Killer Closing Costs

 

Anyone who has ever bought or sold real estate knows how closing costs can affect a transaction.  Sometimes, the fees can make or break a deal and blow the American dream right out the window. When either the buyer or the seller isn’t on top of their estimated closing costs, the entire transaction is in jeopardy and subject to dying a slow death at the escrow table.

 

Leave it to the Millennials (aged 28-34) to bring the problem to the forefront.  According to a recent ClosingCorp  survey of more than 1,000 adults, two thirds of Millennials planning to buy a home admit they’re clueless about closing costs. 

 

The research also found that more than one-third of all homeowners say they’re “not very” or “not at all” aware of closing costs.  This is an expensive communication glitch, since closing costs can amount to 2-5% of the purchase price of a property.  On a $200,000 house, that’s an additional $10,000 a buyer would need to submit along with the down payment. Loan fees, lender, title and other settlement costs could add up to more than the borrower has in the bank.

 

It’s not much better for sellers.  When selling a property, especially one in default, the seller’s share of closing costs can spread like wildfire when things like foreclosure fees, past due taxes and penalties are factored in. Depending upon the length of escrow, per diem fees, for example, can double or triple an original estimate.

 

What’s a consumer to do?  Both buyers and sellers should insist on regularly updated closing cost estimates that accommodate contract extensions and surprise liens developed after escrow was opened but before it closes.  This will prevent people from getting stuck in the uncomfortable, embarrassing, and sometimes legally precarious position of being short of money to close.

 

The issue of consumers’ confusion about closing costs is so widespread that the Consumer Financial Protection Bureau is implementing several changes to the property transfer disclosure process.  The CFPB will require mortgage lenders and banks to provide buyers with new closing disclosures at least three business days prior to closing, to allow them to ask more questions and compare costs.

 

Time for agents representing buyers and sellers to do a better job of educating consumers about closing costs. Communicating with clients early and often will go a long way to support smooth transactions going forward.

Taxes Due? No Problem! Capital Gains Tax Break for HOA Members

 

Paying capital gains taxes on the profit from a sale of real property is the law.  Fortunately most homeowners qualify for a significant tax break when they sell their property.  They can exclude up to $250,000 in gains as a single filer, and $500,000 as a joint filer – if they meet certain criteria.  Another benefit is available to sellers with property in a homeowners association, but many don’t take full advantage of it! Can your sale benefit from this additional tax break?

 

  • It can if you own property in a homeowner’s association and get the appropriate figures from the finance committee in time to file your taxes!

 

Whether in a homeowners association or not, any sold property is subject to capital gains taxes. We pay taxes on the net profit, the amount that exceeds our adjusted basis in the property. The larger the adjusted basis, the less our taxable profit. But what happens when the adjusted basis is miscalculated?

 

  • To get the proper tax benefit, a seller in an HOA development must make sure that their share of the capital improvements expenses made to the association’s commonly owned areas are properly factored in to their personal return, so that the adjusted basis (what determines the net profit) is accurate.

 

When property is part of an association, there are two types of improvements which should be added to an owner’s adjusted basis.  The first are those made to an owner’s personal unit (like a remodeled bathroom), and the second are those that can be added to the adjusted basis that the HOA made to the building’s common areas (like replacing the clubhouse roof).

 

Think you may qualify for this additional tax break?  See the finance committee today.  Learn about your share of the HOA generated capital improvement costs that may be added to your adjusted basis. Claim your pro-rated share of the expense and enjoy this benefit of HOA membership.

 

Get more BANG for your BUCK!

 

Want to make sure you’re making the right choices when renovating, remodeling, or replacing tired or worn out amenities at home?  Realtors nationwide regularly rely on reports that compare the cost of remodeling to the value of the improvement, and you can too.

 

The National Association of Realtors publishes surveys like the 2015 Remodeling Cost vs. Value Report, which compares construction costs with resale values for 36 midrange and upscale remodeling projects in 102 markets around the country.  The data is organized by regions established by the U.S. Census Bureau, and is compiled annually with the help of a prominent remodeling magazine.

 

Remodeling and renovating is expensive! Before making repairs, consider this report or others available to help consumers spend wisely.   Here are the top five midrange projects and their returns.  See the full report at: www.costvalue.com

 

Top 5 Midrange Projects

 

1. Entry Door Replacement (steel)
Job Cost: $1,162
Resale Value: $1,122
Cost Recouped: 96.6%

 

2. Deck Addition (wood)
Job Cost: $9,539
Resale Value: $8,334
Cost Recouped: 87.4%

 

3. Attic Bedroom
Job Cost: $49,438
Resale Value: $41,656

Cost Recouped: 84.3%

 

4. Garage Door Replacement
Job Cost: $1,534
Resale Value: $1,283
Cost Recouped: 83.7%

 

5. Minor Kitchen Remodel
Job Cost: $18,856
Resale Value: $15,585
Cost Recouped: 82.7%

 

Check in with the Master!

 

Important protections in the HOA’s master insurance policy

 

 

 

Does your HOA carry a master insurance policy? If you live in an HOA with shared common elements the answer should be “Yes!” You need additional protection apart from your personal homeowner’s policy when living in a community with shared amenities and facilities. Get to know the “master” just a little bit better and relax knowing that you’re covered when the unexpected happens.  What is the “master?”

 

In insurance policy terms, this policy protects all of the common areas that you and your fellow homeowners are responsible for maintaining.  These areas a places where you, your visitors and invitees access while on the association’s property.  Roofs, lobbies, stairways, elevators, basements, common walls, etc. are the places typically covered by the master insurance policy.

 

A good master policy includes liability insurance that accommodates claims against injuries involving residents or guests that occur in these areas.  For example, if the flower girl at a wedding slips and falls on rose petals in the elevator, the “master” policy protects you, fellow homeowners and the association against any claim brought by her parents.

 

The master insurance policy must be current and in force at all times. Lenders make it easy for HOAs to stay insured by requiring proof of adequate coverage before they approve a mortgage loan. Fannie Mae and Freddie Mac demand at least one million in a master liability insurance policy before approving a residential real estate loan for property in a homeowners association.

 

Look to your association’s CC&Rs (covenants, conditions and restrictions) to determine what the HOA master insures for your benefit.  Understanding the limitations of your personal policy and the ramifications of the master policy will help you sleep at night and stay covered!

 

Between your personal policy, and the “master” you can rest comfortably knowing that your property is sufficiently protected against loss, and will not lose value because of an unexpected accident or disaster.  The “master” is a must if you live in a community with common areas and shared amenities.