Charleston Real Team

Mount Pleasant, South Carolina

We are constantly asked, “Should I sell my home or rent it out for a few years until the market recovers?”

This, of course, is a loaded question with many factors needing to be considered:

• When did you buy your home?
• What did you pay for it?
• What do you owe on it?
• What kind of mortgage do you have - Conventional/Jumbo/ARM, etc?
• Why do you want to sell?  For financial reasons/job relocation, etc?
• Will you eventually move back into your home?

and on and on. 

If you bought your home within the last 3-6 years it is likely that it is worth less or the same as it was when you bought it.  Thus, you will need to get an estimate of the worth of the property and the cost of selling it in order to see what your net proceeds/deficit will likely be.  If you are likely to be in a deficit situation, you will need to determine if you will be able to bring to closing whatever amount you will owe your lender after the sale is consummated.

This is where it gets tricky for most people.  Most of us are not used to the proposition of bringing money to closing when we are selling a property (Many of us actually weren’t thrilled with bringing money to closing even when we were buying a property, which is one of the many reasons we are in the mess we are in!).  We are used to selling our homes and getting a check at closing.  Regardless of how long we owned the home, what we paid over the years on the mortgage, what we paid for it versus what we sold it for…we just love to leave the closing with that check.  So when the concept of writing out a check or having to negotiate terms for a home we are selling hits most people - we look for alternatives/options.

“I can rent out my house for a few years until the market recovers and then sell it.”  This is a tricky concept and is influenced by many factors.  Depending on the timing of when you bought your home and at what price, you may have to wait 10 years or more to see the same prices again.  I know a lot of people with a lot of varying opinions on the market and its recovery.  What I do know is this - no one knows for sure.  What if you house is worth today more than it will be worth again for a long time - more than 5 years?  My point here is to seek honest, credible advice using real data and credible estimates of value and future value in the process of making a decision.  Further, it is critical to also understand your options not just about selling or renting but your mortgage/financial options from a credible and neutral  mortgage/financial professional.  You may learn that there are more or better options available to you.

So you decide to go the rental route - here are some things to consider:

• What is the going rental rate in your market? 
• How does this compare to your mortgage payment?
• Are you prepared to make up the difference if needed?
• Do your property takes go up if your residence becomes and investment property?  In South Carolina, the property tax rate for an investor is 6% versus 4% for a resident.
• Will your homeowner’s insurance go up or stay the same?  In SC, the rates change a bit on investment property?
• What kind of were and tear will tenants have on my property?  Who is responsible for what?  How is that determined?
• Should I rent it out myself or hire a property manager?  What are the costs?
• How will renting out my home effect my taxes?

and so on.

On the rental side of the equation, you also need to seek out qualified, professional advice for the financial/tax implications and for the real estate/property management process.  When I used to think of property management, Duane Schneider of “One Day at a Time” or some other shady character always came to mind.  Now that I own a property management company - I am afraid Duane looks pretty good.  In some ways I am kidding, but unfortunately in some ways I am not.  

Finding a professional, established property management company that can provide references is critical.  You may choose to go the route of managing your own property - in this case seek out others who do it themselves for advice and guidance.  I firmly believe hiring the right property management firm to handle it for you is the way to go.

The property management company should be able to explain to you and provide for you in writing a detailed outline of their services - marketing the property, screening and selecting tenants, pet policies, collecting rent, paying net rent to owners, profit and loss statements, end of the year tax statements, how repairs/damages are handled, communications with tenants/owners, options for home maintenance, eviction procedures, etc.  You should invite your prospective property manager to come to your home and walk thru it.  They should then be able to give you information/advice on pricing, the time expected to secure a tenant, as well as specific recommendations to get your home ready for marketing/tenants.

Exhausted/scared yet?  Feel free to email us or respond to this blog post for more advise or information.  Our company websites are also at your disposal: 

For real estate sales: www.charlestonrealteam.com

For property management: www.palmettostatepropertymanagement.com

 - Jim Grady - Owner/Partner The Charleston Real Team - Keller Williams Realty; Owner/Partner Palmetto State Property Management, LLC Mount Pleasant, South Carolina

Temporary tax credit for first-time homebuyers, low prices drive boom

Not a bad article - they did not misquote me but did not use the full context of our 20 minute interview…

Call it the first-time homebuyer bump.

 - Courtesy Realtor.org Daily Real Estate News 

Senate Approves Tax Credit Extension, Expansion

The Senate yesterday passed legislation to extend the $8,000 home buyer tax credit to May 1, 2010, for first-time buyers and add a $6,500 tax credit for repeat buyers if they’ve lived in their home for five of the past eight years. Home prices are capped at $800,000.

The legislation was included in a bill to extend unemployment benefits and is expected to be passed by the House today or tomorrow. President Obama is expected to sign the legislation when it’s sent to his desk.

Under the bill, income limits are expanded to $125,000 for individuals and $225,000 for joint filers. Individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 qualify for reduced credits.

Households who have binding contracts in place by April 30 will be allowed an additional 60 days to complete their transaction. The deadline for members of the military serving out the U.S. for at least 90 days between Jan. 1, 2009, and May 1, 2010, has been extended one year.

Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a check. Taxpayers will be able to claim the credit on their 2009 income tax return for purchases made in 2010.

Source: The Associated Press (11/5/2009)

Just another great reason to move to Charleston…

Courtesy of OUTSIDE MAGAZINE August 2009

Best Towns 2009
The Best Small Towns
Our 10 favorite adventure burgs

	Charleston Battery (South Carolina Department of Parks, Recreation & Tourism)

Charleston, South Carolina
Chucktown is affordable (median home price, $235,000) and small (pop. 110,000) but comes with the vitality of a metropolis, thanks to its kaleidoscopic heritage and a happening downtown. And since it sits at the confluence of the Cooper and Ashley rivers and the Atlantic Ocean, it’s also prime watersport territory: There’s sailing in the harbor, sea-kayaking through the marshes of the Intracoastal Waterway, and surfing at Folly Beach.

Here is an interesting article I found on the Comcast Finance Website…

By Val A Patterson
Fri, 01 May 2009 17:09:45 GMT

Now, the government has stepped in with a new set of regulations designed to end collusion of any sort between lenders and appraisers.

Some people believe a big part of the mortgage mess we’re in was caused by inflated home appraisals. Mortgage brokers and banks have been accused of pressuring appraisers to assign valuations to fit the loan so that home purchases and refinancing applications would go through, rather than allowing appraisers to determine a property’s value independently, free of influence from lenders and real-estate agents.

No more. New federal regulations known as the “Home Valuation Code of Conduct” (HVCC) take effect May 1, 2009. And while they are designed to bring transparency to the home-loan process, they also may end up increasing consumers’ costs for an appraisal.

Silence Is Golden

These HVCC rules require that mortgage lenders and banks refrain from communicating with appraisers on any loans that eventually will be sold to Fannie Mae and Freddie Mac. Fannie and Freddie, as you may know, are corporations chartered by the U.S. government to purchase mortgages and keep a stable supply of money available to lenders for home loans. They are huge — Freddie Mac purchased one loan every 10 seconds in 2006 — so the new rules surely will impact many home loans. Fannie and Freddie have each come out with statements about the HVCC rules.

So who will take over the role of assigning an appraiser to evaluate a home? A third-party — an appraisal-management company — will handle this task… for a fee, of course. It is this part of the HVCC that has appraisers more than a little upset, and some industry professionals believe many experienced appraisers will leave the business. I suspect the cost of appraisals will increase to compensate the appraisal-management companies, one more way the fees associated with buying a home will rise for consumers.

For more information about the HVCC, check out this document from the Washington, D.C.-based Appraisal Institute.

The Skinny on Agent Commissions

Speaking of real estate and fees, one of the most interesting bits of information I have learned in my current marketing role at a real-estate brokerage concerns how commission works and… this may come as a surprise, how little money many agents receive from a transaction.

As anyone who has sold a home knows all too painfully, the commission, which usually adds up to thousands of dollars, is paid by the home seller. It is usually a percentage of the final sales price on the property, and the amount is split between the agent representing the seller and the agent assisting the buyer.

The split between the two agents usually is 50/50, though not always. Some agents will offer a higher commission to “the buy side” as an incentive to encourage agents to show the house (commission to the buy side is shown in the multiple listing information for a property.)

Likewise, some agents will shortchange the buy side because they need to bring a certain percentage commission — say 3% — to their brokerage. If they have listed the property at 5% commission and split the commission 50/50, or 2.5% to each side, they may have to make up the half percent out of pocket, which is why they may keep 3% for themselves and offer 2% to the buyer agent. The brokerage I work for has a policy stating that all commission must be split 50/50 between agents.

Not the Payoff You’d Expect

Before I worked for a real-estate company, I thought agents collected and kept most of the commission from a transaction. I didn’t realize that they share a large part of their commission with their brokerage office; that they pay most, if not all, of their marketing expenses; and that there are various recurring fees they must pay monthly and annually. In sum, an agent’s earnings don’t add up as quickly as you might think.

Here’s an example based on the sale of a $300,000 home with a 6% commission and an agent who splits his or her earnings with the brokerage on a 60/40 split:

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- Brokerage’s 40% split: $3,600
= Listing agent’s share: $5,400

- Franchise or office transaction fee*: $324
- Marketing fees**: $1,000+
$4,076

* most offices have some version of this; my company has a 6% royalty fee
** photography, sales brochures, signage, print ads, online listing fees, direct mail, open house catering, etc. (varies by listing)

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That $4,076 is a nice paycheck but a far cry from the $18,000 the seller paid. Remember, too, like everyone else, real-estate agents pay income tax, so that will cut into the total takeaway as well. If this listing required many showings, was on the market for an extended time or required extensive negotiation to bring it to settlement, you can see that an agent’s hourly wages could diminish significantly.

Commission Is Negotiable

Finally, if there’s one thing to remember from this column, it’s that the commission rate is negotiable. Repeat after me: Real-estate commission rates are negotiable.

Whether or not an agent will agree to list your house for less than the usual commission rate of course depends on a variety of factors. They range from the perceived difficulty in finding a buyer (not surprisingly, commission rates hold up pretty well in a buyer’s market such as the one occurring now in most of the U.S.) to what competing firms in the local market charge to whether the sales manager or company owner will chew them out if they accept a reduced commission. And some agents are so busy that they simply refuse listings if the seller won’t pay full commission.

– Valerie Patterson oversees all online and print marketing efforts at Kurfiss Sotheby’s International Realty, a privately-owned real-estate firm based in the Philadelphia area. Prior to joining Kurfiss, she was the producer of The Wall Street Journal’s free real-estate site, RealEstateJournal.com.