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Castles in the Sand

No Christmas gifts for foreign buyers

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Almost a year ago, I wrote a column about the proliferation of buyers from other countries coming into the state of Florida. Florida at that time was the national leader for international buyers at 22 percent of all international buyers in the United States. But there are many foreign countries that either prohibit foreign buyers or levy additional taxes to discourage them. These are a few:

New Zealand, in particular, has taken a hard stance on foreign buyers in an effort to make homes more affordable for its citizens. It recently passed legislation to limit foreign buyers to buying only newly built homes, and only 60 percent of units in new apartment buildings can be owned by foreign buyers.

New Zealand’s neighbor Australia has also increased the tax burden on new homes, introducing a buying tax and raising its stamp tax to 8 percent. This is in addition to annual fees for foreign owners.

Property values in the United Kingdom have been very hot, especially in London in recent years. To help cool off the market, the U.K. has added a 3 percent surcharge on the stamp tax paid by second home buyers and a 15 percent buying tax on all homes bought through a shell company. This was a previous technique frequently used by foreign buyers, which has resulted in prices falling substantially in London.

Hong Kong also has a tax stamp fee of 15 percent for foreign buyers and has extended that to include all second-home buyers as well. And Switzerland, which always has discouraged foreign ownership of property, now requires a permit to purchase property with a limit of 1,500 permits a year. There is an exception for EU buyers who have permanent homes in Switzerland. Even Mexico will technically not allow foreign buyers to purchase property within 31 miles of the coast or 62 miles of the U.S. border. There are, however, ways to get around this by having local banks hold title to the property. But there is still hope for foreign buyers who want to purchase exotic properties. The Maldives in the Indian Ocean and Thailand will be glad to take your money.

To my knowledge, I don’t believe the United States government has placed any restrictions on foreign buyers entering our real estate market. Aside from a tax ID number, foreign buyers do not have to be U.S. citizens, do not need a green card and do not require a special visa. As long as they have the cash or can obtain satisfactory financing, they are pretty much free to buy whatever and where ever they want.

The onus is on the lenders to qualify the buyer’s finances, visas and legal right to be in the country to protect their investment from buyers who suddenly leave the country with the bank becoming responsible for the property. However, almost half of property purchases by foreign nationals are made in cash, 44 percent at last count.

Foreign buyers may be boxed out of purchasing real estate in some countries in an effort to keep their real estate prices from becoming overinflated, harming their own citizens. Fortunately, the United States is a big wealthy country and will not be seriously impacted by an influx of foreign buyers. That said, there are areas of Florida, particularly on the east coast, where foreign buyers have some responsibility in running up property values.

We love real estate buyers no matter where they’re from. Tell Mexico and Australia and Switzerland and all the others to send them to us. We’ll make sure they have a merry Christmas.

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Castles in the Sand

Real estate sales can require scary disclosures

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

What do people do when they have everything they can possibly need? A safe and secure place to live, plenty of good quality food and access to modern health care. You know what they do, they pay to be locked in a spooky room and challenged to find a way out.

One of the hottest forms of entertainment in our privileged country is called an escape room. In it, you are literally locked in for an hour with a group of other people and look for clues while the ghost of a recently departed leaves hints to help you find an exit.

Crazy as this may sound, it’s not nearly as crazy as selling properties where there is a belief of hauntings or a death in the property. In September I wrote a column about property disclosure and discussed that the state of Florida holds sellers responsible to disclose defects in a property. Although this disclosure does not have to be in writing, it is recommended for the seller’s protection that it is.

The state’s guidelines indicate that disclosure does not have to be made if the property was inhabited by a person infected with HIV or AIDS or that a murder or suicide has occurred or is suspected to have occurred on the property. Likewise, disclosure does not have to be made if the house is known to be haunted since there is no way to authenticate a haunted house; it’s all subjective.

However, the guideline also states that disclosure must be made if there is a potential impact on the value or desirability of the property. This is a little bit of a conflict and a gaping gray area in an already ambiguous zone of the disclosure. Most real estate professionals would advise full disclosure for rumors about hauntings as well as unusual deaths in the property just as you would disclose foundation cracks hidden behind walls particularly if you’re asked.

Even though sellers are not obligated to do so and would not have a financial obligation after a closing, why make a buyer feel he/she has been duped? Since some buyers are sensitive to previous activity in a property, the disclosure is the best course of action, as silly as it may sound. Even Bernie Madoff’s New York City condo had a problem selling because buyers didn’t want to be associated with the bad energy that may be lurking in the property.

But what about future developments adjacent to properties or bridges? Manatee County is exploding with construction – some very big that will change the lifestyle of nearby residents, not to mention the rebuilding of both bridges out to Anna Maria Island, both of which could impact existing properties.

These are projects that have been approved, on the books but not begun and would not be obvious to a potential buyer. Are sellers obligated to disclose future approved projects that could have a substantial financial impact on properties? Don’t look to me for an answer, but if it were me and I knew something on the books would financially or aesthetically impact property I was selling, I would have a sit down with an attorney.

In the spirit of full disclosure, you should disclose the spirits if you have any. Have a happy Halloween and watch out for the ghosts – even the friendly ones.

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Fannie, Freddie and Ginnie

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Castles in the Sand

Fannie, Freddie and Ginnie

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Fannie, Freddie and Ginnie may sound like the title of the newest coming of age beach read, but that couldn’t be further from what they actually are. Nevertheless, this trio may also be going through a coming of age moment which will have a heavy impact on home finance.

Most people have heard of Fannie Mae and Freddie Mac, which are government-sponsored but not government guaranteed entities that package mortgage loans into mortgage-backed bonds. Ten years ago, after the financial crisis, the federal government took them over into a conservatorship and bailed them out with taxpayer money.

At that time, they were thinly capitalized because they purchased subprime loans with little down payment from buyers who were also not vetted properly. As we all now know, this created the famous housing bubble that burst with millions of foreclosures around the country. Well, Fannie and Freddie are at it again creating risk by accepting high-risk, low down payment loans. For years even before the housing bubble some members in Congress and the House Financial Service Committee have been attempting to reduce the scope of Fannie and Freddie and protect the American taxpayer.

There has been talk in Congress of developing a private capital program in conjunction with Ginnie Mae. Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration.

FHA loans have been around a long time, designed to help borrowers who couldn’t get conventional home loans because they had low credit scores or limited resources. However, unlike the subprime loans from 10 years ago these borrowers as well as the properties they purchased were better scrutinized. FHA inspected the properties being financed through them and were sometimes a seller’s and realtor’s nightmare because of their thorough procedures. VA loans are also created through Ginnie Mae as a veteran’s benefit. Currently, only about 10 percent of mortgage-backed loans are originated through Ginnie Mae.

The program that is being floated is to work with private mortgage credit guarantors using the Ginnie Mae system creating a private capital buffer for the loan. Presumably, this would protect taxpayers from some of the risk encountered when Fannie Mae and Freddie Mac were taken over by the government and bailed out by taxpayers. The objective is to reduce the size of Fannie and Freddie and put some of the risk onto private capital.

Will this work? No one really knows and any threat to Fannie and Freddie will encounter enormous pushback from government officials not to mention Fannie and Freddie employees, who have an obvious financial benefit to keep expanding these agencies.

Not only are our primary mortgage lenders going through a generational change, but our newest generation of adults may also be going through a generational change. Gen Z children, who are now college age or about to graduate, appear to be a lot more serious about finance than their parents and even their hippie grandparents.

Having lived through the financial crisis and experiencing the scars left on their families, they are approaching adulthood with a more conservative bent. According to The Wall Street Journal, they are doing a lot less partying and consider being well-off financially an important part of their lives.

Who knew that kids raised on video games, youtube and texting would turn into a generation we haven’t seen since the Greatest Generation. Works for me and for the future of real estate.

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Castles in the Sand

Attorney or no attorney – that is the question

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Something real estate brokers learn early on if they happen to move from one state to another is that the culture of buying and selling real estate varies. Some states call signing a contract of sale “going to escrow” and some call it “getting into contract.” Whatever it’s called, it all means the same thing – signing legal documents that will have a lasting effect on your life.

Living in the Northeast, in what is generally called the tri-state areas of New York, New Jersey and Connecticut, the culture to buy and sell real estate is to immediately hire an attorney. Real estate agents generally do not generate the contract of sale, they don’t talk to the attorney for the other party to the contract and they do nothing more at a closing than collect their checks.

In Florida, it’s entirely different. The state of Florida does not require an attorney for real estate transactions, and this was typically the way properties were closed for many years. Real estate brokers drew up the contract of sale, as they still do, then title companies took over to verify clear title and conduct the closing.

Well as we say, Florida is no longer your parents’ Florida, and although plenty of real estate transactions are still closed without attorney representation, more and more buyers and sellers are asking for legal advice. Much of this has to do with the increased value of the properties being sold, making one of life’s most significant transactions a much bigger risk.

If you decide to use only a title company, it’s the company’s job to make sure the property has a clear title to be conveyed without any easements or liens. And it will certainly review the contract of sale and the mortgage papers to make sure they are correct. However, their employees are not attorneys and are not fully responsible.

Just like in attorney-driven states, a Florida attorney will review the contract of sale, monitor contractual deadlines, including payment of escrow and mortgage commitments. Like title companies, the attorney will review closing documents as well as the title report. An attorney can also give you advice if there is an issue on a property inspection that could delay the process. And, of course, if you purchase a property privately or sell privately without a broker involved, an attorney is important.

If you choose to hire an attorney, he or she will, of course, hire a title company to check the property’s title. Many attorneys in Florida also have title companies as part of their practice and do the work themselves. Nevertheless, there will be an additional fee for their legal services, and that is one of the decisions you must make when evaluating risk.

Since many properties in Florida are purchased as second homes, frequently buyers and sellers never meet each other, and the entire transaction is accomplished online and by mail. In a situation like this, having someone locally who is looking out for your interests could be very beneficial and relaxing.

There is no right or wrong way to close a property, and your decision may also be influenced by the value of the property. Title companies do a fine job and experienced real estate professionals are adept at drawing up the contract of sale, and they should all be considered part of the transaction team.

However, we do live in a time when people sue one another for the smallest discrepancies, real or perceived, so it’s really about being protected. We’re not your father’s Florida anymore, and that’s a good thing.

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Castles in the Sand

In real estate, cash rules

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”

Warren Buffett said this in 1963 in an era when not everyone considered the bottom line the most important thing. Now, however, not only are the sale and the sale price the most important things, cash is also becoming one of the most important elements of a real estate transaction.

It’s true that real estate transactions go more smoothly when homebuyers are paying with all cash. Closing times are shorter, and there is less stress for both buyers and sellers waiting for the inevitable shoe to drop. Loan applications take longer than expected, the one last piece of documentation is not readily available and interest rates are going up, forcing a reevaluation of qualifications. But cash avoids a lot of those issues, making a cash buyer extremely attractive.

According to the National Association of Realtors Economist’s Outlook, the share of cash buyers dropped to just 21 percent in 2017. That compares with a national average of 31 percent between 2011 and 2013 and as high as 57 percent in Florida in 2012.

Well, Florida is still humming with cash buyers, at least in our area. The July sales statistics for single family homes bought with all cash was up 22.7 percent from last July and for condos up 17.5 percent from last July. For the month of August, however, the cash buyers were off for single family homes down 8.1 percent but for condos they were up 20.8 percent.

And in an interesting article I recently read, Detroit is finally digging out of their deep depression and starting to sell real estate. The median home price as of this writing in Detroit is $32,428, the medial home price nationwide is $234,000. The percentage of homes bought in Detroit for cash as of this writing was 87 percent and nationwide was 28 percent. Obviously, the historic low prices in Detroit is generating all cash offers many from investors and flippers. Flippers may be just what Detroit needs where many homes have permit issues and condition problems preventing buyers from applying for a conventional mortgage.

But let’s see what’s happening in Manatee County for the month of August: Closings were up for both single family (0.2 percent) and for condos (26.9 percent). The single family median sale price was $296,000, up 3.2 percent from last August, and the condo median was $190,000, up 3.8 percent. The average single family sold for $393,126, up 4 percent, and the average for condos was $222,249, up 2.8 percent. The median time to sell for single family was 94 days and for condos 93 days, and the months’ supply of single-family homes was 3.9 percent and for condos, only 3.6 percent.

Nationally, the number of sales is holding steady, down just 1.5 percent for August, prompting Lawrence Yun from the National Board of Realtors to comment that the housing market is heading to an equilibrium, more good news for the economy. The August median national single-family sales price was $264,800, with a 4.3 monthly supply of properties.

Essentially what we have here is good news for Manatee County and the country generally, with some regions doing better than others, and inventory is still down all over, pushing selling prices up. In Manatee County, not only is cash king but condos are also king, with soaring sales and prices.

Everyone loves cash and always will, but don’t let it scare you away from jumping into the pool. You can avoid the sharks by keeping your credit clean and saving your pennies, so you’ll look as good as king cash.

Castles in the Sand

Honesty is the best policy – especially in real estate

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Good old Benjamin Franklin had it right well over 200 years ago – when you’re dealing with people the best course of action is to be honest. And when you’re selling real estate, it’s more than a good idea, it’s legally imperative.

Traditionally, let the buyer beware was the principle most real estate transactions lived by. It was the buyer who was responsible to inspect the home and discover whether there were any unacceptable conditions or defects before closing. That’s why home inspectors became so important when purchasing a property.

However, in an ever-increasing number of states, courts and lawmakers have held that sellers are in the best position to know all material facts relating to their properties, particularly those that are not visible to the naked eye, and should disclose these to the buyer or face legal liability.

Florida is one of those states that is holding sellers responsible to disclose defects before closing. Since 1985, Florida law has provided that, with some exceptions, the seller must disclose any facts or conditions about the property that may have a substantial impact on the value or desirability of the property that may not be visibly obvious.

To assist sellers in making all relevant disclosures, the Florida Association of Realtors provides a standard form which covers many common property characteristics about which buyers want to know. Although sellers are not required to complete and sign this form, they are still required to disclose all relevant information to buyers, even when they may not be obvious. This can be done either in writing or orally, but to protect their statements sellers should have a written document as proof.

Some of the items contained on the seller’s disclosure form are potential claims, or court proceedings; nature of condominium or HOA association rules; boundary issues; status of any sinkholes; any environmental hazards such as asbestos, lead paint, mold, Chinese drywall; damage from wood destroying organisms; flooding or ground leaks; disclosure of condition of major systems such as central air and heat, plumbing and electrical systems and brands and condition of appliances.

This may be intimidating to homeowners who may be worried about problems they’re not aware of. The law states that you will not be expected to know or learn about or disclose property defects which you have no actual knowledge of. If in the future the buyer of your property discovers a problem after closing, the onus is on him/her to prove that you knew about the defect and did not disclose it. They also would have to justify that the defect has had a substantial impact on the value of the property and that the defect would not have been easy for the buyer to detect. Essentially Florida homeowners are required to disclose only those property defects of which they have actual knowledge.

There are a few facts that do not need to be disclosed to buyers. One is that the property has been inhabited by a person infected with HIV or AIDS or that a murder or suicide has occurred or is suspected to have occurred on the property.

And even if you’re selling your property in an as-is condition, that does not dismiss you from the requirement of full disclosure. You will have to disclose any material defects that you are aware of.

I would encourage sellers to prepare a written disclosure statement to protect them and instill confidence in buyers. Honesty and transparency is the proper way to sell a property, even in those few cases when it may not be required. “Honesty is the best policy” are words to live by.

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Castles in the Sand

Why aren’t you moving?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Last week we talked about moving and the emotional and financial toll it can take on your family. This week we’re going to touch on why people aren’t moving as much, at least not for jobs.

It’s a new world out there; technology has made it possible to practically run a multi-million-dollar business from home in your pajamas. More employers are offering their staff the ability to work virtually from home, saving enormous amounts of corporate dollars. This could be part of the reason why, according to the U.S. census data, fewer people are relocating for jobs.

About 3.5 million people relocated for a new job or job transfer last year, which is a 10 percent drop from 2015, but there are other reasons as well. The once traditional family, where job transfers hinged on the primary breadwinner’s career, usually the husband, are almost gone. During the time I worked in the relocation business we had an awful expression for this, “the trailing spouse,” which conjured up nasty images. In the late 1980s, more than a third of job seekers relocated, and it has gone continually down to below 20 percent after 2000. The first half of this year shows only about 10 percent.

Thankfully these days, no one is trailing primarily because both spouses or partners generally contribute to the financials of the household, and job opportunities must be weighed very differently. In addition, with the high divorce rate and former spouses co-parenting their children, relocating presents logistical issues most employees don’t want to face.

Even for those willing to relocate, the previous generous incentives used to induce skilled workers to uproot themselves and their families have gotten smaller. Therefore, the cost of selling a property and moving to a different location is not being offset by companies as in past years. Add into this the low unemployment rate pretty much all over the country, enabling employees who may want to look for other opportunities to do it a lot closer to home.

Not only are job seekers unwilling to relocate but just regular people are deciding to stay put and renovate homes rather than give up a low mortgage rate and upend the family. Nationally, according to The National Association of Realtors, the sale of existing homes from June to July fell 0.7 percent. This represents the fourth straight month of declines. Compared with a year earlier in July of last year, sales were down 1.5 percent. Lack of inventory to sell is what is pushing sale prices up, keeping buyers out of the market, which depends on a continuing flow of new homeowners to keep it healthy.

We, however, in Manatee County are not having the same problems plaguing the rest of the country. Single-family sales for the month of July were up 19.2 percent from last year and up 10.1 percent for condos. Appreciation rates are also continuing their upward trend. This doesn’t mean we don’t have a shortage of inventory, we do, and in July it dropped a little further, but so far, the number of sales are being maintained.

Florida has never been a state that imported a lot of job seekers. That certainly has changed in recent years with so many younger people relocating from high priced, high taxed Northern states. However, for the most part, our incoming population consists of second-home buyers and retirees, and that’s what’s keeping the sales going.

So why aren’t you moving? Probably because Florida has lots to offer, not the least of which is a more relaxed way of life and sunshine. Have laptop, won’t travel.

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Who’s entitled to title insurance?

Castles in the Sand

Who’s entitled to title insurance?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As discussed last week, everyone needs homeowner’s insurance and an adequate amount. And of course, if you own a vehicle you need insurance on that as well. But what about this title insurance thing on your real estate? Do I need it, must I have it and what exactly does it insure?

When you purchase a property as a part of the closing procedure there will be a title search to verify you have clear title to the property. The title search reviews all the instruments, conveyances, public records and court proceedings to discover any material facts related to the title of a property. The search ensures that the “chain of title” is intact and that all liens, including mortgage liens, are satisfied at closing.

So, if everyone is doing their job why do we need title insurance? Nothing is perfect and there are many ways in which a clear title may not be so clear. Relatives of the previous owner, utility companies, government liens and contractors who may not have known about the sale of the property and did not have an opportunity to file a lien before the sale could all be given consideration after the sale. Even a simple misspelling could reveal a claim against the property.

Because of the unlikely but feasible event of one of these claims popping up after the sale, title insurance was invented in the mid-1800’s. It has since become the dominant method of protection for buyers and lenders and will pay for losses sustained by the new owner or their lender and will kick in to defend any ownership claims against the property.

If your home purchase involves a mortgage, virtually every lender will require you to purchase a title insurance policy just like requiring you to purchase a homeowner’s policy, so their interest is protected. This policy will protect the lender’s financial interest in your property as well as lender legal fees should that be required.

Some lenders also will require you to purchase an “owner’s policy” which you should do even if it’s not required. An owner’s policy is designed to protect the equity in your home as well as legal fees and other losses should the worst happen. For example, let’s assume the courts decide that a long-lost relative is, in fact, the house’s true owner. The lender’s policy will reimburse the lender for what you owe on the mortgage, but you’ll be out the amount of your down payment and other principal payments, not to mention that you will likely have to move out unless you purchased an owner’s policy. In addition, extended coverage policies are available for an additional cost if you and your legal advisor feel this is something you should purchase.

And like all things real estate there are exclusions and exceptions to the rules. A title insurance policy does not cover police power of the government such as zoning, building restrictions, setback requirements, and the rights of eminent domain (the power to take private property for public use by the state). Typically, it does not cover liens or encumbrances attaching to the property after the policy date.

Your attorney or closing agent working on behalf of an attorney will make the title search and title insurance less confusing at the closing table. It’s always important to be prepared beforehand so you know the right questions to ask and to make sure you’re purchasing the best possible insurance to protect your rights and money.

Bottom line, we’re all entitled to title insurance and we should all have it.

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Home sales declining, but not here

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As reported at the end of July, U.S. growth exceeded 4 percent, the fastest since 2014. Nevertheless, even this great economic news isn’t helping the national housing market from pulling itself out of a slump.

According to the National Association of Realtors, in June, the sale of existing homes declined by 2.2 percent. Realtors and other professionals are speculating that after years of low inventory, despite reports that inventory is finally starting to increase and prices are rising, buyers are exhausted. This combined with higher interest rates which jumped in June to 4.57 percent is eroding buyer confidence, resulting in many buyers taking a “wait and see” position.

Well, here in Manatee County, buyer confidence, prices and turnover seem not to be affected by the national picture. June sales statistics reported by the Realtor Association of Sarasota & Manatee are encouraging, especially since we are getting into the slow sales season. That said, June closings do reflect earlier months’ sales so don’t be surprised to see a slight downturn in coming months.

The total number of single family homes sold in June was 637, up 4.8 percent from last year. The median sale price was $300,000, up 0.8 percent, and the average sale price was $365,637, dead even with last June. Properties are selling at 96.2 percent of original list price and it’s taking a median time to sell of 90 days.

As far as the condo market sales, the numbers are even better. There were 278 sales, up 20.9 percent from June of last year. The median sales price was $191,500, up 4.9 percent and the average sale price was $232,691, up 1.9 percent. Condos are selling at 93.8 percent of the original listing price and the median time to sell was 111 days.

Unlike the national numbers, Manatee County is not showing an increase in available properties for sale. For single family homes there were 2,133 properties available for sale minus 1.1 percent from last June. And for condos there were 895 properties available for sale minus 2.8 percent from last June. This still leaves us with only an approximate four-month supply of available properties in both categories, an unhealthy number.

As a side note, there was an interesting report, again by the National Board of Realtors, that foreign purchases of U.S. homes had their biggest drop ever. Purchases by international buyers totaled $121 billion for the fiscal year ended in March, down from $153 billion the previous fiscal year.

Most of the international buyers are concentrated in the very upscale areas of the country like Manhattan, Seattle, San Francisco, Miami and Orange County, Cal., so luxury property buyers in these areas will be happy.

There are many Chinese buyers for these properties who are pulling back because of restrictions from the Chinese government allowing only $50,000 to be taken out of the country. In addition, banks in China are required to report what the money is being used for and buying real estate is not one of the approved reasons. Also, Canadian buyers, many of whom purchase second home in Florida, are pulling back in recent years, primarily because of the strength of the U.S. dollar.

Even though our market seems to keep rolling along, generally a declining real estate market or even one that goes sideways is not good for the economy in general. Housing contributes about 15 to 18 percent of gross domestic product to the economy and a fickle real estate market impacts home improvement spending, construction and mortgage lending among other areas.

All real estate is local and for the moment, we’re in the perfect location.

Castles in the Sand

Where have all the houses gone?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

For a very long time now, those involved in the real estate market have been moaning about the lack of inventory. There are buyers ready, willing and able, but there’s not much to choose from. We’re looking at bidding wars and first-time buyers just throwing up their hands and signing another year’s lease.

No one seems to know the answer including the National Association of Realtors which reported that May’s national home sales were 5.43 million of previously owned homes compared with 5.6 million in May of last year. In addition, so far this year sales are 2 percent below last year’s pace, despite a strong job market and increased household incomes.

There are all kinds of opinions about this unusual phenomenon, ranging from new homes not being built to higher interest rates. And, of course, the new tax plan, which caps state and local tax deductions and places some limits on mortgage interest deductions, could also be reducing buyer incentives.

But is it really? If interest rates and tax deductions were the reason, housing prices would fall and inventory would be higher, neither of which is happening nationally or right here in Manatee County. Nationally, the median sale price for an existing single-family home in May was $264,800 versus $252,500 in April. So here are the Manatee County May statistics:

The median sale price for single-family homes in Manatee County for May was $305,000, up 2 percent from May of last year. The average sale price was $405,029, up 1.8 percent from last year. The listing to closing price is holding at about 95.5 percent and the median time to sell was 98 days compared to 92 days last year.

Condo numbers were both up and down for May. The median sale price was $183,750, down 1.3 percent from last year, but the average sale price was up 11.3 percent to $234,256 from last May. Listing to sale was 94.1 percent with the median time to sell at 93 days, pretty consistent from last year for both condos and single-family homes.

What’s also unfortunately consistent is the supply of properties for sale, which is approximately 4.5 months for both condos and single-family homes, remaining essentially unchanged from last year. Nationally, the month’s supply is about the same, which is way down from a decade ago where it stood at between 5 and 6 months, the level economists consider healthy.

Swirling around all of this talk about the softening of the housing market is the effect of the new tax plan on mortgage interest deductibility as stated above. Homeowners are sharpening their pencils and attempting to determine if paying off or buying down their mortgage is advantageous for them.

Everyone’s tax position is unique to them and needs to be calculated by a professional, especially as it relates to doubling the standard deductions, capping the state and local taxes and possibly losing interest deductions for some high-end mortgages. And don’t forget your home equity loan interest, which cannot be deducted unless you can justify the funds were used to buy, build or improve your home.

Somehow, all of these serious changes are having an impact on the market, if for no other reason than to force buyers and more importantly sellers to step back and wait for the dust to settle. Don’t hold your breath waiting for it to happen any time soon. I think we need to get through at least another tax year before we see any movement.

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Castles in the Sand

Preparing your home for sale

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

William Morris was an English textile designer who was part of the Arts and Crafts movement in the late 1800s. One of his famous quotes is, “Have nothing in your house that you do not know to be useful or believe to be beautiful.”

Which brings us to what you need to do during the summer if you’re planning on putting your home up for sale in the fall. Removing all the negatives in your house, and believe me every house has them, is particularly important in the slightly weaker real estate market we’re starting to see. In particular, homes and condos that need renovations are frequently being passed over by buyers who don’t have the time or inclination to do the work even for a lower sale price.

If your home has an outdated kitchen and bathrooms which you were hoping would be overshadowed by the charm of Anna Maria Island, it may be time to rethink how a buyer will look at these rooms. We live in a go-go, busy world, and buyers who are making a permanent move can be overwhelmed by the logistics of pulling it all together and can’t face moving in and taking on a project.

Second homebuyers are almost always from out of the area and really don’t want to have a long-distance relationship with a contractor.

If a major renovation isn’t in your budget, then at the very least, for starters, follow William Morris’ advice and remove any and all extraneous items from your home. Clutter on kitchen countertops makes a kitchen look smaller and prevents potential buyers from seeing beyond the clutter. Clean and shine appliances, including the inside of the refrigerator. Buyers are nosey. And clean out the pantry or cabinets of dishes and groceries you don’t need.

Same for bathrooms. Remove the five bottles of shampoo and cream rinse in the tub, as well as the hanging hair dryers, flat irons and electric razors. Buy new towels, and don’t let the kids use them, and scrub any mildew on the tile. Ask your friend to come over with her white glove and honestly tell you if she can smell any kind of mildew odors or any other odors in your home.

Also, I think William Morris might have had some advice about the contents of closets. What’s the guideline for keeping clothes? If you haven’t worn it in a year get rid of it, it’s no longer useful. However, the gold jacket you bought for your sister’s wedding five years ago may no longer be useful, but since it’s still beautiful, you should keep it, just not in your closet. Store it with the rest of your wedding and cruise wardrobe off premises.

Finally, clean windows are a must, cleaning up trash in the yard is a must, putting away the kid’s toys is a must, power washing mildew from around the home is a must and having working systems like heat, air conditioning and plumbing are a must. And the cherry on top is painting the front door a fresh tropical color that blends in with the overall color scheme. It may not be useful, but it will be beautiful and memorable.

The more you dig into William Morris’ quote, the more it makes sense in our everyday lives. Displaying a life-size statue of a rare African white rhinoceros is not useful in our everyday life, but to you, it’s beautiful standing next to your outdoor grill. Just remember, potential buyers may not feel the same way.

Related Coverage

Mortgages ain’t what they used to be

Let the sunshine in

Taxes and second homes

Castles in the Sand

Mortgages ain’t what they used to be

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

The end of the super low mortgage interest rates has just about arrived. From a low of 3.31 percent for a fixed rate, conventional home mortgage in 2012, we are, as of this writing, up to between 4.4 percent and 4.5 percent. This also happened pretty fast considering as recently as January of this year the rates were still below 4 percent.

In addition, we’re probably not done with rate increases since the Federal Reserve has said it expects to raise short-term rates two to three more times this year and again three times next year. In real money to home buyers, this has a big effect on monthly payments. A 4 percent rate on a $250,000 loan is a monthly payment of $1,194, but at 5 percent, the monthly payment goes up to $1,342. In higher-end homes with larger loan amounts, this monthly payment figure goes up at a faster rate, potentially keeping buyers in all price ranges from qualifying.

Typically, buyers who don’t qualify for mortgage financing because of rate increases readjust their price range. However, because housing inventory all over the country is almost at an all-time low, buyers, especially in the entry-level category, have no place to go.

Meanwhile back in Manatee County, April was a much better month than March. Not really surprising since April has always been a busy month for real estate closings, so here are the numbers:

April single-family homes had a median selling price of $311,000, up 5.4 percent from last year and an average selling price of $405,020, up 11.7 percent from last year. The median time to sell was only 91 days and the median selling price was 95.8 percent of the original list price. If you recall, March’s median selling price dropped below $300,000 to $285,000, which I predicted would turn around this month.

April condo sales had a median selling price of $209,950, 23.1 percent higher than last year and an average of $256,789, 20.5 percent higher than last year. Days to sell were 80, quite a bit less than single family, and the median price to sell was 95.4 percent of the original list price, almost the same as single-family. For both single family and condos, the month’s supply of available properties were both low with single-family dropping to 3.9 percent and condos staying stable at 4.5 percent. Statistics are from the Realtor Association of Sarasota and Manatee website.

It’s always nice to have a high appreciation, but are we setting ourselves up for another bubble? Possibly, since so far this year the housing market has the strongest growth since 2005, and since mid-2012 home prices have increased 28 percent, according to data from the American Enterprise Institute.

Some of this potential bubble is being caused by lower underwriting standards by Freddie Mac and Fannie Mae, which as government agencies underwrite 80 percent of all home purchase mortgages. Both agencies are expanding their 3 percent down mortgages, and new government regulations will allow delinquent taxes to be excluded from credit scores, pushing credit scores up.

Do we really want to go through another housing crisis because of exotic mortgage products with lax underwriting? Fannie and Freddie need to re-evaluate their underwriting standards, which are the benchmark for the industry and put a lid on this before it gets out of control again.

Very little is the way it once was, and mortgage lending and rates are continually in a flux. Whatever the mortgage rates are, people always must sell and people always must buy. There just may be fewer of them for quite a while.

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Taxes and second homes

A real estate plateau

Castles in the Sand

Let the sunshine in

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

The Broadway musical “Hair” broke many barriers with its revolutionary nude scene and treatment of sexuality and drugs in 1968. But what I remember most about the show is the music, particularly “Aquarius” and its stirring “Let the sunshine in” finale.

In Florida we know about the sun and so does California, which has taken a major step to harness the sun’s energy. Early last month, California became the first state to require solar panels on almost all new homes including single-family homes starting in 2020.

Nationally, solar power makes up less than 2 percent of the country’s electricity output according to the U.S. Energy Information Administration. And the combination of wind and solar power account for about 8 percent of the power generated in 2017, up only 1 percent in a decade.

The elephant in the room in California, and I’m sure in every other state, is what exactly will this new mandate cost homeowners? According to California’s regulators, the panels will increase the cost of construction to the average home by $9,500, however, the average nationwide cost of installing a rooftop solar panel system is $18,840.

There is a 30 percent renewable energy tax credit available, assuming Congress keeps extending it, but the panels require annual maintenance and possible repairs. There is, however, a saving in utility costs estimated in California at $80 a month, but coming up with a hard dollar figure in savings is difficult. Nevertheless, finding ways to switch to renewable energy should be a goal.

We are seeing more and more new construction communities building eco-friendly features. The LEED Certification (Leadership in Energy and Environmental Design) is sought after by developers. In order to be certified, buildings have to be designed, built and maintained using best practice strategies for green building and energy efficiency. Some of this includes improving energy performance and indoor air quality, using locally-sourced sustainable products, reducing potable water usage and building on sustainable sites to minimize environmental pollution.

Locally we have several LEED builders who are following the U.S. Green Building Council’s standards. LEED certified does add additional cost to the initial building, but developers indicate that the extra cost pays for itself, not only in energy savings but also in promoting an environmentally friendly lifestyle.

In Cortez, there is a new community of coastal cottages already approved that has been working with the Florida Solar Energy Center in its design. Not only will the community be an eco-friendly community but will also be zero energy ready, producing more energy than it consumes.

Florida is certainly one of the country’s prime states to use solar power, but unless and until the technology can make financial sense, it’s unlikely that both homeowners and developers will move forward at any substantial pace. Perhaps California’s mandate will provide the incentive for the solar industry to find ways to provide more affordable and convenient solar energy to individual homes.

I’m always a little suspicious of government mandates, but I’m more than willing to have California take the lead and become the solar power laboratory for the rest of the states. Hopefully, it will result in less expensive and more innovative technology. This could be the dawning of a new age of Aquarius, so let the sunshine in; it’s free.

Castles in the Sand

Taxes and second homes

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

By now, every homeowner should have had time to assess their tax position based on the Tax Cuts and Jobs Act of 2017 effective Jan. 1. If you haven’t, you have a lot of catching up to do, especially if you already own a second home or are in the market to purchase one. So, here’s a little review.

The interest on second homes is still tax-deductible as long as the total of the combined interest on both first and second homes does not exceed $750,000. The change for high-end buyers is that the deductible amount previously was a combined interest amount of $1 million.

The other change under the new tax regulations that could affect the second home buying market are changes to home equity loans and homeowners’ ability to deduct the interest on these loans. Previously, homeowners did not need to declare how the proceeds from a home equity line were being used. Frequently, homeowners would use the proceeds from these loans to fund the purchase of a second home. Now, however, the proceeds from a home equity loan or line of credit are mandated to be used to substantially improve the home that secures the line of credit or home equity loan in order to deduct the interest on the loan. Usually, it’s the primary home that is being borrowed against to fund the second home, which historically many Florida second home buyers did.

Despite this tax regulation, buyers may still decide to use a home equity line of credit or loan to purchase a second home, even though the interest will not be deductible. It may be to the benefit of the second home buyers to fund the property this way rather than liquidating financial accounts or obtaining another mortgage for the second home, which could put them over the $750,000 cap.

Depending on the size of the mortgage, a separate mortgage will probably work better for most buyers based on the new tax structure, especially considering that interest rates are still very low even for second homes. Naturally, cash has many benefits in a real estate transaction, especially since there is no mortgage contingency and properties can close faster. You always have the option of putting a mortgage on the second home down the road, which also would qualify you for a home equity loan on the second home at some point, all of which will be tax-deductible as long as you stay within the $750,000 limit.

We are, of course, talking here about high-end buyers with cash and the availability of other funds. With Anna Maria’s sales prices breaking into the $1 million dollar mark every day, we have a lot of second home buyers wanting to buy on the Island who are in this category.

This is something I wrote about several months ago when the tax bill was first signed, but I think it’s worth mentioning. There are economists that believe that reducing some of the tax subsidies for homeowners may actually increase the supply of homes that the market is struggling with.

The theory is if the demand for second homes goes down since there is less of an incentive to benefit from a tax write off, builders will start building more primary homes. In addition, they argue that some current second home owners might decide it’s more cost-effective just to make their second home their primary home, freeing up properties that will now be available on the market.

If you are in any one of these situations, you need to consult a tax expert and someone who is very familiar with second home mortgaging. My job is to make you aware of what could impact your decision to purchase a second home, and I hope I’ve done it.

Jumbo loans, jumbo prices

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

In the market for a high-end property, say over $1 million? You’ll have no shortage of choices on Anna Maria Island based on my latest three-month analysis of $1 million and over properties. But before you start looking for that high-end dream if you’re planning on financing it, you need to get acquainted with jumbo – no, not the elephant, the mortgage.

A jumbo mortgage is a home loan for an amount that exceeds conforming loan limits established by Fannie Mae and Freddie Mac, the government entity that purchases loans from lenders. If a loan amount is higher than a certain number, neither of the two government sponsored entities will purchase the loan. However, the conforming amount is not the same in all parts of the country and indeed not even in all counties within a state.

Manatee County’s conforming number is $424,100, which means that any home loan above this amount is considered a jumbo loan. This is a number that is around the national average, however, in very expensive areas of the country like New York City and San Francisco, it increases substantially.

Just like conforming home loans, jumbo loan home buyers have a wide range of choices from established banks to on-line loan lenders. You can go directly to a lender or you can use a broker who will seek out the best rate and terms for you. Another good idea for jumbo borrowers is to do business with banks where you may already have a relationship with, either through business or personal. Many of these lenders will keep jumbo loans on their books and not sell them on the secondary market.

So, let’s look at properties that have closed in April, May and June at over $1 million on Anna Maria and in Cortez that probably required jumbo financing. We’ll also look at over $1 million listings that are on the market as of this writing. Closed properties are from the Manatee County Property Appraiser’s Office and on the market properties are from the realtor.com website.

Cortez had one sale over $1 million during the three months analyzed, but it currently has six on the market and one pending between $1 and $2 million.

The city of Anna Maria had 15 sales $1 million or over during April, May and June with a high of $3,400,000. The city currently has 36 properties for sale and nine pending with a high of $4,995,000. There also are three listed over $3 million and three listed over $2 million.

The combined sold properties during April, May and June over $1 million for Holmes Beach and Bradenton Beach were 21 with a high of $3,495,000. On the market, as of this writing, there were 52 properties over $1 million and six pending. The top available property is $9,900,000, but there also is a property listed at just under $5 million, two over $3 million and eight $2 million or over.

The Island and Cortez continue pushing up the price point in this relatively small waterfront community. With almost 100 $1 million or over properties available, jumbo loan buyers can have a field day. Never-the-less, whether you’re a jumbo buyer or not, do your homework when shopping for a loan. There are many products to choose from, so choose wisely.

I’ll be back in three months with another look at our high-end market, which is starting to look less high-end and more normal. Where will it end?