Buyers gain power in today's real estate negotiations

A return to more reasonable home-sale practices
By: Dian Hymer: Inman News
Last year, multiple offers were common. Consequently, it took no time at all to negotiate a sale. In most cases, buyers had only one shot at getting the price right. The winning contracts were negotiated quickly with little, if any, bickering over price and terms. If you missed the mark, you rationalized that it wasn't meant to be and searched for another opportunity.

Multiple offers have declined. Instead, multiple counteroffers are becoming the norm. Negotiation is back in vogue. Buyers are on more equal footing with sellers than they've been for years.

Some of today's home-sale transactions require several rounds of counteroffers to reach a mutually agreeable purchase contract. Also, there's no guarantee that if you start negotiating that a deal will be made. Buyers are more willing to walk away from the bargaining table than they were a year ago.

When multiple offers were common, negotiations were usually done when the contract was ratified. A ratified contract is one where both buyer and seller accept, in writing, all the terms and conditions. It was common for buyers to lift contingencies without asking the seller to pay to cure any defects. In many cases, buyers simply skipped inspections altogether. This sometimes resulted in unfortunate consequences.

Not only is there more negotiation to put a home sale transaction together, the negotiating doesn't necessary stop when the contract is ratified. A positive consequence of a more normal market is that buyers are returning to saner home-buying practices. Most home buyers are including an inspection contingency in their purchase contracts. And, they're more likely to follow through with further inspections recommended by the general home inspector. This is good news for both buyers and sellers.

Last year, sellers relished the thought of selling contingency-free for a generous price. However, the incidence of after-closing claims made against sellers for property defects was higher than it would have been if buyers had insisted on doing their own due-diligence investigations as a part of the sale agreement.

Even when buyers were given the chance to inspect, they often weren't given enough time to complete recommended further inspections. With a back-up buyer waiting in the wings, buyers were reluctant to ask for more time for fear of losing the home to another buyer. Some who sold in last year's market are still negotiating claims for defects that buyers discovered after closing.

HOUSE HUNTING TIP: Although the negotiation process may seem tedious, it can result in a more solid transaction with fewer after-sale problems. Although sellers usually want the inspection process to be shorter rather than longer, there's a modicum of protection to be gained by allowing the buyer sufficient time to investigate any property issues-before they remove the inspection contingency from the contract.

Keep in mind that real estate customs, law and practice vary from one area to the next. If you have any questions about how to resolve a negotiation, consult with your real estate agent or attorney.

Some buyers take advantage of a seller's willingness to grant time for inspections. It's reasonable to grant a buyer an extension to complete a further inspection if it's impossible to get the inspection done within the contingency time frame. However, repeated requests for extensions of contingency deadlines can indicate that the buyers either aren't committed to the sale or they are unable to close.

THE CLOSING: Make sure that your purchase contract includes a provision that gives you the right to issue a notice to other party to perform if a contingency deadline lapses. A real estate attorney can draft such a clause if it's not already included in the purchase contract.

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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Garages Go Upscale: More Space For Storage and Maybe Your Cars

Aiming for the high-end homeowner with a glut of stuff, design specialists are urging customers to invest in accouterments as refined as the rest of their house.
By: Amir Efrati: The Wall Street Journal Online
The latest addition to Leigh and Carrie Munsell's home in Palos Verdes Estates, Calif., has granite-like flooring, cedar-lined cabinets and pricey recessed lighting. An elegant new pantry? A library? No - a $20,000-plus bespoke storage space in the couple's two-car garage.

With everything from fly-fishing gear to clothes now arranged in an orderly way, the garage is "pristine," says Mrs. Munsell, 41, a stay-at-home mom. "No cars are allowed."

Aiming for the high-end homeowner with a glut of stuff, garage specialists around the country are urging customers to invest in storage space as refined as the rest of their home. Ranging up to 500 square feet, the spaces are typically created along garage walls, often with weatherproof cabinetry in woods like maple and birch. In some cases, cabinets are hung on slatwalls, or storage platforms are installed above the cars.

Marble Flooring

Garage Envy, a three-year-old garage-storage company in Pasadena, Calif., offers features like retractable benches ($650 apiece) and marble flooring and granite tops for work tables for $35 per square foot. Business has been so good the firm just opened branches in northern California, Arizona and Oregon. In Houston, a typical custom job by Advantage Garage Cabinets is about $2,700, or double the amount a year ago. In all, there are about 500 custom garage shops across the country, up from about 50 in 2001, according to Peachtree Consulting Group, an Atlanta firm that tracks garage storage.

The boutique garage shops are banking on growth in two areas - super-sized garages and clutter. According to the National Association of Home Builders, 19% of single-family homes constructed in 2004 had room for three or more cars, up from 11% in 1992. Because a third of two-car garages have so much stuff in them that there's room for only one car, according to a 1994 survey by the Department of Energy, garage shops are betting that, with more space, homeowners will stockpile more stuff - and need more organized storage. "I look at people's garages and most are disasters," says Steve Shorten, owner of The Garage Makeover Group.

There are downsides. Even pricey cabinets can fill up fast or get messy. And when some homeowners don't return items back to the storage spaces, their garage can easily revert to its previous state.

Customers like Kevin Maley say they overbuy. After paying $8,000 for 68 feet of custom garage cabinets, the Houston oil-equipment executive's Christmas lights and dog kennels are all neatly stored - but he's got a surplus of empty shelves, just in case more space is needed later. "I love my cars," he says. "And it would be a shame to keep them in a shabby garage."
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Home Selling Exclusions: A Great Benefit for Homeowners

By: Benny L. Kass: Realty Times
If you have recently sold your house at a significant profit, and if you have not been keeping up with the tax laws, you will be pleasantly surprised. If you are married, if you meet the legal requirements described below, you can exclude up to $500,000 of the profit you have made. If you are not married, or file a separate tax return, the exclusion is reduced down to $250,000 of profit.

For many years, there were two tax concepts which helped save homeowners from paying a lot of capital gains tax: the "roll-over" and the "once in a lifetime." However, the Taxpayer Relief Act of 1997, signed by President Clinton on August 5, 1997, abolished both of these concepts. The roll-over and the once-in-a-lifetime exemption for homeowners over 55 years of age are real estate and tax history.

Although there are no restrictions on the number of times this exclusion can be used (as compared to the old "once-in-a-lifetime" approach) the law does contain two important conditions:

   1. You must have owned and used the home as your principal residence for two out
       of five years before the house is sold. If you are married, so long as either
       spouse meets this requirement, the exclusion of gain applies. Marital status
       is determined on the date the house is sold. In the event of a divorce where
       one spouse is given ownership pursuant to a divorce decree or separation
       agreement, the use requirements will include any time that the former spouse
       actually owned the property before the transfer to the other spouse.

    2. The exclusion is generally applicable once every two years. However, if you
       are unable to meet the two year ownership (and use) requirements because of a
       change in employment, health reasons or unforeseen circumstances (which have
       been defined by regulations promulgated by the IRS), then your exclusion is
       pro-rated. These pro-rations are complex, and have caused considerable
       confusion among lawyers, taxpayers and even the IRS.

The new regulations were finally implemented by the IRS in 2004. They provide what the IRS calls "safe harbors" - i.e. if you fall into a safe harbor category, you are entitled to take the partial exclusion. If, on the other hand, you are not within the safe harbor, then according to the Regulations, "The taxpayer may be eligible to claim a reduced maximum exclusion if the taxpayer establishes, based on the facts and circumstances, that the taxpayer''s primary reason for the sale ... is a change in place of employment, health or unforeseen circumstances."

In other words, if you are not within a safe harbor, you will have to convince the IRS that you nevertheless qualify for the partial exemption.

Let's look at these items separately:

    1. Change in employment: If you have to travel at least 50 miles farther from
       the house you sold because of a job transfer, or even to take a new job, and
       the primary purpose of selling your house was because of employment reasons,
       you will be eligible for the partial exclusion.

       The 50 mile distance is the IRS "safe harbor," provided that the change in
       place of employment occurred during the time that the taxpayer owned and used
       the home. However, even if you cannot meet the safe harbor, you still may be
       able to convince the IRS to allow the partial exemption based on "facts and
       circumstances." The Regulations include an example of a doctor who sold her
       condominium and moved only 46 miles away from the previous residence. Because
       the primary reason for the sale was to allow the doctor quicker access to the
       hospital for emergency purposes, the IRS would allow the partial exemption
       based on the facts of this case.

    2. Reasons of Health: Once again, we see the concept of "primary purpose." To
       qualify for the partial exemption, the primary purpose of selling the house
       must be based on health.

       The safe harbor here is easy. If the taxpayer's physician recommends a change
       of residence for reasons of health, the taxpayer will automatically qualify
       for the partial exclusion. And health is rather broadly defined to
       include "the diagnosis, cure, mitigation or treatment of disease, illness or
       injury."

       But the IRS issues a precautionary note: A sale "that is merely beneficial to
       the general health or well-being of an individual is not a sale ... by reason
       of health."

    3. Unforseen circumstances: Obviously, this is the more difficult category on
       which to enact regulations. Each of us - at one point in time - will face
       conditions which could not be anticipated or even imagined before it
       happened, which significantly impact on our lives - and on our financial
       situation.

       Nevertheless, it would be manifestly unfair to be faced with a crisis - have
       to sell your house before the two years are up - and have to pay full tax on
       the profit you have made. Accordingly, Congress authorized the IRS to issue
       regulations governing this area.

       According to the new Regulations, a sale "is by reason of unforeseen
       circumstances if the primary reason for the sale ... is the occurrence of an
       event that the taxpayer could not reasonably have anticipated before
       purchasing and occupying the residence."

The IRS then lists several safe harbors:

    • involuntary conversion of the residence - for example, it was condemned by a
      governmental agency;

    • natural or man-made disasters or acts or war or terrorism resulting in a
      casualty to the residence. Clearly, the victims of Hurricane Katrina who lost
      their house would fall squarely in this category;

    • death of one of the owners of the property;

    • the cessation of employment as a result of which the taxpayer is eligible for
      unemployment compensation;

    • a change in employment or self-employment status that results in the
      taxpayer''s inability to pay housing costs and reasonable basic living
      expenses;

    • divorce or legal separation under a Court decree, or

    • multiple births resulting from the same pregnancy.

These are safe harbors. If you fall within one of these areas - and have owned and used your house during the time since it was purchased - you will be entitled to take the partial exclusion of gain.But, once again, even if you cannot claim a safe harbor, you still may be able to convince the IRS that there are facts and circumstances which forced you to sell your house before the two years were up. The burden will be on you, and as we all know, dealing with the IRS is not easy.

If you are eligible for the partial exclusion - either because you meet the safe harbor tests or the facts and circumstances test - this exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is 2 full years. If you are single -or do not file a joint tax return - change the $500,000 to $250,000.

The law applies to all principal residences: single family homes, cooperative apartments, and condominium units. If your boat or your mobile home is your principal residence, the exclusion can also be taken. In order to qualify as such, three things are required: sleeping quarters, a toilet, and cooking facilities.

While the new $250/500,000 exclusions sound too good to be true, there is one important fact to remember when calculating the profit you have made, and the tax you may have to pay. Real estate in the Washington metropolitan area has appreciated dramatically over the past half century. Many homeowners realized the "great American dream" over the years, and continued to sell and "buy up." The profit that was made on each sale was deferred under the old roll-over concept. Now, when you sell your last house, and you are married, you can exclude up to $500,000 of profit, but what exactly is your "profit"?

Let us take this example. In 1968, you purchased your first house for $40,000. In 1975, you sold it for $150,000, and purchased a new house for $210,000. For this example, we will ignore such items as home improvements and real estate commissions, although these are expenses which can - and should - be taken into consideration in determining your actual profit. Because you deferred $110,000 of profit ($150,000 - $40,000), the basis in your new home is now $100,000. You determine your basis by subtracting the profit from the purchase price (i.e. $210,000 - 110,000).

In 1989, at the peak of the then real-estate market, you sold your home for $400,000 and purchased a new house for $500,000. Because the roll-over was still the law, you had deferred profit of $300,000 ($400,000 - 100,000). The tax basis of your new $500,000 home is only $200,000. Keep in mind that under the old "roll over" rules, every new home you purchased had to take into account the deferred gain which you had made on the sale of your previous home.

Here is where the tax bite may occur. If, for example, you plan to sell your house in the near future, you must calculate and be aware of your basis. If you are married and file a joint tax return (and have lived in the house for at least two out of the past five years), you will not have to pay any capital gains tax unless you sell your house for more than $700,000. But, if your spouse has died, and you can no longer file a joint tax return, you can only shelter up to $250,000 of profit. You or your accountant should make sure that you include the "stepped up" basis of the house in your calculations. This means that half of the value of the house on the date your spouse dies is added to your basis.

This is obviously complicated, and you have to have professional assistance before you sell your house.

It is absolutely critical that you keep all of your records and all of your settlement sheets. Such expenses as home improvements, real estate commissions, fix-up costs, legal and title costs, will reduce your profit -- and thus reduce your tax. If you are ever audited by the IRS, you will be required to produce proof of these expenses.

Read next week's column by Benny L. Kass, entitled, "The Starker (Like Kind) Exchange."

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To Pay or Not to Pay Off Your Mortgage

By:Mindy Fetterman: REALTOR® Magazine Online
Experts urge home owners with mortgage rates of 6 percent or less to sink their money into other investments.

Some home owners might be considering repaying their mortgage early in an attempt to shed the debt they accumulated via cash-out refinancings or home-equity loans at a time when property prices were rapidly appreciating. But that may not always be the best use of their money.

Anthony Webb, economist for Retirement Research Center, says home owners can achieve higher returns through IRAs, 401(k)s, and other tax-deferred accounts. Young home owners would be wise to put their extra cash toward retirement, adds Torrance, Calif.-based financial planner Phillip Cook.

However, those with excessive loan balances might want to pay down their mortgages to a more manageable level. Home owners nearing retirement age — who do not have adequate savings, do not plan to move, and do not need a mortgage deduction because they will soon be in a lower tax bracket — also might be good candidates for prepayment.
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Comfortable home is in the details

Architect picks apart the fabric of abodes
By: Katherine Salant: Inman News
Most of us spend a fair amount of time picking apart the fabric of our everyday life. We talk endlessly about movies, clothes, fashion, food, televisions shows, sports and cars. Author and architect Sarah Susanka wants us to take this pick-apart impulse and pick apart something we experience intimately everyday but never think about - the spaces in our houses.

When you sit in your own living room, which you may never have paid attention to, or when you visit friends' and relatives' houses and share a meal in their dining rooms, why do you feel comfortable or get the heebie-jeebies?

As Susanka carefully explains in her two latest books, "Home by Design" and "Inside the Not So Big House," the answer can be complicated.

With "Inside the Not So Big House," Susanka zeroes in on details and how they affect our perceptions and enjoyment of a space. What the average person considers a detail - artwork, rugs and the upholstery on the living room furniture, for example - she calls "accessories." Details, Susanka says, are built into the house and would still be there if "you could turn the house upside down and shake it."

These details add character. They can also be playful. In Susanka's own house that she described in her first book, "The Not So Big House," the details can include a tree trunk that does double duty as a structural column and newel post for the stairs and a thick rope that serves as a stair railing. Some of her descriptions in "Inside the Not So Big House" can also be refreshingly disarming - a dish rack across a kitchen window is an inspired way to provide privacy when "the neighbors are so close you could ask them to pass the salt."

The memorable details in the 23 houses Susanka describes in "Inside the Not So Big House" generally fall into three broad categories: They enhance the space itself, they affect the quality of light in it, and/or they create a sense of continuity and underlying order as you go from room to room.

Space, light and order are the focus of Susanka's other book, "Home by Design." These are the basic ingredients of architecture, she says, and they can be endlessly manipulated to produce a stunning variety of houses. Although this sounds pretty straightforward, she tells us that architects define these terms more broadly than most people. Learn how architects use them and you will look at the spaces that you live in with a different eye.

How wide is the gap in outlook between architects and the rest of us? Here's a good example. Most people think of space as something static and fixed that can be succinctly described in terms of square footage and ceiling height. For architects, space is malleable with no fixed points. Everything that you see in a room, including its shape and ceiling height, the materials, the detailing and the location of doors and windows could be done five or six or 10 different ways. That's why most architects, on entering any house, immediately start to redesign it.

Though Susanka writes clearly, some readers may have trouble with her general explanations because they require that you think about the basics differently. But her numerous examples of the different aspects of space, light and order that are found in houses are easy to follow, and they amply demonstrate the many shades of meaning for each term. The chapters on domestic space, for example, include the entry, alcoves and window seats, interior views, ceiling height variety, changes in level and stairs as sculpture.

Susanka discusses both the practical and the magical aspects of these basic ingredients. For example, light can lead us to spend hours in a room or cook up any excuse to leave because we are so uncomfortable. When a window is located in the middle of a wall, the sunlight streaming through it can produce glare that makes it impossible to appreciate the view or read a book. When the same window is moved to a corner, the sunlight steaming through it floods the adjacent wall, bathing the entire room in a soft, reflected glow. The view can be enjoyed and reading a book is a pleasure.

Light can also be manipulated to create illusions. A great example shown in the other book is a dining room designed by a former theater set designer. The bright pendant over his dining table creates a great focal point in the room, but in fact it throws off very little light; the table is actually lit with four recessed fixtures in the ceiling.

For Susanka, order means simple design devices that convey a sense of connectedness as you pass from one room to another. Every house has some of these, because in most cases, the style of the windows, doors, and interior trim is the same in every room. When the doors, windows, and trim are painted in something besides white, the ordering starts to get more interesting, as Susanka demonstrates in numerous examples in both books. She also explains that an ordering device can appear in different guises within the same house. In her details book, she describes a small house with curves. First we see a dramatic double archway over a peninsula in the kitchen. Then we note some playful curves in the same space-the brackets that support the peninsula countertop are downright sassy. Moving to the living room, built-in bookshelves have curved openings at the top and many pieces of furniture have curves as well.

Susanka tackles big subjects in these books, and your ability to pick apart a space won't come overnight. Most readers will need to study actual spaces before her explanations sink in. To make this fun, I would mix the reading with "field work observation." After reading some of both books, analyze your own house. If you have a friend or two whose houses you admire, ask if you can come over and literally stare at the walls for awhile (they'll be flattered). When you're ready to go farther a field, visit several home builders' furnished models in your area and spend some more time staring at those walls. You'll find that some of the models are forgettable, but many are not. In today's competitive housing markets, many builders know that good design sells and they routinely hire architects. Then go back and read the books again. As you go back and forth between real houses and Susanka's books, your understanding of what you're looking at will rapidly ratchet up.

If you never build or remodel anything, these books will widen your world. If you decide to build a new house or remodel the one you live in now, they will be even more helpful because you will have the skills to tell your architect and builder exactly what you want.
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Uninsured real estate losses qualify for tax relief

Realty Tax Tips-Part 3: Fast-occurring event must be involved
By: Robert J. Bruss: Inman News
(This is Part 3 of an eight-part series. See Part 1 and Part 2.)

Editor's note: According to a recent update to IRS Fact Sheet 2006-12, homeowners affected by hurricanes Katrina, Rita and Wilma need not be concerned about the casualty loss of 10 percent of adjusted gross income or the $100 per event floor limitations. The special rules apply only to the recent hurricane victims, not to the vast majority of individuals who encountered other casualty losses.

Regrettably, 2005 was a record year for both insured and uninsured real and personal property losses. Hurricanes, floods, firestorms and other "sudden, unusual or unexpected" events caused millions of dollars of uninsured losses.

For example, the thousands of homeowners who lost their homes in Hurricane Katrina and Rita due to flooding, but who didn't have flood insurance, will be able to deduct most of their losses on their income tax returns.

For partially insured casualty losses, the good news is Uncle Sam wants to share the loss by allowing income tax casualty loss deductions for the uninsured portion. Even if you didn't personally suffer such a loss last year, it pays to understand casualty losses for possible future use.

WHAT LOSSES ARE TAX DEDUCTIBLE? Uncle Sam defines a tax-deductible casualty loss as an uninsured "sudden, unusual or unexpected" loss event. To qualify for this tax deduction, at least part of the loss must be uninsured. If your loss was fully paid by insurance payments, then you don't have a casualty loss tax deduction.

Examples of fast-occurring casualty loss events include hurricane, fire, flood, earthquake, tornado, mudslide, theft, accident, riot, embezzlement, vandalism, water damage, snow, rain and ice damage.

When the president declares a disaster area, such as a major flood, fire, earthquake or hurricane, taxpayers who suffered uninsured casualty losses then have a choice of claiming their deductions either in the tax year of the loss, or in the previous tax year by amending their prior year tax returns to claim a tax refund.

THE LOSS MUST OCCUR QUICKLY. Casualty loss tax deductions are only allowed for uninsured losses that occurred quickly, usually instantly or over a few days. Losses that occurred slowly over several years or months, such as dry rot or termite damage, are not tax deductible.

Examples of losses that usually occur too slowly to qualify include rust, dry well, corrosion, moth damage, Dutch elm disease, erosion, drought, mold, dry rot, termite damage, beetle infestation, plant loss, and tree death.

PERSONAL CASUALTY LOSSES ARE NOT FULLY DEDUCTIBLE. If a sudden and uninsured casualty loss affected your business property, it is fully tax deductible as a business expense. However, if your uninsured casualty loss did not involve business property, then only part of your loss is tax deductible.

The reason is only uninsured personal casualty losses exceeding 10 percent of the taxpayer's annual adjusted gross income (line 37 of your 2005 federal tax return), minus a $100 non-deductible "floor" per event, are deductible.

To illustrate, suppose Hurricane Katrina made your home and you didn't have flood insurance. Before the flood, your house was worth $250,000 but after the flood all you have left is land value of about $50,000. You paid $225,000 for the house when it was purchased a few years ago. Let's also suppose your adjusted gross income for 2005 is $40,000.

Use Internal Revenue Service Form 4684 to calculate your deductible casualty loss. Although the house in this example was worth $250,000 before the flood, your casualty loss is limited by the $225,000 adjusted cost basis, minus the $50,000 remaining land value, or $175,000. From that amount, subtract the 10 percent of AGI nondeductible portion ($4,000) and the $100 per event floor to arrive at an approximate $170,900 deductible casualty loss. In addition, the value of uninsured personal property also qualifies for this tax break.

INDIRECT EXPENSES ARE ALSO DEDUCTIBLE. In addition to the casualty loss deduction for real and personal property, indirect casualty loss expenses that were not paid by insurance also qualify for this generous deduction.

Examples of deductible indirect costs include temporary housing, moving expenses, and property protection such as board-up and legal expenses.

HOW INSURANCE PAYMENTS AFFECT CASUALTY LOSS DEDUCTIONS. The casualty loss tax rules require insured property owners to file claims for any insured losses with their insurers. However, in the last few years many insured home and business owners have become reluctant to file insurance claims of small amounts for fear of policy cancellation or greatly increased premiums. So far, there is no evidence the IRS has denied casualty loss deductions for failure to file insurance claims.

But, especially on larger policy claims, when the insurance payment to the insured exceeds the property's adjusted cost basis, if the insurance money is not used to replace or rebuild, then the taxpayer has received taxable income on the excess insurance payment amount.

However, this rule does not apply to insurance payments for damaged or stolen personal property because excess insurance money exceeding the adjusted cost basis of personal property is not taxable even if the items are not replaced.

Taxpayers in federal disaster areas, such as those affected by recent hurricanes and floods have up to four years to reinvest their insurance payments in repairs or replacement property to avoid owing capital gains tax on excess insurance payments.

THE I.R.S. LOVES TO AUDIT CASUALTY LOSSES. Because some casualty loss claimants overstate their deductions, the IRS often audits casualty losses that cannot be proven. With adequate proof of loss, taxpayers have nothing to fear. Repair bills and receipts are superb evidence to support a casualty loss deduction.

But repair estimates alone usually are not enough. Further evidence of the casualty loss amount might include police reports, photos of the damaged or lost property, and before and after appraisals.

However, as explained earlier, the casualty loss deduction is limited by the taxpayer's adjusted cost basis for the destroyed or damaged property. Market value at the time of the loss is irrelevant.

SUMMARY: If you suffered an uninsured "sudden, unusual, or unexpected" casualty loss that exceeds 10 percent of your adjusted gross income, minus a $100 per event "floor," Uncle Sam can help share your loss in the form of the casualty loss tax deduction. For full details, please consult your tax adviser.

Next week: Residential moving cost tax.
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Feds target homeowners' ordinary income, capital gains

Part 1: Minimizing home-sale taxes
By: Robert J. Bruss: Inman News
"I would love to sell all my real estate to take advantage of today's high prices, but I don't want to pay Uncle Sam a fortune in taxes." That's what a widower homeowner and investor, who I estimate is in his seventies, told me a few weeks ago.

Since our conversation, I've been wondering if he realizes all the tax-saving choices he has to totally avoid or at least minimize his capital gain taxes if he decides to sell his house and/or investment properties, which he has owned for many years.

That's why I decided it would be beneficial to briefly discuss in one place virtually all the major tax avoidance methods that home sellers and investors need to understand. In addition to the well-known methods, we'll look at some virtually unknown tax-avoidance methods that can save both capital gains taxes and estate taxes. Let's get started.

We're all familiar with federal income taxes on earnings received from job wages, interest, dividends, and other fully taxed sources. This is usually called "ordinary taxable income." It is generally taxed at the highest tax rates, based on a sliding scale - the higher the total ordinary taxable income, the higher the tax rate.

Unless you receive very little or no taxable ordinary income, allowable itemized deductions can significantly reduce the income tax on your ordinary income. Deduction examples include home mortgage interest, residence property taxes, charitable donations, casualty losses, moving expenses, and home business deductions.

In addition to the federal income tax, all states, except Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, have a state income tax. However, New Hampshire and Tennessee tax only dividend and interest income. State income tax rates are generally much lower than the federal income tax rates, but California, Hawaii, Minnesota, New York, North Carolina and Wisconsin have the highest state income tax rates.

However, federal long-term capital gains, taxed at a much lower tax rate than ordinary income, are earned from profitable sales of capital assets, such as common stocks, bonds and real estate, held over 12 months. If the capital investment asset was owned less than 12 months before sale, its short-term profitable sale is usually taxed the same as ordinary income.

Currently, the federal capital gain tax rate is 15 percent, except for a special 25 percent federal tax rate that applies to "recaptured" (that means "taxed") depreciation, which was deducted in a prior tax year. Most states also tax capital gain profits, but their tax rules are not always the same as the federal capital gain tax rules. States without capital gains taxes on the sale of capital assets include Alaska, Florida, Nevada, New Hampshire, New Mexico, South Dakota, Tennessee, Texas, Washington and Wyoming.
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Lenders Offer Incentives for Home Remodelers

By: Marshall Loeb: REALTOR® Magazine Online
Credit card providers are increasingly rewarding consumers for spending money on remodeling, including cash rebates and elaborate point systems redeemable for retail items at stores that sell home goods.

For instance, Chase Bank has partnered with Reader’s Digest Association to offer the Chase Home Improvement Rewards Card. Every dollar spent on home improvement earns cardholders three points, which can be redeemed at such stores as Circuit City, Best Buy, Sears, Linens 'n Things, and Bed Bath & Beyond. The Chase card has no annual fee and a variable interest rate currently set at 13.24 percent, midrange for these sorts of cards.

Other companies offering similar cards include Sears Gold MasterCard, Home Depot Rewards MasterCard, Lowe's Credit Card, and the Discover Platinum Home Improvement Card.

The market is an attractive one. Des Plaines, Ill.-based National Association of the Remodeling Industry projects that home owners will spend $291 billion on materials and services for residential remodeling in 2006, up from an estimated $275 billion in 2005.
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Ex-husband lays claim to $250,000 home-sale exemption

Why moving out of home does not affect eligibility
By: Robert J. Bruss: Inman News
DEAR BOB: In 1989, my wife and I bought our family home together. In 1998, we separated. I moved into an apartment and she stayed in the house. We divorced in 2003. I agreed to receive a $100,000 lump sum payment when our house is sold. In June 2005 we sold the house and at the closing I received $100,000. Am I still entitled to my tax exemption on the $100,000? -Joe C.

DEAR JOE: Yes. If I understand your e-mail correctly, at the time of the home sale your ex-wife was still living in the family home as her principal residence.

Presuming she qualifies for the Internal Revenue Code 121 principal residence sale $250,000 capital gain tax exemption, by owning and living in the home at least 24 of the 60 months before its sale, then you also qualify for up to $250,000 tax-free profits.

In tax talk, she is referred to as the "in spouse" and you are referred to as the "out spouse."

But the tax result is you and your ex-wife are each entitled to up to $250,000 principal residence sale tax-free profits if the "in spouse" qualifies. For full details, please consult your tax adviser.

NO REFUND OF FHA INSURANCE WHEN PAYING OFF REVERSE MORTGAGE

DEAR BOB: I recently paid off my FHA reverse mortgage that I held for only two years. The payoff numbers show I paid an upfront MIP (mortgage insurance premium) of about $5,000. It is my understanding when an FHA mortgage is paid in full, the owner is entitled to part of the distributive share of the unused portion of the 30-year up-front MIP fee. After many inquiries, I was told FHA makes no refunds when a reverse mortgage is paid off. This seems wrong. Please give me the rationale for this FHA rule -Tom C.

DEAR TOM: I don't make the FHA mortgage rules. You will have to ask FHA officials why there are no MIP refunds when FHA reverse mortgages are paid off early.

However, I am shocked you would pay off a reverse mortgage after just two years. That was a foolish costly mistake.

If you are a regular reader of this column, you know I recommend senior citizen home owners obtain a reverse mortgage only if they plan to stay in their homes at least five years. The reason is reverse mortgages have substantial up-front fees.

Amortized over at least five years, these fees are quite reasonable. However, paying off your reverse mortgage after only two years means you paid a very high cost for limited use of funds.

WHAT IF CONDO NEIGHBOR HAS A PIT BULL?

DEAR BOB: Several years ago, we bought a nice two-bedroom condo in a complex that allows pets. We have a small poodle who is our "pride and joy." However, a recent purchaser of a condo down the hall has a vicious pit bull. Whenever she takes the dog for a walk outside, she has to walk down the hall with the dog. Although the pit bull is on a leash, there is no way she can control that strong dog. I try to avoid confronting the dog but sometimes it is unavoidable. The condo association board of directors has discussed this problem, with no action so far. Our insurance agent says the insurance company might not renew our building's liability insurance policy. What can we do? --James R.

DEAR JAMES: At the risk of incurring the wrath of pit bull owners, my opinion is there should be a federal law banning pit bulls (and several other breeds of vicious dogs). The evidence is so strong of unprovoked pit bull attacks, there is no justification for keeping a pit bull in a condominium.

Your condo homeowner's association could enact a by-law banning pit bulls (and perhaps other vicious breeds). However, such a by-law could not be applicable to condo owners who bought in reliance on the previous rules allowing pets. For more details, the association should consult a local lawyer who specializes in condominium law.

The new Robert Bruss special report, "How to Earn Your First Profit When Buying Your Home or Investment Property Right," 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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Homes Sales Fell in December; Condo Market May Falter

The number of homes sold slipped 5.7% in December to the lowest level in three months. The housing market isn't expected to collapse, but the demand for condominiums is expected to slow.
By: Joi Preciphs: The Wall Street Journal Online
Sales of existing homes fell in December to their lowest level in three months, but they still set a record for the year.

The National Association of Realtors said nationwide sales of previously owned homes fell 5.7% to an annual rate of 6.60 million last month from November's revised annual rate of 7.0 million. Analysts had projected a 6.87 million sales rate in the existing-home market, which includes single-family residences, condominiums, townhomes and co-ops.

The national median price for existing homes of all types in December was $211,000, down from an unrevised $215,000 in November, but up 10.5% from December 2004. The inventory of homes on the market increased slightly to a 5.1 months' supply last month, compared with 5.0 months in November.

The pattern was mixed regionally, with sales falling 11.4% in the West, 7.2% in the South, and 2.6% in the Midwest. Sales in the Northeast were unchanged.

Patrick Newport, U.S. economist at consulting firm Global Insight in Waltham, Mass., said in a statement that the movement of interest rates is cooling the housing market and will continue to do so in 2006.

"Interest rates have eased in recent weeks, but we are expecting them to drift back up over the first half of 2006," he said, adding that if the Federal Reserve raises interest rates two more times before pausing, the increases "will cool off the housing market and deflate many local housing bubbles."

Mr. Newport doesn't expect the market to collapse anytime soon. The first casualties might come in places like the condo market, where the inventory of unsold homes jumped 8% last month. Sales of existing condominiums and co-ops increased a modest 1.6% in December, according to the NAR report.

Financial institutions have been keeping a watchful eye on the condo market and in some cases have scaled back lending for new condo developments. "We see risk of a substantial condo-price decline in certain frothy markets, based on record high inventory levels and the recent rapid price appreciation in condos," said Banc of America Securities analyst Daniel Oppenheim.

Despite the apparent slowing, existing-home sales for the year reached 7.072 million units, setting their fifth successive annual record, the NAR said. Home prices still remain strong, despite some softening. Given these factors, NAR Chief Economist David Lereah said in a statement that there is a "soft landing in sight for the housing sector."

"The level of home-sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead," Mr. Lereah said, adding that he expects the 2006 housing market to "remain historically high but lower" than 2005.

The recent boost in mortgage applications might suggest a "partial rebound in sales is directly ahead," Banc of America Securities economist Gary Bigg said. Mortgage giant Freddie Mac said the average 30-year fixed-rate mortgage was 6.27% last month, down from November's 6.33%.
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Los Angeles Office Market Remains Healthy

crenews
Los Angeles County's office market tightened in the fourth quarter of 2005 as business expansions pushed vacancy rates down and rents up, according to data from Cushman & Wakefield.

The average vacancy rate fell to 12.3% down from 14.8% in the same period in 2004. Monthly asking rent moved up 5 cents to $2.11/sf. The vacancy rate in downtown Los Angeles was 14.3% in the fourth quarter, down from 17% a year earlier. Asking rents in downtown were up 8 cents to $2.15/sf.
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The Weekend Guide! January 26 - January 29, 2006

The Weekend Guide for January 26 - January 29, 2006.
Full Article:
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When Mom and Dad Are the Lender

By: Diya Gullapalli: REALTOR® Magazine Online
The number of first-time homebuyers who use monetary gifts from family or friends to make down payments has increased to 25 percent from 20 percent over the past 10 years. If you're thinking of doing that for your children, be aware of tax and other issues that arise.

Given that the Internal Revenue Service taxes gifts of $12,000 or more, you might want to set up an intrafamily mortgage to help your offspring achieve homeownership.

Your children benefit from below-market interest rates-though they must pay the applicable federal rate of about 4.5 percent to avoid gift taxes-flexible payment schedules, the absence of credit checks, and lower closing costs. They also still can deduct the interest from their income taxes, provided that there is a deed of trust and the mortgage is recorded with the county clerk.

While you can benefit from steady cash flow during your retirement years, avoid such arrangements if you make the loan solely as an investment. You could achieve better investment returns elsewhere, and your emergency or retirement savings might be depleted by lending the money.
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Want to be a landlord? Be smart about it

A lot of people want to rehab property to rent. There are plenty of mistakes to be made.
By: Al Heavens: Realty Times
I'd hate to be a landlord.

I had the opportunity once. In 1987 we were unable to sell our first house for several months after we'd acquired our second, and we briefly considered getting into the business.

The first house had been built in 1848, and I had spent six years and $30,000 trying to undo all the dumb things previous owners had done in the name of renovation and modernization.

The new house, built in 1904 and three times bigger than the first, need 10 times more work.

We were hoping to use the profit on the sale of the first to rehab the second. But the market was souring, we were around the corner from the worst housing project in the city and our first listing agent didn't seem in any hurry to move the property.

We tightened our belts, prepared to juggle two mortgages (one 13.5 percent, the other 10 percent) and prayed that nothing serious would go wrong with either house before we sold number one.

The monthly mortgage payment for the first house was about $800, but the rents for comparable properties in the neighborhood strained to reach $400, so becoming a landlord wasn't a viable option.

Although both properties were in the same city, they were 14 miles apart, and we both worked. Our then 5-year-old was embarking on an expensive 13-year-long private education, so resources needed to maintain both houses were becoming even more strained.

Fortunately, the new agent was able to sell the house almost immediately after taking over the listing, and we waited out the three months until closing almost without incident.

We had to replace the oil burner on the furnace in the new house two weeks before Christmas at a cost of $500. It reduced holiday spending a bit, but had little effect otherwise.

A few years later, after I'd begun earning a living writing about real estate, an agent who also owns rental properties suggested that I'd made the decision not to become a landlord much too quickly.

"You should always consider renting a house you can't sell, especially if there is no lender requirement to sell the first house to buy the second," he said. He also preferred renting the property if selling means reducing the price and taking a big loss.

"Just look at it as your future," the agent said of the unsold property. "You may not be able to get much money out of it at this time, but, in the long run, the equity could pay for your kid's college education or your retirement."

If you need to lower your total mortgage payment, just refinance the mortgage on the unsold house.

Looking back on it, the agent was right. The housing project was cleaned up and rebuilt, becoming a model for the nation. That coincided with the housing boom and the renewed interest in city living.

When the property sold in 2001, it went for three times what I'd sold it for 14 years before -- almost exactly what I sold the second house for in the same year.

The five-year-old entered college that year, and the first house would have paid for all four years and with room to spare.

On the other hand, scholarships and savings bonds took care of it completely, so he was one of the few who graduated without debt. That said, having a couple of hundred thousand around would not be such a bad thing.

A couple of hundred thousand, minus the cost of repairs and maintenance of the rental property over 14 years.

Although my renovation book is designed for homeowners rehabbing or expand their own digs, the classes I teach at Temple University's Real Estate Institute that are based on the book are filled instead with people who want to buy and rehab rental properties cost-effectively.

Of course, the approach to rehabbing rental is completely different to that of renovating your own home, and the trouble is that too many of my students didn't discover the difference until after the fact.

Others have tried to do it cheaply and have spent a considerable amount of money and time trying to undo it.

It's funny, too, because there are so many books on the market that purport to tell you how to rehab to rent, and, as I've found much to my dismay as I've tried to retool the course for small investors, virtually all don't make the cut.

So I've had to spend lots of time and effort trying to define and demonstrate "rental-quality renovation," just so these folks won't lose their shirts.

The definition I've come up with is this one:

Say you are a first-time homebuyer and don't have much money and your house needs work. Do what you really need to do and don't go deeply into debt to do it? Go laminate rather than granite, vinyl instead of quarry, Kenmore, not Dacor; GE instead of Bosch.

But do it tastefully.

Funny thing. That was our first house. Looking back, it really would have made a great rental property.
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Existing real estate sales fall in December

Sales total in 2005 still sets fifth consecutive record
Inman News
National existing-home sales dropped for the third consecutive month in December, and were down 3.1 percent over December 2004, the National Association of Realtors reported today.

Total existing-home sales – including single-family, town homes, condominiums and co-ops – fell 5.7 percent in December to an adjusted annual rate of 6.6 million units, down from a revised pace of 7 million in November. The adjusted annual rate is a projection of a monthly sales total over a 12-month period, accounting for seasonal variations.

There were 7,072,000 existing-home sales in 2005, up 4.2 percent from 6,784,000 in 2004. This is the fifth consecutive annual record, according to the association's announcement. The trade group began tracking the sales series in 1968.

David Lereah, NAR's chief economist, said he expected the monthly sales decline. "This is part of the market adjustment we've been discussing, with a soft landing in sight for the housing sector. The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead," he said.

"Overall fundamentals remain solid, driven by population and employment growth as well as favorable affordability conditions in most of the country, so we expect the housing market to remain historically high but lower than last year's record."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.27 percent in December, down from 6.33 percent in November; the rate was 5.75 percent in December 2004. Last week, Freddie Mac reported the 30-year fixed rate was down to 6.10 percent.

"Mortgage interest rates have been trending down from a peak in November, and are lower than expected – if lower interest rates are sustained, the housing market could see some unexpected lift," Lereah said.

The national median existing-home price for all housing types was $211,000 in December, up 10.5 percent from December 2004 when the median was $191,000. The median is a typical market price where half of the homes sold for more and half sold for less.

For all of 2005, the median price was $208,700, up 12.7 percent from a median of $185,200 in 2004.

NAR President Thomas M. Stevens, senior vice president of Cendant Corp.'s NRT Inc., said, "We're coming off of five years of tight supply, and many sellers are accustomed to expecting very strong price gains and exceptional returns on their investment. With the supply of homes improving and buyers having more choices, the rate of price growth should come down to more normal levels this year."

Total housing inventory levels declined 4.4 percent at the end of December to 2.8 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace.

Existing condominium and cooperative housing sales increased 1.6 percent to a seasonally adjusted annual rate of 877,000 units in December from a level of 863,000 in November. Last month's sales activity was 4.5 percent higher than the 839,000-unit pace in December 2004. For all of 2005, condo sales jumped 9.3 percent to 896,000 units, the 10th consecutive annual record.

The median existing condo price was $228,100 in December, which was 10.2 percent above a year ago. In 2005, the median condo price was $218,200, up 12.7 percent from 2004.

Single-family home sales declined 6.8 percent to a seasonally adjusted annual rate of 5.72 million in December from 6.14 million in November, and were 4.2 percent lower than the 5.97 million-unit pace in December 2004. In 2005, single-family sales rose 3.6 percent to 6.18 million, the fifth straight yearly record.

The median existing single-family home price was $209,300 in December, which was 10.8 percent above a year ago. For 2005, the median single-family price was $207,300, up 12.6 percent from 2004.

Regionally, total existing-home sales in the Northeast held even at an annual sales rate of 1.09 million units in December, and were 3.5 percent lower than December 2004. The median price in the Northeast was $245,000, up 11.4 percent from a year ago.

In the Midwest, existing-home sales eased by 2.6 percent to an annual pace of 1.52 million in December, and were 1.9 percent below a year ago. The median price in the Midwest was $173,000, which was 10.9 percent higher than December 2004.

Existing-home sales in the South declined 7.2 percent in December to a level of 2.58 million, but were 1.2 percent higher than December 2004. The median price in the South was $182,000, up 4.6 percent from a year earlier.

In the West, existing-home sales fell 11.4 percent to a pace of 1.4 million in December, and were 11.4 percent below a year ago. The median existing-home price in the West was $318,000, up 14 percent from December 2004.

Existing-home sales, which include single-family, town homes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau's series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month, the association noted.

In addition, existing-home sales, which generally account for 85 percent of total home sales, are based on a much larger sample – nearly 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.

The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns, according to the announcement.

Because there is a concentration of condos in high-cost metro areas, the national median condo price is higher than the median single-family price – in a given market area, condos typically cost less than single-family homes.
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Million-dollar home sales top record in California

Transactions up 47% year-over-year, report finds
Inman News
California million-dollar home sales in 2005 surged to a new peak for the fourth year in a row, as appreciation pushed a higher portion of overall sales into the seven-figure category, a real estate information service reported today.

A total of 48,666 Golden State homes sold for a million dollars or more last year, up 47 percent from 33,107 in 2004. The total was 19,080 in 2003 and 13,871 in 2002, according to DataQuick Information Systems.

One in 13 homes sold for more than a million dollars last year, up from one in 20 the year before.

"In reality, the prestige market remained pretty stable from 2004 to 2005. But because of the increase in home values across the board, more sales prices crossed the million-dollar threshold. In other words, homes that would have sold for $900,000 in 2004, sold for more than a million last year," said Marshall Prentice, DataQuick president.

Statewide, there were 310 sales for more than $5 million last year; 327 sales were in the $4-$5 million range; 990 in the $3 million range; 3,937 sales in the $2 million range; and the rest between $1 million and $2 million.

The most expensive confirmed purchase was a 13,636-square-foot, 6-bedroom, 12-bathroom La Jolla house on six acres, which sold for $23.5 million in September. The largest was a 7-bedroom, 8-bathroom, 18,369-square-foot house on 2.2 acres in Solana Beach in San Diego County, which sold for $6.2 million in August.

Ross in Marin County and Rancho Santa Fe in San Diego County were communities where virtually all home sales were in the million-dollar category.

Several new million-dollar home markets emerged last year, mostly because of sales of newly built large homes on big lots. The areas include Corona and Norco in Southern California, and Union City in the San Francisco Bay Area.

Newly built homes accounted for 9,043 of last year's sales, up 73.6 percent from 5,210 for 2004. San Diego and Orange counties were the most active markets for newly built million-dollar homes, DataQuick reported.

There were 2,902 condo sales in the million-dollar category, up 73 percent from 1,677 a year ago. Most were sold in West Los Angeles, San Diego and San Francisco.

The median-sized million-dollar home was 2,480 square feet with 4 bedrooms and 3 bathrooms. The median price per square foot for all million-dollar homes was $516, up 5.6 percent from $489 a year ago, DataQuick reported.

Around 10 percent of the buyers paid cash, down from 15 percent in 2004. Of those who financed their purchase, the median down payment was 28 percent of the purchase price. Lending institutions most willing to provide mortgage financing were Countrywide, Washington Mutual and Wells Fargo, according to DataQuick.

ZIP        Community                       2004     2005       2005's Most
         (ranked by 2005 sales#)     Sales#   Sales#   Expensive

92037    La Jolla                         464      478       $23.50 mill.
90266    Manhattan Beach            458      444      $5.25 mill.
94010    Hillsborough                   384      396      $6.50 mill.
92130    Del Mar                          327      379      $7.50 mill.
92677    Laguna Niguel                 295      378      $6.74 mill.
95070    Saratoga                        334      372      $5.80 mill.
92660    Newport Beach                343      371      $7.60 mill.
92648    Huntington Beach            196      360      $3.45 mill.
92253    La Quinta                       201      354      $9.54 mill.
95014    Cupertino                       247      347      $2.55 mill.
92657    Newport Beach                205      346     $10.00 mill.
92651    Laguna Beach                 348      337      $12.18 mill.
91302    Calabasas                      305      328      $7.50 mill.
90274    Rolling Hills Estates          309      315      $6.50 mill.
92679    Trabuco/Coto                   96      308      $6.00 mill.
94506    Danville                         270      307      $6.89 mill.
90275    Rancho Palos Verdes        274      303      $4.95 mill.
94941    Mill Valley                      262      300      $5.00 mill.
95138    San Jose                        210      285      $4.26 mill.
95120    San Jose                        174      278      $3.70 mill.
94539    Fremont                         208      274      $2.75 mill.
90272    Pacific Palisades             277      267      $8.30 mill.
94526    Danville                         142      259      $3.15 mill.
90049    Brentwood                     226      254      $5.32 mill.
94024    Los Altos                       270      252       $4.50 mill.

Source: DataQuick Information Systems, www.dqnews.com
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Luxury real estate hits new highs

Annual magazine lists the priciest U.S. homes
Inman News
Donald Trump's $125 million Palm Beach, Fla., mansion is the most expensive U.S. home on the market, according to the second annual issue of Ultimate Homes Magazine.

Trump's mansion in Florida, which sits on six acres of land and features 15 bedrooms and 14 bathrooms, broke last year's record of $75 million. for the most expensive home on the annual list. Trump's Palm Beach estate also features a 4,100-square-foot conservatory, media room, library, three pools and three guest houses.

New York has 333 of the most expensive for-sale homes in the country, according to the magazine, while Califoirnia has 183 homes on the list and Florida has 174.

The top 12 include:

Number 1 – Maison de l'Amitié (Palm Beach, Fla.), $125 million.

Number 2 – Three Ponds Farm Estate (Bridgehampton, N.Y.), $75 million. Features: U.S.G.A.-rated golf course, 14 gardens, waterfront views and more than 20,000 square feet of living space.

Number 3 – The Penthouse at the Pierre (New York, N.Y.), $70 million (the highest-ever asking price for a Manhattan apartment).

Number 4 – Belvedere, Calif., $68 million. Features: 1.1 acres; views of the Golden Gate Bridge, San Francisco and the San Francisco Bay.

Number 5 – Beverly Hills, Calif., $65 million.

Number 6 – Malibu, Calif., $65 million. Features: 7 acres, gated community, private bluff, panoramic ocean views, a riding ring, and a private road to the beach.

Number 7 – Robert Taylor Ranch (Brentwood, Calif.), $60 million.

Number 8 – Sierra Star (Lake Tahoe/Incline Village, Nev.), $60 million.

Number 9 – Trump World Tower Penthouse – (New York, N.Y.), $58 million.

Number 10 – Upper East Side (New York, N.Y.), $55 million.

Number 11 – Medina, Wash., $53 million. Features: 5.42 acres, a 114-foot dock and 372 feet of waterfront access.

Number 12 – Bel Air, Calif., $53 million.

Other Ultimate Homes details:

    • There are now one million homes valued at over $1 million dollars in the U.S.

    • There are about 700 luxury real estate agents associated with the 1,000
      properties.

    • Connecticut, which has 38 properties on the Ultimate Homes list, is the
      smallest state geographically with the most homes on the list.

    • New York City has more homes on the list than any other city.

"We not only wanted to make the second annual issue bigger and better than last year's, but also to reflect the recent growth at the highest end of the luxury real estate market. So this issue boasts more homes and bigger price tags," said Rick Goodwin, publisher of Ultimate Homes and its luxury real estate sister publication, Unique Homes.

"The nine figure price-tag for the Trump property is indicative of a new scale of consumption – one where billionaires are concerned with differentiating themselves from mere millionaires," he added.

A Unique Homes survey of luxury residential brokers found that about 76 percent of the $1 million-plus buyers are entrepreneurs. About 54 percent pay in all-cash, 74 percent collect art, 63 percent collect cars or antiques, and 54 percent collect wine.

Among the other findings in this survey:

    • Spanish/Mediterranean ranked as the most desired style of luxury home today.

    • Desirable location (87 percent) is the trait most likely to differentiate an
      $8 million-plus home from one that is only a few million.

    • Luxury brokers report that when working with married couples, the wife has
      more say in the decisions to purchase.

    • Jacuzzis/hot tubs, marble and granite, and media rooms have reportedly fallen
      out of favor with buyers of high-end luxury homes.

    • About 53 percent of upper-tier brokers said a home priced at $8 million or
      above takes up to 19 months on average to sell.

    • The majority of New York City brokers surveyed said the starting level for
      luxury in Manhattan is $2 million; the majority of Dallas brokers said it's $1
      million, and San Diego brokers cited $3 million as the starting level for
      luxury.

In addition to the list of the most-expensive properties for sale, Ultimate Homes identifies the country's top luxury agents, and also gives insight into news, trends and hot spots in the luxury real estate market.
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Home Sale Tax Breaks: Tricky to Compute

By: Benny L. Kass: REALTOR® Magazine Online
Homeowners typically are exempt from capital-gains taxes on a portion of their home-sale proceeds, but to be sure you compute your taxes correctly, it's a good practice to consult an attorney if you're unfamiliar with the exemption.

The exclusion for individual homeowners is $250,000, while married couples can avoid paying taxes on profits of up to double that amount. They can take the exclusion once every two years, but they must have resided in the home for no less than two of the last five years. Homeowners that meet certain criteria can get a partial exclusion, which is prorated by the number of days that the property was occupied. However, these homeowners must have sold their dwellings due to health problems, a job transfer that would have required them to travel 50 miles or more farther, or "unforeseen circumstances."

The Internal Revenue Service considers government condemnation, natural or man-made disasters, the death of one of the homeowners, unemployment, and divorce to be unforeseen circumstances, among others. Old rollover tax rules and substantial home-price gains due to appreciation can make the calculations even more complicated, so homeowners would be wise to consult a tax expert.
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Economy picks up steam

U.S. leading index grows for third month
Inman News
The U.S. leading index, a key barometer of economic conditions, increased 0.1 percent in December, the Conference Board reported today.

The leading index now stands at 138.5 (1996=100). Based on revised data, this index increased 0.9 percent in November and increased 1 percent in October. During the six-month span through December, the leading index increased 1 percent, with seven out of 10 components advancing.

The leading index grew strongly from mid-2003 to mid-2004, but it has been fluctuating around a more moderate upward trend since mid-2004. The strengths and weaknesses among the leading indicators were balanced through mid-2005, and the strength has become somewhat more widespread in recent months. The current behavior of the leading index suggests the economy should continue expanding moderately in the near term.

Six of the 10 indicators that make up the leading index increased in December. The positive contributors - beginning with the largest positive contributor - were index of consumer expectations, real money supply, stock prices, average weekly initial claims for unemployment insurance (inverted), interest-rate spread, and manufacturers' new orders for consumer goods and materials. The negative contributors were vendor performance, manufacturers' new orders for nondefense capital goods, building permits, and average weekly manufacturing hours.

The coincident index, a measure of current economic activity, increased again in December. It has been on a relatively steady upward trend since April 2003, but its growth rate has moderated since June 2005. The six-month growth rate of the coincident index has been fluctuating around a 1.5 percent annual rate in the last four months. The coincident index grew at almost a 2 percent annual rate in 2005, down from about 3 percent in 2004.

The Conference Board is a nonprofit research and business group.
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How to maximize tax savings on second home

Realty Tax Tips-Part 2: Personal use plays key role
By: Robert J. Bruss: Inman News
(This is Part 2 of an eight-part series. See Part 1.)
If you or someone you know is among the millions of taxpayers who own a secondary residence, you can maximize tax savings from your vacation or second home. Depending on your personal use time, a bit of advance tax planning can result in saving hundreds or even thousands of tax dollars.

FOUR TAX CATEGORIES FOR SECOND HOMES. Although your second-home mortgage interest and property taxes are always tax deductible if you itemize deductions, the amount of your personal use time determines additional income tax deduction savings:

1.) LESS THAN 14 DAYS OF ANNUAL RENTAL. Personally, my second home falls into this category. The tax result is that I can deduct only my mortgage interest, property taxes, and any uninsured casualty loss cost. But other expenses such as insurance and repairs are not deductible.

If I rent my second home up to 14 days per year, I don't have to report that rental income to Uncle Sam. However, if I rent to tenants for greater than 14 days annually, then my second home will fall into one of the following categories.

2.) ANNUAL PERSONAL USE EXCEEDING 14 DAYS OR 10 PERCENT OF THE RENTAL DAYS (IF RENTED OVER 14 DAYS IN 2005). In this category of heavy personal use and modest rental time, second-home owners must report their rental income on Schedule E of their tax returns, along with applicable expenses.

But in this category any resulting tax loss when rental expenses exceed rent collected cannot be deducted against ordinary income from other sources, such as job salary. However, unused losses are "suspended" for future tax deduction benefits so it pays to keep track of such losses.

The correct order for deducting second or vacation home expenses in this category is mortgage interest, property taxes, uninsured casualty loss expenses, operating expenses such as insurance and repairs, and depreciation for the rental period. However, when the mortgage interest, property taxes, and uninsured casualty loss expenses exceed the rental income, they become itemized deductions on Schedule A.

3.) ANNUAL PERSONAL USE BELOW 15 DAYS OR 10 PERCENT OF THE RENTAL DAYS. This is the most desirable tax category for a second home. The reason is there is no limit to your tax loss deductions against your ordinary taxable income, (except for the $25,000 annual passive loss limit explained below). Rental income and deductible expenses are reported on Schedule E of your tax returns.

Let's suppose you personally occupied your second home for 10 days in 2005 and you rented it for four months. Because your personal use time is below 15 days per year and under 10 percent of the rental days, you can deduct up to $25,000 of qualifying expense losses, including depreciation, against your ordinary income. However, Internal Revenue Code 183 says you must show a rental activity at least three of every five years in this category.

4.) NO PERSONAL USE TIME. If you didn't personally use your second home during 2005, other than a few days while making repairs, and it was rented or available for rent the entire year, then your second home falls into this rental property category.

The tax result is that all your income and expenses, including depreciation, are reported on Schedule E of your tax returns. Virtually every applicable expense is deductible on Schedule E, such as mortgage interest, property taxes, insurance, homeowner association fees, utilities you paid, repairs, and depreciation.

In addition, you can deduct reasonable "ordinary and necessary" travel expenses to inspect (but not occupy) your rental property, even if it is in Hawaii, Puerto Rico, or the U.S. Virgin Islands.

In this category, you are very likely to have a "tax loss," primarily due to the non-cash rental depreciation deduction. However, even if you select the tenants and collect the rents, rentals are a considered "passive activity" taxwise.

That means if your 2005 adjusted gross income is $100,000 or less, you can deduct up to $25,000 tax loss from your rental passive activity. But any rental tax loss exceeding $25,000 must be "suspended" for use in a future year, or when you sell the property to offset capital gains.

However, if you qualify as a "real estate professional," such as a full-time sales agent, then the $25,000 passive activity loss limit does not apply.

To deduct "passive activity" rental property losses against your ordinary income, subject to the limits explained above, you must have "materially participated" in managing your second home. This means you must own at least a 10 percent interest in the property and others cannot manage it in a "rental pool."

Without material participation, your rental tax loss is not deductible from ordinary taxable income and it must be "suspended" or saved for use in a future tax year.

SUMMARY: Although second or vacation homes are not great tax shelters, they can save tax dollars while usually appreciating in market value for future resale profits. An additional possible future benefit, when you get ready to sell, is to move into your second home to make it your full-time principal residence for at least 24 of the 60 months before its sale. Then up to $250,000 principal residence sale capital gains will be tax-free (up to $500,000 for a married couple filing joint tax returns). For full details, please consult your tax adviser.

Next Week: How To Maximize Casualty Loss Tax Deductions.
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Must-have home features of 2006

Dropped ceilings, awnings, wallpaper fail to make the cut
By: Tom Kelly: Inman News
Nearly three decades ago, hardwood floors were the absolute rage. They were the first home features highlighted by real estate salespersons and the most popular "standard" item builders would include in mid-level construction packages.

Hardwood floors may no longer be on the leading edge of home design but agents say quality and durability will continue to outsell trendy every time in residential real estate.

Mark Nash, a Chicago-based Coldwell Banker broker and real estate author whose book "1001 Tips for Buying & Selling a Home" is a helpful guide for consumers considering the residential market, has compiled a list of what's "in" for housing this year-and what is definitely "out." The list is a result of input from Realtors from around the country who, in turn, have solicited feedback from home buyers and sellers as they visit resale and new homes.

Leading the "out" column has nothing to do with tasteless interiors or boxy exteriors. Topping the chart is any more discussion about a possible housing bubble. Most analysts-including David Lereah, the National Association of Realtors chief economist-concur that no national bubble exists, that any bubbles must be regional, and point to poor local employment figures as the reason. There will be flat appreciation in some areas but sales will remain strong nationally.

Here's a capsule of what is absolutely "out," according to Nash and his Realtor contributors:

    • Ebony-stained hardwood floors. You're better off tearing it out than trying to
      sand the ebony out to refinish.

    • Single-rod closets. Buyers want the most storage in the least amount of space.
      Organizers accomplish this.

    • Dark rooms with small windows. Natural light can overrule a variety of other
      problems in a home.

    • Wallpaper. Buyers never have the same taste as decorators. Take it down
      (carefully) and paint.

    • Builder-grade light fixtures and interior fixtures used outside. The proper
      fixtures say quality to buyers.

    • Mid-century awnings on exterior windows and doors. Buyers want to let the sun
     shine in.

    • Mirrored-back splashes in kitchens and everywhere else. Mirrored walls and
     ceilings say 1980s hedonism.

    • "Commitment" (strong, bold and trendy) colors. They look great in magazines,
      but as one buyer said, "I don't live in a magazine."

    • Dropped ceilings. It might have updated a bungalow in the 1950s, but buyers
      want as much vertical space as possible.

    • Flipping. Increasing inventories of unsold homes is increasing, signaling
      weakening demand by all buyers. If you are holding properties to fix up and
      resell, prepare to place them on market earlier in the year.

On the way out…

    • Stainless steel appliances. Cleaning requirements aren't for everyone.

    • Laminate flooring that looks like hardwood. Not only can buyers tell that it's
      not wood, the noise it makes with high-heel shoes is the deal killer during
      property showings.

What's in for 2006?

The bar will be set by the annual New American Home at the International Builder's Show in Orlando, Fla. The home is a popular demonstration project, now in its 23rd year, highlighting new concepts, materials, designs and construction techniques that can be replicated-in whole or in part-in housing built any place and in any price range. The 10,023 square-foot, Caribbean-style home includes an "endless pool," a spa, a master suite with a kitchen and laundry room, and a second-story library. The home was also built to be environmentally friendly and is Energy Star-rated through the U.S. Department of Energy Program "Build America."

The size of the New American Home helps to facilitate new ideas, but does not indicate huge homes will be "in.'' To the contrary, leading Nash's "in" list are smaller homes with high quality finishes. Also near the top of this year's "in" list:

    • Quality kitchen cabinets. With the kitchen/great room the center of family
      living, buyers today are looking at furniture style cabinets.

    • Bamboo wood floors. Bamboo could overtake maple as the favorite light-colored
      wood flooring in 2006.

    • Wall space for flat-screen televisions. The popular location for installation
      in a renew construction is over the fireplace.

    • Multiple and high-powered phone lines. With modems, DSL and WiFi moving into
      mainstream use, tech-savvy home buyers want "wired" homes.

    • Separate shower stalls and bathtubs in upscale master bathrooms. The growing
      divide among "soakers" and "showerers" is increasing.

    • Built-in home stereo systems are a must-have for many audiophiles. Wireless
      hasn't quite made the pre-wired audio system home obsolete, at least not in
      2006.

    • Balconies and decks wider than three feet. Home buyers want usable outdoor
      space; big enough for a bistro table and chairs and a couple of pots for
      container gardening.

Remember, what is deemed "in" this year could easily be "out" next year. If you are planning to stay in your next home for the long haul, find comfortable, workable features that appeal to your family and enjoy them. No one can tell you what you prefer.

Tom Kelly's new book, "Cashing In on a Second Home in Mexico: How to Buy, Sell and Profit from Property South of the Border," was co-written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on www.Amazon.com or get your signed copy at www.tomkelly.com.
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Decoding details of buyer's, seller's markets

Conditions change as quickly as the seasons
By: Robert J. Bruss: Inman News
DEAR BOB: My wife and I are eager to buy our first home, either a modest house or perhaps a condo. I received a large year-end sales bonus from my employer, which we will use as a down payment. Recently I listened to a radio talk show where the real estate guest talked about a "buyer's market" and a "seller's market." What does that mean? -Ramon R.

DEAR RAMON: Congratulations on earning that handsome sales bonus and wisely investing it as the down payment on your first home. You must be one heck of a salesperson to earn such a large sales bonus.

A real estate "buyer's market" means there are more houses and condos listed for sale in the community than there are qualified buyers. That means the few prospective buyers are in the driver's seat and can negotiate tough with home sellers.

In most communities, there is an annual "buyer's market" between Thanksgiving and New Year's Day, sometimes extending to Super Bowl Sunday. Experienced real estate sales agents will tell you this is a great time to be a home buyer because there are usually more home sellers and motivated buyers.

However, a real estate "seller's market" means there are more qualified prospective home buyers than there are home sellers. Most communities have experienced a home seller's market for the last few years, primarily due to abnormally low mortgage interest rates that qualified more buyers than usual.

Today, as mortgage interest rates slowly rise, in most communities we are experiencing a balanced market with enough homes listed for sale to satisfy buyer demand. As the spring home-buying season approaches, expect more home buyers to come out of their winter hibernation, possibly resulting in a seller's market in some areas.

As a home buyer, today is a great time for you and your wife to begin your home quest. Don't be in a hurry to purchase, but when you see a home you want to own, don't hesitate to make a written purchase offer. As the old saying goes, "don't steal in slow motion."

SHOULD "FOR SALE BY OWNER" FSBO PAY A 3 PERCENT SALES COMMISSION?

DEAR BOB: My husband and I don't have much equity in our home because home prices have not gone up much in our little town. But we need to sell our home since we have a great opportunity to take over my dad's business in Florida. We started advertising our home for sale "by owner" in the newspaper classifieds and have received a very good response from buyers. However, several agents offered to find buyers if we will pay a 3 percent sales commission to the buyer's agent. Is this a good idea? -Alice E.

DEAR ALICE: Yes. Paying a buyer's agent a 3 percent sales commission to get your home sold is a bargain. The reason is that the agent will do most of the work necessary to get your home successfully sold, such as preparing a purchase offer, arranging the inspections, and providing you with the necessary paperwork, including the seller disclosure forms.

ULTIMATE TAX SHELTER OF ALL

DEAR BOB: My wife and I have been very fortunate with our real estate investments. We started out with our single-family house and converted it to a rental after we bought a larger house for our growing family. Then we made a tax-deferred exchange of our rental house for a small commercial building. After a few years, we had an opportunity to trade that building for a warehouse, which is rented to a major company on a 20-year lease. We hope that building will provide our retirement income. However, what happens when we die? Our living trusts specify the warehouse will go to our living children at that time (many years in the future it is hoped). Will this arrangement saddle our kids with a huge tax obligation for all the depreciation deductions we have enjoyed? -Ron R.

DEAR RON: No. You have discovered the ultimate tax shelter of all. It is called death.

After you and your wife pass on, leaving that warehouse to your adult children, they will receive it with a new "stepped-up basis" of its market value on the date of death of the last co-owner.

Uncle Sam will be so overwhelmed by your passing he will forgive any recaptured depreciation tax you would owe if you sell that warehouse before death. For more details, please consult your tax adviser.

The new Robert Bruss special report, "Foreclosure and Distress Property Profit Secrets," 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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Best time to take out mortgage when buying home

Paying cash, refinancing later has its benefits
By: Jack Guttentag: Inman News
Q: I have enough cash to swing an all-cash purchase if I want to, but I don't want all of my money tied up in the house; I want to get some of it back in a mortgage. What is the downside of paying cash and taking out the mortgage later versus taking out the mortgage at the time of purchase?

A: The downside of taking the mortgage after you have purchased the house is that the mortgage will then be classified as a "cash-out refinance" as opposed to a "purchase mortgage." Why does that matter? Cash-out refinance loans are viewed as riskier than purchase loans, and therefore are priced higher. On prime loans, the rate difference is about 0.125 percent.

Only a small proportion of those who take cash-out refinances have houses that don't already have a mortgage, as in your case. Most have a mortgage and want to raise cash, and some of those are in financial distress and end up in default. That's why cash-out refinances have higher loss rates than purchase mortgages, and are charged a higher price.

The other side of the coin is that it is more difficult to shop effectively for a purchase mortgage than for a refinance. Borrowers purchasing a house are faced with a closing date on which they must provide funding to complete the purchase. This means that at some point in the process there is not enough time for the purchaser to back out of a deal and start anew with another loan provider. Once past that point, they are vulnerable to a variety of tricks by unscrupulous loan providers that can cost more than 0.125 percent

In contrast, the refinancing borrower who feels badly treated by a loan provider can opt out of the deal at any point and start again with another loan provider. Usually, timing is not critical on a refinance.

Even after a loan closes, a borrower refinancing with any lender other than his current lender, has three days to rescind it. The lender must then return all fees and remove any liens on their property. This right is not granted to loans used to purchase or construct a house.

I think if it were me, I would pay cash and mortgage later, despite the price difference. With a refinance, I'm in charge.

Q: "Is there a limit on the number of mortgage payments one can make in a given year?"

A: This question turns out to be a little more complicated than you may have imagined. The reason is that lenders may accept a payment without necessarily crediting it to the borrower's account at that time. That means that your question is really two questions. One, how many times a year will a lender accept the borrower's payment? Two, how many times a year will a lender credit the borrower's account?

To illustrate the distinction, some lenders have weekly payment programs under which they accept payments every week. However,they credit the payments to the borrower's mortgage monthly. They thus accept 52 payments a year but they only credit 12.

In effect, the borrower paying weekly is making his monthly payment early, which gives the lender the use of his money until month-end. It doesn't amount to a lot but it certainly compensates the bank for the additional processing expense.

The same distinction applies to biweekly payments. On biweekly programs that are run by third parties, the borrower pays biweekly but the lender credits the payments monthly. The interest earnings on the borrower's money, which is held by the third party until the monthly payment is due, is part of the income of the third party. Most of them also charge the borrower a fee.

A biweekly program offered by a lender may go either way. Some lenders credit the biweekly payments biweekly, some monthly. On a $100,000 loan at 6 percent for 30 years, the biweekly that credits payments monthly pays off in 297 months and total interest payments are $92,193. The same loan with payments applied biweekly pays off in the equivalent of 294 months, and total interest is $91,022. These numbers are derived from calculators 2b and 2bi on my Web site.

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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Vacation home not exempt from real estate taxes

Length of rental period a key determinant
By: Robert J. Bruss: Inman News
DEAR BOB: I own a beach condo, which I rented out last summer through a rental agency. This summer I want to use it as my second home, but periodically allow family and close friends to use it at a reduced rental rate to help with expenses. Am I required to pay tax on that rental income? -Alice H.

DEAR ALICE: If you rented your beach condo for more than 14 days in 2005, you are required to report that rental income and deduct applicable expenses on Schedule E of your 2005 income tax returns. However, if the rental days were less than 14, you can keep the rent money and Uncle Sam doesn't care.

The same rule applies in the summer of 2006 when you plan to spend more personal time enjoying your beach condo. If you rent it for more than 14 days, the rental income must be reported on Schedule E of your tax returns where you can also deduct applicable expenses, such as part of your mortgage interest, property tax, insurance, utilities, repairs, and other operating expenses.

However, if your personal use days exceed 14, or 10 percent of the rental days, then any tax loss in this tax category cannot be used to offset your other ordinary taxable income. For full details, please consult your tax adviser.

BE CAREFUL ABOUT BUYING HOUSE FOR SON AND HIS WIFE

DEAR BOB: We want to buy our son a house for all cash. We suggested buying it in our names to avoid paying a gift tax so our son will receive a stepped-up basis when he inherits it (we are 78 and 80). But our daughter-in-law suggests putting the house in their names now so they can use the equity. She says we would still not have to pay a gift tax. What is the best way to handle this? -Barbara G.

DEAR BARBARA: From your description, it sounds like your daughter-in-law wants to grab on to your very generous gift and let you worry about paying the gift tax, if there is any.

However, if you have given away less than $1 million each, there won't be any gift tax to pay, although you will have to fill out a gift tax return if you title the house in your son's name.

How is their marriage? Maybe the daughter-in-law is thinking of a divorce? Just asking.

Frankly, I prefer your idea of buying a house and letting your son and daughter-in-law live in it for a few years. You can specify in your will it goes to them after you both die. Meanwhile, you keep control just in case there is a divorce lurking.

DOES BANKRUPTCY PREVENT HOME SALE?

DEAR BOB: If a home seller has filed Chapter 13 bankruptcy reorganization, can the seller sell the house without court approval? -Jaime T.

DEAR JAIME: I am not a bankruptcy attorney. But my one very limited experience in this area required approval of the U.S. Bankruptcy Court judge for the sale of the debtor's home.

I am not aware of any title insurance company that will insure such a title transfer without the Bankruptcy Court judge's approval.

Everything worked out very well in my one experience because the home sale provided enough cash for the debtors to pay all their debts in full and they even had several thousand dollars left for a down payment to buy another house.

The new Robert Bruss special report, "Foreclosure and Distress Property Profit Secrets," 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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The Weekend Guide! January 19 - January 22, 2006

The Weekend Guide for January 19 - January 22, 2006.
Full Article:
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Real estate refinancings surge

Mortgage rates slip for sixth week
Inman News
Another boost in refinancings last week pushed overall mortgage activity up 2.2 percent on a seasonally adjusted basis from the week before, the Mortgage Bankers Association reported today.

The seasonally adjusted refinance index increased by 9.9 percent to 1,645.2 from 1,497.5 one week earlier whereas the purchase index decreased by 3 percent to 443.9 from 457.4 the previous week.

The refinance share of mortgage activity increased to 44 percent of total applications from 42.2 percent the previous week. The adjustable-rate-mortgage share of activity increased to 30.6 percent of total applications from 28.1 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.07 percent from 6.08 percent one week earlier. Points including the origination fee remained at 1.23 for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.64 percent from 5.66 percent. Points including the origination fee increased to 1.23 from 1.17 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year adjustable-rate mortgages decreased to 5.39 percent from 5.42 percent one week earlier. Points including the origination fee remained at 0.92 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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