Lender Rules Are A Revolving Door

According to Lawrence Yun, Chief Economist for the National Association of REALTORS, real estate sales in the US in 2010 were equal to the number of sales in 2000, yet the US population dropped by 27,000,000 since 2000. (2011, REALTOR magazine). As I wrote in my January newsletter, the Door County MLS reported a 5% increase in the number of reported sales in 2010 over 2009, however both years maintained 26% of properties listed for sale actually sold.

After 27 years in the real estate business and selling 60 to 100 properties a year in Door County, I'd like to think that there is not too much the I haven't seen. However, these last couple of years it has been hard to get a handle on lenders and their financing requirements. This is a revolving door of rules and regulations. If your credit score is 640 you might get a loan, but you are in a better position if your score is higher. Now, more than ever, it is vital that you speak with a local lender before you move forward with looking at real estate, even if you have cash for a big down payment. I recently had a well qualified buyer with cash to pay for a property he wanted to purchase. However, he wanted to financing the purchase. The offer was made, subject to financing (which we anticipated would happen fast due to his cash position), but on the last day, he was turned down! Even if you're "golden", have cash, and good credit, I strongly recommend....see a local lender first. When you're ready, call me first. I work with local lenders daily and can help you through the process.

Real Estate is "Local"

Yesterday we attended our monthly Door County Board of REALTORS luncheon and Bill Malkasian, President of the Wisconsin REALTORS Association, spoke to us. I love listening to Bill as he is always so well informed. I wanted to share with you some of the information he shared with us.

First, as of February 1, 2011, your Wisconsin home must have Carbon Monoxide Detectors. Dubbed as the "silent killer", carbon monoxide claims more then 2,000 lives each year.

Bill emphasized the fact that real estate is "local". Madison, WI market is not the same as the Door County, WI market. Unfortunately, the press does not always report it that way. It is an important concept to understand and now more than ever, it is very important to choose a REALTOR who is familiar with the market and can interpret it for you. I will talk more about that later, and exactly how you can choose that REALTOR.

Bill stated that there is a 13.5 month inventory average in the State; it is far different in Door County. The upper end second home market, he said, is the most challenged of all categories in the State (Door County had more of these sales in ’10 than ’09 and you can always see the whole picture all the way back to ’08 on www.ConnieErickson.com). Bill indicated 2011 will be a better year because of the certainty of the tax code as it relates to capital gains. In 2110, the average sales price for the State was $189,900. He explained Freddie and Fannie cease to exist, Bill said, “they will exist in 5 years and be replaced due to privatization."

While Bill and I know you’d like a better report – Bill said to expect flat line growth in ’11. There are 35 newspapers left in Wisconsin; 17 are owned by Gannett. Interest rates may go down again a bit later this Spring and this is a great time to buy. Finally, Bill shared that Wisconsin has a low unemployment rate of 7.8% compared to the 9.4% US rate.

Lastly, I want to share I am the proud recipient of the Betty Graf Scholarship Award for 2011 and will use that assistance to take the Certified Property Distressed Expert course in February so that I can better assist my clients who are upside down and close to or in foreclosure.

H.R. 4853: Real Estate Provisions in the 2010 Tax Relief Bill

The following information was recently published in an article by the National Association of REALTORS:

Congress has passed and President Obama has signed legislation (HR 4853) that extends the Bush-era tax rates and a host of other expired and expiring provisions. The legislation is not “paid for,” so there are no revenue raisers taken from real estate or other industry groups. The package provides temporary extensions of its numerous provisions. Some are retroactive, as well, so that the rules that had been in place previously will operate as if they had never expired.

Only the provisions that affect real estate investment and operations are included in this summary. The bill itself is vast, even though there are few expansions or cutbacks of previous or current law.

Capital Gains: The tax rate will remain 15% for assets sold or disposed of during 2011 and 2012. Depreciation recapture tax rates remain 25%. No new limitations are created for Section 1031 like-kind exchanges. The 15% rate is retained for dividends received during those years. Small investors with incomes in either the 10% or 15% brackets will have a capital gains and dividend tax rate of 0%.

Estate Tax: During 2010, the estate tax was repealed, but heirs who received assets from an estate were required to use a so-called “carryover basis” in determining the value of the assets they receive. Carryover basis is the amount that the original owner of the asset paid for it. Prior to 2010, the heirs had always received the asset with a “stepped-up basis.” Carryover basis requires heirs to know when the decedent acquired his/her assets and at what price. Stepped-up basis measures the value of the asset at its fair market value at the time of the death. Carryover basis is astonishingly burdensome. “Basis” is the value used to determine gain/loss when the heir sells an inherited asset.

In 2009, the estate tax was in place with an exclusion of $3.5 million and a maximum tax rate of 45%. In 2010, there was no estate tax. Without Congressional action, the estate tax would have been revived in 2011 with an exclusion of only $1 million and a maximum rate of 55%. This legislation revives the estate tax as of January 1, 2010, with an exclusion of $5 million ($10 million for a couple) and a maximum rate of 35%. The executors and heirs of those who died during 2010 may elect to pay no estate tax, but the assets will be subject to the more burdensome carryover basis rules. That election will not be available for those who die after 2010. The $5 million exclusion and 35% rate will be effective through December 31, 2012.

Leasehold Improvements: The legislation renews the 15-year cost recovery period for leasehold improvements made between January 1, 2010 and December 31, 2011.

Bonus Depreciation: Assets with a cost recovery period of 20 years or less are eligible for 100% depreciation (expensing) in the year the assets is placed in service. This rule applies to all assets placed in service on or after September 8, 2010 and before January 1, 2012. Eligible assets placed in service during 2010 will qualify for a 50% bonus depreciation allowance.

Energy-efficient Existing Homes: The tax credit for homeowners who make specified energy-related improvements to existing homes was scheduled to expire December 31, 2010. It has been extended through December 31, 2011. The qualified investments include replacement windows, doors, or skylights, some roofing materials and some heating and cooling equipment. The amounts of the credit vary depending on the asset and its energy rating as determined by the Energy Star program. The standards for qualified property are tougher than they were in 2010, so homeowners will need to exercise great care in their acquisitions. The credit is available only for improvements to a principal residence and only if the improvement is original to the property and only if the property will last for at least 5 years. The credit is not available if the improvement is financed using any form of subsidized energy program.

Energy-efficient Buildings: Owners of commercial buildings may qualify for tax credits for investments in designated insulation, windows and roofing improvements. Improvements to the heating/air conditioning systems, water heaters and air circulation fans may also be eligible for the credit. As with the home improvement credits, these credits require compliance with a variety of energy efficiency standards. Investors should exercise great care in determining what assets will satisfy the given criteria. The improvements must be in place on or before December 31, 2011.

See: REAL ESTATE PROVISIONS IN THE 2010 TAX RELIEF BILL for a complete summary posted by the National Association of REALTORS.