Winning the Bid May Actually Be Losing

Are agents terrible at pricing homes for sale, or is there another reason so many homes sell for hundreds of thousands of dollars over the asking price?

When a home is underpriced, or overpriced for that matter, it often has to do with the fact that the listing agent is from out of the area. They miss the mark because in their home turf, homes may be selling for less (or more) than where their listing is located, and when they apply their native pricing strategies to a listing they have out of the area, they can be pretty far off at times.

The same goes for an agent who represents a buyer in an area where they’re not as familiar with the local home values. They may grossly overestimate a home’s worth, based upon their experience in the area where they concentrate, thus recommending an offer price to a buyer that is too high and artificially driving the prices up.

Then there’s the phenomenon known as the “Winner’s Curse”, hence while you may be winning the bid, you’re actually losing. The winner’s curse may occur in any auction where less than complete information is available. The winner’s curse says that in such an auction, the winner will tend to overpay. The winner may overpay or be “cursed” in one of two ways: 1) the winning bid exceeds the intrinsic value of the asset or 2) the value of the asset is less than the bidder anticipated, so the bidder may still have a net gain, but will be worse off than anticipated.

The Winner’s Curse phenomenon also manifests itself in the home buying process in several additional ways, some of which are introduced by the buyers.

When a buyer tries to outbid their competition by purposefully offering more than the home should be worth, just to win the auction, they may win the bid, but by definition, they paid too much, since the average bid typically defines the value, and the winning bid is the outlier.

Since homes are not a commodity, as in oil or gas for example, wherein the value is pretty well understood and, more importantly, oil is oil and it either makes sense to purchased it at “x” price or it doesn’t. Wherein when it comes to homes, at least those located outside of tract areas, are unique unto themselves, and buying a similar home may not be nearly as emotionally appealing. In this way, it’s more like adopting a child, no two are the same.

From a listing agent’s standpoint, pricing a home at the selling price of the home across the street typically backfires. Here’s why. Let’s say that the home across the street was listed at $1,000,000, and sold with ten offers for $1,400,000. The high bidder, who won the bid, and by definition paid too much—because they paid more than any other buyer was willing to bid—is now out of the pool of potential bidders for the next home—the one you just listed across the street. This means out of the nine residual buyers, none were willing to pay $1,400,000 and some may have even already moved on, or are in contract on another home. What did the other nine buyers bid? Only that listing agent will ever know, but the next highest bidder is the one you need to attract and who knows how much they offered.  And this of course assumes that the homes are identical—which they never are. The second highest bidder might not even like your listing, might be out of town the week you go on the market, which means now you are relegated to the third, fourth, or fifth bidders in order of their declining tolerance for bidding or ability to pay.

This is one reason agents will intentionally list a home at what seems to be irresponsible—far below what it might eventually sell for, based upon the recent comparable sales in the area. And while this practice might be viewed by some as false advertising, which is illegal, as the home might well be priced lower than recent sales, it might actually be priced appropriately for its intrinsic value.

In residential real estate valuation, there are several ways to ascertain the intrinsic value of a home. The three accepted practices in real estate are known as the Comparative Market Approach, also known as the sales comparison approach, the Principle of Substitution, (what else could I buy), and the Cost Approach, (how much would it cost to build a similar home from scratch).

Agents and buyers alike tend to rely heavily on the sales comparison approach, as it makes sense to compare the home they are buying to those which have recently sold, but if the buyers are bidding too much on homes, than the comparable sales are less trustworthy, and looking at the Cost Approach, or what it would cost to build a new home might be more effective, if nothing more as a check and balance against the price one might offer.

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Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario

What a Mortgage Deduction Reduction Could Do to Home Values

That’s literally the million dollar question. Many of our colleagues think that it will not be passed as the House version did this week. Some have good points and others just wishful thinking.
Many agents have voiced an opinion  that the mortgage deduction will be indexed for the higher cost coastal states, but we feel that’s exactly the targeted group this limitation is designed to hit—so we doubt we’ll see relief their. The senate bill may uphold the million dollar cap on mortgage interest—we’ll see.
We’d be surprised if in this administration, a dramatic negative shift in policy towards homeownership would emerge, but then this administration has been anything but predictive.
If it does pass as the House version stands, we’re not as worried about future homeowners—they’ll get over it and only the ones currently looking into buying a home will even know what’s going on. But for the millions of homeowners who bought their homes counting on the tax relief as the only way they can sustain their payments—therein lies the problem.
Assuming our homes are hovering around a median home price of $1,600,000. A buyer today could write down up to $1,000,000 in mortgage interest, which would be $42,174 in interest the first year. With the new proposed plan, that deduction drops in half to $21,087—resulting in an additional tax liability of around $7,380.50 a year, and that equates to as if they purchased a home for $125,000 more than what they had bargained for. Or another way to look at it. Is home prices (not values) on the Peninsula just went up over $125,000 overnight—so much for making more affordable housing.
Most regular folks are still purchasing homes with mortgages, and most mortgages are higher than in the above example. Obviously, the higher the mortgage, the more of a disparity this system creates in the allowable deduction.
What will real home values do? Probably not much since demand still outstrips supply in today’s market (locally). But the market for vacation homes—a huge segment in San Francisco for example—could drop precipitously since there will be NO deduction for second home mortgage interest. So a silver lining exists for the rich, and they could have a great opportunity to buy into vacation homes at diminished prices—all cash of course.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomesand on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

 

Belmont Home Price Increases Slow to a Crawl

In each of our Newsletters we bring you the recent Belmont home sales for the previous month. This time we thought we’d stack up the months of August to the same time last year, so the variance from the previous year is obvious.

The first thing that jumps out at us is that there were 33% fewer sales overall.  If we take out the one off-market sale in 2016, the time it took for the homes to sell really didn’t change. Homes are still selling briskly at about 10-14 days on the market—which really is more dependent upon which day the seller elects to hear offers.

There were two homes which underwent a price reduction before selling, and one home that sold for under the seller’s asking price in 2017, and none in 2016. Still, the amount the seller’s received stayed at around 108% of the seller’s asking price.

Since the size of homes which sold in both years was statistically unchanged, the median price difference YOY is very reliable. It shows that homes in Belmont rose on average almost 10% YOY with the median home price rising a modest 5.13 %. Are we near the top of the market? These almost nominal increases would suggest so, though to a buyer, in real dollars, the medium price home in Belmont just went up $75,000.

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Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Bay Area Home Values Eclipse Historical Records

Case Shiller Report for June 2017

The Case-Shiller Report was released June 27th, the last Tuesday of the month, which tracks home sales in 20 metropolitan cities around the country, called MSA’s, of Metropolitan Statistical Areas.

Our MSA (Metropolitan Statistical Area) in the Bay Area consist of five counties—Marin, San Francisco, San Mateo, Alameda and Contra Costsa. It’s important to note that while home values might be headed upward at a dramatic pace in the counties of San Francisco and San Mateo, they might be lagging in Alameda and Contra Costa, thus diluting the upward trend in one county vs. the whole MSA. This has been the case in our area since the housing recovery began in earnest in 2012.

The same goes for the 20 city composite index, which takes 20 metropolitan cities in the country and tracks them as an average trend.

While the 10 and 20 city composite indices shows that the housing market has not yet eclipsed the all-time high recorded around March of 2006, in the Bay Area, we have.

This graph which we built utilized the data from Case-Shiller for our SFMSA and illustrates that we have reached a new all-time high for home values. However, it’s important to note that the delta between the trend line and the peak where we are today, illustrating where the straight-line home values should be, is far less than in the peak of 2006, where we see a much great deviance off the trend line values. In fact, the peak of 2006 was 58% higher above the trend line than it is today.

One might infer from this that we are not as overvalued as it might appear at first glance.

This give some credence to the synopsis for the Standard and Poor’s Case-Schiller analysis and discussion.

Case-Shiller Analysis by Standard & Poor’s— ANALYSIS

Great View of San Francisco

“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario

 

 

Will There Be an End to Home Bidding Wars?

With unusually low home inventory levels, many buyers are feeling frustrated and overwhelmed at the prospect of ever getting their ideal home, or have first-hand experience at losing the home of their dreams in a bidding frenzy.

Yet not all homes sell for over their asking price. In fact many sell below. Granted, they may seem far and few between, but they are out there. In fact, so far in 2017, 25% of San Mateo County home sales sold for less than what the sellers were asking. Many wouldn’t think that’s true, and we’d be willing to bet that if asked, many would say that it’s a lot less, like 1%, but they’d be wrong. Perception is not always reality. The media’s constant coverage of how “crazy” the housing market is, has been drummed into the minds of buyers—and sellers. And the homes that people see closing well above the asking price, only serve to validate the overall impression that the market is overzealous. And that emboldens people’s impressions, but it’s more of an emotional response, than one of accuracy. It is however, what people talk about and what they remember.

We sold a home just last month at 534 Wellington Avenue to a buyer of ours. The sellers expected six offers and received none. We stepped in and delivered a full price offer and it was accepted. It’s the second lowest 3 bedroom sale in San Carlos on the west side this year.

One way to get a good deal is to focus on homes which have been initially overpriced. Any home which is still on the market after 14 days is probably one that will need a price reduction, or may be willing to take a lower offer. These are opportunities that buyers may want to focus on if the multiple bids are giving rise to second thoughts about buying a home.

As for timing the market, there are times of the year that homes get more attention and more multiple offers. We just went through that period—February, March, April and now May. A lot of “why” homes sell with more offers and at a higher percentage of the sellers asking price has to do with several factors.

[Click on the graph below for a larger image]

 

 

 

 

 

As the new year begins, buyers and sellers are slow to come out of their market hibernation, but buyers seem to thaw out first. Many buyers have just received their end-of-year bonus, which they had been waiting for to jump into the housing market.

Some buyers with children are desperately trying to get a home in order to get their kids registered into a new school before the vacancies fill up—most first enrollment periods end within the first month or two of the start of the school year.

Another influence is that buyers who had lost out on homes in the prior year now focus more than ever on not losing out again, and they bid more aggressively than other buyers who may be just dipping their toes into the waters. And by June, these more aggressive buyers have all won—they have their home and the buyers that are left are the less aggressive buyers and overbids begin to wane. This typically happens around June, as this graph above of San Mateo County home sales since the turnaround in 2012 illustrates. It’s important to note however, that while the percentage a seller receives, and the number of overbids may be fewer, that doesn’t mean that prices decline. A high home price bar has already been established in the spring and it typically carries through until the end of the year. [Note: These statistics typically lag the market by a month—the typical escrow period. So a high sale percentage in May, was likely consummated in April].

Then of course there’s the competitive spirit. Buyers want what other buyers want and often a bidding frenzy ensues, pushing prices perhaps higher than they otherwise would be. It’s important to note that the aggressive buyer gets the home—the buyer that was willing to pay more than any other buyer at that moment in time. Did they overpay? Perhaps. But now they are a comparable sale for the next home, which invariably will sell for more, and so on and so forth until at the end of the year we have “appreciation”.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide and 3rd in Northern California. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomesand on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

 

Why a Buyer Representaion Agreement Could Help You

How to decide if committing to one real estate agent is important, or should you “play the field”. We wanted to take a moment to explain a bit more about the Buyer Represention agreement, why we use one, and why it is important to you as well.

Most agents will attempt to work with 20-30 prospective buyers at a time in the hope that one will purchase a home through them—that’s an outdated model. We take a more focused approach. We work with no more than two buyers at a time in order to provide a heightened level of service. We’re not here to just set you up on an automated email list for homes—you can do that on your own. We set ourselves apart by taking proactive steps in finding you the ideal home. We meet and discuss each week to find new off market opportunities for our clients. And if you’re a client, we can even door knock and direct mail to targeted neighborhoods to find you a motivated seller.

Networking to uncover off-market opportunities is our main focus during your home search. With the advanced search engines available on the internet, everyone has access to the public
inventory. We try and uncover homes to which otherwise you would not have access.

Initially, we like to tour several homes in various areas with our clients to understand their wants and needs first-hand. This is a valuable aspect of the process, since we use this information when we go to work locating properties which are good fit for our clients.

But even focusing on working with just two buyers, it’s impossible for us to be showing homes every weekend to our clients (we also work Monday through Friday trying to find off-market properties and previewing homes).

This is why open houses are a great way for you to visit homes at your leisure. If you zero in a perspective home, that’s when we make an appointment to show you the home in private and uninterrupted. We employ our many years of visiting and following inspectors around properties to help put the deficiencies in the inspection reports into perspective.  We’ll tell you if we wouldn’t buy a particular home, and we can do that because we’re confident that at some point, we will find you the ideal home.

Would you want your agent to pressure you into buying a home, out of fear they may lose you to another agent? Or rest assured knowing that your best interest is always first and foremost.

This is just one of the important reasons that as a buyer, you should want to have an agreement in place.

Another reason to work with an agreement, is to distinguish yourself from a customer and become a client. And the difference is whether or not you are committed to the relationship with an agreement. A “Customer” does not enjoy the same legal protections that are afforded a “Client”. Many agents will work strictly with customers, because they are desperate to land a sale. The last thing you should want is a desperate agent trying to find you a home.

And then there’s the practicality of with whom we decide to work. As a client, you are privy to our “Pocket” of off-market listing. These are of course reserved for those with whom we have a relationship of mutual respect and trusMutal Agreementt.

The agreement also protects us against the threat of “procuring cause”. You see, when you walk into an open house, that agent could lay claim to you as the procuring cause of locating the home, and we may be excluded from representing you. These cases of procuring cause actions typically involve a hearing or even a lawsuit to unravel. But the issue you will encounter is that you will no longer have your own representation. In this situation, if you want to buy that home, you may be forced to work with the seller’s agent. When this occurs, Dual Agency representation exists and the agent can no longer advise you on how to proceed with an offer, but rather becomes an “order taker”—we’re willing to bet that’s not the kind of assistance you want when purchasing perhaps your largest investment ever.

Lastly, imagine your own employment situation. Would you go to work everyday wondering if you’ll ever be fairly compensated for your work? We assume enough risk as it is, as many buyers change their minds and never purchase a home.

We hope that this will shed some clarity on why a written working understanding is important to a mutually respective relationship.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 3

Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC located in Belmont, CA. They have been assisting buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

This article provides educational information and is intended for informational purposes only. It should not be considered as real estate, tax, insurance, or legal advice, and it cannot replace advice tailored to your specific situation. It’s always best to seek guidance from a professional who is familiar with your scenario.

0 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are ranked in the top 50 RE/MAX agents nationwide. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomesand on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

 

Cell Phone Photos Should Be Banned

If a picture is worth a thousand words, then what does an awful picture say?

Putting your home’s best foot forward is of paramount importance to get the positive attention you want when selling your home.

Nikon-Cameras
If you stop and think about the role that advertising plays in our culture, one can easily see why it’s important that your home’s advertising is top notch—after all, there’s a reason the top 200 advertisers in the United States collectively, spent a record $137.8 billion on advertising in 2014, up 2% year on year, according to Ad Age’s annual “200 Leading National Advertisers” report, advertising works!

Let’s take just one aspect of the marketing for your home—the photos.

The idea behind photographs in on-line marketing, is to entice potential buyers to come and physically see your home. The photos should be of high quality and resolution and be taken by a professional. The days of using your own camera are gone. So, should the use of cell phones, yet we still see this atrocious practice employed even in our sophisticated market.

The old saying, “If you don’t have anything nice to say, don’t say anything at all”, applies equally to photography. Remember, photos are a vehicle to get people to visit your home, not scare them away. Too much information can be as detrimental as none at all. A professional photographer typically knows the difference, but not always, so we’re still vigilant about filtering out only the shots that best represent a home.

We’ve seen some amazing work by seasoned agents who should clearly know better.

This is one of our favorites. It was on the market for 21 days and yet the agents never took the time to straighten the photo.90 Degree Home

 

 

 

 

 

 

In this photo, we can see the agent never even visited the home. They simply took a screen shot of a Google Map (the directional arrow is clearly visible in the photo).

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But there are less obvious infractions, like crooked photos, over or under exposed shots and even small minutia like leaving a toilet seat up when shooting the bathroom.

Agent in Mirror

Here’s a home where the agent
took her own photos. Not only were all of them crooked, in this photo of the bathroom she can be seen standing in the mirror with a washed -out flash.

 

When Photoshop Works Wonders3344 El Sobrante

Let’s face it, the weather doesn’t always cooperate on the day of a shoot. For this home in San Mateo we recently sold, the day came for photographs and the sky was ominously dark. The driveway also had streaks from rain water running down to the street. Here you can see what a few minutes of Photoshop can do to remedy a problem.

 

When interviewing an agent to sell your home, it’s best to see examples of their work. Avoid the dangers of Adverse Selection and asymmetric information by doing an on-line search for their work in its entirety, not just the examples they’re willing to share.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years of experience in helping sellers and buyers in their community. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook at https://www.facebook.com/Morganhomesand on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

 

Homeowner’s Face Mandatory Upgrades

Homeowner’s face mandatory upgrades as the state legislature has determined that it’s time for us all to remodel our bathrooms. Well, not just bathrooms, actually any part of your home that contains older plumbing fixtures. Now there’s no excuse to put off that bathroom upgrade you so desperately needed. Of course, everybody knows that changing a plumbing fixture will open Pandora’s box, and of we’ll all then need fancy new bathroom vanities and glass tiled backsplashes to accentuate our new low flow faucet.Water Conservation

In the end this is good for our water conservation efforts, as well as stimulating our economy with hundreds and thousands of remodel projects about to get on the books. How long before you have to take on a multitude of remodel projects? Less than six months it turns out.

Though this new ordinance does not rise to the level of a point of sale requirement, it is a disclosure requirement at the point of sale. It also encourages cities and counties to adopt more stringent rules than the statewide mandated “disclosure only”, so don’t be surprised if a town near you rises this to the level of a new point of sale ordinance, assuring every home for sale would then be outfitted with the latest trendy look.

Below is the text we excerpted from the Civil Code, for your convenience.

 (a) On and after January 1, 2014, for all building alterations or improvements to single-family residential real property, as a condition for issuance of a certificate of final completion and occupancy or final permit approval by the local building department, the permit applicant shall replace all noncompliant plumbing fixtures with water-conserving plumbing fixtures.

****(b) On or before January 1, 2017, noncompliant plumbing fixtures in any single-family residential real property shall be replaced by the property owner with water-conserving plumbing fixtures.

****(c) On and after January 1, 2017, a seller or transferor of single-family residential real property shall disclose in writing to the prospective purchaser or transferee the requirements of subdivision (b) and whether the real property includes any noncompliant plumbing fixtures.

(Added by Stats. 2009, Ch. 587, Sec. 1. Effective January 1, 2010.)

 

Disclaimer:

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

How to Avoid Capital Gain When Selling Your Home

 

Before we pass along any information regarding third-party tax information, we are required by the Bureau of Real Estate to disclose that we are not offering any tax advice as we are not licensed to do so.

That said. We’re passing along information which we are aware of from others, that may be beneficial to those seeking to defer or eliminate their Tax Reliefcapital gain tax on the sale of real property.

Here are several vehicles we have seen implemented to effect this outcome.

#1 PRIMARY RESIDENCE EXCLUSION

You probably already know that if you sell your home you may exclude up to $250,000 of your capital gain from tax. For married couples filing jointly, the exclusion is $500,000. Also, unmarried people who jointly own a home and separately meet the IRS threshold tests can each exclude up to $250,000.

The law applies to sales after May 6, 1997. To claim the whole exclusion, you must have owned and lived in your home as your principal residence an aggregate of at least two of the five years before the sale (this is called the ownership and use test). You can claim the exclusion once every two years.

This is why families who stay in the same home for decades suffer a greater tax that more mobile families avoid by moving each time they approach the $500,000 capital gain threshold.

So what happens if you’ve already exceeded the $500,000 exclusion limit on your primary residence? Here are two ways to defer or avoid the excess gain you may realize.

#2 STARKER 1031 EXCHANGE

The 1031 Exchange, or “Starker Exchange” named after the Defendant in a lawsuit with the IRS, Starker v. United States, which was overturned by the appellate court and ruled in favor of Mr. Starker. This case law was later reeled in a bit by Congress after the IRS defeat, but in the end it allows one to sell one property and invest in another “like” property and avoid paying capital gains. Of course there are many rules one must follow such as the replacement property must cost at least $1.00 more than the one you sold and you only have 45 days to identify a replacement property and 180 days to close escrow. There’s an intermediary company that must be in constructive receipt of the funds after the first property is sold as to avoid realizing the gain, but those are details that an exchange company will gladly guide you through.

But what if you don’t want to exchange into a “like” property? Then this next Deferred Sale Trust arrangement is an excellent option.

#3 Deferred Sale Trust

There’s also what is referred to as a Deferred Sale Trust. Essentially, the process starts when a property owner sells its property to a trust owned by a third party company. The trust sells the property or stock. Next, the trust “pays” you. The payment isn’t in cash, but with a payment contract called an “installment contract.” The contract promises to make payments to you over an agreed period of time. There are zero taxes to the trust on the sale since the trust “purchased” the property from you for what it sold it for. The payment is made with an installment contract which makes payments to you over an agreed period of time.

Knowing how to use these opportunities to your benefit can make a difference in your estate planning—especially on the Peninsula where our home values increase so rapidly and the $500,000 gain relief threshold can be reached in a matter of a few years.

If you have questions for the author, Drew Morgan, you may reach him at 650-590-4525 or email info@morganhomes.com.

Disclaimer:

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years experience in helping sellers and buyers in their community. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

You can find them on Facebook at https://www.facebook.com/Morganhomes and also find them on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

 

Best of Tour for April 14th 2015

The definition of a mansion varies from person to person but we’re weighing in and calling this best of tour home in San Carlos so unique as to rise to the level.

Perched on the prestigious Hyde Park development with sweeping views of the surrounding canyons and San Francisco Bay, this stately home offers a plethora of elegant verandas and vistas to choose from.168 Queens Lane

Swank and extraordinary best describes this home and it comes with an equally extraordinary price tag for San Carlos where the average home sold this year for just over $1,400,000—yet there’s nothing average about this home. Listed by Coldwell Banker at a cool $4,988,000.

Click here for more images and details…

 

 

168 Queens Lane Kitchen

Veranda

 

 

 

 

 

 

 

 

 

Disclaimer:

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 years experience in helping sellers and buyers in their community. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

You can find them on Facebook at https://www.facebook.com/Morganhomes and also find them on Twitter @ https://twitter.com/morganhomes

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.