How to earn up to $250,000 tax-free every 24 months

Profile of a 'serial home seller'
By: Robert J. Bruss: Inman News
Have you ever met a "serial home seller?" I have. They are fascinating people, usually the "handyperson type." They also enjoy bragging about how much tax-free profit they earn buying and selling fix-up houses.

Perhaps you're getting the picture.

THE SECRET FIVE STEPS FOR EARNING $125,000 TAX-FREE PER YEAR Virtually every homeowner knows about the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly).

To be eligible for this tax exemption benefit, home sellers must have owned and occupied their principal residence at least 24 of the 60 months before its sale. Millions of home sellers use this tax break each year.

However, few home sellers use this tax exemption to create a repeatable tax-free home sale business every 24 months. Here's how to create your own tax-free home sales business:

(1) Buy a sound, well-located house needing cosmetic fix-up work.

(2) Move in, making it your principal residence for at least 24 months.

(3) Fix up the house, making profitable improvements, which cost less than the market value they add.

(4) Sell the house at a tax-free profit not more than $250,000 ($500,000 for qualified spouses).

(5) Repeat every 24 months.

HOW TO CREATE PROFITABLE HOME IMPROVEMENTS

Years ago, Mark Haroldson wrote the book "Wake Up the Financial Genius in You," which invented the term "forced inflation." The author explained that term means adding more real estate market value than the improvements cost.

Examples of profitable cosmetic improvements include painting (the most profitable home improvement of all, often adding $5 or more of market value for each $1 spent), new light fixtures, fresh landscaping, new carpets and flooring, and adding a second bathroom to a one-bathroom house.

Examples of unprofitable structural improvements (which don't add as much market value as they cost) include new roof, foundation repairs, plumbing replacement, new wiring, siding replacement, and window replacement.

In the classic best-selling real estate book of all-time, the late William Nickerson's "How I Turned $1,000 into $5 Million in Real Estate in My Spare Time" suggested the sound basic formula of spending $1 to add at least $2 in market value by making profitable cosmetic improvements.

However, some improvements are obviously necessary, such as a new roof or new wiring, but they won't add as much market value as they cost. Thankfully, other improvements often add $2 or even $3 in market value for each $1 of expense.

Some home improvements are "break-even." Examples include kitchen remodeling and bathroom upgrades. Before undertaking such expensive renovations, consider their influence on the home's ultimate resale value and the home's marketability. Ask yourself "Is this improvement really necessary?"

THE MAJOR DRAWBACK OF BEING A SERIAL HOME SELLER

Just in case you haven't yet figured out the major drawback of repeatedly buying and selling homes approximately every 24 months, it is living in the house while the fix-up work occurs. Marriages have been known to end in divorce while a home is being renovated, especially if the kitchen isn't useable and the family must suffer dining out every night.

A bit of advance planning can pay off. For example, after you purchase a fix-up house, having the upgrading work completed before moving in will avoid the hassles of having workers around. My neighbors took another approach: they spent the summer in Europe while their home was completely remodeled so they could come back to a virtually new renovated home.

THE BONUS ADVANTAGE OF BEING A SERIAL HOME SELLER

Home market value appreciation is a bonus advantage, on top of "forced inflation," of being a serial home seller.

In the last 10 years, U.S. homes have enjoyed the greatest market value increase in history. Percentage market value increases vary wildly by community, but houses in most towns have benefited from at least 75 percent increased market value during the last decade.

Historically, houses appreciate about 5 percent annually in market value. But some economically depressed areas have lower or even negative appreciation. Of course, you wouldn't want to become a serial home seller in such a community lacking sound economic conditions.

MISTAKES TO AVOID

If the idea of earning up to $250,000 tax-free (up to $500,000 for a qualified married couple) every two years by purchasing and living in a fixer-upper house appeals to you, there are some pitfalls to avoid:

(1) Avoid buying a house in excellent condition (it lacks fix-up profit potential).

(2) Avoid buying a "tear down" or "scraper" house. If you acquire such a property, be sure you don't pay more than its land value alone. Profiting from such run-down houses is extremely difficult.

(3) Avoid condominiums and townhouses. Even if you find a condo or townhouse needing profitable improvements, there is usually little profit opportunity because the market value is held down by recent sales prices of comparable condos and townhouses in the vicinity. You can fix up your unit to look great, but if the surrounding units are run-down, you won't earn much profit.

(4) Avoid buying a house in a bad location, high crime area, or a poor quality school district. As with any house purchase, these three criteria of home buyers will hold down the resale value of a house no matter how nice you fix it up.

HOW TO FIND PROFITABLE FIXER-UPPER HOUSES

The best way to find profitable fixer-upper houses is to work with a savvy buyer's agent who knows the local market.

After explaining your criteria, your agent will alert you when a house meeting your standards hits the market, whether it is listed in the local multiple listing service (MLS) or is a "for sale by owner" (FSBO).

Additional sources of profitable fixer-upper houses include foreclosures, probate and bankruptcy properties, and even vacation or second homes. As always, the key to profit success is spotting houses needing profitable improvements. In other words, look for "the right things wrong" if you want to earn up to $250,000 tax-free every 24 months.

More details are in my new special report, "How to Earn Up to $250,000 (or $500,000) Tax-Free Profits Every 24 months Buying and Selling Houses," available for $5 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.
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Home additions that stand the test of time

Tips on blending the old with the new
By: Arrol Gellner: Inman News
It's human nature to crave the fresh, the new and the fashionable - and that goes for remodeling as much as anything else. The quest for the mythical "updated look" of magazine lore has long tempted both owners and architects to graft trendy additions onto older homes just to make them ever-so-briefly fashionable again. Alas, you need only to leaf through a 20-year-old copy of Better Homes and Gardens to see how such "updates" have stood the test of time. Most would elicit groans, if not laughter.

The lesson is simple: Given the ever-shifting sands of architectural taste, the only kind of addition that'll be permanently in fashion is one that respects the original architecture.

But how to do this? It goes without saying that the overall proportions of any new addition -- wall heights, window styles and sizes, and the roof style and finish -- should be in keeping with the original building. Beyond these basics, however, the real trick to making an addition "lock" into the original house is to identify and repeat the designer's signature details. By sussing out these characteristic traits-and incidentally every house, new or old, has a whole raft of them-you can pretty much make any addition look spot-on original. Typical candidates include:

Porch railings and columns: Repeating these often-charismatic details will go a long way toward knitting an addition into the original building. If the original railings don't meet the current building code, find a workaround; don't just use an entirely different design. For example, if the old railing has openings larger than the current 4-inch maximum, install a heavy wire mesh on the inside face of the new railing to make it comply.

Window muntins (the narrow divisions between the glass) and window trim: Every home style has its own characteristic trim and muntin patterns: look for them and repeat them in the addition where possible. Muntins are less common in postwar homes, but if they're present, it's doubly important to echo them in the new work. Avoid using the two-dimensional "sandwich" muntins found in most modern windows unless that's what you find in the original building. You'll pay a premium for true muntins, but they'll make a huge difference.

Roof edges: The strong lines of roof eaves are a central element of any home style, so it's imperative to get them right. It's not enough just to match the width of the overhang-you also need to match the fascia (the board behind the gutter, if any) and the gutter itself. If you can't find the original gutter style, consider replacing all the gutters with a close match to ensure that the new work ties in flawlessly with the old.

Attic vents: With these, look for characteristic shapes: Did the designer use rectangular, pointed, arched or circular louvers, or perhaps round or square clay pipe vents? It's small flourishes like these that visually lock the addition into the existing structure. Again, if the original vent design won't meet current codes, include it for appearance, then provide additional venting elsewhere that is out of sight.

Lastly, if you have trouble coming up with a detail that has no direct precedent on the existing building, ask yourself: What would the original designer have done? Would he have used paired French doors or a sleek aluminum slider? Would he make the chimney skinny, stout or asymmetrical? In short, what would his own signature detail have been? With the original designer guiding you, your addition can't help but fit.
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Is Your Building Going Condo? Here's What You Should Know

As apartments increasingly convert to condominiums, renters face a tough choice: buy their unit or move on. Terri Cullen looks at financial issues potential buyers need to consider.
By: Terri Cullen: The Wall Street Journal Online
After signing a one-year lease in May, Lisa DaFoe started settling into her apartment rental in the Glenn Allen suburb of Richmond, Va. A month later, the legal notice came.

Her apartment building was "going condo" -- Ms. DaFoe would either have to buy her apartment, or move. The notice left her angry and confused, says Ms. DaFoe, a 43-year-old marketing coordinator. "A condo conversion? I didn't think this sort of thing still went on," Ms. DaFoe says. "I finally get around to unpacking everything and now I may have to pack it right back up again."

I know what you're thinking: Condo conversions are so 1980s. But the boom is back, fueled by the torrid residential housing market. Low mortgage rates and creative financing have turned thousands of would-be renters into homeowners, and a growing number of building owners have decided to cash in on the trend by converting apartment units to condos. The boom started heating up in 2003 as the broader real-estate market experienced a home-buying frenzy.

And, as has been the case in other areas of the real estate market, lenders are doing their share to feed the beast. "As conversions became more profitable, banks have become more readily willing to loan money," says Dan Fasulo, director of Real Capital Analytics, a research and consulting firm in New York that tracks condo conversions.

Investors and developers have also jumped on the conversion bandwagon, buying buildings from owners and immediately flipping them as condo conversions, he says. The number of rental units sold to be converted to condominiums nationwide reached 131,762 as of Nov. 1 this year, compared with 75,385 for all of 2004, Mr. Fasulo says.

This week, as part of our Chasing Condos series, I'll look at a number of financial issues renters need to consider when mulling the purchase of an apartment in a condo conversion.

A Condo-Conversion Craze

The price of the condo is the first of many expenses that renters should consider when determining whether to buy the apartment or take a pass. In addition to the down payment, mortgage and annual maintenance fees, buyers should consider the cost of insurance, the possibility of special one-time assessments, and any legal expenses that may arise when sharing ownership of a property with other people. On the other hand, renters who decide against buying may face moving costs and higher rents elsewhere.

When an apartment building converts to condos, a buyer purchases the walls and interior of the apartment, as well as a percentage of the building's common areas. The building is typically managed by a condo association, made up of condo owners.

A condo conversion can end up being a boon for some renters. When a building goes condo, renters may be given "right of first refusal," or the opportunity to buy their apartments before any other offers are considered, depending on their state's regulations governing condo conversions. It's also not uncommon for building owners to offer price concessions for a limited time to make a quick sale.

The promise of an upfront discount can be attractive at a time when condo prices have surpassed those of single-family homes. The median price for an existing condo in the U.S. reached $213,600 in September, up 9% from the same period a year earlier, according to the National Association of Realtors in Chicago. The median price for a single-family home was slightly lower, at $212,200 in September, up 14% from a year earlier.

Kuazine King and his wife Mimiko jumped at the chance to buy their two-bedroom apartment when their landlord offered a discount on the space, and $1,000 in temporary relocation costs while their building was being renovated prior to the conversion. The couple paid $369,000 for their San Diego apartment, while similar units in the building offered to the public were priced from $379,000 to $389,000, according to Mr. King.

Mr. King, a real estate agent, said the discount allowed his young family to find affordable housing in a good neighborhood. "If we were looking to buy a condo in this neighborhood that wasn't a conversion, it would definitely cost a lot more than what we paid," he says.

But for some, buying an apartment may prove too costly, even with a discount. The owner of Ms. DaFoe's building gave her the opportunity to buy her one-bedroom apartment at a $12,000 discount to its $142,000 asking price for 60 days. But she didn't bite, because she remains skeptical the space is worth the price. "With the $300 a month condo-maintenance fee and mortgage, that pushes the monthly outlay to over $1,000," she says. "If I'm going to pay that much, I'd probably look to buy something a little bigger." Her monthly rental on the apartment was $800.

A Condo Glut?

One wildcard for renters may be what some in the industry say is a looming condo glut. About 78,000 newly-built condos and townhomes will be ready for occupancy this year and another 118,000 will be available in 2006, according to Property & Portfolio Research Inc., a Boston company that tracks 54 markets.

"Over the past three years we've seen a rampant uptick in condo construction and conversions," says Robert LaQuaglia, real estate economist at Property & Portfolio Research. Prior to 2003, condo conversions have been relatively rare since the conversion boom in the '80s, he says.

In many regions, older units that are being converted are now competing with spanking new condos and even luxury hotels that are converting to condos.

With so many buildings converting and new units hitting the market during what certainly seems to be a mature real-estate market cycle, there's a greater possibility that condo-conversion owners may find themselves with buildings that are only partly sold. For renters, this scenario could play out in one of two ways: the owners might reduce the asking price to convince renters to buy, or owners might hold on to unsold condos and continue to rent them out.

Ms. DaFoe hopes a real-estate investor will buy her apartment and allow her to continue renting out her apartment. "I'm hoping I can stay here and continue to rent, no matter who the owner is," she says. "Right now, I'm just going to stay put and see what happens."

Doubling Down on Insurance

Another financial consideration when switching from renting to buying is insurance. Typically, the condo association pays the premiums to insure the shared space within the building and the grounds with association maintenance fees, as governed by the articles of the association and state laws. When theft or damage strikes inside your unit, however, it's generally your problem.

Condo owners will need to purchase a separate personal home insurance policy (called type HO-6), which is designed for condos. Premiums vary depending on location: In suburban Chicago, you may pay $150 a year for $38,000 in property protection on a one-bedroom condo, which also provides $25,000 for building protection and $300,000 in liability protection, according to Allstate Corp. in Northbrook, Ill. Condo owners in urban areas typically will pay $100 more each year than suburban homeowners for the same coverage.

If you decide to buy, you'll need to get a look at your condo association's master policy to determine what is and isn't covered, and then sit down with an agent to ensure you get the proper level of personal coverage. Because condo association rules can vary, condo buyers may misunderstand what they're responsible for under their own policy.

Email your comments to rjeditor@dowjones.com.
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Will refinance lessen homeowner's real estate tax deduction?

Benefits of lower interest rate, no mortgage insurance go undetected
By: Robert J. Bruss: Inman News
DEAR BOB: I own a townhouse condo that I bought in 1993 with a 6.5 percent interest rate, 30-year FHA mortgage. My monthly FHA mortgage insurance fee is $47. My purchase price was $130,000. Today, the condo is worth around $380,000. I have never seriously considered refinancing, although my lender periodically sends me advertisements about no-closing-cost refinances for 15 or 30 years. The interest rate would be slightly lower than my current interest rate for 15 years with a slightly higher monthly payment, but I would avoid that unnecessary $47 FHA fee. One of the reasons I am holding back is because I would be paying less interest, thus having less to deduct on my income tax. However, I would be taking about five years off the mortgage. Is such a refinance a good idea? - Susan P.

DEAR SUSAN: Let me get this straight. You have not refinanced to save interest and shorten the life of your mortgage by about five years because you enjoy paying higher interest, that non-deductible $47 FHA fee, and deducting the interest on your tax returns.

It makes no financial sense to pay higher mortgage interest just to get the itemized homeowner's interest tax deduction.

To illustrate, if you are in the 28 percent federal income tax bracket, plus state taxes, for every $100 mortgage interest you pay, you get a $28 income tax saving. Wouldn't it be better to slightly reduce your interest rate, get rid of that $47 non-deductible FHA insurance fee, and shorten the mortgage term? I think you know the answer.

HOW MUCH LIABILITY INSURANCE IS ENOUGH?

DEAR BOB: You recently suggested homeowners carry $300,000 liability coverage, plus a $2 or $3 million umbrella liability insurance policy. This seems very high to me. My homeowner's insurance policy currently has $100,000 liability coverage and I don't have any umbrella liability insurance policy. Do you think I need more liability coverage? -Martha W.

DEAR MARTHA: The answer depends on your assets, your home equity, and your potential liability risk. Accidents happen no matter how careful you might be. I won't bore you with all the possible negligence liability that might cause injury to others around your home.

If someone is severely injured, and if you are liable, your current $100,000 liability isn't much coverage if you get sued. Adding an extra $100,000 or $200,000 liability coverage on your homeowner's insurance policy shouldn't cost very much.

More important, if you are wealthy and have substantial assets, a $2 or $3 million umbrella insurance policy is very cheap protection. It also offers additional insurance coverage, such as for your negligence in an auto accident. Please consult your insurance agent for details.

WHY IT IS USUALLY BETTER TO INHERIT THAN RECEIVE REALTY GIFT DEED

DEAR BOB: Several years ago, upon the advice of our attorney, we added our four children to the title to our home and adjoining land. But after reading your frequent advice that it is usually best to inherit real estate via a living trust to get the stepped-up basis on the date of death, we're wondering if we did the right thing. The attorney has since died. Why do you say it is better to inherit real estate than to receive it as a gift before death? - Betty and Ernie G.

DEAR BETTY AND ERNIE: I hate to disagree with a fellow attorney, but depending on how title is held with your four children there might not be any stepped-up basis benefits.

Also, holding title with six people on the title is almost certain to lead to eventual problems if you want to sell but one of the co-owners refuses to sell. Or what will you do if one of the co-owners becomes incapacitated, such as with a severe stroke or Alzheimer's disease?

Holding title to your property in your living trust would have been so much easier and your heirs would get the stepped-up basis benefits. A living trust lets you maintain control. By gifting part of your title to your children, you gave up full control.

I suggest you consult a new attorney about possible title changes.

More details are in my special report, "24 Key Questions: Living Trusts Reveal How to Avoid Probate Costs and Delays," available for $5 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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Doors make a good first impression

Tips on how to sand, re-stain your home's front portal
By: Bill & Kevin Burnett: Inman News
Q: I have an oak front door that has been stained a reddish color. It is covered with shellac that has been peeling. I removed most of the shellac with a razor and discovered scratches on the door. Most of these scratches are not deep and would probably disappear with sanding. What grade sandpaper should I use, and will it alter the stain color? Also, what should I use to protect the door after sanding?

A: The front door is the gateway to your home. A well-maintained one leaves a first and lasting impression of either "wow" or "yuck."

To do the job right, strip the entire door. But please put away your razor blade. Use a chemical stripper instead to remove the remainder of the finish.

We don't think the finish is shellac. Shellac is an alcohol-based resin used to finish interior woodwork and furniture. More likely, your front door is finished with either varnish or polyurethane. Shellac is much softer than either varnish or polyurethane and does not tolerate water very well. Polyurethane and varnish are harder and stand up better to the weather and the wear and tear a front door gets.

You can buy a chemical stripper anywhere paint is sold. It is available in two consistencies, liquid and semi-paste. We recommend the semi-paste because it tends to stay where you brush it and you should not have to take the door off its hinges and lay it flat to do the job.

Apply the stripper with a paintbrush you don't mind throwing away. Wear rubber gloves and eye protection. Use drop cloths to cover the floor and anything near the work area in case some of the stripper misses the door.

Once the door is stripped and dried, do a careful inspection. You may find that the scratches you thought were there are gone. If so, they weren't in the door but in the finish.

If the scratches are still there, however, it's time to sand. Go gently. Hand sand only--no power sanders allowed. Sand only enough to remove the scratches. Too much sanding will remove too much of the stain.

Start with No. 150-grit aluminum oxide paper. Finish the job with No. 220-grit sandpaper to remove marks left by the 150-grit paper. To double-check if the scratches are gone, wet your finger and rub the area. The moisture will highlight any defects that are left.

When the sanding is done, the stain will probably vary in color. The easiest way to restore a uniform color is to re-stain the door. For an exact match, take the door to a paint dealer for a computer match. If you don't want to go through this bother--and we wouldn't--use color chips and a sample can or two to get as close as possible to the existing color. Stain is available in 4-ounce cans for a few bucks. Two or three cans won't break you and will ensure a close, if not perfect, match.

Apply the stain with a rag in a light, even coat. Let it dry for a few minutes and then wipe it off. If the sanded areas are a little lighter, apply another coat there, blending it into the surrounding area. After the stain is dry, apply the finish.

We recommend polyurethane as a clear finish on a door exposed to weather. Polyurethane is available in a variety of sheens from matte to gloss. Two coats will do on a front door.

With a clean, dry paintbrush, working from the top of the door to the bottom, apply the first coat and let it dry for at least four hours. Sand the surface with No. 220-grit sandpaper. Wipe the surface with a tack rag to remove the dust. Apply a second coat of polyurethane and you're done.

Follow these steps and you'll have an entry to be proud of for many years to come.
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How does FICO score impact real estate refinance?

Keeping on top of your credit is more important than you think
By: Tom Kelly: Inman News
Are you still steaming because an inaccurate credit report has sent your FICO score spiraling downward, causing major problems with your efforts to refinance your home?

Join the club.

A few months ago, we became victims of credit-card fraud. Some clown got access to our account and charged thousands of dollars of computer equipment on our card, via telephone, at a popular outlet in the San Francisco Bay area. We discovered the bogus charges after we had returned from a short vacation and quickly informed the bank that issued our card. We also stipulated that we would not pay the charges that we did not make.

By the time the mess was sorted out, we were judged to have been late on our credit-card payment for the month that we refused to pay the phony charges. That blemish, coupled with another late charge when my bill-paying bride was out of town in 2003, sent our FICO score lower.

FICO scores (generated by Fair Isaac Corp.) typically range from a high of 850 to a low of 300. These numbers are compiled by the three national credit agencies. Most of the time, consumers who grade out above 760 get the best mortgage rates, those between 760 and 700 are in the middle, and those under 630 usually pay the highest rates, if they can get financing.

To compound the problem, I chose to apply for a new credit card late last summer when my preferred airline carrier had a bad stretch of service. I wanted to shift my frequent-flier miles to another carrier, so I received another card supporting a different airline.

Really bad timing. When you apply for credit, or have lenders/creditors/companies inquire about your credit, your FICO score tends to go down. The lender for our proposed line of credit basically said, "what have you guys been doing?" after our application had been filed and the new FICO score had arrived.

The good news is that many states, including Washington, have specific timelines in which creditors and reporting agencies must act on credit challenges. For example, a credit agency has 30 business days to reinvestigate any contested blemish on your credit report and then contact you with the findings. If the credit bureau cannot verify the delinquency in question, the delinquency must be removed.

The Washington law passed in 1994 in an attempt to get creditors and reporting agencies to clean up their files and speed up processing. It also requires that the credit-reporting agency contact the creditor within five days to verify the debt.

We had been down this road before, prior to 1994, and spent months getting the challenge squared away. Several years ago, we had applied for a mortgage. We quickly received a credit report showing two delinquent payments to department stores. The "30-day lates" had occurred nearly seven years before then--about the time we were moving into a new home. I wrote the stores, explained what happened, and both companies removed the delinquent notices.

However, the letter from one store did not get to the credit bureau. The same delinquent notice showed up on my report the next time I considered a refinance. I dug out the original letter, called the credit agency, and demanded an explanation. Needless to say, I also called the department store chain and spoke to a credit agent. I read her my letter over the phone and explained someone had dropped the ball. What added fuel to my fire were the long-distance call (no "800 number") and the time it took away from work.

Credit reports are powerful vehicles. Jobs, homes, reputations and future credit often depend on them. If an incorrect item appears on a credit report, it's up to the consumer to see that it is corrected. For example, I once had two mortgages with the same lender. Both payments were once credited to one account, and I got a delinquency notice on the other. It took two letters and numerous phone calls to get the 30-day delinquency removed from my credit report.

Merely telling the agency is not enough. You should submit the explanation or proof in writing. People often don't understand that a credit agency cannot remove something from a credit report without the authorization of the company filing the delinquency. Delinquencies include tax liens, judgments and repossessions.

For a copy of your own credit report, contact the reporting agencies: Experian, (888) 397-3742, experian.com; Equifax, (800) 685-1111, equifax.com; and TransUnion, (312) 408-1077 transunion.com. The Fair Credit Reporting Act (FCRA) requires each of the companies to provide you with a free copy of your credit report, at your request, once every 12 months.

If you have additional problems regarding your credit report, contact the Consumer Protection Division of the state attorney general's office. The telephone numbers are (800) 551-4636 and (206) 464-6684.

Tom Kelly's new book "The New Reverse Mortgage Formula" (John Wiley & Sons) is now available in local libraries and bookstores. Tom can be reached at news@tomkelly.com
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Happy Thanksgiving!

Celebrating the season, appreciating friends and family...

Wishing you a Thanksgiving graced with good and simple things.

Best wishes at Thanksgiving!
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Real estate excluded from living trust causes trouble

Trustee seeking sale encounters legal roadblock
By: Robert J. Bruss: Inman News
DEAR BOB: I enjoy your articles, but now I need your help. My brother passed away, leaving both a living trust and a will. His trust named me trustee of his estate and assets. No probate was needed to distribute the living-trust property. However, the living trust did not say he owned 10 acres of vacant land near San Bernardino, Calif. My attorney advises not to try selling it because probate court expenses will be high. Being the only living family member (age 88), my brother's will names me to receive any remaining assets, such as the land. Can I sell the 10 acres without probate? I sure could use the money from the sale - Felix McC.

DEAR FELIX: Now you understand why I constantly advise real estate owners to include all their real estate in their living trusts to avoid probate. Your brother apparently forgot to deed his land into his living trust, thus causing you needless costs and delays.

Although there is apparently only the land asset that is subject to your brother's will, a probate proceeding must be opened so the will can be presented to the court and the land title transferred to you according to the terms of the will. Just because you are the only heir doesn't entitle you to transfer title without probate court approval.

However, in many jurisdictions, there are informal probate procedures where the asset value subject to the will is small. I suggest you hire a probate attorney in the county where the land is located.

HOW UNMARRIED HOMEOWNERS CAN CLAIM $500,000 TAX BREAK

DEAR BOB: We are not married, but we are building a house as our primary residence where we will be living together for two years or more. Is it necessary to be married to qualify for the $500,000 home sale tax exemption, or could we form a partnership? -Joseph K.

DEAR JOSEPH: When two (or more) unmarried individuals share the same primary residence, Internal Revenue Code 121 allows each co-owner up to $250,000 tax-free capital gains upon sale. For each of you to qualify, both names must be on the title and you must each own and occupy the principal residence at least 24 of the 60 months before its sale. For full details, please consult your tax adviser.

SELLER FINANCING IS IDEAL FOR STUDIO CONDO SALE

DEAR BOB: I currently rent a studio condo from an owner who owns several units in my building. I would like to buy the condo where I reside, but financing might be difficult. Would it be possible to have the seller finance my purchase? If so, how do I go about setting this up for our mutual advantage? - Patrick R.

DEAR PATRICK: If your seller owns the studio condo free and clear with no mortgage, a seller-financed mortgage, called an "installment sale," would be a "good deal" for both you and the seller.

You and the seller should sign a written sales contract, specifying the sales price, your cash down payment, and the amount and terms of the mortgage the seller will carry back for you. The buyer usually includes in the purchase offer the mortgage amount, interest rate, monthly payment, and term. If that's not acceptable to the seller, then the seller can counter offer.

The seller's security is a recorded mortgage or deed of trust against your condo title. Sellers get to spread out their capital gains tax over the years they receive payments from you. But the tax-deductible interest you pay is taxable as ordinary income to the seller.

Older sellers especially enjoy seller financing because it gives them steady retirement income without worry about "tenants and toilets." If you default, the seller can foreclose and either gets paid in full at the foreclosure sale or gets the title back to resell for a second profit. A local real estate attorney can handle the documentation.

PAYING OFF A HOME MORTGAGE ISN'T VERY COMPLICATED

DEAR BOB: I have two payments left on my mortgage, but I am very scared. I have an impounded loan with the homeowner's insurance and property taxes all included in my monthly payments. I need to know how I can protect myself when I receive official ownership of my home. When I phoned the lender, I was told they will let me know the exact final payment amount and I will receive a "paid-in-full" letter within 15 days after my last payment, but it will take 90 days for a new deed to arrive. After my mortgage is paid off, how will I pay the insurance and property taxes? - Rosalie B.

DEAR ROSALIE: Congratulations on reaching the final payments on your home mortgage. There's nothing to be scared about.

Just continue making your two last on-time payments. As you were told, your final payment may be slightly different to adjust for the fees of paying off the mortgage.

Be sure to ask your lender to promptly mail you a check for the balance in your escrow impound account for the homeowner's insurance and property taxes. That's your money. After your mortgage is paid off, you will get to pay those bills directly to your insurance company and the local property tax collector.

Although mortgage lenders are supposed to promptly clear a paid-off mortgage or deed of trust from your home's title, some lenders are very slow to do this. After 90 days, be sure to follow up and be certain you received evidence the lender recorded either a deed of reconveyance or a mortgage satisfaction. You will then own your home free and clear.

NO STEPPED-UP BASIS UNLESS YOU INHERIT PROPERTY

DEAR BOB: When my husband was diagnosed with Alzheimer's disease I sought estate planning. The lawyer changed our house title from joint tenancy with a quit claim deeding the house to my name alone to avoid possible problems if my husband had to go to a nursing home. Although he became severely disabled, he stayed at home with me until he died in July 2003. A friend told me I should have something done because I will not get a stepped-up basis if I decide to sell the house. We paid $59,000 in 1976 and today the house is worth about $600,000. Did we make a big mistake? Can the title transfer be undone? - Irene D.

DEAR IRENE: Unfortunately, you didn't receive a stepped-up basis when your husband died because you didn't receive any property interest from him at that time. Lifetime marital transfers between spouses, although tax-free, do not create stepped-up basis.

I am not aware how the recorded title transfer to you several years ago can be "undone" so you could receive your late husband's share of the house by inheritance to get a new stepped-up basis to market value as of the date he died.

If you decide to sell the house, your adjusted cost basis will be the $59,000 purchase price, plus capital improvements added during ownership. Of course, you will have the $250,000 single tax exemption allowed by Internal Revenue Code 121, presuming you own and occupy your principal residence 24 of the 60 months before its sale. For full details, please consult your tax adviser.

A WILL HAS NO EFFECT ON JOINT TENANCY PROPERTY

DEAR BOB: My elderly friend and I are on the deed to her house as joint tenants with right of survivorship. Her will says I am her personal representative. The will leaves all her real property, including the house and contents, to be divided equally between myself and two other people. She is a widow and her only son is deceased. Is this sufficient? -Pat S.

DEAR PAT: No. Your friend's will has no effect on the house, which is titled in joint- tenancy with right of survivorship. If your friend dies before you do, you will receive the full title to the house as the surviving joint tenant but not under the will. If you die first, then your friend owns the house by survivorship.

The two other people named in your friend's will won't receive any interest in that house. For full details, she should consult her attorney.

REVERSE MORTGAGES ARE NOT MOVEABLE

DEAR BOB: If we get a senior citizen reverse mortgage on our home, and decide to move in a few years, can we move the reverse mortgage to our new home? I am 73 and my wife is 69, both in good health. Who do you recommend we contact for local reverse mortgage information? - Donald S.

DEAR DONALD: Senior citizen reverse mortgages are not moveable. Because of the substantial up-front costs, I suggest you don't obtain a reverse mortgage unless you plan to stay in your current home at least five years.

When you decide to sell your home, its reverse mortgage must be paid off from the sales proceeds. Then you could get another reverse mortgage on your next house or condo.

The best place to find local reverse mortgage representatives is on the Internet at www.reversemortgage.org where you will find local state-by-state reverse mortgage agent listings. More details are in my special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," available for $5 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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Building permits pay off for sellers

Guard yourself against additional work and expenses
By: Dian Hymer: Inman News
Curing deferred maintenance before selling usually improves a home's overall appeal, which can attract more buyers for a quicker sale at a higher price.

Sellers typically do pre-sale fix-up as quickly and inexpensively as possible. This can lead to cost-cutting measures, some of which trigger unwelcome consequences.

For example, one way to keep costs down and shorten the time it takes to get work done is to bypass the permit process. Some contractors charge less if they don't have to apply for permits, pay the permit fees and wait for building inspectors to sign off on the work when it's done.

But, consider the downside. A homeowner in the Oakland Hills in Oakland, Calif., expanded his home to increase its market value. He used a licensed contactor but did not take out the required building permits.

The house sold for a good price. But when the appraiser evaluated the property for the buyer's lender, he reduced the valuation on the addition because it hadn't been done with permits. Because of this, the house did not appraise for the price the buyer offered.

To save the deal, the seller applied for permits after the fact. He not only had to pay the permit fees he'd hoped to avoid, he also had to pay penalties. In addition, walls had to be opened so that the inspector could confirm that the plumbing and electrical were properly installed. It might have taken a little more time to do the job right the first time, but it definitely would have cost less.

Other issues come into play when sellers sidestep the permit process. Some municipalities won't issue a final approval for work done with permit if there is a building code violation.

For instance, an Oakland homeowner obtained a permit to replace and relocate a gas furnace. When the city building inspector visited the property to inspect the furnace installation, he noticed electrical wiring near the furnace that didn't meet code. A contractor from Hayward, Calif., who didn't apply for a permit, had done the wiring years before and obviously wasn't well informed on Oakland code requirements. The homeowner had to have the electrical wiring corrected before the city inspector would issue a final clearance for the furnace installation.

HOUSE HUNTING TIP: If you buy a home where work was done without required permits and you take out a permit to do additional work, you could find yourself paying to correct the past owner's misdeeds. To guard against this, visit the local planning or building department and ask to see a copy of the permit history on the property. Make sure that you do this before you remove your inspection contingency from the purchase contract so that you'll have an opportunity to negotiate a satisfactory resolution if there's a problem.

Another issue is that - depending on where you live - you might not be granted a new permit if there is an outstanding permit that has not received final approval. Recently, the buyer of a Piedmont, Calif., home discovered that the seller had taken out a permit to replace the roof, but the job was never done. The roof either had to replaced and approved or the roofing permit had to be voided by the city building inspector before a new permit would be granted.

In California, home sellers are required to disclose if they are aware of work that was done without required building permits. If you're buying in a state that doesn't require this disclosure, it's even more important to check the permit history before you buy. Be aware that sellers often think that permits were obtained when they weren't.

THE CLOSING: To find out if a project requires a permit, consult with your local building or planning department.

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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Overpricing can be risky for real estate sale

Why an accurate value is so important
By: Dian Hymer: Inman News
Before the torrid real estate market of recent years, a common pricing strategy was to list your home for between 2.5 to 5 percent more than the expected sale price. This way, you would have room to negotiate with the buyer.

If you used this approach today, you'd be lucky to receive any offers. Recently, listings that were priced at or under market value received offer-sometimes multiple offers. Over-priced listings sat on the market unsold.

One risk of pricing too high for the market is that you won't receive offers. Sellers often find this hard to believe. Why won't buyers just make an offer if they think a listing is priced too high?

The answer is two-fold. First of all, if a listing is priced too high in a market where well-priced listings are selling, this may indicate that the seller has unrealistic expectations. Making an offer involves a big emotional commitment and it takes a lot of time. Most buyers don't want to waste their time offering on a listing that's over-priced for the market, particularly when there are other listings to choose from.

Secondly, even though buyers might prefer to buy without competition, the fact that a listing is popular is a stamp of approval. A property that is in high-demand is one that is likely to have good resale value.

Another risk of over-pricing is that you could end up in downward price spiral. Here’s how this can happen: You bring your home on the market listed at a price that you're sure is right. After all, your home is better--in your estimation--than anything else on the market. Your agent cautions against this, but you're intent on getting your price. After a month or two, you aren't even getting a nibble from an interested buyer. Even so, other listings similar to yours are coming on the market and selling. In fact, buyer's agents are using your over-priced listing to help them sell the well-priced listings that come on the market.

The longer your home stays on the market unsold, the bigger the risk that it will develop a negative stigma. Your home becomes the white elephant on the market. Buyers wonder if there's something wrong with the property. In most cases, the only thing wrong is the price.

So, you reluctantly agree to lower the price. Your efforts could be fruitless if you reduce too little, too late. Meanwhile, more well-priced listings come on the market and sell.

If the market softens, as it has in many areas around the country, you might have to make further price reductions. Buyers tend to gravitate to the newer listings, not the ones that have been on the market for months. You'll have to offer a cut-rate price to be competitive.

HOME SELLER TIP: It's difficult for sellers to be objective about the value of their home. Although most sellers estimate high, some sellers, who can't believe how much their home has appreciated, underestimate the value. For best results, rely on a real estate professional for a realistic price assessment. The dynamic is changing in many real estate markets around the country. Sellers, in many cases, are no longer in the driver's seat. Keep this in mind when you select a list price for your home.

Comparable sales from a few months ago may be out of date for the current market. Even though your neighbor's home sold for an exceptional price, it may have been the only game in town at the time.

THE CLOSING: Today, you're much more likely to find competition from other sellers who want to cash in on the recent extraordinary home price appreciation.

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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Mortgage shopping: what you should know before you begin

Taking the time to learn the facts
By: Jack Guttentag: Inman News
(This is part 1 of a seven-part series.)

Most consumers, before they start shopping for an automobile, decide on the brand, model and options they want. They realize that they can't shop effectively unless they know exactly what they are shopping for.

When they enter the mortgage market, in contrast, where their financial commitment may be 10 times larger, many consumers don't have a clue as to what they want. They look to the loan provider to guide them through the maze. This dependency is one major reason they often end up with a mortgage that is over-priced and, even worse, does not meet their needs.

This article poses eight questions that prospective borrowers should ask themselves before entering the market. Subsequent articles provide guidelines on how to answer them.

What type of mortgage should I select?

The major decision is between fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). ARMs have lower payments in the early years than FRMs but expose borrowers to the risk of higher payments in later years. ARMs with the lowest early-year payments have the greatest risk of future rate and payment increases.

Which mortgage options should I select?

The major options are to waive the obligation to maintain an escrow account for taxes and insurance payments, which will cost you a little; an interest-only payment option, which also costs little; and a prepayment penalty, in exchange for which the lender will usually pay you.

How long of a term should I take?

The term of a mortgage is the period used to calculate the mortgage payment. The longer the term, the lower the mortgage payment but the slower you pay down the balance. Term selection is an issue primarily on FRMs, which are available at terms ranging from 10 years to 40 years. While 15-year and 40-year ARMs exist, most lenders offer only 30-year ARMs.

How many points should I pay?

Points are fees you pay the lender at the time the loan is closed, expressed as a percent of the loan. On a $100,000 loan, two points means a payment of $2,000. The more points you pay, the lower the interest rate. Hence, points should be viewed as an investment on which the return is higher the longer you have the mortgage.

How large a down payment should I make?

The down payment is the difference between the loan amount and the lower of the sale price or appraised value. If you have discretion over how much to put down, the down payment, like points, is best viewed as an investment. Investment in a larger down payment can yield a high return if it flips the loan into a lower mortgage insurance or interest rate category.

If I put less than 20 percent down, what type of mortgage insurance should I select?

Borrowers who put down less than 20 percent are charged for the risk they impose on lenders. However, borrowers often can choose how to pay. One option is to pay a premium to a private mortgage insurance company (PMI) selected by the lender. A second option is to pay the lender a higher interest rate, which is called lender-provided mortgage insurance (LPMI). In this case, the lender purchases insurance from a PMI, though not always. The third option is a "piggyback" arrangement, where the borrower takes out a first mortgage for 80 percent of property value, and a higher-rate second mortgage for the balance of the funds needed.

How long a lock period do I need and when should I lock?

The lock period is the period during which the lender guarantees the rate and points: the longer the lock period, the higher the price. Borrowers must choose when to lock and for how long.

What documentation requirements should I seek?

A lender's "documentation requirements" stipulate the information about the borrower's finances that must be provided and how this information will be verified, and then used by the lender. Lenders offer choices ranging from "full documentation" to "no-docs." Because the risk to the lender rises as documentation requirements become less stringent, the price of the mortgage rises correspondingly. Borrowers may or may not have any leeway, depending on what documentation they can provide.

Next week: How should borrowers decide the type of mortgage that best meets their needs?

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com.
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Condos Go Cabanas: Developers Sell Poolside Huts as Upgrades

Cabanas are the latest hot extra at condominium projects.
By: Cheryl Lu-Lien Tan: The Wall Street Journal Online
Ranging in space from about 140 to 500 square feet, they may come equipped with bathrooms or even a tiny kitchen and can cost as much as $500,000.

When Bruce Tucker moves into his new $400,000 digs at the Ocean Marine Yacht Club in Hallandale Beach, Fla., the draw won't be the high-end appliances, the marble baths or even the balconies with ocean views.

Instead, the 33-year-old software developer plans to spend a lot of time inside his own private cabana next to the complex's pool, where he and his buddies will gather around a 50-inch plasma television set and toss back beers. The cabana's price: $43,000 - or nearly 11% of the cost of his two-bedroom apartment - and that doesn't include the dark wood floors, cushy sofa and bar that he plans to have his decorator install.

Cabanas, prime real estate for the hip set in boutique hotels such as the Delano in Miami and the W in Los Angeles, are the latest hot extra at condominium projects. While the hotel versions are rented out for a few hours or a day, and tend to be made of flimsy fabric or wood, the new condo varieties are deeded to owners like the condo apartments themselves and usually constructed of sturdy materials like concrete. Ranging in space from about 140 to 500 square feet, they may come equipped with bathrooms or even a tiny kitchen. Some cost as much as $500,000, and those with better views or more prominent locations command the highest prices.

"It's sort of like having a prime parking space," says Steven Zelman, president of Home of Fine Decorators, a Hallandale Beach interior-design company that just completed a $200,000 renovation of a Miami condo cabana. "It's about convenience and stature - the guy who has that spot right in front, he wants everyone to see his car."

High Markups

In addition to providing a new selling point, cabanas offer developers another plus: added profit. The poolside units typically occupy space that would have been filled by such nonrevenue-generators as deck chairs or shrubbery. Because the cabanas often are basic shells described as "decorator ready" - blank slates without flooring, cabinetry or appliances - they don't cost much to build. Lee Hodges, project manager for Related Group of Florida, estimates it cost his company a bit more than $16,000 to erect each of the 26 beachfront cabanas at the Beach Club in Hallandale Beach yet it sold them for $100,000 apiece - a far higher markup than that of most condos.

The move to build pricey cabanas comes amid early signs of a slowdown in the booming real-estate market. In the last 10 years, condo sales have taken off as more baby boomers have downsized, purchased second homes or sought out apartments as investments. Last year, about 820,000 condos changed hands in the U.S., accounting for 12% of all residential real-estate transactions, according to the National Association of Realtors. That's up from 8.8% of the market in 1994, when 342,000 condos were sold. Some real-estate experts question whether the pace can keep up.

So far, condo buyers have been snapping up cabanas. Turnberry Associates' Ocean Colony in Miami sold 16 of its 19 beachside cabanas almost immediately when they first went on sale in January 2003 - at $500,000 a pop. (Ocean Colony condos themselves go for about $1.8 million to $5.5 million.) Only one cabana remains - and it's being reserved for the buyer of the largest apartment in the development. Jim Cohen, Turnberry's vice president of sales, says he has 37 residents on a waiting list, should any of the cabanas come back on the market or the remaining one go unsold.

"They're paying half a million for 250 square feet," Mr. Cohen says. "Do the math - I should have done the whole project in cabanas."

Eric and Helena Fordin say they didn't think twice about buying a cabana when they bought a $368,000 apartment at the Beach Club. "It was absolutely worth every penny," says Ms. Fordin, an events coordinator. "The blinds open up to have a full view of the ocean, so even when it's rainy we'll sit on the couch and watch a movie - and we're still on the beach."

Cabana Envy

Demand is so robust that another Beach Club resident tried to buy the Fordins' cabana for several times the $100,000 the couple had just paid. "Right when I moved in, someone who was closing on their unit offered me $200,000," says Mr. Fordin, a real estate developer. "I said, 'No, thank you,' and then they said, 'Would you take $300,000? We can do an all-cash deal tomorrow.'" The couple turned down that offer as well.

Realtor Silvia Jokalova says she's been envious of cabana people since she moved to the Beach Club six weeks ago. "I can see myself having barbecues down there, throwing parties for friends and family," she says. She has put her name on a waiting list and even is considering announcing her desire to buy one at an upcoming condo board meeting.

Yet cabana ownership comes with restrictions. Many condo associations have strict rules, such as forbidding people from staying in them overnight. "We didn't want people buying them for their maids or having their mother come live there," says Turnberry's Mr. Cohen. Owners who sell their apartments typically are required to sell their cabanas, too. Ocean Colony also lists guidelines on cabana neatness: Pathways leading up to cabana entrances have to be clutter-free and spaces that can be seen from the outside should be kept tidy, too. Condo associations can issue a fine or reprimand if a cabana owner flouts the rules.

Developers say they are confident their cabanas will continue to sell because of the strong demand for waterside amenities, particularly in Florida. "A big part of why you're buying here is the pool or the beach," says James Helman, executive vice president of Tarragon's Southern Division, which is building 15 cabanas at its Las Olas River House project in Fort Lauderdale. The 250- to 300-square-foot cabanas are priced from $175,000 to $200,000, and the five the company has put on the market so far sold right away.

Fifield Realty hasn't even begun selling the 28 cabanas at its Allure Las Vegas project, but it says it already has at least 50 apartment owners on the waiting list for the $30,000-to-$50,000 poolside structures. "A lot of it is image," says Rick Cavenaugh, Fifield's president. "If you're going to live your life down by the pool, you want to be there, you want people to see you there."
Email your comments to rjeditor@dowjones.com.
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Pros and cons of 'flipping' real estate

Process not as easy as many think
By: Robert J. Bruss: Inman News
Every property is a "flipper" or a "keeper." If you are not familiar with those real estate terms, a "flipper" is a property that is bought for a quick resale profit, usually in less than six months. But a "keeper" is a property held for at least a year, often for many years.

Most houses and condos are keepers. Their owners plan to own them for many years.

But some properties are ideal for fast resale profits. For example, if you buy a foreclosure property at a bargain price, it can often be "flipped" (meaning sold) to another buyer for a handsome profit within a few days or weeks.

Flippers are especially attractive to beginner real estate investors who want to quickly build up their "cash stash" from profits of buying low and reselling higher. There's nothing wrong, illegal or unethical by earning fast resale profits.

However, sometimes a property that looks like a quick easy resale at a large profit turns out otherwise.

To illustrate, I have an investor friend who bought a house from an elderly seller who wanted an easy cash sale without paying a real estate sales commission. Her asking price was about $40,000 below market value. My friend had access to cash and he closed the purchase within a few weeks. Only then did he discover the good looking house was riddled with extensive termite damage which would cost about $25,000 to repair.

That house also needed a new roof. Rather than being a quick "flipper" the house turned out to be a long term "keeper" until its market value appreciated to make the resale profitable after about three years. Meanwhile, he rented the house to tenants who eventually bought it.

But my friend enjoyed several advantages of holding that house for several years: (1) instead of earning a quick $40,000 resale profit he netted well over $100,000, and (2) by holding title over 12 months his resale profit would be taxed as a long term capital gain at a 15 percent tax rate rather than as ordinary income

THE KING OF FLIPPERS. In his recent book, "How to Be a Quick Turn Real Estate Millionaire," Ron LeGrand explains how his student Marco Kozlowski paid $100 for an option to buy an Orlando, Fla., house for $4,000,000 from a wealthy seller. The house had previously been listed for sale with a Realtor at $8.6 million, but it didn't sell.

Kozlowski, a 30-year-old, new realty investor, hired a professional auction company, which, 43 days later, auctioned that house for $5.6 million cash. The result was a "flipper" gross profit of $1.6 million. LeGrand reports Kozlowski acquired 119 deeds on flipper houses in the Orlando area within his first year of investing. Today, he teaches others how to profitably flip properties.

SECRETS OF PROFITABLE PROPERTY FLIPPING. Lest you think flipping properties is easy and simple, it isn't. But there are several secrets for finding these properties:

(1) Find a motivated seller who wants to sell but doesn't insist on receiving top dollar and will sell at least 25 percent below market value. Strong seller motivations include out-of-town job transfers, unemployment, divorce, financial problems, illness, death in the family, and health problems.

Longtime homeowners often have large home equities and are willing to sell below market value for a quick easy sale.

(2) Look for properties in need of inexpensive cosmetic fix-up rather than properties needing major structural repairs. "El dumpo" properties often just need fresh paint (the most profitable improvement of all), new light fixtures, cleaning and repairs, new carpets and flooring, and fresh landscaping.

Unprofitable repairs to avoid include structural changes, new roof and foundation repairs, which are very expensive but add little or no market value.

(3) Sources of "fast flip" properties include local real estate agents, newspaper classified ads, foreclosure sales, probate sales, bankruptcies, recently expired MLS (multiple listing service) listings, vacant rental houses, absentee out-of-town owner lists, and properties with unpaid property taxes.

(4) Another great way to find potential flippers is to drive around neighborhoods looking for houses that appear to be vacant, run-down, or abandoned. By jotting down the address, taking a photo to remember the house, and then checking the owner's mailing address at the tax collector's office will often uncover an owner who would be willing to sell.

Even the best neighborhoods have houses meeting these criteria. If you discover the house has been owned for many years, often with a small or no mortgage and a large equity, the seller might be extremely eager to sell at a bargain price.

POSSIBLE DISADVANTAGES OF FLIPPERS. As with any profitable enterprise, there are potential disadvantages of flipping properties:

(1) Profits from the sale of investment property held less than 12 months are taxed at ordinary income tax rates. However, if you hold title over one year, then the capital gains are currently taxed at a low 15 percent rate, plus any applicable state tax.

However, if you own and occupy the property as your principal residence for at least 24 of the 60 months before its sale, then your profit up to $250,000 (up to $500,000 for a married couple filing a joint tax return) is completely tax-free under Internal Revenue Code 121.

(2) Fix-up work is a disadvantage for some investors who don't like to upgrade properties. By hiring fix-up workers, the cosmetic improvements can usually be accomplished within 30 days to increase the property's market value. A goal of most experienced "flippers" is to add at least $2 of market value for each $1 spent on fix-up.

(3) A quick profitable resale forfeits the potential for future profits from the property's long-term appreciation in market value. With median U.S. home prices currently appreciating around 10 percent annually, many investors adopt a strategy of keeping some properties and flipping others.

SUMMARY: Flipping properties for quick resale profits can be a great way to get started investing in real estate. But the potential disadvantages include paying ordinary income tax rates, rather than the lower long term capital gain tax rates. More details are in my special report, "Pros and Cons of Flipping Houses and Investment Properties for Fast Cash Flow Profits," available for $5 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.
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Fast real estate profits require elbow grease

Part 3: How to start investing in real estate
By: Robert J. Bruss: Inman News
There are many methods to become very wealthy, or just modestly wealthy, with your real estate investments. Although I have personally done "pretty good" investing in real estate, many of my friends, college real estate students and subscribers have done much better. I'm extremely happy for them! This four-part series will explore the question: Why do I want to invest in real estate? (See Part 1: First-timers find a place to call home and Part 2: Single-family homes best spot to sink money.)

3 – I want to earn quick real estate profits. Real estate investing is not a get-rich-quick overnight technique. Yes, I know real estate investors who buy run-down fixer-upper houses, apartment buildings, shopping centers, hotels, warehouses and office buildings who have earned "fast" profits in less than 12 months by either selling after fix-up or refinancing to take out tax-free refinance cash. But such fix-up profits usually involve a dirty little four-letter word, W-O-R-K, which many investors dislike.

Occasionally, in the stock market it is possible to earn fast profits by purchasing an undervalued stock you anticipate will increase substantially in value during the next few weeks. But that is a rare event. Because of stock-market volatility and losses, many common stock-market investors have switched to real estate investment properties, especially rental houses, which don't plummet in value overnight.

Some investors think buying REIT (real estate investment trust) stock is a great way to earn big real estate profits without work. Although many REITs have done very well, especially because REITs are required by law to pay out 90 percent of earnings in dividends to their stockholders, REIT investors are at the mercy of the REIT managers. Such REIT purchases are really not real estate investments, primarily due to the individual investor's lack of control. Rather, they are stock-market investments that have most of their assets in real estate.

It is possible to earn quick real estate profits. The technique is called "flipping." That means you acquire a property at a bargain-basement below-market value purchase price, perhaps fix it up a little, and then quickly sell it at a profit. It has been and can be done. The problem is once the investor stops buying and flipping properties, the profit income also stops. Equally important, those resale profits are taxable at ordinary income tax rates if the property is held less than 12 months.

A recent book I recommend on this topic is "How to Be a Quick Turn Real Estate Millionaire" by Ron LeGrand. Be sure to order and listen to his excellent free CDs, especially the one on land trusts, which come with the book purchase. But be aware his relentless telemarketers will then try to sell you more products and seminars. I also have a special report, "Pros and Cons of Flipping Houses and Investment Properties for Fast Cash Flow Profits," which might interest you.
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Ten Fall Maintenance Tips

Pillar To Post, North America's largest home inspection service, recommends Ten Fall Maintenance Tips to better prepare a home for the winter.
Realty Times
Because homes react to seasonal changes in temperature and moisture levels, it's important that maintenance is done in order to avoid higher energy bills, or worse, damage to the home.

"It's important for people to know that Fall maintenance will not only make their homes more energy efficient during the winter months, but will safeguard their homes against potential seasonal 'disasters' such as leaking roofs or home fires due to neglected chimneys," says Dan Steward, Pillar To Post president.

These 10 steps can help homeowners be prepared and safe this winter:

    1. Check the heating system. Check the filter, pilot light and burners in a
       system fueled by gas or oil. Fireplaces, boilers, water heaters, space
       heaters and wood burning stoves should also be serviced every year.

    2. Clean ducts in the heating system. Clean and vacuum dust from vents,
       baseboard heaters and cold air returns. Dust build-up in ducts is a major
       cause of indoor pollutants. In a home that is shut tight for the winter, dust
       increases the possibility of illness. Ducts should be professionally cleaned
       about every three years.

    3. Test fire and smoke alarms as well as carbon monoxide detectors. Often alarms
       and detectors go unattended. Batteries should be checked every six months to
       ensure that they're working.

    4. Remove excess leaves and damaged branches surrounding the house. Now that
       leaves have fallen off of trees, it's a good time to remove any dead
       branches. Dead branches have the potential to break and fall, ruining roofs
       or decks.

    5. Maintain gutters. Remove all debris that can slow or impede the ability of
       the water to drain effectively from the roof. Trapped water can freeze then
       thaw, an action which could be destructive not only to the gutters themselves
       but to the adjoining roof as well.

    6. Inspect the roof. Look for damaged or loose shingles, gaps in the flashing at
       joints with siding, vents and flues, as well as damaged mortar around the
       chimney. Proactive maintenance can prevent emergencies and expensive repairs.

    7. Inspect exterior walls and window sills. Check walls and window sills for
       damage such as cracks, gaps, loose or crumbling mortar, along with splitting
       and decaying wood. Wood trim and siding can suffer from deterioration or
       loose paint. Caulk exterior joints around windows and doors, which helps keep
       the home weather tight and helps to lower heating bills .

    8. Maintain steps and handrails. Repair broken steps and secure loose banisters.
       Broken steps are easily hidden beneath snow, which could cause a dangerous
       fall. Similarly, a person slipping on ice will grab a handrail for support.

    9. Prepare storm windows for installation. Check all weather stripping and all
       fasteners. Well-maintained and properly fitted storm windows will help to
       save on energy costs during the winter months.

    10.Pools, sprinkler systems and outside faucets should be shut down. Homeowners
       can shut down outside faucets, while the other tasks are best performed by
       industry professionals to prevent cracked pipes and pool bottoms.

One extra bonus tip for those people who are planning to do some winter projects inside the house, such as painting or carpet renewing: Paint interior walls before it gets too cold to leave the windows open for ventilation from the smell or the fumes. The same goes for carpet cleaning or floor refinishing.

Planning ahead in order to complete these Ten Maintenance Tips is important for many reasons. If these maintenance tips are done over the next few weeks, people can then sit back and enjoy the winter, the holidays, lower energy bills and their own peace of mind.

Pillar To Post is the leading provider of home inspection services to home buyers and real estate professionals in North America. Operating more than 400 franchises in the U.S. and Canada, Pillar To Post offers the most consistently accurate and comprehensive inspection program available to residential buyers and sellers. Founded more than a decade ago, Pillar To Post is today ranked #1 in the Home Inspections category by Entrepreneur Magazine. The company's home inspections services ensure that Pillar To Post supports home buyers, sellers and real estate professionals to provide peace of mind and informed decisions. For more information visit pillartopost.com.
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Holidays Coming? So Are the Most Serious Homebuyers

A lot of sellers and real estate agents think no one is buying between Thanksgiving and the Super Bowl. They're wrong.
By: Al Heavens: RealtyTimes
Not only are real estate sales slowing a bit in many areas; the market is heading into what typically is a holiday slowdown.

A lot of real estate agents just give up and go turkey stuffing or Christmas shopping. This is a bad idea, because the holidays are usually filled with serious buyers who often are willing to act quickly to get in to a house before the first of the year.

Winter, too, usually finds a lot of agents getting ready for the spring market instead of focusing on the here and now.

I'll acknowledge that a lot of houses don't look their best with icicles hanging from the gutters and several feet of snow shoveled on either side of the walk, but serious buyers usually don't care.

In fact, with winter conditions typically the harshest of the entire year, these buyers can see how well the house holds up to the elements. If there isn't water dripping down the walls from ice dams on the roofs, and if the interior is toasty without the furnace thermostat cranked up to 90, a lot of buyers will take out their checkbooks.

You don't get snow in Southern California or Houston? You do get rain and wind, so check those roofs and cut the tree branches away from the house.

The holidays offer sellers a perfect opportunity to dress up the house for prospective buyers. There are some buyers out there who like tall, live Christmas trees and will look favorably on a spacious family room with nine or 10-foot ceilings to accommodate one.

Don't overdo your decorations. You may like your house bathed in enough flashing lights to guide planes to the nearest airport, but your tastes and the buyers' rarely mesh. The majority of buyers still prefer the Currier & Ives engraving to the stage lighting for a Metallica concert.

If they do like gaudy, let them decide that after settlement.

Be willing to accommodate open houses and evening appointments. Because holiday-time buyers tend to be more serious, there won't be many of either. Go shopping or to others' holiday parties while the house is being shown.

Now, seller, you are probably asking, "Won't this disrupt my holidays?" Of course, but just this year. You want to sell the house, right? Focus on next Christmas.

Settlement is typically 90 days after the agreement of sale is signed, so moving on Christmas Day or the day after isn't going to be necessary. In addition, home inspectors, insurance agents, and brokerage staff aren't as busy at this time of the year as in the spring, for example, so the responses to your phone calls (unless you try to contact them at 6 p.m. Christmas Eve) will be quicker.

So what about the dead of winter? Here's the thinking, as wrong-headed as it may sound: The market takes a hiatus from Thanksgiving to the day after the Superbowl.

Nonsense. This assumes everyone watches football. A lot of people do, but even the diehards might be willing to take a quick look at some houses during half-time or on a weekday evening.

A caveat: Don't base your decision on a house you've only seen by street lighting. Although light is at a premium in the winter, you'll need to find some time in the day to do it.

Showing a house in winter is somewhat of a challenge, but again you are dealing with motivated buyers. If you are concerned that the snow and cold might be turn-off, a well-placed series of photos showing the house in other times of the year might help.

Keep the sidewalks clear and ice-free. Use warm, sunny days to repair winter damage, especially before the house is shown. Try to bring as much available light into the house as you can, keeping the curtains, blinds and shades open and introducing additional lighting -- a lamp -- in darker rooms.

With growing concern over energy costs, the agent might focus on what you have done to keep those expenses under control. Is the crawlspace insulated? What about the attic? What are utility bills like in a typical winter?

Try to bring the green inside. You can buy trees and exotic plants at the grocery store for a few bucks. Just make sure you keep them watered.

And growing things out of doors in the winter is possible. Window boxes can hold hardy pansies, which seem to thrive in many colder areas in December and January. There are all sorts of evergreens that do their best in the winter months.

Since most markets are beginning to experience increases in inventory, you'll probably be better off selling now than waiting till the spring, when you have to compete with the rest of the world.
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The Weekend Guide! November 17 - November 20, 2005

The Weekend Guide for November 17 - November 20, 2005.
Full Article:
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State Existing-Home Sales Hit Another Record in 3Q

NAR: REALTOR® Magazine Online
Total state existing-home sales set a record in the third quarter, with 44 states and the District of Columbia showing higher sales than a year ago, according to the NATIONAL ASSOCIATION OF REALTORS®.

NAR’s quarterly report on total existing-home sales, which include single-family and condos, shows that the national seasonally adjusted annual rate was 7.24 million units in the third quarter, up 6.5 percent from 6.80 million in the third quarter of 2004. The previous record was 7.22 million units in the second quarter of this year.

The strongest increase was in Arkansas, where the third-quarter sales activity rose 32.1 percent compared with the third quarter of 2004. Utah existing-home sales increased 26.6 percent from a year earlier, and Washington state was up by 20.0 percent. Fourteen other states recorded double-digit sales gains. Four states experienced declines, while complete data for two states was not available.

David Lereah, NAR’s chief economist, says third-quarter home sales mark a peak for the current housing cycle. “We’re fairly confident that third-quarter home sales will prove to be the high point of the five-year housing boom,” he says. “Favorable housing affordability conditions complemented a strong fundamental demand, but we expect a modest easing from higher mortgage interest rates and home sales will hold at a more sustainable pace.” He expects overall home sales next year to be the second highest on record.

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 5.76 percent in the third quarter, up from 5.72 percent in the second quarter; the rate it was 5.89 percent in the third quarter of 2004.

NAR President Thomas M. Stevens from Vienna, Va., says the transitioning housing market will continue to see positive market fundamentals. “Although mortgage interest rates are expected to gradually rise, they will remain historically low; the labor market is firming and the economy is growing,” said Stevens, senior vice president of NRT Inc. “Our growing population has a fundamental need for housing, so these conditions mean home sales should stay at levels that help to support the overall economy.”

Regionally, the South recorded the strongest annual increase with an existing-home sales pace of 2.77 million units in the third quarter, up 8.2 percent from a year earlier. After Arkansas, the strongest increase in the region was in South Carolina, up 18.1 percent from the third quarter of 2004, followed by Georgia, where existing-home sales rose 14.4 percent, and Texas, which increased 13.9 percent.

The Northeast saw a third quarter existing-home sales rate of 1.20 million units, up 6.9 percent from the third quarter of 2004. Massachusetts experienced the strongest increase in the region with sales activity 11.2 percent above a year ago, followed by Connecticut, up 8.3 percent, and New York, which increased 7.0 percent.

In the Midwest, total existing-home sales in the third quarter increased 5.0 percent to a 1.63 million-unit annual pace compared to a year ago. North Dakota led the region, up 19.3 percent from the third quarter of last year, followed by Indiana, with a 12.3 percent rise, and South Dakota, up 10.5 percent.

In the West, existing-home sales rose 4.1 percent to a pace of 1.64 million units in the third quarter from the same period in 2004. After Utah and Washington, the strongest increase was in Oregon, where total existing-home sales rose 15.5 percent compared to a year ago; Idaho rose 12.3 percent while Alaska increased 11.7 percent.
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NAR: Home Appreciation Still Hot in Most Areas

NAR: REALTOR® Magazine Online
Strong annual increases in median existing-home prices were common in most metropolitan areas during the third quarter, according to the latest report by the NATIONAL ASSOCIATION OF REALTORS®.

The association’s third-quarter median existing single-family home price survey, covering changes in 147 metropolitan statistical areas, shows 69 areas with double-digit annual price increases. Six metros had small price declines.

The national median existing single-family home price was $215,900 in the third quarter, up 14.7 percent from the third quarter of 2004 when the median price was $188,200. The median is a typical market price where half of the homes sold for more and half sold for less. Ninety-seven metros—two-thirds of the total—experienced increases greater than the U.S. historic average of 6.4 percent.

David Lereah, NAR’s chief economist, says the pace of price appreciation in the third quarter is far from being normal over time. “These historically high home price gains are the simple result of more buyers than sellers in the market,” he says. “The good news is that inventory levels are improving, and housing supply will come close to buyer demand in 2006. In other words, we expect a healthy and more balanced market next year.”

Since 1968, home prices generally have risen between 1 and 2 percentage points faster than the overall rate of inflation; the historic average price gain appears high relative to inflation because there was a period of rapid inflation in the U.S. during the 1970s and early 1980s.

NAR President Thomas M. Stevens explains what buyers and sellers generally can expect in the coming year. “Improvements in inventory in most areas should take pressure off of home buyers to make snap decisions, or find themselves in a competitive bidding situation,” says Stevens, senior vice president of NRT Inc. in Vienna, Va. “This calmer real estate market will create a more level environment for buyers in weighing options to invest in the American dream of homeownership. Sellers will enjoy very healthy gains on the value of their home, but should expect annual increases to be much closer to historic levels going forward.”

The strongest price increase in the nation was in the Phoenix-Mesa-Scottsdale area of Arizona, where the third quarter price of $268,000 rose 55.2 percent from a year earlier. Next was Orlando, Fla., at $261,300, up 44.8 percent from the third quarter of 2004. Cape Coral-Fort Meyers, Fla., with a third quarter median price of $277,600, was up 42.5 percent in the last year.

The areas experiencing price declines were lower-priced markets, with one or both of the conditions necessary for price softness—local economic weakness, primarily in jobs, or a large supply of homes for sale in the local area.

Median third-quarter metro area prices ranged from $72,800 in Danville, Ill., to nearly 10 times that amount in the San Francisco-Oakland-Fremont area of California where the median price was $721,900. The second most expensive area in the United States was Anaheim-Santa Ana (Orange County, Calif.) at $710,700, followed by the Honolulu area and San Diego-Carlsbad-San Marcos area of California, tied at $615,000.

Other low-cost markets include, Elmira, N.Y., the second least-costly metro, at $77,100, and Decatur, Ill., with a third-quarter typical resale home price of $85,500.

Regionally, the strongest increase was in the West, where the median existing single-family home price rose 18.8 percent over the last year to $322,000 during the third quarter. After Phoenix-Mesa-Scottsdale, the strongest increase in the West was in the Tucson area, where the median price of $242,300 rose 34.7 percent from a year earlier, followed by Honolulu, up 31.1 percent, and Eugene-Springfield, Ore., at $208,900, up 25.9 percent from the third quarter of 2004.

In the Northeast, the median resale home price during the third quarter was $249,300, up 13.2 percent from a year earlier. The strongest increase in the region was in the Glenn Falls, N.Y., area, at $160,000, up 25.4 percent from the third quarter of 2004, followed by Kingston, N.Y., with a median price of $259,300, up 19.8 percent, and the Philadelphia-Camden-Wilmington area of Pennsylvania, New Jersey, Delaware, and Maryland, at $230,600, up 19.0 percent.

In the Midwest, the third-quarter median existing-home price of $173,300 rose 13.1 percent from the same period in 2004. The strongest increase in the Midwest was in the Waterloo-Cedar Falls area of Iowa, where the median price of $111,000 was 14.8 percent higher than the third quarter of 2004. Next was Bloomington-Normal, Ill., at $170,900, up 14.5 percent, and Rockford, Ill., at $120,400, up 13.7 percent in the last year.

In the South, the typical existing-home price was $183,500 in the third quarter, up 7.7 percent from a year earlier. After the Orlando and Cape Coral-Fort Meyers areas of Florida, the strongest increase in the South was in the Deltona-Daytona Beach-Ormond Beach, Fla., area, at $208,200, up 33.8 percent from the third quarter of 2004. Next was Palm Bay-Melbourne-Titusville, Fla., where the third quarter median price of $212,800 was 33.6 percent higher than a year ago, and Ocala, Fla., at $151,500, up 31.9 percent.
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Why traditional real estate brokerage is alive and well

Guest perspective: Full-service brokers offer expertise, assume risk
By: Kelly Sweeney: Inman News
Editor's note: Kelly Sweeney is president of Weir Manuel Realtors in Birmingham, Mich. He wrote the following guest perspective on the state of traditional real estate brokerage services.

We all witnessed the dot-com impact on the stock market a few years ago. There was a serious rise and subsequent decline in Americans' net worth as stock market valuations eroded when new Internet business models failed to deliver on their promises. Some have asked, "How could so many smart people have been so gullible?"

There can be no question that technology and the Internet have changed our lives. The way we communicate and the way in which goods and services are marketed and sold have been permanently altered.

As a result of this new technology, new business models have emerged in almost every sector. The real estate brokerage and mortgage banking industries are no exception. New "low-cost" alternatives promising thousands in savings to the consumer are popping up everywhere, just as the dot-coms did before. Their new value proposition is "get your home sold for much less."

But does this new approach really maximize the seller's value and minimize the seller's liability? To answer that question let's examine the components of the traditional real estate broker's value proposition. The traditional full service real estate broker contributes many services and considerable expertise to the real estate transaction.

One of the more obvious services provided by the traditional broker is a marketing and promotion plan of which one small component is marketing the property through the multiple listing service. Properly staging the property, advertising and promoting the property, answering inquiries, handling showing appointments, hosting open houses, preparing legal documents and presenting offers are all part of the service provided by the traditional broker.

In addition, consumers rely on the broker's experience and knowledge in the areas of pricing, negotiating, market knowledge and contract law.

This type of advocacy and the many of the services listed above are typically not provided by the emerging low-cost brokerage models. Their marketing effort is typically limited to entering the property into one of the multiple listing services and in some instances providing a yard sign. The remainder of the effort necessary to actually sell and close the property is left unattended to or falls squarely on the shoulders of the seller himself.

In cases where the seller has the time and the expertise to perform these functions on his or her own, an opportunity truly exists for the seller to save significantly on real estate commissions. In the vast majority of cases, however, the seller does not have the time or is not capable of performing one or more essential elements of the selling process and the property lingers on the market and remains unsold. In still other cases, the limited nature of the services offered by the "low cost" broker is not made clear to the seller and sellers' expectations are not met. In either case, the fees paid to the "low cost" broker, although modest, are typically lost with no value having been rendered to the seller in return.

But the real difference that is frequently missed in the ongoing philosophical debate about limited-service versus full-service real estate brokers is this: "Which party assumes the risk of getting the property sold?"

The full-service brokerage model, which has evolved over the last 100 years or so, under which full commissions are charged, is based on the broker assuming all of the risk of sale. That is to say, the broker agrees to take a listing, expend significant time, effort and money on getting the property sold and is only compensated if and when the property transaction actually closes and the seller receives his proceeds from sale. Included in the commissions charged under this model is a significant component for risk assumed by the broker. There will always be a certain number of listings taken that do not sell or do not close, but for which the broker still had to expend significant resources.

The limited-service or low-cost model, on the other hand, is based upon the seller assuming all the risk of sale. The seller pays the broker a flat fee up front or even a series of fees based on the level of service actually provided by the broker. While these fees are typically less than those charged by the full service traditional broker, they are paid regardless of results. If the property does not sell, the seller experiences the loss, not the broker. Under this model, the broker has no financial incentive to make sure that the property actually sells.

In all but the hottest sellers markets in the country, using a low-cost alternative will many times prove to be "penny wise and pound foolish." Truly motivated sellers who understand the true nature of both business models will almost always be better served and save in the long run by using a proven traditional full service real estate broker.
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SoCal real estate sales climb for third month

But San Diego region takes a hit
Inman News
Southern California home sales increased slightly for the third straight month in October, led by strong sales in the Inland Empire and increased regional inventory levels, according to DataQuick Information Systems, a real estate information company. Price appreciation rates remained in the mid-teens.

A total of 28,489 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 10.2 percent from 31,470 in September, but up 1.1 percent from 28,189 for October last year, DataQuick reported.

While sales declined on a year-over-year basis during the first half of this year, they have increased since August. So far this year 299,109 homes have been sold, down 0.1 percent from 299,421 for the same 10 months last year.

Home sales slumped 12.7 percent in San Diego County and 2.8 percent in Ventura County from October 2004 to October 2005, but increased in the five other Southern California counties tracked by DataQuick.

"The big question is still whether or not the real estate market will end this cycle with a crash, or with a soft landing. Right now the latter scenario is still the most likely. Home values have doubled in the past four years and almost all, if not all, of those gains are here to stay," said Marshall Prentice, DataQuick president.

The median price paid for a Southern California home was $473,000 last month. That was down 0.4 percent from $475,000 in September, but up 15.1 percent from $410,000 for October 2004. The peak was in August at $476,000.

Year-over-year changes in the median have been in the mid-teens since April, DataQuick reported. The year-over-year change in the median price ranged last month from 4.9 percent in San Diego County to 33.1 percent in San Bernardino County. The median in both counties hit a new peak.

The typical monthly mortgage payment that Southern California home buyers committed themselves to paying was $2,169 last month, up from $2,092 for the previous month, and up from $1,811 for October a year ago. Adjusted for inflation, current payments are about 5 percent below their peak in the spring of 1989.

"Indicators of market distress are still largely absent," DataQuick announced. "Foreclosure activity is edging up from its bottom, but is still low. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity."

DataQuick monitors national real estate activity and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
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Seniors flock online to find homes, survey says

Nearly half use Web in buying process
Inman News
Nearly half of all seniors use the Internet as part of the home-buying process, and most senior home buyers stay in their home state, according to a research report from the Senior Advantage Real Estate Council released today.

The "Moving Forward: 50 and Beyond" survey, conducted in September 2005, explores the buying trends of U.S. consumers 50 or more years of age who purchased a home within the last six months.

The survey discovered key differences in behaviors between "younger" seniors, those 50 to 64 years of age, and "older" seniors, those 65 or more years of age.

According to the study, nearly two-thirds (61 percent) of home buyers utilizing the Internet did so to locate a specific Realtor, 92 percent utilized the Internet to research comparable prices, and 19 percent went online to learn about specific neighborhoods.

"While the prospect of retirement is an exciting time for most seniors, many have not planned for the economic issues that arise as a result," said Dr. Nathan Booth, senior advisor to the council.

"For seniors choosing to remain in the workforce, or even retire early, help is needed in finding the best and most prudent use of the resources available to them in real estate. It has become increasingly important to understand the changing and emerging buying and selling habits of senior homeowners," Booth said.

The survey also revealed that not only did most senior home buyers stay within their home state (82 percent), they moved less than 100 miles from their previous home. Younger seniors tended to move farther away from their previous residences than did older seniors, according to the survey.

Of those senior home buyers who did move to a new state (18 percent), the most popular choices were: Florida, 26 percent; Texas, 11 percent; Arizona, 8 percent; Nevada, 7 percent; and Virginia, 6 percent.

The council is the organization that confers the Seniors Real Estate Specialist designation upon Realtors nationwide. The organization said its mission is to assist Realtors in meeting the unique real estate needs and concerns of maturing Americans.
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C.A.R.'s Housing Market Forecast for 2006

Moderate price increase, slight cooling in home sales next year.
C.A.R. California Association of REALTORS®
The rate of home price appreciation will moderate next year following four years of steep increases, while sales in 2006 will decline slightly from this year's record pace, according to the California Association of REALTORS® (C.A.R.) "2006 Housing Market Forecast" released today. The forecast was presented during the C.A.R. Centennial REALTOR® EXPO (http://www.realtorexpo.org), running from Sept. 20 - 22 at the San Diego Convention Center.

The median home price in California will increase 10 percent to $575,500 in 2006 compared with a projected median of $523,150 this year, while sales for 2006 are projected to reach 630,610 units, falling 2 percent compared with 2005. The double-digit gain in the median price of a home, which California has experienced for most of the past five years, will again be fueled by the continuing shortage of housing across much of the state, according to C.A.R. economists. California typically gains nearly 250,000 new households, yet only will build about 200,000 new housing units this year, creating a shortfall of about 50,000 units.

"Weexpect the fixed mortgage interest rate to rise to 6.4 percent next year, and the adjustable rate to hit 5.1 percent, which will make it more difficult for many families in California to be able to afford a home," said C.A.R. President Jim Hamilton. "While still near their historic lows, up-ticks in interest rates coupled with the continued increase in the median home price will push affordability in California to a new all-time annual low of 15 percent next year.”

"The economic fundamentals at both the state and national level continue to support a strong housing market in the Golden State for the foreseeable future,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “However, we also expect that the wave of new loan products that have flooded the market over the past several years have injected a higher level of risk into the market, while affordability barriers to homeownership will continue to push residents inland and even out of state.

“Declining affordability will constrain sales in 2006 at a greater rate than we’ve previously experienced, especially in markets where there are higher price points compared with the state as a whole,” she said. “Not all areas of the state will continue to experience the unprecedented double-digit median price increases of the past five years. Some high-cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole.”

Home sales for California in 2005 are expected to reach a record 643,480 units, surpassing the prior sales record of 624,740 set in 2004, according to C.A.R. economists.

Leading the Way...® in California real estate for 100 years,the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 180,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
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Housing Market Shows Further Signs of Cooling

U.S. home sales seem to be slowing.
By: James R. Hagerty and Ruth Simon: The Wall Street Journal Online
Rising mortgage rates, higher energy costs, fear of a housing bubble and a surge in the number of houses for sale are among the factors.

The pace of U.S. home sales is showing further signs of slowing, amid a widening gap between sellers' asking prices and the amount skittish buyers are prepared to offer, according to an industry survey, real-estate brokerage firms and housing economists.

Rising mortgage rates, higher energy costs, widespread talk about the risk of a "bubble" in housing and a surge in the number of homes on the market are among the factors behind the apparent slowdown. They have combined to make home shoppers more cautious, economists and real-estate brokers say. Buyers are taking their time to look for bargains, while many sellers have put unrealistically high price tags on their homes. That leads to a standoff, causing the number of sales to drop -- a classic ending to a period of unusually rapid house-price increases.

In a survey conducted last week, real-estate consulting firm Real Trends found that the number of home-purchase contracts signed last month dropped 8% from a year earlier at 48 of the nation's large real-estate brokerage firms. Those brokers responded to an email poll sent to 80 brokerage firms.

To be sure, home sales remain strong by historical standards, and prices in most of the country are at or near records. But even some of the biggest boosters of housing agree that the market has finally moved out of the boom phase that has raised prices nationwide an average of more than 50% in the past five years and more than doubled home values in many cities. "The air is coming out of the balloons," says David Lereah, chief economist at the National Association of Realtors, the nation's leading real-estate trade group.

The $2 trillion housing market has been the primary driver of consumer spending in recent years and accounts for about one-third of households' net worth. There hasn't been a sustained drop in housing prices in any major part of the U.S. in a decade or more, and housing has become a vital barometer for the financial, retail and homebuilding industries.

"The [house-buying] frenzy is over," says Steve Murray, president of Real Trends, Littleton, Colo. Mr. Murray says it may take six to eight months before sellers accept that the market has softened and reduce their asking prices. He said some of the brokers surveyed were surprised at how rapidly the market seemed to be cooling in recent weeks.

"We believe the market has peaked," says Doug Duncan, chief economist of the Mortgage Bankers Association. Because of brisk sales earlier this year, he expects sales of new and previously occupied homes to reach a record 8.3 million in 2005, up 4% from 2004. But he believes sales will decline 3.5% next year, ending a four-year streak of record-setting totals.

A cooling of the market is likely to be welcomed by the Federal Reserve, which has worried that home prices have become frothy and banks' mortgage underwriting standards have slipped. For the past few years, fast-rising home prices have allowed people to borrow more against their home equity, fueling a spending boom. Last month, Fed governor Donald Kohn, citing "some indications that housing markets are cooling off," said this would force consumers, who are not saving any of their current income, to save more to build wealth, restoring balance to the U.S. economy.

A slowdown in home-price appreciation would probably restrain economic growth, and perhaps encourage the Fed to stop raising interest rates. However, absent a significant decline in prices, the Fed would be unlikely to cut rates to cushion housing. Ben Bernanke, chairman of President Bush's Council of Economic Advisers and nominee to succeed Fed Chairman Alan Greenspan in February, said last month that "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near" its long-term trend next year.

Mr. Lereah of the National Association of Realtors still expects the housing market to have a soft landing. He predicts that median home prices will rise about 5% in 2006 after leaping 12% this year. In September, the national median stood at $212,000, according to the Realtors.

Others fear that the slowdown will be more painful, particularly in areas where prices have soared the most. In a report issued earlier this month, analysts at the New York office of Swiss bank UBS AG said the current upswing in home prices has now matched the unusual surge seen in the aftermath of World War II. Because price increases have been unusually swift and prolonged, the report said, "the odds of a soft landing seem smaller than if the cycle had peaked earlier."

In Westchester County, N.Y., just north of New York City, Greg Rand, managing partner of Prudential Rand Realty in White Plains, says he expects prices to fall by around 3% next year.

David P. D'Ausilio, operating partner of Keller Williams CT Realty in Monroe, Conn., points to a 14% rise from a year earlier in the number of homes put on the market in Fairfield County, Conn., also near New York, in the first 10 months of 2005. "There's a newfound sense of urgency among sellers to get out while the getting is good," Mr. D'Ausilio says. He expects prices to fall 5% to 10% in his area over the next 12 months.

Maxine Golden of Re/Max Real Estate Services in Newport Beach, Calif., says that in contrast to this spring buyers are shying away from bidding wars. "They don't want to get involved if someone else is interested," she says. "They are taking a wait-and-see attitude even if it's something they want. They think there will be other things on the market."

The survey by Real Trends found that last month's decline in home-purchase contracts was particularly sharp in the West Coast region, down 14%. It found declines of 7% in the Northeast and 8% in the Mid-Atlantic states, while the Southeast was down just 1.5% and the Southwest showed a 1% increase. Though the survey is far from definitive, the trend is clear, Mr. Murray says, particularly because the brokers polled have large local market shares.

A more comprehensive look at the market is due Dec. 6, when the National Association of Realtors plans to release its monthly index of pending home sales. The NAR reported earlier this month that the index based on contracts signed in September was up 3.3% from a year earlier. Sales are considered pending when a contract has been signed but the transaction isn't yet complete.

"There is a definite change" in supply and demand, says Jacelyn Botti, a senior vice president at Weichert Realtors, a big chain based in Morris Plains, N.J. Along much of the East Coast, she says, inventories of homes available for sale have bloated to a supply sufficient to last five to eight months at current sales rates, compared with three or four months a year ago.

With sales slowing, condominium developers in San Diego are appealing to buyers with an array of incentives, says Robert Griswold, owner of Griswold Real Estate Management. "The market has definitely turned," says Mr. Griswold, noting that fliers offering condo buyers a car were being handed out at a recent Rolling Stones concert. "When you see that kind of advertising and promotion, they are clearly getting desperate."

While many sellers of single-family homes are stubborn in resisting price cuts, some are starting to compromise. Ken Baris, president of Jordan Baris Inc., a real-estate brokerage in West Orange, N.J., says he received an email on Friday from a client suggesting that the firm reduce the price on his five-bedroom home to $829,900 from $849,900. The house has been sitting on the market for 90 days. "It was an unsolicited price adjustment," says Mr. Baris. "I haven't seen that in a very long time."

Until recently, unusually low interest rates and flexible lending standards were helping Americans keep paying more for houses, despite slow growth in personal income. But that's changing. The average rate on a 30-year fixed-rate mortgage is about 6.5%, the highest level in more than two years, according to HSH Associates in Pompton Plains, N.J. That's up from about 5.2% in June 2003, which was the lowest in more than four decades.

The cost of adjustable-rate mortgages also has been rising, and some lenders have become more reluctant to grant loans that allow borrowers to minimize payments in the early years. The rising cost of credit makes it hard for people who already were stretched to buy homes. Mr. Duncan of the Mortgage Bankers expects mortgage rates to continue rising, reaching about 6.75% for a 30-year fixed-rate loan by the end of next year.

- Greg Ip contributed to this article.

Email your comments to rjeditor@dowjones.com.
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Financing the Luxury Purchase

By: Jennifer Martin: REALTOR® Magazine Online
There are several financing tools available to wealthy homebuyers, including interest-only loans that free up cash for their businesses or other investments.

They also can take advantage of ladder financing, which allows borrowers to obtain a variety of different loans tied to a certain amount of principal. For example, buyers of a $1 million property might link $600,000 of the principal to a one-year interest rate based on the London Interbank Offered Rate and the remaining $400,000 to a five-year fixed interest rate.

Luxury-home buyers additionally can pledge their stocks, bonds, CDs, mutual funds, and other assets as the downpayment, preventing them from having to liquidate and pay capital-gains taxes.

Finally, affluent borrowers can obtain option adjustable-rate mortgages, which benefit those who are self-employed or simply need the flexibility to choose the payment amount that best meets their needs on a month-to-month basis.
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Housing group to present study on real estate affordability

Study focuses on 20 large municipalities
Inman News
A coalition of organizations interested in housing issues has completed a survey on affordable home-ownership programs across the country and will present its findings Monday.

The Homeownership Alliance, a coalition of about 15 organizations, announced this week that the survey reveals effective practices that cities have enlisted to increase housing affordability. The survey, "Affordable Homes: Best Practices for America," focuses on the largest 20 municipalities in the country. Among the municipalities with programs highlighted in the report: Atlanta, Baltimore, Chicago, Minneapolis, New York, Philadelphia, Phoenix, Pittsburgh, Riverside (Calif.), San Diego, Seattle, and Washington, D.C.

Members of the alliance include: Consumer Federation of America, The Council of Insurance Agents & Brokers, The Enterprise Foundation, Fannie Mae, Freddie Mac, Habitat for Humanity International, Independent Community Bankers of America, Independent Insurance Agents & Brokers of America, Local Initiatives Support Corporation, National Association of Federal Credit Unions, National Association of Hispanic Real Estate Professionals, National Association of Home Builders, National Association of Mortgage Brokers, National Association of Real Estate Brokers, National Association of Realtors, World Floor Covering Association, National Bankers Association, National Council of La Raza, and National Urban League.

The chairman and president of the alliance will discuss the findings during a teleconference, and other housing officials will also be on-hand, among them: Shannon Carey, director of external affairs for the Atlanta Neighborhood Development Partnership Inc.; Michael Guye, acting director of the city of Baltimore Office of Homeownership; Candace Sheehan, home-ownership administrator for marketing and public relations, Washington State Housing Finance Commission; Gabe del Rio, home-ownership director for the San Diego Community Housing Works; Lisa DeBrock, home-ownership division manager for the Washington State Housing Finance Commission; Karen Carlson, home-ownership second mortgage administrator for the Washington State Housing Finance Commission; and Robert Mulderig, deputy director for residential and community services for the District of Columbia Department of Housing and Community Development.

According to The Homeownership Alliance's mission, the group "is dedicated to preserving; protecting and promoting expanded home-ownership opportunities for all Americans. We are dedicated to making home ownership a national priority by supporting those positive developments that expand and increase opportunities to open access to affordable housing."

The teleconference will be available on the alliance's Web site, http://www.homeownershipalliance.com/, for 90 days following the Monday event.
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New Program to Help Homeowners Refinance with FICO Scores between 350 and 499

Program geared toward saving their homes from future foreclosure.
RISMedia
Lauri Lampkin has been helping homeowners in the mortgage industry for more than 30 years. She will be conducting a workshop on Nov. 19th in Los Angeles to help homeowners get the funding they deserve.

When you pay your mortgage on time, if you have a low FICO score, you have not been able to re-finance your home ... until now.

Lampkin, CEO of Online Funding, did some research with Equifax, and the results were astounding. "There are more than 250,000 homeowners in Southern California who pay their mortgage on time, they have no foreclosures, no bankruptcy, they have 30% equity, or more, and they routinely get denied the opportunity to re-finance. Why? Because they have a low FICO scores. It's a shame, because these are good people, and they are treated poorly by the entire lending industry.

"Because of the equity, and the 'track record' of timely payments, we have been able to create an innovative way to re-finance homes. This program is called the Community Home Buyers/Home Savers Program (CHB).

"Once escrow closes, homeowners can consolidate all of their consumer debt, pay off their credit cards, and pay off their car. This gives homeowners financial peace of mind, and rapidly improves their FICO score. Once that happens, we can put them in a Fannie Mae 30 year, fixed rate, low interest loan."

For more information regarding the workshop, contact +1-877-649-0558.

For more information about The Community Home Savers Program, contact On Line Funding at 877-649-0558 or visit our Web site at www.olfunding.com.
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Real estate affordability sours Californians

But residents may be gaining ground in housing struggle
Inman News
Despite a drop in the percentage of California households in September able to afford a median-priced home compared to a year ago, affordability conditions made a slight improvement from the month before, according to a report released today by the California Association of Realtors.

The Housing Affordability Index, which measures the percentage of households that meet the minimum affordability requirements to purchase a median-priced home, dropped from 19 percent in September 2004 to 15 percent in September 2005, but gained 1 percentage point from August when it stood at 14 percent, the association reported.

The minimum household income needed to purchase a median-priced home at $543,980 in California in September was $128,270, based on an average effective mortgage interest rate of 5.9 percent and assuming a 20 percent down payment. This minimum income figure was up from $107,440 in September 2004, when the median price of a home was $463,630 and the prevailing interest rate was 5.7 percent.

By contrast, the minimum household income needed to purchase a median-priced home at $212,000 in the United States in September 2005 was $49,990.

Good news for Californians is that the minimum household income needed to buy a median-priced home actually fell by $5,530 between August and September, from $133,800 to $128,270.

At 26 percent, the High Desert region was the most affordable region in California, followed by the Sacramento region at 20 percent. The Northern Wine Country region was the least affordable in the state at 7 percent.

Los Angeles-based C.A.R. comprises more than 180,000 members.
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Remodelers Promote Aging-In-Place Features in Existing Homes

This week is the third annual Aging In Place Week.
RISMedia
As housing industry professionals celebrate the third annual National Aging In Place Week (Nov. 6-13), the National Association of Home Builders (NAHB) Remodelors™ Council encourages consumers to take proactive steps to modify their homes as they age. With careful remodeling, homeowners can remain in their residences throughout their maturing years.

“Aging-in-place means living in one’s home safely, independently and comfortably, regardless of age or ability level,” said Remodelors Council Chairman Don Novak. “As Americans get older, we know the vast majority would rather live in their own home than an assisted living facility.”

Basic alterations can make it easier and more affordable to carry out daily activities, such as bathing, cooking or climbing stairs, and can improve a home’s overall safety. Projects for aging-in-place remodeling vary from the installation of shower grab bars or adjustments of countertop heights, to private elevators and first-floor master suites. Since professional modifications are often barely noticeable to visitors, homeowners can enjoy their home safely and without any institutional feel.

To meet the demand of a changing population, the NAHB Remodelors Council created the Certified Aging-in-Place Specialist (CAPS) designation program – the only program that teaches remodelers how to modify homes for the aging-in-place market. CAPS designees are specifically trained how to evaluate a homeowner’s needs and implement a project in a professional, aesthetically pleasing way. More than 800 professional remodelers have completed the education requirements for CAPS since 2002. Consumers interested in finding a CAPS trained home remodeler can visit www.nahb.org/remodel.

For more information on aging-in-place or National Aging In Place Week activities, consumers can consult two Web sites developed by National Reverse Mortgage Lenders Association and the Aging In Place Council, www.seniorsafehome.com and www.ageinplace.org. The Web sites provide information on design ideas, useful products and how to find them, and professionals who can help homeowners plan and implement home modifications. An information booklet also can be downloaded.
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Real estate industry fights to preserve real estate tax deductions

Congressman, home builders take aim at tax reform
Inman News
A congressman, speaking during a National Association of Home Builders conference call Thursday, pledged that any effort to eliminate or reduce the mortgage interest deduction or eliminate property and sales tax deductions "would be dead on arrival" in Congress.

While the President's Advisory Panel on Federal Tax Reform has recommended changes to tax law, real estate industry groups are fighting to ensure those recommendations do not amount to major changes for homeowners that benefit from federal, state and local tax incentives.

"Since these recommendations have come out, I've certainly heard a real sense of alarm from my constituents. They are very concerned about a proposal to eliminate or greatly reduce the mortgage interest deduction, as well as the deduction for state and local taxes. They recognize that means they're going to pay higher taxes," said U.S. Rep. Jerry Weller, R-Ill., a member of the House Ways and Means Committee.

"Both of these proposals would be dead on arrival in the House Ways and Means Committee," he said. Weller added that he has reached out to a group of Republican lawmakers on the committee, and they have signed a letter to encourage President Bush to reject tax panel's recommendations.

Officials at the home builders' trade group and the National Association of Realtors, for example, have lashed out against the tax panel's recommendations, and vowed to fight against any proposals that would negatively impact homeowners and home ownership.

The home builders' group paid for a survey this month that found strong support among consumers for the mortgage interest tax deduction and deductions for state and local taxes, including property taxes. The group also prepared a study of how individual homeowners in different parts of the country might be impacted by adopting the tax panel's recommended reforms.

Jerry Howard, CEO and executive vice president for the builders' association, said the tax panel's recommendations appear "out of touch with the American people." Howard also said that current homeowners planned to benefit from tax incentives when they bought their homes, and they should not be punished for their purchase. "It just seems like you're changing the rules in the middle of the game and that's patently unfair," he said.

David Wilson, president of the home builders' association, said the tax proposals, if adopted, "Would reduce housing values and send a chill throughout the housing market," adding that homeowners in high-cost areas like California and Florida "would bear the brunt" of the tax blow. "It would cripple markets that rely on second-home (buyers)."

U.S. homeowners save about $70 billion in taxes from deducting mortgage interest on their homes, said David Pressly, president-elect for the homebuilders' group. "Newest homeowners will probably be hit the hardest," he also said, as about 18 million people bought homes in the last three years and "most of these have significant mortgage interest payments and virtually all of them are counting on (deductions) to keep it at low levels."
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Should You Remodel or Move?

By: M. Anthony Carr: RealtyTimes
Unless you've taken a new job in a new location, the decision to move up may involve deciding on whether to remodel or move altogether. Homeowners nationwide will spend $192.8 billion this year to either remodel or repair their homes, according to the U.S. Census.

The Remodeling Index, provided by National Association of Home Builders' Remodeling Council, determines minor alterations at $25,000 or below and major alterations above that amount. Where do you stand? Is it worth $25,000-plus to remodel or should you move up?

There are reasons in favor of both. Let's deal with the remodeling first.

    1. Your community is great, why move? For some homeowners they already live in
       the best community for their family and lifestyle. The schools are great,
       it's near their worship center, shopping and they are plugged in with
       neighbors and the community. So instead of moving, it might be best to expand
       or remodel.

    2. Sometimes, it's just time to upgrade the house -- even if you're planning on
       selling in the future. If you bought a home with 15-year-old appliances and
       décor, it may be time to switch them out, now that they are 20 or 25 years
       old. I always get frustrated with homeowners who want to remodel right before
       they move - they've never had the opportunity to enjoy the house they've just
       remodeled. Upgrades may include flooring, bathrooms, kitchen, exterior
       facelift, paint, curtains, furniture -- not just the house itself.

    3. It might be cheaper than selling. If you're needing more space, the remodel
       may actually be cheaper than selling, especially if you're looking at
       finishing or remodeling the basement. The basement remodel is the easiest and
       most affordable remodel available to homeowners because the exterior walls,
       plumbing and most electric may have already been run throughout.

    4. You're a do-it-yourselfer. Okay, you love those Old House, Fix-It or Nix-It,
       Saturday morning programs. Living in a dust-ridden environment with tools and
       power cords strewn throughout is your vision of heaven on earth. Go for it.

    5. You'll have to remodel the new house anyway. Most new homeowners spend
       upwards to 30 percent of the value of the new house they just bought fixing
       it up the way they want - so why move? Just spend that money where you are.

Now, there are just as many reasons to move instead of remodeling.

    1. The move could take less time and hassle. Depending on the condition of your
       local market, you may be able to list, sell and move in a shorter period of
       time than it would take to actually remodel your current home. Time is a
       major factor in our busy lives, and many times it would be quicker to just
       move.

    2. Remodeling would disrupt your lifestyle more than you're willing to deal
       with. You have to hire a designer, then a contractor, move furniture from one
       area to another in your house, find storage for the rest, live with dust,
       workmen, etc., for several months and then HOPE you like what you get at the
       end of it. Better to buy the house that's already finished the way you want
       it than betting on a finished product you're not sure about.

    3. You don't want the hassle of dealing with contractors in case they don't get
       it right. The challenge for remodelers is that they are being told by a
       remodeling-challenged homeowner what they want and then try to create that
       environment. If the homeowner doesn't like it at the end - it's very
       expensive to change once it's done.

    4. Remodeling could cost more than moving. For some people, to get what they
       really want, they would have to double their mortgage anyway - so it might
       be better to check out what's available in new construction or even in a move
       up in the community. Plus, builders in some markets are starting to offer
       free upgrades - including rec rooms, decks, and other add-ons that usually
       are the subject of a remodel job.

    5. Finally, you're family has enlarged. You just may need a larger home because
       you have more children or your parents/au pair/adult children have moved in
       with you.

When it's time to remodel, look over the local real estate market before making your final decision, it might be in your best interest to make that move instead of knocking down a wall.

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! November 10 - November 13, 2005

The Weekend Guide for November 10 - November 13, 2005.
Full Article:
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Don't Let Housing's Seasons Scare You

By: Michael Englund: REALTOR® Magazine Online
Don't worry about a slowdown in home prices just yet, says Michael Englund of Action Economics. Significant price drops are recorded almost every fourth quarter, especially when substantial gains are reported during the second and third quarters.

According to Englund, spring is the busiest season for the housing market and is likely to post the largest transaction volume. Fourth-quarter price data and anecdotal evidence from industry professionals should not be weighed heavily until figures from the following spring are released, he says.
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The Ups and Downs of Flipping Condos for Fast Cash

The gains can be huge but so can the risks.
By: Terri Cullen: The Wall Street Journal Online
Low interest rates and a condo building boom have been fueling condo "flipping" - when investors buy and quickly sell condos to reap a profit. The gains can be huge: A First American Real Estate Solutions study of hot real-estate markets found that the annualized rate of return for three-to-six-month flips of residential homes was usually 20% to 40% or more above the market appreciation rate. Condos made up between 20% to 30% of the sales.

WHAT TO DO: With condo flipping, the risks can be as great as the rewards. Because the condo market is prone to speculation, condos typically lose value more rapidly than other homes during recessions. Investors buying into a cooling market may find it difficult to quickly sell, and may not make enough profit to cover the transaction costs, or could even sell at a loss. It's also getting harder to flip, as developers crack down on speculators. Amateurs need to tread carefully: flipping has attracted the attention of the IRS and investors could face an audit.

Email your comments to rjeditor@dowjones.com.
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Real estate purchases jump

Refinancings lose market share
Inman News
Overall mortgage applications increased 2.3 percent last week on a seasonally adjusted basis from the week before, according to the Mortgage Bankers Association's latest survey.

The seasonally adjusted purchase index increased by 6.4 percent to 465.7 from 437.6 the previous week, whereas the refinance index decreased by 3.4 percent to 1,798.8 from 1,862.8 one week earlier.

"Last week, home purchase applications dropped below their 2004 level for the first time in six months," said Jay Brinkmann, MBA's vice president of Research and Economics. "Despite a 6.4 percent increase over the previous week, home purchase applications remain 3.6 percent below their level in early November, 2004."

The refinance share of mortgage activity decreased to 41.7 percent of total applications from 43.6 percent the previous week. The adjustable-rate-mortgage share of activity increased to 31.6 percent of total applications from 29.4 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.31 percent from 6.21 percent one week earlier. Points including the origination fee increased to 1.37 from 1.27 for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.85 percent from 5.75 percent. Points including the origination fee increased to 1.36 from 1.27 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 5.45 percent from 5.39 percent one week earlier. Points including the origination fee decreased to 0.96 from 0.99 for 80 percent loan-to-value ratio 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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What's Really Happening with Home Prices?

Sales are slowing in some communities, and sale prices are sometimes softer. But how can you measure your local market? Peter Miller explains.
By: Peter G. Miller: RealtyTimes
For the past two years we have seen a gradual increase in mortgages and yet strong sales and prices in most metro areas. But this time around, things may be different.

It was in June, 2003 that mortgage rates reached a modern low: 5.21 percent and .5 points for fixed-rate, 30 year loans. The 2003 benchmark was the cheapest mortgage rate seen in 45 years, a time when Eisenhower was in the Oval Office.

It follows that low rates would spur buying, refinancing and rising prices (because of stronger demand). But now that rates are cooling, will we see less buying, less refinancing and declining prices?

According to Freddie Mac, rates for 30-year financing hit 6.31 percent (with .5 points) last week. For ARMs, the 1-year LIBOR rate stood at 3.2710 while the 11th District Cost of Funds Index was at 2.972 for October. To get the full ARM rate you need to combine the index with a "margin" of 2 or more percentage points.

The reality of these mortgage levels is that:

    • Relative to rates seen during the past five decades, today's mortgages are cheap.

    • Every time rates move up or down the pool of potential buyers is impacted.

    • With rates rising it is logical to assume that sales will experience some fall-
      off if only because the pool of potential buyers is somewhat smaller because
      with higher rates fewer people qualify for given levels of financing. With
      fewer bidders and less demand, there is less pressure to increase prices.

    • That there is less pressure pushing prices up does not mean prices will
      decline. It could simply mean that prices will go up but not as much as would
      otherwise be the case with lower rates.

    • Slower price increases might well be good for everyone - when home prices
      grow too quickly buyers are frozen out of the market because wages do not go
      up with equal speed.

    • What happens locally and what happens nationally may be different. Real estate
      is an inherently localized commodity while mortgage rates tend to be similar
      nationwide.

In looking at my local market I have seen several curious reactions.

Some asking prices have declined. Homes are on the market a touch longer. But generally, prices remain higher than a year ago and much, much higher than two years before.

Some brokers have apparently never seen a slowing market: One told me at an open house that sales were slowing because of "negative" coverage by a local newspaper. This is nonsense. If you believe that newspapers are causing a down market do you also believe they caused the huge run-up in prices seen in most places during the past few years?

If you would like to see where your local market is headed, take a look at nearby MLS figures. Compare numbers for the past several months. Most MLS systems make such information available from member brokers as well as online and in news releases. Take a look at:

    • How many days are homes on the market? Longer average times suggest a slowing
      market, faster selling times imply a stronger sales.

    • How do average listing prices and average selling prices compare? If homes are
      listed at $500,000 and sell for $495,000, then sale prices are 1 percent below
      listing levels. Nearing 100 percent is evidence of a good market, normally you
      would expect to see some separation between listing and sale prices.

    • What's happening to average sale prices? Rising prices typically reflect a
      strong market, however average prices can be misleading - they may reflect
      changing inventories and thus may not be comparable.

For instance, if a community sells 300 condos and 300 detached homes, the average price may be x - whatever "x" might be. If the next year there are 400 condos and 200 detached home sales it may appear that average sales values have fallen. In fact, all that really changed was the inventory mix. Prices seem lower because condos tend to be less expensive than single-family homes and in the second year there were more condo sales.
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Will Your Condo Retain Its Value? Five Tips for Edgy Buyers

If you're concerned about buying in an area where prices have risen sharply, these steps may help you invest in a hot market without getting burned.
By: Lauren Baier Kim: The Wall Street Journal Online
The U.S. condominium market has been good to real-estate investors. In 2004, the median sales price of an existing condominium surpassed that of a single-family home for the first time, according to the National Association of Realtors. This trend has held steady so far through 2005: The median sale price of a condo was $213,600 in September, compared with a median price of $212,200 for a single-family home, NAR reports.

The market for condos remains strong - condo-sales activity in September was 10.2% higher than the same month last year. But some question whether it will last. "There's a lot of supply, and the demand has been significantly supported by speculative buyers rather than occupants," says Chip Brown, senior vice president and co-director of production of CWCapital, a national multifamily and commercial real-estate lender based in Needham, Mass. Speaking of his firm, he says, "We've gone from being selective to extraordinarily selective in thinking about financing condo projects."

The following five tips may help buyers concerned about resale values when buying in a market where prices have risen sharply.

1. Location is still the key factor.

The old mantra prevails: Location, location, location. It's likely to be the biggest factor in whether you smile or frown when you check your condo's resale value.

Rob Gross, a senior vice president at Prudential Douglas Elliman in New York, says the location of his condo -- in Manhattan's Flatiron District -- is a big reason why he was able to sell his three-bedroom unit with an office loft this year for more than double what he paid for it in 2000. Among the plusses of the neighborhood, located on lower Fifth Avenue, he says, is that it's between Union Square and Madison Square parks and home to such trendy stores as Armani and Coach.

Buying in an already popular neighborhood will help assure a property maintains its value, although sellers might not always reap such big gains. Buyers seeking large payoffs are likely to be better off purchasing in a new or emerging hot market, though that strategy is a bit riskier.

In New York, Mr. Gross says, areas that will see a "fairly rapid transformation" include the Lower East Side, the Financial District, Hell's Kitchen and Brooklyn's Williamsburg neighborhood. "The waterfront in Williamsburg along the East River is going to be completely rezoned to be targeted as a major residential neighborhood," he says. "It is the same thing with the West Side in Manhattan in the 20s, 30s and 40's."

Buying on a waterfront is usually a good bet for retaining value, says Robin Rommell, a Realtor with RE/MAX All Star in Madeira Beach, Fla., on Florida's Gulf coast.

"Equity is going to escalate more quickly for a condominium on the water than for a condo that doesn't have waterfront," says Ms. Rommell.

Even on the water, not all locations are created equal. "End units are generally more preferred, because they tend to have more windows," says Gisela DuVigneau, a Realtor associate with Coldwell Banker Riviera Realty in the beach town of Point Pleasant, N.J.

2. Avoid the 'white vanilla box.'

Distinguishing features help an owner when it comes time to sell. Your condo should have at least one unique quality that will pique interest, agents say. This something special could be a bit of private outdoor space, a view, a garden or celebrity resident, says Mr. Gross. "Whatever gives it a bit of cachet," he says.

Luxury is part of the formula. "Everyone likes the newest and greatest," says Toni Haber, also a senior vice president with Prudential Douglas Elliman in New York. Among the high-end accoutrements on condo buyers' wish lists are granite countertops and Sub-Zero, Bosch and Viking kitchen appliances. Stand-alone refrigerator drawers are also popular, says Florence Shapiro, a broker sales associate with Prudential Americana Group, Realtors in Las Vegas. These can be installed in the kitchen to store veggies, or in the master-bedroom for refreshments, she says.

Other in-demand features include hardwood and bamboo floors, large windows and high ceilings. "High ceilings make the rooms feel bigger than they are, and that's what people are gravitating toward," Ms. Haber says. You may feel like you're pampering yourself when selecting a condo with such luxuries, but these little extras can stir up attention for your unit when you want to resell, she says.

That extra amenity can also make the difference to a sale, says Ms. Haber. Popular amenities include a 24-hour doorman, a live-in superintendent, bike-storage rooms and an off-lobby refrigerator for grocery deliveries. Some new buildings also are installing wine rooms in their basements, Ms. Haber says. "People like having additional storage rooms," she says. Some buildings offer pools and recreational centers; in Florida, it's common for condo complexes to have boat docks and marinas. In some cities, the big draw is parking space, Ms. Haber says.

3. Look for name recognition.

Long before Donald Trump said "You're fired," on NBC's "The Apprentice," he was well-known in real-estate circles. Because of his brand, his residential projects, such as Trump International Hotel & Tower -- hotel-condominium buildings in Chicago, New York and Las Vegas, tend to generate more buyer interest, Mr. Gross says.

"There are investors, especially foreign investors, who will follow certain developers," says Mr. Gross. "You look at someone like Trump, who, like him or not, in the foreign market, has a great reputation with investors." Foreign investors like to buy condos in Trump buildings, which helps build value for other condo owners in those buildings, he says.

Recently, more high-end projects are being built by well-known designers or architects. For example, French interior and product designer Philippe Starck is teaming up with developer Jorge Perez to create Icon Brickell, a condominium complex in Miami. In Manhattan, Downtown by Philippe Starck, across the street from the New York Stock Exchange, is a residential development with interiors designed by Mr. Starck. Other well-known names who have gotten into the condo act include Richard Meier, the architect for the Getty Center in Los Angeles, home of the J. Paul Getty Museum, and Michael Graves, the post-modern architect who designed, among other buildings, the Swan and Dolphin hotels at Walt Disney World in Orlando, Fla. Both architects have condo projects in the works in Miami and Manhattan.

If your builder is not a household name -- and most aren't -- try to make sure that the builder is at least reputable. "You don't want to buy into a building with a developer who has a reputation of doing a poor job and having problems," says Mr. Gross.

4. Weigh old versus new.

Whether an older complex or a new one will be a better investment depends on the building's condition and maintenance, the market and your handyman skills. If you are buying in an older condo complex, make sure that the building and its grounds have been kept in good condition. Just as a beautiful home in a so-so neighborhood will sell for less than a similar home in a better locale, if your building is not kept up properly, your unit will be less attractive to buyers.

New condos -- which should be in good condition and are more likely to have the latest amenities and features -- will have wide appeal. When buying a condo as a short-term investment and banking on quick price appreciation, the better bet is to buy a new condo, preferably in a complex's initial offering, Ms. Shapiro says. "A new condo, if you can get it, will always increase, with the price of construction going up," she explains.

If you are willing to invest some elbow grease, purchasing a condo that needs TLC might be the way to go, says Nick Patterson, a real-estate agent with Coldwell Banker Residential Brokerage in Chicago, who works with many first-time condo buyers. In a market such as Chicago, where the yearly condo price appreciation is about 4%, he says, "to make money off new construction is harder, because you are banking on appreciation." He suggests buying a condo that needs work and then putting in about $10,000 to $20,000 into the kitchen and baths to push the unit's value up by about $60,000.

5. Buy in a building with a good condo association.

A good condo association is crucial to maintaining your condo's value. A condo owner owns the space between the unit's walls; the building itself and any common space are held by the condo homeowners' association. As an owner in a complex, you will belong to its association and pay a homeowner's fee. The association will cover expenses to insure and maintain the property, so it is important that it is professionally managed and has the funds to make needed repairs. The type of fixes can vary widely, from fresh interior paint in the common areas to a new roof, so a condo association's reserve funds are important.

"If you don't have good management on-site or adequate [financial reserves], the probability is, if something small happens, they will overlook it. It might be landscaping or a small crack, but if you overlook those things, greater problems will tend to occur," says Maurice Veissi, a regional vice president for the National Association of Realtors and the president of Veissi & Associates in Miami. "That will detract from your condo's value."

Take a good look at the association's budget, because this will help determine the services you will receive, and the assessments you will be charged. Assessments are generally mandatory and collected monthly, quarterly or annually. If you don't pay these fees, a lien may be placed against your property. Find out what the assessments cover and don't cover (for example, maintenance of common areas and trash collection), and see how these assessments compare with similar condo associations in your area. The budget should have a reserve fund for major expenditures. If not, condo owners may be hit with special assessments for major repairs.

Look for any "simmering issues" between residents and the elected board, says Frank Rathbun, vice president of communications for the Community Associations Institute in Alexandra,Va. Speaking to current residents also may yield telling insights. "Talk to the people and ask them if the association is well-managed and if they like living there," he suggests.

The Community Associations Institute's guide to buying a condo, "Community Matters," is a free download.

Where do you think the condo market is headed in your area? Join the discussion and share your thoughts with other RealEstateJournal.com readers.

- Mr. Flesher is an intern with RealEstateJournal.com, and Ms. Kim is a senior editor with RealEstateJournal.com.

Email your comments to lauren.kim@dowjones.com.
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Join the Game, But Know the Real Estate Investing Rules

By: Phoebe Chongchua: The Wall Street Journal Online
It seems like the dream job - buy real estate, sit on it until the price goes up enough and then sell it off and walk away with a nice profit. The frenzied market we've been experiencing is luring many people to invest their hard-earned cash in the business of real estate.

While prices soar in many cities, the vision of an overnight success is dancing in new investors' heads. The idea of making a quick buck is drawing wannabee investors to real estate seminars, the internet, open houses, and cities all over the country where cheap property can be snatched up.

In New Orleans, speculators, both experienced and inexperienced, are hoping to turn a profit by purchasing land before the redevelopment of the city begins.

"If you had a crystal ball you could become a millionaire because it could be something that will have phenomenal windfalls or it could be something that will never come to fruition," says radio host Norm Bour of The Real Estate and Finance Show.

An unrealistic expectation is a problem that causes many newbie investors to decide to give up on real estate before they have a chance to turn a profit. They often think that buying a fixer-upper will be an easy project to take on and then turn around and sell. Sometimes that's the case, but often there are many challenges that beginning investors don't consider. Cabool, Missouri resident, Matt Peterson, his brother-in-law and father-in-law recently finished fixing up a foreclosure home they purchased in Ava, Missouri.

"I had built my house, my father-in-law had built his, and my brother-in-law had built his. We thought we could go in and fix this up a little bit, but it wasn't that easy," says Peterson.

Peterson says it took them longer than expected - about six months to finish work on the 4,500-square-foot house that is more than 100 years old.

Now, in hindsight, Peterson says he'd do a little more research before buying a property and he'd consider using experts to get the job done.

"I would look a little closer at the property and the potential it had for profit and factor in contracting all the work out. I mean I can do some of it but with the job that I have now, I don't have the ability to work five days a week on a house [when] the payoff comes later when we sell the house. I need to be able to support my family. I would look at trying to contract it all out if I were to do it again," says Peterson.

He also says that he'd try to have a buyer in mind for the property. The property that he just finished has still not sold, although it is being rented with a rent-to-own agreement.

"[I would] look immediately to sell; maybe have a buyer in mind and make sure that he has the financing lined up beforehand. We kind of had trouble with that on this project. [The tenants] said they wanted to buy the house but they haven't been able to secure the financing so they're still renting," says Peterson.

Real estate attorney and author, William Bronchick says common sense and education are the most important tools in real estate investing.

"J Bronchick says there are three basic tips that will help beginner investors not lose money. First he says, when deciding what property to buy, go with a single-family home.

"Single family homes tend to be pretty hands-off and the tenants tend to be a little more responsible than the apartment type tenants," says Bronchick.

His second tip is to buy houses that are slightly below the median price because that market tends to be less volatile.

"Let's say the median price in the city is $250,000, if you look at $350,000 or $450,000 houses, those are the people who are middle class, gainfully employed, white- collar people," says Bronchick.

But the people living in $200,000 homes and under are the working-class people who typically make $10 to $15 per hour. If there was a job-related market crash, the higher income families might be forced to take a step down in house size; so there is typically a good pool of renters for the slightly-below-median-housing market even in a challenged economy.

The lower income bracket usually can find work.

"There are always jobs for those people. If they can't wait tables they'll get a job doing something else; so there is always going to be an income for those people in almost any market," says Bronchick.

His third tip is to buy in major metropolitan areas rather than purchasing property in undeveloped, suburbs or vacation areas. Bronchick says population trends show that people are looking to be in cities and areas that are centrally located and developed, especially because of the rising gas prices.
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Forget About Housing Boom or Bubble

Data say a bit of normalcy likely.
RISMedia
The Las Vegas housing market has traded in its go-go performance of 2004 for a little sanity, local analysts said.

“The good times are not over, but the boom is over. We’re going into a period of normalcy,” said Steve Bottfeld, an analyst with Marketing Solutions, at the company’s Crystal Ball housing outlook last week. “A regular market is good enough. It’s fabulous. We’re going to be on a very high plateau.”

Numbers from SalesTraq, which compiled the data used in the Crystal Ball seminar, showed marketwide gains that were steady, though smaller than in recent years.

Sales of existing homes in the Las Vegas Valley totaled 15,530 units in the third quarter, up from 14,731 homes in the same quarter a year ago. The median price for local resale homes rose 14 percent in the last year, from $249,000 at the end of the third quarter of 2004 to $284,500 at the end of the most recent third quarter.

Local builders closed on 10,314 new homes in the third quarter, up from 7,194 homes in the third quarter of 2004. The median price for new homes increased 7 percent, from $281,082 at the close of last year’s third quarter to $301,050 at the end of the most recent third quarter.

Those increases are significantly lower than increases recorded in 2004, when Las Vegas led the nation in housing appreciation. The National Association of Realtors reported a local appreciation rate of nearly 54 percent in the third quarter of 2004 from the third quarter of 2003.

Conversions of apartments to for-sale condominiums are helping suppress price increases in the new-home segment, said Larry Murphy, president of SalesTraq. Without the condo-conversion average of $160,000, new-home prices would average about $330,000, Murphy said.

SalesTraq’s statistics show the sheer sales numbers that allow condominium conversions to influence local housing prices.

In the fourth quarter of 2004, developers sold 500 condo-conversion units. In the first quarter of 2005, that figure doubled to 1,000 units. In the second quarter, conversion sales rose to 1,300 units, and in the third quarter, 2,200 units were sold -- about a fifth of the new-home market. Murphy said he expects sales of condominium conversions to reach 2,500 units in the fourth quarter.

The ascension of the condo conversion also shows in patterns of local closings. Single-family homes claimed 85 percent of new-home closings in the third quarter of 2004, while the condominium sector, which includes both new condos and conversions, had 14 percent of the market’s new-home closings. In this year’s third quarter, single-family homes accounted for 65 percent of new-home closings, while condos took 34 percent of new-home closings.

Mike Altishin, a Realtor with Realty Executives, said condo conversions are thriving in the market. He said that homes priced at less than $300,000 are selling quickly, while homes priced from $400,000 to $600,000 aren’t selling as rapidly as they did a year ago. He said higher borrowing costs could be behind the trend.

“With interest rates rising, people might have come to the conclusion that they shouldn’t spend as much as they would have last year,” Altishin said. “Maybe rates are making buyers more conservative.”

Altishin also said the resale market is returning to a saner pace. In 2004, real-estate agents didn’t even have time to slap for-sale signs on homes before multiple offers poured in. Now, in order to sell, homes have to “show great” and be priced below the lowest recent sale price in their subdivision, Altishin said.

“The market has definitely changed, and my opinion is that it has changed for (the long) term,” Altishin said. “It’s adjusting toward a healthy market. What we have going for us is that the market is still planning on major expansion. All economic indicators state our valley is going to grow to 3 million people (up from 1.8 million residents now). Those people are going to buy homes.

“If you look at the value in Las Vegas compared to Southern California, Las Vegas is still undervalued and that’s good for us. That tells me our properties will continue to increase in value. It’s just going to be at a slower pace than in the last year.”

Other findings released at the Crystal Ball seminar:

--Presenters unveiled numbers that they say contradict the predictions of analysts who believe just 25 percent of the market’s proposed luxury high-rises will be built.
Of the 40,000 units that Murphy said have been announced, 12,000 units, or more than a quarter of the total, are under construction -- so the high-rise market has already surpassed analysts’ expectations, he said. In addition, developers are actively marketing nearly 13,000 units.

--Seven of the 10 best-selling subdivisions in the third quarter were condominium-conversion neighborhoods. Measured in a single bloc, condo conversions led the market in number of closings, with 2,114 units. KB Home was No. 2, with 938 closings. Pulte Homes and subsidiary Del Webb Communities combined to capture the No. 3 spot, with 893 closings. D.R. Horton was No. 4, with 811 closings. Richmond American Homes rounded out the top five, with 583 closings.

--The five best-selling master plans in the valley all posted average prices well above the market norm.

Aliante, which American Nevada Co. and Pulte-Del Webb are developing in North Las Vegas, topped the sales list with 454 units closed in the third quarter. The average new-home price at Aliante was $388,462.

Pulte-Del Webb’s Anthem master plan in Henderson came in at No. 2, with 405 closings. New homes in Anthem averaged $409,861 in the most recent quarter. The Howard Hughes Corp.’s Summerlin, in the western valley, was No. 3 in sales, with 338 closings and an average price of $569,215.

Mountain’s Edge, a Focus Property Group master plan in southwest Las Vegas, made its debut on the list at No. 4, with 291 closings and an average price of $441,169.

American West’s Coronado Ranch in southwest Las Vegas was No. 5 in closings, with 252 units sold and an average price of $343,788.

-The number of days that resale homes spend on the market has risen sharply, from 19 days in spring 2004 to 42 days. Most markets experience averages of 60 days or more on the market, Murphy said.
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How to prevent home seller's remorse

Backing out of deal brings legal consequences
By: Robert J. Bruss: Inman News
Have you ever sold a house or condominium you later regretted selling? I have. Looking back, I wish I still owned some of the houses and condos I sold.

This situation is known in the real estate sales business as "seller's remorse."

It occurs quite frequently, usually within a day or two after a home seller accepts a buyer's purchase offer. But smart listing agents are prepared to anticipate and successfully treat this widespread home seller disease.

THE BEST WAY TO PREVENT HOME SELLER'S REMORSE. The decision to sell a home is rarely made in haste. The seller(s) usually think about it for many weeks and months before deciding to sell.

Real estate agents often play a key role, when taking a listing of a house or condo for sale, in determining the seller's strong or weak sales motivations.

Even when the seller's motivation is strong, such as moving to a new city because of a job transfer or moving to a nicer home, there is still the possibility home seller's remorse might strike.

But this disease is most likely to occur when the motive for the home sale is weak, such as earning a tax-free profit (up to $250,000 for a single home owner or up to $500,000 for a qualified married couple) without having another residence lined up for purchase or rental.

The most effective way for home sellers, and their real estate listing agents, to prevent seller's remorse is to take out a blank sheet of paper, draw a line down the middle, and then list the reasons for selling on one side of the line and the reasons for not selling on the other side.

Personally, I've used this technique, often called the "Ben Franklin Method," many times to reach major decisions. The number of reasons on each side doesn't matter. What really counts is the importance or weight given to each reason.

For example, suppose the primary reason for selling your home is you need tax-free cash, but you enjoy your home very much and don't have a place to move lined up yet. The Ben Franklin Method will help you think of alternatives to selling, such as refinancing to take out tax-free cash, or perhaps adding a home equity credit line instead of selling.

WHAT TO DO AFTER SELLER'S REMORSE STRIKES. Experienced real estate agents usually have dozens of stories to tell about what happens if, despite their preventative efforts, seller's remorse still strikes their home sellers. The disease most often occurs in two primary situations:

(1) Sometimes the disease strikes shortly after the home seller signed the listing contract with a realty agent. As the seller prepares the residence for sale, such as cleaning out the closets and throwing away years of memories, the seller often incurs second thoughts about selling.

At this point, if the home seller isn't strongly motivated to sell, the listing agent's best alternative is often to agree with the seller's request to cancel the listing. Working with a home seller who isn't highly motivated to sell is frequently a waste of time, as experienced agents know well.

(2) The second situation where home seller's remorse often strikes occurs shortly after the seller has accepted a buyer's purchase offer. This is the time when many sellers realize the sale is rapidly becoming a "done deal" and now it's time to move out.

During this 30-to-60-day period, home sellers often think about all the good times they enjoyed in their home, or how they will never be able to find another home as nice as their old one.

At this point, the seller's listing agent needs to do everything possible to hold the home sale together. Often all it takes is a friendly reminder to the seller of all the sales benefits, such as tax-free profits, moving to a different community, or whatever the primary home sales motivations might be.

However, occasionally the listing agent encounters a stubborn home seller who says, "I've changed my mind and I absolutely don't want to sell. Give the buyer their deposit money back. I'm not moving."

As a home buyer, I recall once encountering this situation. The seller's listing agent phoned my buyer's agent to say the sellers decided not to sell. When I learned of this, I asked my buyer's agent if it would be all right if I phoned the listing agent to point out the seller's consequences of canceling the sale. Of course, she agreed.

When I talked with the seller's listing agent, I reminded him we have a legally binding sales contract and I intend to perform my side of the sale and I expect the sellers to perform their side.

Then I politely informed him that if his sellers don't deliver the deed as agreed I would have no other alternative but to sue for specific performance of the contract and to record a "lis pendens" against the title to prevent the seller from selling to another buyer or refinancing the property.

Within a few hours, the seller's listing agent phoned to tell me he reminded the sellers of all the benefits of selling and that they would honor the sales contract as agreed.

I learned from that experience why it is so important for real estate agents, as well as their sellers and buyers, to understand the possible legal consequences if seller's remorse strikes and the seller refuses to back out or change the terms of the sales contract. For more details on the possible legal results of a breach of contract by either the home seller or buyer, please consult a local real estate attorney.

SUMMARY: Home seller's remorse, while not routine with many home sellers, is not an unusual occurrence. Real estate agents should be prepared to anticipate the situation and counsel sellers about the possible consequences of backing out of a home sale.
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Single-family homes best spot to sink money

Part 2: How to start investing in real estate
By: Robert J. Bruss: Inman News
There are many methods to become very wealthy, or just modestly wealthy, with your real estate investments. Although I have personally done "pretty good" investing in real estate, many of my friends, college real estate students and subscribers have done much better. I'm extremely happy for them! This four-part series will explore the question: Why do I want to invest in real estate? (See Part 1: First-timers find a place to call home.)

2 – I want to earn huge profits from appreciation in property market value. This is the primary reason many investors get started investing in real estate today. Big fortunes have been earned acquiring rental property, which is not the investor's principal residence. But in some areas, especially Las Vegas, real estate speculators have driven up property prices more than 40 percent in 2004. That rapid appreciation rate won't continue as mortgage interest rates gradually rise.

When I started investing in real estate, I thought the best type of profitable investment property to buy was apartment buildings. I read and re-read (and even outlined) William Nickerson's now-classic best-seller book "How I Turned $1,000 into $10 Million in Real Estate in My Spare Time" (now out of print, but still available at public libraries, and on e-Bay for around $100), which recommended starting with a small run-down rental property, fix it up, and then make an IRC 1031 tax-deferred exchange for a larger rental property. That became my formula! I traded up to a nine-unit apartment building in San Francisco overlooking the ocean and the old Playland at the Beach (old-timer San Franciscans will remember that classic place, near the famous Cliff House).

Although there is nothing wrong with using Nickerson's "forced inflation" to increase rental property market values, as I did with those nine units by making profitable improvements to raise the rents, including painting every apartment (because I couldn't afford to hire a professional painter at the time), I abruptly changed my "modus operandi."

On a vacation in Hawaii in the late 1970s, one morning I was sitting at the coffee shop counter of the Sheraton Princess Kaiulani Hotel across from Waikiki Beach. I was re-reading Nickerson's great book. When I put it down, the Pan Am pilot sitting next to me said, "I see you're interested in real estate." That began a conversation that changed my real estate investment direction.

The pilot said he had recently taken an excellent real estate investment course from John Schaub and Jack Miller about "Making It Big on Little Deals." Thanks to that pilot, I got in touch with Schaub and Miller, signed up for their next seminar, and at that weekend course in Reno, Nev., I learned why single-family rental houses make the best real estate investments because they are easiest to buy, finance, manage and profitably resell.

After that weekend real estate seminar, I became quickly motivated to get rid of my nine-unit apartment building because I discovered why single-family houses were better investments for many reasons. As a further inducement, one evening I started receiving frantic phone calls from my nine tenants. I had made the big mistake of giving my tenants my home phone number. Never do that! I learned my tenants had no heat. In San Francisco, no matter what time of the year, in the evening having no heat in apartments is a "big deal." The boiler in my nine-unit building had quit! It was a Friday evening. Paying a repairman would cost me double-time. I called the repair company and they fixed the problem on Saturday morning for only 1.5 times their usual outrageous hourly rate. As a result, I sold that building (at a substantial profit) and henceforth began investing in only single-family rental houses where, at worst, just one tenant at a time has a maintenance problem.

The Schaub-Miller formula of investing in single-family houses, which have the best rate of market-value appreciation, has proven to be very profitable. Yes, there were a few years when my rental houses didn't appreciate in market value. Please be aware real estate goes in cycles – the long-term trend is always up, but there will be plateaus and valleys along the way. However, over the long term (and real estate investing is a long-term investment), I don't know of any better safe investment. Do you?

Incidentally, John Schaub just wrote a great new book recently published by McGraw-Hill titled, "Building Wealth One House at a Time." In that superb book, Schaub reveals that during his more than 30 years of investing in single-family rental houses, he has never obtained a bank loan to acquire a house. Instead, he uses seller financing and other finance techniques explained in his book, such as lease-options. Schaub still teaches his excellent course, "Making It Big on Little Deals." Phone him at 800-237-9222 for information on his next classes and multispeaker conferences.
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Panel revises real estate loan interest tax writeoff

Proposed cap on tax deduction for home mortgages raised to 25%
Inman News
Responding to sharp criticism of its initial proposal to slash the tax deduction for home-mortgage interest, President Bush's tax-restructuring panel offered a revised and final plan Tuesday to increase its proposed cap on the write-off by 25 percent, media accounts said.

But the new level - ranging from $227,147 to $411,704 depending on a region's housing prices - still would be far below the average mortgage in high-price markets such as the San Francisco Bay Area, New York City, Washington, D.C., and South Florida, accounts said.

Homeowners now can write off interest on up to $1.1 million in mortgage debt.

The tax panel's mortgage-interest recommendation is viewed as a long shot to become law.

Even boosting the proposed cap by 25 percent didn't stop the panel's plan from being criticized by officials ranging from California's state treasurer to leading Democrats in the House of Representatives from San Francisco, Maryland and Illinois.

The panel's report notes that fewer than 30 percent of American taxpayers benefit from the mortgage-interest deduction, and fewer than 5 percent of mortgages would be affected by reducing the $1 million cap. The panel said current policies raised the question of "whether the tax code encourages overinvestment in housing at the expense of other uses," according to media reports.

The panel proposes to replace the current mortgage-interest deduction - which can range in value depending on a homeowner's tax bracket - with a 15 percent tax credit on mortgage interest that would be available to every taxpayer. The plan would phase in over five years for existing mortgage holders.

The new cap would be linked to Federal Housing Administration mortgage limits set county-by-county each year based on the cost of a "modest" home. Those limits range from $172,632 in low-cost states to $312,895 in the most-expensive counties.
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Realty Q&A: Has the Market For Real Estate Run its Course?

Lew Sichelman on whether housing's long run is coming to a close, what might make your credit score go up or down, and other issues on people's minds.
By: Lew Sichelman: The Wall Street Journal Online
Issues on people's minds: Is housing's long run coming to a close and more on what might make your credit score go up or down.

Question: My husband and I attended a seminar featuring Suze Orman. It was definitely filled with distress as she talked about the possibility, in the near future, that we would no longer be able to declare tax credits for our mortgage payment interest, property taxes ... that interest rates will go off the wall unless you have a fixed mortgage at the lower rate (we have an ARM). My 24-year-old son lives in Miami, where he's purchased four condos, three as rentals. I'm worried about him surviving and I'm worried about us. My husband is 52 and I'm 49. I wanted to buy another home to fix up and sell, but Orman made it sound like that would be a bad idea. Can you tell me if real estate has run its course? Michele Bosca.

Answer: Real estate is probably at the top of its current cycle and destined for a slow down. But hold on just a moment. Housing's favorable tax treatment is not going to change, at least not any time soon. And mortgage rates are not projected to go any higher than 6.5% to 7% in the next two years.

The president's tax reform panel isn't due to make its formal recommendations until Nov. 1. But even it meets that deadline the White House has to put its stamp of approval on the ones it likes. Then Congress gets to have its say. So it will be a good two years, if that, before anything happens. And some lawmakers, not to mention the housing lobby, already are circling their wagons.

So far, the panel has discussed in open meetings the possibility of ratcheting down the cap on the deduction - not a credit - for interest paid on a mortgage from the current $1.1 million debt ceiling to $300,000-$350,000. Also on the table are the elimination of write-offs for property taxes, state income taxes, second homes and home-equity loans.

But it has always been expected that these deductions would be in play, or at least open to debate. And again, nothing is concrete, and nothing will be adopted without a major pitched battle.

Al Mansell, president of the National Association of Realtors, says the discussion and the media attention it has received has already had a "chilling" effect on the real estate market, particularly in high-cost areas. Whether that's just so much rhetoric or not remains to be seen, but the Salt Lake City broker told the tax reform panel in a letter that it "must understand that limiting or eliminating tax benefits will have an adverse impact on housing markets and the value of housing."

Similarly, America's Community Bankers, which speaks for small, local thrift institutions, is warning that the panel's "ill-advised proposal" to wipe out the mortgage-interest deduction could push the economy into a recession.

"Changing the interest deduction as proposed would constitute an abandonment of support for the housing aspirations of millions, and greatly diminish the net wealth of middle-class families," executive vice president Robert Davis said in another letter to the committee.

Others have weighed in as well. But you get the idea: A war is brewing.

As far as mortgage rates are concerned, they're certainly trending higher. But no one I know or hear is predicting anything outrageous. Indeed, rates just this month pushed past the 6% mark for the first time in several months. And the worst forecast I've seen to date is for 7%t. But a gradual run up in rates could be good for housing, not bad, because it will give incomes a chance to catch up to hyper-inflated house prices.

Over the last 30 years, housing costs have averaged 2.6 times disposable household incomes, according to economist David Wyss at Standard and Poor's, the Wall Street rating agency. But currently the national price-to-income ratio is 3.2 percent and two to three times that in many coastal markets, including several in Florida where your son is.

In a rising-interest-rate environment, it's always good to lock in rates with a fixed loan. But as long as rates don't go sky-high - and there is no indication they will - the garden-variety adjustable rate mortgage won't kill anyone. It's the crazy interest-only and pay-option ARMs that are dangerous and should be jettisoned as soon as possible, preferably before their initial annual adjustment.

As for house prices, I'm afraid the days of double-digit increases are behind us. Most prognosticators - even those who have no vested interest in the housing market - believe the best owners can hope for is appreciation rates of 3% to 5% over the next few years.

The most dire forecast, this one from Mark Zandi, chief economist of Economy.com, is for a "severe adjustment" in which values will not be rising at all by 2007. That's a tune he's been signing for two years, though.

At the same time, prices could take a tumble in markets where the all-important price-to-income ratio is way out of proportion - places like San Diego, where the ratio is 9.68, and Miami, where it is 6.84.

But the chances are they won't fall back by much, if they decline at all. The odds are much better that prices will simply stop rising so fast.

Clarification of FICO scoring

Craig Watts, public affairs manager at Fair Isaac Corp. writes to object to a part of my answer to a recent question about credit scores, saying it "includes and perpetuates a myth" about FICO scoring that he'd like to see dead and buried.

"A person's FICO credit score will never improve because she closes an account, unused or otherwise," he says. "In fact, closing an account can occasionally have the opposite effect on one's FICO score, depending on what else is on her credit report."

"The FICO credit score algorithm does not look at a person's available credit as an isolated factor when calculating one's score. So having a lot of unused credit will not by itself hurt one's FICO score. Fair Isaac's own research has demonstrated that the amount of available credit by itself is not nearly as predictive of future credit behavior as it's often cracked up to be. That's why we did not include it as an independent factor in the FICO scoring algorithm.

"Instead, the FICO algorithm looks at available credit in comparison to outstanding debt, from which it produces a 'credit utilization' percentage that is, in fact, used in the calculation of one's score. Maintaining low balances helps one's FICO score by keeping that credit-utilization percentage low, among other benefits."

Watts says what confuses some people in the mortgage industry is the fact that some lenders still take available credit into account as an isolated factor, separate from the applicant's FICO score. And in satisfying a lender's request to close unused accounts, he reiterates, an applicant may in fact be harming her FICO score.

Fortunately, he also reports lenders are slowly dropping this factor as an independent underwriting criteria.

By the way, the offending advice was mine, not that of Ginny Ferguson, the Pleasanton, Calif., mortgage broker on whom I rely on for help understanding credit scoring - and who may never speak to me again. Sorry, Ginny.

Email your comments to rjeditor@dowjones.com.
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Investors say housing market overvalued

But majority still see real estate as better investment than stocks, survey finds
Inman News
Investors overwhelmingly believe the U.S. housing market is overvalued, but still see real estate as a better investment than the stock market, according to a survey released this week by financial services organization TIAA CREF.

"There is a notable disconnect between the run-up in housing market values investors are seeing as homeowners, and their desire to participate in an attractive asset class like real estate over stocks and bonds," said Tom Garbutt, TIAA-CREF managing director and head of real estate.

According to the study, conducted by Roper Public Affairs and Media for TIAA-CREF, nearly three out of four investors, or 73 percent, believe housing in the U.S. is overvalued, while just one in five, or 19 percent, believe it is valued appropriately. Middle-class investors, which comprise those with household incomes from $25,000 to $74,999, are particularly likely to see U.S. housing as overvalued.

Despite their belief that the housing market is overvalued, investors still overwhelmingly see real estate as a better investment than the stock market, according to the survey. In a head-to-head match-up, 69 percent of investors said that real estate is a better investment compared to just 24 percent who said the stock market is a better investment.

While three-quarters of investors believe that the national housing market is overvalued, just 58 percent say housing in their community is overvalued, with more than a third saying housing in their community is valued correctly.

"Investors are reluctant to believe their own housing market is overheated," said Garbutt. "I guess you could say perceptions of real estate valuations are local. "

Investors most often cite residential properties (rental properties or summer and second homes) as the source of their real estate investment with virtually none pointing to commercial real estate investments.

Unlike residential real estate, which many experts believe is overvalued in certain markets, pricing for commercial real estate has remained within appropriate levels even if the market has gotten more aggressive, according to Garbutt.

"On a relative basis, commercial real estate still appears to be priced appropriately when compared to stocks and bonds," said Garbutt. "That's why we believe commercial real estate can play an appropriate role in helping investors saving for retirement build well-diversified portfolios."

Other key findings from the study include:

    • Three-quarters of investors say they have no plans in the future to sell their
      primary residence and use the proceeds for their retirement income, even
      though they view real estate as a better investment than the stock market.

    • Thirty percent of investors say they own real estate investments in addition
      to their primary residence. Investors are most likely to have residential
      rental properties (14 percent), second homes (13 percent) and vacation homes
      (10 percent) as their real estate investments, while commercial real estate (7
      percent) and REITs (3 percent) are less common.

The survey findings are based on a national telephone survey of 1,001 American investors age 30 and older who have investments in stocks, bonds, mutual funds, T-bills, a 401(k), an IRA or other investment products.
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Reducing Tax Deductions Could Hit Property Values

By: Eduardo Porter; David Leonhardt: REALTOR® Magazine Online
Housing market experts say the proposal by a White House advisory panel to reduce residential mortgage deductions and eliminate tax deductions for property taxes would have a negative impact on property values for millions of homeowners, especially those living in high-priced markets in California and the Northeast.

The Mortgage Bankers Association cautions that the plan will become "a tax increase" for many working families; while the NATIONAL ASSOCIATION OF REALTORS®, which forecasts a 15 percent decline in home prices nationwide, frets that it will be disastrous for the housing market.
"Almost any economic analysis will conclude that there will be some downward effect on prices, especially at the top of the market," concedes James Poterba, an economist at the Massachusetts Institute of Technology and a member of the president's panel. "The question is how large it will be."

A study from the Center for Economic Policy Research in Washington, D.C., shows that homeowners in expensive markets who attempt to keep their monthly house payment steady could see prices decline by more than 20 percent, and significant losses for owners of high-priced homes in cheaper markets could occur as well.

The hit that homeowners are expected to take would be somewhat softened by the panel's plan to phase in the reforms over a five-year period.
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Real estate inheritors learn value of living trusts

Time-consuming probate court raises costs, invites capital gains tax
By: Robert J. Bruss: Inman News
DEAR BOB: After our mother died in August 2003, my brother and I inherited her assets, which consisted mainly of her house plus stocks and bonds. Her will left everything to us equally. But the estate had to go through probate court proceedings. We just received title to her home recently and listed the house for sale with a local Realtor. Meanwhile, the house was vacant, costing us upkeep expenses. The only good thing resulting from the probate court delay is the house appreciated about $100,000 in market value. However, our probate attorney now tells us we will owe capital gain tax because our "stepped-up basis" was determined on the date of our mother's death. Why isn't there a law against this probate rip-off? – Cindy R.

DEAR CINDY: If you are a regular reader, you know I constantly admonish readers to arrange a revocable living trust to avoid probate costs and delays for their heirs.

Obviously, your mother didn't follow that advice. As a result, you and your brother suffered through two years of unnecessary probate court delays and costs.

I especially relate to your situation because I encountered an 18-month delay in Minnesota probate court after my mother died several years ago. Her Minnesota attorney erroneously told her not to put her condominium title into her living trust (which would have avoided probate).

When she died, the condo title had to go through probate. Most states have similar probate court costs and delays.

The only good thing about probating your mother's house was it rose in market value during the two-year delay. But the bad result is that appreciation in market value is taxed as a capital gain.

HOW LONG IS HOME BUILDER LIABLE FOR DEFECTS?

DEAR BOB: In July 2002 we bought a brand-new townhouse. We had it professionally inspected and everything appeared in good condition. But in August 2004, the slab foundation cracked. We noticed a bulge under the carpet in our living room. Immediately, we notified the builder. He said we had a one-year warranty and the concrete slab bulged or cracked after that so we are out of luck. Is this true? – Bruce N.

DEAR BRUCE: The laws of most states require home builders to warrant their homes for longer than one year. You didn't report where the townhouse is located.

I suggest you consult a local real estate attorney to determine your legal rights against that home builder. In some states, such as California, the home builder is liable up to 10 years for construction defects.

BEWARE OF A $1 QUIT CLAIM DEED

DEAR BOB: On my way driving to work every day I go by a run-down abandoned house. I have observed it for at least a year. One day I stopped to jot down the address, walk around it, and ask the neighbors. They said a "strange old lady" owned the house. I researched the title and learned the property taxes hadn't been paid for some time. I finally located a man who claims to be the old lady's son. He said the property is in bad shape and he could give me a quit claim deed for $1 since he inherited the house after his mother died. Should I get involved, knowing the house needs work? – Norman O.

DEAR NORMAN: For $1 it's hard to go wrong, unless there are recorded liabilities against the property. Before you accept that $1 quit claim deed, please consult a local title insurance company to learn if the son's quit claim deed is insurable.

If you can buy an owner's title insurance policy for that house, you may have discovered a super bargain. However, if the title insurer tells you there are lots of unpaid liens against the property, or perhaps the son doesn't really own the property, maybe you should pass on that opportunity.

Please be aware a quit claim deed conveys only whatever title the grantor owns. If that son doesn't own the property, his quit claim deed is worthless.

The new Robert Bruss special report, "How to Earn Up to $250,000 (or more) Tax-Free Profits Every 24 Months Buying and Selling Houses," is now available for $5 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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Pending Home Sales Index Close to Record

NAR: REALTOR® Magazine Online
Pending home sales, a leading indicator for the housing sector, eased slightly but is at the second-highest level on record, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, based on contracts signed in September, slipped 0.3 percent to a reading of 128.8 from a record of 129.2 in August, and is 3.3 percent higher than September 2004.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed; pending home sales typically are finalized within one or two months of signing.

David Lereah, NAR’s chief economist, says the index shows a lot of momentum. “We’re still seeing a post-Hurricane Katrina boost in home sales activity, where the needs of displaced residents are supplementing a fundamentally strong market,” he says. “Aside from this temporary lift, the market is entering a period of transition in which we will see a somewhat slower but more sustainable pace of home sales—a period that is expected to be historically healthy. This will help to create a better balance between home buyer and sellers, so price appreciation should be cooler as well.”

Many post-Hurricane Katrina sales in the region surrounding the disaster zone were bulk sales by companies that were obtaining housing for employees; some of those sales closed quickly in September with others expected to be recorded in data for October and November.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined. 2001 was the first of four consecutive record years for existing-home sales, with activity in that year being fairly close to the higher level of home sales projected for the coming decade relative to norms during the mid-1990s. A Pending Home Sales Index of 100 coincides with a historically high level of home sales.

Regionally, the highest PHSI was in the South, where the index slipped 1.6 percent in September to 139.1 from a record in August, and was 6.3 percent higher than September 2004. In the Northeast, the index rose 1.8 percent to 110.4 in September and was 0.8 percent above a year ago. The Midwest index rose 0.3 percent to 119.7 in September, and was 0.4 percent below September 2004. The index in the West held even at a level of 136.7, and was 3.6 higher than a year ago.
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Is It Time to Remodel The Homeowner Tax Break?

By: Robert Guy Matthews: The Wall Street Journal Online
One suggestion from President Bush's tax-reform advisory panel - restricting the deduction for mortgage interest - raises the question: How far should the U.S. government go in encouraging homeownership?

President Bush's tax-reform advisory panel today will urge significant changes in how American households and businesses are taxed. But one of its recommendations - restricting the deduction for mortgage interest - already is making headlines and drawing political fire.

The suggestion calls attention to a debate among academics and policy wonks: How far should the U.S. government go in encouraging homeownership? Does the U.S. tax code's tilt toward homeowners cause Americans to overinvest in housing? Would changing the tax code bring down home prices?

This is just one issue in the report that the nine-member, bipartisan commission is expected to approve today. The panel backs two alternatives to the tax code: a streamlined version of the current income tax and a revamped tax strategy designed to encourage more saving and investment. Neither is likely to become law as proposed, but they will frame a debate likely to go on for years.

Both options curtail the current tax break for homeowners that allows Americans who itemize their deductions to deduct interest on mortgages of as much as $1 million. The deduction is worth more to upper-income taxpayers: $10,000 in interest deductions cuts the tax bill by $3,333 for someone in the 33% bracket, but $1,500 in the 15% bracket.

The panel suggests turning the deduction into a tax credit equal to 15% of eligible mortgage interest, which means the tax break for interest on a $100,000 mortgage would be the same for every taxpayer, regardless of income. It suggests lowering the $1 million ceiling to the size of an average mortgage, using Federal Housing Administration regional data.

In today's real-estate market, the ceiling would range from $172,632 in rural areas to $312,895 in the urban corridors of New York City, Boston, Washington, D.C., and parts of California. The FHA says about 81% of its loans are close to the lower end and about 2.5% of loans are in the ceiling range.

The change would mostly affect only taxpayers in higher brackets with above-average mortgages. Under current interest-deduction rules, a taxpayer in the 35% income bracket with a $500,000 mortgage at 6% in the country's pricier urban corridors can reduce his or her taxes by just over $10,000. By contrast, under the new proposal, that same individual could claim a credit of roughly $2,800, according to Goldman Sachs.

The commission also recommends ending tax breaks for second homes and home-equity loans. In its proposal, current homeowners would be able to keep their original mortgage-interest deductions, which would change only if the homeowners refinanced or purchased a new home.

The panel didn't wipe out the tax deduction for housing altogether as it did the deduction for state and local taxes. President Bush, in appointing the panel, asked members to "recognize the importance of homeownership."

"We were relieved of the philosophical question of whether homeowner preferences should be in the tax code," said Charles Rossotti, a former IRS commissioner and one of the architects of the mortgage-interest proposal. The goal, he said, was to "make sure that it is still possible to own a home," but to reduce the size of the tax break for housing - giving the panel the money it needed to fix other parts of the tax code - and to restructure it so the break isn't so tilted in favor of high-income taxpayers.

Nevertheless, the housing industry was quick to criticize the proposal. "The tax deductibility of interest paid on mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code," said Al Mansell, president of the National Association of Realtors. "It should not be targeted for change."

The association warned that the plan would push down prices of homes, especially upper-end ones. Homebuilders and mortgage bankers sounded similar alerts, as did some think-tank economists. The proposed change "would have a negative impact on the home-building industry," says economist Adam Carasso of the Urban Institute, a think tank in Washington.

Admirers of the proposal say curtailing the tax code's tilt toward housing is in the nation's long-term economic interest because it might divert savings to other parts of the economy, and that any downward pressure on home prices caused by the tax change would be modest and manageable. Backers also say that it is wise to restructure the tax break so it doesn't benefit higher-income taxpayers as much.

Richard K. Green, a tax economist at George Washington University, calls the proposal "conceptually...really a good idea," and says the panel wisely focuses the tax break for homeownership on families who might otherwise not be able to afford to buy a house.

Other economists question the industry's assertion that watering down the housing-tax break would reduce homeownership. About 68.6% of Americans own their homes, according to the Census Bureau. Australia, Canada, New Zealand and the United Kingdom don't have such tax breaks but have similar levels of homeownership.

In its deliberations, the tax panel looked at who benefits from the current mortgage-interest deduction. Their answer: Mostly higher-income earners who itemize deductions on their tax returns rather than taking the standard deduction. Two-thirds of taxpayers don't itemize, the Internal Revenue Service says.

And, the IRS says, about 35% of the tax savings from the mortgage-interest deduction goes to taxpayers with gross annual incomes above $100,000. In the U.S., 9% of taxpayers earn more than $100,000.

But the politics of reducing this popular tax break, even as part of a broader tax overhaul, are tough. Sen. Max Baucus of Montana, senior Democrat on the Senate Finance Committee, said the mortgage-interest cap wouldn't get through Congress. In the 1990s, caps on mortgage interest were considered but quickly dropped because they were politically unpopular.

Even Mr. Rossotti acknowledges that the mortgage-interest cap has a slim chance of success. But he argues that Americans don't benefit as much from this deduction as they think; the tax break for mortgage interest is offset by factors that boost the taxes of those who take advantage of it.

"It is one of the great deceptions in the tax code," Mr. Rossotti said. "I defy anyone to try to figure out the interaction between what you get after phase-outs of the personal exemption, phase-outs of the itemized deductions, how much is taken back because of the alternative minimum tax and state and local taxes."


Email your comments to rjeditor@dowjones.com.

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The Weekend Guide! November 3 - November 6, 2005

The Weekend Guide for November 3 - November 6, 2005.
Full Article:
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Shopping for a Home in Winter: A Strategy for Bargain Hunters

If you want to get the most house for the money, start your legwork now.
By: Marshall Loeb: The Wall Street Journal Online
Come spring, you'll have more competition for the best deals.

If you've been thinking about buying a new home, winter is the time to start getting serious.

Here are a few reasons to brave the cold and go on a house hunt:

The winter season has fewer units on the market, and sellers tend to need to move from their property. You can use that to your advantage to get a favorable deal.

Winter has fewer buyers in the market. Looking for a home in the winter can be inconvenient, and people are less likely to move. Families also tend to be on a September to June cycle because they are unwilling to move their children to a new town in the middle of the school year. Fewer buyers means less competition.

Lenders also usually have fewer loans to process and less paperwork to deal with (though this can change quickly if rates fluctuate). With lenders less hassled, you can expect a smoother process to get approved for a mortgage. But, as reported in Bankrate.com, there are exceptions to this rule, most notably in warmer parts of the country (especially Florida), ski towns, and in parts of the country where demand is so strong that it will not slacken during the winter months.

Finally, as all savvy shoppers know, after the holiday season comes the season of bargain opportunities. This includes houses, as well.

Email your comments to rjeditor@dowjones.com.
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C.A.R. says proposed change to deductibility of mortgage interest "DOA"

The proposed tax reform affecting the deductibility of mortgage interest will be "dead on arrival in Congress," says C.A.R. President Vince Malta.
California Association of REALTORS® (C.A.R.)
The proposal, submitted yesterday to the U.S. Treasury by the President's Advisory Panel on Federal Tax Reform, recommends converting the mortgage interest deduction to a tax credit equal to 15 percent of interest paid on mortgages, with the mortgage interest cap set to the average regional home price, ranging from $227,000 to $412,000. Currently, homeowners can deduct all the interest on mortgage loans up to $1 million on their primary residence.

"With the median price of a home in California at $543,980 and the average mortgage at least $435,180, the proposed ceiling would limit the tax break for the majority of new mortgagees in the state," said Malta.

Other changes that would negatively impact Californians are the proposed elimination of deductions for the interest paid on second home loans and home equity loans, as well as the elimination of the deduction for state and local taxes. According to NAR, second homes accounted for 36 percent of all home sales last year nationwide.

The Panel's Recommendations
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Times have changed for real estate

Guest perspective: Increasingly difficult to protect consumers from unintended outcomes
By: Joy Canova: Inman News
Editor's note: Joy Canova, a Realtor with Coldwell Banker Bain Associates in Seattle, wrote the following in response to an Oct. 26 article, "Times change, real estate commission stays the same," reporting on a public workshop held in Washington, D.C., on Oct. 25, to explore competition in the real estate industry.

Although the title, "Times change, real estate commission stays the same," seems to hint at a need for real estate sales commission reductions, I see another meaning.

Times have changed for the real estate market; it has become increasingly difficult to protect clients from unintended consequences of a real estate transaction. If changes to commissions are overdue, it is to increase rates, not lower them.

In real estate transactions, one needs only to look at the volume of pages in a typical purchase and sale agreement to see the changes in the industry. As greater protections are needed for clients, full-service brokerages have sought the assistance of their attorneys to design contract addendums to close risky loopholes. Full-service sales agents have the skill and knowledge to put these protections in place when and where it is appropriate.

While it is true that every real estate transaction does not require the full spectrum of abilities that full-service agents and their companies provide, the consumer will not have the expertise to determine when his or her personal situation calls for it. It is better to depend on an agent who will know when such conditions arise and employ necessary actions on the consumer's behalf.

The comparison of the real estate industry to airline competition is an interesting choice since so many airline companies are struggling to stay in business. Some may wish to blame all the woes on events after Sept. 11, but the trouble started long before that. Consumers of airlines are suffering as services and routes are cut in an effort to stay in business. A cheap ticket to nowhere is hardly a bargain.

If the federal antitrust agencies' intent is to break the real estate industry to pieces in the same manner as the airline industry, real estate consumers will suffer as well. Agent expertise will leave the industry when consumers need an advocate most desperately.

Home buyers today are faced with affordability issues and predatory lending practices. Home sellers in the marketplace are falling prey to selling-schemes that provide no assistance in negotiations and pricing suggestions that cost money as properties linger on the market.

With personal savings down and debt up for many Americans, homes are often the greatest savings a family has. To shortcut protections for consumers with this critical financial asset is unconscionable. Lowering costs without considering value is the poorest form of business in America today.

Joy Canova is a Realtor with Coldwell Banker Bain Associates in Seattle.
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7 Home Repairs You Can't Ignore

Homeowner procrastination can ruin a house. Don't let water, pests, faulty wiring, dirty chimneys or old appliances get the upper hand.
By: Liz Pulliam Weston: MSN
Dealing with your home's upkeep can be a pain, not to mention expensive. But if you're going to indulge in a little "deferred maintenance," make sure you at least handle these 7 crucial repairs.

Owning a house is expensive, which is why so many homeowners procrastinate on repairs. Real-estate agents have a euphemism for this condition: It's called "deferred maintenance."



Some fixes, however, should never be delayed. Ignoring these problems can result in much more expensive repairs later on—or even injury and death.

Here's what home inspectors around the country say you should be on the lookout for:

A water leak—anywhere
A stain on your ceiling. A toilet that rocks. White powdery stuff that grows on your bricks or foundation. A musty smell in your house.

Whatever the source, the culprit is water, and the damage can be severe.

"Water is probably the single most destructive force to a house," said inspector Jeff Del Guercio, owner of An Objective Inspection in Throop, Pa., and president of the local National Association of Home Inspectors chapter. "And a leak can go on for a long time without being noticed."

Left unchecked, leaks can lead to rot, dry rot, mold and termite infestations. Water can cause roofs to collapse, foundations to buckle and all manner of expensive repairs. What's more, water-related problems can get your home blackballed by insurance companies worried about the soaring number of mold-related claims nationwide. (See "Insurers keep a secret history of your home.")

The fix: Isn't it obvious? Stop the leak by any means necessary, repair the damage and take the required steps to make sure the problem doesn't reappear. Minor roof leaks, for example, can be patched with roof cement, but if your roof is aged and failing, you may need to have it replaced. That's expensive, but not as bad as replacing the trusses and underlying roof structure that can rot away if not protected.

Flickering lights
Do your lights dim when the fridge switches on or you crank up the microwave? You may have bad wiring or too many appliances hooked to one circuit. Either one can cause a fire.

"A lot of older homes have only one or two circuits in the kitchen," said inspector Jason Farrier of Elite Home Inspections in Phoenix. "People will update the kitchen but still have all the appliances running off those two circuits."

It's far safer, Farrier said, to have at least four circuits: two for countertop appliances, one to run the dishwasher and garbage disposal and another, dedicated line for the microwave.

Flickering lights also can be a sign of failing connections in aluminum wiring, a feature in homes built between 1965 and 1973.

The fix: You can try to distribute power-hungry appliances more evenly, by not running more than one at a time or by plugging some into another circuit. But the best fix is a cure: Get an electrician to upgrade your wiring, add more circuits, or both.

If you have aluminum wiring but can't afford to upgrade, the U.S. Consumer Product Safety Commission recommends making your wiring safer by using special crimp connectors rather than the usual twist-on style. For more information, see visit the commission's Web site (link at left under Related Sites) or consult a professional electrician.

Rodent incursions
If you hear the pitter patter of little rodent feet, don't turn up the stereo to drown them out. It's not just that rodents can carry disease and make a mess nesting in the tax records you've stored in the attic. Rats, mice and other vermin love to chew through insulation and wiring, Del Guercio said, and are suspects in many house fires.

The fix: Use traps and bait products or call in an exterminator. Mice droppings can carry the deadly Hantavirus, and rodents themselves can carry everything from salmonella to the plague, so professional help might be the wisest course.

Soaring fuel bills
If you're paying a lot more for gas or oil and there hasn't been a rate hike recently, Del Guercio said, the culprit could be problems with your furnace. This is more than a pocketbook issue, since poorly functioning systems can cause deadly carbon monoxide buildup in your home. The Consumer Product Safety Commission estimates about 200 people die annually from carbon monoxide exposure in the home, typically from malfunctioning heating systems.

The fix: Have your furnace professionally cleaned and inspected annually, including the flue. The cost is usually less than $100. Install UL-approved carbon monoxide detectors, which cost $25 to $50 each.

Peeling paint
Paint is like a home's skin. It's the first line of defense against incursions by water and pests. Water that seeps into wood can lead to rot. At the other extreme, unpainted wood can quickly get too dry and crack.

The fix: Scrape off the old paint, sand the surface smooth and apply a coat or two of fresh color. (Be cautious in homes built before 1978, since many still have lead paint. Dust and chips from such paint can cause irreversible brain damage in children and nerve damage in adults. Consider hiring professionals to test your home and remove any lead paint. Your local or state health department should be able to provide referrals to testing labs and contractors.)

Smoky chimney
Here's another way neglect can kill your family, since chimneys that aren't properly cleaned and maintained can catch fire. Creosote, a by-product of wood burning, can build up in the flue and ignite unless removed, said inspector Hy Naiditch of Accuspect Home Inspection Services in Chicago.

The fix: Get your chimney swept and inspected annually; the cost is about $100. (You can find certified chimney sweeps via the Chimney Safety Institute of America, link at left under Related Sites.) Use only seasoned wood, and build small, hot fires, rather than big smoky ones. Never burn trash, cardboard or wrapping paper in your fireplace.

Dirty, or missing, air conditioner filter
This is something Claude McGavic of Inspection Associates in Bradenton, Fla., sees way too often. Overloaded or missing filters allow dirt and dust to settle on the air conditioner's coils. Warm air passing over the coils causes condensation. What you get is mud—and a perfect medium for mold to grow and be blown all over the house.

Enough gunk can block air from getting into the system, McGavic said, causing it to catch fire. McGavic, president of the Home Inspectors Association of Florida, says many air conditioner failures can be traced to this simple lack of maintenance.

"With a $2 filter," McGavic says, "you can preserve a $6,000 air conditioning system."

The fix: Replace the filter once a month while the air conditioner is in use. Get your system checked annually.

Here are some other safety fixes you should consider:

Ground-fault circuit interrupters: These electrical outlets, with their distinctive red and black buttons, are designed to prevent deadly shocks. Outlets in bathrooms and those in kitchens within six feet of the sink should be replaced with GFCI outlets, said Naiditch, president of National Association of Home Inspectors Illinois chapter. "They're the best $7 you'll ever spend," Naiditch said. "They're a lifesaver." The exception: Don't put a refrigerator on a GFCI, Naiditch said. A fridge's normal on-and-off surges can trip the interrupter and leave you with an icebox full of rotting groceries.

Flexible gas connectors: Gas appliances installed more than 10 years ago may still have dangerous brass connectors that can fail, according to the safety commission, leading to fires or explosions. These should be replaced with an approved connector, typically stainless steel, Naiditch said. But don't move the appliance to inspect, since even a slight motion can cause the weak soldered connection to break. Have a professional appliance repairperson check and make any changes.

Garage door openers: Yours should have an electric eye that looks for obstructions and an automatic reverse mechanism to prevent someone from getting squashed.

Dryer vents: The lowly clothes dryer causes more than 15,000 fires every year, often caused by lint buildup in the duct that vents to the outside. Clean the ducts regularly and replace plastic ducts with metal versions.

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Realtors go to bat against expected real estate tax reform

Trade group fears widespread economic impact
Inman News
The National Association of Realtors board of directors voted this week to oppose proposals under consideration by President Bush's advisory Tax Reform Panel that the trade group's leaders say would drive down real estate values and harm the housing market and overall economy.

The value of the nation's residential property could decline 15 percent or more if the tax panel's expected recommendation to convert the mortgage interest deduction to a tax credit takes effect, according to preliminary projections by the association's Economic Research Division. The housing sector accounts for about 15 percent of the nation's gross domestic product.

Eliminating the tax deduction for second homes, another proposal under consideration, would impact at least 5 percent of the GDP, the association said in an announcement this week. Second homes accounted for 36 percent of all home sales last year.

The tax reform panel, which is expected to make its final report to the president today, is considering recommending that Congress convert the mortgage-interest deduction from a deduction to a tax credit; is also considering reducing the $1 million cap on mortgages to the local Federal Housing Administration loan limit (which can be as little as $170,000 and no more than $312,000 in high-cost areas such as Alaska, Hawaii, Guam or the Virgin Islands); repealing the deduction for property taxes, as well as other state and local taxes; and raising the amount of gain to be excluded on sale of a principal residence but reducing the frequency in which the exclusion can be taken, the trade group reported.

"Before these ill-considered proposals become official, we are raising the loudest possible alarms over their prospective economic impact. Housing, which has sustained the economy for the past five years, represents 15 percent of GDP," said Tom Stevens of Vienna, Va., who took office as the association's 2006 president on Monday.

"We are concerned not just for the housing economy but for the nation's economy as a whole. Not only do the recommendations being considered by the panel have the potential to impact the value of every home, whether it has a mortgage or not, but also they will drive down real estate values," Stevens said in a statement.

Consumers' nest eggs will be jeopardized because much of investment for retirement is tied to the equity consumers have in their home, he also stated.

Stevens said the Tax Reform Act of 1986 demonstrated that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. The resulting loss of value in the commercial real estate sector was 30 percent following passage of that legislation.

"We urge the president not to accept these proposals. They are bad for home ownership, bad for real estate and bad for the American economy. NAR will vehemently oppose them should they be considered by Congress," Stevens said.

NAR's board on Monday voted to pay for new research to determine the economic effect of the panel's recommendation – especially their impact on the value of residential and commercial real estate, and assess their impact on home ownership.

The trade group's position is that real estate is a long-term investment, and that the tax system should reflect the stream of income and expenses associated with long-term investments. The association is urging the president and Congress to preserve the deduction for state and local taxes, including property taxes.

The board met on the final day of the 2005 Realtors Conference & Expo, held Oct. 28-31 in San Francisco. The event drew about 26,000 Realtors and guests, the association reported.
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