Tag Archives: Real Estate Industry

real estate industry

The Case for a REALTOR® to Lead Realtor.com®

This article was originally published on Realtor.org:

Realtor.com®’s president, Errol Samuelson, has been hired away by Zillow. I’ve met Errol and he’s a nice guy, very smart, and very successful. Business is business. But, naive as it might be, there’s plenty of disappointment from the REALTOR® community. It comes from a belief that we have a common cause greater than just our businesses. Whether we’re aligned with NAR or realtor.com®, we believe in unified goals that are good for the country as a whole, and create significant loyalty to our brand.

Like I said, it sounds silly to an outsider. Why wouldn’t a top executive, who clearly received a more lucrative employment offer for a position he saw as a step up, take that proposal? In the world of publicly-traded real estate ventures, you could be selling soda ads one day, and interviewing the president the next. The landscape changes drastically every year, and when your skills are in business management and strategy, you’re always looking for the next challenge.

And still, there’s a bit of an empty feeling from the REALTOR® masses when an exit like this happens. It’s just another day at the office when your insurance company’s CEO changes companies, or your old business partner switches brokerages. But when someone leaves the REALTOR® fold to work for a direct competitor, it ignites much stronger emotions from the membership. A quick scan of discussions online makes it clear that this isn’t just some job change. Reactions range from frustration to outright anger. This is someone who did a good job and likely had no direct contact with most of the commenters, but many take his departure so personally as to feel betrayed.

As simple-minded as it sounds, I can’t help but feel a bit of the same disappointment. Real estate agents hop between companies like mercenaries until we find the right fit. We don’t feel remorse for changing our workplaces, because it’s simply a business decision. At the same time, those of us who are advocates for the REALTOR® brand would be incredulous if our associates left the membership. Your career is your business, but your commitment to supporting REALTOR® causes is ours.

It’s in that spirit that I’d strongly advise that the next head of realtor.com® to be someone with REALTOR® experience. This wouldn’t be a current salesperson, of course, but there are countless REALTOR® practitioners and executives whose past or current careers include law, business management, technology, and marketing. Whether the candidates have been the head of a technology-driven brokerage or a forward-thinking MLS organization, they need to have spent their time, and their money, supporting the organization whose online brand they’ll be charged with leading. A REALTOR® who has volunteered their hours, and invested their own funds into our causes, will be someone who understands the crazy notion we have of a common mission.

Clearly, it’s not up to me, nor is it up to REALTOR® membership in general. The folks making these decisions at Move, Inc., have shareholders to answer to, and probably many worthy candidates within their current ranks. Still, we’ve just begun opening up the relationship between NAR and realtor.com® in a more significant way this past year than we’ve seen in a decade. It’s been a bit rocky, but strengthening that cooperation will require increasing the trust level that the general REALTOR® population has in the partnership itself. Hiring “one of us” would certainly shrink the mistrust hurdle in a significant way.

Saying it out loud, though, it’s probably just wishful thinking. The portals are in a marketing arms race, open advertising space for agents is increasingly scarce, and the market cap valuations of these companies point to a cutthroat struggle in the next few years to weed out a competitor or two. Most companies would look for the next technology executive with the greatest capacity to generate advertising revenue, while keeping those pesky agents just satisfied enough that they don’t complain too often.

Hopefully, this company isn’t just “most companies.” There’s an army of 1 million REALTORS® looking to spend their money in the most efficient way, but they also have a strong preference for the home team. It’s not impossible to garner that loyalty, and provide a superior product at the same time. REALTORS® love their brand. They want to love realtor.com®. They just hope that going forward, there’s not just a joint vision but a shared loyalty. When “our people” become their people, the entire organization will find more success, and the loyalty will be a two way street.

The Top 10 Real Estate Tax Deductions

This article was originally published on Realtor.com:

As the deadline to file income taxes approaches, it’s time to take a new look at the changing tax landscape for homeowners. The dynamic atmosphere in Washington, D.C. hasa different effect each year on which tax breaks are proposed, rescinded, changed and extended for taxpayers who own a home.

Many of the tax benefits homeowners enjoy have been protected and extended through the 2013 tax season but they will expire next year if Congress doesn’t act.

Disclaimer – This is only an informational summary of current tax issues in the news. If you need tax advice, please contact a tax attorney or CPA

1.  Mortgage Interest Deduction

Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (more than $400,000), the current deductions hold for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns

2.  Home Improvement Loan Interest Deduction

The interest on home equity loans used for capital improvements to your home may be tax deductible. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements such as adding square footage, upgrading the components of the home or repairing damage from a natural disaster. Maintenance tasks, like changing the carpet and painting a home, usually don’t count.

3.  Private Mortgage Insurance (PMI) Deduction

Homeowners who make a down payment of less than 20 percent are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated as MIP or just MI) can be just a few to hundreds of dollars per month.

If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10 percent per $1,000, for taxpayers who have an adjusted gross income between $100,000 and $109,000 and those above that level do not qualify. This deduction won’t be available next year unless Congress renews it for 2014.

4. Mortgage Points/Origination Deduction

Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. Points, also called origination fees, are usually percentage-based fees a lender charges to originate a loan. A 1 percent fee on a $100,000 loan would be one point, or $1,000.

On a home purchase loan, taxpayers can deduct the entirety of points paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.

5. Energy Efficiency Upgrades/Repairs Deduction

Homeowners can deduct the cost of building materials used for energy efficiency upgrades to their home. This is actually a tax credit applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.

Ten percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, water heaters and other items qualify for the energy efficiency credit. There are individual limits for certain items, such as $150 for furnaces, $200 for windows and $300 for air conditioners and heat pumps.

6. Profit on Sale of Real Estate Deduction

If you’ve sold a home in the past year, you’re likely aware individuals can claim up to $250,000 of profit from the sale tax-free and married couples can claim up to $500,000 tax-free. The home must be a primary residence, meaning you must have lived in the home for two of the past five years. A homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.

Also new for 2013 isn’t a deduction, but a tax enacted by the Obama administration. Some individuals—those with an AGI more than $200,000—may be subject to a 3.8 percent tax onsome income from interest, dividends, rents and capital gains.

7. Real Estate Selling Cost Deduction

For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling a home can be claimed as tax deductions.

By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs.  When the new cost basis price is compared to your selling price, it reduces your potentially taxable profit on the home.

8. Home Office Deduction

Starting for the 2013 tax year, tax filers who work at home can use the IRS’ new simplified option for deducting home office expenses. With this form, you can get a $5 deduction for each sq. foot used as an office, with a maximum of 300 sq. feet. The office must be the primary office location where you get the majority of your work done, and it needs to be used exclusively for business (it can’t be in your bedroom). You should be realistic with its size anduse—start stretching the truth and you could increase your risk of being audited.

9. Property Tax Deduction

While it may sound strange to have a tax-deductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes.

Homeowners should only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city or county fees that might potentially be on the same bill as your property taxes.

10. Loan Forgiveness Deduction

The Mortgage Debt Forgiveness Relief Act of 2007 made forgiven debt on some mortgages not taxable. For example, a homeowner makes a short sale of their primary home at $100,000, but they owe $150,000 on their mortgage. The lender forgives the extra $50,000 owed, but the government views it as $50,000 in taxable income as a gift from the lender to the borrower. The Mortgage Debt Forgiveness Act temporarily relieved the taxpayer of that burden, up to $2 million, or $1 million if filing separately. The act applies to primary home sales made from 2007 through 2013, but it will expire next year if Congress doesn’t act.

IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.

Property Tax Swap or Levy Duty Upshift: Solving WA’s McCleary Decision on School Funding

This article was originally published on the Seattle Homes Blog.

The recent decision by Washington’s Supreme Court on school funding is a complex topic. When it’s broken down to its basics, however, there may be a straightforward solution to a large portion of the financial demands created by the decision.

In a nutshell, the state constitution says that Washington has a paramount duty to fund basic education. The court decided that, currently, the state is not funding basic education adequately.

To be clear: the court said that the state itself is not meeting its obligation in funding basic education. This means that the overall budget for education needs to come from the state, not other sources. While the state property tax and sales tax fund around 70 percent of the education budget, municipalities across the state pick up around 20 percent of the education tab through local levies on property taxes (the federal government covers the rest). There may be some need to increase the total funding for the state, but making sure all funds come through the state will also be a priority.

This is the focal point of the so-called “Property Tax Swap”. If all of the money that local homeowners are paying in levies to their cities was instead being paid to the state and earmarked for schools, the education budget could be funded with those same dollars, but it would be the state supplying the funds it is constitutionally required to provide. It’s essentially a levy duty upshift–putting the responsibility of schools back to the state venue where it was meant to be.

It sounds a bit simplistic, but sometimes that’s the way accounting works. The state can make up a large portion of its lacking education budget by simply taking in a larger state school levy (increasing the current rate on the school levy portion of the property tax), while reducing local school levies by limiting the local rates charged. Statewide, the plan is revenue neutral. There is no additional tax revenue coming from taxpayers statewide as a group, or going to schools–there’s just a larger amount of the money coming from the state to the schools.

There are some side effects that could create dissension. Projections show property owners in wealthier counties or school districts paying more in property taxes than they had before, and vice-versa for lower-income districts. While there is some resistance to that idea, it answers another part of the court’s concern, which is the current uneven distribution of state education funds. The idea has bi-partisan support, as it was first posited by Democrat Ross Hunter, and championed by former Attorney General Rob McKenna, a Republican, during his campaign for Governor. The widespread support is due to the more reliable long-term funding mechanism for education that doesn’t rely on individual districts renewing their local levies every few years.

Just as importantly, it minimizes the funding gap that now exists in the state’s education budget. While there are many other tough decisions to be made in funding the rest of the education budget and satisfying the Supreme Court based on the McCleary decision, this is one fairly painless fix with a big payoff. Taxpayers, on the whole, pay nothing more, and that’s preferable to across-the-board tax hikes to nearly any voter.

REALTOR® groups generally approve of the idea. While we oppose most property tax increases, we support sensible property tax rates that build quality schools and infrastructure. Good schools make for good communities, which is why a predictable long-term source of funding is in the best interest of the real estate industry as well as every individual in the state. Maintaining the current funding source for schools, while reducing the need for state government to increase other taxes, is good for Washington schools and for Washington businesses.

Is There A Real Estate Bubble in Seattle? Inflation and 11% of our Home Equity Says No.

This article was originally published on the Seattle Homes Blog:

Home prices are on the rise in Seattle, and home buyers who remember the last real estate downturn well are mindful of the possibility of another drop in real estate prices in the future.  So, are we building up to another Seattle real estate bubble?

The most recent data say “No.”  While home prices have certainly appreciated in the area for the past few years, much of those gains were simply due to the long-term necessity of reversing that extended real estate downturn of the late 2000s.  Price appreciation, according to historical data, is the unequivocal course of real estate for the long-term, due in large part to inflation.

Seattle Home Prices and Active Real Estate Listings, 2004-2014

No Seattle Real Estate Bubble

Home prices in Seattle are still almost 11 percent lower than they were at the real estate peak in 2007.  August 2007’s median home price for the city of Seattle was $498,000.  As of last month, our current median was at $444,000.  There’s no rush to get back to those peak levels immediately, but idea that we’re nearing a bubble similar to what we saw in 2007 just doesn’t pan out yet.

There’s a bigger reason for this, when we look at the long-term effects of the economy.  Inflation makes general consumer prices rise, no matter if the market is hot or cold (we rarely see price deflation in the overall U.S. economy).  In 2007 we saw 2.8 percent inflation.  In 2008, as the downturn really got rolling, we hit 3.8 percent.   The worst economic year we’ve seen in decades saw just a 0.4 percent deflation rate, which was immediately wiped out by 1.6, 3.2, 2.1, and 1.5 percent inflation rates through 2013.

The big picture here?  We’ve probably seen price inflation across the country of around 15 percent since 2007.  Of course, this doesn’t translate directly to home prices, but the overall takeaway should be fairly clear–home prices today are nowhere near what they were during the last real estate bubble.  The situation is vastly different, and while that in no way guarantees a healthy real estate market going forward, it certainly makes the comparisons to 2007 unwise.