Archive for May, 2012

The internet is a great place to find information on any number of subjects.  Crazy as it seems, there are so-called experts who will weigh in on questions asked by already confused consumers causing more confusion.  The hot button topic lately is the new 3.8% sales tax on real estate.  Beware of conflicting reports and flat-out wrong advice.

The Basics:

  1. The tax only applies to income from interest, dividends, rents (less expenses) and taxable capital gains (less capital losses).
  2. The tax only applies to individuals with an adjusted gross income (AGI) above $200,000 in the tax year, and for married couples filing jointly with more than $250,000 AGI before adding the taxable gain.
  3. The formula for calculating the tax applies if # 1 and 2 are met, and is the lesser of the (a) investment income, or (2) the excess of the AGI over the threshold.

Example 1:  Married couple sells their home in 2013 for $1.2 million and realizes a gain of $575,000 in tax year 2013.  Their AGI is $350,000 before adding the gain.

Analysis:

  • #1 applies because this is income from a capital gain, and assuming no capital losses the gain of $575,000 is subject to the remaining rule. 
  • #2 applies because the couple has AGI exceeding $250k, but their total gain of $575,000 on the home is still subject to the exclusion of gains on the sale of a principal residence, so the couple is exempt from the first $500,000 of gain and thus must deal with $75,000 gain after the exemption.  $75,000 + $350,000 = $425,000.
  • # 3 shows the formula:  $75,000 gain + ($350,000 AGI – $250,000) excess threshold  = $175,000.  So the sales tax must be paid on the lesser investment income amount or $75,000.  3.8% x $75,000 = $2,850 additional tax to be paid.

Example 2:  James, a single person, sells his home in 2013 for $1,000,000 and realizes a total gain of $375,000.  It was his principal residence for the last 7 years and his AGI is $125,000.

Analysis:  # 1 applies but #2 does not, his AGI is below the threshold.  Tax does not apply

Example 3:  Jane, a single person, sells her home in 2013 for $3,500,000, and realizes a gain of $700,000.  It was her principal residence for the past 5 years and her AGI is $425,000 before the gain.

Analysis:

  • #1 applies on  the capital gain of $700,000
  • #2 applies as the individual has an AGI before the gain of $425,000 – higher than the $200,000 threshold for individuals
  • #3 shows the formula:  Capital gain reduced by $250,000 exclusion:  700,000 -250,000 = $450,000.   $450,000 gain + ($425,000 AGI – $200,000 threshold)= $675,000  So the tax is paid on the lesser number, which is $450,000.  3.8% x 450,000 = $17,100 

Many transactions will not be covered by this additional tax.  The principal residence exclusion handles many gains and the AGI thresholds will exclude many sellers.  Those who are not excluded will have to pay the 3.8% tax, but only on the lesser of the investment income or the excess over the threshold.

Seeking competent legal, tax and accounting advice is advisable.  This article is provided for information purposes only and not to be considered legal, tax or financial advice by The Real Estate Geezer.

 

Based on article by Jerry M. Feeney, Residential Real Estate Lawyer

Categories : Selling
Comments Comments Off
May
18

How’s the Market?

Posted by: | Comments Comments Off

While Quarterly Sales Reports show closed activity for the previous quarter, monthly Contract Signed reports are the ‘crystal ball’ of closed sales to come.  Granted all contracts signed for any given month may not close in the next month,  and some may not close at all but most (over 95%) will become closed sales which will become part of the next Quarterly Sales Report.

In the following charts and graphs you can see how the market stacks up against last month and this month last year.

 

 

 

May
16

Purchaser’s and Sellers Closing Costs Guide

Posted by: | Comments Comments Off

Closing Costs Guide-Created by Jerry Feeny

Real estate closing costs can be confusing. These PDFs created by Jerry Feeny,  a well known and respected New York Metro real estate attorney, cover closing costs (coops, condos, townhouses-and other real property)  for buyers and sellers in New York City , The Hamptons and Westchester & Rockland Counties.

We hope you find this guide helpful in ‘demystifying’ the age-old question of buyers, ‘what are my closing costs?’ And from sellers, ‘what costs do I have to pay at closing and what is left over from the sale price?

Comments Comments Off
May
14

REBNY Sets Ground Rules for Apartment Smoking Ban

Posted by: | Comments Comments Off

Residential building owners may soon have to devise and disclose their smoking policies to renters or buyers if a new proposal by Mayor Michael Bloomberg is passed.  The Real Estate Board of New York (REBNY) is generally supportive of the legislation given it is in line with recommendations previously issued by one of our subcommittees.  However, REBNY is proposing some important changes to the City’s bill.

Last week, Mayor Bloomberg introduced a bill that would require owners of Class A multiple unit residential buildings to disclose where smoking is permitted or prohibited inside the units, outside areas within 15 feet of entrances and doorways as well as the common areas, balconies, courtyards and rooftops.

Current trends to regulate smoking in public spaces, such as in parks and restaurants, have sparked interest in pursuing non-smoking policies for residential buildings. Additionally, New York City’s Smoke Free Air Act already requires that individuals cannot smoke in public places, including the common areas of a multiple dwelling such as hallways, elevators and stairs.

The proposed legislation put forward by the Mayor’s office would require buildings to create a smoking policy if they do not already have one.  There are several concerns with the legislation.

  • In the current draft of the bill, buildings would have to comply within 90 days.   This is an unrealistic turnaround time for condo and coop boards. They would need at least 6 months to confer with their attorneys and have any smoking policy approved by the board members.
  • Under the legislation, the proposed notification requirement is the responsibility of many parties including owners, managers and leasing agents.  In actuality, given the various ownership and management structures in New York City real estate, each lease and sale transactions can be structured differently and can make it difficult to clearly delineate responsibility.  It may be straightforward to designate responsibility in an owner managed and leased rental building, but it may be less clear if a condo owner is subletting his/her own apartment.
  • Additionally, the City is seeking to impose hefty violations if this notification is not in place. We question the need for a complicated fine schedule.

REBNY will be working with the Mayor’s office and City Council to ensure that any bill that is passed is practicable for building owners and managers.

Related to the smoking issue, the Best Practices Subcommittee of REBNY’s Residential Management Council created a guide that serves as a starting point to help managing agents best inform their buildings and boards if they are considering implementing a no-smoking policy. This Subcommittee, which finalized the guide at the beginning of April, laid the groundwork to open communication and provided insight into addressing this issue.

Under existing city, state, and federal law, owners of rental apartment buildings are free to adopt a non-smoking policy with regard to the individual residential units that are free market. Currently, there are no laws in New York prohibiting smoking within an apartment in residential buildings, but implementing a smoking ban could lower maintenance costs and insurance rates.

Here are some highlights from REBNY’s guide for implementing a smoking ban in residential buildings:

Rentals

A landlord or owner can ban smoking in the building for each new non-rent-regulated tenant.  However, the landlord would have to add a rider to that effect to the lease.

In the event that an existing tenant has smoke emanating from his or her apartment and other tenants have registered complaints, the landlord may be able to use that as a basis to attempt to terminate the smoker’s lease.

Coops

An outright ban on smoking would most likely require an amendment to the proprietary lease, which would require the affirmative vote of the owners of a supermajority (typically two-thirds or 75 percent) of the shares.

The Board of Directors may consider whether the smoker’s conduct rises to the level of objectionable conduct sufficient to terminate the shareholder’s proprietary lease.  The Board of Directors could also use the prohibition against “objectionable odors” emanating from an apartment found in most proprietary leases to attempt to terminate the smoker’s proprietary lease.

Condos

Condominium’s By-Laws can generally be amended by the affirmative vote of the owners.  The Board of Managers has the ability to reject any purchaser who permits smoking in the unit.  The Board of Managers can also indicate a specific date in the future at which point no resident may smoke in the building including within the unit.

If the Board of Managers has the authority under the By-Laws to fine a unit owner who smokes in a unit and the smoke enters another unit, it may impose such a fine.  Absent such a provision, the Board or offended unit owner could sue the owner who smokes for monetary damages and an order enjoining the owner from smoking.

The Guide titled, Issues to Consider-Smoking and Second Hand Smoking in Multi-Unit Residential Buildings, is easily accessed on the member’s only side of REBNY.com.  Go to ‘Just for Managers’ and click on ‘RMC Subcommittees” for the full document.

From REBNY memo April 25, 2012.

May
10

Real Estate Hurdles Leading to Contract Cancellations

Posted by: | Comments Comments Off

With the economy showing signs of recovery in many parts of the country, one would think that Real Estate deals would be smooth sailing.  Unfortunately that isn’t the case.  In a new national survey Almost one-third of real estate agents reported experiencing  deals falling through. 

According to the survey by the National Association of Realtors, the reported cancellation rate doesn’t mean that one of every three transactions are falling through, rather more than triple the number of agents are facing  deal-jeopardizing problems in 2011.

 Some of the issues reported:

  • Appraisals below contract price.   Appraisers hired by the mortgage company may have a different opinion of the value of the property, sometimes significantly below the price agreed in the contract.  Foreclosures being used as ‘comparables’ to value non-distressed properties are part of the problem here.  Inexperienced appraisers who are unfamiliar with local trends also contribute to this trend.
  • Stringent underwriting and documentation requirements.  Restrictive underwriting rules at the Federal Housing Administration, Fannie Mae and Freddie Mac can derail signed contracts or delay them for months.
  • Poor service by lender staff.  Agents report “lack of customer service” and “generally bad attitudes” as contributing factors to delays and some contract failures.  However, agents also need to be on the lookout when loan processing deadlines start to lag or communication breaks down, and facilitate the progress of getting it moving again.

The key to closing on a home is to make sure you choose the right agent, lender and other team members who will help you understand the rules and requirements before hand, and stay on top of the professionals involved in your transaction.

Based on Los Angeles Times article.

Comments Comments Off
May
07

Reverse Mortgages at a Younger Age?

Posted by: | Comments Comments Off

Once associated with homeowners in their 70s, a new report shows reverse mortgages are now being taken out by people nearing retirement.  While this may seem like a good idea to help pay off debts and remain solvent, consumer advocates warn of the consequences of exhausting their assets early.

 The reverse mortgage allows homeowners 62 and older to borrow against the equity of their home and continue to live in them without having to make payments, as long as the home remains their primary residence.  Interest is added to the loan balance which must be repaid after the borrower moves out or dies.  The borrower must keep current with property taxes and insurance.

 In a report released last month by Met Life Mature Market Institute and the National Council on Aging showed that:

  • Homeowners aged 62 to 64 are far more likely to take out a reverse mortgage than they were in 1999, even though they are borrowing less.
  • The average age of borrowers who took the federally required reverse mortgage counseling was 71.5, down from 76 in 2000 and nearly 77 in 1990.
  • Two-thirds of homeowners seeking reverse mortgages to lower debt levels.

 The majority of reverse mortgages come through the Department of Housing and Urban Development and are guaranteed by the Federal Housing Administration through a program called Home Equity Conversion Mortgages.

 Some experts caution retirees against reverse mortgages especially early in their retirement because they run the risk of depleting their equity in their most important asset.  Homeowners at or near retirement should work with a financial planner or estate lawyer to make sure their plan is clear for the next 20 years of living expenses.

This article is for information purposes only.  It is not intended to be legal, financial or tax advice by the Real Estate Geezer.  Always seek the advice of a competent legal, financial and/or tax professional.

Based on New York Times article

Comments Comments Off
May
01

Lawyer’s Guide to Preparing for a Board Interview

Posted by: | Comments Comments Off

Congratulations, your presence has been requested for an Interview with the Co-op Board of the building where you’ve been dreaming of living since you found the ‘perfect home’.  You’ve been on the roller-coaster ride for what seems like a decade, with contract negotiations, baring your financial soul to all and sundry, and soliciting reference letters to complete the co-op board application.  Now is the big day – the Board Interview.

 Board interviews are near the top of the strangest and most stressful things New York City residents go through while trying to put a roof over their head.  Having enough money to buy the apartment is just not enough; you must pass the interview as well.  Interviews run from basic and routine to a microscopic examination of your life and very grueling.

 While real estate brokers are typically involved in preparing clients for interviews, sometimes lawyers have the perspective to see the mistakes that sink their contract at the last minute in the interview process.  Here are a few tips from one lawyer who has lived through board rejections:

  1. Don’t Lie.  Tempting as it may seem to lie to avoid conflict, it is likely the truth is less damaging than the lie.  Trying to cover up the youthful indiscretion that landed you in jail for the night won’t win you any brownie points with the Board.  Chances are if they’re asking you about your arrest record, they already know the answer and want to see if you’ll fess up.  Explain that you’re not proud of that time and it’s something that you’ve never repeated.
  2. Explain Renovation Plans in the Right Context:  If the apartment is in desperate need of renovation, the board members interviewing   you are aware of the situation and are looking forward to someone bringing that unit up to date to increase market value, and create good comps for the other units.  Present the plans in the correct light:  “You want to update the apartment and have carefully reviewed the alteration policies of the board and plan to follow them to the letter”. 
  3. Be Candid About Your Plans for Using the Apartment:  Some boards are not fond of absentee owners, because they typically tend to have lots of guests and generally don’t spend as much money on upkeep on the apartment as those who make the apartment their primary residence.  If you plan to use the apartment as a secondary residence, be honest about it and address their concerns.
  4. Remember the Pets:  If you have a pet, be honest about it, and stress that yours are obedient and not a trouble-maker.  Explain you have read the rules and understand when and where pets are allowed on elevators and in the lobby.  Reassure them that the animal will not be a danger to anyone in the building.  You may even be asked to bring your pet in for an interview. 

Lastly, be yourself and at ease.  Rely on your Broker to prepare you for the process.   If for some reason the board rejects you, remember the immortal words of Groucho Marks “I don’t care to belong to a club that accepts   people like me!”

 

Based on article by Jerry M Feeney, Residential Real Estate Lawyer. 

Comments Comments Off