Real Estate Tips

Articles from the monthly newsletter featuring tips and tricks to help you during the home buying process.

BASIS VS VALUE

By Vance Booher

Broker / Owner RE/MAX Leading Edge

 

When thinking about making improvements to your home there are many considerations. Project type, design, style and affordability aside, there are the practical issues of “basis” and “value”. The concept of value takes centerstage when a homeowner is getting ready to sell, and thoughts of “adding value” and
a higher price are paramount.


But I think most folks know by now that there are very few improvements that return 100% or more in real marketable value. If an Appraiser, or Realtor determines a marketable value of $200,000 for your home, and you decide to add a $30,000 new kitchen to improve value, you will not automatically see a $230,000 selling price on your home. Sad but very, very true.


But guess what, under most circumstances, you can indeed add 100% of the cost of that improved and new kitchen to your basis in the home. What is basis, and why do you care? You care because basis is critical to how much of any gain on the sale of your home is ultimately going to be taxable. In simple terms, basis is the price you paid for your home, plus many of your closing costs, plus capital improvements (NOT normal maintenance & repairs due to wear & tear) you have made to the home, less any insurance proceeds received for damages to the property, or less any deductions you took to repair damages for which you did not receive an insurance settlement.


As always, it is more complicated than that, and check with your Accountant for actual details relative to your own situation. But the important things to remember here are
1) Additions to basis REDUCE your tax liability and you can generally add the full cost of the improvements that you personally funded to your basis.
2) If you don’t have the records to show the cost of the improvement, you can’t add it to your basis.
3) If you got some insurance money to pay for a portion of those improvements (or Aunt Sally paid for part of it), you can’t add that part of the cost to your personal basis!


As always – KEEP GOOD RECORDS (and remember where you put them!)


Dual Agency and Why it Matters

By Vance Booher

Broker / Owner RE/MAX Leading Edge


What is Agency And What Is A Fiduciary? An Agency (Fiduciary) Relationship is created when a Seller signs a Listing Contract or Buyer signs a Buyer Agency Contract with a licensed Agent. It is the same relationship you likely have with your Attorney. The Client is owed the duties of Care, Confidentiality, Loyalty,
Obedience and Accounting. This is a very serious legal responsibility.


When Does Dual Agency Happen And What Is The Problem? It occurs when the Seller and the Buyer of the property each have Agency Agreements signed with the same Licensed Real Estate Agent. The problem is that it sets up the “opportunity for conflict of interest” such that the Agent’s interest and needs might take precedence over those of the Seller or Buyer. It also diminishes the Fiduciary relationship because the Agent is no longer exclusively devoted to the interest of one Client or the other. The potential exists for the interests of one client to be favored over the other, even if unintentionally or inadvertently.


The PA Consumer Notice very clearly specifies that a Seller Agent or Buyer Agent works exclusively for the Client. But you can’t have it both ways folks. The Notice also specifies that a Dual Agent works for both the Seller and the Buyer. A Dual Agent cannot do any harm to either party – meaning the Agent can give no guidance or engage in any conduct that “might not” be in the best interest of either party. Therefore, both Seller and Buyer must consciously accept this change to exclusivity in writing.


PA law permits the practice of Dual Agency. Truth be told, many Agents like it because they make considerably more money when they have “both sides” of the transaction and don’t have to split a commission with a separate Agent. On the other hand, Dual Agency is forbidden in 8 states essentially because it is deemed an unfair practice that potentially compromises the integrity of Agents and the transaction.


All parties to a transaction, whether Agents, Sellers or Buyers, want the same thing – the best possible price, terms and conditions. But “the best” is rather different depending upon whose shoes you are filling. In Dual Agency the task is no longer clear cut and the potential for problems is higher.


I am no Attorney so I cannot offer a legal opinion. But my personal opinion as a Broker is that Sellers and Buyers should have their own unique and separate representation. Buyers often think they can gain an advantage of “insider knowledge” if they contact the Listing Agent (Seller’s Agent) directly. That simply isn’t true. That Agent may initially know the property better than anyone else, but they cannot divulge anything not in their Client’s interest. Further, Seller Disclosure laws ensure that any material issues regarding the property must be completely and openly disclosed to all parties.


RECOMMENDATION. For Sellers, tell your Agent you don’t think Dual Agency is in your best interests. For Buyers, hire your own Agent from day one to represent your best interests exclusively.


If you’d like to dive deeper into the issue of the subject, this article reviews the Pros and Cons of Dual Agency rather thoroughly: The Dual Agency Controversy: Why Some States Ban Agents From Representing Both Buyer and Seller.


APPRAISER INTELLIGENCE

By Vance Booher

Broker / Owner RE/MAX Leading Edge

 

Skilled and experienced Appraisers make the following observations regarding issues they check for when evaluating a home that may be an FHA or USDA loan candidate.  You have heard of some of these I am sure.  But all can be important.  So, if you are getting ready to sell your home it would be wise to take care of these things upfront.  Not every Appraiser will be focused on all these issues.  Some are more commonly cited than others.  But, if an Appraiser calls them out as “Conditions”, they will require repair before any loan is approved and that MAY delay your transaction.  Remember, it is very rare that permission is granted to escrow funds for a “post-closing” repair.  BE PREPARED – get it done now!

1.  Peeling paint or any exposed bare wood surfaces – inside or outside; main home or outbuildings

2.  Handrails on exterior stairs with more than 3 risers.  Inside too, unless carpeted.  

3.  Porch railings if porch more than 3’ from ground.  Value added railings – not 2X4s!

4.  Electrical entrance to home in good condition and properly weather tight

5.  Minimum 2-year estimated remaining life on roof

6.  Proper routing of downspouts away from home

7.  Windows must open and close with little effort, and must stay open without being braced.  Window panes cannot be cracked through (inside and out)

8.  Interior electrical must be to local code and all junction boxes must be covered

9.  Appliances must function if transferring with sale

10. Upper floor water pressure must be adequate.

11. Minimum 18”X18” access hatch to attic.  If walk up, must be railing around stairway at top.

12. No gaps in doorways on any level that would permit entrance of animals. No visible pests.

13. Worn floor coverings must be replaced / no exposed plywood subfloor.

14. Door to garage must be fire-rated.  If living space above garage, ceiling must be fire-rated.  

 

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