Monday, December 6, 2010

How to Negotiate Your Home Purchase

No matter how low of an offer you put in for a home, it almost never fails that at some point you get buyer's remorse wondering if you could have purchased it for even less. Some realtors might tell you that the fair market value is what you did pay, but we all know that some times buyers can, and do, over pay. Often that's because they are thinking with their emotions rather than with their head. On the other hand, did you offer too little that you might lose the deal?

Just ask Donita Nurse how she feels about home negotiations and you'll get an ear full of her experiences. When the 29-year-old was ready to move out of her rental in the historic Bronzeville neighborhood of Chicago into a place of her own, she didn't want to leave the area, which is rich in African-American history and a short commute to her downtown job at the East Bank Club.

She also wanted to purchase a short sale with a minimum of three bedrooms and with about $100,000 of equity above the purchase price. Her reasons were logical: This single woman with no kids wanted a place she could grow into, and that she would not likely lose money on, even if it went down in value.

And why the short sale (other than for a great value)? When owners are selling their homes without outside pressures, like from banks, Donita says that she has found that sellers are too attached and unwilling to negotiate a fair price. She prefers to target short sales that have been on the market awhile.

"At that point they have to sell it or they'll go into foreclosure," she says. "It has been on the market long enough for the owners to accept that."

So Donita did her research to find a great value on short sales. (She felt that homes already in foreclosure would be a bigger hassle with the banks). She studied the sale prices for comparable homes and over a two-year period Donita found her dream home -- three times. She made an offer each time, only to run into problems on all three. But a turn of events just may make the third time the charm.

Here are seven tips for purchasing a home at your price:


1. Be prepared to walk away.

If the home meets all of your criteria related to design, convenience, amenities, etc. don't go in with the attitude "I can't lose this house." That's a sure way to overpay. Instead, be prepared to walk away if the sellers don't meet your maximum price point for that home or for other major concessions that you want. The first home that Donita made an offer on took six months to get approved, then she learned upon inspection that some upgrades and electrical fixes weren't done to code, so she backed out. Know that there will always be other homes. However, be realistic about your maximum purchase price. How much you can afford to spend is not the seller's problem. It could just mean that you need to set your sights on a less expensive property.


2. Crunch the numbers.

When determining what price to make your initial offer, you need to be familiar with the "comps" -- the prices that similar homes in the neighborhood (about a one-mile radius) have sold for in the past three to six months. Sometimes you might need to search back as far as a year, but of course more recent data is most valuable.
On the second home, Donita made an offer of $128,000 on a well-upgraded, first-floor unit listed at $139,000, in a small multi-family building. The bank accepted the offer but ultimately sold it for less money -- $119,000 -- to someone who made a cash offer. The bank said they'd approve her for another unit in the building at her original $128,000 offer, but given the very recent lower comp for a similar unit, Donita said that she'd only accept if they upgraded the unit. They said no, so again she walked.

The sold price is more relevant than list prices for similar homes, because the list price can always drop. "Solds" are the most accurate gauge of the market. You will want to compare your offer price to each comp's sold price, its price per square foot, and even how much its sold price differs from its list price to help you best determine a range where your offer should be. (It might be drastically lower than the seller's list price if they have overpriced their home). If you don't have a real estate agent who can provide you with the sold data, websites such as CyberHomes.com and ListingBook list them, with the latter allowing you to display the data by price per square foot, sales data and other criteria.


3. Drive by the comps.

It's important that you go see the comps in person, because a photo can sometimes mask whether a home needs an exterior paint job, a new roof or fresh blacktop on the driveway. If you were doing due diligence during your home search, some of these comps are probably homes that you toured earlier in your quest.


4. Determine a price.

Once you've determined, that say, the comps sold on average for about 95 percent of the asking price, you might want to make your first offer at 90 percent of the asking price, with your limit being that you'll pay 97 percent of asking price.

For example, if the home has a list price of $250,000, you might make your first offer at $225,000, which is 90 percent of the list price. The sellers might counter, and you might counter again and ultimately settle at $237,500, which is 95 percent of the asking price -- the norm for nearby comparable homes. Also, you might be surprised and buy the home for the lower amount, especially if it has been on the market for 90 days or longer, or a previous sale for the owner has already fallen through.

Donita currently has an offer in on a large, and move-in condition duplex unit, with four bedrooms and three baths. It has a list price of $100,000 and an appraised value of $196,000. She offered $90,000, but it was rejected for a better one. The deal isn't over, however. The other offer fell through, and the bank's negotiator called Donita to ask if she was still interested. Now she's waiting for the banks to approve her offer.


5. Set a tone with earnest money.

If you opt to make an offer on the lower end of the scale, but you are truly interested in the home, you may want to give the appearance of sweetening the deal by giving a larger amount in earnest money. Now, technically, so long as you close the home, the sellers will get the earnest money regardless of the agreed-upon sales price. Perhaps the earnest money on a $250,000 house would be given at 1 percent, or $2,500. You might try offering $4,000 in earnest money. A higher amount gives the impression that you are more committed.


6. Set an expiration date for your purchase offer.

When you put in your offer, you don't want the seller to have plenty of time to entertain other contracts and go with the highest offer. So what you do to fend off competing offers is ask a seller to respond within 24 or 48 hours. In many cases, using a tight expiration date will get negotiations started quickly and get you a better price on the home. This strategy, however, may not work when you're negotiating with a bank handling a foreclosure.


7. Ask for financial concessions.

Even though some fees are typically split between the seller and the buyer, in a buyer's market you can negotiate these, too -- simply ask the seller to pay for all the fees, including city transfer taxes, inspections and appraisals, or to give you cash back at closing to cover these fees. You can also ask for credits when repairs need to be made, a house needs paint or new carpet, or even significant upgrading. However, in a buyer's market, you can simply ask for one as a financial concession to close the deal. Many banks allow a credit up to 6 percent of the purchase price.

Regardless of an offer price or the concessions you may receive, you might not be able to totally eliminate that sinking feeling that remains intertwined with the joy that accompanies your home buy. But if you do your research well, you'll feel more comfortable with your purchase price -- and have a better chance of getting a return on your investment down the road.

"It's all about research, research, research," says Donita. "I realized from these experiences that no one was really in it for my best interest and they were trying to get whatever they could to sell the property," she said. "You have to think of yourself and know what you need."

Friday, November 19, 2010

Tax Credits for Replacing Heating and Cooling Systems

Upgrading to an energy-efficient heating and cooling system can save hundreds on your utility bills and earn you a tax credit worth as much as $1,500.
Replacing an aging heating and cooling system can save you money over time. According to Energy Star, a federal program that promotes energy efficiency, about half of what the average household spends on energy bills goes toward heating and cooling.

Upgrading your heating, ventilation, and air conditioning (HVAC) to energy-efficient units can cut utility costs by about 20%, or $200 annually, on average. A tax credit for heating and cooling systems can make the project more affordable.

This type of home improvement doesn’t come cheap. Prices vary widely based on where you live, unit specifications, and the condition of your home, but figure a high-efficiency furnace will start at around $3,500, including installation, estimates Corbett Lunsford, executive director of Chicago-based Green Dream Group. A standard furnace may cost $2,400. To help offset the price difference, the IRS allows a tax credit worth up to $1,500 on eligible HVAC systems put into service during 2009 or 2010. Consult a tax adviser.

Pay attention to efficiency ratings
To earn an Energy Star rating, furnaces must be more efficient than standard units, with annual fuel utilization efficiency ratings, or AFUE, of 85% for oil furnaces and 90% for gas furnaces. The Energy Star seal of approval alone isn’t enough to garner the federal tax credit. Credit-eligible gas furnaces (either natural gas or propane) must have AFUE ratings of 95% or greater; oil furnaces, 90%. A boiler must have an AFUE of 90%.

Heating by burning a fuel is inherently inefficient. Simply put, high-efficiency furnaces have components that are better designed to get more heat out of the combustion process, Lunsford says. You’ll need to hire an HVAC contractor to calculate the size of the equipment needed for your home. Beware bidders who take a one-size-furnace-fits-all approach. Air source heat pumps and advanced main circulating fans can also qualify for the $1,500 tax credit.

Technically, a homeowner could replace either a furnace or a central air-conditioning unit and be eligible for the tax credit. Practically speaking, you probably will have to replace both for the A/C to qualify, says Enesta Jones, a spokeswoman for the U.S. Environmental Protection Agency. Most homes have split systems made up of an outdoor condenser and compressor that are connected to an indoor air handler that’s part of the furnace. Split systems must have a SEER rating of at least 16 and an EER rating of at least 13. The higher the rating, the more energy efficient the unit. A package A/C system, which houses all of its components outdoors, requires lower ratings.

HVAC’s value goes beyond savings
It typically takes about a decade’s worth of energy savings to recoup the investment in a new HVAC system, Lunsford says, though that time frame can vary greatly depending on how much fuel prices fluctuate. Less apparent in dollar terms are increasing the comfort level in your home and lowering your household’s drain on non-renewable fossil fuels. Then there’s the effect on your home’s value when it comes time to sell.

You’re going to enhance a home’s salability by moving to a more energy-efficient heating and cooling system, says Frank Lesh, president of Home Sweet Home Inspection Co. in Indian Head Park, Ill. That doesn’t mean adding a $5,000 furnace will add $5,000 to the sale price. Rather, potential buyers are less likely to push for repairs or negotiate a credit if the HVAC is in good shape. Evaluate systems older than 10 years for possible replacement.

But before you do, conduct a wider energy audit of your home. Lunsford, also manager of consumer education for the U.S. Green Building Council’s Chicago Chapter, says he rarely recommends replacing a furnace as the first step in making a home more energy efficient. Instead, start by sealing it against air leaks. Do-it-yourself caulking and weather-stripping help, as does adding insulation in the attic. Professional air sealing, which is more effective, can cost as much as $5,000 for a large house, he says. The payoff: Energy costs should go down, and you might be able to get by with a smaller HVAC system.

Getting tax credit for your upgrades
The federal energy tax credit is based on 30% of the cost of an eligible HVAC system. Installation charges count too. A $5,000 bill would max out the credit. You’ll need to owe more in taxes than you’re trying to claim in credits to qualify. Use IRS Form 5695. Save receipts for your records, as well as manufacturers’ certification statements. If part of a new HVAC system qualifies for the credit but another part doesn’t, ask the contractor to itemize the receipt.

The tax credit is aggregated for all qualifying energy upgrades—insulation, roofs, windows, and so on—so you can’t claim separate $1,500 credits for each project. Only improvements to your existing primary residence count. New homes and second homes are excluded.

Tax Credits for Storm Windows and Storm Doors

Storm windows and storm doors are eligible for tax credits, and offer an economical alternative to replacement windows and doors for your home.
Storm windows and storm doors are much cheaper to add to your home than full replacement windows and doors. Compounding the appeal, installation is easier and energy savings are comparable.

The federal tax credit for energy-efficient windows and doors applies to storm windows and storm doors too. As long as the windows and doors meet efficiency standards, homeowners can earn a tax credit worth 30% of the cost of materials. The credit maxes out at $1,500.

Storm windows are a fraction of the cost
Storm windows make the most sense if your home has single-pane windows. They’re designed to fit in existing openings, on either the inside or outside, and newer models open and close. It’s an immediate and inexpensive way to eliminate drafts and cut energy costs. The insulation gain from storm windows is nearly identical to most energy-efficient, double-pane windows, says Chris Dorsi, author of “The Homeowner’s Handbook to Energy Efficiency.”

While you would pay between $500 and $1,000, including installation, per tax credit-eligible replacement window, a storm window only runs about $100 to $300 installed. Contractors can outfit a typical house with storm windows in a day or two, vs. two to three days for replacement windows.

Storm doors, which limit energy loss from leaks around existing exterior doors, cost about $200 to $300 apiece. Another big benefit of a storm door, assuming it’s equipped with a retractable or interchangeable screen, is allowing air flow between the inside and outside when the weather is nice. However, because storm doors make up such a small percentage of a home’s total exterior compared to windows, the energy savings are minimal.

Qualifying for the energy tax credit
You can claim a federal energy tax credit of up to $1,500 for adding storm windows and storm doors in your primary residence during 2009 and 2010. File IRS Form 5695. The credit is based on 30% of the cost of materials only. Ask your contractor to itemize the bill. Typically, two-thirds of what you pay goes toward materials, one-third toward labor.

Storm windows and storm doors must meet energy-efficiency standards to earn the tax credit. Look for efficiency ratings on product labels. However, that’s just the start.

According to Energy Star, to qualify a window or door opening retrofitted with a storm window or door must have a total U-factor of 0.30 or less and a Solar Heat Gain Coefficient of 0.30 or less. U-factor measures how well a window or door keeps heat in; SHGC tells you how well heat from sunlight is kept out. In both cases, the lower the number, the better.

The problem lies in the fact that the standards are for the entire opening. In other words, a calculation needs to be made as to whether, say, a storm window combined with an existing window meets the U-factor and SHGC thresholds.

Karen Schneider, an Energy Star spokeswoman, says to be safe homeowners should ask a window retailer or contractor to determine the insulation value of the opening once a storm window is installed. The IRS doesn’t require homeowners to provide proof of insulation value with a tax return, but get it in writing if you can. It’s also smart to save receipts and the manufacturer’s certification statement for the product.

Homes in colder climates benefit more
You get more bang for your buck with storm windows if you live in a colder climate. Keeping heat in and drafts out adds up in energy savings. In warm climates, storm windows’ benefits are more limited unless they’re made of reflective glass that deflects the sun’s rays, says Adam Winter, co-founder of Recurve, a San Francisco company that does home energy audits and green remodeling.

Like replacement windows, storm windows can save you about 15% to 40% on energy bills, or from $126 to $465 a year. That’s assuming a 2,000-square-foot home with single-pane windows, according to the Efficient Windows Collaborative. Those living in colder climates should see savings closer to the top end of the range. Since storm windows are cheaper than replacement windows but the energy savings are similar, the payback period for storm windows should be a lot shorter.

When weighing storm windows vs. replacement windows, Mark Meshulam, author of the Chicago Window Expert blog, says homeowners should note that storm windows may not provide as much of a return at resale. They aren’t as attractive as full replacement windows, they’re less convenient since you need to open two windows to get fresh air, and they’re more prone to moisture problems. According to Remodeling Magazine’s 2009-10 Cost vs. Value Report, replacement windows recoup about three-fourths of their cost at resale. The magazine doesn’t track storm windows.

Tax Tips for Homeowners Looking Ahead to 2010 Returns

From energy tax credits to vacation home deductions, check out these tax tips for homeowners looking ahead to 2010 returns.
Tax planning for homeowners should start well in advance of the April 15 filing deadline each year. If you delay until the last minute, it might be too late to maximize tax credits and tax deductions. These tax tips for homeowners looking ahead to 2010 returns explain some of the things you can do now that’ll pay off later on your 1040.

Take a day to formulate a tax plan for the year. Depending on your circumstances, you might want to take advantage of energy tax credits or max out your vacation home deductions. The “What’s New in 2010” section of IRS Publication 17 offers a sneak peek at tax changes that might affect homeowners.

Claim remaining energy tax credits
It’s time to get cracking if you didn’t exhaust your full allotment of residential energy tax credits during 2009. Although tax credits for big projects like residential wind turbines and solar energy systems have no upper limit and are good through 2016, energy tax credits capped at $1,500 expire at the end of 2010. Eligible capped projects include new windows and doors, insulation, roofing, water heaters, HVAC, and biomass stoves.

Here’s how it works with capped federal credits: You can earn energy tax credits worth 30% of the cost of qualifying improvements, but the total tax credits can’t exceed $1,500 combined for 2009 and 2010. So if you only took, say, $700 worth of capped energy credits on your 2009 tax return, you’re still due for another $800 in credits in 2010. Some projects include the cost of installation—a furnace, for example—while others, such as insulation, are limited to the cost of materials.

Max out tax benefits of a vacation home
Use a vacation home wisely, and it’ll provide a break from taxes as well as the hustle and bustle of everyday life. The rules on tax deductions for vacation homes can get a bit tricky, but understanding and adhering to them can yield many happy tax returns.

If your vacation home is truly a vacation home meant for your personal enjoyment, as opposed to a rental-only income property, you can usually deduct mortgage interest and real estate taxes, just as you would on your main home. You can even rent out the home for up to 14 days during the year without getting taxed on the rental income. Not bad.

Now, let’s say you want to rent out your vacation home for more than 14 days in 2010, but also use it yourself from time to time. To maximize the tax benefits, you need to keep tabs on how many days you use your vacation home. By restricting your annual personal use to fewer than 15 days (or 10% of total rental days, whichever is greater), you can treat your vacation home as a rental-only income property for tax purposes.

Why is that a big deal? In addition to mortgage interest and real estate taxes, rental-only income properties are eligible for a slew of other tax deductions for everything from utilities and condo fees to housecleaning and repairs. Deductions are limited once personal use exceeds 14 days (or 10% of total rental days), so get out your calendar now to strategically plot your vacations.

Take advantage of tax breaks for the military
In salute to members of the armed forces serving overseas who want to purchase a home, the IRS is extending a lucrative tax perk for military personnel. If you spent at least 90 days abroad performing qualified duty between Jan. 1, 2009, and April 30, 2010, you have an extra year to earn a homebuyer tax credit. In addition to uniformed service members, workers in the Foreign Service and in the intelligence community are eligible.

Thanks to this extension of the homebuyer tax credit, qualifying military personnel have until April 30, 2011, to sign a contract on a new home. The deal must close before July 1, 2011. Just like non-military buyers, first-time homebuyers can earn a tax credit worth up to $8,000, and longtime homeowners can earn a credit of up to $6,500. The same income restrictions and $800,000 cap on home prices apply.

Military personnel can also get a break if official duty calls and they’re forced to move for an extended period. Normally, the homebuyer tax credit needs to be repaid if you sell your home within three years, but this requirement is waived for uniformed service members, Foreign Service workers, and intelligence community personnel. The new extended duty posting doesn’t need to be overseas, but it must be at least 50 miles from your principal residence.

Challenge your real estate assessment
You can’t do much about the rate at which your home is taxed, but you can try to do something about how your home is valued for taxation purposes in 2010. The process varies depending where you live, but in general local governments conduct a periodic real estate assessment to determine how much your home is worth. That real estate assessment figure is used to calculate your property tax bill.

You can usually appeal your real estate assessment if you think it’s too high. Contact your local assessor’s office to find out the procedure, and be prepared to do some research. There’s often no charge to request a review of your assessment.

Look for errors. You probably received an assessment letter in the mail, and many local governments provide the information online as well. Make sure the number of bedrooms and bathrooms is accurate, and the lot size is correct. Also check the assessed value of comparable homes in your area. If they’re being assessed for less than your home, you might have a case for relief.

Even if your assessment is accurate and comparable homes are being taxed at the same rate, there might be another route to tax savings. Ask your assessor’s office about available property tax exemptions. Local governments often give breaks to seniors, veterans, and the disabled, among others.

Thursday, August 12, 2010

Drawbacks of Home Equity Loans

Taking out a home equity loan against the value of your property can backfire if you fail to avoid these common pitfalls in the borrowing process.
When you need a quick source of funds, a home equity loan can be tempting. Done wisely, you can use the lower-interest debt secured by your house to pay off debts with high interest rates, like credit cards. It’s also a good choice if you know exactly how much you need to borrow for a big expenditure like a vacation home or a new kitchen.

Often you can even write off the interest you pay on the loan. Consult a tax adviser. But home equity loans aren’t always the best choice for accessing cash. The fact that you’re staking your home against your ability to pay off the debt is just the beginning of the potential drawbacks.


Money doesn’t come cheap
A home equity loan is a second mortgage on your house. Interest rates are usually much lower for a home equity loan than for unsecured debt like personal loans and credit cards. But transaction and closing costs, similar to those for primary mortgages, make home equity loans a pricey way to finance something you may want but don’t absolutely need, like a fur coat, exotic vacation, or Ferrari. The average closing costs on a $200,000 mortgage are $2,732.

To compare offers on competing home equity loans, look at the annual percentage rates. These take into account closing costs and fees. On a $30,000 second mortgage, you’ll save $210 a year with a 5.5% APR vs. a 6.2% rate. Keep in mind that lenders might be willing to waive some upfront costs and fees, especially if you already have your first mortgage with them, which will reduce the APR.

Early payoff can be costly
Home equity loans almost always have fixed interest rates. Although that can bring peace of mind, if you borrow when rates are high, you may find it’s expensive to try to refinance to a better rate later on. That’s because lenders make money when you pay back the interest on a loan. And since some lenders are absorbing the upfront costs, they make it up on the back end by charging a prepayment penalty if you refinance or sell your home.

Such early-termination fees are typically a percentage of the outstanding balance, such as 2%, or a certain number of months’ worth of interest, such as six months. They’re triggered if you pay off part or all of a loan within a certain time frame, typically three years. Despite the penalty, it may be worthwhile to refinance if you can lower interest rates sufficiently.

By refinancing a $30,000 loan you took out two years ago at 9% down to 8%, you’ll break even in six years and nine months. This assumes both loans have 15-year terms, and you’ll pay $3,000 in closing and early-termination costs. Refinance at 7% and you’ll recover those costs in four years and nine months.

If you need money during a period of high interest rates, but expect rates to fall soon, it may make sense to go for a home equity line of credit instead of a lump-sum second mortgage. Although more lenders are charging stiff prepayment penalties for HELOCs too, these are triggered when the line is closed within a certain period, such as three years, not when the balance is paid off. Bear in mind that interest rates on most HELOCs are variable.

Beware predatory lenders
Some lenders don’t act in your best interest. Theoretically, lenders are supposed to follow underwriting guidelines on appropriate debt and income levels to keep you from spending more than you can afford on a loan. But in practice, some unscrupulous lenders bend or ignore these rules.

Others urge you to take out up to 125% of your home’s value, a practice that puts you at risk of foreclosure should you lose your job or your home fall in value. Still others work with shady home-improvement contractors who pressure you into taking their loans at above-market rates—and jack up the price if you don’t. According to the U.S. Department of Housing and Urban Development, you should avoid anyone who insists on only working with one lender or who encourages you to do things like overstate your income.

Your house is at stake
A home equity loan is a lien on your house that usually takes second place to the primary mortgage. As such, home equity lenders can be left with nothing if a house sells for less than what’s owed on the first mortgage. To recoup losses, secondary lenders will sometimes refuse to sign off on short sales unless they’re paid all or part of what they’re owed.

Moreover, even though they lose their secured interest in the house should it go to foreclosure, they can send debt collectors after you for the balance, and report the loss to credit agencies. This black mark on your credit score can hurt your ability to borrow for years to come.

June Fletcher is a real-estate columnist for WSJ.com, the online version of the Wall Street Journal, and author of “House Poor: How to Buy and Sell Your Home Come Bubble or Bust.” A graduate of Princeton and Oxford universities, sheĆ­s written about housing for more than three decades.

Avoid Home Equity Loan and Refinancing Scams

Home equity loan and refinancing scams can cost you more than money—these scams can cost you your house.
Progress K
Effort Low 1-2 days (research loans)
Investment Low $37 (avg credit report fee)
Scammers will often try to charge you for services they'll never actually perform. They may even use your personal information to commit identity theft. Image: Plattform/Getty Images

Refinancing a mortgage to a lower interest rate can make sense for some homeowners. So too can taking out a home equity loan against the value you’ve built up, perhaps to finance a kitchen remodel or pay Junior’s college tuition. What doesn’t make sense is losing your home because you fall for home equity loan and refinancing scams such as loan flipping and equity stripping. Although scam artists can be very convincing, homeowners who know what to look out for are less likely to become victims.


Loan flipping
Loan flipping is a scam targeted at homeowners looking to get money back when they refinance a mortgage. This is often referred to as a cash-out refi. Scammers take advantage of this desire to tap the equity in a home to pay for things the homeowner couldn’t otherwise afford.

A cash-out refi in itself isn’t a scam. For some, it’s a smart way to borrow. What is a scam is when a lender, after receiving a few payments, comes back to you with an offer of another refinance, this time to fund a vacation or a new car. The easy money is difficult for some homeowners to turn down.

Many borrowers don’t realize how much they’re paying in fees to refinance. The U.S. Federal Reserve estimates the settlement costs on a typical refi to be 3% to 6% of the loan amount. Loan flippers often charge much more, plus they may quietly roll the settlement costs into the loan to disguise the total charges. Take a day or two to get quotes from several lenders and compare terms.

Loan flipping ultimately leaves you with more debt and more years that you’ll owe on that debt. When the equity finally dries up, you might not be able to afford your higher monthly payments and another refinancing will be impossible. You could be forced to sell your home.

Equity stripping
Equity stripping can occur in several ways, but at its heart is a scam artist who gains ownership of your home, borrows against it or sells it, pockets the proceeds, and disappears. You’re often left with a hefty mortgage balance and no place to live.

A telling sign of equity stripping is a lender that offers more loan than you can afford or that encourages you to pad your income on a loan application. Homeowners with low incomes but a good amount of equity built up are prime targets because they otherwise would have a hard time borrowing. According to the U.S. Federal Trade Commission, a lender that’s pushing a home loan with too-high monthly payments is likely counting of foreclosing on the property when you fall behind.

A variation on equity stripping has a scam artist talking you into selling your home at a discount or signing over the deed, perhaps with a promise of securing better loan terms if your name isn’t on it. The scammer promises to let you stay in the home as a renter until the refinancing is finalized, then you can buy back the home. In reality, the scam artist drains equity by borrowing against the house or selling the house, perhaps after evicting you.

According to Consumers Union, don’t agree to a home equity loan if you can’t afford it. A good rule of thumb: Your combined home loan payments shouldn’t exceed 28% of your gross income. The nonprofit publisher of Consumer Reports magazine also warns against signing any documents unless you understand them and turning over you property to anyone without first consulting a trusted adviser.

Phantom help
Watch out for unsolicited offers to refinance from companies claiming government affiliations. In particular, don’t be fooled by the use of official-sounding acronyms like “TARP” or official-looking website addresses. Scammers use these to gain your trust. Once they do, they’ll likely try to charge you for access to government assistance. Worse, they might extract enough personal information to commit identity theft.

You never need to pay to find out about legitimate government programs. A housing counselor approved by the U.S. Department of Housing and Urban Development can point you in the right direction. For federal refinancing and loan modification help, check out the Making Home Affordable program.

New disclosure rules make spotting scams easier
Many unscrupulous lenders have relied on confusing paperwork to dupe borrowers into paying excessive upfront fees on loans. Others would pull last-minute rate switches at closing. Still others would disguise prepayment penalties, which can prove costly if you ever try to refinance again or retire a loan early.

Balloon payments, which come due at the end of a loan term, can also catch borrowers off-guard. A lender may offer a low monthly payment on an equity loan, but only because the payment is interest-only. The principal is due in one lump sum. Surprised homeowners must scramble to refinance again, tap other assets, or sell.

Disclosure rules that went into effect Jan. 1, 2010, make spotting these types of deceptions easier. All lenders are required to use redesigned Good Faith Estimate and HUD-1 Settlement Statement forms that clearly disclose key loan terms—including interest rates, prepayment penalties, and balloon payments—and closing costs.

The GFE is an estimate of loan terms and closing costs, while the HUD-1 is a final accounting of terms and costs. The redesigned forms, cross-referenced by line number, must be used for mortgage refinancing and home equity loans (with the exception of home equity lines of credit, or HELOCs). The only fee a lender is allowed to collect to issue a GFE is a charge for a credit report, which averages $37.

If you don’t receive the new forms, don’t do business with the lender. If the estimates on the GFE don’t match the final figures on the HUD-1, ask why. Some, but not all, fees are allowed to increase within a fixed range.

Monday, August 9, 2010

Who's Responsible

We all know what is going on in Real Estate across this great country of our. But who is ultimately blamed for for a deal falling apart. The listing Agent, that's who. No matter how and phone call are made, no matter how many hours Realtors put it, it comes down to the Listing agent being held responsible by the seller to get to a closing. Yes, the same 6 major things have to be done buy most of the are the buyers Realtors responsibility to set up and attend. So you get through attorney review, do you home inspection, you insect inspection, and your back inspection. Then 2 days before the closing the buyer losses their job, decides to co-sign for a car loan for their sister. Better yet the closing took so long the bank does another appraisal and the value of the home has gone down $10,000 or $20,000 in some cases and the mortgage company pulls the loan. Both seller and buyer are packed and ready to move. Some sellers are even buying and now that deal falls apart as well. The answerer's from our Government have been to raise the fees that and FHA buyer must pay by 1.75 %, to make it even harder to purchase in NJ. I don't know if these thing are going on in other states, but in NJ it sure seems like the Government is working against us not with us to help this housing crisis.

The listing agents need to take more responsibility and be in touch with not just the sellers people, but also the buyers people as well. No more can you trust that a buyers realtor is going to do their part for their client. The listing agent is ultimately responsible to get to the closing table. Does a seller want to hear their agent point the finger at all the other people involved or do they want and agent that takes the bull by the horns and makes sure everything is done the right way. If you were a seller interviewing agents and one told you this, this, and this are the buyers agents responsibility, would you chose that agent? Then a good agent comes in a says the same things but tells the seller I will be on top of every step no matter who I have to call and how many times I have to call they I will get it done. Also, listing agents should have the power to continue to show the property until all contingency's are met, especially the mortgage contingency. Well there are to many poorly trained agents out their that do not do what they are supposed to do. I believe the listings agents have to do or follow up on everything, no matter who represents who. And buyers have to stop lying about their income and debts.

I might not know much, I was only a top sales man for CENTURY 21 for 10 years, but I know this. Agents are getting worse, buyers are not honest, are the Government is not helping to fix the problem AT ALL.

Today's Mortgage Rates at an All Time Low

Wary of a volatile stock market and concerned about by European debt woes investors moved to bonds last week pushing bond prices up and mortgage rates down. Mortgage rates, which move the opposite direction of mortgage-backed securities prices, had wavered just below 5% for much of the year until last weeks big decline. Mortgage rates today are even lower than levels December of last year, what's now the previous all time low.

Today's official FreeRateUpdate.com conventional 30 year fixed mortgage rate, available to well-qualified borrowers paying about a point origination, is 4.5%. Today's conventional 15 year fixed rate is 4%, with some lenders reported "squeezing" out 3.875%.

Today's FHA 30 year fixed rate is 4.375%. APR (closing cost) on an FHA loan is typically much higher than that of a conventional mortgage because of MI and other FHA fees.

Today's jumbo 30 year fixed rate, for jumbo mortgages exceeding jumbo conforming loan limits, is 5.5%. It's reported 5.375% is available to borrowers with an extremely low loan to value ratio.

Wells Fargo, the nations largest volume mortgage originator, is currently offering a conventional 30 year fixed rate of 4.875%, with an APR of 5.065. Wells Fargo mortgage rates are available on their website.

FreeRateUpdate.com researches over 2 dozen wholesale lenders' rate sheets for brokers on a daily basis to determine the most accurate mortgage rates for well-qualified borrowers paying a standard origination fee of about 1 point.

Today's Mortgage Rates - currently available to well-qualified consumers at a standard .07 to 1 point origination.


•30-yr fixed-rate - 4.500%

•15-yr fixed-rate - 4.000%

•5/1 ARM rate - 3.500%

•FHA 30-yr fixed-rate - 4.375%

•FHA 15-yr fixed-rate - 4.00%

•FHA 5/1 ARM rate - 3.500%

•VA 30-yr fixed-rate - 4.625%

•Jumbo 30-yr fixed-rate - 5.500%

•Jumbo Conforming 30-yr fixed-rate - 4.750%

Monday, August 2, 2010

Tax Deductions When You Work from Home

Working from home can offer many advantages including tax deductions, just take care what you try to write off for your home office on your return

If you work from home, even on a part-time basis, you can probably save a few dollars come tax time. That's because if you itemize your deductions on your federal tax return, you can write off as a business expense part of the cost of owning and operating your home. Everything from electric bills to property taxes may be fair game.

Those tax deductions can add up, thus lowering your taxable income and reducing the amount you owe Uncle Sam. Before you start spending that refund, however, there are a few rules you need to understand and heed. It's a good idea to consult a tax adviser to be sure that you're filing the right schedules and maximizing your deductions.



Passing the IRS litmus test

To meet IRS guidelines, your home office must be your principal place of business, or the place you see clients in the normal course of business. Parts of your home you use to store products or equipment for your business also count. That doesn't mean that all your work has to be done from home. If you're an outside salesperson, you probably spend most of your work time elsewhere. But if you do you billing and return customer calls primarily from your home, your home office should qualify.

You can also qualify for the deduction if your employer requires you to work from home, as long as you don't charge your employer rent. One big catch is that you can't deduct expenses for your home office if you choose to work at home even though your employer provides you with an office. IRS Form 8829 can be used by self-employed workers to calculate the home office deduction, which should be reported on Schedule C.

Measuring your home office

The amount you can deduct for your home office depends on the percentage of your home used for business. Your work space doesn't need to be a separate room-a table in a corner qualifies. But it has to be an area that's used solely for business. The tax break also covers separate structures on your property, like a detached garage you've converted to an office. Unlike an office inside your home, a separate structure doesn't have to be your main place of business to qualify for a deduction. That's because the IRS believes your family is less likely to use a separate structure as a part-time play area or den, says Mark Luscombe, principal analyst for tax and consulting at CCH.

To calculate what percentage of your house the home office occupies, divide your home office's square footage by the total square footage of your home. If your home is 3,000 square feet and your office is 150 square feet, for example, you'd use 5% to calculate your deductions. Not sure how big your house is? Check the documents you received when you bought your home-there's probably a detailed rendering-or measure the outside of your home and multiply length times width.

What can you deduct?

Once you've figured out what percentage of your home you use for business, you can apply that percentage to different home expenses. These include:

•Mortgage interest
•Real estate taxes
•Utilities (heating, cooling, lights)
•Home repairs and maintenance (painting, cleaning service)
•Homeowners insurance premiums
Just take each expense and multiply it by your home office percentage (the 5% mentioned above). That's the amount you can deduct as a business expense. So if you spend $150 a month on electricity, you can deduct $7.50 as a business expense. That adds up to a $90 deduction per tax year. If your annual business expenses total $10,000, your deduction is $500. In 2009, lowering your taxable income by $500 to $99,500 would've cut your tax bill by $113.

Save bills or cancelled checks to prove what you spent in case of an IRS audit. Take an hour a week to file them away. Also, only repairs can be expensed; improvements must be depreciated. One catch: You can only deduct expenses if your business generates income. Expense deductions are limited if they exceed your gross business income, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service.

Don't forget depreciation

Depreciation is based on the idea that everything-even something like a home-wears out eventually. To figure home office depreciation, start by calculating the tax basis of your home: generally the purchase price plus the cost of improvements, minus the value of the land it sits on. Next, multiply the tax basis by the percentage of your home used for work. This gives you the tax basis for you home office. Finally, multiply that by a depreciation percentage that's set periodically by the IRS. There are caveats. For a crash course, read IRS Publication 946 or talk to a tax professional.

One reason to think twice before taking depreciation on your home office is that it reduces the capital gains deduction you can get when you sell a home. If you've deducted depreciation, you have reduced your capital gains exemption ($250,000 of profit if you're a single filer, $500,000 for joint filers) by the depreciated amount. That could mean you'll owe taxes when you sell, especially if you've lived in your home for a while.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Homebuyer Tax Credit: What You Need To Know

Long-time homeowners and first-time homebuyers may benefit from a new federal tax credit when purchasing a home.


Do You Qualify? You qualify for the Extended Homebuyer Tax Credit if:
You meet IRS income and homeownership rules. .
You signed a binding contract by April 30, 2010. .
You close on a home purchase by Sept. 30, 2010. .


There’s happy news for current homeowners: If you intend to sell your home and buy another in 2009 or 2010, you may be eligible for a federal tax credit of up to $6,500. The Extended Homebuyer Tax Credit legislation, passed in November 2009, also shares the wealth with first-time homebuyers—up to $8,000.


Are you eligible?
You’re considered a current homeowner under IRS rules if you’ve used the home being sold or vacated as a principal residence for five consecutive years within the last eight. You’re a first-time homebuyer if you or your spouse haven’t owned a home for the three years before your purchase.

In both cases, keep in mind that the credit amount you’re eligible for begins to decrease for joint filers if your modified adjusted gross income is $225,000 ($125,000 for individuals); it disappears at $245,000 ($145,000 for individuals).

The ultimate amount of your credit depends on the price of the home and your income.

To claim your benefit:
Close on a new principal residence between Nov. 7, 2009, and April 30, 2010. You can settle as late as Sept. 30, 2010, as long as you have a binding contract by April 30.

Don’t spend more than $800,000 on your new home.

When you submit your tax return, attach a copy of the settlement statement you received at closing. Check with the IRS or your tax adviser to confirm what additional documentation may be needed.

Decide whether to:

Apply the credit to your 2009 tax return, filed on or before April 15, 2010,
File an amended 2009 return; or
Apply the credit on your 2010 return, filed on or before April 15, 2011.
First-timers who purchased a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for the $8,000. Keep in mind that the income limits in this case are tighter than for those who purchased after Nov. 6.

Apply the credit to your 2009 taxes
To claim the credit on your 2009 tax return:

Complete IRS Form 5405 to determine the amount of your available credit.
Apply the credit when you file your 2009 tax return or file an amended return.
Attach documentation of purchase to your return or amended return.
Which properties are eligible?
You can apply the credit to primary residences, including single-family homes, condos, townhomes, and co-ops.

Do I need to repay the tax credit?
No, not if you occupy the purchased home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale.

States Offer Cash Rebates for Clunker Appliances

Buying a new Energy Star appliance can lower your utility bills and perhaps even earn a cash rebate from your state.

There’s another reason besides saving on utility bills to replace your clunker appliances with energy-efficient models: a cash rebate. States, using up to $300 million in federal funds, are offering rebates on Energy Star-qualified washers, refrigerators, air conditioners, furnaces, and more. A handful of state programs got underway in December 2009; the rest are expected to debut in early 2010.


Typical appliance rebates will range from $50 to $250, though each state sets the specifics of its own program including rebate amounts, claim procedures, who’s eligible, and which appliances qualify. Don’t delay. States have until February 2012 to use up the funds, but most are expected to burn through the cash long before the deadline.

Rebates plus energy efficiency equal savings
Funding for the appliance rebates comes from federal efforts to encourage energy efficiency and stimulate consumer spending. States applied to the U.S. Department of Energy to get a share of the money. Check with your state for specifics, including when the rebate program officially begins. Purchases made before the start date generally won’t qualify for rebates.

Swapping out old appliances for new ones is a smart approach to reducing household energy bills. According to the DOE, 70% of a home’s energy consumption goes toward appliances, refrigeration, heating, cooling, and hot water. The latest Energy Star-qualified appliances typically use one-third less energy than outdated models.

The savings can be felt immediately. Trading in a refrigerator manufactured before 1993 will net an annual energy savings of $65, the DOE estimates. Replacing a washing machine made before 2000 with a new Energy Star model can save up to $135 a year. Throw in a rebate, and payback on an investment in a new appliance can come in just a few years.

Let’s say you buy an Energy Star-qualified washing machine for $750, the average price in 2009. Your state offers a $100 rebate on the purchase. Thanks to the $135 you could save annually on utility bills, the payback period could be less than five years. Not bad for an appliance that should last at least a decade.

Appliance rebates vary by state
Before you rush out to your nearest appliance retailer, brush up on the exact terms of your state’s rebate program. Although appliances must be Energy Star-qualified, some states might only give cash back for dishwashers and refrigerators, while others might include high-efficiency furnaces and tankless water heaters as well. Some states require that you trade in an old appliance to get the rebate, while other states make recycling mandatory. Some states even limit rebates to economically disadvantaged households.

If you live in Alabama, for instance, you’ll get a rebate worth between $25 and $150 on qualifying clothes washers, dishwashers, refrigerators, and room air conditioners. The Alabama program is scheduled to begin in April 2010 and expire less than a month later. You’ll need to replace an old appliance to get the rebate.

Starting in March, residents of California can get a $100 rebate on a new clothes washer, a $75 rebate on refrigerators, and a $50 rebate on ACs. Recycling is mandatory. Delaware’s program is underway, and some rebates worth up to $200 are even retroactive. Check the state’s appliance-specific rebate forms for details.

How to claim rebates will vary depending on where you live. Some states like Delaware require use of a mail-in rebate form. Other states are working with appliance retailers to issue rebates at the point of purchase. It’s a good idea to save receipts and the Energy Star product labels that came on your appliances. It shouldn’t take more than an hour or two to research and claim rebates.

Other ways to save on appliances
Although the new rebates are welcome, don’t overlook other existing ways to lower the cost of energy-efficient appliances. Some local utility companies offer rebates to encourage their customers to consume less energy. Call the telephone number or visit the website listed on your monthly bill. Manufacturers and retailers also offer rebates from time to time to entice appliance owners to upgrade. In most cases, you can combine rebates.

In addition to rebates, some states give tax incentives for qualifying energy upgrades. Virginia, for example, lets some taxpayers recover a portion of the sales tax paid on Energy Star appliances.

The IRS offers federal energy tax credits to homeowners for major appliances and equipment ranging from solar water heaters to geothermal heat pumps. A good source of information on rebates and tax incentives is Energy Star’s rebate locator tool.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Tax Tips for Homeowners Looking Ahead to 2010 Returns




From energy tax credits to vacation home deductions, check out these tax tips for homeowners looking ahead to 2010 returns.
Tax planning for homeowners should start well in advance of the April 15 filing deadline each year. If you delay until the last minute, it might be too late to maximize tax credits and tax deductions. These tax tips for homeowners looking ahead to 2010 returns explain some of the things you can do now that’ll pay off later on your 1040.

Take a day to formulate a tax plan for the year. Depending on your circumstances, you might want to take advantage of energy tax credits or max out your vacation home deductions. The “What’s New in 2010” section of IRS Publication 17 offers a sneak peek at tax changes that might affect homeowners.


Claim remaining energy tax credits
It’s time to get cracking if you didn’t exhaust your full allotment of residential energy tax credits during 2009. Although tax credits for big projects like residential wind turbines and solar energy systems have no upper limit and are good through 2016, energy tax credits capped at $1,500 expire at the end of 2010. Eligible capped projects include new windows and doors, insulation, roofing, water heaters, HVAC, and biomass stoves.

Here’s how it works with capped federal credits: You can earn energy tax credits worth 30% of the cost of qualifying improvements, but the total tax credits can’t exceed $1,500 combined for 2009 and 2010. So if you only took, say, $700 worth of capped energy credits on your 2009 tax return, you’re still due for another $800 in credits in 2010. Some projects include the cost of installation—a furnace, for example—while others, such as insulation, are limited to the cost of materials.

Max out tax benefits of a vacation home
Use a vacation home wisely, and it’ll provide a break from taxes as well as the hustle and bustle of everyday life. The rules on tax deductions for vacation homes can get a bit tricky, but understanding and adhering to them can yield many happy tax returns.

If your vacation home is truly a vacation home meant for your personal enjoyment, as opposed to a rental-only income property, you can usually deduct mortgage interest and real estate taxes, just as you would on your main home. You can even rent out the home for up to 14 days during the year without getting taxed on the rental income. Not bad.

Now, let’s say you want to rent out your vacation home for more than 14 days in 2010, but also use it yourself from time to time. To maximize the tax benefits, you need to keep tabs on how many days you use your vacation home. By restricting your annual personal use to fewer than 15 days (or 10% of total rental days, whichever is greater), you can treat your vacation home as a rental-only income property for tax purposes.

Why is that a big deal? In addition to mortgage interest and real estate taxes, rental-only income properties are eligible for a slew of other tax deductions for everything from utilities and condo fees to housecleaning and repairs. Deductions are limited once personal use exceeds 14 days (or 10% of total rental days), so get out your calendar now to strategically plot your vacations.

Take advantage of tax breaks for the military
In salute to members of the armed forces serving overseas who want to purchase a home, the IRS is extending a lucrative tax perk for military personnel. If you spent at least 90 days abroad performing qualified duty between Jan. 1, 2009, and April 30, 2010, you have an extra year to earn a homebuyer tax credit. In addition to uniformed service members, workers in the Foreign Service and in the intelligence community are eligible.

Thanks to this extension of the homebuyer tax credit, qualifying military personnel have until April 30, 2011, to sign a contract on a new home. The deal must close before July 1, 2011. Just like non-military buyers, first-time homebuyers can earn a tax credit worth up to $8,000, and longtime homeowners can earn a credit of up to $6,500. The same income restrictions and $800,000 cap on home prices apply.

Military personnel can also get a break if official duty calls and they’re forced to move for an extended period. Normally, the homebuyer tax credit needs to be repaid if you sell your home within three years, but this requirement is waived for uniformed service members, Foreign Service workers, and intelligence community personnel. The new extended duty posting doesn’t need to be overseas, but it must be at least 50 miles from your principal residence.

Challenge your real estate assessment
You can’t do much about the rate at which your home is taxed, but you can try to do something about how your home is valued for taxation purposes in 2010. The process varies depending where you live, but in general local governments conduct a periodic real estate assessment to determine how much your home is worth. That real estate assessment figure is used to calculate your property tax bill.

You can usually appeal your real estate assessment if you think it’s too high. Contact your local assessor’s office to find out the procedure, and be prepared to do some research. There’s often no charge to request a review of your assessment.

Look for errors. You probably received an assessment letter in the mail, and many local governments provide the information online as well. Make sure the number of bedrooms and bathrooms is accurate, and the lot size is correct. Also check the assessed value of comparable homes in your area. If they’re being assessed for less than your home, you might have a case for relief.

Even if your assessment is accurate and comparable homes are being taxed at the same rate, there might be another route to tax savings. Ask your assessor’s office about available property tax exemptions. Local governments often give breaks to seniors, veterans, and the disabled, among others.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

Friday, June 25, 2010

Deduct Mortgage Interest and Home Equity Loans

Deducting mortgage interest, as well as interest on home equity loans and HELOCs, can save money on taxes. Deducting mortgage interest is a great tax benefit that can make homeownership more affordable. Your first mortgage isn’t the only loan that qualifies, either. In many cases, you can also deduct interest on home equity loans, second mortgages, and home equity lines of credit, or HELOCs.

If you want to deduct all of your mortgage interest, there are limits on both how much money you can borrow and on what you do with the money you get. You also need to itemize your return to reap the benefits of these deductions. Calculations can be complicated, so consult a tax adviser.


Know your loan limits
A good place to check out what you can deduct before you borrow is the chart on page 3 of IRS Publication 936. It’ll walk you through the requirements you must meet to deduct all of your home loan interest. It’s an hour well spent.

The first hurdle you’ll run into is the total amount of your loan or loans. In general, individuals and couples filing jointly can deduct the interest on up to $1 million ($500,000 if you’re married and filing separately) in combined home loans, as long as the money was used for acquisition costs, that is the cost to buy, build, or substantially improve a home, explains Scott O’Sullivan, a certified public accountant with Margolin, Winer & Evens in Garden City, N.Y. Any interest paid on loan amounts above the $1 million threshold isn’t deductible.

The same $1 million limit applies whether you have one home or two. Buying a vacation home doesn’t double your loan limits. And two homes is the max; you can’t deduct a mortgage for a third home. If you have a mortgage you took out before Oct. 13, 1987, you have fewer restrictions on claiming a full deduction. The calculations for “grandfathered debt” can get complex, so get help from a tax professional or refer to IRS Publication 936.

Whatever you do, don’t forget that you can also deduct the points and fees associated with a first or second mortgage when you initially buy your home, says Jeff Rattiner, a CPA with JR Financial Group in Centennial, Colo. If you refinance the same house, you have to deduct those costs over the entire term of the loan. If you refinance again, you can deduct all the costs from the earlier refi in the year you take out the new loan.

Spend loan proceeds wisely
The other limitation on how much you can borrow and still get your deduction comes into play when you take out a home equity loan or HELOC that you don’t use to buy, build, or improve your home. In that case, you can deduct the interest you pay only on the first $100,000 ($50,000 if married filing separately). This loan limit also applies in a so-called cash-out refi, in which you refinance and take out part of the equity you’ve built up as cash, says John R. Lieberman, a CPA with Perelson Weiner in New York City.

That means if you decide to take out a $115,000 home equity loan to buy that Porsche, you can deduct the interest on the first $100,000 but not on the $15,000 that exceeds the limit. Use the same $115,000 to add a new bedroom, however, and the full amount is allowable under the $1 million cap. Keep in mind, though, that the $115,000 gets added into the pot of whatever else you owe on your other home loans. In many cases, points and loan origination costs for HELOCs are deductible.

Consider this simplified scenario: You borrow $250,000 against your home at 8% interest. That means you’ll pay $20,000 in interest the first year. Spend the $250,000 on home improvements, and all of the interest is deductible. Spend $150,000 on improvements and $100,000 on your kids’ college tuition, and all the interest is still deductible.

But spend $100,000 on improvements and $150,000 on tuition, and the improvement outlays are deductible but $50,000 of the tuition expense isn’t. That’ll cost you $4,000 in interest deductions. Preserve the $4,000 deduction by coming up with the extra money for tuition from another source, perhaps a low-interest student loan or by borrowing from a retirement plan. In 2009, lowering your taxable income by $4,000 to $96,000 would’ve cut your tax bill by $988.

Beware the dreaded AMT
Even if you’ve followed all the loan limit rules, you can still get stuck paying tax on mortgage interest. How come? It’s all thanks to the Alternative Minimum Tax. Congress created the AMT, which limits or eliminates many deductions, as a way to keep the wealthy from dodging their fair share of taxes.

Calculating the AMT can be complex, but if you make more than $75,000 and have several kids or other deductions, you might well be subject to it. Problem is, if you fall into the AMT group, you may not be able to deduct interest on a home equity loan, even if the loan falls within the $1 million/$100,000 limit. If you’re subject to the AMT and borrow money against the value of your home, you’ll have to use it to buy, build, or improve your place, or you may not have a chance to deduct the interest, says Rattiner, the Colorado CPA.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Wednesday, June 16, 2010

Mortgage rates return to 2010 low

The low rates, combined with weakened housing prices, provide a great opportunity for homebuyers. Yet many markets are still far from a turnaround.

[Related content: homes, interest rates, mortgage, loans, financial planning]
By Bankrate.com
Mortgage rates have fallen to their lowest point for the year.

The benchmark 30-year fixed-rate mortgage fell 5 basis points over the past week, to an average of 5.07%, according to the Bankrate.com national survey of large lenders. (A basis point is one-hundredth of a percentage point.) That ties the 2010 low from the March 17 survey.

The mortgages in the latest survey had an average total of 0.42 discount and origination points. One year ago, the mortgage index was 5.21%; it was also 5.21% four weeks ago.

Check mortgage rates near historical lows

The benchmark 15-year fixed-rate mortgage slipped 4 basis points, to an average of 4.45%. The benchmark 5/1 adjustable-rate mortgage also dropped 4 basis points, to 4.27%.

Invisible fall
But if mortgage rates tumble across America and nobody sees the drop, does it really happen? $150 million home for sale

When the stock market suddenly plunged nearly 1,000 points in a few minutes May 6, mortgage rates also collapsed. By some accounts, rates fell to about 4.5% on the 30-year fixed and below 4% for some adjustable-rate mortgages.

But mortgage professionals say the rock-bottom borrowing costs didn't last long and went largely unnoticed by the public.

"I think it kinda sailed over everyone's heads because everyone was hypnotized by the crash in the stock market," says Jeff Lazerson, the president of Mortgage Grader in Laguna Niguel, Calif.

Chris Sipe, a senior loan officer at Embrace Home Loans in Frederick, Md., says that when rates fell, he experienced a "little pop" in refinance activity -- but mostly because he called clients to alert them to the unexpected opportunity.

Tuesday, June 15, 2010

Tax Breaks on Capital Improvements to Your Home

Keeping track of the cost of capital improvements to your home can really pay off on your tax return when it comes time to sell. It’s no secret that finishing your basement will increase your home’s value. What you may not know is the money you spend on this type of so-called capital improvement could also help lower your tax bill when you sell your house.

Tax rules let you add capital improvement expenses to the cost basis of your home. Why is that a big deal? Because a higher cost basis lowers the total profit—capital gain, in IRS-speak—you’re required to pay taxes on.


The tax break doesn’t come into play for everyone. Most homeowners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to track capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.

What counts as a capital improvement?
While you may consider all the work you do to your home an improvement, the IRS looks at things differently. A rule of thumb: A capital improvement increases your home’s value, while a non-eligible repair just returns something to its original condition. According to the IRS, capital improvements have to last for more than one year and add value to your home, prolong its life, or adapt it to new uses.

Capital improvements can include everything from a new bathroom or deck to a new water heater or furnace. Page 9 of IRS Publication 523 has a list of eligible improvements. There are limitations. The improvements must still be evident when you sell. So if you put in wall-to-wall carpeting 10 years ago and then replaced it with hardwood floors five years ago, you can’t count the carpeting as a capital improvement. Repairs, like painting your house or fixing sagging gutters, don’t count. The IRS describes repairs as things that are done to maintain a home’s good condition without adding value or prolonging its life.

There can be a fine line between a capital improvement and a repair, says Erik Lammert, tax research specialist at the National Association of Tax Professionals. For instance, if you replace a few shingles on your roof, it’s a repair. If you replace the entire roof, it’s a capital improvement. Same goes for windows. If you replace a broken window pane, repair. Put in a new window, capital improvement. One exception: If your home is damaged in a fire or natural disaster, everything you do to restore your home to its pre-loss condition counts as a capital improvement.

How capital improvements affect your gain
To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name a few. You should be able to find all those costs on the settlement statement you received at your closing.

Next, you’ll need to account for any subsequent capital improvements you made to your home. Let’s say you bought your home for $200,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $225,000.

Now, suppose you’ve lived in your home as your main residence for at least two out of the last five years. Any profit you make on the sale will be taxed as a long-term capital gain. You sell your home for $475,000. That means you have a capital gain of $250,000 (the $475,000 sale price minus the $225,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.

Here’s where it gets interesting. Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you’ve saved about $3,750 in taxes (based on the current 15% tax rate on capital gains). Well worth taking an hour a month to organize your home-improvement receipts, don’t you think?

Watch out for these basis-busters
Some situations can lower your basis, thus increasing your risk of facing a tax bill when you sell. Consult a tax advisor. One common one: If you take depreciation on a home office, you have to subtract those deductions from your basis. Any depreciation taken if you rented your house works the same way. You also have to subtract subsidies from utility companies for making energy-related home improvements or energy-efficiency tax credits you’ve received. If you bought your home using the federal tax credit for first-time homebuyers, you’ll have to deduct that from your basis too, says Mark Steber, chief tax officer at Jackson Hewitt Tax Services.

Monday, June 14, 2010

More Time For Homebuyers

Homebuyers could get more time for tax credit

NEW YORK (CNNMoney.com) -- First-time homebuyers looking to land an $8,000 federal income tax credit may have a little more time to close on their purchases if a Senate amendment unveiled Thursday makes it into law.

As it stands now, homebuyers must have signed contracts by April 30 and must close the deal by June 30. They could be eligible for an $8,000 tax credit if they are first-time buyers or a $6,500 credit if they owned and lived in their previous home for five of the last eight years.

362diggEmail Print CommentThe closing deadline, however, could be pushed back to Sept. 30 under an amendment offered by Senate Majority Leader Harry Reid, D-Nev., Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn. The senators said they want to make sure banks have time to process the transactions -- especially short-sales, which is a more involved process.

"By extending the transaction deadline, we can ensure that everyone taking advantage of this credit can complete the purchase of their new home, Reid said.

It remains to be seen, however, whether the amendment will go anywhere. It's part of a controversial jobs and tax bill that may be radically changed before the Senate approves it. Lawmakers are not scheduled to vote on the bill until next week at the earliest.

Tuesday, May 18, 2010

Rahway Hot Rods & Harley Day Success

Congrats goes out to all the agents in the CENTUTRY 21 JRS Realty Rahway office that helped make the annual Hot Rods & Harley Day a GREAT SUCCESS.










Sunday, April 18, 2010

Low-Maintenance Lawn Alternatives: Ground Cover

If you want a yard that demands less time, money, and water, consider ground cover rather than a traditional lawn. Americans have long had a soft spot for lawns. Turf grass covers nearly 47 million acres in the U.S., according to the Lawn Institute. But there’s plenty that’s not green about all that green. For starters, the average household dumps 60 gallons of water a day on conventional lawns. Toxic lawn herbicides and pesticides run off into lakes and streams. Gas-powered mowers spew pollution into the air. And then there’s all that time spent watering, weeding, seeding, sodding, thatching, and mulching.


If you’re looking for an alternative, consider replacing some or all of your high-maintenance turf with ground covers that form walkable “carpets,” and innovative grasses that require little or no water or mowing once established.

In turn, you’ll reduce the need for irrigation, stop washing harmful chemicals into the watershed, add depth and texture to your landscape, and spend your spare time enjoying your yard instead of manicuring it.

Creeping perennials, clover, and other ground covers
There’s a ground cover to meet most needs, whether you’re planting a pathway, a hedge, or a broad swath of green. They run the gamut of foliage textures and colors, and many have wonderful flowers. Some varieties are ground-hugging and feel delicious under bare feet. Others grow up to two feet tall, making them ideal as barriers or landscape punctuation.

Look for attributes that meet your needs: child-durable, deer-resistant, drought-tolerant, shade-loving. Mixing them up is not only aesthetically pleasing, it’s also good for the landscape: Diversity increases resistance to pests and disease and reduces the need for fertilizer and pesticides. Here are some popular choices.

Creeping perennials: Tight to the ground, these plants are especially good for cushy green carpets. They keep out weeds and allow air, water, and nutrients to get to plant roots. Many work equally well in rock gardens or in crevices between stepping stones, in full or partial sun. These include mat-forming New Zealand Brass Buttons (Cotula squalida) and Scotch or Irish Moss (Sagina subulata), which isn’t a moss at all but a perennial that forms a cushiony blooming carpet.

Some, like Blue Star Creeper (Laurentia fluviatilis), which has tiny green foliage, bear up to heavy foot traffic. Creeping Jenny (Convolvulus arvensis) has an extensive root system that makes it quick to spread and tough to kill. That’s a good thing if you’re looking for a tough turf alternative but a problem if it creeps into beds where you don’t want it.

Besides being good creepers, many ground-hugging perennial herbs are often nicely scented, hardy under foot traffic, and even edible. These include chamomile (Chamaemelum nobile), which has fern-like foliage and white flowers with yellow centers; Corsican mint (Mentha requienii), which thrives in shade, exudes a minty smell when trod upon, and is edible; and various thymes (Woolly, Red, Prostrate), which feature dainty flowers and work well between pavers or as a low mounding carpet.

Creeping perennials cost $6 to $10 per plant. A 15-by-20-foot area with plants 2 inches apart (for instant density) requires 300 plants. But if you’re patient enough to wait a year or so for them to spread, you can buy fewer plants and space them 12 inches apart.

Clover: Although clover has gotten a bad rap as a weed, it’s actually not a weed at all. In fact, a clover lawn (or, for high-traffic areas, a clover-grass mix) has many advantages. Sweet-scented, inexpensive, and quite durable, white clover (Trifolium repens) grows in any kind of soil, stays green even during low-water periods, and feels lovely underfoot.

Low-growing clover doesn’t need regular cutting, nor does it need fertilizer, but an occasional mow will encourage new growth and discourage bees. If you don’t mind the bees, consider letting your clover bloom, which benefits the bees and the environment. Clover is one of the least expensive groundcover options, costing about $4 to seed 4,000 square feet.

Laura Fisher Kaiser writes about architecture, design, and sustainability. She is in the process of letting clover, moss, and creeping jenny take over what’s left of her Washington, DC, lawn.

Wednesday, March 17, 2010

7 Smart Strategies for Kitchen Remodeling

When planning a kitchen remodel, keep the same footprint, add storage, and design adequate lighting so you preserve value and keep costs on track.

Value Added High $16,100 - $43,000
Effort High 6-12 mos (including planning)
Investment High $21,400 - $57,200

If you’re contemplating a kitchen remodel, you’re also weighing a considerable investment. But a significant portion of the upfront costs may be recovered by the value the project brings to your home. Kitchen remodels in the $50,000 range recouped 76% of the initial project cost at the home’s resale, according to recent data from Remodeling Magazine’s Cost vs. Value Report. To make sure you maximize your return, consider these seven smart kitchen remodeling strategies.


1. Establish your priorities
Simple enough? Not so fast. The National Kitchen and Bath Association (NKBA) recommends spending at least six months planning before beginning the work. That way, you can thoroughly evaluate your priorities and won’t be tempted to change your mind during construction. Contractors often have clauses in their contracts that specify additional costs for amendments to original plans. Planning points to consider include:

•Avoid traffic jams. A walkway through the kitchen should be at least 36 inches wide, according to the NKBA. Work aisles for one cook should be a minimum of 42 inches wide and at least 48 inches wide for households with multiple cooks.
•Consider children. Avoid sharp, square corners on countertops, and make sure microwave ovens are installed at the heights recommended by the NKBA—3 inches below the shoulder of the principle user but not more than 54 inches from the floor.
•Access to the outside. If you want to easily reach entertaining areas, such as a deck or a patio, factor a new exterior door into your plans.
Because planning a kitchen is complex, consider hiring a professional designer. A pro can help make style decisions and foresee potential problems, so you can avoid costly mistakes. In addition, a pro makes sure contractors and installers are sequenced properly so that workflow is cost-effective. Expect fees around $50 to $150 per hour, or 5% to 15% of the total cost of the project.

2. Keep the same footprint
No matter the size and scope of your planned kitchen, you can save major expense by not rearranging walls, and by locating any new plumbing fixtures near existing plumbing pipes. Not only will you save on demolition and reconstruction, you’ll greatly reduce the amount of dust and debris your project generates.

3. Match appliances to your skill level
A six-burner commercial-grade range and luxury-brand refrigerator might make eye-catching centerpieces, but be sure they fit your lifestyle, says Molly Erin McCabe, owner of A Kitchen That Works design firm in Bainbridge Island, Wash. “It’s probably the part of a kitchen project where people tend to overspend the most.”

The high price is only worth the investment if you’re an exceptional cook. Otherwise, save thousands with trusted brands that receive high marks at consumer review websites, like www.ePinions.com and www.amazon.com, and resources such as Consumer Reports.

4. Create a well-designed lighting scheme
Some guidelines:

• Install task lighting, such as recessed or track lights, over sinks and food prep areas; assign at least two fixtures per task to eliminate shadows. Under-cabinet lights illuminate clean-up and are great for reading cookbooks. Pendant lights over counters bring the light source close to work surfaces.

• Ambient lighting includes flush-mounted ceiling fixtures, wall sconces, and track lights. Consider dimmer switches with ambient lighting to control intensity and mood.

5. Focus on durability
“People are putting more emphasis on functionality and durability in the kitchen,” says McCabe. That may mean resisting bargain prices and focusing on products that combine low-maintenance with long warranty periods. “Solid-surface countertops [Corian, Silestone] are a perfect example,” adds McCabe. “They may cost a little more, but they’re going to look as good in 10 years as they did the day they were installed.”

If you’re not planning to stay in your house that long, products with substantial warranties can become a selling point. “Individual upgrades don’t necessarily give you a 100% return,” says Frank Gregoire, a real estate appraiser in St. Petersburg, Fla. “But they can give you an edge when it comes time to market your home for sale” if other for-sale homes have similar features.

6. Add storage, not space
To add storage without bumping out walls:

• Specify upper cabinets that reach the ceiling. They may cost a bit more, but you’ll gain valuable storage space. In addition, you won’t have to worry about dusting the tops.

• Hang it up. Install small shelving units on unused wall areas, and add narrow spice racks and shelves on the insides of cabinet doors. Use a ceiling-mounted pot rack to keep bulkier pots and pans from cluttering cabinets. Add hooks to the backs of closet doors for aprons, brooms, and mops.

7. Communicate effectively—and often
Having a good rapport with your project manager or construction team is essential for staying on budget. “Poor communication is a leading cause of kitchen projects going sour,” says McCabe. To keep the sweetness in your project:

•Drop by the project during work hours as often as possible. Your presence assures subcontractors and other workers of your commitment to getting good results.
•Establish a communication routine. Hang a message board on-site where you and the project manager can leave each other daily communiques. Give your email address and cell phone number to subs and team leaders.
•Set house rules. Be clear about smoking, boom box noise levels, which bathroom is available, and where workers should park their vehicles.
Consumers spend more money on kitchen remodeling than any other home improvement project, according to the Home Improvement Research Institute, and with good reason. They’re the hub of home life, and a source of pride. With a little strategizing, you can ensure your new kitchen gives you years of satisfaction.

John Riha has written six books on home improvement and hundreds of articles on home-related topics. He’s been a residential builder, the editorial director of the Black & Decker Home Improvement Library, and the executive editor of Better Homes and Gardens magazine. His standard 1968 suburban house has been an ongoing source of maintenance experience.

Thursday, March 4, 2010

Best Affordable Suburbs in America 2010

Life with children is expensive, but in some places a dollar goes a lot further. Bloomberg BusinessWeek evaluated information provided by community data company OnBoard Informatics to determine the best affordable suburb in each state.While many of the places on this year's list are near amenities such as country clubs and golf courses, the focus is not luxury, but rather communities where families can live well for less and enjoy good schools, low crime, and reasonable commutes. The selected suburbs were limited to towns within 25 miles of the most populated city in the state, with populations of 5,000 to 60,000, median family incomes of $51,000 to $120,000, and lower-than-average crime rates. We weighted a variety of factors including livability (short commutes, low pollution, green space), education (well-educated residents, high test scores), crime (low personal and property crime), economy (high job growth, low unemployment rate, high family income), and affordability (median household income, cost of expenditures). Affordability was most heavily weighted in our calculations. We penalized places with bad weather, a lack of racial diversity, high divorce rates, and few children.
The results range from established high-income neighborhoods to growing middle-income communities. For example, the smallest town on the list, Cave Creek, Ariz., has a population of about 5,000 and a median family income of $108,546, while Moore, Okla., one of the largest, has more than 51,000 residents and a median income of $63,309, according to OnBoard's estimates. Despite their differences, all these places offer young families an attractive location to raise children and remain close to employment opportunities

10. Clark, N.J.
Nearest major city: Newark
Population: 13,862
Median family income: $97,668
Median home price: $380,500
Unemployment rate: 9.7%
Violent crime index: 4

Formerly a farm community, Clark has grown into a popular suburb at nearly full capacity of occupied land, according to the town Web site. Its school district has a preschool, two elementary schools, a middle school, and a high school. Clark is near several medical centers in neighboring communities. Amenities include a golf complex, community pool, tennis courts, and parks. A new ranking by Monmouth University's Polling Institute named Clark one of the state's best places to live, according to a report on njtoday.net.

Tuesday, February 9, 2010

Evaluate Your House for a Home Office

When planning a home office remodel, consider the specific needs of your profession for space, light, storage, technology, and security.If you’re looking for a remodeling project that will make your house more salable in the future, a home office may well be it. When the National Association of Home Builders asked builders, architects, manufacturers, and marketing experts to predict the features that will be important to buyers of upscale properties in 2015, 94% said a home office would be “critical” or “very critical.”


That said, while an office may make your home more attractive to potential buyers, it won’t add significantly to value. According to Remodeling Magazine’s Cost vs. Value Report, converting a 12-by-12-foot bedroom into an office costs a national average of around $28,000 and recoups slightly less than half the investment. But if you’re among the more than 20% of Americans who do some or all of their job at home, a comfortable, functional work space is a must-have.

Where to put a home office
A spare bedroom is the most common place for an office, but it’s not the only adaptable space in the house. The formal living rooms and dining rooms in many older homes often don’t get a lot of use and make great offices, says Lisa Kanarek, founder of WorkingNaked.net, a service for people “stripped of the support” of the corporate office. “They’re spacious, have good light, and are easy to close off,” Kanarek says.

Architect Sarah Susanka, author of “Not So Big Remodeling,” converted her formal living room into an office for her therapist husband. It’s close to the front door and has easy access to the powder room, both important considerations if your business brings visitors into the home. Attics, basements, dens, sunrooms, garages, even laundry rooms are similarly convertible.

One important question is whether you’ll be taking the home office deduction on your taxes. If so, your work area can’t be used for any other purpose; the IRS bases the deduction on square footage used “exclusively and regularly” for business activities. Consult your accountant about whether the deduction makes sense for you.

What to spend on a home office
The home office in the Cost vs. Value report cost just over $28,000 to set up, a figure that includes custom cabinetry, 20 linear feet of laminate desktop, wall-mounted storage, upgraded electrical and data wiring, and new woodwork, paint, and flooring.

Of course, you don’t have to spend that much. By using off-the-shelf products and materials and doing some of the work, such as painting, yourself, you can transform an existing room into a home office for a lot less money. At minimum, though, budget $3,000 to $5,000 for paint, flooring, lighting, office furniture, and equipment.

Consider the needs of your profession
When evaluating space, start by making a list of the needs of your profession. An architect, for example, might want natural light and ample counter space for rolling out blueprints, while a vendor needs easily accessed storage for shipping supplies. In general, every office requires a work surface, storage, place for a computer and other electronics, and adequate lighting. Consider also your needs for the following:

Power, phone, and data wiring. A bedroom may already have enough outlets and at least one phone or cable jack, but if you’re taking over a formal dining room, you’ll likely need new wiring. It’s a relatively easy job for an electrician to add outlets (typically $100 to $250 per receptacle, depending on whether you also need to run new circuits). Internet connections can often be handled wirelessly, but for maximum reliability and security, ask your phone or cable company about installing additional lines.

Privacy. Susanka says the biggest mistake her clients make is putting their office in the middle of their home’s hustle and bustle. “The environment for work needs to be off the main living area,” she says. That doesn’t mean you need to hide out in the basement, but you’re better off out of the major traffic zones, especially with children at home.

Security. If your work involves financial or other confidential records, think about how you’ll keep them secure. “I have client credit card numbers in my office,” says Paige Rien, designer for the HGTV show “Hidden Potential.” “I close the door and lock it.” (For more on keeping important documents safe, take our home office security checkup.)

When dedicated space isn’t an option
Not everyone has a spare room to devote to an office. In that case, you need to find creative ways to carve out space. Offices can often be tucked into little-used locations, such as under stairs, in dormers, and on second-floor landings. One of Kanarek’s clients set up in a walk-in closet. “She lined the walls with counters and put in mirrors to make the space feel bigger,” Kanarek says.

Closets offer a good compromise because you can close the doors on your job at the end of the day. Another option is a computer armoire; starting at around $500, you can get one with shelves for a computer and peripherals, a slide-out keyboard tray, organizers for files, even built-in cork boards. If that’s out of your budget, set off a corner of the living room or family room with a room divider, bookcases, or a folding screen.

Whatever you do, Kanarek advises, try working in the space for a few weeks before investing any money in remodeling. “I have clients who spend thousands of dollars on built-ins,” she says, “and then sit on their bed or at the kitchen table to work because they like the light there better.”

Pat Curry is a contributing editor to HousingZone.com, a former senior editor at BUILDER, the official magazine of the National Association of Home Builders, and a frequent contributor to real estate and home-building publications.

Home Office: Return on Investment

A home office adds to comfort, convenience, and salability, but isn’t among the top projects for adding home value.
If you’re one of the more than 20% of Americans who do some or all of their work at home, a comfortable, functional home office is a must-have. And it’s a feature that’s growing in popularity: When the National Association of Home Builders asked builders, manufacturers, and marketing experts what features would be important to future home buyers, 94% said a home office would be “critical” or “very critical.”


Still, when it comes to adding value, a home office ranks last among the 21 midrange projects analyzed in Remodeling Magazine’s annual Cost vs. Value report. Converting a 12-by-12-foot bedroom into an office costs a national average of $28,375 and recoups $13,648 at resale, for a 48% return on investment, according to the 2009-2010 report. Construction costs include custom cabinetry and work surface, wall-mounted storage, a wiring upgrade, and new floor and wall finishes.

Regionally, returns varied only slightly, with the highest rate of return, 56%, in the Pacific region, and the lowest, 41%, in the upper Midwest.

National average cost to convert an existing 12 x 12 room into a home office:

Job cost: $28,375

Resale value: $13,648

Cost recoup: 48.1%

Friday, January 22, 2010

Create a Marketing Plan

Create a Personal Marketing Plan

Now that you’ve embarked on your new real estate career, one of the most important things to do is to let people know about it. Personal marketing is the process of getting your name “out there,” so that people think of you when they need to buy or sell a home.

How do you do that? The first step is to develop a Personal Marketing Plan, a written document that describes your business goals and how you plan to achieve them. The plan should include:


Objectives and goals. Clearly state what you want to accomplish for yourself in your new career—is it letting all of your family and friends know that you’re in real estate, attaining 10 listings in your first year, or achieving name recognition in 50 percent of your target market area? Be sure to quantify your goals so you can measure your accomplishments.

Audience. Who is your target market? Is it everyone within a particular geographic area? Is it certain type of homes or a particular group of like-minded people? You shouldn’t try to be all things to all people. It’s a good idea to select one or two groups to target with your marketing efforts.

Differentiation. What makes you unique? Setting yourself apart from other salespeople is essential in a crowded marketplace. Decide how you’ll approach real estate sales to set yourself apart from others in your market. Also determine whom you will appeal to, and tailor your message to this audience.

Media. Determine which media—print advertising, brochures, Web site, in-person marketing, community involvement—you’ll use to get the word out about your services. Focus on two or three media initially to control marketing costs and determine effectiveness.

Action plan and schedule. Establish a detailed to-do list to execute your marketing plan. You need to be consistent in your marketing and stick to a marketing approach for at least six months. Repetition is the key to having prospects remember you. For a sample action plan for a salesperson with limited marketing funds, click here .

Budget. Once you have a marketing plan, establish a budget. It may be tough to think about spending money when you may not have made much, or any, money in real estate yet. But most veteran practitioners agree that setting a marketing budget from the beginning of your career to promote yourself and your services is essential to achieving success in real estate. (See the following section, Develop Marketing Materials , for a list of the marketing materials—business cards, brochures, and so on—you’ll need.)

Determine how much you need to spend to acquire the basic marketing materials by getting estimates from vendors. To get started, you can spend a small amount to have your business cards and personal brochures made now and then allocate, say, 10 percent of your commission in the first few years to develop other marketing materials.

Once you have a marketing plan and budget in place, be sure to re-evaluate it each year. It’s important to determine if you’ve met your goals for the year, and if you haven’t, decide what you need to do differently the following year to accomplish your goals. You also should increase your goals or set new priorities each year to ensure that you continue to grow your success.