Ann Arbor Real Estate Talk

Ann Arbor home sellers, did you know there is a tax of 3.8% tax increase included in the Obama Health Care bill when you sell your home after January 1, 2013?

How the 3.8% Tax Works on the  Sale of your Ann Arbor Home

Here is how the 3.8% tax increase will work, if you have a gain of less than $250,000.00 for single payers and $500,000 for joint payers you will not be taxed. It does NOT override the Federal Income Tax Law.

However, if you have owned your home for many years, and make $600,000.00, then your taxes would be increased 3.8% on the gain from the sale of your home starting January 1, 2013 . In this scenario you would pay 3.8% or  $3,800.00 on the gain over $500,000. For a single filer it would be anything over the $250,000.00 level.

If you purchased your home for $200,000. and are single, and sell it for $300,000. then your additional 3.8% tax liability could potentially be $3800.00 used to fund Medicare.

I know the tax increase doesn’t apply to that many people, less than 2% nationwide,  but for Ann Arbor home sellers, it is still a tax increase written into the Health Care Bill that many Ann Arbor home sellers may not know about. We live in a fairly wealthy community in Ann Arbor so this 3.8% tax increase will potentially apply to more.

 The 3.8% tax increase is for Medicare

The revenues generated from this 3.8% tax increase will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing.

The Medicare tax hike would for the first time incorporate filing status into each person’s Medicare tax liability, and also for the first time, the Medicare tax will not apply just to wages but also to investment income such as income from capital gains, dividends, interest and rental property. In its first year of application, 2013, the new Medicare tax will hit approximately the top-earning two percent of families.

According to the National Association of Realtors, “The new 3.8% Medicare tax includes in the Health Care bill is assessed only when Adjusted Gross Income (AGI) is more than $200,000/$250,000. AGI includes net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms of income presented on a Form 1040 Income Tax Return.

The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied only to the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.

If you would like me to I would be glad to send you a pdf file published by the National Association of Realtor where you can read about different scenerio’s for investment properties, vacation homes etc..

Just send me an email or leave it in the comments below. There have been a lot of rumors circulating about this 3.8% tax increase on the sale of your home, let me know if you need the document.

Rentals in Ann Arbor are scarce.

Currently rentals on the market for single family homes in Ann Arbor are slim to none.

• Between the range of 500-850 a month there are only 2 rentals in Ann Arbor and I know one of them has a lease application on it.
• Between the range of 855-1200 a month in rent there are also only two rentals in Ann Arbor;one at 980.00 and one at 1050.00

Ann Arbor is a transient community in many ways, we have Dr.’s, Fellows, Residents that come in for 2-5 years, many just want to rent due to the uncertainty of the Michigan market. Plus the students that are looking to rent homes together which changes each semester.

Why are Rentals Scarce In Ann Arbor?

One reason that the rental market is scarce in Ann Arbor is due to the amount of Short Sales and Foreclosures of people that can not get a mortgage right now.

Another reason the rental market in Ann Arbor is scarce is consumers don’t have a lot of confidence that they won’t loose money if they are only going to live here a short time.

Scarcity of Rentals Creates Higher Prices

If you are a seller that has not been able to sell your home, now would be a great time to rent your Ann Arbor home. When the Missy Caulk Team takes a listing contract, it is put in the Ann Arbor Area MLS, we obtain a rental application from the potential tenants, one application for each person renting the property, we pull their credit so you can make a good decision on who you want to rent your home too.

Rental Options

Renting with an option to buy in Ann Arbor is also a great opportunity for both buyer and seller.The seller can rent out the home for a couple of years and when the tenant is able to get a mortgage they can proceed with the purchase. We get calls on this all the time.

Rentals in Ann Arbor are scarce but they don’t have to be with creative thinking in todays market.

Is Fannie Mae and Freddie Mac really helping homeowners stay in their homes?

Well not according to the investigative reporting at the Detroit Free Press.  They recently did a study and obtained documents via Freedom of Information requests and the results are disturbing for Ann Arbor Area home owners.

In December Fannie Mae announced via a top executive that they were doing everything possible to help homeowners stay in their homes. However, the documents 2300 of them proved otherwise. While the banks were trying to work out loan motifications via the HAMP (Home Affordable Modification Program) Fannie and Freddie were telling them to “Proceed with sale”.

Who It Hurts

• The obvious is the homeowner who is in the middle of trying to negotiate with the bank for a loan modification.
• It hurts the tax payers (us) as Fannie Mae knows we the home owners will bail them out. Right now they have an unlimited  check book to get more money from the government (or us as the taxpayers.)
• It may clean up the books but it hurts neighborhoods and property values for all of us.
• Since Fannie Mae and Freddie Mac were taken over by the government we have cost us over $1.4 billion.

Alan White a law professor at Valparaiso University who reviewed the documents obtained from the FREEP said, ” they are sabotaging the nations foreclosure crisis and helping drive down property values.”

Read the entire article on the FREEP for more details.

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Weekly we get calls to the Ann Arbor Real Estate Team, Missy Caulk with buyers asking us to help them find a house or condo with a rent with an option to buy.”

What is a Rent with a Option to Buy

Renting with an option to buy is pretty easy to understand, first you rent and then you buy the same home. Many times renting  becomes necessary if you have been subject to a Short Sale or a Foreclosure the last few years and you are not capable of getting a mortgage on a home at this time.

In a few years time this would not be a issue. Therefore renting with an option to buy is great alternative for buyers.

Sometimes the buyers have had their credit destroyed by a divorce and so renting for a year may be more feasible until they can get back on their feet.

Sometimes men need to rent with an option to buy because the divorce is not final and they need to rent until it is. In Michigan we still have dowry rights so any property owned until he divorce is final the wife gets part of the property.

The Problem

So what’s the problem with renting with an option to buy?  First of all homes that are available with a rent to option to buy are hard to find, we are in a rental shortage right now in Ann Arbor, Saline and Dexter. There are more people wanting to rent than homes available so the ones that do come on the market go quickly.

Second,many sellers are reluctant to take a offer with the rent to own option. They fear is they agree to rent for 1-3 years until the buyer can obtain a mortgage that the “market will go up” and they will be stuck selling a home or executing a purchase price now that in three years will be too low.

Third, may local REALTORS don’t publish in the MLS remarks that their sellers would be open to to rent to buy option. Last, week we had made a call to a local agent as we have a buyer who wants to rent for ONE YEAR and then purchase. Having gone through a Short Sale due to job loss and divorce  years ago, he is not able to get a loan. His credit is outstanding, and he has a new job.

So we called up the listing agent on a home we had shown him and asked if the sellers would be willing to take a rent to own on their home (which has been on the market for 9 months and smells like smoke)

“No”

Never mind he didn’t even ask his sellers, that is a whole different story. Just NO.

Now, if I had been trying to sell my home for 9 months, no offer and had a ready, willing and able buyer I would have 1) asked the sellers, 2) done it.

These are some of the difficulties with Rent with Options to buy. But, many times it can be a win win for both buyer and sellers.

If you have a home you would be willing to sell with a rent to option, give me a call or email as we would love to talk to you.

Social Bios for Missy Caulk

Post from: Ann Arbor Real Estate Talk

Renting with An Option to Buy in Ann Arbor

“When is the housing market going to come back?” I hear this all the time from sellers in Ann Arbor.

Well, I  don’t have a crystal ball, I tell them. The last 3 quarters in Ann Arbor have stabilized and we are short on inventory so those are two very good signs but…..

What I really think sellers are asking is, “When is my home going to be worth what it was in 2006?” That is something I do not know. I know my own house has come down in value 100K since 2006. (((sigh)))

Today I read a really good blog by Dave Halpern from Louisville, Ky. in it he stated:

“If you have $100.00 and you lose 50% of it, you now have $50.00 left.

If your new balance of $50.00 now goes back up by 50% (fifty percent), it is only worth $75.00.

Because 50% of $100.00 on the way down is $50.00. But 50% of the remaining $50.00 on the way up is only $25.00.

So, if the value goes DOWN 50%, it has to GO UP 100% to equal what is was.

Another way to put it is: If the value of something is slashed in half (by 50%), it then has to DOUBLE (go up by 100%) to equal its original value.”

Historically in the United States we have seen appreciation be around 3-4% a year. Only when houses inflated in the 90′s did it increase in the Ann Arbor area by 8-10%. That was unsustainable. When the market does begin to increase again my gut tells me it will be at those historical 3-4% increases.

Which means for me and you, it can take many years to get back to where we were in 2006. I remember picking up a USA Today paper in 2007 and reading predictions for the recovery. I remember it said Michigan would recover in 2010, and closing up the paper not wanting to believe it.

Right now many people would “move up”, “down-size” or “relocate” but they can’t sell their current homes in order to that. So they are waiting…but how long?

In my opinion it would be better to go ahead and sell if you need to move and sell low but then by low.

Related articles

• Ann Arbor Sellers Say,”I’m Not Giving My House Away” (annarborrealestatetalk.com)

On Ann Arbor.com today, and using the recent market data released by the Ann Arbor Area Board of Realtors, there is a comment I would like to address today.

The comment is “gotta love crooks, I mean REALTORS.

I was going to answer over there and maybe I will but I believe it needs a longer response than I like to give on Blog comments.

REALTORS Are Not Crooks

A seller and a REALTOR work together to determine the price of where a home should be listed.

The market (or current buyers) looking for a home during that time period, and what is on the market determine the value. Period

The numbers don’t lie, and if a REALTOR, looks at the recent SOLDS and currently LISTED homes it is not rocket science to determine, where the home should be listed and where it will sell.

The Problem

The problem is not that REALTORS are crooks, the problem is:

1)    Some sellers don’t look at the data, and say…”If I can’t get such and such out of my home, then I am not selling,” or “I have to get this much from my home so I can move.”

2)    The second problem is some REALTORS don’t have the guts to stand up to sellers and tell the truth. They would rather “accommodate” the mindset of the seller and list a home “over market value”, just to have a listing in their stock pile.

3)    Third, some REALTORS, don’t even do CMA’s, (Comparative Market Value Reports) they just walk through the sellers home and ask what they want to sell it for and throw it in the MLS.

Listing a home at Market Value is NOT Rocket Science, it is not a science at all. It is the professional opinion of an experienced REALTOR, looking at the historical data,current listings and pricing the home accordingly. 

Once I have studied a neighborhood, and put together a CMA, if the homeowners in the Ann Arbor Area don’t like the price, they can interview other agents to see other opinions. In fact, I encourage it.

My typical time to do a CMA is 4 hours, so by the time I meet again with the sellers I know the data, the neighborhood and am confident in my price.

The last few years,after looking at their comps I have told 10 or so homeowners that I can not sell their home for the price they want. I have wished them good luck and moved on.

Of the 10 or so, four called me back, after trying at a higher price with another agent. “Get over here and list my house, Missy, we should have listened to you.”

Others I have watched the home listed and seen price reduction, after price reduction taken until it sells sometimes a year later below what I told them in the first place.They are chasing the market down.

Some have chosen to wait the market out until home prices rise again.

Know Who You Are Hiring

Is the REALTOR you as a Ann Arbor Area home seller interviewing experienced?  Do they list enough homes to know the market? Are they familiar with the area to determine the value? Are they showing you the market data? Do they have a written out Marketing Plan?

I disagree with the comment by Towny of the AnnArbor.com article, REALTORS are not crooks, but some are not experienced and some will take any listing and “throw it against the wall,” to see if it sticks sells. And some REALTORS don’t have the guts to tell the seller the truth.

One of my favorite quotes comes from Consumer Reports in 1990,

“ Beware that some devious agents will at first suggest a very handsome price. Then, after they have the listing and the house hasn’t sold they’ll come back a with a pitch to lower the price.”

Here is a pdf version of the recent Ann Arbor Area Market Data by the Ann Arbor Area Board of REALTORS.