Agents get slight mileage deduction help for second half of 2011

By Jim Droz

Most real estate agents and brokers spend a lot of time in their car, with some agents logging more than 20,000 miles a year for business purposes alone.

Fortunately, local transportation costs are deductible as business operating expenses if they are ordinary and necessary for your real estate business. It makes no difference what type of transportation you use – car, SUV, limousine, motorcycle, taxi – or whether the vehicle you use is owned or leased.

If you drive a car, SUV or van for business, you have two options for deducting your vehicle expenses: use the standard mileage rate or deduct your actual expenses for gas, depreciation and other driving costs.
Most people use the standard mileage rate because it is simpler and requires less record keeping: You need only to keep track of how many business miles you drive, not the actual expenses for your car, such as the amount you pay for gas.

If you use the standard mileage rate, there is good news: Due to the rising cost of gas, the Internal Revenue Service has increased the mileage rate for the second half of 2011. It isn’t a huge sum but worth taking advantage of nonetheless.

How the standard mileage rate works

Under this rate, you deduct a specified number of cents for every business mile you drive. The IRS sets the standard mileage rate each year. Ordinarily, there is a single standard mileage rate for the entire year. However, there are now two rates for 2011:

• 51 cents per mile for all business driving during Jan. 1- June 30.
• 51.5 cents per mile for driving during July 1- Dec. 31.

To figure out your deduction, multiply your business miles by the applicable standard mileage rate.
If you choose the standard mileage rate, you cannot deduct actual car operating expenses, such as maintenance and repairs, gasoline and its taxes, oil, insurance and vehicle registration fees. All of those items are factored into the rate set by the IRS.

The only expenses you can deduct are:

• Interest on a car loan.
• Parking fees and tolls for business trips.
• Personal property tax that you paid when you bought the vehicle, based on its value. This is often included as part of your auto registration fee.

You must use the standard mileage rate in the first year you use a car for business or you are forever foreclosed from using that method for that car. If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that, provided the requirements listed below are met.

For this reason, if you’re not sure which method you want to use, it’s a good idea to use the standard mileage rate the first year you use the car for business. This leaves all your options open for later years.

Find us on Google+

Firm reports a stabilization of ‘normal’ home prices

By Jim Droz

Prices of “normal” homes — those that aren’t foreclosures or short sales — are stabilizing and the numbers of future foreclosures are falling. That “sliver of good news for consumer spending” was included in CoreLogic’s July report on housing and market trends.

In May 2011, the firm’s Home Price Index excluding distressed sales only dropped 0.4 percent from a year ago, compared to a decline of 7.4 percent for the all transactions measured by the HPI. Even while including distressed sales, the HPI increased between March and April — the first time in more than six months — and was up again between April and May.

“These increases represent the resumption of seasonality in home prices and are a positive sign for the market,” the report said. “When disaggregating median prices by type of sale for the first complete month of the spring home buying season, it is clear that despite the whipsaw impact of the federal homebuyer tax credit, state homebuyer tax credits and increases in FHA premiums, non-distressed median existing and new prices are back to 2009 levels.”

Although the distressed sales share remains high, the geographical sources of distress are shifting and becoming more dispersed. As of December 2008, four of the top five largest distressed sales markets were all located in California, and the top five markets averaged a distressed sale share of 68 percent. As of April 2011, only two of the top five markets are in California and, more importantly, the top five average distressed share was 56 percent — a 12 percentage point decline relative to top markets in late 2008.

Find us on Google+

Metro area foreclosures are down, but sluggishness continues

By Jim Droz

Foreclosures declined in more than 84 percent of U.S. metro areas during the first half of the year, according to the latest report from RealtyTrac, an online marketer of foreclosed properties. But that doesn’t mean these markets are staging a turnaround.

“These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country,” said RealtyTrac CEO James Saccacio, whose firm reported in July that the national foreclosure rate fell 29 percent over the past 12 months.

Much of that backlog, he said, is due to a glut of already-foreclosed properties that the banks are having a hard time selling and to the slowdown in the processing of foreclosures. The biggest decline in foreclosures has come in judicial foreclosure states where defaults go through the courts and paperwork is scrutinized by judges.

Las Vegas – ground zero for mortgage defaults the past few years – continues to get bombarded with the highest rate of foreclosure filings in the land. One in every 19 homes in Sin City and the surrounding area got plastered with a foreclosure filing during the first half of 2011. That was six times the national rate, according to RealtyTrac.

Foreclosures and home prices

According to recent analysis by Standard and Poor’s, which examined RealtyTrac’s metro area foreclosure data against price changes for the 20 cities in the S&P/Case-Shiller home price index, trends in home prices and foreclosures are closely tied.

“When compared to the peak-to-trough price declines for each of the 20 cities, prices drops and foreclosure events are correlated at 87 percent,” said David Blitzer, S&P’s chairman of index committees.

Typically, that would mean a drop in foreclosures would have a positive impact on home prices, Sharga said. But not this time.

“There is enough of a backlog of distressed inventory that there will be little or no short-term benefit,” he said.

The slowdown in foreclosure processing could help some borrowers buy extra time to regain their financial footing and coax a mortgage modification out of their bank. Also, Sharga said, more short sales could be approved, which can help preserve home values better than foreclosures.

“In the long term, though,” he said, “delaying foreclosures will just prolong the problem.”

Find us on Google+

Making technology your friend will help grow your client list

By Jaime Westman

The pace of adoption for new technologies has exponentially quickened in the Internet era, and managing the many channels of online conversations can be vital to promoting and protecting your professional brand and reputation.

Ryan Holmes, CEO for HootSuite, a social media dashboard that aggregates content from several social and business networks, noted this week that Google’s new social play, Google+, gained 10 million users in about 15 days.

“Social is very fast-moving and very fast-growing,” he said. “It is the most prolific communication medium in the history of mankind.”

And that makes monitoring – and participating in – online conversations even more vital, said Holmes, whose mother worked in real estate. “There’s a lot going on. People are mentioning your company, your business. You need a way to look at how you listen to this conversation. It can be overwhelming.”

Pete Kazanjy, CEO and co-founder of Honestly.com, a site that seeks “candid community-created reviews of business professionals,” said that actively engaging in online conversations is a proactive approach to managing your reputation.

Because real estate is hyperlocal and personal by nature, reputation management is especially important for professionals working in the industry, Kazanjy said.

“Reputation permeates for real estate agents. Because it’s a really personal business, you can’t necessarily shed your reputation,” he said.

An agent’s brokerage affiliation can be important to their reputation, as it can assign a sort of status, Kazanjy noted.

“Brokerages provide a lot of things: They provide leads, they provide shared infrastructure, and … they provide reputation credentialing as well,” he said.

Publishing “authentic and relevant information” online can build reputation, Kazanjy noted, and he encouraged real estate professionals to be active on social sites and blogs and real estate Q-and-A sites.

“You want to join the conversation and be discoverable,” he said. “Get credit for the expertise that you already have. Document it. Make sure your voice is leading the conversation and become a thought leader.”

Kazanjy also said it’s important not to be perceived as being on the wrong end of online free speech.

“Transparency and truth will eventually win out. When it comes to how to establish reputation in the market, I think it’s really important to be present,” he said. “It’s important to be helpful.”

Growing your online reputation can be an increasingly powerful way to route consumers to you, he noted, “and there’s a lot of opportunity.”

Find us on Google+

Report says pending home sales rise unexpectedly

By Jim Droz

Pending sales of existing U.S. homes unexpectedly rose in June from May and rose sharply from a year ago, data from a real estate trade group showed on Thursday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in June, was up 2.4 percent to 90.9 from 88.8 in May. The index was up 19.8 percent from a year ago.

Economists polled by Reuters ahead of the report were expecting pending home sales to fall 2 percent.

The association’s senior economist, Lawrence Yun, said the latest monthly reading shows tight credit and economic uncertainty is still constricting the market.

“The best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy home buyers can get a mortgage,” he said.

Find us on Google+

Agents need to make sure clients understand pricing perspectives

By Jim Droz

One of the most perplexing things about today’s real estate market is that the timing is right for qualified people to buy, yet few prospective buyers are taking advantage of the situation. Why?

Perhaps it’s perspective, and the current market dictates that real estate agents must do whatever it takes to give their clients a clear image on how affordable homes are in today’s climate. But when dealing with a high-ticket item like a home and all of the other monetary aspects that go into a purchase, it can still be a scary thought, particularly for those navigating the real estate waters for the first time.

Try breaking it down in terms your customers can understand. When figuring in today’s low interest rates, the cost of a home hasn’t risen as much in the past couple of decades as the price of a new car, a gallon of gas or a loaf of bread. The cost of the latter two items has more than tripled since 1989, and car prices have nearly doubled. While the median price of a new home has increased 70 percent, mortgage interest rates, which were 10 percent in 1989, are less than half that figure today. That means that the monthly mortgage payment on a median-priced home increased only $4 since 1989.

By pointing out facts like these to your clients, they’ll realize that staying on the sidelines waiting for prices to go even lower will only result in a missed opportunity.

Find us on Google+

Figuring out the formula is crucial to getting the best home loan

By Jim Droz

Of all the important numbers to consider when applying for a home loan, your debt to income ratio is the most important.

Don’t worry. You don’t have to be a math genius to figure it out. Debt to income ratio, or DTI, is actually two numbers: a front-end ratio and a back-end ratio. If calculated and used correctly, debt to income ratios also can save you headaches once you begin paying off your new mortgage.

Both the front- and back-end ratios are used by mortgage lenders to help determine whether you’ll be able to pay them back each month. But the ratios are also critical for homebuyers to know because they present a simple way to step into the shoes of the lender early in the home-shopping process. They’re reality checks that give you quick insight into which houses are within your reach financially.

What’s in the front-end ratio?

There are two main types of loans available to most borrowers: conventional loans and FHA loans. Conventional loans typically have conservative thresholds for front- and back-end ratios, while FHA loans will have higher limits.

The front-end ratio, also called the housing expense ratio, is the percentage of your gross income that will go to paying off your mortgage payments each month. While conservative lenders will look to make sure their borrowers don’t pay more than 28 percent of their monthly gross income toward their mortgage, other lenders might be willing to push this threshold up to 30 percent and beyond.

So if you earn $5,000 per month and your mortgage lender has a maximum front-end ratio threshold of 28 percent, they would probably be willing to handle a mortgage that requires you to pay no more than $1,400 ($5,000 x 0.28) per month.

What’s in the back-end ratio?

The back-end ratio, also called the debt-to-income ratio, is the percentage of your gross monthly income that will go  toward paying off all of your debt obligations. This includes your mortgage, credit card payments, student loan payments, car payments, child support, etc. Conservative lenders likely will want no more than 36 percent of your monthly gross income going toward your debt obligations, while others may be willing to push this up to 40 percent or more.

So, for example, if you earn $5,000 per month and your monthly non-mortgage debt payments equal $400 (8 percent of your gross monthly income), that’s added to your $1,400 in mortgage payments each month, making your debt to income ratio 36 percent ($1,400 + $400 / $5,000). Since this meets the conservative 36-percent threshold, you would probably be a strong candidate for a mortgage.

What works now

While the bursting of the housing bubble has reduced some questionably high debt to income ratios acceptable to riskier lenders, it doesn’t mean that those ratios are no longer accepted. Still, for buyers, the importance of DTI has never been clearer. If your front-end ratio shows you can’t make the payments for that dream home, it’s time to stop and rethink whether you’re ready for something that big. And if your back-end debt to income ratio is rising over 40 percent – it’s time to get your debt under control.

Debt to income ratios can be a harsh master, but understanding the full implications can make all the difference in the world to a homebuyer.

Find us on Google+

California legislators revamp state law on short sales

By Jim Droz

Under a new state law in California, any lender who agrees to a short sale — which by definition will yield insufficient funds to cover the outstanding loans on a property — must accept it as payment in full for all loan balances. That is a good thing for upside-down homeowners who need to sell, says the California Association of Realtors.

In a prepared statement applauding Gov. Jerry Brown for signing SB 458 into law, the association observed that previously a first mortgage holder could accept an agreed-upon short sale payment as full payment for the first mortgage but a junior lien holder could still hound the seller for the full amount owned on the junior lien.

“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said association president Beth L. Peerce.

“SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lien holders — those in first position and in junior positions — will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property,” she added.

Those shopping for a home in the $500,000 to $1 million price range should not tarry. That is because they will probably face higher interest rates and more strict underwriting standards and will need to make a larger down payment later this year when conforming loan limits increase, Peerce said.

“Would-be buyers on the fence need to act well before Sept. 30, when the conforming loan limit is set to be lowered, to avoid a higher cost of homeownership,” Peerce said in a prepared statement.

Find us on Google+

Contract cancellations hampering existing home sales

By Jim Droz

Existing-home sales fell in June amidst contract cancellations, according to the National Association of Realtors.

NAR president Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said home sales should be higher.

“With record high housing affordability conditions thus far in 2011, we’d normally expect to see stronger home sales,” he said. “Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals. Although proposals being considered in Washington could effectively put more restrictions on lending, some banking executives have hinted that credit may return to more normal, safe standards in the not-too-distant future, but the tardiness of this process is holding back the recovery.”

Existing-home sales did rise marginally in the Midwest and South, but all regions are down from the same time last year. The Midwest is now a staggering 14 percent below June 2010. The South is down 5.6 percent.

The region that has the most ground the recover is the Northeast, which fell another 5.2 percent in June and is now down 17 percent from June 2010. The West is the closest region to breaking even, down only 2.6 percent from a year ago.

“Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” said Lawrence Yun, NAR’s chief economist. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”

Builder confidence is up, however, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

“The improvement in builder confidence in July is a positive sign that the outlook perhaps isn’t quite as bleak as was feared in June,” said Bob Nielsen, chairman of the National Association of Home Builders and a home builder from Reno, Nev. “While builders continue to confront serious challenges with regard to competition from foreclosed properties that are priced below replacement cost, inaccurate appraisals of new homes, and a very restrictive lending environment for new home construction, select markets are showing gradual improvement as consumers begin to take advantage of very favorable buying conditions.”

Going hand in hand with builder confidence, nationwide housing starts rose 14.6 percent in June, according to the U.S. Commerce Department.

Find us on Google+

Agent goes the extra mile – and then some – for ailing client

By Jaime Westman

A confluence of dismal economic news the past few years has created what many consider a nightmare situation for the housing industry. But every once in a while a story comes along that shows that owning a home can still be considered the American Dream.

 Matt Swanson, an agent with Trans-Action Realty in Reno, NV, made a life-changing transaction for him and two clients in late June. The fact that the final price for the modest house in the suburb of Sparks was $148,000 was irrelevant.

“It felt like a million-dollar sale to me,” said Swanson, whose first closed sale from a HouseHunt lead will be one he never forgets.

When Pat and Salve Carmac enlisted his help, Swanson wasn’t sure what to expect. Pat was a paraplegic. He fell in love with Salve, his former caretaker who had come to the United States from the Philippines, and the two married and were living in an apartment. A house was very much on their wish list.

“This was a really great couple,” said Swanson, who has been with HouseHunt since Jan. 31. “I just figured I was going to do whatever I could to help them.”

To say Swanson went the extra mile would be an understatement. He compiled a list of houses the couple might be interested in and the three drove around the Reno area in Pat’s specialized van to check them out. After seeing about a dozen options, the Carmacs made their choice and Swanson submitted an offer for the bank-owned property.

About a week after having the offer accepted, Pat was forced to go to the hospital because of respiratory problems, something that is common for quadriplegics. Swanson visited him at the medical center and Pat had only one request.

“He really wanted to close on this house as soon as possible,” Swanson said. “I told him I’d tried to expedite the process as much as I could.”

A week later Swanson called and heard a sobbing Salve tell him that her husband was back in the hospital with a severe case of pneumonia and that both of his lungs had collapsed. The medical staff performed a tracheotomy and put him on a ventilator system, but Pat didn’t have much longer to live.

“It was just heartbreaking, so I did what I could to try to get this house closed as soon as possible,” Swanson said. “I was worried that he wasn’t going to make it to see the house that he wanted so badly to spend his last couple of breaths in … Each day I woke up thinking, ‘What can I do to make this deal go a little faster.'”

Swanson worked closely with financial officials and was able to trim some time off the occasionally cumbersome process. The house closed on June 22, and Swanson went back to the hospital to tell the Carmacs the good news.

“I got scrubbed up, went into his room and handed him the keys,” Swanson said about his emotional transaction with Pat. “At that point he was really weak, but I could still see that smile and tell that he really enjoyed being able to buy a house for his wife, knowing that she would be situated and comfortable and safe for the rest of her life.”

Pat spent a few more days in the hospital until the house was ready for him and Salve to move in. Pat died a few days later, on July 1, and Swanson was at his memorial the following day.

“Every deal is unique in some ways,” Swanson said, “but not all are as inspirational as this one was. It was something that I’m never going to forget. Without the help of HouseHunt I would have never met such a remarkable man and couple.”

Find us on Google+