Realty Tax Tips-Part 8: Don’t cheat yourself out of homeowner benefits
By Robert J. Bruss, Inman News

If you own a house, condo or cooperative apartment, you might be among the millions of homeowners who unintentionally forget to claim all the tax deductions to which you are entitled.

Just in case you haven’t figured it out, Uncle Sam encourages home ownership by awarding special tax breaks not available to non-owners. That’s why 68 percent of U.S. households involve homeowners. This result isn’t an accident. It’s carefully planned government tax policy.

But it’s up to each homeowner to use these tax breaks to maximum advantage. Not every deduction applies to each homeowner. However, it’s important to know about them and claim the appropriate deductions that apply. Using just one or two forgotten tax breaks can save hundreds, sometimes thousands, of tax dollars.

1—IF YOU BOUGHT A HOME, DEDUCT YOUR PRINCIPAL RESIDENCE MORTGAGE ACQUISITION LOAN FEE. If you purchased your principal residence in 2003, and if you paid a loan fee (usually called “points") to obtain your home mortgage, that loan fee qualifies as an itemized interest deduction in the year of home purchase.

Each point equals one percent of the amount borrowed. For example, if you obtained a $100,000 home acquisition mortgage, and paid a two-point loan fee to lower your mortgage’s interest rate, that $2,000 loan fee qualifies as an itemized interest deduction in the year of home purchase.

The general rule is that for each one-point loan fee paid, the lender should reduce the loan’s interest rate by one-eighth percent. That’s why smart home buyers pay a one- or two-point loan fee to (a) reduce their loan’s interest rate and (b) deduct the loan fee in the tax year of their principal residence purchase.

Be sure to double-check the IRS Form 1098 sent in January by your home loan lender. If it did not include the loan fee points you paid in 2003, be sure to itemize them anyway on Schedule A of your income tax return. Your proof of payment will usually be on the loan closing papers received at the time of home purchase.

2—DEDUCT HOME MORTGAGE REFINANCE FEES OVER THE LIFE OF THE MORTGAGE. 2003 was another record volume year for home mortgage refinancings. If you refinanced your home mortgage and paid loan fee points to obtain the loan, those points are not deductible in the year of payment. Instead, you can deduct them over the life of the mortgage.

To illustrate, suppose you paid $1,000 loan fee points to refinance your home loan with a new 30-year mortgage. The tax result is for each of the next 30 years you will have an itemized $33.33 deduction.

For most homeowners, rather than paying loan fee points when refinancing, they are usually better off obtaining a no-fee mortgage and paying a slightly higher tax-deductible mortgage interest rate.

3—IF YOU CHANGED JOB LOCATION AND RESIDENCE LOCATION IN 2003, YOUR MOVING COSTS MAY BE TAX DEDUCTIBLE. Whether you rent or own your home, if you changed both your job location and your residence in 2003, your moving costs might be tax deductible. If you made a major cross-country move, the result can be savings of hundreds or even thousands of income tax dollars.

To qualify, the distance from your old home to your new job site must be at least 50 miles further from your old home than was your old job location. The distance to your new job location from your new residence is irrelevant.

For example, suppose your old home was five miles from your old job site. That means your new job location must be at least 55 miles (five plus 50) from your old home for you to qualify in this example to deduct your moving expenses.

If you passed the moving expense distance test, the second qualification test requires you to be employed at least 39 weeks during the next 52 weeks in the vicinity of your new job location.

But you need not work for the same employer. Either spouse can qualify. However, if you are self-employed, you must work at least 78 weeks during the next 104 weeks in the vicinity of your new job site.

4—DEDUCT ANY HOME MORTGAGE PREPAYMENT PENALTY PAID. Whether you sold your home, or refinanced its mortgage, if you paid a mortgage prepayment penalty, don’t forget to claim it as an itemized Schedule A income tax interest deduction. Be sure to double-check the IRS Form 1098 received from your lender because it might not include the prepayment penalty paid.

5—DEDUCT UNDEDUCTED LOAN FEES FROM A PRIOR HOME LOAN REFINANCE. If you refinanced your home loan in 2003, perhaps for the second or third time to take advantage of record-low interest rates, any undeducted loan fees from your prior home loan refinance can be deducted in full in the year of the refinance.

To illustrate, suppose you had $900 of undeducted loan fee points from when you refinanced in 2002. Because you refinanced in 2003 to pay off that old mortgage, the full $900 in undeducted loan fees became deductible on your 2003 income tax return.

6—DEDUCT PRO-RATED MORTGAGE INTEREST SHARE IN THE YEAR OF HOME SALE OR PURCHASE. If you bought a home in 2003 and took over its existing mortgage payments from the prior owner (called assuming or buying “subject to” the mortgage), in the month of purchase the mortgage interest was pro-rated between the buyer and seller.

This pro-ration is usually calculated on the closing settlement statement. Even if the other party actually paid the mortgage payment for the month, you are entitled to deduct your share of the pro-rated mortgage interest as an itemized deduction on your income tax returns.

7—DEDUCT YOUR SHARE OF PRO-RATED PROPERTY TAXES IF YOU BOUGHT OR SOLD YOUR HOME. Whether you bought or sold your home in 2003, you are entitled to deduct your share of the pro-rated property taxes, even if the other party actually paid the local tax collector’s bill.

Your share of the pro-rated tax bill should be shown on your closing settlement statement. Although most homeowners remember to deduct their property taxes paid, it’s easy to forget this pro-rated deduction because often your only evidence of payment is on the closing statement.

8—DEDUCT PREPAID MORTGAGE INTEREST AND PROPERTY TAXES. If you are like I am, looking for every possible income tax deduction to minimize income taxes, prepaying mortgage interest and property taxes can be a great tax savings. The only drawback, however, is you must have made the prepayments by Dec. 31, 2003.

Millions of homeowners use this tax break to save on their income taxes. It’s a good deduction to remember for use in December 2004. Double-check your mortgage lender’s IRS Form 1098 to be sure it included your prepaid mortgage interest for the January 2004 payment, which you sent to the lender in December 2003.

If you prepaid in late 2003 your property taxes due in 2004, you should have either a canceled check or other evidence you prepaid the property taxes in 2003. Not all property tax collectors allow early payments but if yours does, this can be a great tax saver.

9—DEDUCT AND DOUBLE-CHECK PROPERTY TAXES PAID FROM YOUR ESCROW IMPOUND ACCOUNT. If your mortgage includes a monthly escrow or impound account payment for one-twelfth of your annual property tax bill, double-check to be certain your mortgage lender remitted your property taxes to the tax collector on time in 2003.

Unfortunately, many mortgage lenders forget to pay these important tax bills on time. Just because you paid your escrow impound payment on time to the lender does not make the full amount tax deductible. Only the amount actually remitted to the property tax collector in 2003 qualifies as an itemized deduction for your primary or secondary home.

10—DEDUCT GROUND RENT PAYMENTS IF YOUR HOME IS ON LEASED LAND. Several million homeowners are not aware of this special tax break for an owned residence located on leased land. To qualify, your situation must meet the tax law’s exact requirements. For example, if you rent a “pad” or “lot” in a mobile home park, your monthly rent paid to the park owner usually will not qualify for this deduction.

Internal Revenue Code 163© permits homeowners living on a leased parcel to deduct their ground rent payments if (a) the ground lease is for at least 15 years, including renewal periods, (b) the lease is freely assignable to the buyer of your home, © the land owner’s interest is primarily a security interest (like a mortgage), and (d) you have a current or future option to buy the land beneath your residence.

If you do not have an option to buy the land, such as in a mobile home park, your land lease or ground rent payments do not qualify as tax deductible itemized interest.

NON-DEDUCTIBLE HOME PURCHASE COSTS. In 2003, more than 6 million new and resale U.S. houses, condos, and co-ops changed ownership. If you were among those home buyers and sellers, you probably paid non-deductible closing costs such as transfer tax, recording fees, escrow, attorney or title costs, and other non-deductible expenses.

If you were the buyer, add these costs to your home’s purchase price adjusted cost basis. If you were a seller, these sales expenses should be subtracted from the gross sales price to arrive at your adjusted sales price. For more details on these and other home owner tax benefits, please consult your tax adviser.

By Holden Lewis • Bankrate.com

Mortgage rates have dropped to their lowest point since July.

The benchmark 30-year fixed-rate mortgage fell 13 basis points to 5.58 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 5.90 percent. The benchmark 30-year rate hasn’t been lower since July 2, at 5.50 percent.

The 15-year fixed-rate mortgage fell 11 basis points to 4.91 percent. The one-year adjustable-rate mortgage fell 10 basis points to 3.60 percent.

The average 30-year rate had hovered between 5.68 percent and 5.72 percent for five weeks – unusually steady. Then Alan Greenspan, chairman of the Federal Reserve, delivered the first of his twice-a-year economic summaries to Congress last week. Treasury yields and mortgage rates had started dropping by the time he got to the question-and-answer session

Greenspan started out by saying that the prospects are good for a sustained economic expansion because of higher corporate profits, low interest rates and increased government spending. “At the same time,” he said, “increases in efficiency and a significant level of underutilized resources should help keep a lid on inflation.”

Right there, when Greenspan predicted that inflation would remain low, Treasury yields and long-term interest rates started dropping.

Wall Street harkened back to speeches that Greenspan and other Fed officials made in early January at the annual meeting of the American Economic Association. “The first time he spoke (this year), a few weeks back, there was thought that perhaps there may be problems with inflation – the economy might be growing too fast and he might have to raise rates,” says Dave Herpers, director of consumer affairs for mortgage lender Amerisave.

That was the perception, though perhaps not the reality. Greenspan’s speech in early January was characteristically subtle and cautious. His biggest point was that the Fed has adopted a “risk-management approach” to interest rate policy. This approach, oversimplified, means that the Fed would rather risk causing inflation, which it knows it can fight, than risk allowing deflation, which is difficult to combat.

That was a way of saying that the Fed was committed to keeping rates low for now, even if that risked inflation and higher rates later. Late in January, the Fed tweaked the wording on a statement explaining why it kept short-term rates steady, and some on Wall Street interpreted that as a hint by the Fed that a rate increase could come within a few months.

In his congressional testimony last week, Greenspan seemed to reiterate that low rates are here for quite a while. Herpers says the bond market always overreacts, and it probably overreacted then – and that’s why long-term mortgage rates are down this week. He thinks 30-year rates will gradually rise back to the level where they plateaued for more than a month – around 5.70 percent.

The dip in mortgage rates sent home buyers and homeowners into mortgage offices. The Mortgage Bankers Association says applications for purchase loans increased 2.9 percent last week, and applications for refinancings increased 6.4 percent.

by Nancy Dunnan

It’s said “hindsight is always 20/20.” And it’s true. We always know more about something after we’ve been there, done that.

There are so many things to consider when buying a home that it’s easy for even the smartest people to make mistakes—especially the first time around. Yet you can avoid many of the more serious blunders by not moving too quickly and doing a little planning ahead. Keep in mind that mistakes are the result of buyers rushing into a decision, based on their emotions or the pressure of time.

To help you with your big decision, here are four steps to take before you buy a home.

Step 1. Test the neighborhood
Unless you’re incredibly rich, once you purchase a house you’ll have to live in it for at least a year or two. So before you get to a contract, test the waters. Visit the neighborhood for at least an overnight—perhaps staying with family or friends who live nearby or at a local hotel or motel. Check out the shopping, playgrounds, tennis courts, movie theaters, library, restaurants, community center, cultural life, bike paths—whatever is important to you and your family. And, if you have children, make an appointment to look at the local schools while lasses are in session.

Even if you’re considering a house that’s relatively close to your present one, spend time on the new street during the day, at night, on a weekend and on a weekday. Is it quiet? Too quiet? Full of traffic? Bombarded with airport noise? If there is a school nearby, will buses bother you? Is a shopping mall hidden behind a thick grove of trees? A parking lot or garage?

I know a couple that purchased a city apartment with a huge terrace. They were so captivated by the terrace that they failed to notice two of the bedrooms were over the door to the building’s garage. They were plagued day and night by the opening and closing of the heavy and noisy garage door.

And personally test the commute. The seller may say it’s only a 20 minute drive to your office, but is that really the case? Is the train or bus journey direct or will you have to make transfers? Can you walk to the station, subway or bus stop? If not, how convenient is parking? How expensive?

$Tip: If someone in your family has allergies, speak with a local physician about the conditions in the area.

Step 2. Check the floor plan
If your dry run is a success, the next step in avoiding buyer’s remorse is to re-examine the house’s floor plan. It’s easy to get carried away by lavish landscaping. Beautiful in-ground swimming pool. Three-car garage. Wrap-around deck. But most of life is spent indoors.

Walk through the house one more time. Stay focused on practical things. Are there enough bathrooms? Is there space for your antique dining room table? Would you prefer an eat-in kitchen? What about your home office? Your workbench? Your sewing room? Your studio? The new baby? Make absolutely certain that the layout and room sizes match your lifestyle.

Step 3. Continue with contingencies
Now that you’re positive about the neighborhood and the floor plan, it’s time to draw up a protective purchase contract. The contract should include at least three contingencies—a financing contingency, an inspection contingency and a title contingency, and perhaps additional contingencies.

A financing contingency lets buyers out of the contract if they cannot get a mortgage. It should include:

The terms of the mortgage you will be applying for
The type of loan (fixed, adjustable)
The interest rate
The points

If you are turned down, this contingency gives a legal basis for getting out of the contract.

The financing contingency should also include a time period for loan approval—typically 30 days.

$Tip: Before removing your financing contingency, get a written copy of your loan approval directly from the lender with the date by which the transaction must close in order to keep the initially agreed upon interest rate.

With an inspection contingency, the sale hangs on a professional inspector giving the house his or her official stamp of approval. If the inspector discovers any hidden flaws, structural damage or faulty systems, you can renegotiate with the seller about the repairs or back out of the deal and have your deposit returned.

To be on the safe side, ask for at least two weeks to run an inspection, longer if it’s a hot market and the top inspectors are extremely busy.

With a title contingency, the sale depends on the property having a clear title.

Your lawyer may also suggest an appraisal contingency, which will come to your rescue if the home doesn’t appraise for the offered price. You can then cancel the sale and either renegotiate the price or get back your deposit.

Step 4. Do an inspection
In a hot seller’s market you often hear about buyers waiving the inspection in an effort to nail down the house of their dreams before someone else does. Sellers, of course, love offers that don’t contain an inspection contingency because it allows them to sell their house “as is.”

Don’t be foolish. Buying property without an inspection can be a direct route to becoming a buyer’s remorse victim.

How to pick a professional inspector
Real estate agents often give buyers the names of several local inspectors. Nice. But the agent wants the sale to go through so he’s likely to recommend someone who will facilitate—not hinder—that process.

To sidestep any potential conflict of interest, use an agent who is a member of the Independent Home Inspectors of North America (www.independentinspectors.org) or the American Society of Home Inspectors, Inc. (www.ashi.com). The non-profit Independent Home Inspectors group requires members to sign a pledge refraining from soliciting real estate agents for client leads. Members of the larger ASHI, must pass a test and agree to abide by a code of ethics.

A general inspector is well able to cover the basics: appliances, roof, heating and air conditioning, general drainage, windows and doors, dampness and the overall structure. However, some of the more complicated parts of the property are often best examined by a specialist:

Electrical system
Mold
Pests
Septic tanks
Swimming pools
Termites and carpenter ants
Trees

Note: If the house has a pool, the inspector (often an independent pool builder) should examine it when it is full of water and operating. Key problem areas: ladders, diving boards, pumps, filters and the heater.

$Tip: If you’re buying a house that is 75 years or older, look for an older-home inspection specialist.

After you buy your new house
If indeed you wind up making a mistake and you’re deep into buyer’s remorse, don’t throw up your hand in despair. Make a list of the drawbacks, highlighting the two or three that are really intolerable. Then…

Do a makeover
It may be that remodeling the kitchen, putting up a high fence or adding on a deck will solve the problem. Devise a two or three-year time frame—focusing on when your budget will allow you to put in a stand of trees, update the bathroom, add another bedroom, build a family great room. Within several years, the makeover may turn an ugly duckling into a house that you enjoy.

If a makeover is too extensive, too expensive or simply does not address the problem, you have four options:

Rent your house. Perhaps with an option to buy and live somewhere else on a temporary basis.
Trade spaces. Swap your house for six months or longer with someone who wants to live in your area. During this time, begin looking for more suitable housing. (Note: The home exchange contract should spell out when you will be putting the house on the market and the day or times it can be shown.)
Go to court. If a serious defect comes to light after the closing, ask your lawyer to look into your state’s disclosure laws. If they’re tough, you may be able to pressure the seller into repairing the problem or compensating you financially. If your state’s laws are soft or non-existent, review the pros and cons of going to court.
Sell. Realize that hindsight is 20/20 and that you’re unlikely to make the same mistakes the second time around.

Ask your Encompass Realty & Investment REALTOR for the Buyer Advisor, its Free

Systematic steps to help you buy your home

Get Loan Preapproval

Few people can buy a home for cash. According to the National Association of REALTORS® (NAR), nearly nine out of 10 buyers in 1999 financed their purchase, which means that virtually all buyers – especially first-time purchasers – required a loan.

The real issue with real estate financing is not getting a loan (virtually anyone willing to pay lofty interest rates can find a mortgage). Instead, the idea is to get the loan that’s right for you – the mortgage with the lowest cost and best terms.

REALTORS® routinely suggest that consumers start the mortgage process well before bidding on a home. Many lenders (the sources of money) and programs, for example, are available right here in the finance section of Homestore.com as well as through recommendations from local REALTORS®. By meeting with lenders – either online or face to face – and looking at loan options, you will find which programs best meet your needs and how much you can afford.

REALTORS® also recommend preapprovals for another reason: Purchase forms often require buyers to apply for financing within a given time period, in many cases, seven to 10 days. By meeting with loan officers in advance and identifying mortgage programs, it won’t be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option.

What is it?
“Preapproval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power. You can visit as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.

Although not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.

How do you get preapproval?
Real estate financing is available from numerous sources, including lenders here in the finance section of Homestore.com, mortgage companies that have worked with local REALTORS® and in some cases, individual REALTORS® themselves. Based on his or her experience, the REALTOR® may suggest one or more lenders with a history of offering competitive programs and delivering promised rates and terms.

The loan officer will carefully review your financial situation, including your credit report and other information. The lender will then suggest programs which most-closely meet your needs. For instance, a first-time buyer may qualify for state-backed mortgage programs with little money down and low interest rates, while a repeat purchaser (someone who has bought a home before) with more equity (money invested in the home) might want to get a 15-year loan and the lower overall interest costs it represents. Typically, first-time buyers opt for the traditional 30-year loan, with either a floating interest rate or a fixed rate of interest over the life of the loan.

For more information contact our Arizona real estate specialist, Manny Caballero

10 things you need to know about homeowners insurance
By Dana Dratch

Why wait until after a disaster to discover your homeowners insurance doesn’t really have you covered? Here are 10 things to do so you can have peace of mind – and full protection – right now:

1. Buy the right insurance. “You should know what you have, and you should know ahead of time that you are covered,” says Jeanne Salvatore, vice president for consumer affairs with the Insurance Information Institute, a nonprofit industry trade group. She recommends looking at your insurance coverage in four key areas: the structure of your house, your belongings, your liability to others and your living expenses if you’re forced out. “If there’s a disaster, you want to be able to rebuild your house and replace everything in it. And you need enough liability coverage to protect you in case you do get sued.” Living expenses would cover the cost of making the house livable or living elsewhere while your home is being repaired or rebuilt.

2. Get replacement value insurance. Face it, this is an insurance policy, not a garage sale. You don’t really care how much your possessions would fetch on the open market, the so-called “cash value” or “fair market value.” You want to be able to replace everything you lost with similar, new items. And make sure that your policy spells out that both your home and its contents are covered by replacement-value insurance.

When it comes to replacing the home itself, look for extended or guaranteed-replacement-value coverage. Guaranteed replacement, which covers rebuilding no matter what the cost, is not offered much any more, says Don Griffin, assistant vice president of business and personal lines for the National Association of Independent Insurers. Many companies offer extended-replacement-value insurance, which will cover up to 100 percent of the value of the home, plus a certain percentage to cover rebuilding the home in today’s market.

3. Understand the claims process. Two policies can promise the same amount of coverage, but they can be vastly different when it comes to making you whole after a loss. Have the agent explain exactly how claims are handled, especially when it comes to writing you a check. Do you receive your entire claim upfront, or just a fraction? Does the company pay you for all the things you’ve lost, or only those things that you replace?

Some policies will give you the cash value of your possessions right after a loss, but wait to cover the replacement value until after you’ve replaced your items – and have the receipts to prove it. This could be a problem if you’re wiped out and have no cash reserves.

Equally important is the timetable on replacement. If you go from living in a five-bedroom home to sleeping in a motel room with four kids and a dog, you might not want to go on a shopping spree right away. How long do you have to replace your things?

4. Take inventory. Filing a claim involves two steps – proving you owned certain items and verifying their worth. This is a lot easier to do when you still have your things. Go through your home with a video camera (rent one if you don’t already have one.) Walk through each room, do a quick sweep and get everything you own on tape. Don’t forget the attic, basement, closets and offsite storage locker, if you have one. Or take the low-tech method: make a list and shoot a few rolls of film. Stash your video or photos in a safety deposit box with a copy of your policy. If you keep your inventory at home, make a second copy to give to a friend or keep at the office.

5. Buy floaters. Many times, homeowners and renter’s policies limit the amount you can collect on some big-ticket items – usually things like computer equipment, jewelry, furs and fine collectibles – to a fraction of the replacement value. If this is the case, you need to pick up a special policy known as a “floater” or “endorsement” for each of those items. A floater will also reimburse you if you simply lose the article. In the case of something new, save the bill of sale with your inventory, and fax a copy to your insurance agent. If the item is older, have an appraisal done. Again, save one copy and send another to your agent. That way, you’ll never have to worry about proving you owned an item, and there will never be a dispute over what it’s really worth.

6. Keep pace with inflation. This is especially important with a homeowners policy. It may have cost you $100,000 to build your home 10 years ago, but it might cost $120,000 to replace it today. “Many companies have inflation guard, which covers the increasing cost of rebuilding,” Salvatore says. When your policy comes up for renewal, talk to your agent to verify that your coverage amounts are still realistic. And when you make an improvement, add it to the total.

7. If you own a condo or co-op, protect your property. Make sure that the condo board or association has a policy that covers the common areas, and get a copy. Also look at the association bylaws to find out what portions of the home you must cover. “It’s usually from the drywall in,” Griffin says.

Since condo owners need their contents policy to cover things like cabinets and fixtures, they need a bit more insurance than the typical renter. Sometimes you get a price break if you go with the same company that wrote the policy for the condo association.

“Plus they are familiar with what they cover, so they know what to sell you,” Griffin says.

You also may want to consider assessment coverage. If the condo association’s policy is not large enough to cover a loss, or if there is a hefty deductible, the association will split the additional costs among the members in the form of an assessment. With assessment coverage, your insurance company pays the tab.

8. Consider flood and earthquake insurance. Granted, this is not for everyone. But if you live in an area prone to floods or earthquakes, it pays to know that most property policies do not cover these disasters. Some independent carriers offer both. For flood insurance, you can also contact the National Flood Insurance Program. In California, you can get earthquake insurance through the California Earthquake Authority.

9. Think about buying an umbrella policy. Liability insurance, which picks up the tab if someone gets hurt on your property or through the actions of your family members, tops out at $300,000 on most homeowners policies, according to Griffin. “But nobody sues for $300,000,” he says. “That usually starts at $1 million.” His recommendation: if you have assets, pick up an umbrella policy that would add extra liability coverage to your home and auto policy. “Umbrellas are cheap – usually starting at about $100 to $200 a year.”

10. After a life-changing event, call your agent. Getting married or divorced? Are the kids moving out – or back in? The amount of insurance you need – and the items you want to cover – change over the years. Be sure you keep your policies and inventories up to date.

Buyer’s Brokers
by msn.com

Home buyers have had the option to work with buyer’s brokers–that is, agents who owe exclusive loyalty to buyers–since the 1980s. Before that time, real estate agents in home sales most often acted as subagents of sellers by virtue of their connection to the local multiple listing service (MLS). This meant that the agent showing them homes owed loyalty to the seller, a position with the potential for conflict of interest.

Many states have now changed the laws and practices governing agency relationships to do away with the automatic presumption of subagency and better protect buyers’ interests. Make sure you know how the law and customs work in your state and understand all of your options before you choose an agent. Remember, an agent who represents you is a buyer’s agent, but not all buyer’s agents are buyer’s brokers.

What is a Buyer’s Broker?
A buyer’s broker is an agent who represents only buyers in real estate transactions and who legally acts in the buyer’s best interest, not the seller’s. If you hire a buyer’s broker, your agent’s goal will be to get you the best house for the least money at the terms most favorable to you. This means your agent might show you not only properties included in the local MLS, but also For-Sale-By-Owner (FSBO) homes. There are distinct differences, based on state law or local custom, in how agents who practice buyer brokerage structure their responsibilities. Listings and compensation are two examples.

Listings
Some buyer’s brokers do not work with sellers at all and do not accept property listings. Members of the National Association of Exclusive Buyer Agents, for example, must sign a written pledge that they and their offices will only represent buyers, not sellers.

Compensation
Either you or the seller may pay your buyer’s broker. Many buyer’s brokers ask for the equivalent of what they would have earned in a traditional commission structure (3 percent, or half of a typical 6 percent commission, for example), though their fee may work out to less than that of a traditional agent on more expensive homes.
Commissions are negociated, there is set standard.

In a typical transaction, the commission is usually factored into the sale price of a house and stipulated in the listing agreement. Increasingly, though, buyer’s brokers work on an hourly basis or for a set fee negotiated in advance. If you decide on this form of compensation, it will be in your best interest to negotiate a fee that is not tied to the sale price of the house you want to buy. The broker may expect to receive a portion of the fee as a retainer at the time you enter into the agency agreement. For a variety of reasons, however, the seller still most often pays the commission for a buyer’s broker in a typical transaction.

A buyer’s broker may be able to negotiate a lower sale price if you pay the broker’s fee yourself. Many consumer advocates believe that you can’t completely eliminate any influence the sale price may have on an agent unless you, not the seller, pay your buyer’s broker.

Making the Call
Buyers who work with the seller’s agent often do so because they think they may get a better deal, or they worry that they may not see as many homes with a buyer’s broker, especially in a seller’s market when information on new listings is critical. Buyers who work with a buyer’s broker often do so because they feel they’ll get better advice on making an offer, and their agent may negotiate a lower sale price if his or her commission is not affected by it.

Why don’t more people use a buyer’s broker? The concept is still relatively new, and many buyers aren’t prepared to pay for agency services themselves (though that’s just one option for compensating a buyer’s broker). Whatever you decide, you should interview several agents before you choose one to work with you.

Accredited Buyer Representive Candidate, Manny Caballero can reach at 480.695.6485

Friends and Co-owners
by Nancy Dunnan

decade ago, your grandmother would have been shocked if you bought a house with a friend, especially if you had no immediate plans to get married.

But according to the 2000 U.S. Census, nearly 5.5 million households, or approximately 1 in 20, now consists of unmarried partners. Some are romantically involved, some are just friends and some consist of small groups of unrelated people joining together to create an extended, family-type community.

Mortgage lenders, not about to miss out on the action, are far less reluctant than they were in the past to help cohabiters buy their dream home. They are welcoming this growing source of business as are home builders and sellers.

Getting Real About Real Estate
Nonetheless, if you are a cohabiting couple or part of a larger group contemplating buying a home together, it’s extremely important that you take steps to safeguard both your personal finances and your portion of the property. You have less legal protection than married couples who benefit not only from state and pension laws, but also from Social Security regulations.

In any relationship, married or unmarried, it’s tempting to sweep money discussions under the rug—it’s the unromantic part. But if you’re setting up a household, it’s essential to get real about real estate.

If possible, spell out the ground rules before moving in together and certainly before buying a house. It’s a lot harder to do so after you start sharing the shower on a full-time basis.

The Cohabitation Checklist
1. Draw up a financial cohabitation agreement. Also known as a domestic partner agreement, it is similar to a prenup and should be done with legal advice.

Among the topics to include in the agreement—housing expenses. Will each of you contribute the same dollar amount for the down payment? The mortgage? Utilities? Upkeep? Repairs? Or, will one partner contribute more? Initially? Permanently? Or for a stated length of time?

Will you be using a joint checking account? Or will you pay bills from individual accounts?

Tip: Keep in mind that with joint checking accounts (and joint credit cards) you are fully responsible for the checks either of you writes or the charges made—whether or not you are married.

The same is true for a joint savings account—each of you has the right to withdraw all the money without letting the other one know.

If your incomes are lopsided, you’ll need to work out a plan acceptable to both (or all) of you. One possibility is the percentage approach: If one partner earns a third more, then that person picks up a third more of the commonly shared expenses. If the partner with the lower salary wants to even things out, he or she can do extra work, such as shopping, cooking, cleaning or repairs. But take care that this doesn’t turn into an onerous situation in which the partner with less income feels like a slave.

The cohabitation agreement should also determine such things as:
How the taxes will be paid.
Who can live in the house in addition to the two of you.
Can one of you sublease to someone else?
What will you do if one of you can’t make mortgage payments because of illness or loss of income?

2. Determine the type of ownership
Don’t try to sort this out yourself. Use a real estate attorney who specializes in live-together arrangements and estate planning. Review these points before meeting with the attorney so you’ll be aware of the legal issues involved and know what questions to ask.

Background info… When a married couple divorces, the state court (and to some extent, a prenup agreement if there is a valid one) determines who gets what. As a live together, you cannot use the divorce courts to distribute your property, with the possible exception of Massachusetts and that has yet to be tested. If there is an acrimonious breakup, you might be forced to file a civil lawsuit called a “partition action.”

In that case, you will be asked to prove your contribution to the property. Therefore, I strongly recommend that from the very beginning, you write checks from your individual checking account for your share of key things—the down payment, closing expenses, the monthly mortgage, upkeep, repairs, utilities, etc.

If for some reason, the checks are written on a joint account, should you split up, you must prove how much you put into that account, which could be quite difficult. Your attorney can advise you about the laws in your particular state.

The three ways to take title to property…

In one person’s name
As tenants in common
As joint tenants with the right of survivorship.

You certainly want to avoid the first—it could leave you out in the cold, literally, should your companion die or you decide to go your separate ways.

With tenants in common, each person has his or her own separate interest in the house. Upon death of one of you, the deceased’s interest passes to the person’s heirs according to the terms of his or her will, not automatically to the surviving partner.

Tip: This form of ownership is usually advised when more than two people own a piece of property.

If the house is held in joint tenancy with right of survivorship, then upon the death of one owner, the survivor automatically becomes the owner of the entire piece of property.

Tip: If you elect joint tenancy with right of survivorship, ask your attorney what happens if one of you sells his/her share of the house to someone else. In many states, the new owner and the other original owner become tenants in common.

3. Review co-op rules. If you’re thinking about buying a co-op apartment, you’ll need to review the co-op’s rules very carefully. They vary widely from co-op to co-op.

Find out:
If both of you can actually hold title to the property.
If you should break up, under what circumstances or under what type of ownership can the remaining partner stay in the co-op?
If this is permitted, then the board of directors most likely has the right to review the financial situation of the remaining partner in order to determine if he/she can meet monthly maintenance costs and other financial obligations.

4. Authorize a durable power of attorney for financial matters. Then if illness or a medical condition prevents you from managing your financial affairs, your partner is empowered to act for you. This would include his or her paying your share of the housing expenses. And, make sure the power of attorney form you use allows your partner to act on tax matters.

And finally …

5. Put both names on your homeowner’s insurance policy. That way, all the things you own are equally protected.

Will the Housing Market Collapse in 2004?
by Dian Hymer

2003 shaped up to be one of the best years for real estate on record. Sales of existing homes were 5.8 percent higher in 2003 than they were in 2002, according to the National Association of Realtors. New-home sales set a record in 2003, rising 8.2 percent above the 2002 sales level. David Lereah, chief economist for NAR, predicts that 2004 will be the third best year ever for housing.

Interest rates have fueled a strong housing market at a time when the economy has been struggling with recovery. Many wonder what will happen when interest rates rise. Will home prices—which have enjoyed years of generous appreciation—drop?

Interest rates have increased in recent months from the lows set in late spring and early summer. Even so, NAR predicts that the 30-year fixed-rate mortgage will average 6.7 percent in 2004. This is still low by historical standards.

No one knows for sure when interest rates will rise to a level that will affect affordability and the strength of the housing market. However, it’s expected that inflation will remain low for some time. NAR predicts that consumer price inflation will actually drop to 1.6 percent this year from a projected 2.4 percent last year. As long as inflation remains low, it’s expected that the Federal Reserve will keep short-term interest rates low to keep from jeopardizing the economic recovery.

Housing will continue to be strong, according to the Oct. 3, 2003, issue of The Kiplinger Newsletter. Kiplinger sees interest rates rising to 7 percent by December 2004. However, an increase in interest rates is not expected to put a dent in housing demand until rates reach 8 percent. Kiplinger doesn’t see a housing price bubble that’s about to pop, as some naysayers have predicted. According to Kiplinger, a few housing markets are ripe for correction, including Boston, Chicago, Houston and Charlotte, N.C. In these areas, home building and price gains are outpacing job and income growth. Nationally, homes sales are expected to drop 5 percent this year, but home prices will appreciate 4 percent. Kiplinger is generally bullish on housing, which “will remain an important foundation of personal wealth.”

House hunting tip: Some economic forecasters don’t expect interest rates to rise much from their present level until the second half of this year. If you’re planning to buy or sell a home in 2004, you may find your greatest opportunities in the first half of the year.

Interest rates could bounce up and down this year as they have over the last several months. They’re up one week and down the next. Rather than risk missing a good rate, it’s advisable for most home buyers to lock in an interest rate. If you don’t and rates rise, you’ll be stuck paying a higher rate.

In areas where inventories increase, expect that it will take longer to sell your home. But, where inventories are low relative to demand, buyers will still have to contend with multiple offers. You may find that you have different market dynamics operating within one market area. For example, in the $1 million-plus price range, you could see more supply than demand. In the sub-$500,000 market, there could be multiple buyers for every well-priced listing. In general, however, buyers should find less competition in the marketplace this year.

The closing: “Well-priced for the market” will be the name of the game this year, as it was in 2003.