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Wednesday, February 29, 2012

New Website Helps Buyers/Sellers Verify Agent Performance

[Published March 1, 2012, in the Denver Post]

     Sellers struggle when it comes to selecting the best real estate agent. One reason is that there is literally nowhere — except the member-only MLS — to find statistics about an agent’s performance.

     Attempts to provide rankings or reviews of real estate agents have been attempted unsuccessfully by numerous parties, including Zillow and Redfin, and the Realtor associations have toyed with the idea over the years, but without success. Basically, the vast majority of agents, including Realtors, are not doing a lot of business — NAR reports that the average member’s gross income last year was only $36,000 — and that has scuttled any attempt at introducing such a service.

The public, however, still needs to get the raw facts on agent performance: number of listings sold, average days on market, and even whether the agent is a Realtor and the status of their license.

So I have created a website, where, for a nominal fee, anyone can request the stats on one or more agents with whom they are considering doing business. It’s in beta testing now, but go ahead and give it a spin!

Home Buyers Can Save by Purchasing Before FHA Fees Go Up on April 1st

[Published March 1, 2012, in the Denver Post]

      A quick check of Metrolist, the Denver MLS, shows that about 30% of homes purchased for $400,000 or less are financed with an FHA-insured loan. These loans are popular because they require only a 3.5% down payment.

      FHA interest rates are comparable to those for conventional loans, but extra fees are charged, both upfront and monthly, for mortgage insurance premium (MIP). These fees replenish FHA’s reserves, which have been depleted by the high number of foreclosures on FHA-insured loans in recent years.

      There is a 75% increase in the upfront fee for those FHA loans initiated after April 1, 2012. This upfront payment, which is currently 1% of the loan amount (and can simply be added to the principal), increases to 1.75%. Thus, on a $300,000 loan, this added principal amount is currently $3,000, but will increase to $5,250 on an FHA loan initiated in April, adding about $11 to the monthly mortgage payment in the above example (based on a 4% interest rate).

    Currently, the monthly mortgage insurance premium is 1.15% annually (1.1% when the down payment is 5% or more), and this fee increases by 0.1% to 1.25% and 1.2% respectively.  Thus, on the same $300,000 loan, the monthly MIP payment is currently $287.50 (assuming 3.5% down payment), but goes up to $312.50, an increase of $25 per month.

That $25 increase, unlike the $287.50, does not go to the FHA. Instead it goes to the Social Security Trust Fund. As noted in my Jan. 12th column, this increase is mandated by the Temporary Payroll Tax Cut Continuation Act of 2011, which was passed in December. That act reduced the Social Security tax for just two months, but is charged to new borrowers for the next 10 years. Doesn’t seem fair, does it? 

On their website, HUD calculates that the average FHA borrower will pay only $5 more each month for that additional mortgage insurance premium, but I don’t see how they could come up with such a low estimate.

The monthly MIP must be paid for 5 years, regardless of the percentage down payment, but can be removed once the homeowner can document 20% or more equity.

Current FHA loans, and loans initiated before April 1, 2012, are not subject to these higher fees.

Conventional loans are also affected by an increase comparable to that $25 per month, but it will be reflected in the loan’s interest rate instead of appearing as an additional fee. 

Tuesday, February 21, 2012

Not All Regulation Is Bad -- In Some Critical Areas, We Could Use More of It

[As published in the Denver Post on Feb. 23, 2012]

When I first got into real estate in 2002, I remember that any felon could, upon leaving prison, print up business cards declaring himself a “mortgage broker,” and Colorado had one of the highest levels of mortgage fraud in the nation. 

In the years since, the legislature passed a law requiring registration, and a couple years later required licensing.  Nowadays, it’s even harder to become a mortgage broker than it is to become a real estate agent. There are tests to get licensed, continuing education requirements and mandatory bonding to protect clients.  Now Colorado has some of the strictest regulation of mortgage brokers in the nation and the lowest level of mortgage fraud.

This isn’t to say that regulation doesn’t go too far in some areas. When it is implemented administratively vs. legislatively, it can fail to consider unforeseen impacts and, yes, common sense.  When regulation is imposed by a legislative body,  there are hearings at which interested parties can testify and educate the lawmakers. Lobbyists, such as those representing the state and national Realtor and mortgage broker associations can educate committee members about such impacts.

An example of an administratively imposed regulation is the Home Valuation Code of Conduct (HVCC), which was introduced to reduce appraisal fraud, but was done behind closed doors to settle a lawsuit by then-Attorney General of New York Andrew Cuomo. I have written in the past about this ill-conceived regulation voluntarily adopted by Fannie Mae and others which took the selection of appraisers out of the hands of mortgage lenders and introduced appraisal management companies (AMC’s) which are, yes, unregulated. To maximize profits, AMC’s do not have to require geographic or other competence by the appraisers who agree to work for the lower wages they pay. Five years later, we are still struggling to regulate AMC’s and still suffering from bad appraisals. Many good, experienced appraisers are leaving the business.

An effort is underway finally to regulate homeowner associations (HOA’s) and the management companies which they hire. I have complained in previous columns about the fees which management companies charge to HOA members at the time of a sale for providing simple information or for changing the name of the homeowner on their records. Knowing that the sale can’t close without these services, the companies extort huge fees, and none of that money benefits the HOA.

Tuesday, February 14, 2012

Emails Perpetuate Mistruth About a 3.8% Medicare Tax on Real Estate Sales

[As published Feb. 16, 2012, in the Denver Post]

I guess it was to be expected, now that the presidential election year has arrived.  Over 18 months ago I wrote about an email being circulated by the anti-Obama crowd misrepresenting a Medicare tax contained in the Affordable Healthcare Act.

The new tax contained in “Obamacare” extends the 3.8% payroll tax for Medicare to investment income for taxpayers whose Adjusted Gross Income (AGI) is over $200,000 (for a single filer) or over $250,000 (for married filers).

Currently, the Medicare tax, like the Social Security tax, is applied only to “earned” income, but Obama-care extended it to “unearned” income for the super-rich.

The emails which are circulating again claim that if you sell your home for $100,000, you’ll pay $3,800 in “sales tax,” but they neglect to mention that (1) the tax is on profit, not on sales price, (2) that the $250,000 (single)/$500,000 (married) exemption of gains on primary residence still applies, and (3) that the tax only applies if your AGI exceeds $200,000 (single) or $250,000 (married). 

So while the emails — which are still being circulated by Obama-haters — state that this tax applies to the entire purchase price on every home sale, it is, in fact, unlikely to apply to more than 1% of the population.

Even if a married millionaire were to sell his home for $600,000 more than he paid for it, he would probably have no taxable gain at all, since $500,000 of the gain is exempt, and his costs of selling could be over $100,000.  And how many millionaires are selling their homes for a big profit nowadays?

Here’s an offer for those who believe they’ll be taxed — List with me and I’ll pay the tax for you out of the commission I earn!

So, right off the bat, let’s recognize that almost no homeowner is going to be paying the Medicare tax on the sale of his/her home.  And if they are, it’s not 3.8% of the sale price but 3.8% of the profit in excess of $250,000 or $500,000.

So that leaves only investors — you know, the guys with really good accountants who probably have an AGI well below those of us with earned income. If any of them pays this tax on their AGI over $200,000 or $250,000, they can afford it. Period.

Yet, when this truth is explained to the Obama-haters, their response is typified by this response from a Realtor on a LinkedIn group which I monitor: “Even though this only applies to the top 5%, it is only the beginning…”  Or, more typically, they don’t hear you and keep on spreading the mistruth.

Tuesday, February 7, 2012

Why Owners Who’d Like to Sell Their Homes Aren’t Putting Them on Market

[Published Feb. 9, 2012, in the Denver Post]

In recent columns, I’ve pointed out the rapidly declining inventory and the need for more listings.  There is no better time than right now to put a home on the market. Buyers, lured by record low interest rates, are snapping up the few homes on the market—when the price is right.

This is especially true in the lower price ranges.  When I did my monthly analysis on Feb. 1st, I found that 40% of all front range listings under $200,000 are under contract. That figure drops to 37.4% for homes between $200K and $300K, and to 29.5% for homes from $300K to $400K.

Between $400K and $500K, 22.4% of the listings are under contract, and between $500K and $600K the percentage is 20.9%. Above that price range, the percentage keeps dropping, so only 9.1% of homes priced over $1 million are under contract.  But that’s still a pretty hot market.

That raises the question, “Why aren’t more people who want to sell putting their homes on the market? Let me speculate on some of the reasons, and perhaps some readers will want to suggest their own reasons.

Reason #1: Sellers are “under water,” owing more than they can sell their home for.  This is especially true in the higher price ranges, as well in areas impacted by foreclosures and short sales.

Reason #2: Sellers are not under water, but they don’t have enough equity to produce the cash they’d need for a down payment on their next home. (Those who are wanting to buy under $420,000 may not know that with an FHA loan they can put down at little as 3.5%, or with a CHFA loan as little as $1,000.)  Observation: If you’ve been wanting to refinance your current home and have good credit but not enough equity for the refi, you probably do have enough equity to buy a different home at low rates with an FHA loan!

Reason #3: Would-be sellers want to wait until the value of their home increases. However, if these sellers expect to buy another home after selling, they need to realize that if they wait until their home’s value increases, then they’ll probably end up paying more for the home they purchase, so they might as well “take a loss” on their current home. It evens out in the end.

Reason #4: Sellers are worried about their job security and loss of income to support a new loan.

I’m sure there are many other reasons, and I’d love to read them on this blog. Or call me at 303-525-1851.

Wednesday, February 1, 2012

EXTRA! Percentage of Listings Under Contract Shoots Even Higher in January

This dramatic increase in the percentage of listings under contract is despite the fact that the listing inventory increased by 14.5% in January over December. 
(Inventory is defined as Active + Pending + Under Contract.)