de Provence includes a 5-piece set of All-Clad Metalworks cookware .With a purchase of the Sears unit, you get a griddle.

The Sears unit will be available in September; the Diva de Provence unit is available at independent appliance dealers.

Another potential sea change noted at KBIS – the slick look of European-style cabinetry, which has been exclusively a high-end product, is now an affordable proposition for a much bigger segment of the market. Sensing that many consumers are ready to be stylistically adventurous, Kraftmaid – a mid-priced, semi-custom cabinet maker known for a traditional look with the highest cabinet sales in the United States – has broken the aesthetic glass ceiling and developed an entirely new Venicia line that verges on edgy.

For the “I want something that looks traditional but with a difference” homeowners, Kraftmaid offers the Venicia-Natura collection. The doors are wood with raised or flat panels, but the detailing for the beading and stiles are unusual.

For the “I want something definitely different” group, the cabinet maker offers the Venicia-Lustra collection. The doors are finished with a top grade of thermofoil that looks and feels like lacquer (an expensive finish that is only offered by custom cabinet makers). The door styles include a severe flat panel for both the door and drawer front which is common in Europe but unusual here. The colors range from stark black and white to metallic gray and one that looks like an exotic African hardwood.

For the “I want something really different” crowd, Kraftmaid offers the Venicia-Mirra collection. The doors have a heavy acrylic lacquer finish that's so glossy you can see your own reflection. Two of the four flat-door styles have continuous polished aluminum pulls (the pulls run the full width of each drawer and cabinet drawer), and two door styles have metallic gray edging for both the cabinet doors and drawer fronts.

The cabinet boxes and drawers in the Venicia line are also new. The cabinet boxes are frameless, common in Europe but unusual in this country and a first for Kraftmaid. With frameless cabinets, the cabinet box has three sides instead of four, and the doors are hinged to the sides instead of the front. Without a front frame, you gain three inches of width in each cabinet, and you don't have to reach around a center stile when taking things in or out. To give the Venicia kitchen a more unified look, the cabinet interiors match or blend with the door color for the Lustra and Natura collections. For the Mirra group, all the interiors are gray.

The Venicia drawers also have new features. The drawers can be either gray metal (Kraftmaid calls this the Contempo drawer) or wood. With both you can purchase wood or metal dividers and customize your drawer storage to a remarkable degree.

The Venicia line will be available in independent kitchen and bath dealers and Lowe's by mid or late July.

Web information:

De'Longhi: www.delonghimajorappliances.com

Sears Kenmore induction cooktop: Information will be available on Sears Web site, www.Sears.com, in September when their induction cooktop is available for purchase.

Diva de Provence: www.divadeprovence.com

Kraftmaid Venicia: www.kraftmaid.com

Questions or Queries? Katherine Salant can be contacted at www.katherinesalant.com.
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Modest Inflation Should Keep Mortgage Rates Affordable

RealtyTimes
McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market SurveySM (PMMSSM) in which the 30-year fixed-rate mortgage (FRM) averaged 5.66 percent, with an average 0.6 point, for the week ending July 14, 2005, up slightly from last week when it averaged 5.62 percent. Last year at this time, the 30-year FRM averaged 6.00 percent.

The average for the 15-year FRM this week is 5.25 percent, with an average 0.6 point, up from last week when it averaged 5.20 percent. A year ago, the 15-year FRM averaged 5.40 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.15 percent this week, with an average 0.7 point, down from last week when it averaged 5.19 percent. There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year.

One-year Treasury-indexed ARMs averaged 4.39 percent this week, with an average 0.7 point, up from last week when it averaged 4.33 percent. At this time last year, the one-year ARM averaged 4.02 percent.

"Over the past few weeks, financial markets have been gearing up for greater growth in the economy, which ultimately leads to higher inflation rates. As a result, mortgage rates increased for the second straight week. Interest rates for 30-year fixed-rate mortgages now match those set in mid-May, but are still below January’s monthly average," explained Freddie Mac Vice President and Chief Economist Frank Nothaft.

"As a matter of fact, since Freddie Mac began tracking the 30-year mortgage rate in 1971, it has averaged 9.4 percent, and since 2000 it’s averaged 6.6 percent. Given that, today’s rates appear to be quite attractive and should continue to support a vibrant housing market."
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Fixing Up Homes To Sell Can Be Risky

By: LAUREN BAIER KIM: The Wall Street Journal Online
Lauren Baier Kim offers advice to a couple thinking about investing in properties in need of a little elbow grease.

Question: My husband and I recently bought a house. The house was in good condition, but we made some minor changes to it. It was a great experience. We are thinking of doing this kind of work as a second job. My husband has a good income, but I am a full-time student. We have $50,000 in savings, but I'm not sure we're doing the right thing. Is it a good idea to buy houses to fix and sell?

-- Shabnam Razavi

Purchasing houses that need repair, fixing and reselling them can be profitable. This year is shaping up to be another record-breaker for sales. Sales of existing homes are expected to rise 2.8% to 6.97 million this year, according to the National Association of Realtors. This means that generally most homeowners are having little difficulty in selling their homes.

What makes rehabbing lucrative is that fixer-uppers sell, on average, for 24% less than do houses in good condition, according to NAR. So, if you get a good price for such a home in an appreciating housing market and don't overspend on repairs, you have a good chance to come out ahead.

There are risks involved. If the housing market takes a downturn, or if you make a poor choice when selecting a house, you could end up in the red. You should buy in a neighborhood sought-after by buyers -- e.g., one that is safe and has good schools -- unless you want to bet that the area is on its way up and will attract buyers.

Key to your endeavor is understanding your target housing market and how well and for how much homes sell. You can get a feel for it by reading real-estate listings in the paper and online. You can also join a local real-estate investors club. You can find clubs in your area by visiting www.nationalreia.com, the Web site for the National Real Estate Investors Association (NationalREIA). You could also take a real-estate course at a nearby community college.

The best properties to rehab are those that need minor repairs, such as new sheetrock, trim, cabinets, flooring, carpeting and landscaping. These relatively cheap fixes go a long way in giving a home an appealing appearance to buyers. Be careful when making these changes. "You can get carried away in a $100,000 neighborhood and put in Corian countertops and all these beautiful things, and you will make the repairs too pricey to profit," says Steve Herbert, vice president of NationalREIA and the National Association of Responsible Home Rebuilders and Investors.

Avoid homes that need major construction work. "Any kind of structural damage is probably going to be too costly to make a good profit," says John Grice, a real-estate agent with Downing-Frye Realty in Bonita Springs, Fla., who has expertise in fixer-uppers. Choose homes that need the kind of work that matches your abilities, he suggests.

It's best to do most of the repairs yourself, but when you contract work out, have a good idea of what to expect in terms of price. "You don't have to be a roofer, but you have to understand the value of a roof in your area," Mr. Herbert says. "So when you get a contractor, you know if he is charging too much."

Your savings should work to your advantage. Buyers who succeed at turning around fixer-uppers "often have quick availability to loans or cash so they can make strong and quick offers to motivated sellers," says Bob Walters, chief economist at Quicken Loans. Talk with a mortgage banker before starting out, he suggests.

You mention that you rehabbed your own home. Sprucing up your main residence for resale can be a good money maker, thanks to an Internal Revenue Service tax break. "As long as you live in a place for two out of five years, you can walk as an individual with $250,000 profit tax free, $500,000 if you are a couple," Mr. Herbert says.


Ms. Kim is a senior editor at RealEstateJournal.com. June Fletcher is on book leave. The "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
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The Weekend Guide! July 14 - July 17, 2005

The Weekend Guide for July 14 - July 17, 2005.
Full Article:
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NAR Boosts Home Sales Forecast

NAR: REALTOR® Magazine Online
The NATIONAL ASSOCIATION OF REALTORS® has again raised its forecast for the housing sector, with both existing- and new-home sales on pace to set an even bigger all-time record in 2005.

Existing-home sales are expected to rise 2.8 percent to 6.97 million this year; last month, the association was expecting 6.89 million sales—the record was 6.78 million in 2004.

New-home sales should increase 3.2 percent to 1.24 million in 2005, also a record. Total housing starts—single-family and multifamily—are forecast to grow by 5 percent to 2.05 million units, the second highest on record; the peak was 2.36 million in 1972. This year is seen to be a record for single-family construction, with 1.68 million homes started.

David Lereah, NAR’s chief economist, says that in each month of 2005 the forecast has been looking stronger than in previous projections.

“The housing expansion is continuing as more Americans take advantage of favorable conditions to achieve the dream of homeownership,” he says. “Earlier this year, we expected 2005 home sales to be the second-highest on record, but monthly sales have been at or close to record levels. Although we should come off of sales peaks in the months ahead, mortgage interest rates have remained lower than expected, and job gains are providing additional stimulus, meaning unprecedented sales totals this year.”

Lereah says the most notable problem in the housing market is the shortage of homes available for sale, as well as some shortages of building materials. “These shortages are proving to be a challenge for home buyers, builders and remodelers, and are continuing to put pressure on home prices,” he says.

He expects the national median existing-home price for all housing types to rise 9.4 percent this year to $202,600, with the typical new-home price increasing 5.8 percent to $233,900.
NAR President Al Mansell, of Salt Lake City, says low interest rates are keeping housing affordable in most of the country.

“We have to go back to the mid-1960s to see a period of comparably low mortgage interest rates,” Mansell says. “A big difference now is a decline in mortgage origination costs, plus a mushrooming in the availability of low- and no-downpayment loans. These are particularly helpful to first-time buyers in high-cost markets, but buyers need to shop loans and be aware of long-term consequences, and they may need to stay in their home longer to build enough equity to trade-up to a larger home in the future.”

The 30-year fixed-rate mortgage should rise slowly to 6.1 percent in the fourth quarter, and reach only 6.5 percent by the end of 2006. The 30-year fixed rate currently stands at 5.62 percent, according to Freddie Mac.

The U.S. gross domestic product is forecast to grow 3.6 percent in 2005, with the unemployment rate is seen averaging 5.1 percent. Inflation is expected to stay modest, with the Consumer Price Index rising 3.1 percent in 2005. Inflation-adjusted disposable personal income should grow 3.2 percent this year, while the consumer confidence index is forecast to average 104.
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Senior-citizen home sellers benefit from sizeable tax exemption

Answers to capital gains dilemma bring wide smiles
By: Robert J. Bruss: Inman News
DEAR BOB: My wife and I sold our home in 1993. We bought it for $93,500 and sold it for $200,000 and did not pay any capital gains tax by using the $125,000 "over 55 rule" exemption. We bought our current retirement home the same year for $131,500. Now we want to sell our retirement home for its market value of about $325,000. Can we use the $250,000 tax exemption so we don't have to pay any capital gains tax although we previously used the $125,000 exemption? – Glenn B.

DEAR GLENN: Yes. When you sold your home in 1993 for $200,000, you had a capital gain of $108,500 ($200,000 minus $91,500).

Under the now repealed, pre-1997 Internal Revenue Code 121, called the "over 55 rule," you were entitled to claim up to $125,000 tax-free profits. Presuming you were over 55 and qualified for that tax break, you owed no tax on the sale of your previous home.

Then you purchased a less expensive principal residence costing $131,500, which you now plan to sell for $325,000. That's a very handsome net profit of about $193,500 on which you want to avoid paying capital gain tax.

The current Internal Revenue Code 121, enacted in 1997, allows use of the $250,000 principal-residence-sale tax exemption (up to $500,000 for a qualified married couple filing jointly) on your capital gain from the current home sale. Your ages don't matter.

To qualify, you must have owned and occupied your principal residence at least 24 of the 60 months before its sale. You appear to qualify. Your prior use of the old IRC 121 does not prohibit you from using today's far more generous current IRC 121 $250,000-per-person tax break. For full details, please consult your personal tax adviser.

IS A GENERAL POWER OF ATTORNEY AS GOOD AS A LIVING TRUST?

DEAR BOB: You recently said when a house title is held in a living trust, if one co-owner becomes incapacitated, the other trustee can make decisions concerning the house. If there were no living trust, wouldn't a general power of attorney for financial affairs accomplish the same result? – Jerome G.

DEAR JEROME: My experiences with powers of attorney in real estate transactions have been the title insurance companies insist on verifying the principal is still alive and understands the transaction.

For example, I vividly recall a transaction where the title insurance officer made a long-distance phone call to Sri Lanka to talk with the power-of-attorney grantor. She verified his identity and that he understood the transaction documents his attorney-in-fact sitting across the desk was signing on his behalf.

If title insurance cannot be obtained, most buyers and lenders refuse to proceed. A living trust is usually much better than a power of attorney. For full details, please consult your attorney.

WHAT HAPPENS TO RENTAL PROPERTY DEPRECIATION WHEN OWNER DIES?

DEAR BOB: What happens to my rental property accumulated depreciation after I die and my children inherit my property? – Paul W.

DEAR PAUL: They will inherit your rental property with a new "stepped-up basis" to market value on the date of your death. Uncle Sam will forget all about the depreciation tax deductions you claimed. Isn't he nice? For full details, please consult your tax adviser.

The new Robert Bruss special report, "The Seven Best Ways to Avoid Capital Gains Tax When Selling Your Home or Investment Property," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF download at www.bobbruss.com. Questions for this column are welcome at either address.
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Leveraging the most from your Real Estate investment

How to get top dollar when it's time to sell
By: Dian Hymer: Inman News
Many homeowners recently have realized more financial gain from the homes they live in than they have from their stock portfolios. Thanks to several sequential years of rapidly rising home prices, homeowners in many cases have seen their net worth rise even though their stock market portfolio values declined.

Now, many experts are predicting that the rate of home price appreciation will wane as interest rates rise and the real estate market settles into a more balanced market. A balanced market is one that doesn't overwhelmingly favor either the buyer or seller.

During the first quarter of 2005, the national median existing single-family home price was up 9.7 percent from the first quarter of 2004, according to the National Association of Realtors. In a balanced market, you're more likely to find an annual home price appreciation rate in the 4 to 5 percent range.

When real estate markets change, you can actually lose money on your home if you have to sell soon after buying. This can occur even though home prices are still appreciating, but at a lower rate.

Suppose you purchased your home in its "as is" condition, and it needed a lot of work. In areas that experienced a strong seller's market, buyers often made "as is" offers in order to be competitive.

Real estate markets are cyclical, so you can't always count on home price appreciation to improve the value of your investment. You could experience several years of rapid appreciation followed by years of low or no appreciation.

HOUSE HUNTING TIP: To preserve and enhance the value of your real estate investment, it's wise to cure deferred maintenance, establish a good regime of ongoing home maintenance and make value-adding improvements to the property.

The best time to tackle deferred maintenance is as soon as possible after title to the property is transferred into your name. This may be difficult for buyers who stretched to their financial limit in order to buy. If you have no resources that you can tap immediately for home improvement projects, establish a budget and a plan to take care of necessary work over time.

It might help to ask your home inspector to prioritize the defects listed in his report in terms of how quickly repairs should be made. If you can't afford to correct all the deferred maintenance at once, at least you'll know which items to concentrate on first.

It's natural to want to spend money on making your home look pretty. But, don't make the mistake of overlooking defects that will diminish the value of your home when you sell. Even though you may have purchased your home "as is" regarding a poor drainage system or a rotted deck, a future buyer may not be willing to overlook these defects.

Serious drainage, foundation and wood pest problems should not be neglected. Some problems will become worse--and more expensive to correct--over time. Unless you're selling in a very strong seller's market, you'll probably have to subtract the cost of overlooked repairs from your equity when you sell. From an investment standpoint, it's risky to make major improvements to your home unless the infrastructure is sound.

When you do get around to making improvements to add value to your home, make sure to do your homework first. Over-improving your home for the neighborhood is likely to cost you more money than you make.

THE CLOSING: Before making a major investment in improvements, consult with a real estate professional. Find out if the changes you have in mind will actually add market value to your home.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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Federal agencies partner for home energy savings

New Web site promotes Energy Star appliances, offers cost-cutting tips
Inman News
The Bush administration today announced a new partnership aimed at reducing household energy costs by 10 percent over the next decade while improving our nation's air. The Partnership for Home Energy Efficiency will provide energy saving solutions for households across the country and support research and implementation of a new generation of energy-efficiency technologies.

The Department of Energy (DOE), the Department of Housing and Urban Development (HUD) and the Environmental Protection Agency (EPA) will provide Americans, including home builders, with the latest home energy savings information on a Web portal, Energy Savers Web site.

Americans spend more than $160 billion a year to heat, cool, light and live in their homes. By taking advantage of home energy efficiencies, an average American family could save $150 year, according to a press statement.

"For most owners and renters, utility bills are the second-largest household expense," HUD Secretary Alphonso Jackson said. "That's why housing affordability and energy efficiency go hand in hand. By reducing the price of utility bills, we reduce the cost of living for the nation's low- and moderate-income families."

In addition to the billions of dollars lost through energy inefficiencies, household power waste contributes to the power plant emissions that create soot, smog and acid rain.

"Last year, through ENERGY STAR, Americans chose to invest in cleaner air and healthier lives – saving enough energy to power 18 million homes and cutting $10 billion from their energy bills," EPA Administrator Stephen Johnson said. "We are delighted to work with our federal partners to help lower energy bills, reduce emissions from power plants and provide the next generation a healthier, cleaner environment."

Goals of the Bush administration's Partnership for Home Energy Efficiency include:

    • Expanding efforts to promote ENERGY STAR products;

    • Developing durable, comfortable, affordable homes that use 40-50 percent less
      energy;

    • Developing new energy-efficiency services to provide homeowners with greater
      savings, such as Home Performance with ENERGY STAR;

    • Delivering energy-efficiency savings to low-income and subsidized housing;

    • Continue to invest in innovative research in building science technologies,
      practices and policies; and

    • Providing design technologies and building practices to allow cost-effective
      net zero energy homes, by 2020.

In addition, individuals can take many simple steps today to help make their homes more energy efficient:

    • Replace incandescent bulbs with lights that have earned the ENERGY STAR.

    • Use a programmable thermostat with air conditioners to adjust the setting
      warmer at night, or when no one is home.

    • Use a fan with window air conditioners to spread cool air through a home.

    • Use an energy-efficient ENERGY STAR air conditioner, which can save up to 50
      percent on cooling bills.

    • Plant trees around your home. Just three trees, properly placed around a
      house, can save between $100 and $250 annually in cooling and heating costs.
      Daytime air temperatures can be three to six degrees cooler in tree-shaded
      neighborhoods.

    • Plant trees or shrubs to shade air conditioning units, but do not block the
      airflow.

    • Install white window shades, drapes or blinds to reflect heat away from the
      house. Sunny windows can make air conditioners work two to three times harder.

    • Replace windows with ENERGY STAR models and consider the new double-pane
      windows with spectrally selective coatings.

    • Tightly close fireplace damper.

HUD is a federal agency that implements housing policy.
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Banks Open Doors To Illegal Immigrants

By: MIRIAM JORDAN: The Wall Street Journal Online
Home loans and other financial services are offered with the assistance of the U.S. government.

Javier and Araceli Garcia, illegal immigrants from Mexico, never imagined that the U.S. government would help them realize their dream of owning a home.

But last year, the couple secured a $54,600 mortgage to buy the gray, 1,158-square-foot bungalow that they had been renting for eight months. The Wisconsin housing authority financed the loan. The Internal Revenue Service gave them an identification number that enabled them to apply for it at local Mitchell Bank, which was happy to take their business.

"We thought we would never buy a home, because of our [illegal] status," said Mrs. Garcia.

Competition for new customers is driving banks to offer home loans and other financial services to illegal immigrants -- and they are getting help from government agencies, such as the Federal Deposit Insurance Corp. The FDIC encourages banks to lend and invest in underserved markets regardless of customers' immigration status.

The official helping hand comes as other corners of the government take an increasingly hard line against undocumented immigrants. In May, Arizona legislators passed a bill to bar illegal immigrants from English classes, child care and other state-subsidized services; it was vetoed by the governor. In Kansas, opponents of a measure to offer in-state tuition to college-bound students who are illegal immigrants have taken legal action to prevent its implementation. Also in May, Congress approved a measure containing a provision that would make it impossible for illegal immigrants to acquire a driver's license.

"There is a fundamental contradiction here," says James Smith, a senior economist at the Rand Corp., a Santa Monica, Calif., think tank. "We have one policy saying you can't be here illegally. In practice, another policy is saying that if you're here, we're going to cater to you."

In Wisconsin, the state housing agency's decision to help banks lend to illegal immigrants has set off a fierce debate in the state Senate over whether these newcomers should benefit from programs designed for legal residents. The initiative has also spurred banks in other states to kick off similar programs.

Like many parts of the U.S., this state of dairy farms and heavy industry has seen its Spanish-speaking community swell in recent years. Immigrants, mainly from Mexico, have journeyed here to fill jobs in construction, foundries and other low-skill industries. Latinos represent only 4% of Wisconsin's total population. But the population doubled between 1990 and 2000 to about 200,000, and continues to grow. The Hispanics are concentrated around Milwaukee and Madison, the state capital.

In Milwaukee, Mitchell Bank has seen those changes up close. It was founded in 1907 by the Schneider family, who named the bank after the main street in the bustling area known as the South Side. For most of its history, the bank served Polish and German immigrants. As European families moved to the suburbs, Mitchell Bank opened new branches there. But bank loyalty didn't transfer to young customers, who preferred big banks with ATMs on every corner.

In the 1990s, Mitchell Bank's old turf on the South Side began to see an influx of Latino immigrants. Taco shops and clothing stores playing piped Mexican folk music proliferated. James Maloney, the chairman of Mitchell Bank, saw the newcomers as a solution to the bank's declining fortunes. Its assets had dropped to $60 million in 1999 from $95 million in the early 1990s.

One afternoon in 1999, he walked into the bank and saw no one in the expansive hotel-like lobby but the staff. Outside, the street was filled with Latinos. "If all these people were working here and living here, I knew we had to change what we do," said Mr. Maloney, a labor attorney who took over the bank after his father-in-law died in 1991.

Mr. Maloney promoted Frank Villa, a teller and the sole Hispanic employee, to customer-service representative. He re-hired a Latina former staffer and recruited many others. The new employees translated the bank's brochures and deposit slips into Spanish, and hung banners in Spanish outside to lure passersby. Inside the bank, a painting of Mexico's patron saint, Our Lady of Guadelupe, was prominently displayed.

Mr. Maloney invited Latino community leaders and clergy to a town-hall-style meeting at the bank. Out of one meeting came the idea of opening a branch in a local high school, to ease distrust of banking among immigrants by introducing it to their children first.

The bank also offered pamphlets on how to apply for a Wisconsin state ID and driver's license, and invited the Mexican consulate in Chicago to visit with a mobile unit that issues "matricula" cards, another form of identification, issued by the Mexican government and often accepted by banks. In early May, it sent out letters to 2,400 of its undocumented customers warning that Congress was on the verge of passing a federal law, dubbed "Real I.D.", that would make it more difficult for illegal immigrants to get drivers' licenses.

Mr. Maloney decided in 2002 the bank should also start offering mortgages even to illegal immigrants, convinced that would revitalize the run-down area and generate new business. The move would be in line with a federal law, enforced by the FDIC, that requires banks to invest in the communities in which they gather deposits, according to the banker.

Because most undocumented immigrants don't have a credit history, the bank decided to consider utility, rent and overseas-remittance receipts in assessing their creditworthiness. A letter from a pastor was also welcome.

As demand for home loans gradually increased, a problem arose: Taking on the loans was creating more risk than a small bank could shoulder on its own. That's because unlike other mortgages, the loans were not sellable on the secondary market to Fannie Mae and Freddie Mac, which currently don't deal in loans for illegal immigrants as a matter of official policy. That means Mitchell Bank had to hold all the loans in its portfolio rather than spreading out the risk.

The issue was resolved last year, after Mr. Maloney made a presentation to the Wisconsin Housing and Economic Development Authority. Its mission is to help low-income families buy homes by offering mortgages at preferential interest rates that are fixed for 30 years. The housing agency regards its home-ownership program as key to combating predatory lending, which has exploded in poor inner cities, and revitalizing downtown neighborhoods. The state agency decided to start a pilot program for undocumented immigrants.

"We can stick our heads in the sand and pretend these people don't exist, or we can help them be in the U.S. with assets," says executive director Antonio Riley, the head of the Wisconsin housing authority. He has received applications from many banks interested in offering loans to undocumented immigrants.

The housing authority finances the mortgages, which Mitchell Bank and other institutions sell to their customers. Thus, Mitchell Bank no longer retains the risk for the loans.

To be considered for a loan, illegal immigrants must fulfill the same criteria as applicants who hold Social Security numbers -- proof of regular income and state residency. If they qualify, the undocumented borrowers get the same terms as other state residents.

Like Mitchell Bank, the housing authority uses the IRS-issued tax-registration number, the Individual Taxpayer Identification Number, or ITIN, instead of a Social Security number, which illegal immigrants generally cannot obtain. The banks need such numbers because they have to report their income to the government. In 1997, the IRS started issuing ITINs to foreigners who aren't eligible for a Social Security number to encourage them to file an income-tax return, regardless of immigration status. As of December 2004, the IRS had issued eight million such numbers.

An IRS spokesman declined to comment on the use of the ITIN by illegal immigrants applying for a mortgage. In prepared testimony to two congressional subcommittees last year, IRS Commissioner Mark Everson said "we are concerned that the ITIN has become an acceptable form of identification similar to the Social Security number."

The Garcias arrived at Mitchell Bank last August without a credit history or a single credit card to their name. A few days later, Mr. Garcia brought his ITIN and proof that he had filed taxes every year since getting the tax ID. He also brought pay stubs to show he earns about $450 a week making concrete molding to secure caskets in the earth, a job he has held for four years. Mrs. Garcia, who says she carefully stores bills in a safe place, amassed the receipts for every utility and rent payment the couple had ever made.

Mr. Villa, now a loan officer, read all the loan documents to the couple in Spanish. A home inspector visited the Garcia's house in September. The Garcias then obtained a $54,600 mortgage from Mitchell Bank. The Wisconsin housing authority financed it at a fixed rate of 5.3% over 30 years. The couple was required to make a modest down payment. On Oct. 19, two months after starting the application process, the couple closed on the house. All told, the couple now makes a monthly mortgage payment of $443 instead of $600 a month in rent on the same house.

In four years, Mitchell Bank has issued about 100 similar home loans, mainly to illegal immigrants, and says it has never experienced a default; it has recorded two late payments. The average household income of borrowers is $30,000 annually, for mortgages ranging from $30,000 to $100,000. Thanks to its outreach to Latino immigrants, including many illegal ones, Mitchell Bank is recording 4.5 times more transactions and at least that much more traffic at its three branches than a few years ago. It is looking for a site to open a new branch in nearby Waukesha, which has a fast-growing Hispanic population. "Our portfolio is evidence that the undocumented are model customers," says Jeff Bowman, president of Mitchell Bank.

More banks are following in Mitchell's path, helped by the FDIC, which has reached out to banks in the Midwest to encourage them to lend to immigrants, regardless of their legal status in this country. Some of the banks have become aggressive players in the undocumented market.

The initiative, based in Chicago, is partly an outgrowth of FDIC efforts to contain predatory lending, whose main victims are blacks and Latino immigrants. Without access to traditional banking, undocumented immigrants are especially easy prey for unscrupulous lenders who charge exorbitant interest and closing fees for mortgages. "Our job is to encourage banks to lend and invest in underserved markets," says Michael Frias, an FDIC official in Chicago. "We don't make distinctions of immigration status."

Dozens of small banks in such states like Ohio, Illinois, Iowa and Texas have recently started offering undocumented immigrants the opportunity to apply for home loans with an ITIN. Big banks, like Wells Fargo & Co. and Bank of America Corp., say they plan to launch their own programs within months. Don Cohen, a vice president at North Shore Bank in Milwaukee, which offers ITIN mortgages, says he has fielded inquiries from banks in Alabama, Minnesota, Mississippi, South Carolina and Washington, among others interested in serving undocumented immigrants.

For its part, the Wisconsin housing authority is stepping up efforts to promote its program to help immigrants get mortgages. Since last April, it has disbursed 112 ITIN-mortgage loans valued at about $12.2 million in total. The housing authority has been flooded with inquiries from housing agencies and lending institutions in other states. The Illinois Housing Development Authority, for one, is expected to unveil its ITIN mortgage program this summer.

But a year since its introduction, the agency's pioneering initiative is also drawing fire. Mark Belling, an outspoken conservative radio talk-show host, has lambasted the mortgage program on the air. "We should not be encouraging illegal immigration by offering home loans and the American dream to people who didn't enter the country legally," says state Rep. Steve Kestell, a Republican. "I am concerned that we are sending the message that we as a state welcome illegal immigration."

Republican state Sen. Glenn Grothman, who says the state agency shouldn't be in the business of rewarding lawbreakers, has introduced a bill to quash the program.

Mr. Grothman first heard about the ITIN mortgage on Mr. Belling's radio show. In an interview, Mr. Grothman said it's untenable that the "government sets up a program specifically designed to benefit people who have chosen to ignore...immigration laws."

The bill is now before a state Senate committee. To become law, it will have to pass both houses of the legislature, which are controlled by Republicans, and get Democratic Gov. Jim Doyle's signature.

Meanwhile, the Garcias used their ITIN to get a second, home-improvement loan for $13,700 with Mitchell Bank. The house already has a new cream-colored front door, newly built carport and renovated basement. Their summer plans include putting new siding on the house and laying grass in the backyard.
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Deck-care mysteries solved

By: Paul Bianchina: Inman News
Q: We are replacing the decking on the north side of our house, but cannot agree on the material to use. We are considering Ipe, redwood, or a composite material like Trex. What would you recommend? --Nancie J.

A: Unfortunately, there is no single "best" material that I could recommend for your new deck, and if you ask 10 people for their choice you're likely to get 10 different answers. As you've no doubt been discovering, each material has its own pros and cons, and the choice comes down to what you like the looks of, how much you want to spend, and how much maintenance you are willing to do.

The natural wood products you mention are excellent for decking, and I have to admit to a personal preference for real wood over synthetics. Ipe creates a really beautiful, rich looking deck, but it's on the expensive side and the hardness of the wood makes it a little more difficult to install. Cut ends need to be treated, and the material should be installed with concealed fasteners or stainless steel screws. Redwood is softer, easier to work with, and a little less expensive, but that all depends on the grade. Clear heart redwood is really beautiful, but again you're looking at a fairly large investment.

Any natural wood requires regular treatment (every one to three years, depending on exposure and weather conditions) if you want it to remain looking new, or you can allow it to weather naturally to a grayish tone. Even if you let the color weather out, you still need to regularly apply a sealer to prevent the wood from splitting and splintering.

Trex and all of the composite decking materials have the opposite pros and cons from natural wood. On the plus side, you have much lower maintenance with a composite, lower installed cost than with the upgraded wood products you mention, and no problems with splits, splinters, and all the rest. However, composites are not maintenance free, since they do require regular cleaning in order to keep them looking good. On the minus side, while composite-decking materials will definitely make for a very attractive deck, in my opinion they simply do not compare with the beauty of natural wood.

If you are planning to have a decking contractor do the work, ask them for some referrals of past decks they have done with different materials, and go check them out in person. If you are planning on doing the work yourself, the lumberyard may also have some referrals for you.

Q: I have a three-year-old cedar deck. It was looking drab, so I pressure-washed it and then sealed it with a product that didn't last. The deck now has a soft, gray fuzzy appearance and water no longer beads up. (A home center) sold me another cleaner, but I'm reluctant to use it. What do you recommend? --Jim M.

A: Unfortunately, it sounds like you're at the point where the deck needs to be sanded. This will remove the gray appearance and the fine fuzzy layer – which is actually wood fiber that's been torn up – and will smooth out the wood and prepare it to receive a new layer of finish.

First, make sure the deck is completely dry. Then I would suggest starting with 40 or 50 grit paper and working up to 80 to 100 grit. Don't go any finer then that, as this will actually smooth out the wood too much and lessen the ability of the finish to penetrate. You may want to use an electric random orbit sander, or rent a larger flooring sanding and then use the random orbit to finish up in those areas you can't get to effectively with the larger machine.

Remove the sawdust with a soft push broom, then follow with a leaf blower or similar blower to get the wood as clean as possible. Finally, I would recommend a penetrating stain with UV inhibitor that is formulated specifically for decks. Talk to the folks at an experienced paint store for the their recommendations (I would typically avoid the home centers for advice on something like this).

Q: I'm re-staining my deck, but I'm not clear as to whether I need to seal it also. Do I need to use a water sealer after staining? --Dennis L.

A: Typically you only need to do one or the other. Most stains that are formulated for decks also contain a water repellant, and there are also water repellants that are tinted. If you have a local paint store that you deal with, they can make recommendations for a good quality product that will meet your specific needs.

Q: Could you tell me where to buy the Wolman Deck-Brite you mentioned in a previous column? --Betty Z.

A: You can go to the Wolman website at www.wolman.com. There's a menu on the left side – click on "where to buy", enter your address, and you'll get a map and a list of local dealers.

Remodeling and repair questions? E-mail Paul at paul2887@direcway.com.
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Five key reasons real estate doesn't sell

By: Robert J. Bruss: Inman News
"I followed your instructions and interviewed three successful local Realtors before listing my house for sale with the agent I liked best. The reasonable asking price was based on the CMAs (comparative market analysis) forms of the three agents. But it has now been almost 45 days since listing and I only received one 'low ball' purchase offer from a local bargain hunter. What's wrong? Why hasn't my house sold yet?"

That was an e-mail I recently received from an irate seller whose house is located in a very active local market.

Recent home sales statistics from the National Association of Realtors show nationwide new and resale home sales volume and prices are on target for another near-record year. But home sales are a very localized market.

At the recent Washington, D.C., annual conference of the National Association of Real Estate Editors, I learned how localized home sales markets can be. Some markets are booming (that's called a "seller's market" where there are more qualified buyers than homes available for sale). But there are other local "buyer's markets" with more homes listed for sale than there are qualified buyers.

Perhaps your home is in a local buyer's market, which requires extraordinary effort by your listing agent to get your house sold.

FIVE KEY REASONS SOME HOMES DON'T SELL. Experienced real estate agents know why some homes don't sell even during this peak spring and summer home sales season. Here are the five key reasons some homes don't sell:

1. THE ASKING PRICE IS TOO HIGH. Ask any experienced realty agent why a specific home hasn't sold. The answer will usually be: "The asking price is too high."

This presumes the home is (a) listed in the local MLS (multiple listing service) (b) listed on www.realtor.com (the most popular home sales Web site), (c) without restrictions for other agents showing the home on their Web sites, (d) the sales commission split is the customary 50-50 for the buyer's agent, and (e) there is full cooperation by the listing agent with buyer's agents.

2. THE LISTING AGENT IS UNCOOPERATIVE WITH OTHER AGENTS. If the listing agent is less than 100 percent cooperative with buyer's agents who represent prospective buyers for your home, that is often a major reason a home hasn't sold during this peak home sales season.

Most home sales involve two real estate agents. The listing agent represents the seller. The selling agent (often called a "buyer's agent") represents the buyer. Very rarely does the listing agent also represent the buyer (called a "dual agency").

Some listing agents are uncooperative with buyer's agents, hoping to "double end" the home sale and obtain all the commission rather than having to split it with a buyer's agent.

3. CONDITION OF THE RESIDENCE. The majority of home buyers want to purchase a house or condo, turn the key in the front door, and move in. When a home is in less than "model home" condition, it is known as a fixer-upper, which usually sells substantially below market value of a comparable home requiring zero fix-up work.

Yes, there are buyers for fixer houses. But they usually insist on a bargain purchase price because they will encounter the obvious need for renovations.

If I were forced to guesstimate the proportion of home buyers willing to purchase fix-up houses and condos, I suppose the percent of the home buyer market is perhaps only 10 percent at best. For this reason, it pays to fix up homes before putting them on the market for sale.

Experienced real estate agents recommend getting a home into tip-top condition before exposing it to the market. But this doesn't require major renovation. Serious clean-up and repairs are usually sufficient. Fresh paint inside and outside is mandatory if you want to get your home sold for top dollar in its present condition.

4. "AS IS" SALE CAN BE A BUYER TURN-OFF. Many home sellers just don't want to spend even minimal efforts to fix-up their homes for sale. When a home is advertised for sale "as is," that means the seller must disclose known defects but refuses to pay for any repairs.

Such properties can be incredible bargains for savvy buyers who are willing to purchase the home in its current condition. But this is not the way to earn top dollar.

5. THE LISTING AGENT CAN BE A HOME-SALE OBSTACLE. Many real estate agents are disliked by their fellow local agents. They are known as "difficult agents."

Home sellers who listed with these unpopular agents will never know.

To illustrate, in my community the top-sales Realtor discounts his sales commission. But he is extremely successful. He has 10 assistants. However, other local realty agents usually show his listings only if they have nothing else to show their prospective buyers. The primary reason is they will receive less than the customary 3 percent real estate sales commission split.

Closely related to a disliked or difficult listing agent is the problem of a listing agent who uses poor marketing methods. Although newspaper ads remain the most effective marketing method for home sales, over 70 percent of today's home buyers start their quest on the Internet, usually at www.realtor.com. A listing agent who doesn't use newspaper advertising, have their own Web site, and who doesn't put all their listings on the Internet is losing out for their buyers.

But the best listing agents use aggressive listing techniques, such as their personal Web sites, mailings to nearby homeowners (often the best source of prospective buyers who have friends who want to move into a neighborhood), relocation services with out-of-town buyers, weekend open houses, broker open houses (an extremely effective marketing technique), and at least weekly newspaper ads.

Luxury homes over $500,000 usually require extra promotion, such as color brochures, Internet virtual tours, and local real estate home buyer magazine ads.

SUMMARY: There might be several reasons a specific home that is listed for sale with a successful realty agent has not sold during this peak home sales season.

If your house or condo has not yet sold, and it has been listed for sale more than 45 days, it is time to discuss with the listing agent the five key reasons why homes don't sell. After discussion, if you have an ineffective agent, when your listing expires it is time to switch to a more effective listing agent.
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First-Time Buyers Ride Emotional Roller Coaster

By: STEVE KERCH: The Wall Street Journal Online
Buying a first home can be a trying experience, a new study says.

Buying a home can prove to be a trying experience even for the most seasoned homeowners. But for first-time home buyers, the emotional roller coaster is especially gut-tugging, a new study says.

First-time buyers go through a series of emotional highs and lows in the home-buying process, based on 11 key "satisfaction milestones" identified in research from RealEstate.com. Those milestones include everything from the initial dreams of homeownership and what that might entail to the harsh realities of home-inspection reports.

Unlike dizzying amusement-park attractions that return you to level ground when the ride is over, the home-buying transaction ends on the proverbial high note, with new owners saying they feel most satisfied on the first night they spend in their new home.

"What's amazing in many ways is that completing the process is the absolute emotional high. You might have thought it was finding the right house or closing the deal. But that first night in the house, that was the real 'ah ha,'" said Holly Slaughter, senior marketing manager for RealEstate.com, who oversaw the study.

Along the way, though, the road takes some abrupt turns.

When first-time buyers initially begin thinking about becoming homeowners, their satisfaction is relatively high. They may be dreaming about the traditional single-family home with the white picket fence and looking at enticing photos of homes for sale on the Internet.

But the first time reality sets in, what the study identified as the "scaling" stage, the satisfaction meter hits its nadir.

"Once you start looking at what you can afford, specific neighborhoods, and getting preapproved for a mortgage -- things you don't think of when you're in the dreaming phase -- that's when there's a big drop," Slaughter said.

In fact, follow-up interviews with first-time buyers found that the most important lesson learned was that they should have gotten that mortgage approval early in the process, she said.

Once buyers come to grips with reality, emotional satisfaction increases again as they begin viewing properties for sale. Satisfaction sinks again as they "rescale" their expectations based on what they see and then takes off again when they find the house they want to bid on, the surveys show.

Negotiating the deal, however, causes another emotional tumble which is quickly reversed when the bid is accepted. But reality intrudes again during the inspection process, as emotions take another big drop.

The limbo between inspection and closing is also a down time, and the closing itself does nothing to lift the spirits. It's not until that key goes in the lock of the new home that satisfaction peaks.

"Going from renting to first-time homeownership is quite a bit different than going from apartment to apartment, which you can do in a weekend. The home-buying process involves more time, research and patience," Slaughter said.

"We know consumers feel a little anxious and ill-equipped to handle this whole process," she said. "But once they get into it, consumers really understand that that have to be patient with the process, that it's not something you just jump into, like going into Best Buy and buying an MP3 player."

The Internet has helped level that playing field, as 41% of first-time buyers in the RealEstate.com survey reported they used the Web to research home listings, school data, real estate agents, mortgage rates and other housing data.

"The Internet provides consumers, especially first-time home buyers, with a wealth of information that can help set their expectations and prepare for the ups and downs of the entire process," said Jeff Lyons, general manager of RealEstate.com. "Whether they're looking at listings, finding a Realtor or searching for the best mortgage, it's all at their fingertips."

The 11 stages of the home-buying process

These 11 "satisfaction milestones" were derived from a RealEstate.com study that involved hundred of hours of interviews in surveys and focus groups with more than 2,000 first-time home buyers.

    1.  Dreaming
    2.  Scaling
    3.  Viewing
    4.  Rescaling
    5.  Finding
    6.  Negotiating
    7.  Accepting
    8.  Inspecting
    9.  Limbo
    10. Closing
    11. Completing

Even after planning and setting expectations, home buyers still find themselves feeling unsettled during the process, the study found. Thirty percent were ill at ease with the time and effort they spent obtaining a mortgage, followed closely by those who found themselves anxious during the time spent "in limbo" between making the offer and closing on the house (29%).

Sixty-two percent of homeowners cited "being patient with the home buying process" as paramount to staying sane throughout the process, an accomplishment that's easier said than done.

Additional "after the purchase" survey findings:

    •  Forty percent of new homeowners said window coverings were the priority for
       their first night in a new home.
    •  Eight percent said celebratory champagne on the first night is a must.
    •  Repainting walls is the first home improvement 38% of new homeowners make.
    •  Although 15% say they're too broke after buying to make any changes, 14%
       start right in with renovating the bathroom or kitchen.
    •  Most homeowners say they moved across town (44%), while 9% relocated to
       another state.

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Housing Outlook Continues To Look Rosy

RealtyTimes
Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.62 percent, with an average 0.6 point, for the week ending July 7, 2005, up from last week when it averaged 5.53 percent. Last year at this time, the 30-year FRM averaged 6.01 percent.

The average for the 15-year FRM this week is 5.20 percent, with an average 0.7 point, up from last week when it averaged 5.12 percent. A year ago, the 15-year FRM averaged 5.42 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.19 percent this week, with an average 0.7 point, up from last week when it averaged 5.06 percent. There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year.

One-year Treasury-indexed ARMs averaged 4.33 percent this week, with an average 0.7 point, up from last week when it averaged 4.24 percent. At this time last year, the one-year ARM averaged 4.05 percent.

"Although mortgage rates ticked up this week, the 30-year mortgage rate -- apart from a brief two-week stint in March -- has stayed below six percent all year. As a result the housing industry is likely headed for another record-breaking year," said Frank Nothaft, Freddie Mac vice president and chief economist. "For example, the Mortgage Bankers Association survey for last week showed that applications for home purchases were just shy of the all-time record set in May."

"Freddie Mac's economic outlook for July will be released this afternoon, and it will add greater detail about our expectations for the economy in general, and housing in particular."
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The Weekend Guide! July 7 - July 10, 2005

The Weekend Guide for July 7 - July 10, 2005.
Full Article:
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Pending Home Sales Ease, Still Historically High

REALTOR® Magazine Online
The Pending Home Sales Index, the leading indicator for the housing market, slipped from near-record levels but remains historically high, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, based on data collected for May, stands at 124.9, which is 2.0 percent below April but 3.7 percent above May 2004. April’s downwardly revised reading of 127.5 was second only to a record of 128.1 in October 2004.

The index is based on pending sales of existing homes, including single-family and condos. A sale is pending when the contract has been signed but the transaction has not closed. Pending home sales typically close within one or two months of signing.

David Lereah, NAR’s chief economist, says the index shows robust home sales can be expected for June and July. “Pending home sales are at the third highest on record, so we’re looking at a banner year for the housing market,” he says. “To put the index in perspective, we’re running about 25 percentage points higher than what is considered to be historically strong.”

April and May were the highest months on record for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed. Coincidentally, 2001 was the first of four consecutive record years for existing-home sales.

Sales from 2001 are fairly close to the higher level of home sales expected in the coming decade, relative to the norms experienced in the mid-1990s. As such, an index of 100 coincides with a historically high level of home sales activity.

Regionally, the Pending Home Sales Index in the West rose 1.6 percent to 122.7 in May and was 2.8 percent above the level of a year ago. In the South, the index slipped 1.2 percent to 137.2, but was 7.9 percent higher than May 2004. The Northeast index declined 3.3 percent to a reading of 116.6 in May, but was 4.9 percent higher than a year earlier. The index in the Midwest fell 5.7 percent to 115.0 in May, and was 2.9 below a year ago.

For more on pending home sales and other housing market statistics, visit REALTOR.org's Research page.

—NAR
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Tax breaks come to those not on real estate title

Certain restrictions apply
By: Robert J. Bruss: Inman News
DEAR BOB: You had a recent item about two brothers who owned a house but one brother had bad credit. When they refinanced, the mortgage lender insisted the new loan be only in the name of the brother with good credit. But you said both brothers can deduct their share of the mortgage interest each actually paid. My question is about two unmarried people where one owns a home with a mortgage. For the second individual to deduct mortgage interest and property taxes, must that person be listed on the mortgage, just the title, or both, or neither? – Leslie M.

DEAR LESLIE: Great question! To be entitled to deduct home mortgage interest and property taxes as an itemized income tax deduction, you must (1) make the actual mortgage or property tax payment (or a portion of it), and (2) be legally obligated to do so.

There are many possibilities. If your name is on the title deed, but not on the mortgage obligation, you are entitled to the itemized tax deduction for payments you actually made. Your co-owner can deduct the other part of the payments he or she made.

Another possibility occurs for home buyers who are purchasing on a "contract for deed" or similar agreement where they do not yet hold the title, which remains in the seller's name.

In such arrangements, the seller retains the title but the buyer(s) make payments to the seller who then keeps up payments on any pre-existing mortgage. Such buyers are "equitable owners" entitled to the mortgage interest and property tax deductions.

Still another possibility occurs for homeowners who purchased "subject to" an existing mortgage without formally assuming it. Because they hold title, and would lose the property by foreclosure if they fail to pay the mortgage payments, they are entitled to deduct the mortgage interest and property taxes paid.

A frequent situation where the payor is not entitled to the deductions occurs, for example, where a son voluntarily pays mom's mortgage and property tax payments on her home, but he is not on the title and would not be harmed if he didn't make those payments. For full details, please consult your tax adviser.

SHOULD HOME BUYER PAY REALTOR'S $250 ADMINISTRATIVE FEE?

DEAR BOB: I am buying a house and recently learned about my Realtor's $250 "administrative fee." The agent is getting both the listing and selling commission. She did not tell me about this $250 fee. If I refuse to pay, and the listing-selling agent refuses to waive it, can I demand my down payment deposit back and cancel the sale? Although I am paying cash for the house, this fee was concealed under "conventional financing" on my closing statement – Kay M.

DEAR KAY: Some real estate brokerages attempt to charge unsuspecting home buyers (and sellers) like you an administrative fee, which is 100 pure profit for the brokerage.

Congratulations on resisting that unnecessary fee. The sales commission paid by the home seller is sufficient to cover the brokerage's overhead.

If I were you, I would make a very friendly phone call to the real estate agent asking her to pay the stupid $250 administrative fee from her sales commission. Most agents will gladly do so to save the sale. They hate these fees imposed by their brokerages as much as buyers and sellers do.

But you would be in breach of contract to your home seller if you refuse to complete the purchase over this little $250 item.

If your agent refuses to pay the $250 fee, I would instruct the closing settlement agent to refuse to pay that fee. Another alternative is to pay the $250 fee and then sue the agent and the brokerage in local Small Claims Court.

HOW IS RECAPTURE TAX HANDLED ON HOME SALE?

DEAR BOB: My wife and I bought our primary residence in May 2000 for $255,000. In December 2002, we moved to another home across town and rented out our former home until we sold it in June 2005 for $553,000. How do we handle the recapture tax for the depreciation deductions taken after we moved out in December 2002? Do we qualify for the $500,000 principal residence sale tax deduction? – Ethan B.

DEAR ETHAN: You clearly qualify for the Internal Revenue Code 121 principal residence sale $250,000 tax exemption (up to $500,000 for a married couple filing jointly) because you owned and occupied the home 24 of the 60 months before its sale.

However, this exemption does not include the depreciation you deducted since converting your home to a rental property in December 2002. The depreciation deducted on your former principal residence is "recaptured" (that means taxed to us normal folks) at a 25 percent federal tax rate, plus any state tax. Ask your personal tax adviser for full details.

MARRIAGE WON'T INCREASE HOME SALE TAX BREAK

DEAR BOB: My wife and I enjoy your excellent articles. Now we have a question. I've owned a home for 20 years and lived in it 2.5 of the last five years. I married my wife in August 2003. She never lived in this home I owned. We now rent this home and I moved into her home. We are considering selling my house. I know I would be entitled to the $250,000 principal residence sale tax exemption. But what about filing our tax returns as married? – Dean F.

DEAR DEAN: Nice try. You clearly qualify for the Internal Revenue Code 121 tax exemption of $250,000 because you owned and occupied your principal residence at least 24 of the 60 months before its sale.

However, marrying your wife in 2003 does not qualify for an additional $250,000 home-sale exemption. The reason is she doesn't meet the two-out-of-last-five-year occupancy test. Please consult your tax adviser for details.

HOW TO GET DEAD OR ALIVE EX-SPOUSE OFF HOME TITLE

DEAR BOB: Mom and stepfather divorced many years ago. Mother was given the right to live in their home. He was ordered by the court to stay away. But the house remained in both names. He has since been sent to a mental hospital by the court. Mom does not believe he will ever be released. However, she cannot get any information from the hospital if he is dead or alive, due to the privacy law. She still lives in the house. How can she get the house in her name only? – Evan B.

DEAR EVAN: Your mom's divorce attorney should have made certain her ex-husband signed a quit claim deed to her at the time of the divorce. She should contact that attorney for assistance because it was probably malpractice for his failure to complete that title transfer.

If that doesn't work out, perhaps because her divorce attorney is dead, if I were advising your mother I would suggest bringing a quiet title lawsuit in the court jurisdiction where the home is located.

But before doing that, she should check with the county or city where the stepfather might have died. If he died there, a death certificate will be recorded.

Your mother definitely needs an attorney to guide her through this legal maze to clear the title to her house.

HOME EQUITY AND REVERSE MORTGAGE UNAVAILABLE UNLESS YOU OWN THE LAND

DEAR BOB: I live in an excellent, five-star manufactured home park where the residents are shareholders. I contacted two financial institutions to secure a home equity loan. Both said they don't loan on manufactured homes. Isn't this illegal discrimination? I don't want to obtain a senior citizen reverse mortgage at this time – Ron M.

DEAR RON: Unless you own the land beneath your manufactured home, I don't know of any lender willing to make a home equity or reverse mortgage loan secured by your residence. Being a shareholder in your manufactured home park is not sufficient.

The reason is if there is a default, the lender can only foreclose on your personal property manufactured home (formerly known as a trailer).

However, if your manufactured home is located on a foundation on a deeded lot which you own, then you would be eligible for either a home equity loan or a senior citizen reverse mortgage.

The new Robert Bruss special report, "Seven Best Ways to Avoid Capital Gains Tax When Selling Your Home or Investment Property," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF download at www.bobbruss.com. Questions for this column are welcome at either address.
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Not all home sellers equal in a hot market

What you should know when selling in overactive markets
By: Dian Hymer: Inman News
Hot real estate markets can mean high home prices and that's great for home sellers. But all sellers will not benefit equally. Also, extreme markets can be risky. Here's what to watch out for:

As tempting as it might be, don't automatically assume that you're going to receive a huge price for your home. The media tends to report the excesses in the marketplace. You'll see a listing that sold with 35 offers, or one that sold for hundreds of thousands of dollars over the asking price. You're not likely to find reports about the listings that sold with only one offer. Yet, many homes sell this way.

Even if you do receive a flurry of fabulous offers, you could end up selling for a much lower price. The number of failed transactions usually climbs during a sizzling market.

For example, a home recently sold in the Oakland Hills in Northern California for considerably over the list price. The offer that was accepted was $100,000 higher than the next best offer. Within a day that buyer backed out. The seller's euphoria waned when $100,000 of profit evaporated overnight.

In frenzied markets, buyers feel pressured to push their offer prices higher in order to be competitive. It's not uncommon for buyers to break through their financial comfort zone in the peak of a multiple offer contest. After more sober consideration, a certain number of these buyers realize they made a mistake and withdraw from the contract.

Sellers in this situation wonder whether they're entitled to keep the buyers' good faith deposit money. You'd need to consult an attorney for the answer. If the purchase contract includes an inspection contingency, the buyers may be able to back out without penalty, depending on how the contingency is written.

Before you count on the proceeds from your sale, make sure that the buyers have removed their inspection contingency. Buyers, who are particularly generous at the offer stage, could end up settling the score a bit by asking the sellers to repair defects found during their inspections.

HOME SELLER TIP: Beware of offers made without contingencies. This may seem like a seller's dream. However, no contingency offers can lead to trouble, especially when the buyers don't understand what they're getting themselves into at the time they make their offer.

For example, if the contract doesn't have an appraisal contingency and the property appraises for less than the purchase price, the lender might not be willing to give the buyer enough money to close the sale. If the buyer has enough cash to make up the difference between the purchase price and the appraised value, and he's willing to do so, the sale can close. But, if the buyer is short of cash, you may have to reduce the purchase price to keep the deal together.

Letting a buyer purchase your home without the benefit of an inspection contingency can be very risky, particularly if there were no pre-sale inspection reports for the buyer to review before making an offer. What happens if the buyer finds significant defects in the property soon after closing?

This is another legal question that requires an opinion from a knowledgeable real estate attorney. The seller could have liability, or face and unpleasant legal hassle after closing. It's best to counter an offer that does not include an inspection contingency to provide the buyer an opportunity to inspect.

THE CLOSING: You can minimize your risk somewhat by providing pre-sale inspection reports. But, these shouldn't be a substitute for buyers having the opportunity to perform any inspections they deem necessary.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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Bills Promote Employer-Assisted Housing

By: Lew Sichelman: RealtyTimes
Bills have been introduced in the Senate and House that would grant certain tax breaks to promote employer-assisted housing, a fringe benefit that, with the high cost of housing, could become as important as healthcare and paid vacations. Lew Sichelman has the details.

Employers and their workers would receive tax breaks under a bill introduced in the Senate last week to promote employer-assisted housing, a fringe benefit many experts believe could become as important as healthcare and paid holidays.

Under the "Housing America's Workforce Act," companies which help eligible employees buy homes would receive a tax credit of 50 cents for every dollar they provide, up to $10,000 or 6 percent of the purchase price, whichever is less. If the employee is renting, the employer would get a credit of 50 cents for every dollar in rental assistance, up to a maximum of $2,000.

In addition, to ensure that works receive the full value of their companies' contributions, the act defines housing assistance as a non-taxable benefit similar to health, dental and life insurance.

Consequently, recipients of the aid would be allowed to exclude any funds they receive as taxable income on their federal tax returns.

The legislation also would establish a three-year program of competitive grants to be awarded by the Department of Housing and Urban Development to nonprofit housing organizations or local governments that provide technical assistance, program administration, and outreach support to employers undertaking EAH initiatives.

The bill was introduced by Senators Hillary Rodman Clinton, D-N.Y., Gordon Smith, R-Ore., and Mel Martinez, R-Fla., in an effort to alleviate the nationwide shortage of so-called "workforce" housing. A companion bill was offered in the House by Rep. Nydia Velázquez (D-NY).

Applauding the measure, Conrad Egan, of the National Housing Conference, called the bill an "essential piece of legislation" that offers an innovative local solution for increasing affordable housing opportunities.

Salt Lake City broker Al Mansell, president of the National Association of Realtors, which started an assistance program for its own employees in 2003, also praised the bill, saying it would allow workers to "receive the full value" of the assistance they get from their employers and encourages more companies to offer a helping hand.

While EAH programs come in all shapes and sizes, the most common benefits are direct grants, forgivable loans that need not be paid back, deferred loans that must be repaid but not immediately, matched savings, interest rate buy-downs, shared appreciation and home-buyer education classes.

An EAH plan can be easily customized to meet the unique needs and circumstances of an employer's overall recruitment, retention, benefits, and community strategies, according to Fannie Mae, a major source of funds for mortgages which has provided free assistance to several hundred employers which currently offer EAH benefits to their employees.

Employees who receive a housing benefit from their employers generally get help with at least one of the three primary obstacles to homeownership: down payment, closing costs or information about completing the home-buying process. Employers generally provide funds to the employee, which are used for a portion of the down payment, closing costs or a permanent interest rate buy-down on the employee's first mortgage.

Fannie Mae says the costs of providing and administering EAH plans are minimized or offset by the savings accrued from reductions in turnover, recruitment/relocation and training budgets, and from higher productivity and morale. Administration costs of EAH plans differ according to plan specifics, but for an average company of 4,000 employees, plan administration for a forgivable loan requires one-half of one employee's time.

The proposed law directly addresses the problems many companies face in attracting and retaining employees because of the lack of affordable housing. EAH programs are usually a ''win-win-win'' situation, said Egan of the National Housing Conference:

    • Employers benefit from a stable workforce that is often the result of living
      near work. This reduction in recruitment ultimately results in financial
      savings for the company.

    • Employees are able to enjoy the extra time provided by living closer to work,
      time that could have been spent in traffic, but instead is spent with family
      and friends.

    • Communities gain from increased investment and reduced congestion because
      families and individuals who may have just been passing through are able to
      live closer to where they work.

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Drywalling over plaster not recommended for cracked walls

Matching room's other elements comes with big price tag
By: Bill & Kevin Burnett: Inman News
Q: My husband and I own a 1924 bungalow. When we bought it last year, we had the ceilings drywalled to cover up the terrible cracking.

At the time, we didn't think too much about the walls – just patched here and there. As we have lived in the house, we have become aware of more and more poor patching jobs from previous owners.

Here's the question – why not just drywall the walls over the old plaster, instead of removing the plaster as you described in a previous column? If 3/8-inch drywall is used, it seems as if that wouldn't be that much wall space to lose from a room. The baseboards and door moldings would have to be pulled out and replaced, but that wouldn't be that big of a job, I would think.

A: We've often pondered if there might be a better way to tackle some of the projects we've taken on. An unintended reward of our adventures in home improvement has been the chance to think through a project to see if we might come up with a better mousetrap.

We congratulate you for looking for a better, easier way and encourage you to continue. What you suggest is certainly an option, but we don't think Sheetrock-ing over the plaster is the way to go. Here's why.

It requires a lot of skilled work to remove and replace "base and case," all the wood trim around a room's doors, windows and floors – we think more work than removing the plaster.

The job requires good carpentry skills to make the work look right. Even if you have the skills, it is much more expensive to buy the replacement wood than to buy the Sheetrock and mud.

From a preservationist viewpoint, you'd sacrifice all of the old vertical grained wood for modern material that's generally thinner and just doesn't look right in a historic home. Even if the wood has multiple layers of paint, time invested with a heat gun and paint stripper removing the paint will return the wood to a point where a paint job will look almost as good as new.

If the wood is stained and varnished, replacing it with like material will probably break the bank. Make a phone call to a lumberyard and ask for a per-foot price on vertical-grain 1-by-8-inch Douglas fir. Then do the multiplication. Make sure you're sitting down, as you may faint at what you learn.

Replacing baseboard and door molding is not the only wood you'll replace if you go this route. You're looking at installing new expanded doorjambs – to account for the added width of the walls. You'll have to rehang any doors whose jambs have been displaced. Making the doors fit properly is challenging.

Then there are the windows. You'll have to come up with a creative way to expand the window casings – again to account for the greater wall thickness. Another alternative is to replace them. That would be very expensive. Either way you'll compromise the historical integrity of your home.

There's an added bonus to stripping the plaster – the walls are open and ready for upgraded wiring or plumbing and installation of phone lines and television and computer cable.

Tom Krem, a San Francisco Bay Area electrical contractor, recently e-mailed us with these thoughts:

"I've owned several homes in the East Bay and always look forward to doing repairs on lath-and-plaster walls and ceilings as an opportunity to add badly needed wall outlets and overhead fixtures where there are none, and to add sconce fixtures where wanted.

"When the plaster is gone and the lath remains, it's easy to remove the bottom two courses of lath and drill the studs to pull Romex or MC cable to new boxes either cut into the baseboard or nailed to the studs."

Tom's right. We've replaced many a plaster wall, and although it's dirty work, it goes pretty quickly. Our advice is to demolish the plaster, update the wiring and Sheetrock over the exposed lath.
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Condo homeowner's association hit with 'groundless' lawsuit

Who should take responsibility for an indoor plumbing leak?
By: Robert J. Bruss: Inman News
DEAR BOB: I am on the board of directors of my condo homeowner's association. When I was asked to run for election, I considered it an honor. Because of my legal and business background, I felt I could contribute. But now that I've been on the board for about eight months, I consider it a curse. I will not run for re-election. Most of our 78 condo owners are wonderful people. But three or four are horrible people. One is suing the association for refusal to repair her kitchen floor and cabinet when her kitchen plumbing sprang a leak within her condo unit. This is clearly her responsibility, not the association's. But she is suing her own homeowner's association for the $7,500 repairs to her floor and cabinets. To defend this groundless case, we had to hire an attorney at about $200 per hour. Why would she sue us? – Edward G.

DEAR EDWARD: Now you know what a thankless job condo homeowner association directors often have. However, many condo associations never encounter hostile owners such as the one you describe.

Some condo owners have a bad attitude toward their homeowner's associations, feeling it is "me" against "them." There could be lots of reasons for the lawsuit, including mental instability.

Congratulations to your condo homeowner's association for defending that groundless lawsuit rather than paying a claim for which there is clearly no association liability. I am surprised any ethical attorney would even file that lawsuit.

SHOULD OWNER OF "SMALL ESTATE" HAVE A LIVING TRUST

DEAR BOB: Not long ago, you had an item about the advantages of a revocable living trust. I showed it to my attorney. He said that any estate (like mine) under $600,000 doesn't need a living trust. Do you agree? – Herbert S.

DEAR HERBERT: No. Most states have statutes exempting small estates, usually under $100,000, from costly probate court expenses and delays. I have no clue where your attorney came up with that $600,000 net asset number.

The primary purpose of a revocable living trust is to avoid probate costs and delays after you die. A secondary advantage is to provide for the situation where the principal trustor becomes incapacitated, such as with a severe stroke or Alzheimer's disease.

In my humble opinion, everyone who owns a house or condo, and other significant assets such as stocks, bonds, and investment real estate, needs a revocable living trust to avoid probate. Perhaps your attorney just wanted to probate your assets when you pass on so he could receive substantial fees then.

IF YOU DON'T LIKE BAD TAX ADVICE, SEEK A SECOND OPINION

DEAR BOB: My problem is I recently married. My husband and I file separate tax returns. My tax adviser says I cannot deduct the tax loss from depreciation on my rental property since I am married and filing a separate tax return. Is this true? – Cynthia L.

DEAR CYNTHIA: No. But there might be another tax reason. I suggest you seek a second opinion from another tax adviser.

Your adviser might be correct. To illustrate, if you earn over $150,000 adjusted gross income, then your passive activity tax loss from the rental property cannot be deducted from your ordinary taxable income. However, it then can be "suspended" for future use, such as when you sell the property to reduce your capital gains tax.

Ask your tax adviser for details why he thinks your tax loss from your separate rental property is not deductible against your ordinary income. I suspect the reason is not because you and your husband file separate tax returns.

The new Robert Bruss special report, "Seven Best Ways to Avoid Capital Gains Tax When Selling Your Home or Investment Property," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF download at http://www.bobbruss.com/. Questions for this column are welcome at either address.
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Funding Boosted for People Living With HIV/AIDS

REALTOR® Magazine Online
U.S. Rep. Jerrold Nadler (D-N.Y.) passed an amendment this week that restores $5 million in U.S. Department of Housing and Urban Development funding to the Housing Opportunities for People with AIDS (HOPWA) program, which faced $13 million in budget cuts last year.

The measure, which was co-sponsored by Reps. Chris Shays (R-Conn.) and Joe Crowley (D-N.Y.), partially makes up for the shortfall caused by those cuts. "This amendment scrapes together all available funding, so at least we can stop HOPWA's downhill slide," says Nadler.

The federal housing program helps the cities and states that are most affected by the AIDS epidemic to provide people suffering from the disease with housing assistance.

"The cost of treatment often forces people living with HIV and AIDS to decide between medicines and housing payments and other necessities," he says.

In addition to the HOPWA amendment, Nadler has also passed an amendment restoring funds to HUD's Section 8 Housing Choice Voucher program.
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The ABCs of credit reports

Frequent checking of scores may help eradicate errors
By: Robert J. Bruss: Inman News
My extensive "research" for this report included obtaining my current credit reports from the three nationwide credit bureaus – Experian, Trans Union, and Equifax – plus obtaining my FICO (Fair, Isaac and Co.) scores from these three credit bureaus. I invested $44.95 on the Internet at http://www.myfico.com/ for this information. I could have purchased just one credit report there for $14.95, including my FICO score, but it would not have been complete. Most mortgage lenders obtain a 3-in-1 combined credit report on prospective borrowers so I checked all three of my credit reports.

Each credit bureau had different information and a different FICO score. Not all credit card companies, department stores, banks and other creditors report your credit activity to all three credit bureaus. Some creditors don't report your credit history to any credit bureau, presumably because they want to keep your good (or bad) credit to themselves. This can hurt if you are trying to establish credit because your credit card company, department store or gasoline company doesn't report your on-time payments.

To my surprise, my FICO scores from the three credit bureaus vary significantly. Trans Union says my FICO score is 769. Equifax reports my 771 FICO score. But Experian calculated a 799 FICO score. Each FICO credit report included my strong credit points and my weak points.

Ironically, Experian, where I had the best credit score, made the worst comments about me: "The proportion of balances to credit limits (high credit) on your revolving/charge accounts is too high. The amount owed on your accounts is too high." But my Equifax report emphasized, "You have no late payments reported on your credit accounts, you demonstrate a relatively long credit history, and you have a low proportion of balances to credit limits (high credit) on your revolving/charge accounts." Equifax added, "You have too few/too many accounts being reported on your file (I have 33 credit accounts, most with zero balances, whereas average U.S. consumers have 11 current credit accounts)." Finally, Trans Union said, "You have no late payments reported on your credit accounts and you have a low proportion of balances to credit limits (high credit) on your revolving/charge accounts," but "The amount owed on your accounts is too high." At least I liked their FICO scores!

FICO says consumers in my score range of 750-799 have a delinquency rate of 2 percent. But FICO scores below 500 have an 83 percent default rate, 500-529 shows a 72 percent delinquency rate, in the 550-599 range there is a 52 percent probability of delinquency, 600-649 scores show a 31 percent delinquency rate, and 650-699 have a 15 percent delinquency rate. Over 700 the delinquency rate drops to 5 percent up to 749. If your FICO score is 800 or over, you have a 1 percent delinquency likelihood.

The median FICO score is 723 – meaning an equal number of individuals have FICO scores above and below that number. Most mortgage lenders consider a FICO score above 680 will entitle you to the lowest interest rate. The www.MyFICO.com Web site provides lots of valuable insights on how to improve your FICO score.

Virtually all creditors now use FICO scores to rate credit and mortgage applications. But each creditor's criteria vary widely. For example, I understand Home Depot won't issue its credit card to an applicant with a bankruptcy within the last 10 years. But most other creditors will approve credit if the bankruptcy has been discharged (although the borrower's interest rate won't be the lowest).

However, a major FICO flaw is their scores do not consider your income, savings, IRA and retirement accounts in relationship to your credit. FICO scores only weigh the length of your credit history, on-time payments (even one late payment beyond 30 days hurts FICO scores), number of credit accounts, percentage of balances to available credit, collections, derogatory public records (such as judgments and unpaid property taxes), and number of recent credit inquiries with the past six months.

Before applying for credit, it is very smart to invest, as I did, in your 3-in-1 credit reports and FICO scores. Incidentally, your own personal credit report purchases do NOT show up or count as an "inquiry," which can hurt your FICO score if you have too many inquiries by creditors in the last six months.Although you can go to each credit bureau's individual Web site to obtain your credit report and their version of your FICO score, the easiest and best place to obtain all this information is at http://www.myfico.com/. Maybe your credit reports and FICO scores are better than you think.

If you find mistakes that are hurting your FICO score, each credit bureau includes either an online, telephone or mail procedure to correct the errors. Be sure to follow up because the credit bureaus are not famous for great customer service! After you register an error, by federal law each credit bureau has 30 days to either verify their information is correct or remove unverified information. Ask for a free corrected copy of your credit report after the error is removed.

EXAMPLE: Several years ago, I sold a rental house at about the same time the property taxes were due. The title company was supposed to pay my property taxes so title could be delivered to the buyer free of any unpaid property taxes. But the title company failed to pay the property taxes! After a few months, the unpaid property taxes showed up on my credit reports. When I asked the title company to take care of the problem, they argued the property taxes were paid.

But the local tax collector insisted they were unpaid. Eventually, the title company paid the property taxes, plus the 10 percent penalty for late payment. Then I had to get those unpaid property taxes removed from my credit reports. If I had been applying for a mortgage or other credit, that delay of several months to clean up my credit reports would have meant I probably couldn't get a mortgage.

Before leaving the topic of credit reports, I hasten to add, by the end of 2005, everyone will be entitled to one free credit report from each of the three nationwide credit bureaus – Trans Union, Experian, and Equifax. So far, only residents of the Western and Midwestern states can use this new program. But, for many years, by state law the residents of Colorado, Georgia, Maryland, Massachusetts and Vermont have been entitled to one free credit report each year from each credit bureau. To obtain your free credit report from any of the three credit bureaus (but not including your very important FICO score), go to https://www.annualcreditreport.com/cra/index.jsp or phone 1-877-322-8228.
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Domestic Appliances Go Wireless

By: Ben King: REALTOR® Magazine Online
Innovators have long sought areas in the home in which technology could make big improvements. With advances in microprocessors and connectivity, companies such as Control4 are making those visions a reality.

Control4 and the South Korean telecom outfit SK Telecom have been using ZigBee technology to facilitate wireless control of automated household items, such as a television or an iron.

Ember CEO Jeff Gramer says lower prices and ZigBee's "mesh radio" system's flexibility, which automatically reconfigures the network when a device is added or removed, has boosted its popularity. "The reason that it is really starting to take off in the home is that the cost of a ZigBee solution is under $5," he says.

However, competition has come from abroad, as the Danish company Zensys has developed a rival technology called Z-Wave, which the company offers for roughly half of ZigBee's price. Each company plans to ship 1 million units this year.

Aside from internal competition in the market, promoters of household automation will have to demonstrate the relevance of their technology. Analysts have identified security, health care, and energy conservation as the three most likely avenues to mainstream wireless household automation.

Non-invasive monitoring of the elderly and infirmed could enable them to live independently for longer, and alerts of wasted energy would clearly save consumers money on their utility bills.

Despite lingering concerns over the ease with which the automated household could be managed and whether existing nodes are strong enough for certain complex security applications, developers are aiming for the sky.

"If every household did have 100 or so of these devices, then you get up to the billions very quickly," says Gartner's Nick Jones.
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California: Median Prices Expected to Top $523,000

REALTOR® Magazine Online
The California Association of REALTORS®' latest housing outlook calls for the statewide median price to hit $523,150 by the end of 2005, up 16 percent from last year.

Not surprisingly, the group expects the Housing Affordability Index to fall to 16 percent this year from 20 percent in 2004, meaning that only 16 percent of residents who earn the state's median income can fit a median-priced home into their budgets.

CAR chief economist Leslie Appleton-Young believes a drop in mortgage rates will make it easier for buyers to handle soaring home prices. However, she notes that the flood of buyers rushing to take advantage of low interest rates are encountering supply constraints, driving prices even higher.

The CAR forecast also anticipates a 1.4-percent jump in single-family resales to an all-time high of 633,490 from 624,740 over the same time span.
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