Cynthia Radom - Service, Sales, Success
Real Estate Newsletter
Coldwell Banker Previews International
Coldwell Banker Co.
166 N. Canon Drive
Beverly Hills, CA 90210
News & Issues for Baby Boomers and Golden-agers
By: Cynthia S. Radom Award-winning Certified Seniors Real Estate Specialist
October-December 2012     Cynthia@RealtorRadom.com     (310) 288-0479

   ** Writer and Publisher since October 1999 **

 CA Seniors: Two New Taxes? 

Obamacare Tax
Two of the twenty new "taxes" in conjunction with the passage of PPACA, Patient Protection Affordable Care Act (aka Obamacare) call for high-income households, middle class and higher in CA, to be subject to a 3.8% tax on unearned income and a .09% tax on earned income starting January 1, 2013.  A heavily skewed Democratic Congress passed Obamacare hoping the wealthy will generate an estimated $210 billion to help fund a depleting Medicare program.  Thereby, the new taxes are referred to as a: Medicare tax.  Simply put, the amount of money that some CA property Sellers were going to put into their pocket is now going to support the Medicare Trust Fund.

"Unearned" 3.8% tax
A provision of the new healthcare legislation imposes a 3.8% real estate transaction tax over the capital gains "threshold":
- Tax applies to individuals with an AGI above $200,000 and couples, filing joint returns with an AGI above $250,000.  AGI refers to adjusted gross income.
- Types of income taxed: rents (less expenses) and capital gains (less capital losses), also interest and dividend income
- Tax is imposed on the lesser of:
   - net investment income amount, or
   - the excess of modified adjusted gross income (AGI) exceeding a specified "threshold" amount.
If you realize a profit on the sale of a property above the capital gains threshold, you will be required to pay an additional 3.8% tax on any gain realized over this amount.

  

"Earned" .09% tax
The second new Medicare tax is based on adjusted gross income thresholds for all individuals making over $200,000 and couples who file jointly making over $250,000.

Given that only 3% of U.S. households have incomes exceeding the specified income "threshold" amount, and the national median existing home price in January 2012 was only $154,700, the new 3.8% and .09% Medicare taxes will likely affect a very small percent of home Sellers nationally.

That said:
- How many of the 3% U.S. wealthiest households are located in California?
- How many longtime CA property owners realize a substantial amount of capital gains when selling?     

Californians will be substantial contributors to the Medicare Trust Fund. 

      

Read about the 3.8% tax in an informational booklet provided by the National Association of Realtors.

 

Examples and scenarios include:

- Capital Gain: Sale of a Principal Residence

- Capital Gain: Sale of a Non-Real Estate Asset

- Capital Gains, Interest and Dividends: Securities

- Rental Income: Income Sources Including Real Estate Investment Income

- Rental Income: Rental Income as Sole Source of Earnings - Real Estate Trade or Business

 

Send an e-mail request to me,  

Cynthia@RealtorRadom.com, and I will send the eight-page pamphlet.


       Housing Index

Q. What does it mean when I read that housing inventory remains at 3.5 months?

A. The index indicates the number of months needed to sell the supply
of homes on the market at the current sales rate.  For example, CA's housing inventory remained flat for June 2012 at 3.5 months.  A 7-month supply is considered normal, and the reason we need more inventory.
Top Ten Seller Errors

Here is a list of the top ten mistakes that home Sellers make during the transaction:

1) Accepting the Buyer with the highest offer without regard to the other contractual terms: every purchase offer has two main parts: price and terms, each with equal importance.  EX: although an all cash offer may have a lower purchase price, the loan and appraisal contingencies would be waived by the Buyer who does not have to get a loan. Cash is king. 

2) Not properly handling multiple offer situations with multiple Buyers: the advice and handling of multiple offers by your listing agent is extremely important.  How to start, which Buyer(s) to weed out, multi-counter options, and acceptance procedure are just a few of the nuances.

3) Not properly handling back-up offers: a Seller cannot close escrow with a back-up offer until the existing offer has been fully terminated by all parties.  A Seller does not want to be in the position of having two active and different Buyers.

4) Entering into an agreement with no earnest money deposit from the Buyer, or a very small amount: CA law allows 3% of the total purchase price for liquidated damages. This is the sum of money that a Buyer may lose to the Seller if they default (fail to proceed with the purchase after all contingencies have been removed).  A Seller should always require a minimum 3% deposit for opening escrow.

5) Entering into an agreement before verifying the Buyer's financial ability to close escrow: again, it is your Realtor's responsibility for verifying approval ability with the Buyer's mortgage broker, and for ensuring the current proof of funds belong to the Buyer.

6) Not disclosing known material fact affecting the value or desirability of the property:

put yourself in the Buyer's seat. What would you want to know about any and all issues of the property...inside and outside.

Disclose, disclose, disclose!

7) Not providing the Buyer with legally required disclosures:

the listing agent must present and explain all disclosure forms for a Seller to properly complete.  The purchase agreement includes a deadline for submitting these reports to the Buyer.

8) Not obtaining the Buyer's written acknowledgment of disclosures: the form, Receipt for Reports lists the reports, disclosures and forms provided by the Seller, which the Buyer signs as a receipt.  The listing agent issues and ensures a signed copy is returned.   

9) Not considering whether to require the Buyer to remove contingencies: until all of the contingencies are removed (in writing) the Buyer is not "locked in" to the deal and the liquidated damages for defaulting does not apply.  The Seller's agent is responsible for the timetables in the offer and for getting contingencies removed by specified dates.  Another form, Notice to Buyer to Perform, is issued as a reminder of various due dates.  

10) Not excluding items from the sale that the Seller wants to keep: in the Counter Offer, if the Seller does 

not exclude a personal item that is "normally" transferred with the house, a mutually written agreement by the principals must be made or the item goes to the Buyer. 

 

  B.H. Roof Ordinance
 
Coming soon, Summer 2013, the City of Beverly Hills is phasing out all remaining wood roofs on houses. 
Approximately 5%, or 300 of the 5,500 residences in B.H., still contain wood roofs.  Requirements are yet to be determined, such as: 
- will longtime owners have to replace? 
- will this be a requirement of a property sale? 
Share upcoming residential laws in your area, send to: Cynthia@RealtorRadom.com 
Pre-approval Advantages

Buyers who want an advantage in the offer process will need more than a mortgage pre-qualification.  They will need to get pre-approved for a loan.  Any Buyer who starts looking for a property without this first step is not ready to buy.  Everyone knows that qualifying for a loan is getting harder.  So, Sellers want a letter from a reputable lender stating the Buyer has an ability to get financing.  

 

The differences are significant:

-Pre-Qual: this type of approval is based solely on what a borrower verbally discloses about earnings, credit score, total assets and cash reserves for a down payment and closing costs.  An application has not been completed. Therefore, the provided information is not worth the paper it is written on. 

 

- Pre-Approval: when a would-be Buyer wants to obtain a mortgage,  the pre-approval process includes verification: providing documentation of income, cash on-hand and assets.

The lender, or broker, typically obtains the prospect's credit report and score while the borrower gathers almost everything else that is needed for the actual mortgage underwriting:

- bank statements

- statements from 401(k)s and Individual Retirement Accounts (IRAs)

- proof of all other assets showing that the borrower has the resources to buy and maintain a property.

- tax returns are often required 

 

Lender differences:  Wells Fargo, one of the country's largest mortgage lenders, provides an agreement to lend at a first quick review provided by an underwriter.  Other lenders may treat a pre-approval as an opinion of the person's ability to borrow, not a guarantee or formal commitment to lend.  A qualifier, on most pre-approval letters, indicates: a Buyer is not fully approved until the lender reviews and approves the property appraisal, the terms of the Residential Purchase Agreement and all counter offers, and proof that the title is free and clear to transfer.  A disclaimer in the letter may state that an investor's guidelines and program availability can change with market conditions.

 

The article to the left, "Top Ten Seller Errors" reiterates a Seller's mistake (see #5) by failing to get a Buyer's pre-approval letter from a reputable institution prior to opening escrow,

especially in a multiple-offer situation. Knowing up front that a Buyer has the ability to get a loan is paramount.  Again, it is the listing agent's responsibility to speak with the financing person who wrote the letter, and inquire about any discrepancies. 

For example: all too often Buyers submit proof of funds using a business account statement, or a personal account shared with others.

In this instance a signed letter is required from the uninvolved party stating that the Buyer, with absolute and unencumbered permission, has sole use of the funds in the account for purchasing a personal property.  If the funds are in a company name, a release letter must be obtained from other officers or shareholders, if applicable.  

 

Obtaining a pre-approval is a must first step for every prospective Buyer.  Completing the application process gives the borrower specific numbers about monthly payments and a purchase price ceiling.  When a Buyer identifies a property for making an offer, their mortgage person will prepare a letter which includes the subject property, the approved loan amount, cash deposit and the loan officer's contact information.  A different approval letter should be used for each offer submitted with a current date and the corresponding property address. 

Excerpts from Market Matters

 

    UK's Tower Bridge  

The only single dwelling overlooking the Tower Bridge in London is on the market for $32 mill, six levels and 10,000 sq. ft. of living space.
Assigning Warranties  

Q. When a Seller has made significant alterations (such as new appliances, forced air heating-A/C or a new roof) to a property prior to selling, are the warranties for those items/improvements automatically assigned to the Buyer? 

 

A. The Residential Purchase Agreement, paragraph 5 D, includes specific language that states: "At Close Of Escrow, (i) Seller assigns to Buyer assignable warranty rights for items included in the sale, and (ii) Seller shall Deliver to Buyer available copies of warranties.  Note a following provision: "Brokers cannot and will not determine the assignability of any warranties."  In addition, Paragraph 8 D includes the same provision.  In most cases new appliances and systems come with their own manufactures' warranty.  The issue of "work performed" by a contractor is a separate issue.  The foregoing language makes it pretty clear that the matter of assignability, of any/all warranties, is not certain.  Therefore, during the pre-signing consultation with the Buyer, this provision should to be explained so there are no misunderstandings.  Should the Buyer have questions or concerns, a consult with their legal adviser is recommended.  As for the Seller, the issue of assignability should have been negotiated by and between the contractors and the Seller at the time the Scope of Work Agreement was executed by the parties.

Residence Corner
Historic Preservation
Landmark Law
Beverly Hills

Effective February 24, 2012 the City Council of Beverly Hills passed a Historic Preservation Ordinance to preserve historically significant structures.  Joining other L.A. areas, like Santa Monica and Hollywood, there are laws now governing Beverly Hills residential, commercial and City owned properties.  The statute will affect Buyers, Sellers (and owners) of designated or "landmark" property.

First, there is no opting-out once the five-member City Council deems the property historic.  Also, if a would-be Buyer wants to demolish the structure to build anew, approval will be difficult at best.  Even modifications to the facade will not likely be approved unless the modifications are in keeping with the Secretary of the Interior's Standards for the Preservation of Historic Resources. Interior changes to a historic building are less controlled.

What property qualifies?
To be designated historic, a property must meet at least two of six criteria. As an example:
- Directly associated with the lives of significant personages
- Represent the work of a Master Architect, i.e.
Williams, Colcord, Byrd, Lautner, May, Pei, Woolf, et al.

Selling Historic Property: A prospective Buyer will have to check the preservation status, as a Seller may not be aware of the property's designation, for example, if sold by a Trust.  There may be a 30-day waiting period for contingency removal if  the Buyer has to obtain City approval for construction plans.  At issue is Hawthorne school, built in 1929 by Ralph C. Flewelling, where proposed construction would cost $3.5 million more if the structure was deemed a landmark.  This adds to the greater issue that the school district currently does not have any money at all to fund the project.

Tax Advantage:
According to the CA Mills Act, a Buyer of a landmark property will have a major property tax advantage.  The new owner may get up to a 70% reduction in property taxes when they purchase a landmark structure.   
 
The Beverly Hills Hotel was honored last month as the first designated historic property under the City's newly created landmark ordinance.

Do you know who designed your B.H. home?  If not, e-mail me. 
     NEW:  Caregiver Rights

AB-889, the "Domestic Workers Bill of
Rights", approved by the CA Assembly, only needs full Senate approval to become law.  What does this Bill demand for full-time paid caregivers?

- documented rest periods

- meal breaks

- overtime pay

- adequate sleeping conditions

    

The Bill will require extensive record keeping, which will lead to payroll withholding, and subject employers to substantial penalties imposed by CA Labor Code for violators.  Most affected by AB-889 are the elderly who employ full-time caregivers at home, and who

mostly (80%) pay cash for the service.  

 

Filing piles of paperwork will be required and, consequently, the onus will put on the person responsible for the older homeowner.  Penalties for employers, who do not provide a wage statement, include a $50 fine for first-time offenders and $100 for each violation thereafter.

 

The Service Employees International Union (SEIU) has already attempted to unionize domestic workers.  Additional efforts are anticipated to step-up this process.

Excerpts taken from Beverly Hills Courier article.   

 

Some complaints by in-home caregivers, include:

- lack of adequate sleep when awakened
  by
employer in the middle of the night

- no over-time pay when next shift worker
  arrives late

- no holiday pay, which is sometimes
  double the hourly rate, or more.

Will more older home owners opt for assisted-living?  Time will tell. 

 

New Spouse Law 

 

Q. When my spouse died our property basis was stepped-up (increased) to the current market value as of the passing date.  I re-married six years ago and added my current spouse onto the title of the same home.  When we sell the property are we allowed the full capital gains $500,000 exclusion or just the original remaining spouse portion, which would only be a $250,000 exclusion?

A.
According to CPA, M. Debra Reno, the full $500,000 exclusion would be allowed to offset the gain and using 100% of the stepped-up basis, per IRS Publication 523, as long as both spouses meet the ownership and use tests (personal residence two of the past five years).
        Mortgage Rates

Although still historically low, the 30-year fixed-rate mortgage is starting to creep upward as are property values.  Buyers take note.
Foreign Home Buyers
The decline of the U.S. dollar and the current bear market, coupled with cash-rich foreign prospects and the euro crisis, have been fueling the U.S. real estate market.  International home Buyers accounted for 4.8% of total U.S. sales during the year ending in March 2012.  That is roughly $82.5 billion.  Like a kid in a candy store, what U.S. areas hold the most interest for foreign investors? 

Trulia, an online real estate search site, reported the following top five countries where traffic originated:
Canada, UK, Germany, Australia and India.  Also, many searches originated from China and Mexico.  The top U.S. markets in 2011 for home purchases by international residents are: FL (by far), CA, AZ and TX.

However, indicators are noting a pull back, especially from European Buyers, as the U.S. housing market improves with rising prices and shrinking inventories coupled with relaxed borrowing practices from the European Central Bank.  Foreign searches for U.S. homes declined 9% during the last year.  In the second quarter of 2012, foreign searches accounted for only 4.1%, down 10% from the same period in 2011.  

As a home Seller, the most important point when dealing with a prospect residing outside of the U.S. is to make sure their funds can be sent to the States before going into escrow.

     More New Laws

Every sale of residential property, starting January 1, 2013 must contain a specified notice regarding gas and hazardous liquid transmission pipelines.  This notice informs Buyers that the U.S. Department of Transportation maintains the general location of these pipelines through the National Pipeline Mapping Systems.  This new requirement is a response to the 2010 pipeline explosion in San Bruno and other tragedies that have occurred. 

The pipeline notice provides a valuable shield from liability for Sellers and Brokers.  Delivery of the notice to a Buyer will be deemed adequate for informing them about the existence of a statewide database for the location of gas and hazardous liquid transmission pipelines and info regarding those locations.  Every standard purchase agreement form will be revised to comply with this new law.
 
If you prefer the "Real Estate Newsletter" mailed to you, please e-mail:  Cynthia@RealtorRadom.com
Respecting your privacy and confidentiality, names and e-mails will only be used for providing pertinent material by Cynthia S. Radom and will not be shared with any other organization.  This is not intended as a solicitation if your property is already listed.