The Cape Cod Real Estate Journal

Tax Consequences of Flipping Real Estate

2008-04-01T06:20:00.000-07:00

Kay Bell
Bankrate.com

During the heyday of continually rising real estate values, "flipping" -- buying a property and then reselling it at a higher price -- was all the rage.
In regions where property prices have fallen, flipping has flopped. But it still can be a worthwhile investment option as long as you also are aware of its potential pitfalls. Or, as accountant Bill Rucci warns, "It may not be as lucrative as you first thought."
Many people view real estate investing as more lucrative than the stock market. Plus, flippers enjoy the tangible aspect of the deal. Because property is "real," you can look at a house and neighborhood and get a personal take on whether it's a good investment.
If you're not careful with your real estate flips, though, your investment strategy could produce a sizable payoff for an unintended partner: the Internal Revenue Service.
Real estate tax confusionRucci, a CPA and partner in the Boston-based accounting firm Rucci, Bardaro and Barrett, says that many of today's real estate investors go into the transactions completely uninformed.
"There is a huge misconception on the part of some people who think they can buy a residential home, not necessarily their personal residence, fix it up and then sell it; and then get what we used to call 'the old rollover provisions,' where you used the money you made to buy another piece of property for more than what you sold," says Rucci.
But, says Rucci, there are two problems with that approach. "One, that rule existed for personal residences only; and two, it doesn't exist anymore."
The rollover rule was replaced in 1997 by the current law that allows, in many cases, for the tax-free sale of a personal property. This is a great tax break if you're selling your primary residence after having lived in it for several years, but it does nothing for you, taxwise, if you're selling a house in which you have never lived. In this case, the residence is an investment property, and the tax considerations are completely different and definitely more costly.
High expectations, higher taxesJust as costly is the mind-set of many real-estate speculators.
"We had tens of thousands of people getting into real estate. There was a gold-rush mentality that, 'If I invest in condos, I'll make money,'" says Mark Zilbert, a Realtor and real estate broker whose Zilbert Realty Group created an offshoot in 2005, CondoFlip, to tap the then-hot Miami marketplace where his company is based.
"The majority of buyers understand that they can flip for a profit, understand what it means dollarwise, but they don't understand that taxes could reduce just how much of a profit they make," says Zilbert.
Lonnie Davis, a CPA with the Philadelphia office of CBIZ Accounting, Tax and Advisory Services, agrees.
"The biggest issue during the real estate boom with prices rising very quickly, was that people wanted to capitalize on their gains, to take the money and run, so to speak," says Davis.
Invest in patience as well as propertiesInstead of running, a tax-smart flipper could benefit from a slightly slower investment pace.
Investment profit, regardless of whether it comes from sale of stocks or real estate, is considered capital gain and is taxed at two levels. The tax rates depend on how long you own the property.
Hold an asset for a year or less and you'll face short-term gains that are taxed at ordinary income-tax rates. This could be as high as 35 percent. If your investment time table is lengthier, federal tax laws reward you. By holding an asset for more than a year, you'll face the long-term capital gains rate that maxes out, in most instances, at 15 percent.
Not all flippers, however, are able to wait on their profit, even when facing the threat of higher taxes.
"They have this brilliant idea to buy a house, buy a residential piece of property, fix it up and sell it; and then they want to do it for a new piece of property," says Rucci. When flippers find out they don't get the residential replacement rollover, they say "'OK, I made money. I'll pay the tax and buy another house.'"
Such an approach could indeed net more cash. But continual property flipping also could create additional tax problems.
IRS eyes flippersWhen you complete several real estate transactions in a short time, don't be surprised to learn that the IRS might consider your property transactions as a business or trade rather than as an investment strategy, says Davis. In that case, there's no way to get out of paying the higher ordinary income tax rates.
So what's the business-versus-investment determining factor when it comes to property flipping? As with many tax issues, it depends.
"It's a facts-and-circumstances test," says Davis. "There's no rule of thumb that says: Buy three houses, you'll get capital gains; buy five and you're a dealer-trader. The IRS looks at whether the activity is really a business.
"Are you buying, renovating and holding multiple properties? What's the frequency of the buying and selling? If you're acquiring 15 properties in a year and that's pretty much what you do, then the IRS will likely determine that you're a dealer."
And make no mistake about it, the IRS is looking closely at these transactions. Much attention has been given recently to the tax gap: the amount of money the IRS believes it is owed but hasn't been able to collect. Collecting taxes on real-estate-flip profit is one way to close that gap.
"The IRS is out looking for these transactions," says Rucci. "If the IRS decides your investment is a business; that what you're doing is to earn a living, the property changes from a capital asset to a means of producing income that's subject to ordinary tax rates, plus the additional burden of another 15.3 percent in self-employment taxes. And that's what the government is pushing for."
Zilbert agrees.
"There's going to be a wake-up call for tens of thousands of people," says Zilbert. "They made good money. Still, they'll see a dramatic reduction from what they thought they would make."
Flipping the tax tablesTax costs, though, aren't going to deter some flippers, says Zilbert, especially those who are able to purchase in areas where property is still appreciating, albeit at a slower pace, or who have held the property long enough to see substantial gains.
"I work with many investors who say, 'We love to pay taxes, because it means we're making money.'"
But there are ways to pay less tax on a property-flip profit.
The easiest is the aforementioned capital-gains technique. Simply hang on to the property for more than a year and you'll pay long-term capital gains taxes instead of higher ordinary rates. As long as you're planning your capital-assets strategy, see if you can sell the money-making real estate during the same tax year that you suffer a loss on another long-term asset. That way, you can use the loss to offset your gain.
Want to avoid taxes altogether? Move into the investment property and turn it into your primary residence. As long as you live there for two years (or a total of 730 days -- and the occupation time doesn't have to be sequential) out of the last five, says Davis, the IRS will accept that it was your home. Then when you sell it, up to $250,000 (twice that if you're married and file jointly with your spouse) of your profit is excluded from taxation.
You can also defer tax on your real estate gain by exchanging it for another property, known as a like-kind or Section 1031 exchange.
"The parameters here basically can be pretty broad, as long as you trade an investment property, or business property, for a similar one," says Davis. "For instance, you can swap undeveloped land for developed land, or vice versa. You can swap a residential rental home for a commercial property. The only restriction: The exchanged property can't be a personal asset. It has to be an income-producing asset."
Keep in mind that a like-kind exchange will only postpone your tax bill. When you ultimately dispose of the investment property you acquired in the exchange, you'll owe taxes.
Some property speculators incorporate in an effort to reduce or avoid taxes, but Davis says, "Whether you incorporate or not really doesn't change the tax law. The main benefit of incorporation is that you segregate your business activities from your personal so there's no personal liability, but incorporating doesn't change tax consequences."
In fact, incorporating could make tax matters worse. "If you incorporate, that lends more credibility to the fact that it is a business, because you're letting the world know that there's an entity out there doing this," says Rucci.
Proven tax-reduction tacticFinally, when flipping properties, make sure you follow one of the time-tested ways to reduce taxes: Keep good records. Such documentation can help you claim real estate investment deductions.
When you invest in a property and then make improvements, those costs can be used to offset your eventual tax bill. Rucci recommends a separate checking account for each piece of property. Commingling the costs associated with several investment properties, or even one investment property and your personal bank account, can lead to confusion and potential tax problems.
Rucci helped a client who came to the Boston CPA's office for help in answering IRS questions about three property flips. Rucci was able to convince the tax examiner that the client was indeed an investor, not a businessman buying and selling real estate, thus avoiding any self-employment tax assessments.
However, Rucci didn't have as much success when it came to write-offs on the properties. The client had not been keeping good records of his real estate improvements, and the IRS disallowed some of the property-related deductions.
"Now that he's our client, he'll be doing a better job in that area," says Rucci.
© Copyright 2008 Bankrate, Inc. All rights reserved

Lower and Outer Cape Market Report 3/11/08

2008-03-19T04:35:00.000-07:00

The best statistic to gauge how the market is currently performing is to look at "pending sales", so let's take a quick look at todays' numbers:

Brewster 14 pending sales Avg price: $456,664

Chatham 15 pending sales Avg. price:$1,159,287

Eastham: 16 pending sales Avg price $637,719

Harwich: 40 pending sales Avg price $619,792

Orleans 17 pending sales Avg price $819,988

Wellfleet 11 pending sales Avg price $719,118

These numbers hardly appear to offer an argument for any sort of a buying opportunity and might be slightly misleading for would be sellers, but let me give you a little context and see if you don't agree that now might be the time to "get off the sidelines" no matter which side of this you are on.

One of the most frequent responses I get, from prospective buyer clients lately, when I pass this information along as part of my regular market updates, is " Well, this information is better for you than me... it doesn't look like this area of the Cape has gotten its share of the bad market yet...but it will, and I will buy next year after prices come way down!" This line of thinking is probably faulty on a number of accounts...let me point out a few of the most important.

First, Time Magazine ran a piece last week titled, "Ignore the Headlines!" by Dan Kadlec, where he notes that Fed rate cuts always "lift the economy eventually." He also makes the case that buying a home today will beat waiting another year even if home prices drop an additional 10 percent. In the article, the author makes a case that is impossible to argue with.. To buy a $218,900 home at 5.5 percent is $994.31 a month. To buy next year at $197,010 at 6 percent will cost $994.94. The irony is that in the time Kadlec did his research and when the magazine came out, interest rates were already back over 6 percent, making his example all the more compelling. Does it make any sense to hold off six months to a year to save $.63 cents a month? And that's assuming that sellers, in this generally affluent market, will participate in reducing their properties an additional 10%..... Now, the figures the author used to illustrate his point are much lower than likely sales prices here, but the point still holds true.

Secondly, and along the same lines, as part of the stimulus package the feds recently rolled out, the conforming rate mortgage price limit was just raised considerably, allowing many of our properties to be bought without incurring much higher "jumbo" mortgage rates. For many properties here, buyers buying power jumped exponentially overnight. However , this "gift" is not permanent...this arrangement is set to expire in 2009. For prospective buyers, this offers an opportunity to buy much more house, for the same dollar, than you could a few weeks ago..if you are a prospective seller, well..., it means exactly the same thing to you in reverse.

Third, and this is where I can offer only anecdotal information, this is the "land of the discretionary seller". That is to say that this area of the Cape is, in general, a very affluent area and the real estate market does not necessarily have to default back to any affordability index based on local median incomes in times of economic slowdown.

Most owners here have their properties on the market because they feel like market conditions are such that they can get a "fair" price for their property that would be consistent with market pricing of the last few years...given the prospect of having to significantly discount their properties to move them, they will either be content to just let them sit on the market, possibly with a modest reduction here and there or refuse to sell the property altogether and either rent the property seasonally or simply pull it from the market and wait things out.

A large part of our historically high inventory levels, often used by market watchers as a sign of current or pending weakness, have been at essentially the same levels for a number of years..as you can see above, pricing has not nose dived in response.

What you should see in the data listed above is, in general, the "smart money" identifying and buying the properties where there is a pressing need, whether financial or otherwise to sell. There are opportunities here for buyers to find relative bargains...but, you must know the market to be able to recognize these pockets of “vulnerability”

For a daily email update of the best values in these markets, contact us at caperealestate@hotmail.com

2008-03-08T15:25:00.000-08:00

The Listing Agent - Preliminary Marketing of Your Home

The "Real" Role of a Listing Agent

When you bought your home, you probably used the services of a real estate agent. You found that agent through a referral from a friend or family member, or through some sort of advertising or marketing. The agent helped you in many ways and eventually you found the house of your dreams, made an offer, closed the deal, and moved in.

For whatever reason, now it is time to sell your home and you need a real estate agent again. Many home sellers, especially those selling their first home, tend to think all agents are similar to the one that helped them buy their home.

Although real estate agents can (and do) work with both buyers and sellers, most tend to concentrate more on one than the other. They specialize. When you bought your home, you probably worked with a "selling agent" – an agent that works mostly with buyers. Because of the nature of real estate advertising and marketing, the public’s main image of the real estate profession is that of the selling agent (buyer's agent).

As a result, many homeowners expect their listing agent to do the same things that a selling agent does – find someone to buy their home. After all, they do the things you would expect if they were searching for buyers. A sign goes up in the front yard. Ads are placed in the local newspaper and real estate magazines. Your agent holds an open house on the weekend. Your house is proudly displayed on the Internet.

But this is only "surface" marketing. More important activity occurs behind the scenes. After the "for sale" sign goes up and flyers are printed, your agent’s main job is to market your home to other agents, not to homebuyers.

The Listing Agent - Marketing Your Home to Other Agents

The Multiple Listing Service

Even before the sign is up and the brochures are ready, your agent should list your property with the local MLS (Multiple Listing Service). The MLS is a database of all the homes listed by local real estate agents who are members of the service, which is practically all of the local agents.

Important information about your property is listed here, from general data such as square footage and number of rooms, to such details as whether you have central air conditioning or hard wood flooring. There should also be a photo, and a short verbal description of what makes your house "special."

Agents search the database for homes that fit the price range and needs of their clients. They pay special attention to homes that have been recently placed on the market, which is one reason you get a lot of attention when your house is first listed. Many agents will want to preview the home before they show it to their clients.

The main point about having your house listed in the MLS is that you expand your sales force by the number of local MLS members. Instead of having just one agent working for you, now you may have hundreds or more, depending on the size of your community.

The listing agent’s main job to make sure that the other MLS members know about your house. This is accomplished through listing your house in the Multiple Listing Service, broker previews and advertising targeted toward other agents, not homebuyers.

2008-03-08T15:23:00.002-08:00

Are Open Houses a Waste of Time?

Desperate measures
Nationwide, home sales are expected to drop this year, and sellers in many markets are already dropping their prices. That may prompt more sellers to compel their listing agents to turn to open houses as a last-ditch effort to secure a buyer at last years pricing.

In a buyer's market, if you are a seller you want to try everything. Though this may feel good because something “proactive” is being done to get the house sold, you need to be thoughtful about how various actions will be perceived by buyers and their agents. We do quite a bit of work as buyers agents and one of our favorite tactics to identify the most vulnerable properties, is to watch for the properties that run open houses week after week, month after month...we know that the agents know they don't work, so, there must be a very anxious seller in the background demanding that they be held.....
I love open houses, but not because they move my properties. The real reason most agents hold them is because they bring more business….other business. Prospective home buyers often walk through my open houses, find the property is not suitable for them, then ask what other listings I have....the "dirty little secret" of our industry is that open houses have always been better for agents than sellers!

The proliferation of Internet listings and other online real estate information is quickly making open houses more of a "long shot" option, rather than a requirement for selling a home. In 1995, just 2% of home buyers used the Internet to look for a home, according to the National Association of Realtors. Last year, 87% of home buyers started their shopping online. ..In the markets where open houses statistically work best, only 2% to 4% of listings sell from open houses.
Agents, sellers question effectiveness
For the most part, after the initial two or three open houses, I don't like to hold open houses for my listings unless sellers press the issue. Statistically, most sales will come primarily from my contacts with other agents and from the multiple listing service. Many agents now refuse to hold open houses, considering them a waste of time, and a security threat. And many sellers now prefer to open their doors to serious buyers only.
Open and shut
Consumer sentiment about open houses has waxed and waned over the years, along with the ups and downs of the real estate market. In 1995, 41% of buyers surveyed relied on open houses to buy their home, according to data from the NAR. By 2000, it had dropped to 28%. Beginning in 2003, however, as the market started to heat up again that number began rising. By 2005, the last year for which data is available, 51% of all sellers were using open houses, though not all agreed they were effective. Some 45% of sellers found open houses only "somewhat useful" and another 12% didn't consider them useful at all, according to the NAR. "Many sellers are just a little bit leery of having an open house," says Pat Vredevoogd, agent and broker-owner of AJS Realty in Grand Rapids, Mich., and incoming NAR president. Some, she says, are worried about letting complete strangers roam freely through their house, with access to electronics, jewelry, prescription drugs and personal information. Others just don't want their neighbors and a host of other so-called "looky-loos" wasting their time just for a look at their décor. And many agents won't do them for security reasons, as a number of their fellow Realtors have been attacked and some even killed, as they sat in an empty house alone and vulnerable. Vredevoogd, herself, isn't keen on them. While they have proved helpful over the years on some of her more expensive listings, most didn't produce a sale. "Over the past year, maybe two or three of the 50 houses I sold were from an open house," she says. "Personally, I think it's a waste of time. It's one of those things that has gone by the wayside." Before jumping into an open house, Vredevoogd counsels her clients to put the house up on the local MLS and other Web sites, with a lot of pictures and perhaps a virtual tour, if the home has a lot of nice features. She sends out a barrage of e-mails to other agents and makes a lot of calls. If the house isn't getting a lot of interest, only then will she go through with an open house.
When open houses still make sense
Open houses are effective in the very beginning of the marketing period as they serve two very useful functions: 1) They allow brokers/ agents who were working on MLS tour day to preview your home for clients without having to set up a private showing. 2) At the start of the marketing period, when the home is new to market and interest may be high, open houses can contribute to the sense that the property is very ”active” and may create a desirable sense of urgency on the part of prospective buyers and their agents.

Zillow or a Listing Agent

2008-03-08T15:23:00.001-08:00

"In the year since its launch, Zillow Inc. has made millions of Americans familiar with computer-generated estimates of home values, created a new online addiction and become a staple of dinner-party chatter.

But just how accurate is it? A Wall Street Journal analysis of 1,000 recent home sales shows that Zillow's "Zestimates" often are very good, frequently within a few percentage points of the actual price paid. But when Zillow is bad, it can be terrible -- off the mark by more than 25% on one in 10 homes. In one case it was off by $2 million. Zillow, based in Seattle, operates a Web site that offers free estimates and other online tools for real-estate buyers and sellers. It draws revenue from online advertising.

Fall City, Wash.

Zillow estimate: $661,756

Sold for: $2,690,000

The Journal looked at transaction prices recorded for 1,000 recent home sales in seven states, using data from First American Real Estate Solutions, a data provider in Santa Ana, Calif., and compared those prices with Zillow estimates, which didn't yet reflect the sales. The median difference between the Zillow estimate and the actual price was 7.8%. (That was close to the 7.2% median "margin of error" reported by Zillow itself on all transactions involving homes whose value it has estimated.)The estimates were about equally split between ones that were too high and those below the mark.

Zillow came within 5% of the price in a third of the transactions studied by The Journal. It was more than 25% off target on 11% of them. In 34 of the 1,000 transactions, Zillow was off by more than 50%.

Zillow had estimated that a four-bedroom, 7,600-square-foot home in Fall City, Wash., was valued at $661,756. The home, built last year, sold in early January for $2.7 million. "If you don't visit the property, you're never going to know that it's in an exclusive, gated part of the neighborhood," says Maria Danieli, who represented the sellers. Ms. Danieli says Zillow may be fine for "cookie-cutter" neighborhoods but "they can't compute" the values of the luxury homes she sells.

Zillow executives acknowledge that the estimates can be way off in some cases. The estimate "is a starting point" for people trying to figure out how much a home should cost, says Amy Bohutinsky, a spokeswoman for the company. "We don't recommend it as the final word."

Sometimes the estimates take big lurches in brief periods as Zillow's computer analyzes the latest home-sales data, updated weekly. "My God!" said Jonathan Miller after he looked up his own house in Darien, Conn., on Zillow last week. "My value has dropped 25% in six months. There's no way -- that would be the market collapsing!" Zillow has the house pegged at $1,442,851, down from about $2.1 million last July. Mr. Miller, chief executive officer of Miller Samuel, an appraisal firm based in New York, watches his local market closely and figures his home is valued at around $1.9 million.

El Cerrito, Calif.

Zillow estimate: $544,361

Sold for: $80,000

Zillow can be quite accurate in some markets, Mr. Miller says, but he argues that the estimates are hit or miss. He suggests that Zillow should produce only an estimated price range rather than an exact figure: "When you go down to the $1 level, you're implying precision." Ms. Bohutinsky, the Zillow spokeswoman, notes that Zillow produces both a range and a precise estimate and says users like both.

Zillow also missed the target for Josh Benton, a management consultant at Kurt Salmon Associates in Atlanta. He sold a home last fall for about 15% more than Zillow's estimate. Still, Mr. Benton says he found Zillow useful for getting a sense of the relative value of houses in a neighborhood. And he liked the site's aerial views of neighborhoods as a research aid. "Overall, it's an excellent site," he says.

Zillow's estimates come from a proprietary computer program that takes into account sale prices for nearby homes that appear comparable, the size and other physical attributes of the home, its past sales history and tax-assessment data, says Stan Humphries, vice president of data and analytics.

Zillow tends to work best for midrange homes in areas where there are a lot of comparable houses, he says. It is less accurate for low- and high-end homes because there are fewer of those and thus less data available from comparable sales, known as "comps." Values of rural homes are hard to gauge for the same reason. Partly for that reason, none of the Web sites can offer 100% coverage of U.S. homes; Zillow says it has estimates on about 57% of all homes.

Even where there are numerous apparent "comps," computer programs like Zillow's can stumble when vital information is missing. Data fed into the computer, for instance, may not reflect the fact that a house has just been remodeled, destroyed by fire or put into foreclosure. Reported prices can be misleading, too. Sometimes homes are sold between family members for a token price, or sellers offer incentives to buyers, such as help with closing costs, that aren't reflected in the recorded price.

Zillow isn't the only site offering such free estimates. Others include RealEstate.com, RealEstateABC.com and Reply.com. But Zillow's site gets more traffic than those rivals. All of these sites appear to have overestimated the value of a house on Olivant Street in a tough area of Pittsburgh that sold for $700 last year in an auction of foreclosed homes. As of early this month, Zillow estimated the value at about $33,000, RealEstate.com at $57,000, Reply.com at $69,000 and RealEstateABC.com at $86,000. Several nearby houses are abandoned or boarded up, blighting the block -- something computer models don't take into account.

Northbrook, Ill.

Zillow estimate: $450,565

Sold for: $970,000

Zillow lets users try to correct for things computers might miss. For instance, people can use Zillow's "my estimator" tool to account for the value of remodeling or to choose what they regard as the most relevant "comps," screening out those that aren't really similar homes.

Real-estate agents and appraisers tend to sneer at Web site valuations and insist that consumers still need their local expertise to get a true idea of values. Masood Samereie, an agent at Century 21 Hartford Properties in San Francisco, says one of his clients last year lost his chance to buy an attractive home because, relying on Zillow, he made an unrealistically low offer."

To receive a free opinion of value report for your home ,from an experienced real estate agent, please click here. We will factor into this report all the variables that the websites listed above can miss..there is no obligation and you will not be contacted after we send you the report unless you request it. All requests are confidential.

Written by James R. Hagerty at bob.hagerty@wsj.com-- Alison Van Camp contributed to this article.

2008-03-08T14:10:00.000-08:00

Media Begins To Suggest It's Time To Buy A Home
It's starting as just a trickle, but some media outlets are beginning to call a bottom and are encouraging readers to get off the sidelines.Unrelenting reporting of a recession continues to keep consumers fearful, (whether or not a recession actually occurs) keeping pent-up demand for housing "on the sidelines." Some members of the financial press, however, are beginning to suggest that a bottom is near, and that buyers should get out and start looking for bargains in homes. Time Magazine ran a piece this week titled, "Ignore the Headlines!" by Dan Kadlec, where he notes that Fed rate cuts always "lift the economy eventually." He also makes the case that buying a home today will beat waiting another year even if home prices drop an additional 10 percent. In the article, the author makes a case that is impossible to argue with.. To buy a $218,900 home at 5.5 percent is $994.31 a month. To buy next year at $197,010 at 6 percent will cost $994.94. The irony is that in the time Kadlec did his research and when the magazine came out, interest rates were already back over 6 percent, making his example all the more compelling. Does it make any sense to hold off six months to a year to save $.63 cents a month? And that's assuming that sellers, in this generally affluent market, will participate in reducing their properties 10%.....

2008-03-07T15:02:00.001-08:00

The Federal Reserve has lowered short-term interest rates twice in the past week by a total of 1.25 percentage points. (They lowered the federal funds rate, not the prime lending rate, though that falls in lockstep with the former.) Many people are excited because they believe this will lead to lower rates on fixed-term mortgages, meaning the average person may be able to save big bucks by refinancing. Contrary to popular belief, the federal funds rate does not directly affect mortgage rates. According to Bankrate.com:

Mortgage rates have declined dramatically over the past several weeks. But the Federal Reserve’s latest rate cut does not guarantee that rates will keep dropping. In fact, mortgage rates often climb following a cut in the federal funds rate, and actually rose about 50 basis points after the Federal Reserve announced its emergency 75-basis-point cut Jan. 22.

the Fed cut rates by 0.75% last week, but mortgages climbed by 0.50%. Mortgage rates are affected by 10-year Treasury Bills.

Take a look at this graph from HSH Associates:

The green line represents the federal funds rate. The blue line represents the U.S. national average on 30-year fixed mortgages. Both lines trend downward, but otherwise seem unrelated. If anything, the mortgage rate appears to be a precursor to the federal funds rate. Again, it seems clear that the federal funds rate does not directly affect mortgage rates. Then what does? According to an HSH Associates article on the subject, the answer is complex. “Fixed mortgage rates, like other bonds, track US Treasury bonds quite well,” the authors write. However, they’re quick to add, “There is no specific ‘lockstep’ relationship between Treasuries of any term and fixed mortgage rates.” Jericho Hill , an economist, noted, “Thirty-year rates are largely affected by the supply and demand of funds available for long-term loans, and by the anticipated inflation rate. If the Fed’s moves lead to expectations of higher inflation, guess what that would do? Raise mortgage rates!” Now may or may not be a good time to refinance your home. But don’t count on a drop in the federal funds rate to yield a corresponding drop in mortgage interest rates.

Cape Cod Real Estate Market Update:

2008-02-20T04:55:00.001-08:00

By Sean Fields • KinlinGrover

The sky is falling! The sky is falling!..or is it? Relentless,daily media assaults would ask you to believe that the good real estate market of the early 2000's has come to an end.

But has it? You decide after taking a look at the current lower Cape Cod sales activity:

Orleans 14 pending sales median price: $762,000

Eastham 16 pending sales median price: $489,700

Brewster 12 pending sales median price $392,000

Chatham 19 pending sales median price $1,149,000

Harwich 21 pending sales median price $379,900

What do you think? Does this resemble what you are hearing or reading about in the news? and remember three things before you read the stats again: this only accounts for single family home sales...no condos, commercial or land sales are included in these figures... median pricing means half sold above and half sold below the prices listed above and all this activity took place prior to the historical kick off to the spring selling season. hmmm....

Find the best real-estate agent

2008-02-12T05:06:00.001-08:00

The market is saturated with agents these days, and many are beginners or part time. Below are the eight questions you can ask to separate the average agents from the experienced , successful ones. Whether you're buying or selling, the difference between having an average real-estate agent or a superstar will likely mean thousands of dollars in your pocket. It can mean selling your home for the top dollar the market is willing to give or, if you are buying, losing the property of your dreams to a more organized, better represented buyer .

Referrals:

Over the past six years, nearly 600,000 new agents joined the National Association of Realtors, roughly doubling its membership between 2000 and 2006.

Based on the number of sales, that means that we have literally hundreds of thousands of agents that have never sold a house or have sold a couple to family members or friends.... in the recent sellers market we just experienced, that may have been o.k. because yearly, double digit appreciation was covering wild over pricing mistakes on the listing side and buyers paying 10's of thousands more than the market data dictated they should, looked like geniuses a year after the sale because what they purchased was worth multiples over what was paid. Now, it's an entirely different story...increasingly cautious, value conscious buyers want and need to have a thoughtful discussion regarding value before making a purchase...the "door opener" style agent will leave you at a distinct competitive disadvantage in this market.

The best way to find an agent, real-estate professionals say, is by getting a recommendation from someone you trust. Not only is somebody elses experience the best predictor of your satisfaction, but, since an agent's personal network is his lifeblood, he is likely to work harder knowing that a friend or client will hear about his performance.The agent you are interviewing should be able to provide you with a lengthy list of testimonials from clients in recent transactions.

But even with a good referral, you owe it to yourself to find one or two other promising candidates to screen. You can locate agents in newspaper ads, by stopping in at open houses or by cruising the area where you want to live, noting agents' names on the for-sale signs.

8 questions to ask real-estate agents

Interviewing candidates serves two purposes: You get an education about your local market while learning how the agent proposes to represent you. Ask very detailed questions and be prepared to receive answers that may be counterintuitive to your expectations about how you believe your home should be marketed. For example, most agents ,that are active and successful in this market, should tell you that open houses and print media advertising are statistically negligible ways to get your house sold..and are often better for the agent than they are for you! Be open to the answers, but insist that the agents back up what they are telling you with market data and thoughful analysis.

Here are the most-important areas to investigate:

May I see your resume?

Since you're searching for an above-average agent, look for evidence of advanced training ...

There are about 2.6 million real-estate agents in the country. They're licensed by their states, and each state's licensing and education requirements are different. (Use the Association of Real Estate License Law Officials' site to check an agent's license. Click "consumer" to get started.) About half of the agents belong to the National Association of Realtors. Those members call themselves Realtors. NAR membership doesn't have to be a deal breaker, but it provides some assurance, since the industry group requires ethics training periodically and members must subscribe to its code of ethics.

What's your commission?

Commission amounts aren't cast in stone anywhere. They can be negotiated -- and often are.

Negotiating works best when homes are selling quickly and easily. Today, with longer marketing periods now the norm, listing (selling) agents have to work harder to sell properties and the best agents may be unwilling to dicker. If you do find an agent willing to negotiate, consider it just one of the many factors to weigh before choosing a professional to sell your home.

What makes you special?

Don't settle for someone who just promises to show you homes or list, advertise and sell your place; every agent has to do those things.... What you want to know is, "How will you present my home to value conscious, cautious buyers and their agents? Exactly what sales information will you be using to defend my asking price?

How often will I hear from you?

Your agent's communication style and availability should mesh well with yours. Prepare for your agent interviews by asking yourself whether, for example, you'd need a twice-weekly check-in, even if there are no homes to visit. Do you expect a report after someone tours your house for sale? Do you prefer to keep in touch through phone calls or e-mail? How promptly do you want a response? While you're inquiring about the agent's availability, remember to ask who will return your calls and show houses if your agent is out of town.

What's your plan for marketing my home?

Unless they are personally willing to write the big check,No agent can guarantee they'll sell your home. But he or she can tell you what steps she'll take to bring it to the attention of buyers. Press for details like, "Are you going to post this on a Web site? Put an ad in free magazines in a shopping center? What type of mailing campaign will you use and how many pieces per month do you generate?"

Once you've selected an agent, you should request a one-page list of actions, each with a target date. Incorporate the plan in your sales contract so you can track your agent's progress and have documentation if he/she fails to live up to the agreement.

How many transactions did you complete last year?

Some agents keep score in dollars, saying, "I sold $50 million in real estate last year." But property values in this market, allow for the possibilty that well connected, part time agents are able to rack up millions of sales dollars in very few transactions, so what you really want to ask is, "How many deals did you complete?"...and maybe more importantly, " May I have the contact information for the sellers of the last six properties you sold , so that I can get their take on how you represented them?" If the agent did the same great job with these people that they are now promising you, there should be no hesitation in giving you this information.

Super salespeople or the "Mega Producers" can be a mixed blessing. The bonus is, they're likely to be knowledgeable (but not always). But a superseller is likely to be too busy for hand-holding. "If a solo agent is selling more than 70 homes a year, they're not going to have time for you"

What do you know about the neighborhoods where I want to live?

A super salesperson is no good to you if she isn't doing an active business in your target neighborhoods, so ask how many of the homes she sold last year were located where you want to buy and how many listings she has there now.

Really great professionals specialize in one -- or maybe two -- communities. Nellis says he declined a friend's request to help her find a home in a nearby city because he didn't know the place and could not help her unearth the particulars she needed -- everything from planned airport flight paths to zoning-regulation changes to freeway expansions -- that determine a property's true value.

Agents have a wealth of data at their disposal from local multiple listing services. Good ones will share it, educating you about the median income and educational level of a neighborhood's residents, for example, or telling you what proportion of residents work close to home or suffer long commutes. They can't discuss school performance or crime -- that would violate fair-housing laws. But they should point you to Web sites where statistics on crime and school performance are listed, one of which is Sperling's Best Places. (Read more about what they can't tell you here.)

Are you a solo agent or part of a team?

There's no right answer to this question. Due to the 24/7, always connected, nature of the business these days, teams are growing in popularity. They're good for engaging several individuals' expertise at once and for allowing high-powered salespeople to concentrate on what they do best, offloading to associates tasks like filing and tracking documents, dogging details and showing houses. Being part of a team lets a salesperson handle more listings more attentively.

But a team is only as good as its players. You can have a team with a crummy Web site and no real sales experience .

When you get right down to it, choosing the wrong agent can cost you thousands of dollars and there's no way better way to avaoid that than sitting down with a few agents and asking alot of questions.

2008-02-09T13:51:00.001-08:00

When Your Selling Price is too High, Beware! Meeting With Realtors

So you’ve decided to sell your home and have a fairly good idea of what you think it is worth. Being a sensible home seller, you schedule appointments with three local listing agents who’ve been hanging stuff on your front doorknob for years. Each Realtor comes prepared with a "Competitive Market Analysis" on fancy paper and they each recommend a specific sales price.

Amazingly, a couple of the Realtors have come up with prices that are lower than you expected. Although they back up their recommendations with recent sales data of similar homes, you remain convinced your house is worth more.

When you interview the third agent’s figures, they are much more in line with your own anticipated value, or maybe even higher. Suddenly, you are a happy and excited home seller, already counting the money.

A Sales Practice Called "Buying a Listing"

If you’re like many people, you pick Realtor number three. This is an agent who seems willing to listen to your input and work with you. This is an agent that cares about putting the most money in your pocket. This is an agent that is willing to start out at your price and if you need to drop the price later, you can do that easily, right?

After all, everyone else does it!

The truth is that you may have just met an agent engaging in a questionable sales practice called "buying a listing." He "bought" the listing by suggesting you might be able to get a higher sales price than the other agents recommended. Most likely, he is quite doubtful that your home will actually sell at that price. The intention from the beginning is to eventually talk you into lowering the price.

Why do some agents "buy" listings this way?

There are basically two reasons. A well-meaning and hard working agent can feel pressure from a homeowner who has an inflated perception of his home’s value. On the other hand, there are some agents who engage in this sales practice routinely.

What Happens Behind the Scenes

If you start out with too high a price on your home, you may have just added to your stress level -- and selling a home is stressful enough. There will be a lot of "behind the scenes" action taking place that you don’t know about.

Contrary to popular opinion, the listing agent does not usually attempt to sell your home directly to a homebuyer. That would be inefficient.

Listing agents market and promote your home to the hordes of other local agents who do work with homebuyers, dramatically increasing your personal sales force. During the first couple of weeks your home should be a flurry of activity with buyer’s agents coming to preview your home so they can sell it to their clients.

If the price is right.

If you and your agent have overpriced, fewer agents will preview your home. After all, they are Realtors, and it is their job to know local market conditions and home values. If your house is dramatically above market, why waste time? Their time is better spent previewing homes that are priced realistically.