Let Coldwell Banker Make Selling Your Property Easier
Finding a buyer for your property takes marketing
The Marketing Action Plan is like a road map leading to the successful sale of your property. Specifically we will focus on our promotional strategy, as a multi level effort utilizing the Multiple Listing Service, newspaper ads, the Internet and open houses for the public and other agents in our area.
The reason we need a comprehensive marketing plan is because no single marketing technique by itself is universally effective in telling buyers about your property. It takes effort on a large scale, using a combination of techniques.
Essential to a successful plan are the “behind the scenes” activities we undertake to promote your property, such as marketing to our past customers and other real estate professionals. In fact over 60% of buyers come to us in ways other than “obvious” avenues such as signs, ads, and open houses.
All these activities are important in helping achieve your goal of selling at the best price obtainable, in the shortest time possible. There is a lot of excitement when a new property comes on the market, so we will want to launch our marketing program very aggressively to capture the interest of buyers and brokers. The next few pages detail how we will accomplish this task.
We have spent years developing the most powerful and effective marketing plans. Being part of the most trusted name in real estate High Country Realty strives to provide what our clients have come to expect from Coldwell Banker©. Marketing your home with Coldwell Banker provides you with not only with me as listing agent but an entire team of agents who work closely together with our experienced back office staff to properly market your Real Estate. My listings are backed by the power of Coldwell Banker and their consistent research to provide my clients the best service and the most knowledge of any other real estate company.
Our marketing plan begins with extensive area knowledge combined with careful market analysis to price your home right. Once we are comfortable with a price and all the details have been discussed the marketing begins. Every marketing plan is different but here are a few of the many marketing avenues that Coldwell Banker High Country Realty uses.
Your property will get National Exposure on such websites as www.Realtor.com, www.harmonhomes.com and the award winning www.coldwellbanker.com. Your home will be displayed on these nationally known sites. Our company has also been exposed in New York Times, Log Home Living, The Travel Channel, and more.
Our local websites www.buyblueridgerealestate.com, www.toccoariverrealestate.com and www.cbhighcountry.com web sites are advertised on Google, MSN, Yahoo as well as many other search engines. Our site showcases our clients listing on the home page as well as in many searches.
Florida and Atlanta marketing is a large part of our customer/client base. Most of our buyers come from these two areas and that is where the majority of our marketing is focused
Please Contact Me to learn more about our marketing strategies and how we can help you sell your real estate.
Where we advertise
Today 3 out of 4 buyers nationally view listings online prior to setting an appointment with a realtor and 24% of all client communication is through email. Buyers are demanding multiple photos and are 70% more likely to view a listing with a virtual tour. I do Virtual Tours on all my residential listings and to see a sample Virtual Tour click the link below.
Circulation of news papers was down 3.7% in 2007 and is predicted to drop 37% in the next 4 years. Bottom line is that the internet is by far and away the most effective marketing tool at our disposal.
Coldwell Banker High Country Realty company advertising:
- www.Realtor.com (with an enhanced showcased listing)
|The Real Estate Book (North Georgia)
Atlanta Journal Constitution (Atlanta Georgia)
The News Observer (North Georgia)
Times-Courier (North Georgia)
Atlanta In Town (Atlanta, Georgia)
NorthEast Georgia MLS
Quarterly Company Brochure (15,000 + Produced)
Gilmer County Chamber
Fannin County Chamber
Towns County Chamber
Local Chamber Publications
Pricing your property
Coldwell Banker High Country Realty has worked with thousands of home sellers over the years, and we have learned that most have five priorities they want to achieve. This has helped us define our standards of service, so we can do the best possible job of meeting their needs.
- First: All sellers want to obtain top dollar for their property.
- Second: Most sellers have time constraints that must be met.
- Third: Sellers want honesty they do not want it sugar coated they demand that we tell like it is.
- Fourth: Sellers hate being kept in the dark. Good news, bad news, or no news, they want to hear from their agent.
- Finally: It's really important to most sellers to see that we are working hard on their behalf. They expect us to pull out all the stops to get the job done, and they want to see evidence that we we're doing that.
You have decided to sell your home or other investment property. If you are like most sellers, you want to sell at the highest possible price in the least amount of time.
What's the #1 Reason that sellers do not meet this goal?
It is a commonly accepted principal that a property's list price has the greatest influence on the resultant marketing time and selling price. Failure to sell quickly is usually due to the placement of an inappropriate list price on the property at the initial offering. A property which is priced right sells fast!
Properties which are priced too high usually sit on the market for extended periods. This often leads to market resistance that results in a lower sales price than if the property was priced competitively to begin with. Overpricing a property can be a costly, time consuming, and frustrating error.
On the flip side nobody wants to be the seller that prices their property too low and ends up selling their home at a price which is below market value. A home or investment property represents one of your most significant assets, so you want to make sure that you do not short change yourself when it is time to sell.
By being better informed, you will have fewer doubts and worries! You will be better qualified to price your property to meet your objective and goals. Your home should Sell Faster, saving you valuable time and reducing much of the frustration associated with selling a property.
See how the detailed information and analysis of a Market Analysis will help you achieve your goals.
- In-depth market analysis of recent and historical sales, pending contracts, current listings, and current market conditions.
- I will develop different suggested asking prices which are dependent on the differing motivations of the seller and the appeal characteristics of the property. Sellers typically have three different levels of motivation depending on their circumstances:
- The most likely selling price (fair market value)
- A motivated seller who needs to sell within a very short time frame
- A seller who's goal is to maximize value and is willing to take on the risk of a lengthy marketing time to achieve this goal.
- Complete summary of all competitive listings, pending sales, recent sales, and applicable historical sales within your property's market segment.
- Specific suggestions to make your home more saleable - a little maintenance & renovation can go a long way to increasing your return and shortening the marketing time.
- Analysis of Unique Characteristics of your property which may command a premium or require a discount in the marketplace.
Putting Lead Router to Work For Our Sellers
We are dedicated to not only generating the needed advertising to successfully market our seller's property; we are also proactive in capturing those individuals who have an interest in those properties. Of Consumers requesting information on a listing by email 28% want contact within 4 hours, 23% want contact within 30 minutes and 21% want contact immediately. Customers often send out the same request to several agents and the 1st to respond is much more likely to capture that customer.
Lead Router is a state of the art technology that allows our agents to respond fastest to the next potential buyer of our seller's property. Lead Router captures inquiries from various sources (website, realtor.com, coldwellbanker.com, call-ins, and more) and quickly routes all inquiries by phone and email within minutes of initiation to the 1st available agent who is able to immediately respond to that lead.
This is just one of the many tools that we have integrated into a very powerful and proven marketing plan.
Contact Us today to learn more.
It is very important for buyers and seller's to understand the types of agency offered by Brokers in the State of Georgia while in the process of buying or selling a home. At Coldwell Banker High Country Realty we DO NOT offer Dual Agency. I will represent either a buyer or a seller in a transaction but never both in the same transaction. Should I find a buyer or another agent from Coldwell Banker High Country Realty find a buyer we will either treat that buyer as a Customer or handle the sale under Designated Agency.
Types of Agency
Seller Agency – Seller agency occurs when the real estate broker is representing the seller in selling his or her property. This type of brokerage relationship is created by the seller and the broker entering into a written contract known as a listing agreement Seller agency is also sometimes called listing agency.
Buyer Agency – Buyer agency occurs when the real estate broker represents the buyer in locating and assisting the buyer in negotiating for the purchase of property suitable to the buyer. A buyer agency is created when the buyer enters into a written agreement commonly known as a buyer brokerage agreement. Buyer agency is sometimes referred to as buyer brokerage.
Dual Agency – Georgia law allows both parties to agree to have one agent or broker represent them in a real estate transaction at the same time. In other words, the agent or broker has a client relationship with all parties to the transaction without acting in a designated agency capacity. In these situations, neither party is exclusively represented by a designated real estate agent. This type of brokerage relationship is called “dual agency”. Georgia law allows real estate brokers to act as dual agents if they first get the written consent of both parties.
Designated Agency – In some real estate transactions, the real estate agent representing the buyer and the real estate agent representing the seller both work for the same broker or brokerage firm. In such a transaction, the broker may allow each agent to exclusively represent their respective clients. This type of brokerage relationship is known as designated agency. In a designated agency transaction, the designated agent for the buyer owes the same duties to the buyer as if the agent was acting only as a buyer's agent. Similarly, the designated agent for the seller owes the same duties to the seller as if the agent was acting only as the seller's agent. With designated agency, each designated agent is prohibited from disclosing to anyone other than his or her broker any information requested to be kept confidential by the client unless the information is otherwise required to be disclosed by law. Therefore, designated agents may not disclose such confidential information to other agents in the company. The broker is also prohibited from revealing any confidential information he or she has received from one designated agent to the other designated agent, unless the information is otherwise required to be disclosed by law. Confidential information is defined as any information that could harm the client's negotiating position which information the client has not consented to be disclosed. In Georgia, designated agency is defined by state statute not to be dual agency.
Transaction Brokerage – A transaction brokerage relationship is one in which a real estate broker or brokers assists both parties in a real estate transaction but does not enter into a client relationship with, nor represents, either party. In a transaction brokerage relationship, the broker treats both parties as customers and can only perform ministerial acts for either party.
Brokers May Help Parties Other Than Their Clients: Brokers who represent one party in a real estate transaction as a client can still help the other party in the transaction as a customer by performing ministerial duties for the other party. When a real estate broker works with a party as a customer or client, the broker may not knowingly give the party false information.
Seller Agent's Obligations to the Client
Frequently Asked Questions
- Loyalty – The Seller's Agent must always act in best interest of client and never in the best interest of the licensee.
- Obedience – The Seller's Agent must carry out all lawful instructions of client.
- Disclosure – of all material facts which would have an affect on the decision making process.
- Accountability – The Seller's Agent must protect and account for all money, documents, valuables or other personal property given to him/her by anyone.
- Confidentiality – Duty to keep the client's information and/or discussions confidential and which survives the termination of the agency relationship. Duty does not apply to legally required disclosures involving known physical hazardous conditions of property.
- Reasonable Skill, Care and Due Diligence – The Seller's Agent must act in a reasonably capable and competent manner in performing the duties and requirements of a licensee.
WHAT YOU NEED TO KNOW, THE BASICS
Q: I have decided to sell my cabin when is the best time??
A: The best time to sell is when you are ready, or when it becomes necessary. That is, when you have outgrown the space in your current home, or you prefer to trade down to something smaller. Perhaps your martial status has changed, which necessitates a move, or you need to relocate for a job.
Market conditions also play a role, as do seasonal conditions. For example, your chances of getting top dollar for your home or mountain cabin are more likely in a seller's market, when demand outweighs supply, than in a buyer's market.
In the North Georgia area the best time to sell is in the spring to fall. This is when the largest number of potential buyers hit the market. Your home is likely to sell faster and at a higher price, although sales in the off season months are becoming more common.
Q: What do I need to do to prepare my home or mountain cabin for sale?
A: Determine Fair Market Value. Contact a real estate agent for a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties.
Next, get busy working on the cabin's cosmetic appearance. You want to make sure it is in the best condition possible for showing to prospective buyers, this will help you realize top dollar. This means fixing or sprucing up any trouble spots that could deter a buyer, such as sticky doors, a leaky roof, dirty carpet and walls, and broken window seals.
The “curb appeal” of your home is extremely important. In fact, it is the first impression that buyers form of your property as they drive or walk up. The trick is not to overspend on pre-sale repairs and fix-ups, especially if there are few homes on the market but many buyers competing for them. On the other hand, making such repairs may be the only way to sell your home or mountain cabin in a down market.
Q: How do I handle showings?
A: Once your cabin is available to be shown strive to keep it in tip-top shape. This will require a lot of effort on your part, but you want buyers to feel welcomed and not turned off by unmade beds, cluttered floors, and grungy bathrooms.
Your life will be temporarily inconvenienced. Even if an agent calls wishing to bring a buyer to see the cabin at the last minute or on the same day, respond favorably. Remember every showing counts your goal is to get the cabin sold, and that can only be accomplished if people get to see it.
If possible leave before the buyers arrive. It is awkward and unsettling for them to have the owners present. If you cannot leave, sit on the back porch or take a walk. But do not attempt to have conversations with the buyer. Speak only when spoken to; be brief and polite.
Finally, pay special attention to pets, particularly dogs. They can be intimidating. Put them on a leash and in the backyard. Better yet, when possible, take them with you. And be keen to pet odors. They can turn buyers away.
Q: What if I want to buy another home or mountain cabin before selling this house?
A: This is a tough decision, but the answer will depend on your financial situation, as well as the condition of the local real estate market. Are you prepared to carry 2 mortgages, if so, for how long?
If you put your home on the market first, you may have to scramble to find another one before you close on your current cabin, which could cause you to buy a home that does not meet all your requirements. If you cannot find another home, you may need to move twice, temporarily putting your belongings in storage.
On the other hand, if you make an offer to buy first, you may be tempted to sell your existing cabin quickly, even at a lower price. The advantage of buying first is you can shop carefully for the right home and feel comfortable with your decision before putting the existing home on the market.
On the other hand, the advantage of selling your existing home first is that it maximizes your negotiating position because you are under no pressure to sell quickly. It also eliminates the need to carry two mortgages at once. Talk with your agent for advice. Discuss the pros and of each and whether certain contingencies written into the contract can ease some of the pressures.
Q: Is it easier to sell a vacant home or one that's furnished?
A: Once furniture is removed from your home or cabin, you will notice all kinds of imperfections you never paid attention to before – stains in the carpet, dings in the walls, and dinginess. In an empty cabin, everything imperfection stands out.
You might want to leave a few pieces of furniture behind – simple things like a few pictures, chairs, and a table will do. You should pay attention to areas in need of maintenance. Someone will need to dust and vacuum, leaves will need to be raked, and the windows cleaned.
In the winter, keep the heat set at 55 degrees to make the cabin more inviting on a clod day. Keep the electricity on because lights will be needed to show the house. It is OK to shut off the water but you should take a note on the toilets to prevent their use.
In the summer set the thermostat at 80 degrees remember we want the prospective buyer to feel comfortable and to visualize living in the cabin. If they are to hot or to cold all they want to do is get back to the car and go the next cabin.
Run a dehumidifier to prevent that musty smell, particularly during the summer months' having the windows sealed and locked does not allow normal air exchange. And beware of pests such as mice, squirrels, lady bugs, ants and bats.
Q: How can I get a quick sale, particularly in a slow market?
A: One of the most important things to consider is price. You may want to reduce the price of your cabin or, at the very beginning, set it at a low price that will generate more buyer interest.
Cash is often an incentive, both for the buyer as well as the agent. You could offer the buyer a $1,000 to $2,000 towards closing costs. It is also not uncommon to offer the selling agent a $1,000 bonus with broker approval. Other common incentives: paying for the home inspection or providing the buyer with a home warranty.
Q: What other costs should I expect when selling my home?
A: Besides the costs related to making repairs and improving the overall appearance of the home, as the seller you will also need to pay the following:
With the new 2008 GAR contracts all other closing costs have been shifted over to the buyer. However, everything is negotiable and buyer's still can ask the seller to pay a specified amount towards the closing. Keep in mind everything is negotiable price, closing costs, closing date and who will pay for such things as survey's.
- A real estate commission, if you use an agency to sell.
- Advertising costs, marketing materials, and other fees if you sell the home yourself.
- Prorated costs for your share of annual expenses, such as property taxes, homeowner association fees, and fuel tank rentals.
- Most buyers expect the seller to provide a new survey or elevation certificate if needed.
FINDING THE RIGHT REAL ESTATE AGENT
Q: How do I find the right agent to market my property?
A: Select someone who is very familiar with selling North Georgia mountain properties. Then, if you are selling, say, a Mountain View cabin, choose an agent with the most expertise selling Mountain View cabins to potential buyers. Pick a top producing agent if possible and be wary of agents who are also builders or developers, they may be selling real estate part time and they would generally rather sell their own properties 1st.
Because you will want the widest possible exposure for your home, you also will want a real estate firm that works with other agencies to get your property sold. The Multiple Listing Service (MLS) used by REALTORS®, licensed members of the National Association of REALTORS®, is still the most common and effective form of cooperation used today.
Beyond these parameters, select an agent who is competent, knowledgeable, efficient, and honest. Perhaps the agent who first sold you your home would be a perfect candidate. If not, ask family, friends, and neighbors for recommendations, or choose a firm headed by an individual who is known in your community.
Q: When I interview and Agent, what questions should I ask??
A: It is a good idea to ask them about the following:
Q: What is an Exclusive Right to Sell?
- The fair market value of your home or cabin. The agents should inspect the home and prepare a written comparative market analysis. (Be careful as some agents will buy a listing by telling you the price you want to hear. Select your agent by which one is most knowledgeable and truthful then let them price the property)
- Ask them where they will market you home or cabin. Make sure they include the local Multiple Listing Service (MLS) – which gives your home maximum exposure to all local agents – and Internet marketing through a variety of Web sites is essential.
- Length of the listing agreement. A 180-day listing is reasonable for marketing your cabin or land.
- Number of listings. Find out how many listings the agent now has and how many she normally sells. Ask them about their annual sales totals for the past few years selecting a top producer can increase your chances of gaining top dollar in the shortest time.
- What commission they will charge. Remember you get what you pay for, the agent offering the lowest commission and quoting the highest sales price likely is not the best choice. Find out their sales record for the past 3 years.
A: The exclusive right to sell listing agreement gives the real estate Broker the exclusive right to sell your property during the term of the listing engagement. If a sale occurs, even if you sell the home yourself, you will still be required to pay the listing broker a commission.
It gives the broker permission to advertise your property in the Multiple Listing Service (MLS) to get the widest possible exposure for your home. Unless you request in writing that the property not be listed in the MLS, then only the broker named in the contract and his or her sales agents can market and show it.
Q: Can I terminate the listing agreement if I am unhappy with my agent?
A: Yes – However you may be required to reimburse the listing broker for damages unless the agent isn't taking the normal steps to properly market your home, such as putting your listing into the Multiple Listing Service (MLS), advertising on the Internet and in local newspapers, and posting a for-sale sign on the property.
If your home is overpriced, perhaps you need to consider reducing the price to spark buyer interest. Even the best agents will have a difficult time selling an over priced property. You may need to meet with the listing agent and his or her supervising broker to discuss the problem. If the agent is doing an awful job, you might suggest the listing be transferred to a more effective agent within the same brokerage firm.
Q: Do I need a real estate agent?
A: Most seller's hire real estate agents to list and sell their homes. Those who do not are known as FSBOs (For Sale by Owners), who attempt to market and sell their homes themselves.
Statistics show that most FSBOs eventually hire an agent because the agent will handle all the details of a successful home sale – including the contract, forms, and disclosure statements – and expose the home to the widest range of prospective buyers through the local Multiple Listing Service (MLS).
An experienced real estate agent, will likely help the seller realize a higher sales price, because they negotiate deals everyday. Most sellers try to sell the house themselves to avoid paying a commission and the buyers are looking at FSBOs with the idea finding a property they can buy below market vale due to the inexperience of the seller and by saving on the commission.
Q: Can I negotiate the commission?
A: Yes. There is no standard commission. They are not set by law and vary depending on service, customer needs, and company policy. In general, agents charge between 6 percent and 8 percent for full service.
Just remember as with most things in life “you get what you pay for” selecting the agent willing to work for the lowest commission may not be the best agent for the job.
APPRAISALS & MARKET VALUE
Q: How do you determine how fair market value?
A: The short answer: a home or cabin is ultimately worth what a buyer is willing to pay for it. Everything else is really an estimate of value. For example in a declining market, where inventory levels are very high, you have a home with a year old appraisal at a higher value than a buyer would pay given current market conditions.
In a hot seller's market where demand for housing is high but the inventory of available homes for sale is low. During this time, homes can sell above and beyond the asking price as buyers bid up the price. The fair market value, or worth, is established when “a meeting of the minds” between you and the buyer takes place.
Q: How do I determine how much my home is worth?
A: A comparative market analysis is one method. However, in rural areas it may be difficult to find good comps. I use the cost approach in addition to the CMA, in the cost approach I determine the value of the lot and the improvement upon the lot and come up with an estimate of value. Lastly market knowledge plays a big roll, mountain property is individually unique and no two are exactly the same, so experience really counts in this market.
A certified appraiser can provide an appraisal of a home. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the condition of the neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home. Keep in mind appraised value and market value can be two different numbers.
A certified appraiser who is trained to provide the estimated value of a home determines its appraised value. The appraised value is based on comparable sales, the condition of the property, and several other factors.
Market value is the price the house will bring at a given point in time, once you and the buyer establish a “meeting of the minds” on price.
Q: Do I have to disclose information about my home that I would prefer a buyer not know?
A: Yes - Disclosure is required in our GAR contracts and could protect you from a lawsuit. Today, home sellers in Georgia and Tennessee must now fill out a form disclosing material facts about their homes. Material facts are details about the home's condition or legal status, as well as the age of various components.
Sellers are required to disclose any known problems with the home or cabin they are selling to a prospective buyer. The following examples include details that would qualify as material facts that must be revealed by sellers about their homes:
- Damage from wood boring insects
- Mold or mildew in the home
- Leaks in the roof or foundation walls
- Amount of property taxes community fees paid annually
- Problems with water or septic systems
- Age of shingles and other roof components
- A buried oil tank, mine shafts or wells on the property
- Details about any boundary line disputes
- Information about a structure on the property that overlaps an adjacent property
- You need to disclose anything that might effect a buyer's decision to buy for example; Let's say you know the power company is going to install a new high voltage transmission line in the future over a portion of your property or close enough to cause concern. A buyer would have no way to know that by visual inspection, since it will happen at some future date, but if he/she did it would likely be a factor in their decision to buy or not to buy.
Q: How do I negotiate the best deal?
A: Be patient and do not let emotions, anger, pride, greed, or prejudice get in the way of negotiating the best deal. Your home obviously means a lot to you, but you have already made the decision to move on, so begin to think of your home as “the property” or “the cabin,” instead of “my home or cabin.”
When any offers come along, take them seriously. You can always counter any offer made by the buyer that comes near your asking price.
Q: How do I respond to a low-ball offer?
A: Always make a counteroffer showing that you are willing to negotiate even a small reduction shows a buyer you are willing to negotiate but they will have to come a long way to close the gap. Make sure the buyer's agent has shown the buyers comparable market values of similar homes that have recently sold in your area; and ask if the buyer was ever properly qualified. You do not have to settle for less if you are realistic about your chances of getting more.
Q: Do I have to consider contingencies made by the buyer?
A: You can reject, accept, or counter any offer that is presented to you. Most offers include contingencies, which protect the buyer in case something goes wrong.
The two most common contingencies deal with financing, which makes the sale dependent on the buyer's ability to obtain a loan commitment from a lender within a stated time period, and an inspection, which allows the buyer to have a professional inspect the property to their satisfaction.
These contingencies are quite reasonable and standard. However, think twice about a contingency that is predicated on you making expensive home repairs or the buyer selling his/her existing home before completing this sale.
Q: What is a bridge loan?
A: Bridge Loans provide a convenient means for sellers to buy new homes before selling their existing home. The high-interest Bridge Loans are used until the borrowers can secure their next stage of long-term financing. There are two types of Bridge Loans.
The first option is to simply use the loan to pay off the mortgage on the borrower's existing home and make a down payment on the new home. That way, you only need to worry about paying the mortgage on the new home and will have the funds to repay the loan when the old home sells.
The other option is to borrow against the equity of the current home to use for the down payment—a far more complex scenario that results in a complex mathematical equation. And remember, while you're paying off a bridge loan, you are also still responsible for the mortgage payments on the current and new home.
Q: What is seller financing?
A: A "creative financing" technique in which an owner sells property to a buyer where the seller is the lender rather than a bank or savings and loan. This technique is often used if the market interest rates are too high for the buyer and the seller does not require principal from the sale.
Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller's favor.
The seller may take back a second note or finance the entire purchase if he owns the home free and clear.
The buyer makes a sizeable down payment and agrees to pay the seller directly every month.
Q: What are the benefits of seller financing?
A: Seller financing is a viable option when the seller does not immediately need the entire cash equity they have accumulated in the home.
In return for providing financial assistance to the buyer, the seller receives tax benefits, attracts a larger pool of potential buyers, generally completes the sale sooner, and gets good interest earnings.
As for the buyer, seller financing offers less rigid qualification requirements and cost savings by eliminating nearly all loan fees.
Fear of default often makes many sellers reluctant to take back a second note or finance the entire purchase. A thorough credit check should help to dispel many of these fears, although the mortgage also allows the seller to foreclose on the property in case of default.
A seller may also require the buyer to carry hazard insurance on the property and include a due-on-sale clause, a provision in the mortgage note that allows the seller to demand full repayment if the borrower sells the property. Other financing, disclosure and repayment-term requirements also will need to be met.
It is a good idea to consult an attorney when putting together this kind of transaction.
Q: How does the seller determine what rate to provide?
A: The interest rate is negotiable, as are the other terms in a seller-financed transaction. To get an idea about what to charge, sellers can check with a lender or mortgage broker to determine current rates on mortgage loans, including second mortgages.
Because sellers, unlike conventional lenders, do not charge loan fees or points, seller-financed costs are generally less than those associated with conventional home loans. Interest rates are generally influenced by current Treasury bill and certificate of deposit rates.
Understandably, most sellers are not open to making a loan for a lower return than could be invested at a more profitable rate of return elsewhere. So the interest rates they charge may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.
Q: What is a lease option?
A: It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.
Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.
A lease option also may be a way for the seller to move property in a slow market. Seller advantages include earning above-market rent, retaining all the property income tax deductions during the lease-option period, and attracting tenants who will care for the property as though they owed it.
Q: How does a lease option work?
A: A landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place – whether, say, six months, or a year or two down the road.
A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect.
Before you opt to do a lease option, find out as much as possible about how they work. Talk to real estate agents, read published materials, and, in the end, have an attorney review any paperwork before you and the tenant sign on the dotted line.
Q: How do capital gains work when you sell your home?
A: If you sell your primary residence, you may be able to exclude up to $250,000 of gain – $500,000 for married couples – from your federal tax return. To claim the exclusion, the IRS says your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale.
You also must not have excluded gain on another home sold during the two years before the current sale. However, special rules apply for members of the armed, uniformed and foreign services and their families in calculating the 5-year period.
If you do not meet the ownership and use tests, you may use a reduced maximum exclusion amount. But only if you sold your home due to health, a change in place of employment, or unforeseen circumstances.
If you can exclude all the gain from the sale of your home, you do not report it on your federal tax return. If you cannot exclude all the gain, or you choose not to, you must use Schedule D of Form 1040, Capital Gains or Losses, to report the total gain and claim the exclusion you qualify for.
Q: Can I deduct a loss on the sale of my home?
A: No. A loss from the sale of personal–use property, such as a home or car, is not deductible. They are considered nondeductible personal losses, and you cannot reduce your tax bill by deducting them the way you would deduct stock and investment losses on your tax returns.
Q: Are home selling costs deductible?
A: If you sell your home and realize a taxable gain even after the exclusion, you can reduce your gain with selling costs.
Your gain is defined as your home's selling price, minus deductible closing costs, minus your basis. The basis is the original purchase price of the home, plus improvements, less any depreciation.
Real estate broker's commissions, title insurance, legal fees, administrative costs, and inspection fees are all considered to be selling costs.
Q: Can I deduct improvements made to my home?
A: Yes, but only after you have sold it because improvements add to the cost basis of your home. Remember your gain is defined as your home's selling price, minus deductible closing costs, minus your basis. The basis is the original purchase price of the home, plus improvements, less any depreciation.
The IRS defines improvements as those items that “add to the value of your home, prolong its useful life, or adapt it to new uses” – such as putting in new plumbing or wiring or adding another bathroom.
Q: What about repairs made to get the home ready for sale?
A: If you realize a taxable gain after you sell your home, even with an exclusion, you can reduce your gain with selling costs. These selling costs may include items that are otherwise considered to be repairs – such as painting, wallpapering, even planting flowers – if you complete them within 90 days of your home sale and provided they were completed to make the home more saleable.
Q: Are seller-paid points deductible?
A: For the buyer, yes, but not the seller – even though the seller pays them. Since January 1, 1991, homebuyers have been able to deduct points paid by the seller whereas, previously, they could only deduct the actual points they paid on the home loans themselves.
Q - What is a tax-deferred exchange?
If the taxpayer sells an investment property, the taxpayer pays tax on the recognized gain. However, if the taxpayer completes a 1031 exchange on that property, it will allow the taxpayer to exchange property on a tax-deferred basis within a specific statutory mandated time period. In an exchange, the property held must be a property held for investment or used in a trade or business. There will be no gain or loss recognized in an exchange. The taxpayer must trade even or up in value and trade even or up in equity.
Q - What are the pros and cons of exchanging v. selling?
Q - What are the different types of exchanges?
- Advantages: 1031 exchange is highly advantageous to the taxpayer as it enables the taxpayers to sell income, investment or business property and replace with like kind replacement property without having to pay the capital gain taxes on the transaction. Section 1031 of IRC is the basis of tax-deferred exchanges. The “safe-harbor” Regulations was issued by the IRS in 1991, which established approved procedures for 1031 exchanges. With the issue of this regulations tax deferred changes became easier, affordable and safer than before. Prior to this regulation, such exchanges were subject to challenge under examination on a variety of issues..
- Disadvantages: The main disadvantage of section 1031 exchange lies in the fact that it offers a reduced basis for depreciation in the replacement property. The tax on the replacement property is calculated on the basis of the purchase price of the replacement property minus the gain, which was deferred on the sale of the relinquished property as a result of the exchange. Thus the taxpayer needs to pay tax also on the deferred gain if he cashes out of his investment
Q - What are the basic requirements for a valid exchange?
- Simultaneous Exchange: The exchange of the relinquished property for the replacement property occurs at the same time.
- Delayed Exchange: Also known as non-simultaneous, deferred and Starker Exchange, a delayed exchange is when the Replacement Property is received after the transfer of the Relinquished Property. All potential Replacement Properties must be identified within 45 days from the transfer of the Relinquished Property and the Exchanger must receive all Replacement Properties within 180 days or the due date of the Exchanger's tax return, whichever comes first.Build-to-Suit (Improvement or Construction) Exchange: This technique allows the taxpayer to build on, or make improvements to, the replacement property, using the exchange proceeds.
- Reverse Exchange: A reverse exchange allows you to exchange property in reverse order. It is designed to “park” replacement property or relinquished property with an accommodating party until the taxpayer arranges for transfer of relinquished property to a buyer in a simultaneous or deferred exchange.
Q - What are the general guidelines to follow in order for a taxpayer to defer all the taxable gain?
- Qualifying Property - Certain types of property are specifically excluded from Section 1031 treatment: property held primarily for sale; inventories; stocks, bonds or notes; other securities or evidences of indebtedness; interests in a partnership; certificates of trusts or beneficial interest; and chooses in action. In general, if property is not specifically excluded, it can qualify for tax-deferred treatment.
- Proper Purpose - Both the relinquished property and replacement property must be held for productive use in a trade or business or for investment. Property acquired for immediate resale will not qualify. The taxpayer's personal residence will not qualify.
- Like Kind - Any real property held for investment can be exchanged for other investment property. It is the replacement property in a 1031 exchange that is similar in classification or characteristics to the relinquished property. Like kind property cannot be a primary residence or a second home and must be for business or investment purposes.
- Exchange Requirement - The relinquished property must be exchanged for other property, rather than sold for cash and using the proceeds to buy the replacement property. Most deferred exchanges are facilitated by Qualified Intermediaries, who assist the taxpayer in meeting the requirements of Section 1031.
Q - When can I take money out of the exchange account?
- The value of the replacement property must be equal to or greater than the value of the relinquished property.
- The equity in the replacement property must be equal to or greater than the equity in the relinquished property.
- The debt on the replacement property must be equal to or greater than the debt on the relinquished property.
- All of the net proceeds from the sale of the relinquished property must be used to acquire the replacement property.
Once the money is deposited into an exchange account, funds can only be withdrawn in accordance with the Regulations. The taxpayer cannot receive any money until the exchange is complete. If you want to receive a portion of the proceeds in cash, this must be done before the funds are deposited with the Qualified Intermediary.
Q - Can the replacement property eventually be converted to the taxpayer's primary residence or a vacation home?
Yes, but the holding requirements of Section 1031 must be met prior to changing the primary use of the property. The IRS has no specific regulations on holding periods. However, many experts feel that to be on the safe side, the taxpayer should hold the replacement property for a proper use for a period of at least one year.
If the owner later on wants to take advantage of the home owner's exemption (up to $250,000 or $500,000 for a couple), there is now a five year holding period requirement.
Q - What is a Qualified Intermediary (QI)?
A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.
Q - Why is a Qualified Intermediary needed?
- Acting under a written agreement with the taxpayer, the QI acquires the relinquished property and transfers it to the buyer.
- The QI holds the sales proceeds, to prevent the taxpayer from having actual or constructive receipt of the funds.
- Finally, the QI acquires the replacement property and transfers it to the taxpayer to complete the exchange within the appropriate time limits.
The exchange ends the moment the taxpayer has actual or constructive receipt (i.e. direct or indirect use or control) of the proceeds from the sale of the relinquished property. The use of a QI is a safe harbor established by the Treasury Regulations. If the taxpayer meets the requirements of this safe harbor, the IRS will not consider the taxpayer to be in receipt of the funds. The sale proceeds go directly to the QI, who holds them until they are needed to acquire the replacement property. The QI then delivers the funds directly to the closing agent.
Q - Can the taxpayer just sell the relinquished property and put the money in a separate bank account, only to be used for the purchase of the replacement property?
No-The IRS regulations are very clear. The taxpayer may not receive the proceeds or take constructive receipt of the funds in any way, without disqualifying the exchange.
Q - If the taxpayer has already signed a contract to sell the relinquished property, is it too late to start a tax-deferred exchange?
No, as long as the taxpayer has not transferred title, or the benefits and burdens of the relinquished property, she can still set up a tax-deferred Exchange. Once the closing occurs, it is too late to take advantage of a Section 1031 tax-deferred exchange (even if the taxpayer has not cashed the proceeds check).
Q - Does the Qualified Intermediary actually take title to the properties?
No, not in most situations. The IRS regulations allow the properties to be deeded directly between the parties, just as in a normal sale transaction. The taxpayer's interests in the property purchase and sale contracts are assigned to the QI. The QI then instructs the property owner to deed the property directly to the appropriate party (for the relinquished property, its buyer; for the replacement property, taxpayer).
Q - What are the time restrictions on completing a Section 1031 exchange?
A taxpayer has 45 days after the date that the relinquished property is transferred to properly identify potential replacement properties. The exchange must be completed by the date that is 180 days after the transfer of the relinquished property, or the due date of the taxpayer's federal tax return for the year in which the relinquished property was transferred, whichever is earlier. Thus, for a calendar year taxpayer, the exchange period may be cut short for any exchange that begins after October 17th. However, the taxpayer can get the full 180 days, by obtaining an extension of the due date for filing the tax return.
Q - What if the taxpayer cannot identify any replacement property within 45 days, or close on a replacement property before the end of the exchange period?
Unfortunately, there are no extensions available. If the taxpayer does not meet the time limits, the exchange will fail and the taxpayer will have to pay any taxes arising from the sale of the relinquished property, unless the IRS has expressly granted extensions in specified disaster area(s).
Q - Is there any limit to the number of properties that can be identified?
There are three rules that limit the number of properties that can be identified. The taxpayer must meet the requirements of at least one of these rules:
Q - What are the requirements to properly identify replacement property?
- 3-Property Rule: The taxpayer may identify up to 3 potential replacement properties, without regard to their value; or
- 200% Rule: Any number of properties may be identified, but their total value cannot exceed twice the value of the relinquished property, or
- 95% Rule: The taxpayer may identify as many properties as he wants, but before the end of the exchange period the taxpayer must acquire replacement properties with an aggregate fair market value equal to at least 95% of the aggregate fair market value of all the identified properties.
Potential replacement property must be identified in a writing, signed by the taxpayer, and delivered to a party to the exchange who is not considered a "disqualified person". A "disqualified" person is any one who has a relationship with the taxpayer that is so close that the person is presumed to be under the control of the taxpayer. Examples include blood relatives, and any person who is or has been the taxpayer's attorney, accountant, investment banker or real estate agent within the two years prior to the closing of the relinquished property. The identification cannot be made orally.
Q - Are Section 1031 Exchanges limited only to real estate?
No. Any property that is held for productive use in a trade or business, or for investment, may qualify for tax-deferred treatment under Section 1031. In fact, many exchanges are "multi-asset" exchanges, involving both real property and personal property.
Q - What is a "multi-asset" exchange?
A multi-asset exchange involves both real and personal property. For example, the sale of a hotel will typically include the underlying land and buildings, as well as the furnishings and equipment. If the taxpayer wants to exchange the hotel for a similar property, he would exchange the land and buildings as one part of the exchange. The furnishings and equipment would be separated into groups of like-kind or like-class property, with the groups of relinquished property being exchanged for groups of replacement property.
Although the definition of like-kind is much narrower for personal property and business equipment, careful planning will allow the taxpayer to enjoy the benefits of an exchange for the entire relinquished property, not just for the real estate portion.
Q - What is a reverse exchange?
A reverse exchange, sometimes called a "parking arrangement," occurs when a taxpayer acquires a Replacement Property before disposing of their Relinquished Property. A "pure" reverse exchange, where the taxpayer owns both the Relinquished and Replacement properties at the same time, is not allowed. The actual acquisition of the "parked" property is done by an Exchange Accommodation Titleholder (EAT) or parking entity.
Q - Is a reverse exchange permissible?
Yes. Although the Treasury Regulations still do not apply to reverse exchanges, the IRS issued "safe harbor" guidelines for reverse exchanges on September 15th, 2000, in Revenue Procedure 2000-37. Compliance with the safe harbor creates certain presumptions that will enable the transaction to qualify for Section 1031 tax-deferred exchange treatment.
Q - How does a reverse exchange work?
In a typical reverse (or "parking") exchange, the "Exchange Accommodation Titleholder" (EAT) takes title to ("parks") the replacement property and holds it until the taxpayer is able to sell the relinquished property. The taxpayer then exchanges with the EAT, who now owns the replacement property. An exchange structured within the safe harbor of Rev. Proc. 2000-37 cannot have a parking period that goes beyond 180 days.
Q - What happens if the exchange cannot be completed within 180 days?
If the reverse exchange period exceeds 180 days, then the exchange is outside the safe harbor of Rev. Proc. 2000-37. With careful planning, it is possible to structure a reverse exchange that will go beyond 180 days, but the taxpayer will lose the presumptions that accompany compliance with the safe harbor.
Q - Can the proceeds from the relinquished property be used to make improvements to the replacement property?
Yes. This is known as a Build-to-Suit or Construction or Improvement Exchange. It is similar in concept to a reverse exchange. The taxpayer is not permitted to build on property she already owns. Therefore, an unrelated party or parking entity must take title to the replacement property, make the improvements, and convey title to the taxpayer before the end of the exchange period.
Q- What is the difference between "realized" gain and "recognized" gain?
Realized gain is the increase in the taxpayer's economic position as a result of the exchange. In a sale, tax is paid on the realized gain. Recognized gain is the taxable gain. Recognized gain is the lesser of realized gain or the net boot received.
Q - What is Boot?
Boot is any property received by the taxpayer in the exchange which is not like-kind to the relinquished property. Boot is characterized as either "cash" boot or "mortgage" boot. Realized Gain is recognized to the extent of net boot received.
Q - What is Mortgage Boot?
Mortgage Boot consists of liabilities assumed or given up by the taxpayer. The taxpayer pays mortgage boot when he assumes or places debt on the replacement property. The taxpayer receives mortgage boot when he is relieved of debt on the replacement property. If the taxpayer does not acquire debt that is equal to or greater than the debt that was paid off, they are considered to be relieved of debt. The debt relief portion is taxable, unless offset when netted against other boot in the transaction.
Q - What is Cash Boot?
Cash Boot is any boot received by the taxpayer, other than mortgage boot. Cash boot may be in the form of money or other property.
Q - What are the boot "netting" rules?
Q - I bought the property as a single person and I would like to acquire the replacement property together with my spouse?
- Cash boot paid offsets cash boot received
- Cash boot paid offsets mortgage boot received (debt relief)
- Mortgage boot paid (debt assumed) offsets mortgage boot received
- Mortgage boot paid does not offset cash boot received
The most conservative way is to stay consistent and complete the exchange the same way it was started and to add the spouse after the completion of the exchange. An exception can be made if there is a lender requirement that the spouse has to be added in order to qualify for a loan. If an exchange is planned well ahead of time, another solution would be to add the spouse to the title of the currently held property. Timing should be discussed with the CPA.
Q - I closed escrow on my first replacement property within the 45 day identification period. Can I now identify three more properties within my 45 day identification period?
If you are using the three property rule, the completed acquisition counts as one and you may identify only up to two additional properties.
Q - How do I identify two different properties (or percentages of ownership through a TIC) covered by ONE purchase contract?
If the properties could be sold separately at a later date, they should be identified as two properties.
Tips on Avoiding Foreclosure
What is the most common type of foreclosure in Georgia?
Non-Judicial Foreclosure - The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee.
Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".
What is a Judicial Foreclosure?
Judicial Foreclosure - The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
A foreclosure notice must be mailed by certified mail, return receipt requested to the borrower no later than 15 days prior to the date of the foreclosure sale. The time period begins the day the letter is postmarked. The notice must be mailed to the address given to the lender by written notice from the borrower. No waiver or release of the rights to notice is valid if it was signed at the same time as the original documents.
The notice must be published in a newspaper of general circulation in the county where the sale will be held once a week for four (4) weeks proceeding the date of the foreclosure sale.
The sale must be made by public auction on the first Tuesday of the month between 10:00 am and 4:00 p.m. at the courthouse. Lenders may seek a deficiency judgment in Georgia.
Tips for avoiding foreclosure if you are unable to make your mortgage payment
- Don't ignore the problem - The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
- Contact your lender as soon as you realize that you have a problem - Lenders do not want your house. They have options to help borrowers through difficult financial times.
- Open and respond to all mail from your lender - The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
- Know your mortgage rights - Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.
- Understand foreclosure prevention options - Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet at www.fha.gov/foreclosure/index.cfm.
- Contact a HUD-approved housing counselor - The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.
- Prioritize your spending - After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
- Use your assets - Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
- Avoid foreclosure prevention companies - You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.
- Don't lose your house to foreclosure recovery scams - If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.
For all the homeowners who can no longer make their mortgage payment up to now the only option was, well, letting the banks foreclose. That's not a good option since a foreclosure sticks on your credit record for at least 10 years. But some banks now allow something called a “short sale.”
If your bank agrees to a short sale, you then hire an real estate agent to find a buyer for the house, you sell the house for a loss, and with the bank's blessing, they agree to eat the loss (although they could still demand the homeowner make some kind of payment or share the loss).
You will probably need to scale back your own spending. Putting an expensive vacation on your credit card will make a bank less inclined to do you any favors and take a loss on the sale of your home. And be prepared that if your bank does absorb the loss, the IRS might treat that as taxable income and you'll have to come up with the cash to cover the taxes.
Of course, the better option is to find some way to stay in the house—by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. Apparently, more and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to foreclose on homes, especially in a declining market, so you shouldn't underestimate the willingness of a bank to make concessions.