How to Save on Big Ticket Items

Trying to get the best sale price on large-ticket items for your home can be quite time consuming. Here are some simple ways to shop smarter and save on everything from appliances to furniture to electronics.

Comparison shop online. There’s no need to run from store to store to check prices and features when you can do it all online. Once you’ve determined the model(s) you need, you can see who offers the best price with sites like Amazon, Google Shopping and PriceGrabber.com. Remember to factor in delivery costs or other charges on large items like furniture or appliances. Better yet, try to get free delivery and installation whenever possible.

Buy everything at once. If you plan on buying a number of electronics such as a flat-screen TV, stereo and home computer, see if you can knock a bit off the price by purchasing them all at one store or website. First, add up the combined sale price of all the items. Then ask to speak to a manager to see if you can get a discount for buying a number of items. Some retailers will take off as much as 10% off their initial best price to make the sale.

Shop the holiday sales. You can usually lower your costs pretty substantially if you can catch a good holiday sale. President’s Day just passed, but you can look forward to big savings down the road on furniture and other items around Memorial Day, 4th of July, Labor Day and other major holidays. Also, be sure to check for special promotions like Family & Friends or other group discounts.

It never hurts to haggle. Just because it’s on sale, don’t assume that’s the lowest price you can pay. Sometimes there’s a little wiggle room in the price, so don’t be afraid to ask. You may have a better chance to take a few dollars off if you offer to pay in cash. Merchants have to pay transaction and processing fees on credit card sales, so some retailers will give you a discount if you’re willing to pay the old-fashioned way.

– Adapted from the AHS Home Matters Inside & Out June 2014 Newsletter

Closing On A Home? Tips For Understanding the HUD-1

When you agree to purchase a home and begin the closing process, you’ll be issued an HUD-1 Settlement Statement. The HUD-1 will detail the costs associated with the purchase of the property and will identify which party is responsible for which cost. On this form, however, some charges are aggregated together so that only the total is shown, thus it won’t provide specific details on that category of charges. Real estate professionals involved in the transaction, like a real estate agent, broker or attorney can help answer any questions regarding these closing costs.

The details of the HUD-1

The first page of the HUD-1 is divided into two columns. These are sections J and K. Section J is a summary of your transaction and section K is a summary of the seller’s transaction. This page will show you how much you owe the seller and includes settlement charges and adjustments to the transaction. At the bottom of the page are lines 303 and 603. Line 202 shows how much the buyer owes or is owed and Line 603 will detail how much the seller owes or is owed.

Settlement costs are found on page two of the HUD-1 under section L. These costs are broken into a number of categories including real estate broker fees, items required by the lender to be paid in advance, items payable in connection with the loan, reserves deposited with the lender, title insurance charges, government recording and transfer charges as well as additional settlement charges. The totals of charges are found at Line 1400 at the bottom of the page and are referenced on lines 103 for the borrower and 502 for the seller on the first page.

The third page of the HUD-1 Settlement State shows the charges from the buyer’s Good Faith Estimate issued by the lender to allow buyers and their real estate agent to see any increases in charges. While increases in charges are not uncommon fees under the “Charges that Cannot Increase” section are a tolerance violation and the lender is required to pay those fees. There’s also a section titled “Charges that in Total Cannot Increase More Than 10 Percent” and any fees greater than 10 percent must be paid by the lender. Buyers should remember that there is a section that includes charges that can change and the buyer is responsible for any of these increases.

Loan terms on the third page include the loan amount, term, interest rate and other payment information.

-from First American Exchange Newsletter -The Exchange Update

 

 

 

 

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Closing Costs in a §1031 Exchange: A Trap for the Unwary?

Closing statements are replete with prorations and credits that adjust the sales price.  Other line items reflect the payment of recording fees, title insurance and other transaction expenses.   Seemingly routine, the way these expenses are handled in a §1031 exchange may have unintended tax consequences.

Remember that the rationale for tax-deferral under §1031 is that the taxpayer has merely moved his investment from one property to another.  The form may have changed, but as long as the underlying investment remains unchanged no tax is due.  Any “cashing out” of the investment (i.e. reduction in equity) will be taxed.

In some instances, using exchange funds to pay closing costs or issue credits that adjust the price, may be a form of cashing out.  The result is that the transaction may be partially taxable.
Another concern is that paying certain expenses could be construed as impermissible receipt of the exchange funds.  Under the IRS regulations the taxpayer cannot have actual or constructive receipt of the exchange funds.  Improper receipt could cause the entire exchange to fail.
The IRS and case law provide very little guidance on this topic.  This article discusses the issues in general, but because of their uncertainties and technical nature, it is important that every taxpayer have his tax advisor approve each closing statement, so there are no surprises when preparing the tax return.

EXCHANGE EXPENSES

Certain items paid at a closing are considered “Exchange Expenses”.  Using exchange funds to pay those expenses will not result in a tax liability to an investor doing a §1031 exchange.  For example, Revenue Ruling 72-456 provides that if exchange funds are used to pay brokerage commissions, it does not result in the transaction being partially taxable.  There are no other clear rulings on this subject, but most tax advisors agree that the following expenses are exchange expenses and may be paid at the closing of the relinquished or replacement properties without any tax consequence:
• Brokerage commissions • Exchange fees • Title insurance fees for the owner’s policy of title insurance • Escrow fees • Appraisal fees required by the purchase contract • Transfer taxes • Recording fees  • Attorney’s fees incurred in connection with the sale or purchase of the property

NON-EXCHANGE EXPENSES

Not all expenses are Exchange Expenses.  Exchange funds can be used to pay a non-exchange expense, although doing so may result in the exchange being partially taxable.
Such payments will not invalidate the application of the Qualified Intermediary safe harbor, but they may still constitute boot to the Exchanger.  On a typical settlement statement the seller of the relinquished property will give the buyer a credit against the sales price, representing security deposits and prorated rents.  Effectively, the seller was using exchange funds to pay the security deposit and prorated rent amounts to the buyer.  To avoid a taxable event, the seller should deposit his own funds to pay those security deposits and prorated rents to the buyer, rather than giving a credit.
In addition, most tax advisors believe that fees and costs paid in connection with getting a loan to acquire the replacement property should be considered costs of obtaining the loan, not costs of acquiring the replacement property, and thus are not Exchange Expenses.  To avoid any potential tax liability, the buyer may want to deposit his own funds to pay loan related expenses.
Some non-exchange expenses create a tax liability but are offset by a deduction.  One example of this is property taxes.  Although property taxes are not an Exchange Expense, the investor will get a deduction for paying the property taxes, and that liability will be offset by a deduction.
The following items are typically found on a closing statement but are generally not considered Exchange Expenses because they do not relate directly to the disposition of the relinquished property or the acquisition of the replacement property:
• Loan costs and fees • Title insurance fees for the lender’s title insurance policy • Appraisal and environmental investigation costs that are required by the lender • Security deposits • Prorated rents • Insurance premiums • Property taxes

TRANSACTIONAL ITEMS AND CONSTRUCTIVE RECEIPT

A separate, but important, issue is whether paying a non-exchange expense from exchange funds will be construed as constructive receipt of those funds by the investor, which has the potential to disqualify the entire exchange.  Under the IRS Regulations exchange funds can be used to pay “transactional items that relate to the disposition of the relinquished property or to the acquisition of the replacement property and appear under local standards in the typical closing statement as the responsibility of a buyer or seller (e.g., commissions, prorated taxes, recording or transfer taxes, and title company fees).”
For example, an investor may want to use exchange funds to pay a rate lock-in fee to a lender.  Since these fees by their nature are paid before the closing, and are not strictly required for the acquisition of the replacement property, paying the fee from exchange funds may trigger a constructive receipt problem.
Since there is no clear IRS guidance, it is important that investors discuss the issue with their tax advisors before seeking to use exchange funds to pay non-exchange expenses, whether prior to, or at the replacement property closing.

 

REFERENCES

Revenue Ruling 72-456; TAM 8328011; Treasury Regulation §§ 1.1031(k)-1(g)(6) and (7); IRS Form 8824.  – See more at: http://firstexchange.com/July2013Newsletter

-from First American Exchange Company July 2013 Exchange Update

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The Market Gets Competitive for Home Buyers

Daily Real Estate News |      Thursday, September 13, 2012

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More home buyersare finding they’re losing their power position in the real estate market and that when they submit an offer for a home, they may not be alone in the bidding. In fact, buyers who submit low offers may not even get a courtesy of a callback nowadays.One Florida couple says they put in seven offers on homes over two months — most at or above asking price — before they were finally able to get a $365,000 Sarasota home.

A drop in the inventory of for-sale homes around the country is prompting more competition among home buyers. Inventory in June is 24 percent below year-ago levels.

“I’ve had listings get 45 offers,” Sin-Yi Chao Lambertson, a real estate broker in Glendora, Calif., told Money Magazine.

Money Magazine recently offered potential buyers the following tips if they want to get the winning bid on a home:

  • Get pre-approved, not prequalified: Pre-approval for a loan based on a buyer’s credit, income, and assets is viewed as better than getting pre-qualified, which is just an estimate of how much that buyer may be able to borrow.
  • Find an experienced REALTOR®: Money Magazine advised home buyers to find a real estate professional who knows how to handle multiple-offer situations and can advise how much to offer and help buyers determine if they’re getting a home at a fair price.
  • Watch the contingencies: “The best offer isn’t always the one with the best price,” says George Miller, a Sarasota, Fla., real estate agent. Buyers who put in too many contingencies with their offer may lose out.

Source: “Winning in a Seller’s Housing Market,” Money Magazine (Sept. 12, 2012)

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3 common home purchase roadblocks

Buyers who find a home they’d like to buy soon after they start their home search often pass on it because they feel they haven’t seen enough listings. Months later, when they haven’t found anything to compare to the first home they really liked, they can regret that they didn’t seize a great opportunity when they had a chance.

It takes a leap of faith and complete trust in your real estate agent to make a quick move in a market that’s new to you. You’ll feel more confident when you’ve done your homework and know the reasons why some listings sell for more than others. This is a process that takes time and is time well spent.

A characteristic of the current home-sale market, particularly in or near areas where job growth has improved significantly, is that there are not a lot of good homes for sale. In these niche markets, there tend to be more buyers looking than there are homes to satisfy the demand.

The housing market is bifurcated. Unlike the high-demand enclaves inspired by a pickup in employment, there are many more areas where there are far too many unsold homes and with too few buyers. This tends to have a dampening effect on home prices.

How long it takes you to find a home will depend in part on whether what you’re looking for is readily available. It will also depend on how many buyers are looking for the same kind of home you’d like to buy. If there’s competition for a scarce commodity, you might make offers on several homes before you are able to convince a seller to accept your offer.

HOUSE HUNTING TIP: Investors snap up foreclosure listings quickly, but they aren’t going to call these places home. It’s rare for buyers to find a home they want to occupy as their primary residence quickly, either due to specialized housing needs or lack of inventory. Put the time you spend waiting to good use by learning more about the community in which you want to live. Patience should be your motto.

Patience is also needed to carry you through the contract negotiation and closing. Although each home-sale transaction is unique, it’s not uncommon for a glitch to come up at some point. Some homes don’t appraise for the price you’ve agreed to pay. If you don’t have any additional cash to add to the deal, and the seller won’t renegotiate the price, you’ll be back at square one, looking for a home to buy.

The glitch could occur before your offer is accepted if the sellers are stubbornly unrealistic about the price they’re asking. Recently, buyers were encouraged to make an offer on an overpriced listing that had been on the market for months. The buyers reluctantly made an offer for the top price they could pay for the house. The sellers flatly turned the buyers down and said they would never sell for that price.

Three months and one price reduction later, the house still hadn’t sold. The buyers were again encouraged to make an offer. They made an offer for the same price they did the first time, but the terms were more agreeable to the sellers. It was accepted.

Many unrealistic sellers never come around. Don’t waste your time on sellers who don’t have a strong motivation for selling. There’s a big difference between sellers who want to sell only if they can get an unrealistic price, and sellers who have purchased another home and have no need for the current one.

THE CLOSING: Until you have an accepted offer, keep your eye on the market; don’t miss a listing that will work for you and is reasonably priced.

By Dian Hymer, Monday, April 2, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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Use incentives to sell house with defects

Buyers who purchased during the bubble market often paid too much in competition for a home that needed a lot of work, and then they did few or none of the repairs. In a rising market, buyers were willing to ignore defects and buy “as is” rather than miss out on rapid appreciation.

The opposite is the case today. Home prices have declined an average of 30 percent nationally from the peak. Buyers usually don’t overlook defects, even though the house is still standing and the defects have been there for years.

Today, homes are well-inspected. Defects are taken seriously. Buyers either ask the sellers to do repair work, reduce the price, or credit money to them at closing to help with renovations.

Disclosing property defects is required in most states. The timing of compliance with this requirement is an issue with some sellers.

Sellers don’t want the information made available to buyers before they make an offer for fear that the buyers won’t offer at all if they know the condition of the property. This approach will backfire when the buyers receive the information and the deal falls apart if no agreement is reached on who pays for what.

HOUSE HUNTING TIP: A better approach is to make known as much information as you can about the property condition to the buyers before they make an offer. If you want an “as is” sale, which means you don’t want to take care of any of the recommended repairs, make sure your list price reflects the work that needs to be done.

For instance, if your home has a market value of $450,000 and requires $30,000 of repair work, list it for $415,000. This gives the buyer a $5,000 incentive to take on the project.

There is always the possibility that the buyers’ inspections will find defects that weren’t revealed by the sellers or in any presale reports they provided. But, at least there’s less chance that the deal will fall apart.

A relatively small credit or price reduction will be easier to deal with if the buyers are applying for a mortgage to complete the purchase. Lenders have limits on how much they will allow a seller to credit a buyer at closing.

Check with your loan agent or mortgage broker about the amount of the credit. The lender will probably need an addendum to the purchase price that says the sellers are crediting the buyers a certain amount toward their closing costs.

One way to improve your sale prospects and bypass any lender concerns about property condition is to have work done before you put your home on the market. This requires time and money, so it’s not an option for all sellers.

Items to consider repairing are ones that might keep the sale from closing on time. For instance, if your front porch or back deck is rotted to the point of being a hazard, the lender’s appraiser will indicate this on the appraisal report. The lender will probably require that the work be done before closing. If you can’t line up contractors to complete the work quickly, this could delay the closing.

To save money, some sellers hire unlicensed workers to repair defects. There is potential liability if the work requires a city building permit. Make a list of all the presale work you had completed, who did it and when. Indicate if the person who did the work was licensed or unlicensed. Give the list to the buyers far enough in advance of closing so they can have the work inspected by a professional of their choice if they want to.

THE CLOSING: Selecting less expensive contractors to save money can end up costing you more if they don’t do a complete and proper job.

By Dian Hymer from Inman News

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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3 fixes when home seller neglects promised repairs

Q: How far can you go back on a contract? Before the closing, the seller was supposed to fix certain outlets that the home inspector had marked. Well, call me an electrical idiot, but I eventually learned that the seller didn’t fix them per the contract. Dumb me for not getting the free second walk-through inspection. I usually learn things the hard way. This is one of them. Any input would be helpful. This was my first home purchase. –Morganne B.

A: More than one thing went wrong in your transaction, from my perspective. Obviously, the seller should have had the outlets repaired — it sounds like the outlets were possibly ungrounded or simply nonfunctioning. However, if that was in writing, you and your agent should have verified that the outlets had been repaired before you removed your inspection contingency — and certainly before you closed the transaction.

Here’s how you can think about — and rethink — these neglected repairs:

1. There’s a no-return policy on homes. OK, that’s not technically true — there is a legal claim called rescission, but courts are extremely hesitant to do that, because real estate transactions just aren’t that simple to undo.

Even if it’s a big fix that needs to be done, unless there was a massive case of fraud on the seller’s part about something that would have changed the normal buyer’s decision-making about the house, or a seller’s signature was forged or something on that order, the chances of “going back” on a contract, so to speak, are between slim and none.

In a court of law, in your case, things could go one of two ways depending, in part, on the laws of your state and the paperwork involved: A judge might order the seller to pay your damages (i.e., the costs of fixing the outlets) or not (you waived your contingencies and so might have taken on liability for the repairs, because you didn’t insist on them being completed while you had your chance).

2. Ask yourself: Are the dollars worth the drama? If you haven’t already had the outlets repaired, get ’em fixed or, at the very least, get an estimate. [Note — First things first: if you believed the outlets were in good repair when you closed escrow, you might be able to get your home warranty company to cover the repairs, and you should contact them and inquire about coverage before you do anything else.]

Depending on how many outlets we’re talking, chances are good you’re looking at a few hundred bucks, max. Clearly, a couple hundred dollars is not worth the missed work and drama of a legal proceeding.

If, for some reason, the cost of repairs turns out to run into the thousands, you may want to consider a small claims court case against the sellers, but know going in that even small claims court cases can take tens of hours and hundreds of dollars to file, serve and prepare — and that’s not to mention the missed work of sitting in court for the proceedings and the drama and antagonism that comes with any sort of litigation, no matter how small.

3. Try easy. On real estate condition issues that arise post-closing, I always tell buyers that there’s an easy way and a hard way to address the issue. And though our culture is very fond of telling people to try hard, I suggest trying easy first.

First off, call your real estate broker or agent and tell him what’s going on. Dozens of times, I have seen these issues get resolved with a couple of phone calls and a faxed estimate or repair receipt.

Your broker might turn out to be your advocate in this situation, especially as there’s an argument that he should have advised you against actually removing your inspection contingencies and/or closing the deal unless and until those outlets could be verified to have been repaired.

If that doesn’t work, you or your broker should write the seller a note, through her broker, attaching the contractual documents in which she agreed to complete the repairs, as well as the electrician’s receipt or estimate showing both (a) that the repairs were not done and (b) what the costs of repairs will be or were. Your note should then ask the seller to pay for these repairs.

The chances you’ll recoup your repair costs by trying easy are probably quite a bit better than you think.

If not, assuming those costs don’t quite rise to the level where legal action is cost-effective, you might want to chalk this up to tuition — the cost you pay to learn a life lesson — and be glad this lapse in attention to detail and double- and triple-checking didn’t cost you much, much more.

By Tara-Nicholle Nelson, Thursday, October 6, 2011.

Inman News™

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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